DISCONTINUED OPERATIONS

12 Months Ended

Feb. 02, 2024

Discontinued Operations and Disposal Groups [Abstract]

VMware Spin-Off — As disclosed in Note 1 of the Notes to the Consolidated Financial Statements, on November 1, 2021, the Company completed its spin-off of VMware by means of a special stock dividend of 30,678,605 shares of Class A common stock and 307,221,836 shares of Class B common stock of VMware to Dell Technologies stockholders of record as of October 29, 2021. VMware paid a cash dividend, pro rata, to each of the holders of VMware common stock in an aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion.

Dell Technologies determined that the VMware Spin-off, and related distributions, qualified as tax-free for U.S. federal income tax purposes, which required significant judgment by management. In making these determinations, Dell Technologies applied U.S. federal tax law to relevant facts and circumstances and obtained a favorable private letter ruling from the Internal Revenue Service, a tax opinion, and other external tax advice related to the concluded tax treatment. If the completed transactions were to fail to qualify for tax-free treatment for U.S. federal income tax purposes, the Company could be subject to significant liabilities, which could have material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.

In connection with and upon completion of the VMware Spin-off, Dell Technologies and VMware entered into various agreements that provided a framework for the relationship between the companies after the transaction, including, among others, a commercial framework agreement, a tax matters agreement, and a transition services agreement.

The Commercial Framework Agreement (“CFA”) provided a framework under which the Company and VMware continued their commercial relationship after the transaction, particularly with respect to projects mutually agreed by the parties as having the potential to accelerate the growth of an industry, product, service, or platform that may provide one or both companies with a strategic market opportunity.

On November 22, 2023, VMware was acquired by Broadcom, Inc. (“Broadcom”). Following the acquisition, Broadcom announced changes to its go-to-market approach for VMware offerings, which impacted the Company’s commercial relationship with VMware. In response to such changes, on January 25, 2024, under a provision of the CFA permitting the Company to terminate the agreement upon a change in control of VMware, the Company delivered notice of termination of the CFA to Broadcom under which the agreement will terminate on March 25, 2024.

Cash flows between Dell Technologies and VMware for the periods presented primarily relate to the Company’s resale of VMware’s standalone products and services and sale of Dell Technologies’ offerings integrated with select VMware products and services. See Note 20 of the Notes to the Consolidated Financial Statements for additional information regarding transactions between Dell Technologies and VMware.

In accordance with applicable accounting guidance, the results of VMware, excluding Dell Technologies’ resale of VMware offerings, are presented as discontinued operations in the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and segment results for the fiscal year ended January 28, 2022. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations for the fiscal year ended January 28, 2022.

The tax matters agreement between the Company and VMware governs the respective rights, responsibilities, and obligations of Dell Technologies and VMware with respect to tax liabilities (including taxes, if any, incurred as a result of any failure of the VMware Spin-off to qualify for tax-free treatment for U.S. federal income tax purposes) and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, cooperation, and other matters regarding tax.

The transition services agreement between the Company and VMware governed the various administrative services which the Company provided to VMware on an interim transitional basis. Transition services were fulfilled and concluded during the fiscal year ended February 3, 2023.

The following table presents key components of “Income from discontinued operations, net of income taxes” for the fiscal year ended January 28, 2022:


	Fiscal Year Ended
	January 28, 2022

	(in millions)
Net revenue	$	5,798
Cost of net revenue	(1,632)
Operating expenses	6,384
Interest and other, net	232
Income from discontinued operations before income taxes	814
Income tax expense	49
Income from discontinued operations, net of income taxes	$	765

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The table above reflects the offsetting effects of historical intercompany transactions which are presented on a gross basis within continuing operations on the Consolidated Statements of Income.

The following table presents significant cash flow items from discontinued operations for the fiscal year ended January 28, 2022 included within the Consolidated Statements of Cash Flows:


	Fiscal Year Ended
	January 28, 2022
	(in millions)
Depreciation and amortization	$	1,004
Capital expenditures	$	263
Stock-based compensation expense	$	814