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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
 
 
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2016
or
 
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: 001-37867
 
Dell Technologies Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
80-0890963
(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)

1-800-289-3355 
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report.)

Indicate by check mark whether the registrant (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 þ No 

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 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No 

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 
 
Accelerated filer 
Non-accelerated filer þ  (Do not check if a smaller reporting company)
 
Smaller reporting company 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No þ

As of December 5, 2016, there were 784,615,686 shares of the registrant's common stock outstanding, consisting of 216,122,097 outstanding shares of Class V Common Stock, 409,905,538 outstanding shares of Class A Common Stock, 136,986,858 outstanding shares of Class B Common Stock, and 21,601,193 outstanding shares of Class C Common Stock.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “may,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “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 described in this report, in the sections titled “Risk Factors - Risk Factors Relating to the Combined Company” and “Risk Factors — Risk Factors Relating to Denali, Dell and EMC — Risk Factors Relating to Denali and Dell” of the proxy statement/prospectus dated June 6, 2016 forming part of our registration statement on Form S-4 (Registration No. 333-208524), and in our periodic and current reports filed with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement after the date as of which such statement was made, whether to reflect changes in circumstances or our expectations, the occurrence of unanticipated events, or otherwise.



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TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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PART I — FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS
DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions; unaudited)
 
October 28, 2016
 
January 29, 2016
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
8,822

 
$
6,322

Short-term investments
1,857

 

Accounts receivable, net
8,830

 
4,887

Short-term financing receivables, net
3,049

 
2,915

Inventories, net
3,504

 
1,619

Other current assets
4,441

 
3,497

Current assets held for sale
5,904

 
4,333

Total current assets
36,407

 
23,573

Property, plant, and equipment, net
5,805

 
1,649

Long-term investments
4,285

 
114

Long-term financing receivables, net
2,390

 
2,177

Goodwill
38,840

 
8,406

Intangible assets, net
36,571

 
8,577

Other non-current assets
1,334

 
626

Total assets
$
125,632

 
$
45,122

LIABILITIES, REDEEMABLE SHARES, AND STOCKHOLDERS’ EQUITY
Current liabilities:
 

 
 

Short-term debt
$
8,388

 
$
2,981

Accounts payable
14,644

 
12,881

Accrued and other
7,445

 
4,217

Short-term deferred revenue
9,215

 
3,632

Current liabilities held for sale
1,677

 
1,599

Total current liabilities
41,369

 
25,310

Long-term debt (Note 8)
47,284

 
10,650

Long-term deferred revenue
7,907

 
4,089

Other non-current liabilities
9,066

 
3,501

Total liabilities
105,626

 
43,550

Commitments and contingencies (Note 12)


 


Redeemable shares
187

 
106

Stockholders' equity:
 
 
 
Common stock and capital in excess of $.01 par value (Note 17)
19,925

 
5,727

Treasury stock at cost
(175
)
 

Accumulated deficit
(5,366
)
 
(3,937
)
Accumulated other comprehensive loss
(504
)
 
(324
)
Total Dell Technologies Inc. stockholders’ equity
13,880

 
1,466

Non-controlling interests
5,939

 

Total stockholders' equity
19,819

 
1,466

Total liabilities, redeemable shares, and stockholders' equity
$
125,632

 
$
45,122

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions, except per share amounts; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
Net revenue:
 
 
 

 
 

 
 
Products
$
12,366

 
$
10,638

 
$
33,510

 
$
32,100

Services
3,881

 
2,036

 
8,058

 
6,132

Total net revenue
16,247

 
12,674

 
41,568

 
38,232

Cost of net revenue:
 
 
 
 
 
 
 
Products
10,562

 
9,328

 
28,856

 
28,355

Services
1,786

 
1,214

 
4,284

 
3,744

Total cost of net revenue
12,348

 
10,542

 
33,140

 
32,099

Gross margin
3,899

 
2,132

 
8,428

 
6,133

Operating expenses:
 
 
 
 
 
 
 
Selling, general, and administrative
4,556

 
1,943

 
8,647

 
5,849

Research and development
855

 
267

 
1,365

 
772

Total operating expenses
5,411

 
2,210

 
10,012

 
6,621

Operating loss
(1,512
)
 
(78
)
 
(1,584
)
 
(488
)
Interest and other, net
(794
)
 
(203
)
 
(1,362
)
 
(600
)
Loss from continuing operations before income taxes
(2,306
)
 
(281
)
 
(2,946
)
 
(1,088
)
Income tax benefit
(669
)
 
(17
)
 
(623
)
 
(88
)
Net loss from continuing operations
(1,637
)
 
(264
)
 
(2,323
)
 
(1,000
)
Income (loss) from discontinued operations, net of income taxes
(438
)
 
84

 
875

 
51

Net loss
(2,075
)
 
(180
)
 
(1,448
)
 
(949
)
Less: Net loss attributable to non-controlling interests
(11
)
 

 
(12
)
 

Net loss attributable to Dell Technologies Inc.
$
(2,064
)
 
$
(180
)
 
$
(1,436
)
 
$
(949
)
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Dell Technologies Inc. - basic:
Continuing operations - Class V Common Stock - basic
$
0.79

 
$

 
$
0.79

 
$

Continuing operations - DHI Group - basic
$
(3.62
)
 
$
(0.65
)
 
$
(5.70
)
 
$
(2.47
)
Discontinued operations - DHI Group - basic
$
(0.88
)
 
$
0.21

 
$
2.01

 
$
0.13

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Dell Technologies Inc. - diluted:
Continuing operations - Class V Common Stock - diluted
$
0.78

 
$

 
$
0.78

 
$

Continuing operations - DHI Group - diluted
$
(3.63
)
 
$
(0.65
)
 
$
(5.70
)
 
$
(2.47
)
Discontinued operations - DHI Group - diluted
$
(0.88
)
 
$
0.21

 
$
2.01

 
$
0.13

 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
Net loss
$
(2,075
)
 
$
(180
)
 
$
(1,448
)
 
$
(949
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(256
)
 
(21
)
 
(214
)
 
(68
)
Investments:
 
 
 
 
 
 
 
Change in unrealized losses
(5
)
 

 
(5
)
 

Reclassification adjustment for net (gains) losses realized in net loss

 

 

 

Net change in market value of investments
(5
)
 

 
(5
)
 

Cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gains (losses)
82

 
12

 
(25
)
 
72

Reclassification adjustment for net (gains) losses included in net loss
(17
)
 
(39
)
 
64

 
(311
)
Net change in cash flow hedges
65

 
(27
)
 
39

 
(239
)
 
 
 
 
 
 
 
 
Total other comprehensive loss, net of tax benefit (expense) of $(3) and $4, respectively and $2 and $12, respectively
(196
)
 
(48
)
 
(180
)
 
(307
)
Comprehensive loss, net of tax
(2,271
)
 
(228
)
 
(1,628
)
 
(1,256
)
Less: Net loss attributable to non-controlling interests
(11
)
 

 
(12
)
 

Less: Other comprehensive income (loss) attributable to non-controlling interests

 

 

 

Comprehensive loss attributable to Dell Technologies Inc.
$
(2,260
)
 
$
(228
)
 
$
(1,616
)
 
$
(1,256
)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.




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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited; continued on next page)
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
Cash flows from operating activities:
 
Net loss
$
(1,448
)
 
$
(949
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,897

 
2,156

Stock-based compensation expense
183

 
53

Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies
52

 
84

Deferred income taxes
(2,036
)
 
(403
)
Provision for doubtful accounts — including financing receivables
80

 
115

Other
170

 
75

Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(1,156
)
 
(75
)
Financing receivables
(253
)
 
(330
)
Inventories
152

 
159

Other assets
(65
)
 
51

Accounts payable
968

 
(269
)
Deferred revenue
1,019

 
666

Accrued and other liabilities
983

 
(142
)
Change in cash from operating activities
1,546

 
1,191

Cash flows from investing activities:
 
 
 
Investments:
 
 
 

Purchases
(511
)
 
(26
)
Maturities and sales
561

 
1

Capital expenditures
(417
)
 
(340
)
Proceeds from sale of facilities, land, and other assets
24

 
88

Capitalized software development costs
(85
)
 

Collections on purchased financing receivables
31

 
71

Acquisition of businesses, net of cash acquired
(37,614
)
 

Divestitures of businesses, net of cash transferred

 
8

Other
(48
)
 

Change in cash from investing activities
(38,059
)
 
(198
)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.










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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued; in millions; unaudited)
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
Cash flows from financing activities:
 
 
 
Payment of dissenting shares obligation
(446
)
 

Proceeds from the issuance of DHI Group Common Stock
4,404

 

Proceeds from the issuance of common stock of subsidiaries
1

 

Repurchases of DHI Group Common Stock
(10
)
 

Repurchases of Class V Common Stock
(132
)
 

Repurchases of common stock of subsidiaries
(611
)
 

Contributions from non-controlling interests, net
100

 

Issuance of common stock under employee plans

 
2

Payments for debt issuance costs
(849
)
 
(10
)
Proceeds from debt
45,986

 
4,893

Repayments of debt
(9,638
)
 
(5,208
)
Other
5

 
2

Change in cash from financing activities
38,810

 
(321
)
Effect of exchange rate changes on cash and cash equivalents
31

 
(88
)
Change in cash and cash equivalents
2,328

 
584

Cash and cash equivalents at beginning of the period, including amounts held for sale
6,576

 
5,398

Cash and cash equivalents at end of the period
$
8,904

 
$
5,982

Less: Cash included in current assets held for sale
82

 
328

Cash and cash equivalents from continuing operations
$
8,822

 
$
5,654


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions; unaudited; continued on next page)

 
Common Stock and Capital in Excess of Par Value
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
Issued Shares
 
Amount
 
Shares
 
Amount
 
Retained Earnings/ (Accumulated Deficit)
 
Accumulated Other Comprehensive Income/(Loss)
 
Dell Technologies Stockholders' Equity
 
Non-Controlling Interest
 
Total Stockholders' Equity
Balances as of
January 29, 2016
405

 
$
5,727

 

 
$

 
$
(3,937
)
 
$
(324
)
 
$
1,466

 
$

 
$
1,466

Net loss

 

 

 

 
(1,436
)
 

 
(1,436
)
 
(12
)
 
(1,448
)
Foreign currency translation adjustments

 

 

 

 

 
(214
)
 
(214
)
 

 
(214
)
Investments, net change

 

 

 

 

 
(5
)
 
(5
)
 

 
(5
)
Cash flow hedges, net change

 

 

 

 

 
39

 
39

 

 
39

Non-controlling interests assumed

 

 

 

 

 

 

 
6,097

 
6,097

Issuance of common stock
386

 
14,468

 

 

 

 

 
14,468

 

 
14,468

Stock-based compensation expense

 
183

 

 

 

 

 
183

 

 
183

Tax benefit from share-based compensation

 
2

 

 

 

 

 
2

 

 
2

Treasury stock repurchases

 

 
4

 
(175
)
 

 

 
(175
)
 

 
(175
)
Redeemable shares

 
(81
)
 

 

 

 

 
(81
)
 

 
(81
)
Impact from equity transactions of non-controlling interest

 
(361
)
 

 

 

 

 
(361
)
 
(146
)
 
(507
)
Other

 
(13
)
 

 

 
7

 

 
(6
)
 

 
(6
)
Balances as of
October 28, 2016
791

 
$
19,925

 
4

 
$
(175
)
 
$
(5,366
)
 
$
(504
)
 
$
13,880

 
$
5,939

 
$
19,819


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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DELL TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(continued; in millions; unaudited)

 
Common Stock and Capital in Excess of Par Value
 
 
 
 
 
 
 
Issued Shares
 
Amount
 
Retained Earnings/ (Accumulated Deficit)
 
Accumulated Other Comprehensive Income/(Loss)
 
Total Stockholders' Equity
Balances as of January 30, 2015
405

 
$
5,708

 
$
(2,833
)
 
$
29

 
$
2,904

Net loss

 

 
(949
)
 

 
(949
)
Foreign currency translation adjustments

 

 

 
(68
)
 
(68
)
Cash flow hedges, net change

 

 

 
(239
)
 
(239
)
Issuance of common stock

 

 

 

 

Stock-based compensation expense

 
53

 

 

 
53

Revaluation of redeemable shares

 
(12
)
 

 

 
(12
)
Balances as of October 30, 2015
405

 
$
5,749

 
$
(3,782
)
 
$
(278
)
 
$
1,689


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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

NOTE 1 — EMC MERGER TRANSACTION, OTHER TRANSACTIONS AND BASIS OF PRESENTATION

EMC Merger Transaction — On September 7, 2016, EMC Corporation, a Massachusetts corporation (“EMC”), became a wholly-owned subsidiary of Dell Technologies Inc. ("the Company") as a result of the merger of Universal Acquisition Co., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), with and into EMC, with EMC surviving as a wholly-owned subsidiary of the Company (the “EMC merger transaction”). The EMC merger transaction was effected pursuant to the Agreement and Plan of Merger, dated as of October 12, 2015, by and among the Company, Dell Inc., a Delaware corporation (“Dell”), Merger Sub, and EMC, as amended by the First Amendment to Agreement and Plan of Merger, dated as of May 16, 2016, by and among the Company, Dell, Merger Sub, and EMC. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information on the EMC merger transaction.

Divestitures — On March 27, 2016, Dell entered into a definitive agreement with NTT Data International L.L.C. to divest substantially all of Dell Services for cash consideration of approximately $3.0 billion. On June 19, 2016, Dell entered into a definitive agreement with Francisco Partners and Elliot Management Corporation to divest substantially all of Dell Software Group ("DSG") for cash consideration of approximately $2.4 billion. On September 12, 2016, EMC entered into a definitive agreement with OpenText Corporation to divest the Dell EMC Enterprise Content Division ("ECD") for cash consideration of approximately $1.6 billion. In accordance with applicable accounting guidance, the results of Dell Services, DSG, and ECD are presented as discontinued operations in the Condensed Consolidated Statements of Income (Loss) and, as such, have been excluded from both continuing operations and segment results for all periods presented. Further, the Company has reclassified the related assets and liabilities as held for sale in the accompanying Condensed Consolidated Statements of Financial Position. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

SecureWorks Initial Public Offering — On April 27, 2016, SecureWorks Corp. (“SecureWorks”) completed a registered underwritten initial public offering ("IPO") of its Class A common stock. As of October 28, 2016, the Company held approximately 87.5% of the outstanding equity interest in SecureWorks. The results of the SecureWorks operations are included in other businesses. See Note 15 and Note 20 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information.

Going-Private Transaction On October 29, 2013, Dell was acquired by Denali Holding Inc. (which changed its name to Dell Technologies Inc. on August 25, 2016) in a merger transaction pursuant to an agreement and plan of merger, dated as of February 5, 2013, as amended. Dell Technologies is a Delaware corporation owned by Michael S. Dell and a separate property trust for the benefit of Mr. Dell’s wife (the "MD Stockholders"), investment funds affiliated with Silver Lake Partners (the "SLP Stockholders"), investment funds affiliated with MSD Partners, L.P. (the "MSDC Stockholders"), members of Dell’s management, and other investors. Mr. Dell serves as Chairman and Chief Executive Officer of Dell Technologies and Dell.

Basis of Presentation — The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Dell Technologies Inc. (individually and together with its consolidated subsidiaries, "the Company" or "Dell Technologies") as of October 28, 2016 and January 29, 2016, the results of its operations and corresponding comprehensive income (loss) for the three and nine months ended October 28, 2016 and October 30, 2015, and its cash flows for the nine months ended October 28, 2016 and October 30, 2015. The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and accompanying Notes for the fiscal year ended January 29, 2016 ("Fiscal 2016") included in the proxy statement/prospectus dated June 6, 2016 forming part of the Company’s registration statement on Form S-4 (Registration No. 333 208524).

As a result of the EMC merger transaction completed on September 7, 2016, the Company's results for the fiscal periods reflected in the accompanying Unaudited Condensed Consolidated Financial Statements are not directly comparable. The results of the businesses acquired in the EMC merger transaction (the "acquired businesses") are included in the consolidated results of Dell Technologies for the three and nine months ended October 28, 2016, and represent the results of the acquired businesses from September 7, 2016, the date of the EMC merger transaction, through October 28, 2016, the end of the third


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

fiscal quarter of Dell Technologies. The results of the acquired businesses will be reported on the basis of Dell Technologies' fiscal year end to align with the fiscal periods for which Dell Technologies reports its results.

The standalone results of VMware, Inc. ("VMware") will continue to be publicly reported on a calendar year end basis through the end of December 31, 2016, after which VMware will effect a change in its year end, and will be publicly reported on the basis of Dell Technologies' fiscal year end beginning February 4, 2017, to align with the fiscal periods for which Dell Technologies reports its results.

The Dell Technologies balance sheet reflects the full consolidation of EMC's assets and liabilities as a result of the close of the EMC merger transaction on September 7, 2016. The Company’s purchase accounting remains preliminary as contemplated by GAAP and, as a result, there may be upon further review future changes to the value and allocation of the acquired assets, liabilities assumed, associated amortization expense, and goodwill. These changes may be material.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the Company's Condensed Consolidated Financial Statements and the accompanying Notes. Actual results could differ materially from those estimates. The results of operations, comprehensive income (loss), and cash flows for the three and nine months ended October 28, 2016 and October 30, 2015 are not necessarily indicative of the results to be expected for the full fiscal year or for any other fiscal period.

The Company's fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. The fiscal year ending February 3, 2017 ("Fiscal 2017") will be a 53-week period.





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

NOTE 2 — INTERIM UPDATE TO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following interim update to the Company's significant accounting policies reflects the changes as a result of the EMC merger transaction.

Principles of Consolidation — These consolidated financial statements include the accounts of Dell Technologies and its wholly-owned subsidiaries, as well as the accounts of SecureWorks, VMware, and Pivotal Software Inc. ("Pivotal"), companies which are majority-owned by Dell Technologies. All intercompany transactions have been eliminated.

On April 27, 2016, SecureWorks completed a registered underwritten IPO of its Class A common stock. As of October 28, 2016, Dell Technologies held approximately 87.5% of the outstanding equity interest in SecureWorks. Since the date of the IPO, the financial results of SecureWorks remain consolidated with those of Dell Technologies as Dell Technologies is the controlling stockholder of SecureWorks. The portion of the results of operations of SecureWorks allocable to its other owners is shown as net income attributable to the non-controlling interests in the Condensed Consolidated Statements of Income (Loss), as an adjustment to net income attributable to Dell Technologies stockholders. Additionally, the cumulative portion of the results of operations of SecureWorks allocable to its other owners, along with the interest in the net assets of SecureWorks attributable to those other owners, is shown as a component of non-controlling interests in the Condensed Consolidated Statements of Financial Position.

As of October 28, 2016, Dell Technologies held approximately 83.3% of the outstanding equity interest in VMware. VMware’s financial results have been consolidated with those of Dell Technologies as Dell Technologies is VMware’s controlling stockholder. The results of VMware presented in the accompanying Condensed Consolidated Financial Statements represent the results of the acquired businesses from September 7, 2016, the date of the EMC merger transaction, through October 28, 2016, the end of the third fiscal quarter of Dell Technologies. The portion of the results of operations of VMware allocable to its other owners is shown as net income attributable to the non-controlling interests in the Condensed Consolidated Statements of Income (Loss) as an adjustment to net income attributable to Dell Technologies stockholders. Additionally, the cumulative portion of the results of operations of VMware allocable to its other owners, along with the interest in the net assets of VMware attributable to those other owners, is shown as a component of non-controlling interests in the Condensed Consolidated Statements of Financial Position as of October 28, 2016.

As of October 28, 2016, Dell Technologies held approximately 77.4% of the outstanding equity interest in Pivotal. Pivotal’s financial results have been consolidated with those of Dell Technologies as Dell Technologies is Pivotal’s controlling stockholder. The results of Pivotal presented in the accompanying Condensed Consolidated Financial Statements represent the results of the acquired businesses from September 7, 2016, the date of the EMC merger transaction, through October 28, 2016, the end of the third fiscal quarter of Dell Technologies. A portion of the non-controlling interest in Pivotal is held by third parties in the form of a preferred equity instrument. Accordingly, there is no net income attributable to this non-controlling interest in the Condensed Consolidated Statements of Income (Loss). The portion of the results of operations of Pivotal allocable to its other owners, whose interests are held in the form of common stock, and the interest in the net assets of Pivotal attributable to those other owners are shown as net income attributable to the non-controlling interest in the Condensed Consolidated Statements of Income (Loss) as an adjustment to net income attributable to Dell Technologies stockholders, and as component of non-controlling interests in the Condensed Consolidated Statements of Financial Position as of October 28, 2016, respectively.

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. In comparison, debt security instruments with a remaining maturity shorter than one year are classified as short-term investments in the Condensed Consolidated Statements of Financial Position.

Unrealized gains and temporary loss positions on investments classified as available-for-sale are included within accumulated other comprehensive income (loss), net of any related tax effect. Upon realization, those amounts are reclassified from accumulated other comprehensive income (loss) to interest and other, net. Realized gains and losses and other-than-temporary impairments are reflected in the consolidated income statement in interest and other, net. Investments accounted for under the cost method are measured at fair value initially. Subsequently, when there is an indicator of impairment, the impairment is recognized.



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

Revenue Recognition — Net revenue primarily includes sales of hardware, services, software licenses, and peripherals. The Company recognizes revenue for these products and services when it is realized or realizable and earned. Revenue is recognized when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the Company's fee to its customer is fixed or determinable; and collection of the resulting receivable is reasonably assured. This policy is applicable to all sales, including sales to resellers and end-users.

Revenue from third-party software sales and extended warranties for third-party products, for which the Company does not meet the criteria for gross revenue recognition, is recognized on a net basis. All other revenue is recognized on a gross basis.
Services revenue and cost of services revenue captions in the Consolidated Statements of Income (Loss) include the Company's services, third-party software revenue, and support services related to the Company-owned software offerings.

The following summarizes the major terms of contractual relationships with customers and the manner in which the Company accounts for sales transactions.

Products

Product revenue consists of computer hardware, enterprise hardware, and software licenses sales that are delivered, sold as a subscription or sold on a consumption basis. Computer hardware and enterprise hardware include notebooks and desktop PCs, servers, storage hardware, and other hardware-related devices. Software license sales include optional, stand-alone software applications. Software applications provide customers with resource management, backup and archiving, information security, information management and intelligence, data analytics and server virtualization capabilities. Revenue from the sale of hardware products and systems is recognized when title and risk of loss pass to the customer. Delivery is considered complete when products have been shipped to the Company's customer, title and risk of loss have transferred to the customer, and customer acceptance has been satisfied. Customer acceptance is satisfied if acceptance is obtained from the customer, if all acceptance provisions lapse, or if the Company has evidence that all acceptance provisions have been satisfied. Depending on the nature of the arrangement, software license sales is generally recognized upon shipment or electronic delivery. For certain arrangements, revenue is recognized based on usage or ratably over the term of the arrangement.  License revenue from royalty arrangements is recognized upon either receipt of royalty reports or payments from third parties.

The Company records reductions to revenue for estimated customer sales returns, rebates, and certain other customer incentive programs. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, contractual terms, and current conditions. The primary factors affecting the Company's accrual for estimated customer returns include estimated return rates as well as the number of units shipped that have a right of return that has not expired as of the balance sheet date. If returns cannot be reliably estimated, revenue is not recognized until a reliable estimate can be made or the return right lapses.

The Company sells its products directly to customers as well as through other distribution channels, such as retailers, distributors, and resellers. The Company recognizes revenue on these sales when the reseller has economic substance apart from the Company; any credit risk has been identified and quantified; title and risk of loss have passed to the sales channel; the fee paid to the Company is not contingent upon resale or payment by the end user; and the Company has no further obligations related to bringing about resale or delivery.

Sales through the Company's distribution channels are primarily made under agreements allowing for limited rights of return, price protection, rebates, and marketing development funds. The Company has generally limited return rights through contractual caps or has an established selling history for these arrangements. Therefore, there is sufficient data to establish reasonable and reliable estimates of returns for the majority of these sales. To the extent price protection or return rights are not limited and a reliable estimate cannot be made, all of the revenue and related costs are deferred until the product has been sold to the end-user or the rights expire. The Company records estimated reductions to revenue or an expense for distribution channel programs at the later of the offer or the time revenue is recognized.
The Company defers the cost of shipped products awaiting revenue recognition until revenue is recognized.



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

Services

Services revenue consists of hardware and software maintenance, installation services, professional services, training revenue, third-party software revenue, and software sold as a service. The Company recognizes revenue from fixed-price support or maintenance contracts sold for both hardware and software ratably over the contract period and recognizes the costs associated with these contracts as incurred. For sales of extended warranties with a separate contract price, the Company defers revenue equal to the separately stated price. Revenue associated with undelivered elements is deferred and recorded when delivery occurs or services are provided. Revenue from extended warranty and service contracts, for which the Company is obligated to perform, is recorded as deferred revenue and subsequently recognized over the term of the contract on a straight-line basis or when the service is completed and the costs associated with these contracts are recognized as incurred.

Multiple Deliverables

When an arrangement has more than one element, such as hardware, software, and services contained in a single arrangement, the Company first allocates revenue based upon the relative selling price into two categories: (1) non-software components, such as hardware and any hardware-related items, such as required system software that functions with the hardware to deliver the essential functionality of the hardware and related post-contract customer support, software as a service subscriptions and other services; and (2) software components, such as optional software applications and related items, such as post-contract customer support and other services. The Company then allocates revenue within the non-software category to each element based upon its relative selling price using a hierarchy of vendor-specific objective evidence (“VSOE”), third-party evidence of selling price (“TPE”), or estimated selling prices (“ESP”), if VSOE or TPE does not exist. The Company allocates revenue within the software category to the undelivered elements based upon their fair value using VSOE, with the residual revenue allocated to the delivered elements. If the Company cannot objectively determine the VSOE of the fair value of any undelivered software element, it defers revenue for all software components until all elements are delivered and services have been performed, until fair value can objectively be determined for any remaining undelivered elements, or until software maintenance is the only undelivered element, in which case revenue is recognized over the maintenance term for all software elements.

The Company allocates the amount of revenue recognized for delivered elements to the amount that is not subject to forfeiture or refund or contingent on the future delivery of products or services.

Customers under software maintenance agreements are entitled to receive updates and upgrades on a when-and-if-available basis, and various types of technical support based on the level of support purchased. In the event specific features, functionality, entitlements, or the release version of an upgrade or new product have been announced but not delivered, and customers will receive that upgrade or new product as part of a current software maintenance contract, a specified upgrade is deemed created and product revenues are deferred on purchases made after the announcement date until delivery of the upgrade or new product. The amount and elements to be deferred are dependent on whether the Company has established VSOE of fair value for the upgrade or new product.

Other

The Company records revenue from the sale of equipment under sales-type leases as product revenue in an amount equal to the present value of minimum lease payments at the inception of the lease. Sales-type leases also produce financing income, which is included in net revenue in the Condensed Consolidated Statements of Income (Loss) and is recognized at consistent rates of return over the lease term. Revenue from operating leases is recognized over the lease period. The Company also offers qualified customers revolving credit lines for the purchase of products and services offered by the Company. Financing income attributable to these revolving loans is recognized in net revenue on an accrual basis.

The Company accrues for the estimated costs of systems’ warranty at the time of sale. Systems’ warranty costs are estimated based upon historical experience and specific identification of systems’ requirements.



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

The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.

Deferred Revenue — Deferred revenue represents amounts received in advance for extended warranty services, deferred hardware, software maintenance, prepaid professional services, and unearned license fees, which are recognized ratably over the contract term as either product or services revenue depending on the nature of the item. The Company also has deferred revenue related to internally-developed software offerings, and deferred profit on third-party software offerings, which are generally recognized ratably over the contract term as either product or services revenue depending on the nature of the item.

Research and Development — Research and development (“R&D”) costs are expensed as incurred. R&D costs include salaries and benefits and other personnel-related costs associated with product development. Also included in R&D expenses are infrastructure costs, which consist of equipment and material costs, facilities-related costs, depreciation expense, and intangible asset amortization.

Capitalized Software Development Costs — In accordance with the applicable accounting standards, software development costs related to the development of new product offerings are capitalized subsequent to the establishment of technological feasibility, which is demonstrated by the completion of a detailed program design or working model, if no program design is completed. GAAP requires that annual amortization expense of the capitalized software development costs be the greater of the amounts computed using the ratio of gross revenue to a product's total current and anticipated revenues, or the straight-line method over the product's remaining estimated economic life. Capitalized costs are amortized over periods ranging from eighteen months to two years which represents the product's estimated economic life.
Amounts capitalized for the period from September 7, 2016 through October 28, 2016 were $85 million, and are included in other non-current assets, net in the accompanying Condensed Consolidated Statements of Financial Position. Amortization expense for the period from September 7, 2016 through October 28, 2016 was $0.4 million. Prior to the EMC merger transaction, there were no significant capitalized software development costs specific to the legacy businesses of Dell Technologies Inc.
Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board ("FASB") issued amended guidance on the recognition of revenue from contracts with customers. The objective of the new standard is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The new standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a one-year deferral of the effective date of this standard. Public entities are required to adopt the new standard for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the method of adoption and the impact that the new standard will have on the Consolidated Financial Statements.

Presentation of Debt Issuance Costs — In April 2015, the FASB issued amended guidance which changes the classification of debt issuance costs in the Consolidated Statements of Financial Position. The new guidance requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt liability consistent with the presentation of debt discounts, rather than as an asset. The guidance related to recognition and measurement of debt issuance costs remains unchanged. The Company implemented the new presentation in the nine months ended October 28, 2016 on a retrospective basis, and except for the reclassification of debt issuance costs of $128 million as of January 29, 2016 in the accompanying Condensed Consolidated Statements of Financial Position, there was no other impact on the Consolidated Financial Statements.

Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued amended guidance on Recognition and Measurement of Financial Assets and Financial Liabilities. The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Public entities must adopt the new guidance for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently evaluating the impact that the standard will have on the Consolidated Financial Statements.


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


Leases In February 2016, the FASB issued amended guidance on the accounting for leasing transactions. The primary objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  Public entities must adopt the new guidance for reporting periods beginning after December 15, 2018, with early adoption permitted. Companies are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact that the standard will have on the Consolidated Financial Statements.

Improvements to Employee Share-Based Payment Accounting — In March 2016, the FASB issued amended guidance on the accounting for employee share-based payments. The topics that were amended in the update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Public entities must adopt the new guidance for fiscal years, and interim periods within those years, beginning after December 2016. The Company is currently evaluating the impact that the standard will have on the Consolidated Financial Statements.

Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued amended guidance which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in the new standard as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, earlier adoption is not permitted. The Company is currently evaluating the impact that the standard will have on the Consolidated Financial Statements.

Classification of Certain Cash Receipts and Cash Payments — In August 2016, the FASB issued amended guidance on the presentation and classification of eight specific cash flow issues with the objective of reducing existing diversity in practice. Public entities must adopt the new guidance for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Companies should reflect any adjustments on a retrospective basis, if practicable, otherwise adoption is required to be applied as of the earliest date practicable. The Company is currently evaluating the timing of adoption as well as the impact that the standard will have on the Consolidated Financial Statements.

Intra-Entity Transfers of Assets Other Than Inventory — In October 2016, the FASB issued amended guidance on the accounting for income taxes. The new guidance requires companies to recognize the income tax effects of intra-entity asset transfers, other than transfers of inventory, when the transfer occurs instead of when the asset is sold to a third party, as current GAAP requires. Public entities must adopt the new guidance for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted at the beginning of an annual period. The new guidance is required to be applied retrospectively with the cumulative effect recognized as of the beginning of the period of adoption. The Company is currently evaluating the timing of adoption as well as the impact that the standard will have on the Consolidated Financial Statements.




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

NOTE 3 — BUSINESS COMBINATIONS

EMC Merger Transaction

On September 7, 2016, EMC became a wholly-owned subsidiary of the Company as a result of the merger of Merger Sub with and into EMC, with EMC surviving as a wholly-owned subsidiary of the Company. The EMC merger transaction was effected pursuant to the Agreement and Plan of Merger, dated as of October 12, 2015, by and among the Company, Dell, Merger Sub, and EMC, as amended by the First Amendment to Agreement and Plan of Merger, dated as of May 16, 2016, by and among the Company, Dell, Merger Sub, and EMC.

Pursuant to the terms of the merger agreement, upon the completion of the EMC merger transaction, each issued and outstanding share of common stock, par value $0.01 per share, of EMC (approximately 2.0 billion as of September 7, 2016) was converted into the right to receive (1) $24.05 in cash, without interest, and (2) 0.11146 validly issued, fully paid and non-assessable shares of common stock of the Company designated as Class V Common Stock, par value $0.01 per share (the “Class V Common Stock”), plus cash in lieu of any fractional shares. Shares of the Class V Common Stock were approved for listing on the New York Stock Exchange (the “NYSE”) under the ticker symbol “DVMT” and began trading on September 7, 2016.

The Class V Common Stock is a type of common stock commonly referred to as a tracking stock, which is a class of common stock that is intended to track the economic performance of a defined set of assets and liabilities. The approximately 223 million shares of Class V Common Stock issued by Dell Technologies on September 7, 2016 are intended to track the economic performance of approximately 65% of the Company's economic interest in the Class V Group as of the closing date of the EMC merger transaction. As of the closing date of the EMC merger transaction, the Class V Group, which consists of the Company's economic interest in the VMware business, consisted of approximately 343 million shares of common stock, par value $0.01 per share, of VMware held by the Company. As of such date, the DHI Group retained approximately 35% of the Company's economic interest in the Class V Group. The DHI Group generally refers, in addition to such retained interest, to the direct and indirect interest of Dell Technologies in all of Dell Technologies' business, assets, properties, liabilities, and preferred stock other than those attributable to the Class V Group.

Although the Class V Common Stock is intended to track the performance of approximately 65% of the Company’s economic interest in the VMware business as of the closing date of the EMC merger transaction, there can be no assurance that the market price of the Class V Common Stock will, in fact, reflect the performance of such economic interest. Holders of the Class V Common Stock are subject to all risks associated with an investment in Dell Technologies and all of its businesses, assets, and liabilities. The holders of the Class V Common Stock do not have any special rights related to, direct ownership interest in, or recourse against the assets and liabilities attributed to the Class V Group. While the Class V Group initially consists of the Company's economic interest in the shares of VMware common stock attributed to it, the Class V Group in the future may have different assets and liabilities attributed to it.

EMC, including its subsidiaries and affiliates, enables customers to build cloud-based infrastructures for existing applications while at the same time helping customers build and run new applications. EMC's businesses include Information Storage, VMware, Pivotal, RSA Information Security, and Virtustream. The EMC merger transaction represents a key element of the Company's strategy to provide the essential infrastructure for organizations to build their digital future, transform IT, and protect their most important asset, information. Revenues of approximately $3.6 billion and net loss of approximately $0.6 billion attributable to EMC were included in the Condensed Consolidated Statements of Income (Loss) from the transaction date to October 28, 2016. Both revenues and net loss attributable to EMC include the impact of purchase accounting as a result of the EMC merger transaction.



18

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Fair Value of Consideration Transferred

The following table summarizes the consideration transferred to effect the EMC merger transaction:
 
Purchase Price
 
(in millions)
Consideration transferred:

Cash
$
47,694

Expense and other (a)
968

Class V Common Stock (b)
10,041

Total consideration transferred
58,703

Non-controlling interests (c)
6,097

Less: Post-merger stock compensation expense (d)
(800
)
Total purchase price to allocate
$
64,000

____________________
(a) Expense and other primarily consists of cash payment for post-merger stock compensation expense, as described in footnote (d), and the value related to pre-merger services of EMC equity awards converted to deferred cash awards
(b)
The fair value of the Class V Common Stock is based on the issuance of approximately 223 million shares with a per-share fair value of $45.07 (the opening share price of the Class V Common Stock on the NYSE on September 7, 2016, the first day of trading), which shares are intended to track the economic performance of approximately 65% of the Company’s economic interest in the VMware business, as of the closing date of the EMC merger transaction.
(c)
Non-controlling interests in VMware and Pivotal was $6.1 billion as of September 7, 2016. The fair value of the non-controlling interest relating to VMware was calculated by multiplying outstanding shares of VMware common stock that were not owned by EMC by $73.28 (the opening share price of VMware common stock on the NYSE on September 7, 2016). The fair value of the non-controlling interest relating to Pivotal was calculated based on the fair value of Pivotal, the ownership percentage of the non-controlling interests, and a discount for lack of control related to the non-controlling interest.
(d)
Pursuant to the guidelines of ASC 805, a portion of the consideration related to accelerated EMC equity awards was recorded as post-merger day one stock compensation expense. This expense is attributable to post-merger services not rendered due to the acceleration.



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Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Assets Acquired and Liabilities Assumed

The EMC merger transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed by major class as of the transaction date. Due to the timing of this acquisition, these amounts are preliminary estimates and subject to change. Any changes resulting from the facts and circumstances that existed as of the transaction date may result in retrospective adjustments to the preliminary amounts recognized at the transaction date. The Company expects to finalize these amounts as soon as practicable, but not later than one year from the transaction date.
 
Preliminary Allocation
 
(in millions)
Preliminary purchase price allocation (a):
 
Current assets:
 
Cash and cash equivalents
$
10,080

Short-term investments
1,765

Accounts receivable (b)
2,810

Short-term financing receivables
64

Inventories, net
1,993

Other current assets
903

Total current assets
17,615

Property, plant, and equipment
4,490

Long-term investments
4,317

Long-term financing receivables, net
65

Goodwill (c)
31,275

Purchased intangibles (d)
31,218

Other non-current assets
522

Total assets
$
89,502

Current liabilities:
 
Short-term debt (e)
$
905

Accounts payable
728

Accrued and other
3,259

Short-term deferred revenue
4,954

Total current liabilities
9,846

Long-term debt (e)
5,474

Long-term deferred revenue
3,469

Deferred tax liabilities
6,389

Other non-current liabilities
324

Total liabilities
$
25,502

Total net assets
$
64,000

____________________
(a)
Includes amounts allocated to ECD, which were classified as held for sale as of October 28, 2016. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information on discontinued operations.
(b)
Accounts receivable is comprised primarily of customer trade receivables. As such, the fair value of accounts receivable approximates the net carrying value of $2,810 million. The gross amount due is $2,919 million, of which $109 million is not expected to be collected.
(c)
The Company recorded $31.3 billion in goodwill related to this transaction, which is primarily related to expected synergies from the transaction. This amount represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed associated with this transaction. This goodwill is not deductible for tax purposes. See Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for preliminary goodwill allocation by reportable segment.


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

(d)
Identifiable intangible assets are required to be measured at fair value. The fair value of identifiable intangible assets is determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include, but are not limited to, the amount and timing of projected future cash flows (including revenue and profitability); the discount rate selected to measure the risks inherent in the future cash flows; the assessment of the asset’s life cycle; the competitive trends impacting the asset; technology migration factors; and customer turnover.
(e) Deferred revenue represents the fair value of remaining performance obligations and was determined based on estimates of costs incurred to-date by the acquiree or costs to be incurred by the Company and a reasonable profit margin. Profit margins were determined based on comparable service provider margins, and the resulting profits were discounted using market participant discount rates to determine fair value.

The preliminary fair values of EMC’s identifiable intangible assets and their weighted-average useful lives have been estimated as follows:
 
Estimated Fair Value
 
Weighted Average Useful Life
 
(in millions)
 
(in years)
Developed technology
$
13,460

 
6
Customer relationships
13,440

 
11
Trade names (Indefinite lived)
2,320

 
Indefinite
Trade names (Definite lived)
980

 
8
In-process research and development
890

 
Indefinite
Leasehold assets (liabilities)
128

 
25
Total identifiable intangible assets
$
31,218

 
 

The total weighted-average amortization period for the intangible assets subject to amortization is 8 years.

Acquisition-related Costs

From inception through October 28, 2016, the Company incurred $1.2 billion of acquisition-related costs in connection with the EMC merger transaction. Of this amount, $0.8 billion are capitalized debt issuance costs which were primarily presented as a direct reduction of the carrying amount of the related debt liability in the Condensed Consolidated Statements of Financial Position. The remaining $0.4 billion of costs were recognized in the Condensed Consolidated Statements of Income (Loss) for the periods presented as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
 
(in millions)
Acquisition-related costs:
 
 
 
 

 
 
Selling, general, and administrative expenses (a)
$
211

 
$
11

 
$
252

 
$
11

Interest and other, net (b)
98

 

 
98

 

Total
$
309

 
$
11

 
$
350

 
$
11

____________________
(a) Acquisition-related costs recognized in selling, general, and administrative expenses primarily consist of advisory fees.
(b) Acquisition-related costs recognized in interest and other, net consist of expensed debt issuance costs.

In addition to the acquisition-related costs disclosed above, the Company incurred $0.8 billion in stock-based compensation charges related to the acceleration of vesting on EMC stock awards, and $0.1 billion in special retention cash awards issued to certain key employees. These expenses were recognized during the three months ended October 28, 2016.



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

Pro Forma Revenue and Earnings

The following table provides unaudited pro forma results of operations for the periods presented as if the transaction date had occurred on January 31, 2015, the first day of the fiscal year ended January 29, 2016.
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
 
(in millions; except per share amounts)
Total net revenue
$
17,826

 
$
18,068

 
$
53,860

 
$
53,709

Net loss attributable to Dell Technologies Inc.
$
(931
)
 
$
(721
)
 
$
(2,140
)
 
$
(4,205
)
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Dell Technologies Inc. - basic (a):
 
 
Continuing operations - Class V Common Stock
$
0.75

 
$
0.60

 
$
1.75

 
$
1.45

Continuing operations - DHI Group
$
(1.94
)
 
$
(1.51
)
 
$
(4.47
)
 
$
(8.01
)
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Dell Technologies Inc. - diluted (a):
 
 
Continuing operations - Class V Common Stock
$
0.75

 
$
0.60

 
$
1.74

 
$
1.44

Continuing operations - DHI Group
$
(1.94
)
 
$
(1.51
)
 
$
(4.47
)
 
$
(8.01
)
____________________
(a) For purposes of calculating pro forma earnings (loss) per share, the Company used the two-class method. Earnings are allocated between the Class V Common Stock and the DHI Group on a basis consistent with historical earnings (loss) per share.

The pro forma information for the three and nine months ended October 28, 2016 combines the Company's historical results for the three and nine months ended October 28, 2016 with EMC's historical results for the period from August 1, 2016 to September 6, 2016 and the period from February 1, 2016 to September 6, 2016, respectively. The pro forma information for the three and nine months ended October 30, 2015 combines the Company's historical results for the three and nine months ended October 30, 2015 with EMC's results for the three and nine months ended September 30, 2015. The historical results have been adjusted in the supplemental pro forma information to give effect to pro forma events that are (a) directly attributable to the EMC merger transaction, (b) factually supportable, and (c) expected to have a continuing impact on the combined company’s results. The pro forma information is presented for informational purposes only. The pro forma information does not purport to represent what the combined company’s results of operations or financial condition would have been had the EMC merger transaction actually occurred on the date indicated, and does not purport to project the combined company’s results of operations for any future period or as of any future date.

Defined Benefit Pension Plan

In connection with the EMC merger transaction completed on September 7, 2016, the Company assumed all of EMC’s defined benefit obligations and related plan assets, including a noncontributory defined benefit pension plan (the "Pension Plan"). The under-funded status of the Pension Plan as of September 7, 2016 was $97 million, which is classified as a component of other long-term liabilities in the Condensed Consolidated Statements of Financial Position. As of September 7, 2016, the Pension Plan had assets with a fair value of $493 million, which included common collective trusts of $341 million, corporate debt securities of $151 million, and U.S. Treasury securities of $1 million. In addition, certain of EMC's foreign subsidiaries also have defined benefit pension plans which were assumed as part of the EMC merger transaction and are not material to the results of operations or financial position of the Company.






22

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 4 DISCONTINUED OPERATIONS

Dell Services Divestiture — On March 27, 2016, Dell entered into a definitive agreement with NTT Data International L.L.C. to divest substantially all of Dell Services, including the Dell Services Federal Government business. Dell Services includes business process outsourcing, application management, and infrastructure services. The transaction does not include the global support, deployment, and professional services offerings. During the three months ended October 28, 2016, as the result of continued negotiations and finalization of terms of the sale, the Company reclassified an immaterial amount of financial results, accounts payable, and accounts receivable from discontinued operations to continuing operations for all periods presented, to reflect the updated terms.

On November 2, 2016, subsequent to the Company's third quarter of Fiscal 2017, the parties closed the transaction. Total cash consideration received by the Company through the date of this report was approximately $3.0 billion, resulting in an estimated pre-tax gain on sale of approximately $1.5 billion.

Dell Software Group Divestiture — On June 19, 2016, Dell entered into a definitive agreement with Francisco Partners and Elliot Management Corporation to divest substantially all of DSG. The transaction includes DSG's systems and information management, security solutions, and Statistica businesses. The transaction does not include the Company's cloud integration business.

On October 31, 2016, subsequent to the close of the Company's third quarter of Fiscal 2017, the parties closed the transaction. At the completion of the sale, total cash consideration received by the Company was approximately $2.4 billion, resulting in an estimated pre-tax gain on sale of approximately $1.2 billion.

Enterprise Content Division Divestiture — On September 12, 2016, EMC entered into a definitive agreement with OpenText Corporation to divest the Dell EMC Enterprise Content Division (including the Documentum, InfoArchive, and LEAP families of products) for cash consideration of approximately $1.6 billion. The pending transaction is expected to close in the fourth quarter of Fiscal 2017, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities.

Discontinued Operations Presentation — In accordance with applicable accounting guidance, the Company concluded that Dell Services, DSG, and ECD have met the criteria for discontinued operations reporting as of March 27, 2016, June 19, 2016, and September 7, 2016, respectively. Accordingly, the Company reclassified the financial results of Dell Services and DSG as discontinued operations in the Condensed Consolidated Statements of Income (Loss) for all periods presented. The Company classified the results of ECD as discontinued operations for the period from September 7, 2016 to October 28, 2016 due to the ECD business only being included in the Company's consolidated results since the closing of the EMC merger transaction. These financial results are presented as “Income (loss) from discontinued operations, net of income taxes” in the accompanying Condensed Consolidated Statements of Income (Loss) for the three and nine months ended October 28, 2016 and October 30, 2015. The Company reclassified the related assets and liabilities as “Current assets held for sale” and “Current liabilities held for sale” in the accompanying Condensed Consolidated Statements of Financial Position as of October 28, 2016 and January 29, 2016. Cash flows from the Company's discontinued operations are included in the Condensed Consolidated Statements of Cash Flows.





23

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Dell Services

The following table presents key financial results of Dell Services included in “Income (loss) from discontinued operations, net of income taxes” for the three and nine months ended October 28, 2016 and October 30, 2015:
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
 
(in millions)
Net revenue
$
658

 
$
675

 
$
1,968

 
$
2,011

Cost of net revenue
523

 
521

 
1,555

 
1,611

Operating expenses
116

 
88

 
322

 
289

Income from discontinued operations before income taxes
19

 
66

 
91

 
111

Income tax provision (benefit) (a)
(37
)
 
(11
)
 
(955
)
 
35

Income from discontinued operations, net of income taxes
$
56

 
$
77

 
$
1,046

 
$
76

____________________
(a)
The tax benefits of $37 million and $955 million for the three and nine months ended October 28, 2016, respectively, were primarily due to the Company's determination that it could no longer assert permanent reinvestment in the outside basis of the entities that will be divested when the Company entered into a definitive agreement to divest the business. The Company has recorded a deferred tax asset of approximately $1 billion for the outside basis differences for the entities held for sale, and has determined the asset is realizable.

The following table presents the major classes of assets and liabilities as of October 28, 2016 and January 29, 2016 related to Dell Services which were classified as held for sale:
 
October 28, 2016
 
January 29, 2016
 
(in millions)
ASSETS
Current assets:
 

 
 

Accounts receivable, net
$
456

 
$
404

Other current assets
67

 
73

Total current assets
523

 
477

Property, plant, and equipment, net
566

 
515

Goodwill
252

 
252

Intangible assets, net
376

 
388

Other non-current assets
53

 
50

Total assets
$
1,770

 
$
1,682

 
 
 
 
LIABILITIES
Current liabilities:
 

 
 

Accounts payable
$
28

 
$
38

Accrued and other
159

 
180

Short-term deferred revenue
83

 
82

Total current liabilities
270

 
300

Long-term deferred revenue
42

 
53

Other non-current liabilities
40

 
31

Total liabilities
$
352

 
$
384




24

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The significant cash flow items from Dell Services for the nine months ended October 28, 2016 and October 30, 2015 were as follows:
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
(in millions)
Depreciation and amortization (a)
$
32

 
$
161

Capital expenditures
$
(82
)
 
$
(65
)
____________________
(a)
Amounts represent depreciation and amortization recognized up until March 27, 2016, the date on which Dell Services met the criteria for discontinued operations reporting. Depreciation and amortization ceased upon determination that the held for sale criteria were met.

Dell Software Group

The following table presents key financial results of DSG included in “Income (loss) from discontinued operations, net of income taxes” for the three and nine months ended October 28, 2016 and October 30, 2015:

 
Three Months Ended
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
October 28, 2016
 
October 30, 2015
 
(in millions)
Net revenue
$
326

 
$
318

 
$
968

 
$
961

Cost of net revenue
74

 
97

 
249

 
282

Operating expenses
233

 
234

 
721

 
695

Interest and other, net
(8
)
 
(2
)
 
(1
)
 
(8
)
Income (loss) from discontinued operations before income taxes
11

 
(15
)
 
(3
)
 
(24
)
Income tax provision (benefit) (a)
489

 
(22
)
 
152

 
1

Income (loss) from discontinued operations, net of income taxes
$
(478
)
 
$
7

 
$
(155
)
 
$
(25
)
____________________
(a)
The tax expenses of $489 million and $152 million for the three and nine months ended October 28, 2016, respectively, were primarily due to the Company's determination that it could no longer assert permanent reinvestment in the outside basis of the DSG entities held for sale when the Company entered into a definitive agreement to divest the business. The additional tax recorded in the three months ended October 28, 2016 primarily resulted from structuring transactions in preparation for the disposition of these entities.


25

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table presents the major classes of assets and liabilities as of October 28, 2016 and January 29, 2016 related to DSG which were classified as held for sale:
 
October 28, 2016
 
January 29, 2016
 
(in millions)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
82

 
$
254

Accounts receivable, net
200

 
244

Inventories, net
19

 
24

Other current assets
3

 
11

Total current assets
304

 
533

Property, plant, and equipment, net
116

 
106

Goodwill
1,391

 
1,391

Intangible assets, net
557

 
613

Other non-current assets
9

 
8

Total assets
$
2,377

 
$
2,651

 
 
 
 
LIABILITIES
Current liabilities:
 

 
 

Accounts payable
14

 
15

Accrued and other
140

 
160

Short-term deferred revenue
621

 
625

Total current liabilities
775

 
800

Long-term deferred revenue
338

 
333

Other non-current liabilities
80

 
82

Total liabilities
$
1,193

 
$
1,215


The significant cash flow items from DSG for the nine months ended October 28, 2016 and October 30, 2015 were as follows:
 
Nine Months Ended
 
October 28, 2016
 
October 30, 2015
 
(in millions)
Depreciation and amortization (a)
$
66

 
$
125

Capital expenditures
$
(20
)
 
$
(20
)
____________________
(a)
Amounts represent depreciation and amortization recognized up until June 19, 2016, the date on which DSG met the criteria for discontinued operations reporting. Depreciation and amortization ceased upon determination that the held for sale criteria were met.



26

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Enterprise Content Division

The following table presents key financial results of ECD included in “Income (loss) from discontinued operations, net of income taxes” for the period from September 7, 2016 through October 28, 2016:
 
September 7, 2016 through October 28, 2016
 
(in millions)
Net revenue
$
74

Cost of net revenue
28

Operating expenses
66

Loss from discontinued operations before income taxes
(20
)
Income tax benefit
(4
)
Loss from discontinued operations, net of income taxes
$
(16
)

The following table presents the major classes of assets and liabilities as of October 28, 2016 related to ECD which were classified as held for sale:
 
October 28, 2016
 
(in millions)
ASSETS
Current assets:
 

Other current assets
6

Total current assets
6

Property, plant, and equipment
15

Goodwill
661

Intangible assets
1,070

Total assets
$
1,752

 
 
LIABILITIES
Current liabilities:
 

Accrued and other
8

Short-term deferred revenue
114

Total current liabilities
122

Long-term deferred revenue
10

Total liabilities
$
132


Depreciation and amortization for ECD ceased upon determination that the held for sale criteria were met. Capital expenditures for ECD were immaterial for the period from September 7, 2016 through October 28, 2016.



27

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 5 — FAIR VALUE MEASUREMENTS

The following table presents the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of October 28, 2016 and January 29, 2016:
 
October 28, 2016 (a)
 
January 29, 2016
 
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
$
4,222

 
$

 
$

 
$
4,222

 
$
3,832

 
$

 
$

 
$
3,832

Municipal obligations

 
15

 

 
15

 

 

 

 

Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
479

 
520

 

 
999

 

 

 

 

U.S. corporate

 
1,946

 

 
1,946

 

 

 

 

Foreign

 
2,201

 

 
2,201

 

 

 

 

Municipal obligations

 
382

 

 
382

 

 

 

 

Asset-backed securities

 
4

 

 
4

 

 

 

 

Equity and other securities
158

 

 

 
158

 

 

 

 

Derivative instruments

 
204

 

 
204

 

 
195

 

 
195

Common stock purchase agreement

 

 

 

 

 

 
10

 
10

Total assets
$
4,859

 
$
5,272

 
$

 
$
10,131

 
$
3,832

 
$
195

 
$
10

 
$
4,037

Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative instruments
$

 
$
18

 
$

 
$
18

 
$

 
$
12

 
$

 
$
12

Debt - Other

 

 

 

 

 

 
28

 
28

Total liabilities
$

 
$
18

 
$

 
$
18

 
$

 
$
12

 
$
28

 
$
40

____________________
(a) The Company did not transfer any securities between levels during the nine months ended October 28, 2016.

The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:

Money Market Funds — The Company's investment in money market funds that are classified as cash equivalents hold underlying investments with a weighted average maturity of 90 days or less and are recognized at fair value. The valuations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. The Company reviews security pricing and assesses liquidity on a quarterly basis. As of October 28, 2016, the Company's U.S. portfolio had no material exposure to money market funds with a fluctuating net asset value.

Cash Equivalent Municipal Obligations — The Company's municipal obligations that are classified as cash equivalents have original maturities of 90 days or less and are recognized at fair value. The valuation methodology for these securities is the same as the methodology for non-cash equivalent municipal obligations as described in the Debt Securities section below.

Debt Securities — The majority of the Company's debt securities consist of various fixed income securities such as U.S. government and agencies, U.S. corporate, and foreign. Valuation is based on pricing models whereby all significant inputs,


28

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

including benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers, and other market related data, are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset. Inputs are documented in accordance with the fair value measurements hierarchy. The Company reviews security pricing and assesses liquidity on a quarterly basis. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information about investments.
 
Equity Securities — The majority of the Company's investments in equity and other securities that are measured at fair value on a recurring basis consist of strategic investments in publicly traded companies. The valuation of these securities is based on quoted prices in active markets.
 
Derivative Instruments — The Company's derivative financial instruments consist primarily of foreign currency forward and purchased option contracts and interest rate swaps. The fair value of the portfolio is determined using valuation models based on market observable inputs, including interest rate curves, forward and spot prices for currencies, and implied volatilities. Credit risk is also factored into the fair value calculation of the Company's derivative instrument portfolio. See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements for a description of the Company's derivative financial instrument activities.

Debt - Other — As of January 29, 2016, the Company recognized a portion of its short-term debt at fair value. This debt was represented by promissory notes issued on August 3, 2015 and September 14, 2015, which were extinguished during the nine months ended October 28, 2016. The Company determined fair value using a discounted cash flow model which included significant unobservable inputs and assumptions.  The unobservable inputs used include projected cash outflows over varying possible maturity dates, weighted by the probability of those possible outcomes, along with assumed discount rates.

Common Stock Purchase Agreements — On September 7, 2016, in connection with the EMC merger transaction, the Company issued and sold the following shares of the Company's common stock at a purchase price of $27.50 per share to the persons identified below for an aggregate purchase price of $4.4 billion, pursuant to four separate common stock purchase agreements:
86,909,091 shares of Class A Common Stock to the MD Stockholders
16,104,050 shares of Class A Common Stock to the MSDC Stockholders
38,805,040 shares of Class B Common Stock to the SLP Stockholders
18,181,818 shares of Class C Common Stock to Temasek Holdings Private Limited ("Temasek")

The Company applied the proceeds from the sale of the shares to finance a portion of the consideration for the EMC merger transaction. Each agreement provided for price protection in the event additional equity investors purchased common stock of the Company at a lower price. The agreements with Michael S. Dell, the MSDC Stockholders, and the SLP Stockholders were not required to be remeasured to fair value and were effectively capital commitments, because of the degree of control and influence such persons could exercise over the Company. The provision relating to price protection was considered substantive to Temasek as an unrelated party. Consequently, the Company recognized the contract as an asset or liability, initially recorded at fair value of zero, with subsequent changes in fair value recorded in earnings. The Company determined the fair value of this forward contract using a Black-Scholes valuation model, which included significant unobservable inputs and assumptions.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis — Certain assets are measured at fair value on a nonrecurring basis and therefore are not included in the recurring fair value table above. These assets consist primarily of non-financial assets such as goodwill and intangible assets and investments accounted for under the cost method. See Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information about goodwill and intangible assets. Investments accounted for under the cost method are measured at fair value initially. Subsequently, when there is an indicator of impairment, the impairment is recognized.



29

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Carrying Value and Estimated Fair Value of Outstanding Debt — The following table summarizes the carrying value and estimated fair value of the Company's outstanding debt as described in Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements, including the current portion, as of the dates indicated:

 
October 28, 2016
 
January 29, 2016
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(in billions)
Term Loan Facilities
$

 
$

 
$
6.1

 
$
6.2

Senior Secured Credit Facilities
$
15.6

 
$
15.9

 
$

 
$

Senior First Lien Notes
$

 
$

 
$
1.4

 
$
1.5

First Lien Notes
$
19.6

 
$
21.7

 
$

 
$

Unsecured Notes and Debentures
$
2.3

 
$
2.5

 
$
2.7

 
$
2.7

Senior Notes
$
3.1

 
$
3.5

 
$

 
$

EMC Notes
$
5.5

 
$
5.3

 
$

 
$

Bridge Facilities
$
6.1

 
$
6.2

 
$

 
$


The fair values of the outstanding Term Loan Facilities and Senior First Lien Notes obtained in connection with the going-private transaction, the outstanding Unsecured Notes and Debentures issued prior to the going-private transaction, the outstanding EMC Notes that remained outstanding after the EMC merger transaction, and the outstanding First Lien Notes, Senior Notes, Senior Secured Credit Facilities, and Bridge Facilities issued in connection with the EMC merger transaction were determined based on observable market prices in a less active market and were categorized as Level 2 in the fair value hierarchy. The fair values of the other short-term debt and the structured financing debt approximate their carrying values due to their short-term maturities.


30

Table of Contents
DELL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 6 — INVESTMENTS

The following table summarizes, by major security type, the carrying value and amortized cost of the Company's investments. All debt security investments with remaining 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 28, 2016
 
January 29, 2016
 
Carrying Value
 
Cost
 
Unrealized Gain
 
Unrealized (Loss)
 
Carrying Value
 
Cost
 
Unrealized Gain
 
Unrealized (Loss)
 
(in millions)
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
186

 
$
186

 
$

 
$

 
$

 
$

 
$

 
$

U.S. corporate debt securities
550

 
550

 

 

 

 

 

 

Foreign debt securities
755

 
755

 

 

 

 

 

 

Municipal obligations
366

 
366

 

 

 

 

 

 

Total short-term investments
1,857

 
1,857

 

 

 

 

 

 

U.S. government and agencies
813

 
815

 

 
(2
)
 

 

 

 

U.S. corporate debt securities
1,396

 
1,401

 

 
(5
)
 

 

 

 

Foreign debt securities
1,446

 
1,451

 

 
(5
)
 

 

 

 

Municipal obligations
16

 
16

 

 

 

 

 

 

Asset-backed securities
4

 
4

 

 

 

 

 

 

Equity and other securities (a)
610

 
602

 
8

 

 
114

 
114

 

 

Total long-term investments
4,285

 
4,289

 
8

 
(12
)
 
114