Dell Reports Fiscal Year 2014 Second Quarter Financial Results

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.

 
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,
2013 2013 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, August 3,
2013 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, May 3, August 3,

2013 (a)

2013 (a)

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, August 3,

2013 (a)

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  
 

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