The Company offers or arranges various financing options, services, and alternative payment structures for its customers in North America, Europe, Australia, and New Zealand through Dell Financial Services and its affiliates (“DFS”). The Company also arranges financing for some of its customers in various countries where DFS does not currently operate as a captive enterprise. The key activities of DFS include originating, collecting, and servicing customer financing arrangements primarily related to the purchase or use of Dell Technologies products and services. In some cases, DFS also offers financing on the purchase of third-party technology products that complement the Dell Technologies portfolio of products and services. New financing originations were $1.8 billion and $1.7 billion for the three months ended May 1, 2020 and May 3, 2019, respectively.

Revolving loans — Revolving loans offered under private label credit financing programs provide qualified customers with a revolving credit line for the purchase of products and services offered by Dell Technologies. These private label credit financing programs are referred to as Dell Preferred Account (“DPA”) and Dell Business Credit (“DBC”). The DPA product is primarily offered to individual consumer customers, and the DBC product is primarily offered to small and medium-sized commercial customers. Revolving loans in the United States bear interest at a variable annual percentage rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions are typically repaid within twelve months on average. Due to the short-term nature of the revolving loan portfolio, the carrying value of the portfolio approximates fair value.

Fixed-term leases and loans — The Company enters into financing arrangements with customers who seek lease financing for equipment they might otherwise purchase. Pursuant to the current lease accounting standard effective February 2, 2019, new DFS leases are classified as sales-type leases, direct financing leases, or operating leases. When the terms of the DFS lease transfer control of the underlying asset to the lessee, the contract is typically classified as a sales-type lease. Direct financing leases are immaterial. All other new DFS leases are classified as operating leases. Leases that commenced prior to the effective date of the current lease accounting standard continue to be accounted for under previous lease accounting guidance. Leases with business customers have fixed terms of generally two to four years.

The Company also offers fixed-term loans to qualified small businesses, large commercial accounts, governmental organizations, educational entities, and certain individual consumer customers. These loans are repaid in equal payments including interest and have defined terms of generally three to five years. The fair value of the fixed-term loan portfolio is determined using market observable inputs. The carrying value of these loans approximates fair value.

The following table presents the components of the Company’s financing receivables segregated by portfolio segment as of the dates indicated:



	May 1, 2020									January 31, 2020
	Revolving			Fixed-term			Total			Revolving			Fixed-term			Total
	(in millions)
Financing receivables, net:
Customer receivables, gross (a)	$	786		$	8,446		$	9,232		$	824		$	8,486		$	9,310
Allowances for losses	(144		)	(177		)	(321		)	(70		)	(79		)	(149		)
Customer receivables, net	642			8,269			8,911			754			8,407			9,161
Residual interest	—			551			551			—			582			582
Financing receivables, net	$	642		$	8,820		$	9,462		$	754		$	8,989		$	9,743
Short-term	$	642		$	4,110		$	4,752		$	754		$	4,141		$	4,895
Long-term	$	—		$	4,710		$	4,710		$	—		$	4,848		$	4,848

The allowance for losses as of May 1, 2020 includes the adoption of the new CECL standard, which was adopted as of February 1, 2020 using the modified retrospective method. Prior period amounts have not been recast. The provision recognized on the Condensed Consolidated Statements of Income (Loss) during the three months ended May 1, 2020 is based on an assessment of the impact of current and expected future economic conditions, inclusive of the effect of the COVID-19 pandemic on credit losses. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods. See Note 1 and Note 2 of the Notes to the Condensed Consolidated Financial Statements for additional information about the new CECL standard.



	Three Months Ended
	May 1, 2020									May 3, 2019
	Revolving			Fixed-term			Total			Revolving			Fixed-term			Total
	(in millions)
Allowance for financing receivable losses:
Balances at beginning of period	$	70		$	79		$	149		$	75		$	61		$	136
Adjustment for adoption of the new CECL standard (Note 1)	40			71			111			—			—			—
Charge-offs, net of recoveries	(20		)	(9		)	(29		)	(20		)	(3		)	(23		)
Provision charged to income statement	54			36			90			15			15			30
Balances at end of period	$	144		$	177		$	321		$	70		$	73		$	143



	May 1, 2020								January 31, 2020
	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	$	547	$	34	$	17	$	598	$	550	$	51	$	20	$	621
Revolving — DBC	162		21		5		188		184		15		4		203
Fixed-term — Consumer and Commercial	6,963		1,333		150		8,446		8,005		373		108		8,486
Total customer receivables, gross	$	7,672	$	1,388	$	172	$	9,232	$	8,739	$	439	$	132	$	9,310

Aging is likely to fluctuate as a result of the variability in volume of large transactions entered into over the period, and the administrative processes that accompany those larger transactions. Aging is also impacted by the timing of Dell Technologies fiscal period end date, relative to calendar month-end customer payment due dates. As a result of these factors, fluctuations in aging from period to period do not necessarily indicate a material change in the collectibility of the portfolio.

Fixed-term consumer and commercial customer receivables are placed on non-accrual status if principal or interest is past due and considered delinquent, or if there is concern about collectibility of a specific customer receivable. These receivables identified as doubtful for collectibility may be classified as current for aging purposes. Aged revolving portfolio customer receivables identified as delinquent are charged off.



	May 1, 2020
	Fixed-term — Consumer and Commercial
	Fiscal Year of Origination
	2021		2020		2019		2018		2017		Years Prior		Revolving — DPA (a)		Revolving — DBC (a)		Total
	(in millions)
Higher	$	1,150	$	2,438	$	1,141	$	393	$	68	$	2	$	135	$	51	$	5,378
Mid	229		883		498		182		34		2		169		56		2,053
Lower	184		647		443		119		29		4		294		81		1,801
Total	$	1,563	$	3,968	$	2,082	$	694	$	131	$	8	$	598	$	188	$	9,232

The categories shown in the tables above segregate customer receivables based on the relative degrees of credit risk. The credit quality indicators for DPA revolving accounts are measured primarily as of each quarter-end date, while all other indicators are generally updated on a periodic basis.

For DPA revolving receivables shown in the table above, the Company makes credit decisions based on proprietary scorecards, which include the customer’s credit history, payment history, credit usage, and other credit agency-related elements. The higher quality category includes prime accounts generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720 or above. The mid-category represents the mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719. The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to U.S. customer FICO scores below 660. For the DBC revolving receivables and fixed-term commercial receivables shown in the table above, an internal grading system is utilized that assigns a credit level score based on a number of considerations, including liquidity, operating performance, and industry outlook. The grading criteria and classifications for the fixed-term products differ from those for the revolving products as loss experience varies between these product and customer groups. The credit quality categories cannot be compared between the different classes as loss experience varies substantially between the classes.

The following table presents the net revenue, cost of net revenue, and gross margin recognized at the commencement date of sales-type leases for the periods indicated:



	Three Months Ended
	May 1, 2020		May 3, 2019
	(in millions)
Net revenue — products	$	215	$	130
Cost of net revenue — products	159		81
Gross margin — products	$	56	$	49

The following table presents the future maturity of the Company’s fixed-term customer leases and associated financing payments, and reconciles the undiscounted cash flows to the customer receivables, gross recognized on the Condensed Consolidated Statements of Financial Position as of the date indicated:



	May 1, 2020
Fiscal Years	(in millions)
Fiscal 2021 (remaining nine months)	$	2,050
Fiscal 2022	1,812
Fiscal 2023	1,045
Fiscal 2024	406
Fiscal 2025 and beyond	137
Total undiscounted cash flows	5,450
Fixed-term loans	3,588
Revolving loans	786
Less: unearned income	(592		)
Total customer receivables, gross	$	9,232

Operating lease income relating to lease payments was $87 million and $4 million for the three months ended May 1, 2020 and May 3, 2019, respectively. Depreciation expense was $62 million and $3 million for the three months ended May 1, 2020 and May 3, 2019, respectively.

The Company maintains programs that facilitate the funding of leases, loans, and other alternative payment structures in the capital markets. The majority of DFS debt is non-recourse to Dell Technologies and represents borrowings under securitization programs and structured financing programs, for which the Company’s risk of loss is limited to transferred loan and lease payments and associated equipment. The following table presents DFS debt as of the dates indicated. The table excludes the allocated portion of the Company’s other borrowings, which represents the additional amount considered to fund the DFS business.



	May 1, 2020		January 31, 2020
	(in millions)
DFS U.S. debt:
Asset-based financing and securitization facilities	$	2,429	$	2,606
Fixed-term securitization offerings	3,251		2,593
Other	117		141
Total DFS U.S. debt	5,797		5,340
DFS international debt:
Securitization facility	773		743
Other borrowings	970		931
Note payable	181		200
Dell Bank Senior Unsecured Eurobonds	548		551
Total DFS international debt	2,472		2,425
Total DFS debt	$	8,269	$	7,765
Total short-term DFS debt	$	4,397	$	4,152
Total long-term DFS debt	$	3,872	$	3,613

Asset-Based Financing and Securitization Facilities — The Company maintains separate asset-based financing facilities and a securitization facility in the United States, which are revolving facilities for fixed-term leases and loans and for revolving loans, respectively. This debt is collateralized solely by the U.S. loan and lease payments and associated equipment in the facilities. The debt has a variable interest rate and the duration of the debt is based on the terms of the underlying loan and lease payment streams. As of May 1, 2020, the total debt capacity related to the U.S. asset-based financing and securitization facilities was $4.0 billion. The Company enters into interest swap agreements to effectively convert a portion of this debt from a floating rate to a fixed rate. See Note 7 of the Notes to the Condensed Consolidated Financial Statements for additional information about interest rate swaps.

The Company’s U.S. securitization facility for revolving loans is effective through June 25, 2022. The Company’s two U.S. asset-based financing facilities for fixed-term leases and loans are effective through August 22, 2021 and July 26, 2022, respectively.

The asset-based financing and securitization facilities contain standard structural features related to the performance of the funded receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the facility, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of May 1, 2020, these criteria were met.

Fixed-Term Securitization Offerings — The Company periodically issues asset-backed debt securities under fixed-term securitization programs to private investors. The asset-backed debt securities are collateralized solely by the U.S. fixed-term leases and loans in the offerings, which are held by Special Purpose Entities (“SPEs”), as discussed below. The interest rate on these securities is fixed and ranges from 1.91% to 5.92% per annum, and the duration of these securities is based on the terms of the underlying loan and lease payment streams.

The securitization facility contains standard structural features related to the performance of the securitized receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the program, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of May 1, 2020, these criteria were met.

Other Borrowings — In connection with the Company’s international financing operations, the Company has entered into revolving structured financing debt programs related to its fixed-term lease and loan products sold in Canada, Europe, Australia, and New Zealand. The Canadian facility, which is collateralized solely by Canadian loan and lease payments and associated equipment, had a total debt capacity of $269 million as of May 1, 2020, and is effective through January 16, 2023. The European facility, which is collateralized solely by European loan and lease payments and associated equipment, had a total debt capacity of $657 million as of May 1, 2020, and is effective through June 14, 2022. The Australia and New Zealand facility, which is collateralized solely by Australia and New Zealand loan and lease payments and associated equipment, had a total debt capacity of $228 million as of May 1, 2020, and is effective through December 20, 2021.

Note Payable — On November 27, 2017, the Company entered into an unsecured credit agreement to fund receivables in Mexico. As of May 1, 2020, the aggregate principal amount of the note payable is $181 million. The note bears interest at either the applicable London Interbank Offered Rate (“LIBOR”) plus 2.25%, for the borrowings denominated in U.S. dollars, or the Mexican Interbank Equilibrium Interest Rate (“TIIE”) plus 2.00%, for the borrowings denominated in Mexican pesos. The note will mature on December 1, 2020.

Dell Bank Senior Unsecured Eurobonds — On October 17, 2019, Dell Bank International D.A.C. issued 500 million Euro of 0.625% senior unsecured three year eurobonds due October 2022. The issuance of the senior unsecured eurobonds supports the expansion of the financing operations in Europe.

In connection with the asset-based financing facilities, securitization facilities, and fixed-term securitization offerings discussed above, the Company transfers certain U.S. and European loan and lease payments and associated equipment to SPEs that meet the definition of a Variable Interest Entity (“VIE”) and are consolidated, along with the associated debt detailed above, into the Consolidated Financial Statements, as the Company is the primary beneficiary of those VIEs. The SPEs are bankruptcy-remote legal entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer loan and lease payments and associated equipment in the capital markets.

Some of the SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. The DFS debt outstanding, which is collateralized by the loan and lease payments and associated equipment held by the consolidated VIEs, was $6.5 billion and $5.9 billion as of May 1, 2020 and January 31, 2020, respectively. The Company’s risk of loss related to securitized receivables is limited to the amount by which the Company’s right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the securitizations in the form of over-collateralization.

To manage certain concentrations of customer credit exposure, the Company may sell selected fixed-term customer receivables to unrelated third parties on a periodic basis, without recourse. The amount of customer receivables sold for this purpose was $21 million and $101 million for the three months ended May 1, 2020 and May 3, 2019, respectively. The Company’s continuing involvement in the above mentioned customer receivables is primarily limited to servicing arrangements.