FINANCIAL SERVICES

Dell Financial Services

The Company offers or arranges various financing options and services for its business and consumer customers in the United States, Canada, Europe, and Mexico 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 products and services. New financing originations, which represent the amounts of financing provided by DFS to customers for equipment and related software and services, including third-party originations, were $1.1 billion and $0.9 billion for the three months ended October 28, 2016 and October 30, 2015, respectively, and $3.0 billion and $2.8 billion for the nine months ended October 28, 2016 and October 30, 2015, respectively.

In connection with the EMC merger transaction, the Company acquired an existing notes receivable portfolio, which is included in the fixed-term customer receivables balance in the table below. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information about the financing receivables acquired.

The Company's financing receivables are aggregated into the following categories:

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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. 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.

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Fixed-term sales-type leases and loans — The Company enters into sales-type lease arrangements with customers who desire lease financing. Leases with business customers have fixed terms of generally two to four years. Future maturities of minimum lease payments as of October 28, 2016 were as follows: Fiscal 2017 - $505 million; Fiscal 2018 - $1,462 million; Fiscal 2019 - $883 million; Fiscal 2020 - $331 million; Fiscal 2021 and beyond - $74 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 October 28, 2016 and January 29, 2016:



	October 28, 2016									January 29, 2016
	Revolving			Fixed-term			Total			Revolving			Fixed-term			Total
	(in millions)
Financing Receivables, net:
Customer receivables, gross	$	1,008		$	4,116		$	5,124		$	1,173		$	3,637		$	4,810
Allowances for losses	(95		)	(51		)	(146		)	(118		)	(58		)	(176		)
Customer receivables, net	913			4,065			4,978			1,055			3,579			4,634
Residual interest	—			461			461			—			458			458
Financing receivables, net	$	913		$	4,526		$	5,439		$	1,055		$	4,037		$	5,092
Short-term	$	913		$	2,136		$	3,049		$	1,055		$	1,860		$	2,915
Long-term	$	—		$	2,390		$	2,390		$	—		$	2,177		$	2,177

The following table summarizes the changes in the allowance for financing receivable losses for the respective periods:



	Three Months Ended
	October 28, 2016									October 30, 2015
	Revolving			Fixed-term			Total			Revolving			Fixed-term			Total
	(in millions)
Allowance for financing receivable losses:
Balance at beginning of period	$	100		$	56		$	156		$	127		$	50		$	177
Charge-offs, net of recoveries	(21		)	(8		)	(29		)	(25		)	(3		)	(28		)
Provision charged to income statement	16			3			19			19			4			23
Balance at end of period	$	95		$	51		$	146		$	121		$	51		$	172

	Nine Months Ended
	October 28, 2016									October 30, 2015
	Revolving			Fixed-term			Total			Revolving			Fixed-term			Total
	(in millions)
Allowance for financing receivable losses:
Balance at the beginning of period	$	118		$	58		$	176		$	145		$	49		$	194
Charge-offs, net of recoveries	(69		)	(13		)	(82		)	(77		)	(12		)	(89		)
Provision charged to income statement	46			6			52			53			14			67
Balance at end of period	$	95		$	51		$	146		$	121		$	51		$	172

The following table summarizes the aging of the Company's customer financing receivables, gross, including accrued interest, as of October 28, 2016 and January 29, 2016, segregated by class:



	October 28, 2016								January 29, 2016
	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	$	696	$	84	$	28	$	808	$	812	$	99	$	36	$	947
Revolving — DBC	178		17		5		200		202		20		4		226
Fixed-term — Consumer and Small Commercial	339		16		2		357		315		13		1		329
Fixed-term — Medium and Large Commercial	3,564		179		16		3,759		3,131		171		6		3,308
Total customer receivables, gross	$	4,777	$	296	$	51	$	5,124	$	4,460	$	303	$	47	$	4,810

Credit Quality

The following table summarizes customer receivables, gross, including accrued interest, by credit quality indicator segregated by class, as of October 28, 2016 and January 29, 2016. 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.



	October 28, 2016								January 29, 2016
	Higher		Mid		Lower		Total		Higher		Mid		Lower		Total
	(in millions)
Revolving — DPA	$	131	$	248	$	429	$	808	$	148	$	270	$	529	$	947
Revolving — DBC	$	58	$	59	$	83	$	200	$	68	$	65	$	93	$	226
Fixed-term — Consumer and Small Commercial	$	111	$	144	$	102	$	357	$	93	$	136	$	100	$	329
Fixed-term — Medium and Large Commercial	$	1,811	$	1,205	$	743	$	3,759	$	1,597	$	1,075	$	636	$	3,308

Securitizations and Structured Financing Debt

The Company transfers certain U.S. 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 Company's 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:



	October 28, 2016		January 29, 2016
	(in millions)
Financing receivables held by consolidated VIEs, net:
Short-term, net	$	2,073	$	2,125
Long-term, net	1,239		1,215
Financing receivables held by consolidated VIEs, net	$	3,312	$	3,340

Financing receivables transferred via securitization through SPEs were $0.6 billion and $0.7 billion for the three months ended October 28, 2016 and October 30, 2015, respectively, and $2.0 billion and $2.5 billion for the nine months ended October 28, 2016 and October 30, 2015, 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, collateralized by the financing receivables held by the consolidated VIEs, was $2.8 billion as of both October 28, 2016 and January 29, 2016. The Company's risk of loss related to securitized receivables is limited to the amount by which the Company's right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the securitization in the form of over-collateralization.

The Company's total structured financing debt, which is collateralized by financing receivables in the United States, Canada, and Europe, was $3.4 billion as of both October 28, 2016 and January 29, 2016 under the following programs:

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The structured financing debt program in the United States, which is related to the fixed-term lease and loan securitization program and the revolving loan securitization program, was $1.1 billion and $1.3 billion as of October 28, 2016 and January 29, 2016, 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 October 28, 2016, the total debt capacity related to the securitization programs was $2.1 billion. The Company enters into interest swap agreements to effectively convert the portion of its structured financing debt from a floating rate to a fixed rate. See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information about interest rate swaps.

The Company's securitization programs became effective on October 29, 2013. The revolving program, which was extended during the third quarter of Fiscal 2017, is effective for four and one-half years. The fixed term program, which was extended during the first quarter of Fiscal 2016, is effective for four and one-half years. The 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 October 28, 2016, these criteria were met.

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The Company may periodically issue asset-backed debt securities to private investors. As of October 28, 2016, the associated debt balance of these securities was $1.7 billion. The asset-backed debt securities are collateralized solely by the U.S. fixed-term financing receivables in the offerings, which are held by SPEs. The interest rate on these securities is fixed and ranges from 0.26% to 3.61% and the duration of these securities is based on the terms of the underlying financing receivables.

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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. As of October 28, 2016, the Canadian program, which was extended during the nine months ended October 28, 2016, had a total debt capacity of $164 million. This program is effective for two years, beginning on April 15, 2016, and is collateralized solely by the Canadian financing receivables. The European program, which was extended during the three months ended May 1, 2015, is effective for four years, beginning on December 23, 2013. The program is collateralized solely by the European financing receivables and had a total debt capacity of $654 million as of October 28, 2016. The aggregate outstanding balances of the Canadian and European revolving structured loans as of October 28, 2016 and January 29, 2016 were $576 million and $559 million, respectively.

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 $200 million and $40 million during the nine months ended October 28, 2016 and October 30, 2015, respectively.