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Dell (DELL)

Filed: 15 Aug 13, 12:00am

Exhibit 99.1

FY14 Q2 Press Release (FINAL)

8/15/13 10:45 am

Dell Reports Fiscal Year 2014 Second Quarter Financial Results

 

  

Revenue of $14.5 billion, flat year over year

 

  

Enterprise Solutions, Software and Services revenue up 9 percent

 

  

GAAP earnings of $0.12 per share; non-GAAP earnings of $0.25 per share

ROUND ROCK, Texas, Aug. 15, 2013 -Dell today announced fiscal 2014 second quarter results, with revenue of $14.5 billion, GAAP earnings of $0.12 per share and non-GAAP earnings of $0.25 per share. The company’s Enterprise Solutions, Services and Software (ES&S) revenue was $5.8 billion, growing 9 percent year over year, including the benefit of the Quest acquisition. In End User Computing, revenue was down 5 percent year over year.

“In a challenging environment, we remain committed to our strategy and our customers, and we’re encouraged by increasing customer interest in our end-to-end solutions offerings and continued growth in our Enterprise Solutions, Services and Software businesses,” said Brian Gladden, Dell chief financial officer.

Results

 

  

Revenuein the quarter was $14.5 billion, flat from the previous year.

 

  

GAAP operating income for the quarter was $272 million, or 1.9 percent of revenue.Non-GAAP operating income was $602 million, or 4.1 percent of revenue.

 

  

GAAP earnings per share was 12 cents, down 71 percent from the previous year;non-GAAP earnings per sharewas 25 cents, down 50 percent.

 

  

Cash flowfrom operations in the quarter was $1.7 billion. Dell ended the quarter with $13.9 billion in cash and investments.

Fiscal-Year 2014 Second Quarter Results

 

   Second Quarter 
(in millions)  FY14   FY13   Change 

Revenue

  $14,514    $14,483     0

Operating Income (GAAP)

  $272    $901     (70)% 

Net Income (GAAP)

  $204    $732     (72)% 

EPS (GAAP)

  $0.12    $0.42     (71)% 

Operating Income (non-GAAP)

  $602    $1,123     (46)% 

Net Income (non-GAAP)

  $433    $875     (51)% 

EPS (non-GAAP)

  $0.25    $0.50     (50)% 

Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes amortization of purchased intangibles, severance and facility actions, acquisition-related charges, costs incurred in Fiscal 2014 related to Dell’s proposed merger, and other items. All comparisons in this press release are year over year unless otherwise noted.

Operating Segments Summary:

 

  

Enterprise Solutions Group revenue was $3.3 billion, an 8 percent increase. Operating income for the quarter was $137 million, a 9 percent decrease. Dell server, networking and peripherals revenue increased 10 percent, the fifth consecutive quarter of growth for this business, driven by continued strength in hyper-scale data center servers. Dell networking continued to grow, with a 19 percent revenue increase. Dell storage revenue declined 7 percent.


  

Dell Servicesrevenue was $2.1 billion, up 2 percent, driven by a 3 percent increase in support and deployment revenue and a 5 percent increase for infrastructure, cloud and security services revenue. Applications and business process services revenue declined 6 percent. Total Services operating income was $339 million, a 1 percent increase.

 

  

Dell Software revenue was $310 million, and recorded an operating loss. The company is continuing to enhance its software capabilities with investments in this business that increase R&D and sales capacity.

 

  

End User Computingrevenue was $9.1 billion in the quarter, a 5 percent decrease. Operating income for the quarter was $205 million, a 71 percent decrease. Dell desktop and thin client revenue increased 1 percent, mobility revenue declined 10 percent, and revenue from software from third parties and peripherals declined 5 percent. Dell was the only vendor among the top five worldwide to increase PC unit-shipment share both year over year and sequentially in the past two calendar quarters, according to IDC.

Company Outlook:

Given the company’s announcement on Feb. 5 of a definitive merger agreement to take Dell private, the company is not providing an outlook.

About Dell

Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services that give them the power to do more. For more information, visitwww.dell.com. To communicate directly with Dell, go towww.dell.com/dellshares. Follow Dell on its Investor Relations Twitter account at:http://twitter.com/dellshares or hashtag#DellEarnings.

Non-GAAP Financial Measures:

This press release includes information about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures.” Dell encourages investors to review the reconciliation in conjunction with Dell’s presentation of these non-GAAP financial measures.

Special Note on Forward Looking Statements:

Statements in this press release that relate to future results and events are forward-looking statements and are based on Dell’s current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: effects of Dell’s proposed merger; intense competition; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; Dell’s ability to achieve favorable pricing from its vendors; weak global economic conditions and instability in financial markets; Dell’s ability to manage effectively the change involved in implementing strategic initiatives; successful implementation of Dell’s acquisition strategy; Dell’s cost-efficiency measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to deliver consistent quality products and services; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell’s sales channel partners; access to the capital markets by Dell or its customers; weak economic conditions and additional regulation affecting Dell’s financial services activities; counterparty default; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; loss of government contracts; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions; cyber-attacks or other data security breaches; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; Dell’s ability to attract, retain, and motivate key personnel; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended February 1, 2013, as amended on June 3, 2013. Factors or risks that could cause Dell’s actual results to differ materially from the results it anticipates also include: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (2) the inability to complete the proposed merger due to the failure to obtain stockholder approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; (3) the failure to obtain the necessary financing arrangements set forth in the debt and equity commitment letters delivered pursuant to the merger agreement; (4) risks related to disruption of management’s attention from the Company’s ongoing business operations due to the transaction; and (5) the effect of the announcement of the proposed merger on the Company’s relationships with its customers, operating results and business generally. Dell assumes no obligation to update its forward-looking statements.


Additional Information and Where to Find It

In connection with the proposed merger transaction, the Company filed with the SEC a definitive proxy statement and other relevant documents, including a form of proxy card, on May 31, 2013, and a revised definitive proxy statement on August 14, 2013. The definitive proxy statement and a form of proxy have been mailed to the Company’s stockholders. Stockholders are urged to read the proxy statement and any other documents filed with the SEC in connection with the proposed merger or incorporated by reference in the proxy statement because they contain important information about the proposed merger.

Investors will be able to obtain a free copy of documents filed with the SEC at the SEC’s website athttp://www.sec.gov. In addition, investors may obtain a free copy of the Company’s filings with the SEC from the Company’s website athttp://content.dell.com/us/en/corp/investor-financial-reporting.aspx or by directing a request to: Dell Inc. One Dell Way, Round Rock, Texas 78682, Attn: Investor Relations, (512) 728-7800,investor_relations@dell.com.

The Company and its directors, executive officers and certain other members of management and employees of the Company are “participants” in the solicitation of proxies from stockholders of the Company in favor of the proposed merger. Information regarding the persons who, under the rules of the SEC, are participants in the solicitation of the stockholders of the Company in connection with the proposed merger and their direct or indirect interests, by security holdings or otherwise, which may be different from those of the Company’s stockholders generally, are set forth in the proxy statement and the other relevant documents filed with the SEC. You can find information about the Company’s executive officers and directors in its Annual Report on Form 10-K for the fiscal year ended February 1, 2013, as amended on June 3, 2013.

Consolidated statements of income, financial position and cash flows and other financial data follow.

Dell is a trademark of Dell Inc. Dell disclaims any proprietary interest in the marks and names of others.

 

Contact Information
Media Contacts: (512) 728-4100
David Frink Dell (512) 728-2678 david_frink@dell.com
Investor Relations Contacts:  
David Mehok Dell (512) 728-4225 david_mehok@Dell.com
Karina Franco Dell (512) 728-5224 karina_franco@dell.com


DELL INC.

Condensed Consolidated Statement of Income and Related Financial Highlights

(in millions, except per share data and percentages)

(unaudited)

 

   Three Months Ended  % Growth Rates 
   August 2,
2013
  May 3,
2013
  August 3,
2012
  Sequential  Yr. to Yr. 

Net revenue

      

Products

  $11,326   $10,902   $11,403    4  (1%) 

Services, including software related

   3,188    3,172    3,080    1  4
  

 

 

  

 

 

  

 

 

   

Total net revenue

   14,514    14,074    14,483    3  0
  

 

 

  

 

 

  

 

 

   

Cost of net revenue

      

Products

   9,767    9,244    9,280    6  5

Services, including software related

   2,058    2,083    2,065    (1%)   0
  

 

 

  

 

 

  

 

 

   

Total cost of net revenue

   11,825    11,327    11,345    4  4
  

 

 

  

 

 

  

 

 

   

Gross margin

   2,689    2,747    3,138    (2%)   (14%) 

Operating expenses

      

Selling, general, and administrative

   2,097    2,208    1,976    (5%)   6

Research, development, and engineering

   320    313    261    2  23
  

 

 

  

 

 

  

 

 

   

Total operating expenses

   2,417    2,521    2,237    (4%)   8
  

 

 

  

 

 

  

 

 

   

Operating income

   272    226    901    20  (70%) 

Interest and other, net

   (53  (68  (63  21  16
  

 

 

  

 

 

  

 

 

   

Income before income taxes

   219    158    838    38  (74%) 

Income tax provision

   15    28    106    (46%)   (86%) 
  

 

 

  

 

 

  

 

 

   

Net income

  $204   $130   $732    56  (72%) 
  

 

 

  

 

 

  

 

 

   

Earnings per share:

      

Basic

  $0.12   $0.07   $0.42    71  (71%) 
  

 

 

  

 

 

  

 

 

   

Diluted

  $0.12   $0.07   $0.42    71  (71%) 
  

 

 

  

 

 

  

 

 

   

Cash dividends declared per common share

  $0.08   $0.08   $—      

Weighted average shares outstanding:

      

Basic

   1,757    1,748    1,747    0  1

Diluted

   1,764    1,761    1,753    0  1

Percentage of Total Net Revenue:

      

Gross margin

   18.5  19.5  21.6  

Selling, general, and administrative

   14.4  15.7  13.6  

Research, development, and engineering

   2.2  2.2  1.8  

Operating expenses

   16.6  17.9  15.4  

Operating income

   1.9  1.6  6.2  

Income before income taxes

   1.5  1.1  5.8  

Net income

   1.4  0.9  5.1  

Income tax rate

   6.9  17.6  12.7  

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.


DELL INC.

Condensed Consolidated Statement of Income and Related Financial Highlights

(in millions, except per share data and percentages)

(unaudited)

 

   Six Months Ended  % Growth Rates 
   August 2,
2013
  August 3,
2012
  Yr. to Yr. 

Net revenue

    

Products

  $22,228   $22,826    (3%) 

Services, including software related

   6,360    6,079    5
  

 

 

  

 

 

  

Total net revenue

   28,588    28,905    (1%) 
  

 

 

  

 

 

  

Cost of net revenue

    

Products

   19,011    18,610    2

Services, including software related

   4,141    4,090    1
  

 

 

  

 

 

  

Total cost of net revenue

   23,152    22,700    2
  

 

 

  

 

 

  

Gross margin

   5,436    6,205    (12%) 

Operating expenses

    

Selling, general, and administrative

   4,305    3,985    8

Research, development, and engineering

   633    495    28
  

 

 

  

 

 

  

Total operating expenses

   4,938    4,480    10
  

 

 

  

 

 

  

Operating income

   498    1,725    (71%) 

Interest and other, net

   (121  (95  (27%) 
  

 

 

  

 

 

  

Income before income taxes

   377    1,630    (77%) 

Income tax provision

   43    263    (84%) 
  

 

 

  

 

 

  

Net income

  $334   $1,367    (76%) 
  

 

 

  

 

 

  

Earnings per share:

    

Basic

  $0.19   $0.78    (76%) 
  

 

 

  

 

 

  

Diluted

  $0.19   $0.77    (75%) 
  

 

 

  

 

 

  

Cash dividends declared per common share

  $0.16   $—     

Weighted average shares outstanding:

    

Basic

   1,752    1,753    0

Diluted

   1,763    1,764    0

Percentage of Total Net Revenue:

    

Gross margin

   19.0  21.5 

Selling, general, and administrative

   15.1  13.8 

Research, development, and engineering

   2.2  1.7 

Operating expenses

   17.3  15.5 

Operating income

   1.7  6.0 

Income before income taxes

   1.3  5.6 

Net income

   1.2  4.7 

Income tax rate

   11.4  16.1 

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.


DELL INC.

Segment Information

(in millions, except percentages)

(unaudited)

 

   Three Months Ended  % Growth Rates 
   August  2,
2013(a)
  May  3,
2013(a)
  August 3,
2012
  Sequential  Yr. to Yr. 

End User Computing (“EUC”):

      

Net Revenue:

      

Desktops and thin client

  $3,550   $3,273   $3,504    8  1

Mobility

   3,569    3,618    3,946    (1%)   (10%) 

Third-party software and peripherals

   2,020    2,029    2,121    0  (5%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total EUC Revenue

   9,139    8,920    9,571    2  (5%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

External EUC revenue

   8,899    8,714    9,353    

Internal EUC revenue

   240    206    218    

Operating income:

      
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

EUC operating income

   205    224    696    (8%)   (71%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% of segment revenue

   2.2  2.5  7.3  

% of total segment operating income

   33  35  59  

Enterprise Solutions Group (“ESG”):

      

Net Revenue:

      

Servers, peripherals, and networking

   2,892    2,669    2,622    8  10

Storage

   432    424    464    2  (7%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total ESG revenue

   3,324    3,093    3,086    7  8
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

External ESG revenue

   3,173    2,959    2,941    

Internal ESG revenue

   151    134    145    

Operating income:

      
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

ESG operating income

   137    136    151    1  (9%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% of segment revenue

   4.1  4.4  4.9  

% of total segment operating income

   22  21  13  

Dell Software Group:

      

Net Revenue:

      
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Dell Software Group revenue

   310    295    95    5  228
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income:

      
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Dell Software Group operating income

   (62  (85  (11  27  (447%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% of segment revenue

   -20.1  -28.7  -12.0  

% of total segment operating income

   -10  -13  -1  

Dell Services:

      

Net Revenue:

      

Support and deployment

   1,223    1,202    1,192    2  3

Infrastructure, cloud, and security services

   601    612    574    (2%)   5

Applications and business process services

   312    295    331    6  (6%) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Dell Services revenue

   2,136    2,109    2,097    1  2
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

External Dell Services revenue

   2,132    2,106    2,094    

Internal Dell Services revenue

   4    3    3    

Operating income:

      
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Dell Services operating income

  $339   $370   $336    (9%)   1
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% of segment revenue

   15.9  17.6  16.0  

% of total segment operating income

   55  57  29  

Reconciliation to consolidated net revenue:

      

Total segment revenue

  $14,909   $14,417   $14,849    

Less internal revenue

   (395  (343  (366  
  

 

 

  

 

 

  

 

 

   

Total consolidated net revenue

  $14,514   $14,074   $14,483    
  

 

 

  

 

 

  

 

 

   

Reconciliation to consolidated operating income:

      

Total segment operating income

  $619   $645   $1,172    

Unallocated corporate expenses(b)

   (17  (55  (49  

Amortization of intangible assets

   (196  (196  (150  

Severance and facility actions and acquisition-related costs

   (87  (80  (72  

Other (c)

   (47  (88  —      
  

 

 

  

 

 

  

 

 

   

Total consolidated operating income

  $272   $226   $901    
  

 

 

  

 

 

  

 

 

   

 

(a) 

Includes the results of Dell’s Fiscal 2013 acquisitions.

(b) 

Unallocated corporate expenses include broad based long-term incentives, certain short-term incentive compensation expenses, and other corporate items that are not allocated to Dell’s segments.

(c)

Other includes expenses associated with Dell’s proposed merger and retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014.

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.


DELL INC.

Segment Information

(in millions, except percentages)

(unaudited)

 

   Six Months Ended  % Growth Rates 
   August  2,
2013(a)
  August 3,
2012
  Yr. to Yr. 

End User Computing (“EUC”):

    

Net Revenue:

    

Desktops and Thin Client

  $6,823   $6,839    0

Mobility

   7,187    8,274    (13%) 

Third-party software and peripherals

   4,049    4,290    (6%) 
  

 

 

  

 

 

  

 

 

 

Total EUC Revenue

   18,059    19,403    (7%) 
  

 

 

  

 

 

  

 

 

 

External EUC revenue

   17,613    18,985   

Internal EUC revenue

   446    418   

Operating income:

    

EUC operating income

   429    1,335    (68%) 
  

 

 

  

 

 

  

 

 

 

% of segment revenue

   2.4  6.9 

% of total segment operating income

   34  60 

Enterprise Solutions Group (“ESG”):

    

Net Revenue:

    

Servers, peripherals, and networking

   5,561    4,965    12

Storage

   856    937    (9%) 
  

 

 

  

 

 

  

 

 

 

Total ESG revenue

   6,417    5,902    9
  

 

 

  

 

 

  

 

 

 

External ESG revenue

   6,132    5,622   

Internal ESG revenue

   285    280   

Operating income:

    

ESG operating income

   273    230    19
  

 

 

  

 

 

  

 

 

 

% of segment revenue

   4.3  3.9 

% of total segment operating income

   22  11 

Dell Software Group:

    

Net Revenue:

    

Total Dell Software Group revenue

   605    133    355
  

 

 

  

 

 

  

 

 

 

Operating income:

    

Dell Software Group operating income

   (147  (17  (765%) 
  

 

 

  

 

 

  

 

 

 

% of segment revenue

   -24.3  -12.8 

% of total segment operating income

   -12  -1 

Dell Services:

    

Net Revenue:

    

Support and deployment

   2,425    2,368    2

Infrastructure, cloud, and security services

   1,213    1,124    8

Applications and business process services

   607    678    (10%) 
  

 

 

  

 

 

  

 

 

 

Total Dell Services revenue

   4,245    4,170    2
  

 

 

  

 

 

  

 

 

 

External Dell Services revenue

   4,238    4,165   

Internal Dell Services revenue

   7    5   

Operating income:

    

Dell Services operating income

  $709   $674    5
  

 

 

  

 

 

  

 

 

 

% of segment revenue

   16.7  16.2 

% of total segment operating income

   56  30 

Reconciliation to consolidated net revenue:

    

Total segment revenue

  $29,326   $29,608   

Less internal revenue

   (738  (703 
  

 

 

  

 

 

  

Total consolidated net revenue

  $28,588   $28,905   
  

 

 

  

 

 

  

Reconciliation to consolidated operating income:

    

Total segment operating income

  $1,264   $2,222   

Unallocated corporate expenses(b)

   (72  (89 

Amortization of intangible assets

   (392  (260 

Severance and facility actions and acquisition-related costs

   (167  (148 

Other (c)

   (135  —     
  

 

 

  

 

 

  

Total consolidated operating income

  $498   $1,725   
  

 

 

  

 

 

  

 

(a) 

Includes the results of Dell’s Fiscal 2013 acquisitions.

(b) 

Unallocated corporate expenses include broad based long-term incentives, certain short-term incentive compensation expenses, and other corporate items that are not allocated to Dell’s segments.

(c)

Other includes expenses associated with Dell’s proposed merger and retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014.

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.


DELL INC.

Condensed Consolidated Statement of Financial Position

(in millions, except ratios)

(unaudited)

 

   August 2,  May 3,  August 3, 
   2013  2013  2012(a) 

Assets:

    

Current assets:

    

Cash and cash equivalents

  $11,185   $10,419   $11,519  

Short-term investments

   643    486    372  

Accounts receivable, net

   6,591    6,440    6,829  

Short-term financing receivables, net

   3,131    2,991    3,174  

Inventories, net

   1,468    1,387    1,615  

Other current assets

   3,848    3,936    3,741  
  

 

 

  

 

 

  

 

 

 

Total current assets

   26,866    25,659    27,250  

Property, plant and equipment, net

   2,212    2,136    2,058  

Long-term investments

   2,048    2,303    2,738  

Long-term financing receivables, net

   1,469    1,383    1,344  

Goodwill

   9,253    9,289    7,558  

Purchased intangible assets, net

   2,990    3,176    2,609  

Other non-current assets

   1,033    845    540  
  

 

 

  

 

 

  

 

 

 

Total assets

  $45,871   $44,791   $44,097  
  

 

 

  

 

 

  

 

 

 

Liabilities and Stockholders’ Equity:

    

Current liabilities:

    

Short-term debt

  $2,736   $3,133   $2,609  

Accounts payable

   12,051    10,990    11,193  

Accrued and other

   3,657    3,402    3,054  

Short-term deferred revenue .

   4,312    4,265    3,856  
  

 

 

  

 

 

  

 

 

 

Total current liabilities

   22,756    21,790    20,712  

Long-term debt

   4,075    4,115    5,832  

Long-term deferred revenue

   4,003    3,963    3,915  

Other non-current liabilities

   4,256    4,163    3,892  
  

 

 

  

 

 

  

 

 

 

Total liabilities

   35,090    34,031    34,351  

Total Dell stockholders’ equity

   10,781    10,739    9,746  

Noncontrolling interest

   —      21    —    
  

 

 

  

 

 

  

 

 

 

Total stockholder’s equity

   10,781    10,760    9,746  
  

 

 

  

 

 

  

 

 

 

Total liabilities and equity

  $45,871   $44,791   $44,097  
  

 

 

  

 

 

  

 

 

 

Ratios:

    

Days of sales outstanding(b)

   45    45    46  

Days supply in inventory

   11    11    13  

Days in accounts payable

   (92  (87  (89
  

 

 

  

 

 

  

 

 

 

Cash conversion cycle

   (36  (31  (30
  

 

 

  

 

 

  

 

 

 

Average total revenue/unit (approximate)

  $1,410   $1,460   $1,390  

 

(a)

Certain prior year amounts have been reclassified from accrued and other liabilities and other non-current liabilities on the Condensed Consolidated Statements of Financial Position to short-term deferred revenue and long-term deferred revenue, respectively, to conform to the current year presentation.

(b)

Days of sales outstanding (“DSO”) is based on the ending net trade receivables and most recent quarterly revenue for each period. DSO includes the effect of product costs related to customer shipments not yet recognized as revenue that are classified as other current assets. At August 2, 2013, May 3, 2013, and August 3, 2012, DSO and days of customer shipments not yet recognized were 41 and 4 days, 41 and 4 days, and 42 and 4 days, respectively.

Note: Ratios are calculated based on underlying data in thousands.


DELL INC.

Condensed Consolidated Statements of Cash Flows and Related Financial Highlights

(in millions, unaudited)

 

   Three Months
Ended
  Six Months Ended 
   August 2,  August 3,  August 2,  August 3, 
   2013  2012  2013  2012 

Cash flows from operating activities:

     

Net income

  $204   $732   $334   $1,367  

Adjustments to reconcile net income to net cash provided by operating activities:

   1,474    (95  1,305    (868
  

 

 

  

 

 

  

 

 

  

 

 

 

Change in cash from operating activities

   1,678    637    1,639    499  
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

     

Investments:

     

Purchases

   (76  (517  (405  (1,190

Maturities and sales

   172    1,800    489    2,440  

Capital expenditures

   (164  (120  (322  (262

Proceeds from the sale of facility, land, and other assets

   —      34    —      34  

Collections on purchased financing receivables

   20    47    49    102  

Acquisitions of businesses, net of cash received

   (264  (2,166  (264  (2,411

Divestitures of businesses, net of cash transferred

   44    —      48    —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Change in cash from investing activities

   (268  (922  (405  (1,287
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

     

Repurchase of common stock

   —      (400  —      (724

Cash dividends paid

   (141  —      (283  —    

Issuance of common stock under employee plans

   7    6    31    44  

Issuance (repayment) of commercial paper (maturity 90 days or less), net

   —      125    —      138  

Proceeds from debt

   331    555    878    1,151  

Repayments of debt

   (759  (1,241  (3,143  (2,104

Other

   1    —      (1  8  
  

 

 

  

 

 

  

 

 

  

 

 

 

Change in cash from financing activities

   (561  (955  (2,518  (1,487
  

 

 

  

 

 

  

 

 

  

 

 

 

Effect of exchange rate changes on cash and cash equivalents

   (83  (55  (100  (58
  

 

 

  

 

 

  

 

 

  

 

 

 

Change in cash and cash equivalents

   766    (1,295  (1,384  (2,333

Cash and cash equivalents at beginning of period

   10,419    12,814    12,569    13,852  
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $11,185   $11,519   $11,185   $11,519  
  

 

 

  

 

 

  

 

 

  

 

 

 


USE OF NON-GAAP FINANCIAL MEASURES

Dell uses non-GAAP financial measures to supplement the financial information presented on a GAAP basis. Dell believes that excluding certain items from Dell’s GAAP results allows management to better understand Dell’s consolidated financial performance from period to period and in relationship to the operating results of our segments, as management does not believe that the excluded items are reflective of Dell’s underlying operating performance. Dell also believes that excluding certain items from Dell’s GAAP results allows management to better project Dell’s future consolidated financial performance because forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, Dell believes these non-GAAP financial measures will provide investors with useful information to help them evaluate Dell’s operating results by facilitating an enhanced understanding of Dell’s operating performance, and enabling them to make more meaningful period to period comparisons.

The non-GAAP financial measures presented in this report include non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share. These non-GAAP financial measures, as defined by Dell, represent the comparable GAAP measures adjusted to exclude severance and facility action costs and acquisition-related charges, amortization of purchased intangible assets related to acquisitions, costs incurred in Fiscal 2014 related to Dell’s proposed merger, and special retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014 that will be payable in March 2014. Non-GAAP net income and non-GAAP earnings per share also include the aggregate adjustment for income taxes related to the exclusion of the above items. For more information on each of these items and Dell’s reasons for excluding them, see the detail below. In future fiscal periods, Dell may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual.

There are limitations to the use of the non-GAAP financial measures presented in this report. Dell’s non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in Dell’s industry, may calculate the non-GAAP financial measures differently than Dell, limiting the usefulness of those measures for comparative purposes. In addition, items such as amortization of purchased intangible assets represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in the non-GAAP financial measures and such measures, therefore, do not reflect the full economic effect of such loss. Further, items such as severance and facility actions, acquisition-related costs, and other charges that are excluded from the non-GAAP financial measures can have a material impact on earnings. Dell’s management compensates for the foregoing limitations by relying primarily on GAAP results and using non-GAAP financial measures supplementally or for projections when comparable GAAP financial measures are not available. The non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for gross margin, operating expenses, operating income, net income, and earnings per share prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis. See below for reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented.

The following is a summary of the costs and other items excluded from the most comparable GAAP financial measures to calculate non-GAAP financial measures:

 

  

Severance and Facility Actions and Acquisition-related Costs - Severance and facility action costs are primarily related to facilities charges, including accelerated depreciation and severance and benefits for employees terminated pursuant to cost synergies related to strategic acquisitions and actions taken as part of a comprehensive review of costs. Acquisition-related charges are expensed as incurred and consist primarily of retention payments, integration costs, and other costs. Retention payments include stock-based compensation and cash incentives awarded to employees, which are recognized over the vesting period. Integration costs primarily include IT costs related to the integration of IT systems and processes, costs related to the integration of employees, consulting expenses, and for acquisitions made prior to Fiscal 2013, costs related to full-time employees who were working on the integration. Severance and facility actions and acquisition-related charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although Dell may incur these types of expenses in the future, it believes that eliminating these charges for purposes of calculating the non-GAAP financial measures presented below facilitates a more meaningful evaluation of Dell’s current operating performance and comparisons to Dell’s past operating performance.

 

  

Amortization of Intangible Assets - Amortization of purchased intangible assets consists primarily of amortization of customer relationships, acquired technology, non-compete covenants, and trade names purchased in connection with business acquisitions. Dell incurs charges related to the amortization of these intangibles, and those charges are included in Dell’s Condensed Consolidated Financial Statements. Amortization charges for purchased intangible assets are significantly impacted by the timing and magnitude of Dell’s acquisitions. Accordingly, these charges may vary in amount from period to period. Dell excludes these charges for purposes of calculating the non-GAAP financial measures presented below to facilitate a more meaningful evaluation of Dell’s current operating performance and comparisons to Dell’s past operating performance.

 

  

Other Items - Dell also adjusts GAAP financial results for expenses associated with Dell’s proposed merger. These expenses consist of professional fees incurred by Dell in connection with Dell’s proposed merger as well as the reimbursement of transaction-related expenses incurred by certain participants approved by a special committee of the Board of Directors. In addition, Dell adjusts GAAP financial results for special retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014 that will be payable in March 2014. Dell is excluding these expenses for the purpose of calculating the non-GAAP financial measures presented below because Dell believes these items are outside our ordinary course of business and do not contribute to a meaningful evaluation of Dell’s current operating performance or comparisons to Dell’s past operating performance.

 

  

The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred.


DELL INC.

Reconciliation of Non-GAAP Financial Measures

(in millions, except per share data and percentages)

(unaudited)

 

   Three Months Ended  % Growth Rates 
   August 2,
2013
  May 3,
2013
  August 3,
2012
  Sequential  Yr. to Yr. 

Revenue

      

GAAP gross margin

  $2,689   $2,747   $3,138    (2%)   (14%) 

Non-GAAP adjustments:

      

Amortization of intangibles

   141    140    109    

Severance and facility actions and acquisition-related

   8    10    23    

Other(a)

   1    2    —      
  

 

 

  

 

 

  

 

 

   

Non-GAAP gross margin

  $2,839   $2,899   $3,270    (2%)   (13%) 
  

 

 

  

 

 

  

 

 

   

GAAP operating expenses

  $2,417   $2,521   $2,237    (4%)   8

Non-GAAP adjustments:

      

Amortization of intangibles

   (55  (56  (41  

Severance and facility actions and acquisition-related

   (79  (70  (49  

Other(a)

   (46  (86  —      
  

 

 

  

 

 

  

 

 

   

Non-GAAP operating expenses

  $2,237   $2,309   $2,147    (3%)   4
  

 

 

  

 

 

  

 

 

   

GAAP operating income

  $272   $226   $901    20  (70%) 

Non-GAAP adjustments:

      

Amortization of intangibles

   196    196    150    

Severance and facility actions and acquisition-related

   87    80    72    

Other(a)

   47    88    —      
  

 

 

  

 

 

  

 

 

   

Non-GAAP operating income

  $602   $590   $1,123    2  (46%) 
  

 

 

  

 

 

  

 

 

   

GAAP net income

  $204   $130   $732    56  (72%) 

Non-GAAP adjustments:

      

Amortization of intangibles

   196    196    150    

Severance and facility actions and acquisition-related

   87    80    72    

Other(a)

   47    88    —      

Aggregate adjustment for income taxes

   (101  (122  (79  
  

 

 

  

 

 

  

 

 

   

Non-GAAP net income

  $433   $372   $875    16  (51%) 
  

 

 

  

 

 

  

 

 

   

GAAP earnings per share - diluted

  $0.12   $0.07   $0.42    71  (71%) 

Non-GAAP adjustments per share - diluted

   0.13    0.14    0.08    
  

 

 

  

 

 

  

 

 

   

Non-GAAP earnings per share - diluted

  $0.25   $0.21   $0.50    19  (50%) 
  

 

 

  

 

 

  

 

 

   

Diluted WAS

   1,764    1,761    1,753    

Percentage of Total Net Revenue:

      

GAAP gross margin

   18.5  19.5  21.6  

Non-GAAP adjustment

   1.1  1.1  1.0  
  

 

 

  

 

 

  

 

 

   

Non-GAAP gross margin

   19.6  20.6  22.6  
  

 

 

  

 

 

  

 

 

   

GAAP operating expenses

   16.6  17.9  15.4  

Non-GAAP adjustment

   (1.2%)   (1.5%)   (0.6%)   
  

 

 

  

 

 

  

 

 

   

Non-GAAP operating expenses

   15.4  16.4  14.8  
  

 

 

  

 

 

  

 

 

   

GAAP operating income

   1.9  1.6  6.2  

Non-GAAP adjustment

   2.2  2.6  1.6  
  

 

 

  

 

 

  

 

 

   

Non-GAAP operating income

   4.1  4.2  7.8  
  

 

 

  

 

 

  

 

 

   

GAAP net income

   1.4  0.9  5.1  

Non-GAAP adjustment

   1.6  1.7  0.9  
  

 

 

  

 

 

  

 

 

   

Non-GAAP net income

   3.0  2.6  6.0  
  

 

 

  

 

 

  

 

 

   

 

(a)

Other includes expenses associated with Dell’s proposed merger and retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014.

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.

 


DELL INC.

Reconciliation of Non-GAAP Financial Measures

(in millions, except per share data and percentages)

(unaudited)

 

   Six Months Ended  % Growth Rates 
   August 2,  August 3,    
   2013  2012  Yr. to Yr. 

Revenue

    

GAAP gross margin

  $5,436   $6,205    (12%) 

Non-GAAP adjustments:

    

Amortization of intangibles

   281    197   

Severance and facility actions and acquisition-related

   18    35   

Other(a

   3    —     
  

 

 

  

 

 

  

Non-GAAP gross margin

  $5,738   $6,437    (11%) 
  

 

 

  

 

 

  

GAAP operating expenses

  $4,938   $4,480    10

Non-GAAP adjustments:

    

Amortization of intangibles

   (111  (63 

Severance and facility actions and acquisition-related

   (149  (113 

Other(a

   (132  —     
  

 

 

  

 

 

  

Non-GAAP operating expenses

  $4,546   $4,304    6
  

 

 

  

 

 

  

GAAP operating income

  $498   $1,725    (71%) 

Non-GAAP adjustments:

    

Amortization of intangibles

   392    260   

Severance and facility actions and acquisition-related

   167    148   

Other(a)

   135    —     
  

 

 

  

 

 

  

Non-GAAP operating income

  $1,192   $2,133    (44%) 
  

 

 

  

 

 

  

GAAP net income

  $334   $1,367    (76%) 

Non-GAAP adjustments:

    

Amortization of intangibles

   392    260   

Severance and facility actions and acquisition-related

   167    148   

Other(a

   135    —     

Aggregate adjustment for income taxes

   (223  (139 
  

 

 

  

 

 

  

Non-GAAP net income

  $805   $1,636    (51%) 
  

 

 

  

 

 

  

GAAP earnings per share - diluted

  $0.19   $0.77    (75%) 

Non-GAAP adjustments per share - diluted

   0.27    0.16   
  

 

 

  

 

 

  

Non-GAAP earnings per share - diluted

  $0.46   $0.93    (51%) 
  

 

 

  

 

 

  

Diluted WAS

   1,763    1,764   

Percentage of Total Net Revenue:

    

GAAP gross margin

   19.0  21.5 

Non-GAAP adjustment

   1.1  0.8 
  

 

 

  

 

 

  

Non-GAAP gross margin

   20.1  22.3 
  

 

 

  

 

 

  

GAAP operating expenses

   17.3  15.5 

Non-GAAP adjustment

   (1.4%)   (0.6%)  
  

 

 

  

 

 

  

Non-GAAP operating expenses

   15.9  14.9 
  

 

 

  

 

 

  

GAAP operating income

   1.7  6.0 

Non-GAAP adjustment

   2.5  1.4 
  

 

 

  

 

 

  

Non-GAAP operating income

   4.2  7.4 
  

 

 

  

 

 

  

GAAP net income

   1.2  4.7 

Non-GAAP adjustment

   1.6  1.0 
  

 

 

  

 

 

  

Non-GAAP net income

   2.8  5.7 
  

 

 

  

 

 

  

 

(a)

Other includes expenses associated with Dell’s proposed merger and retention cash bonus awards granted to certain key employees in the first quarter of Fiscal 2014.

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.