8-KRegulation FDExhibits & Filings

Dell Technologies Inc. 8-K Report, Regulation FD Disclosure (Apr 26, 2018)

Filed April 26, 2018For Securities:DELL

Summary

Dell Technologies Inc. (DELL) filed an 8-K on April 26, 2018, to disclose the material impacts of adopting new accounting standards for revenue recognition (ASC 606) effective February 3, 2018. This change, applied retrospectively, will alter how the company recognizes revenue, particularly for software licenses, variable considerations, extended warranties, and costs associated with obtaining contracts. Investors should note that the adoption is expected to result in more upfront recognition of software license revenue and earlier recognition of hardware revenue due to changes in performance obligation satisfaction and contract terms. The adoption will also impact the balance sheet, with increases anticipated in accounts receivable, net, and other assets, while deferred revenue is expected to decline. Dell is providing recast financial information to reflect these changes and will hold a conference call to discuss the impacts. While the information is furnished and not deemed 'filed' for liability purposes, it provides crucial insights into Dell's financial reporting under the new framework, which is essential for understanding the company's financial performance going forward.

Key Highlights

  • 1Adoption of ASC 606 (Revenue From Contracts With Customers) effective February 3, 2018, applied retrospectively.
  • 2Expected increase in upfront recognition of software license revenue due to removal of VSOE requirements.
  • 3Separation of software license revenue from post-contract customer support (PCS) revenue, with licenses recognized upon delivery and PCS over the contract term.
  • 4Earlier recognition of hardware revenue for certain contracts due to new guidance on transfer of control.
  • 5Capitalization and amortization of proportional sales commission costs for contracts over one year.
  • 6Anticipated increase in accounts receivable, net, and other assets, and a decrease in deferred revenue on the balance sheet.
  • 7Provision of selected financial information recast under the new standard (Exhibit 99.1).

Frequently Asked Questions

This 8-K filing is to inform investors about the material impacts of Dell Technologies Inc. adopting the new accounting standard ASC 606, 'Revenue From Contracts With Customers,' effective February 3, 2018. The company is presenting previously reported financial information on a basis consistent with this new standard.

The adoption will allow for more upfront recognition of software license revenue. Previously, Dell often deferred revenue due to the absence of Vendor Specific Objective Evidence (VSOE) for all contract deliverables. Under ASC 606, this requirement is removed, enabling revenue recognition upon satisfaction of each performance obligation, which includes recognizing license revenue upon delivery and separating it from post-contract customer support (PCS) revenue.

The adoption is expected to increase accounts receivable, net, due to new guidance on transfer of control and changes in the presentation of return rights. Other assets are also expected to increase, primarily due to the capitalization of sales commission costs. Conversely, deferred revenue is anticipated to decrease due to earlier revenue recognition for software licenses and extended warranties.

Yes, for contracts including both hardware and extended warranty, ASC 606 will result in more of the total transaction price being allocated to the hardware, leading to earlier revenue recognition upon hardware shipment. Less revenue will be allocated to the extended warranty compared to prior accounting methods.