Related Party Transactions

12 Months Ended

Jan. 31, 2020

RELATED PARTY TRANSACTIONS

Allocated Expenses

For the periods presented, Dell has provided various corporate services to Secureworks in the ordinary course of business. The costs of services provided to Secureworks by Dell are governed by a shared services agreement between Secureworks and Dell Inc. The total amounts of the charges under the shared services agreement with Dell were $9.1 million, $3.7 million and $4.9 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively. Management believes that the basis on which the expenses have been allocated is a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the periods presented.

Related Party Arrangements

For the periods presented, related party transactions and activities involving Dell Inc. and its wholly-owned subsidiaries were not always consummated on terms equivalent to those that would prevail in an arm’s-length transaction where conditions of competitive, free-market dealing may exist.

The Company purchases computer equipment for internal use from Dell and its subsidiaries that is capitalized within property and equipment in the Consolidated Statements of Financial Position. These purchases were made at pricing that is intended to approximate arm's-length pricing. Purchases of computer equipment from Dell and EMC Corporation, a wholly-owned subsidiary of Dell that provides enterprise software and storage ("EMC"), totaled $3.1 million, $2.7 million and $2.6 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively.

EMC maintains a majority ownership interest in a subsidiary, VMware, Inc. (“VMware”), that provides cloud and virtualization software and services. The Company's purchases of annual maintenance services, software licenses and hardware systems for internal use from Dell, EMC and VMware totaled $3.4 million, $1.2 million and $1.3 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively. Additionally, during the fiscal year ended January 31, 2020, VMware acquired Carbon Black Inc., a security business with which the Company had an existing commercial relationship. From the date of the acquisition through the end of fiscal 2020, purchases of solutions by the Company from Carbon Black totaled $2.2 million and, as of January 31, 2020, the Company had liabilities to Carbon Black totaling $0.3 million.

The Company recognized revenue related to security solutions provided to other subsidiaries of Dell Technologies, consisting of RSA Security LLC, Pivotal Software, Inc. and Boomi, Inc. The revenue recognized by the Company for security solutions provided to these entities totaled $0.1 million, $0.3 million and $0.2 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively. Purchases by the Company from these other subsidiaries totaled $0.1 million, $0.7 million and $0.1 million during the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively.

The Company also recognized revenue related to solutions provided to significant beneficial owners of Secureworks common stock, which include Michael S. Dell, Chairman and Chief Executive Officer of Dell Technologies, and affiliates of Mr. Dell. The revenues recognized by the Company from solutions provided to Mr. Dell, MSD Capital, L.P. (a firm founded for the purposes of managing investments of Mr. Dell and his family), DFI Resources LLC, an entity affiliated with Mr. Dell, and the Michael and Susan Dell Foundation totaled $0.4 million, $0.5 million and $0.4 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively.

The Company provides solutions to certain customers whose legal contractual relationship has historically been with Dell rather than Secureworks, although the Company has the primary responsibility to provide the services. Effective on August 1, 2015, upon the creation of new subsidiaries to segregate some of the Company’s operations from Dell’s operations, as described in “Note 1—Description of the Business and Basis of Presentation,” many of such customer contracts were transferred from Dell to the Company, forming a direct legal contractual relationship between the Company and the end customer. For customers whose contracts have not yet been transferred or whose contracts were subsequently originated through Dell under a reseller agreement, the Company recognized revenues of approximately $57.8 million, $59.0 million and $44.7 million for the fiscal years ended January 31, 2020, February 1, 2019 and February 2, 2018, respectively. In addition, as of January 31, 2020, the Company had approximately $1.8 million of contingent obligations to Dell related to outstanding performance bonds for certain customer contracts, which Dell issued on behalf of the Company.

As the Company’s customer and on behalf of certain of its own customers, Dell also purchases solutions from the Company. Beginning in the third quarter of the fiscal year ended January 29, 2016, in connection with the effective date of the Company’s commercial agreements with Dell, the Company began charging Dell for these services at pricing that is intended to approximate arm’s-length pricing, in lieu of the prior cost recovery arrangement. Such revenues totaled approximately $27.2 million, $16.6 million, and $21.1 million for the fiscal years ended January 31, 2020, February 1, 2019, and February 2, 2018, respectively.

As a result of the foregoing related party arrangements beginning in the third quarter of the fiscal year ended January 29, 2016, the Company has recorded the following related party balances in the Consolidated Statement of Financial Position as of January 31, 2020 and February 1, 2019:



	January 31, 2020		February 1, 2019
	(in thousands)
Related party payable (in accrued and other current liabilities)	$	3,209	$	15,634

Accounts receivable from customers under reseller agreements with Dell (in accounts receivable, net)	$	13,674	$	21,760

Net operating loss tax sharing receivable under agreement with Dell (in other current assets)	$	10,040	$	6,853