Dell’s investment in differentiated enterprise solutions and
services continued to drive substantial gains in the company’s
profitability in the fiscal second quarter as operating income rose
significantly on a 1 percent revenue increase.
Dell’s mid-market design focus on next-generation computing
solutions and intelligent data management; services, security and
cloud; and end-user computing is driving the shift in the company’s
mix to a higher-value portfolio and resulting in sustainable,
improved results. The company’s GAAP operating income of 7.7
percent of revenue year to date and 7.3 percent of revenue over the
past four quarters is in line with its long-term value creation
framework goal of more than 7 percent.
Growth in enterprise businesses highlighted the quarter. Solid
demand for Dell’s server, storage and services portfolio reflects
increasing customer preference for the company’s highly capable,
affordable and flexible solutions and services. Dell continues to
make prudent investments to develop and acquire industry-leading
systems management, storage, security and networking intellectual
property. Dell is also increasing investment levels in sales and
go-to-market capabilities. These investments contributed to the
solid operating income and strong cash-flow generation in the
quarter and first half.
Results:
- Revenue in the quarter was $15.7
billion, up 1 percent over last year and 4 percent
sequentially.
- GAAP earnings per share was 48
cents, up 71 percent; non-GAAP EPS was 54 cents, up 69
percent. Vendor settlements resulted in approximately $70 million
in benefit in the quarter that increased non-GAAP gross margins 50
basis points and non-GAAP earnings per share by 4 cents.
- GAAP operating income was
$1.1 billion, or 7.3 percent of revenue. Non-GAAP operating
income was $1.3 billion, or 8.5 percent of revenue.
- Cash flow from operations was
$2.4 billion for the quarter and $5.2 billion over the last four
quarters. Dell ended the quarter with a record high $16.2 billion
in cash and investments and repurchased $1.1 billion in stock in
the quarter.
Fiscal-Year 2012 Second Quarter and Half Year
Highlights
Second Quarter
Fiscal Year First Half
(in millions)
FY12
FY11
Change
FY12
FY11
Change
Revenue $ 15,658 $ 15,534 1 % $ 30,675
$ 30,408 1 % Operating Income
(GAAP) $ 1,146 $ 745 54 % $ 2,358 $ 1,264 87 % Net Income (GAAP) $
890 $ 545 63 % $ 1,835 $ 886 107 % EPS (GAAP) $ 0.48 $ 0.28 71 % $
0.97 $ 0.45 116 % Operating Income (non-GAAP) $ 1,328 $ 872
52 % $ 2,704 $
1,696
59
%
Net Income (non-GAAP) $ 1,006 $ 629 60 % $ 2,056 $ 1,213 69 % EPS
(non-GAAP) $ 0.54 $ 0.32 69 % $ 1.08 $ 0.62 74 %
Information about Dell’s use of non-GAAP financial information
is provided under “Non-GAAP Financial Measures” below. Non-GAAP
financial information excludes costs related primarily to the
amortization of purchased intangibles, severance and
facility-action costs, certain settlement costs and
acquisition-related charges. All comparisons in this press release
are year over year unless otherwise noted.
Strategic Highlights:
- Revenue for Dell’s commercial business
was $12.8 billion, up 6 percent sequentially and 1 percent from a
year ago.
- Enterprise solutions and services
revenue grew 4 percent to $4.6 billion in the quarter and
represents 35 percent of Dell’s commercial revenue. Servers and
networking revenue increased 9 percent year over year.
- Dell Services revenue grew 6 percent to
$2 billion. Dell’s total value of new services contracts signed in
the last quarter is $1 billion and $1.3 billion year-to-date; and
services backlog is now $15.4 billion up 11 percent from a year
ago. Demand for Dell SecureWorks managed services offerings
continued to expand, with more than 200 customers added during the
quarter.
- Dell-owned storage technology grew 15
percent in the quarter. The benefits of Dell’s mid-market design
focus are evident in the success of EqualLogic, which continues to
be a highly profitable line of storage products. In addition,
revenue in the company’s Compellent storage business grew 97
percent sequentially, after closing the acquisition in Q1.
- The launch of Dell EqualLogic FS7500
during the quarter brings the first scale-out NAS and unified
storage capabilities to the Dell EqualLogic platform. The
FS7500 provides up to 10 times more file share scalability than
legacy unified storage offerings. It is the industry’s only
scale-out solution optimized for mid-sized and smaller deployments.
Dell also announced its next-generation Dell EqualLogic software,
which includes enhanced, enterprise-class storage capability and
automated load balancing.
- Dell KACE, which added 600 new
customers during Q2, also launched a significant addition to its
portfolio of systems management solutions. The M300 Asset
Management Appliance is the first desktop-management product
designed specifically for small businesses with 20–200 employees,
and demonstrates Dell’s commitment to mid-market design.
- Dell expects to close its acquisition
of Force10 Networks in the third quarter. Force10 Networks is a
leader in high-performance data center networking capabilities that
complement and extend Dell’s data center solutions portfolio,
enabling the company to address a broader range of customer needs
with Dell intellectual property.
- Dell’s core business remains healthy.
Revenue for client products – desktop and laptop computers – was up
sequentially 6 percent to $8.5 billion driven by seasonal strength
in Public.
Business Units and Regions:
- Large Enterprise had $4.6
billion of revenue, up 1 percent from a year ago on strong demand
for servers and services. Operating income was $448 million, or 9.8
percent of revenue. Enterprise solutions and services revenue was
$1.9 billion, a 3 percent sequential increase. Revenue from client
products grew 1 percent for the year and 4 percent
sequentially.
- Public had record operating
income of $484 million or 10.9 percent of revenue. Revenue was $4.5
billion, up 18 percent sequentially and down 3 percent for the
year. Enterprise solutions and services revenue was up 7 percent
sequentially. Client product revenue increased 34 percent
sequentially.
- Small and Medium Business had
revenue of $3.7 billion, up 5 percent. Operating income was $404
million or 10.9 percent of revenue. Enterprise solutions and
services revenue was up 16 percent, driven by a gain in servers of
17 percent; services of 17 percent, and storage of 11 percent.
- Consumer revenue was $2.9
billion, a 1 percent increase, with revenue for laptops and
desktops up 4 percent. Operating income was $73 million or 2.5
percent of revenue.
- Growth countries outside of the
U.S. and Canada, Western Europe and Japan increased revenue 14
percent over the previous year and now account for 28 percent of
Dell’s total revenue. Specifically, India and China were up 21 and
20 percent, respectively.
Quotes:
Michael Dell, chairman and chief executive officer: “We
continue to see great momentum in the high-growth areas of our
business, which is a direct reflection of the discipline and strong
execution our global Dell team is applying to help solve real-world
challenges for our customers. We’re creating efficiency across
every step of the IT value chain and ultimately enabling all
customers—from home users to large businesses and government
organizations—to achieve the outcomes that matter most to
them.”
Brian Gladden, chief financial officer: “Our results for
the first half of the fiscal year reflect our commitments and are
enabling us to accelerate the reshaping of our portfolio while
delivering substantially higher operating income. We’re maintaining
our focus on developing higher-value solutions and services to
drive stronger profitability and smartly manage a balance of
growth, increased operating income and cash flow.”
Company Outlook:
Dell is focused on delivering IT solutions that provide both
efficiency and flexibility, as the company aligns its business with
large and faster growing markets, and creates a broader base of
recurring revenue streams with higher profit potential. Based on
consistent execution in the first half of the fiscal year, the
continued management of lower-margin business and a positive mix
shift to Dell intellectual property and higher-valued products,
Dell is raising its non-GAAP operating income growth expectation
for FY 2012 to 17-23 percent year-over-year from 12-18 percent.
Based on strategic decisions to redirect resources from lower- to
higher-value solutions and a more uncertain demand environment, the
company also is revising its full-year revenue-growth outlook to
1-5 percent from the previous range of 5-9 percent. In the third
quarter, Dell expects to see revenue roughly flat relative to Q2,
which is in line with seasonality over the past two years.
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. As previously
announced, the second quarter analyst call with Michael Dell,
chairman and CEO; Brian Gladden, CFO; and Brad Anderson, senior
vice president, Enterprise Solutions Group, will be webcast live
today at 4 p.m. CDT and archived at www.dell.com/investor. To
monitor highlighted facts from the analyst call, follow on the Dell
Investor Relations Twitter account at:
http://twitter.com/dellshares or hashtag #DellEarnings. To
communicate directly with Dell, go to www.dell.com/dellshares.
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” and has presented a detailed discussion of its
reasons for including the non-GAAP financial measures and the
limitations associated with those measures under the heading “Use
of Non-GAAP Financial Measures.” Dell encourages investors to
review the reconciliation and the non-GAAP discussion 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 (including statements about Dell’s future financial and
operating performance, anticipated customer demand, global market
trends, customer market focus, sales structure strategies,
enterprise solutions strategies, component costs, cost controls,
supply chain improvements, strategic investments and timing of the
close of the Force10 Networks acquisition, as well as the financial
guidance with respect to revenue and non-GAAP operating income) 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: intense competition; Dell’s cost-cutting measures;
Dell’s ability to effectively manage the growth of its distribution
capabilities and add to its product and services offerings; Dell’s
ability to effectively manage periodic product and services
transitions; weak global economic conditions and instability in
financial markets; Dell’s ability to generate substantial non-U.S.
net revenue; weak economic conditions and additional regulation
affecting Dell’s financial services activities; Dell’s ability to
achieve favorable pricing from its vendors; Dell’s ability to
deliver consistent quality products and services; Dell’s reliance
on third-party suppliers for product components, including reliance
on several single-sourced or limited-sourced suppliers; successful
implementation of Dell’s acquisition strategy; Dell’s product,
customer, and geographic sales mix, and seasonal sales trends;
access to the capital markets by Dell or its customers; loss of
government contracts; the risk of temporary suspension or debarment
from contracting with U.S. federal, state and local governments as
a result of settlements of an SEC investigation by Dell and Dell’s
Chairman and CEO; 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; Dell’s ability to
obtain licenses to intellectual property developed by others on
commercially reasonable and competitive terms; information
technology and manufacturing infrastructure disruptions or breaches
of data security; Dell’s ability to hedge effectively its exposure
to fluctuations in foreign currency exchange rates and interest
rates; counterparty default; unfavorable results of legal
proceedings; expiration of tax holidays or favorable tax rate
structures, or unfavorable outcomes in tax audits and other
compliance matters; 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 Jan. 28, 2011.
In particular, Dell’s expectations with regard to revenue and
non-GAAP operating income for the full fiscal year ending Feb. 3,
2012 assume, among other matters, that there is no significant
decline in economic conditions generally or demand growth
specifically, no significant change in product mix patterns,
continued successful management of lower-margin businesses,
continued successful demand planning and forecasting, no supply
chain disruptions, and no significant adverse component pricing or
supply movements. Dell assumes no obligation to update its
forward-looking statements.
Consolidated statements of income, financial position and cash
flows and other financial data follow.
Dell, EqualLogic and Compellent are trademarks 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
July 29, April 29, July 30, 2011
2011 2010
Sequential Yr. to Yr. Net revenue Products $
12,610 $ 12,059 $ 12,645 5 % (0 %) Services, including software
related 3,048 2,958 2,889
3 % 6 % Net revenue 15,658 15,017
15,534 4 % 1 % Cost of net revenue Products
9,935 9,436 10,931 5 % (9 %) Services, including software related
2,198 2,149 2,017 2 % 9 %
Total cost of net revenue 12,133 11,585
12,948 5 % (6 %) Gross margin 3,525 3,432
2,586 3 % 36 % Selling, general and administrative 2,174
2,025 1,679 7 % 29 % Research, development and engineering
205 195 162 5 % 27 % Total
operating expenses 2,379 2,220
1,841 7 % 29 % Operating income 1,146 1,212 745 (5 %)
54 % Interest and other, net (55 ) (42 )
(49 ) (29 %) (12 %) Income before income taxes 1,091 1,170
696 (7 %) 57 % Income tax provision 201 225
151 (11 %) 33 % Net income $ 890 $ 945
$ 545 (6 %) 63 % Earnings per share: Basic $
0.48 $ 0.50 $ 0.28 (4 %) 71 % Diluted $ 0.48
$ 0.49 $ 0.28 (2 %) 71 % Weighted
average shares outstanding: Basic 1,858 1,908 1,952 (3 %) (5 %)
Diluted 1,871 1,923 1,960 (3 %) (5 %)
Percentage of
Total Net Revenue:
Gross margin 22.5 % 22.9 % 16.6 % Selling, general and
administrative 13.9 % 13.5 % 10.8 % Research and development 1.3 %
1.3 % 1.0 % Operating expenses 15.2 % 14.8 % 11.8 % Operating
income 7.3 % 8.1 % 4.8 % Income before income taxes 7.0 % 7.8 % 4.5
% Net income 5.7 % 6.3 % 3.5 % Income tax rate 18.4 % 19.2 % 21.7 %
Net Revenue by
Product Category:
Servers and Networking $ 2,054 $ 1,973 $ 1,890 4 % 9 % Storage 502
481 624 4 % (20 %) Services 2,036 1,984 1,915 3 % 6 % Software and
Peripherals 2,569 2,567 2,535 0 % 1 % Mobility 4,761 4,716 4,700 1
% 1 % Desktop PCs 3,736 3,296
3,870 13 % (3 %) Consolidated net revenue $ 15,658 $
15,017 $ 15,534 4 % 1 %
Percentage of
Total Net Revenue:
Servers and Networking 13 % 13 % 12 % Storage 3 % 3 % 4 % Services
13 % 13 % 12 % Software and Peripherals 16 % 17 % 17 % Mobility 31
% 32 % 30 % Desktop PCs 24 % 22 % 25 %
Net Revenue by
Global Segment:
Large Enterprise $ 4,584 $ 4,477 $ 4,549 2 % 1 % Public 4,457 3,767
4,580 18 % (3 %) Small and Medium Business 3,709 3,768 3,535 (2 %)
5 % Consumer 2,908 3,005 2,870
(3 %) 1 % Consolidated net revenue $ 15,658 $ 15,017
$ 15,534 4 % 1 %
Percentage of
Total Net Revenue:
Large Enterprise 29 % 30 % 29 % Public 28 % 25 % 30 % Small and
Medium Business 24 % 25 % 23 % Consumer 19 % 20 % 18 %
Consolidated
Operating Income:
Large Enterprise $ 448 $ 504 $ 288 Public 484 370 369 Small and
Medium Business 404 463 323 Consumer 73 136
(21 ) Segment operating income 1,409 1,473 959
Severance and facility actions - (19 ) (24 ) Broad based long-term
incentives (81 ) (97 ) (87 ) Amortization of intangible assets (95
) (92 ) (87 ) Acquisition-related (87 ) (53 ) (16 ) Other -
- - Consolidated operating
income $ 1,146 $ 1,212 $ 745
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 July 29, July 30, 2011
2010 Yr. to Yr. Net revenue
Products $ 24,669 $ 24,731 (0 %) Services, including software
related 6,006 5,677 6 % Net revenue
30,675 30,408 1 % Cost of net
revenue Products 19,371 21,316 (9 %) Services, including software
related 4,347 3,990 9 % Total cost of
net revenue 23,718 25,306 (6 %)
Gross margin 6,957 5,102 36 % Selling, general and
administrative 4,199 3,509 20 % Research, development and
engineering 400 329 22 % Total
operating expenses 4,599 3,838 20 %
Operating income 2,358 1,264 87 % Interest and other,
net (97 ) (117 ) 17 % Income before income taxes
2,261 1,147 97 % Income tax provision 426 261
63 % Net income $ 1,835 $ 886 107 %
Earnings per share: Basic $ 0.97 $ 0.45 116 % Diluted
$ 0.97 $ 0.45 116 % Weighted average shares
outstanding: Basic 1,883 1,956 (4 %) Diluted 1,897 1,967 (4 %)
Percentage of
Total Net Revenue:
Gross margin 22.7 % 16.8 % Selling, general and administrative 13.7
% 11.5 % Research and development 1.3 % 1.1 % Operating expenses
15.0 % 12.6 % Operating income 7.7 % 4.2 % Income before income
taxes 7.4 % 3.8 % Net income 6.0 % 2.9 % Income tax rate 18.8 %
22.8 %
Net Revenue by
Product Category:
Servers and Networking $ 4,027 $ 3,675 10 % Storage 983 1,178 (17
%) Services 4,020 3,806 6 % Software and Peripherals 5,136 5,031 2
% Mobility 9,477 9,263 2 % Desktop PCs 7,032
7,455 (6 %) Consolidated net revenue $ 30,675 $
30,408 1 %
Percentage of
Total Net Revenue:
Servers and Networking 13 % 12 % Storage 3 % 4 % Services 13 % 12 %
Software and Peripherals 17 % 17 % Mobility 31 % 30 % Desktop PCs
23 % 25 %
Net Revenue by
Global Segment:
Large Enterprise $ 9,061 $ 8,795 3 % Public 8,224 8,436 (3 %) Small
and Medium Business 7,477 7,059 6 % Consumer 5,913
6,118 (3 %) Consolidated net revenue $ 30,675
$ 30,408 1 %
Percentage of
Total Net Revenue:
Large Enterprise 30 % 29 % Public 27 % 28 % Small and Medium
Business 24 % 23 % Consumer 19 % 20 %
Consolidated
Operating Income:
Large Enterprise $ 952 $ 571 Public 854 667 Small and Medium
Business 867 636 Consumer 209 (4 ) Segment
operating income 2,882 1,870 Severance and facility actions (19 )
(81 ) Broad based long-term incentives (178 ) (174 ) Amortization
of intangible assets (187 ) (175 ) Acquisition-related (140 ) (36 )
Other(1) - (140 ) Consolidated operating
income $ 2,358 $ 1,264 Note: Percentage
growth rates and ratios are calculated based on underlying data in
thousands.
(1) Other for the six months ended July 30, 2010 includes
amounts for the $100 million settlement of the SEC investigation
and a $40 million settlement for a securities litigation
matter.
DELL INC. Condensed Consolidated
Statement of Financial Position and Related Financial Highlights
(in millions, except for "Ratios") (unaudited)
July
29, April 29, July 30, 2011
2011 2010
Assets:
Current assets: Cash and cash equivalents $ 14,623 $ 14,061 $
11,694 Short-term investments 509 418 744 Accounts receivable, net
6,752 6,196 6,565 Financing receivables, net 3,385 3,205 3,272
Inventories, net 1,346 1,276 1,372 Other current assets
3,043 3,217 3,562 Total current
assets 29,658 28,373 27,209 Property, plant and equipment, net
2,064 1,987 1,980 Investments 1,048 762 633 Long-term financing
receivables, net 1,252 1,123 622 Goodwill 5,431 5,406 4,264
Purchased intangible assets, net 1,866 1,941 1,638 Other
non-current assets 285 196 294
Total assets $ 41,604 $ 39,788 $ 36,640
Liabilities and
Equity:
Current liabilities: Short-term debt $ 1,316 $ 816 $ 1,627 Accounts
payable 11,628 10,442 12,465 Accrued and other 3,823 3,590 3,812
Short-term deferred services revenue 3,427
3,282 3,009 Total current liabilities 20,194
18,130 20,913 Long-term debt 6,424 6,794 3,623 Long-term deferred
services revenue 3,723 3,608 3,311 Other non-current liabilities
2,927 2,886 2,632 Total
liabilities 33,268 31,418 30,479 Stockholders' equity 8,336
8,370 6,161 Total liabilities
and equity $ 41,604 $ 39,788 $ 36,640
Ratios:
Days of sales outstanding (1) 42 40 41 Days supply in inventory 10
10 10 Days in accounts payable (86 ) (81 ) (87
) Cash conversion cycle (34 ) (31 ) (36 )
Average total revenue/unit (approximate) $ 1,350 $ 1,380 $
1,340 Note: Ratios are calculated based on underlying data
in thousands.
(1) 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 in the other current assets. At July 29, 2011, April 29,
2011, and July 30, 2010, DSO and days of customer shipments not yet
recognized were 39 and 3 days, 37 and 3 days, 38 and 3 days,
respectively.
DELL INC.
Condensed Consolidated Statements of Cash Flows (in millions,
unaudited)
Three Months Ended Six Months Ended
July 29, July 30, July 29, July 30,
2011 2010
2011 2010 Cash flows from
operating activities: Net income $ 890 $ 545 $ 1,835 $ 886
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 230 264 446 511
Stock-based compensation 82 80 181 156
Effects of exchange rate changes on
monetary assets and liabilities denominated in foreign
currencies
(9 ) 7 (9 ) 37 Deferred Income Taxes 7 (24 ) (56 ) (55 ) Provision
for doubtful accounts - including financing receivables 70 95 117
217 Other 5 4 - 4 Changes in assets and liabilities, net of effects
from acquisitions: Accounts receivable (566 ) (777 ) (95 ) (896 )
Financing receivables (100 ) (205 ) (79 ) (413 ) Inventories (69 )
(186 ) (31 ) (318 ) Other assets 97 (33 ) 207 36 Accounts payable
1,186 1,109 261 1,131 Deferred services revenue 212 193 403 265
Accrued and other liabilities 339 263
(341 ) 12 Change in cash from operating
activities 2,374 1,335 2,839
1,573 Cash flows from investing
activities: Investments:
Purchases
(541 ) (713 ) (781 ) (1,063 ) Maturities and sales 210 669 432 838
Capital expenditures (159 ) (145 ) (296 ) (191 ) Proceeds from sale
of facility and land - 18 12 18 Collections on purchased financing
receivables 68 - 135 -
Acquisition of business, net of cash
received
(428 ) (89 ) (1,901 ) (222 )
Change in cash from investing
activities
(850 ) (260 ) (2,399 ) (620 )
Cash flows from financing activities: Repurchase of common stock
(1,130 ) (200 ) (1,580 ) (400 ) Issuance of common stock under
employee plans 19 2 29 9
Issuance (repayment) of commercial paper
(maturity 90 days or less), net
- 490 - 724 Proceeds from debt 503 341 2,433 609
Repayments of debt
(370 ) (253 ) (693 ) (819 ) Other (1 ) (1 ) 2
2
Change in cash from financing
activities
(979 ) 379 191 125
Effect of exchange rate changes on cash
and cash equivalents
17 (15 ) 79 (19 )
Change in cash and cash equivalents
562 1,439 710 1,059
Cash and cash equivalents at beginning of
period
14,061 10,255 13,913
10,635
Cash and cash equivalents at end of
period
$ 14,623 $ 11,694 $ 14,623 $ 11,694
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
The tables on the following pages set forth, for the periods
indicated, a reconciliation of non-GAAP gross margin, non-GAAP
operating expenses, non-GAAP operating income, non-GAAP net income,
and non-GAAP earnings per share (collectively, the “non-GAAP
financial measures”) to the most comparable GAAP financial
measures. These non-GAAP financial measures may not be directly
comparable to similarly titled measures reported by other
companies. See “Use of Non-GAAP Financial Measures” following the
tables for additional information regarding Dell’s reasons for
including the non-GAAP financial measures and for material
limitations with respect to the usefulness of these measures.
DELL INC.
Reconciliation of Non-GAAP Financial Measures (in millions, except
per share data and percentages) (unaudited)
Three Months
Ended % Growth Rates July 29, April 29,
July 30, 2011 2011
2010 Sequential Yr. to Yr.
GAAP gross margin $ 3,525 $ 3,432 $ 2,586 3 % 36 %
Non-GAAP adjustments: Amortization of intangibles 74 71 70
Severance and facility actions - 5 14 Acquisition-related 26
3 1 Non-GAAP gross margin $
3,625 $ 3,511 $ 2,671 3 % 36 %
GAAP operating expenses $ 2,379 $ 2,220 $ 1,841 7 % 29 %
Non-GAAP adjustments: Amortization of intangibles (21 ) (21 ) (17 )
Severance and facility actions - (14 ) (10 ) Acquisition-related
(61 ) (50 ) (15 ) Non-GAAP operating expenses
$ 2,297 $ 2,135 $ 1,799 8 % 28 %
GAAP operating income $ 1,146 $ 1,212 $ 745 (5 %) 54 %
Non-GAAP adjustments: Amortization of intangibles 95 92 87
Severance and facility actions - 19 24 Acquisition-related
87 53 16 Non-GAAP operating
income $ 1,328 $ 1,376 $ 872 (3 %) 52 %
GAAP net income $ 890 $ 945 $ 545 (6 %) 63 % Non-GAAP
adjustments: Amortization of intangibles 95 92 87 Severance and
facility actions - 19 24 Acquisition-related 87 53 16 Aggregate
adjustment for income taxes (66 ) (59 ) (43 )
Non-GAAP net Income $ 1,006 $ 1,050 $ 629 (4
%) 60 % GAAP earnings per share - diluted $ 0.48 $
0.49 $ 0.28 (2 %) 71 % Non-GAAP adjustments per share - diluted
0.06 0.06 0.04 Non-GAAP
earnings per share - diluted $ 0.54 $ 0.55 $ 0.32
(2 %) 69 % GAAP Diluted WAS 1,871 1,923 1,960
Percentage of Total
Net Revenue:
GAAP gross margin 22.5 % 22.9 % 16.6 % Non-GAAP adjustment
0.7 % 0.5 % 0.6 % Non-GAAP gross margin
23.2 % 23.4 % 17.2 % GAAP operating expenses
15.2 % 14.8 % 11.8 % Non-GAAP adjustment (0.5 %) (0.6
%) (0.2 %) Non-GAAP operating expenses 14.7 %
14.2 % 11.6 % GAAP operating income 7.3 % 8.1 % 4.8 %
Non-GAAP adjustment 1.2 % 1.1 % 0.8 % Non-GAAP
operating income 8.5 % 9.2 % 5.6 % GAAP
net income 5.7 % 6.3 % 3.5 % Non-GAAP adjustment 0.7 %
0.7 % 0.5 % Non-GAAP net income 6.4 %
7.0 % 4.0 % 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 July 29, July 30, 2011
2010 Yr. to Yr. GAAP
gross margin $ 6,957 $ 5,102 36 % Non-GAAP adjustments:
Amortization of intangibles 145 138 Severance and facility actions
5 43 Acquisition-related 29 2 Non-GAAP
gross margin $ 7,136 $ 5,285 35 % GAAP
operating expenses $ 4,599 $ 3,838 20 % Non-GAAP
adjustments: Amortization of intangibles (42 ) (37 ) Severance and
facility actions (14 ) (38 ) Acquisition-related (111 ) (34 )
Other(1) - (140 ) Non-GAAP operating expenses
$ 4,432 $ 3,589 23 % GAAP operating
income $ 2,358 $ 1,264 87 % Non-GAAP adjustments:
Amortization of intangibles 187 175 Severance and facility actions
19 81 Acquisition-related 140 36 Other(1) -
140 Non-GAAP operating income $ 2,704 $ 1,696
59 % GAAP net income $ 1,835 $ 886 107 %
Non-GAAP adjustments: Amortization of intangibles 187 175 Severance
and facility actions 19 81 Acquisition-related 140 36 Other(1) -
140 Aggregate adjustment for income taxes (125 ) (105
) Non-GAAP net Income $ 2,056 $ 1,213 69 %
GAAP earnings per share - diluted $ 0.97 $ 0.45 116 %
Non-GAAP adjustments per share - diluted 0.11
0.17 Non-GAAP earnings per share - diluted $ 1.08 $
0.62 74 % GAAP Diluted WAS 1,897 1,967
Percentage of Total
Net Revenue:
GAAP gross margin 22.7 % 16.8 % Non-GAAP adjustment
0.6 % 0.6 % Non-GAAP gross margin 23.3 % 17.4
% GAAP operating expenses 15.0 % 12.6 % Non-GAAP adjustment
(0.6 %) (0.8 %) Non-GAAP operating expenses
14.4 % 11.8 % GAAP operating income 7.7 % 4.2 %
Non-GAAP adjustment 1.1 % 1.4 % Non-GAAP operating
income 8.8 % 5.6 % GAAP net income 6.0 % 2.9 %
Non-GAAP adjustment 0.7 % 1.1 % Non-GAAP net income
6.7 % 4.0 % Note: Percentage growth rates and
ratios are calculated based on underlying data in thousands.
(1) Other for the six months ended July 30, 2010 includes
amounts for the $100 million settlement of the SEC investigation
and a $40 million settlement for a securities litigation
matter.
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 Dell’s
management to better understand Dell’s consolidated financial
performance from period to period and in relationship to the
operating results of Dell’s 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 Dell’s management to better
project Dell’s future consolidated financial performance because
Dell’s 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. Non-GAAP operating income growth as
projected for Fiscal 2012, which is a forward looking non-GAAP
financial measure, excludes acquisition-related charges, and
amortization of purchased intangible assets related to
acquisitions, some of which Dell cannot forecast with certainty or
accuracy due to their inherently indefinite and contingent nature,
thereby preventing Dell from reconciling its projections to GAAP.
The historical non-GAAP financial measures, as defined by Dell,
represent the comparable GAAP measures adjusted to exclude these
same items as well as amounts for severance and facility charges,
which were incurred in periods prior to the second quarter of
Fiscal 2012, and the settlements related to the SEC investigation
and a securities litigation matter, which were both incurred during
the first quarter of Fiscal 2011. Dell provides more detail below
regarding each of these items and our reasons for excluding them.
In future fiscal periods, Dell expects that it may again 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 Dell’s non-GAAP presentation should not be
interpreted as implying that these items are non-recurring,
infrequent, or unusual.
The non-GAAP financial measures for the periods indicated in the
tables above reflect adjustments related to the following
items:
- Acquisition-related Costs --
Acquisition-related charges are expensed as incurred and consist
primarily of retention payments, integration costs, and other
costs. Starting in the second quarter of Fiscal 2012, all severance
and facility charges related to acquisitions are also included in
acquisition-related costs. Previously, these costs were included in
a separate caption for severance and facility actions described
below. Acquisition-related severance and facility costs were not
significant in prior periods. Retention payments include
stock-based compensation and cash incentives awarded to employees,
which are recognized over the vesting period. Integration costs
include IT costs related to the integration of IT systems and
processes, costs related to the integration of employees, costs
related to full-time employees who are working on the integration,
and consulting expenses. Acquisition-related charges are
inconsistent in amount and are significantly impacted by the timing
and nature of acquisitions. Therefore, although Dell may incur
these types of expenses in connection with future acquisitions,
Dell believes eliminating acquisition-related charges for purposes
of calculating the non-GAAP financial measures 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, customer lists, acquired
technology, trade names, and non-compete covenants purchased in
connection with business acquisitions. Dell incurs charges relating
to the amortization of these intangibles, and those charges are
included in Dell’s consolidated financial statements. Amortization
charges for Dell’s purchased intangible assets are inconsistent in
amount and are significantly impacted by the timing and magnitude
of Dell’s acquisitions. Consequently, Dell excludes these charges
for purposes of calculating the non-GAAP financial measures to
facilitate a more meaningful evaluation of Dell’s current operating
performance and comparisons to Dell’s past operating
performance.
- Severance and Facility Actions --
Severance and facility action costs primarily relate to facilities
charges including accelerated depreciation and severance and
benefits for employees terminated pursuant to actions taken as part
of a comprehensive review of costs, which started in Fiscal 2009,
and exclude any routine workforce reductions. These activities are
substantially complete. As such, starting in the second quarter of
Fiscal 2012, only charges for severance and facility actions
associated with cost synergies related to strategic acquisitions
are being excluded for the purposes of calculating the non-GAAP
financial measures and will be included in acquisition-related
costs discuss above. Dell excludes these severance and facility
action costs for purposes of calculating the non-GAAP financial
measures because it believes that these historical costs do not
reflect expected future operating expenses and do not contribute to
a meaningful evaluation of Dell’s current operating performance or
comparisons to Dell’s past operating performance.
- Other Fees and Settlements -- Dell also
adjusts its GAAP results for certain settlements. For the first
quarter of Fiscal 2011, Dell recorded a $100 million settlement
amount for the SEC investigation into certain of Dell's accounting
and financial matters, which was initiated in 2005, and also
incurred $40 million for a securities litigation class action
lawsuit that was filed against Dell during Fiscal 2007. Dell is
excluding these settlements from the operating results of Fiscal
2011 for the purpose of calculating the non-GAAP financial measures
because it believes these settlements are outside Dell’s ordinary
course of business and do not contribute to a meaningful evaluation
of Dell’s current 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 costs were incurred.
There are limitations to the use of non-GAAP financial measures.
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 does, 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 action costs and acquisition expenses 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 on Dell’s GAAP results and using non-GAAP
financial measures supplementally or for projections when
comparable GAAP measures are not available. The non-GAAP financial
measures are not meant to be considered as indicators of
performance in isolation from or as substitutes 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.
Dell provides detailed reconciliations of each historical non-GAAP
financial measure to its most directly comparable GAAP measure
within the financial information included with this press release
and in other written materials that include such non-GAAP
historical financial measures, and Dell encourages investors to
review the reconciliations in conjunction with the presentation of
any historical non-GAAP financial measures.
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