NOTE 8—GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisition of Dell by Denali Holding on October 29, 2013, all of the Company’s tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed was accounted for and recognized as goodwill. Accordingly, on the date of the going-private transaction, there was no excess fair value for any of the Company’s goodwill reporting units.
- F-36 -
DENALI HOLDING INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
The following table presents goodwill allocated to Denali’s business segments as of January 29, 2016 and January 30, 2015, and changes in the carrying amount of goodwill for the respective periods:
| Client Solutions |
Enterprise Solutions Group |
Dell Software Group |
Dell Services |
Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Successor |
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| Balance at January 31, 2014 |
$ | 4,433 | $ | 3,911 | $ | 1,362 | $ | 310 | $ | 10,016 | ||||||||||
| Goodwill recognized during the period (a) |
— | — | 49 | — | 49 | |||||||||||||||
| Adjustments (b) |
(5 | ) | (4 | ) | (1 | ) | (2 | ) | (12 | ) | ||||||||||
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| Balance at January 30, 2015 |
$ | 4,428 | $ | 3,907 | $ | 1,410 | $ | 308 | $ | 10,053 | ||||||||||
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| Balance at January 30, 2015 |
$ | 4,428 | $ | 3,907 | $ | 1,410 | $ | 308 | $ | 10,053 | ||||||||||
| Goodwill recognized during the period |
— | — | — | — | — | |||||||||||||||
| Adjustments |
— | — | (4 | ) | — | (4 | ) | |||||||||||||
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| Balance at January 29, 2016 |
$ | 4,428 | $ | 3,907 | $ | 1,406 | $ | 308 | $ | 10,049 | ||||||||||
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| (a) | Amount represents goodwill acquired in connection with the acquisition of StatSoft, Inc. The purchase price for this acquisition was $73 million. |
| (b) | During Fiscal 2015, the Company recorded $12 million in net adjustments to goodwill primarily related to purchase accounting for the going-private transaction described above. These adjustments included a reduction of a liability balance as well as a change in tax assumption related to purchase accounting. |
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred. Based on the results of the annual impairment test, which was a qualitative and quantitative test, no impairment of goodwill or indefinite-lived intangible assets existed for any reporting unit as of October 30, 2015. As a result of this analysis, it was determined that the excess of fair value over carrying amount was greater than 15% for all of the Company’s goodwill reporting units, with the exception of Dell Software Group, which had an excess of fair value over carrying amount of 14%. Management will continue to monitor the Dell Software Group goodwill reporting unit and consider potential impacts to the impairment assessment. No triggering events transpired subsequent to the annual impairment test that would indicate a potential impairment of goodwill as of January 29, 2016. Further, the Company did not have any accumulated goodwill impairment charges as of January 29, 2016.
Management exercised significant judgment related to the above assessment, including the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each goodwill reporting unit is generally estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, the estimation of the long-term growth rate of the Company’s business, and the determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.
- F-37 -
DENALI HOLDING INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Denali’s intangible assets as of January 29, 2016 and January 30, 2015, were as follows:
| Successor | Successor | |||||||||||||||||||||||
| January 29, 2016 | January 30, 2015 | |||||||||||||||||||||||
| Gross | Accumulated Amortization |
Net | Gross | Accumulated Amortization |
Net | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Customer relationships |
$ | 10,764 | $ | (3,889 | ) | $ | 6,875 | $ | 10,766 | $ | (2,236 | ) | $ | 8,530 | ||||||||||
| Technology |
2,115 | (1,062 | ) | 1,053 | 2,120 | (579 | ) | 1,541 | ||||||||||||||||
| Trade names |
334 | (119 | ) | 215 | 334 | (66 | ) | 268 | ||||||||||||||||
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| Finite-lived intangible assets |
13,213 | (5,070 | ) | 8,143 | 13,220 | (2,881 | ) | 10,339 | ||||||||||||||||
| Indefinite-lived intangible assets |
1,435 | — | 1,435 | 1,435 | — | 1,435 | ||||||||||||||||||
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| Total intangible assets |
$ | 14,648 | $ | (5,070 | ) | $ | 9,578 | $ | 14,655 | $ | (2,881 | ) | $ | 11,774 | ||||||||||
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Amortization expense related to finite-lived intangible assets was approximately $2.2 billion and $2.3 billion during the fiscal years ended January 29, 2016 and January 30, 2015, respectively, $584 million during the successor period ended January 31, 2014, and $594 million during the predecessor period ended October 28, 2013. There were no material impairment charges related to intangible assets during the fiscal years ended January 29, 2016 and January 30, 2015, the successor period ended January 31, 2014, or the predecessor period ended October 28, 2013.
Estimated future annual pre-tax amortization expense of finite-lived intangible assets as of January 29, 2016 over the next five fiscal years and thereafter is as follows:
| Fiscal Years |
(in millions) | |||
| 2017 |
$ | 2,160 | ||
| 2018 |
1,923 | |||
| 2019 |
1,842 | |||
| 2020 |
971 | |||
| 2021 |
690 | |||
| Thereafter |
557 | |||
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| Total |
$ | 8,143 | ||
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