8-15-13 4:03 PM EDT | Email Article

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

  • Revenue in the quarter was $14.5 billion, flat from the previous year.
  • GAAPoperating 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 share was 25 cents, down 50 percent.
  • Cash flow from 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 SolutionsGroup 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 revenueincreased 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 Services revenue 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 Computing revenue was $9.1 billionin 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 revenuedeclined 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, visit www.dell.com. To communicate directly with Dell, go to www.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 at http://www.sec.gov. In addition, investors may obtain a free copy of the Company’s filings with the SEC from the Company’s website at http://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 mergerand 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.

 
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,May 3,August 3,
201320132012SequentialYr. 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,August 3,
20132012Yr. 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,May 3,August 3,

2013(a)

2013(a)

2012SequentialYr. 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 revenue2.2%2.5%7.3%
% of total segment operating income33%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 revenue4.1%4.4%4.9%
% of total segment operating income22%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 revenue15.9%17.6%16.0%
% of total segment operating income55%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,August 3,

2013(a)

2012Yr. 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 revenue2.4%6.9%
% of total segment operating income34%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 revenue4.3%3.9%
% of total segment operating income22%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 revenue16.7%16.2%
% of total segment operating income56%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,
20132013

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 EndedSix Months Ended
August 2,August 3,August 2,August 3,
2013201220132012
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,May 3,August 3,
201320132012SequentialYr. 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,
20132012Yr. 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.

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

Copyright Business Wire 2013
Add a Comment

News   More...

Start Premium Trial Register For Free

P F Fund Financial Data (13,000+ funds)
P F Stock Financial Data (7,000+ stocks)
P F Stock and Fund Screeners (basic)
P F Investing Articles and Market Commentary
P F Articles Archive (>30 days)
P F Discuss (dozens of stock, fund, bond, and general bulletin boards)
P F Portfolio Manager (basic)
P F Morningstar Investment Classroom
P F Access Your Portfolio Anytime, Anywhere via Your Mobile Device
P   Morningstar Fund Analyst Reports (full research on 1,700 funds, ETFs, and CEFs)
P   Morningstar Stock Analyst Reports (full research on more than 1,100 stocks)
P   Portfolio Manager (advanced with 10 X-Ray analyses, including recommendations)
P   Portfolio Monitor (monthly and on-demand personalized portfolio statements)
P   Morningstar Proprietary Stock Information (stock star ratings, buy/sell prices, economic moat ratings, and more)
P   Morningstar 5-Star Stock and Fund Favorites & Red Flags eNewsletters
P   Premium Stock and Fund Screeners (advanced with nearly infinite ways to find the best securities for you)
P   Discounts on Morningstar newsletters, books, seminars, and more

Sign-up to Morningstar


Basic Access

Articles and Videos
Morningstar video reports, articles, data, and tools. Dig into our lineup of e-newsletters and investing classroom courses outlining sensible strategies for maximizing your investments.
Morningstar Discuss
Follow the buzz on individual stocks or fund families. Plus, read the latest posts from Morningstar members and analysts.
Portfolio Manager
Track your investments and watch lists with our Portfolio Manager. Customize your view with our comprehensive stock, fund, and ETF data.

Access these features and more when you sign up for Free Membership.
Join Morningstar today. It's Free.

Unlimited Access

Analyst Research
Gather in-depth, actionable insight on over 3,700 stock and mutual funds covered by Morningstar analysts. View our mutual fund Analyst Reports favored by professionals, savvy experienced investors, and new investors researching options for retirement savings, college plans, or other investment needs.
Portfolio X-Ray®
Ensure your portfolio is positioned exactly how you want with Morningstar's X-Ray Interpreter and Stock Intersection tools. A Barron's "Best of the Web" award winner for five years running, X-Ray Interpreter goes under the hood of your portfolio to provide a useful allocation, sector, and geographic analysis. And you can discover how much of a stock you really own, individually and through mutual funds, with Stock Intersection.
Investment Picks
Find new 5-star stocks (greatly undervalued companies) to consider daily. Our 5-star stock rating is a proven winner, consistently beating benchmarks like the S&P 500. Plus, browse our Fund Analyst Picks and Stewardship Grades to find shareholder-friendly mutual funds that are poised for outperformance.
Portfolio Monitor
Get a clear view of your investments with personalized reports about your portfolio. Receive monthly statements and generate reports on-demand to help you stay on track to meet your investment goals.

Access these features and more when you sign up for Premium Membership.
Start your free 14-day trial today online
Your subscription may be tax deductible. Please contact your tax advisor.

Content Partners
Morningstar - 2013/8/15 - Dell Reports Fiscal Year 2014 Second Quarter Financial Results
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Title |  Date |  Company |  Symbol |  Interest |  Popularity Title |  Date |  Author |  Collection |  Interest |  Popularity

Previous: Dell report sparks 'just-sell-to-Michael' calls  |  Next: Dell Rocks Accelerated 3D Workflow for Production of New Linkin Park Video, “A Light That Never Comes”