Dell's Global Commercial Strength Drives Second Quarter Financial Results
-- Overall company revenue up 22 percent to $15.5 billion
-- Commercial business revenue increases 28 percent to $12.7 billion
-- Servers, storage and services revenue up 43 percent to $4.3 billion
ROUND ROCK, Texas--(BUSINESS WIRE)-- Commercial customer demand for Dell enterprise solutions - including servers and networking systems, storage and services - increased significantly worldwide in the second quarter of fiscal 2011, driving a 22-percent improvement in total revenue to $15.5 billion, and an 11-percent gain in operating income to $745 million on a GAAP basis in year-over-year comparisons.
Fiscal-Year 2011 Second Quarter Highlights
-- Total revenue in the quarter ended July 30 was $15.5 billion, a
22-percent increase from a year ago.
-- Dell's commercial business continues to benefit from improved demand
across all products and services, and in all geographies as Dell expands
its enterprise solutions portfolio. Recently, Dell acquired Scalent,
developer of virtual infrastructure management technology, and Ocarina
Networks, a leading developer of storage optimization technology. The
company also announced an agreement to acquire 3PAR, the leading global
provider of utility storage for cloud computing. These moves illustrate
Dell's commitment to build its capabilities for open and affordable
enterprise solutions.
-- Dell's business in emerging countries continued to grow rapidly, with
total revenue from Brazil, Russia, India and China (BRIC) up 52 percent
to account for 12 percent of Dell's overall revenue.
Second Quarter
(in millions) FY11 FY10 Change
Revenue $ 15,534 $ 12,764 22 %
Operating Income (GAAP) $ 745 $ 671 11 %
Net Income (GAAP) $ 545 $ 472 16 %
EPS (GAAP) $ 0.28 $ 0.24 17 %
Operating Income (non-GAAP) $ 872 $ 798 9 %
Net Income (non-GAAP) $ 629 $ 575 9 %
EPS (non-GAAP) $ 0.32 $ 0.29 10 %
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, and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.
Results
-- GAAP operating income was $745 million, or 4.8 percent of revenue.
Non-GAAP operating income was $872 million, or 5.6 percent of revenue.
-- Cash flow from operations was $1.3 billion, with Dell ending the quarter
with $13.1 billion in cash and investments.
Strategic Progress:
-- Server and networking revenues increased 35 percent with rapid growth in
blades.
-- Storage revenue improved 13 percent led by EqualLogic storage products,
which grew 63 percent as it gains wider adoption among customers.
-- Services revenue increased 57 percent to $1.9 billion with the inclusion
of Perot Systems.
-- Dell introduced new Business-Ready Configurations of servers, storage,
networking and virtualization technologies to help customers more
quickly deploy open, affordable, fully-integrated, virtualization-ready
data center solutions.
-- The corporate refresh cycle is continuing and led strong growth in
Dell's commercial client business. Revenue in total mobility and desktop
products grew 21 and 17 percent, respectively, driven by particular
strength in large enterprise and small and medium businesses. In the
quarter, Dell announced new Latitude E-Family laptops and features, and
a portfolio of Flexible Computing solutions and services to extend the
reach of virtual desktops.
Business Units and Regions:
-- Large Enterpriserevenue was $4.5 billion,up 38 percent, with revenues
for servers, services and mobility all improving by more than 50
percent. Operating income for the quarter was $288 million, a 68-percent
improvement.
-- Public revenue was $4.6 billion, an increase of 21 percent. Operating
income for the quarter was $369 million, a 4-percent decline. Revenue
from services, which includes Perot Systems, again more than doubled in
the quarter from a year ago. Server and networking revenue increased by
12 percent. Sales to healthcare customers were strong while state and
local government revenue was relatively flat.
-- Small and Medium Business revenue was $3.5 billion, up 25 percent.
Operating income was $323 million, a 32-percent increase. Revenue for
SMB server and networking increased 28 percent; for storage, increased
22 percent; for desktop PCs, increased 29 percent, and for mobility,
increased 32 percent.
-- Consumer revenue was flat at $2.9 billion. Operating income was a $21
million loss. The company remains confident that initiatives underway
will improve operating margins for the segment.
-- Asia-Pacific and Japan revenue grew 38 percent and the Americasand
EMEAwere up 17 and 24 percent, respectively. Revenue in the quarter from
outside the U.S. was 47 percent of the company's total.
Quotes:
Michael Dell, chairman of the board and chief executive officer: "We continue to strengthen our portfolio of data center solutions at an aggressive pace with the addition of key IP, talent and technology. This quarter's results are a strong reflection of the progress we've made, and we remain very focused on delivering the best possible solutions and services to meet our customers' IT needs."
Brian Gladden, chief financial officer: "We are positioned well to continue benefiting from the global corporate refresh underway in client and enterprise systems. This was a solid quarter highlighted by increasing revenues, operating income and cash flow. We continue to focus on improving operating income and executing on our long-term value-creation framework, while making key investments in solutions and resources."
Company Outlook:
Dell believes the corporate client refresh is well underway and that demand will continue through the next several quarters. For the third quarter, the company expects seasonal improvements from federal government sales and commercial businesses, resulting in a pick-up in the low single digits. Dell reiterated its outlook provided in June, anticipating revenue growth for the year from 14 to 19 percent and non-GAAP operating income growth between 18 to 23 percent.
About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.dell.com. The second-quarter analyst call with Michael Dell, chairman and CEO; Brian Gladden, CFO; and, Steve Schuckenbrock, senior vice president, Large Enterprise business unit, will be webcast live today at 3:45 p.m. CDT and archived at www.dell.com/investors. A related presentation will be posted on the website prior to the webcast. To communicate directly with Dell, go to www.dell.com/dellshares.
Non-GAAP Financial Measures:
This press release includes information about 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"), 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:
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, including seasonal and geographic trends and client refresh timing and scope, enterprise solutions strategies, acquisition strategies, and new products, as well as the financial guidance with respect to revenue and non-GAAP operating income) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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: weak global economic conditions and instability in financial markets; weak economic conditions and additional regulation affecting Dell's financial services activities; intense competition; Dell's cost-cutting measures; Dell's ability to effectively manage periodic product and services transitions; Dell's ability to effectively manage the growth of its distribution capabilities and add to its product and services offerings; Dell's ability to achieve favorable pricing from its vendors; Dell's reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; disruptions in component or product availability; successful implementation of Dell's acquisition strategy; Dell's ability to generate substantial non-U.S. net revenue; Dell's product, customer, and geographic sales mix, and seasonal sales trends; Dell's ability to access the capital markets; loss of government contracts; 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 hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default; unfavorable results of legal proceedings; Dell's ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; 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; information technology and manufacturing infrastructure disruptions or breaches of data security; Dell's ability to attract, retain, and motivate key personnel; 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 January 29, 2010. In particular, Dell's expectations with regard to revenue and non-GAAP operating income for the full fiscal year ending January 28, 2011 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, no significant adverse currency fluctuations, which are unhedged, and no significant adverse component pricing or supply movements. Dell assumes no obligation to update its forward-looking statements.
Additional Note:
The planned tender offer described in this press release has not yet commenced. This description is not an offer to buy or the solicitation of an offer to sell securities. At the time the planned tender offer is commenced, Dell Inc. will file a tender offer statement on Schedule TO with the Securities and Exchange Commission (the "SEC"), and 3PAR Inc. will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the planned tender offer. The tender offer statement (including an offer to purchase, a related letter of transmittal and other tender offer documents) and the solicitation/recommendation statement will contain important information that should be read carefully before making any decision to tender securities in the planned tender offer. Those materials will be made available to 3PAR Inc.'s stockholders at no expense to them. In addition, all of those materials (and all other tender offer documents filed with the SEC) will be made available at no charge on the SEC's website: www.sec.gov.
Consolidated statements of income, financial position and cash flows and other financial data follow.
Dell, PowerEdge, Dell Precision and Vostro 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 30, April 30, July 31,
2010 2010(1) 2009 Sequential Yr. to Yr.
(1)
Net revenue
Products $ 12,645 $ 12,086 $ 10,623 5 % 19 %
Services, including 2,889 2,788 2,141 4 % 35 %
software related
Net revenue 15,534 14,874 12,764 4 % 22 %
Cost of net revenue
Products 10,931 10,385 8,978 5 % 22 %
Services, including 2,017 1,973 1,395 2 % 45 %
software related
Total cost of net 12,948 12,358 10,373 5 % 25 %
revenue
Gross margin 2,586 2,516 2,391 3 % 8 %
Selling, general 1,679 1,830 1,571 (8 %) 7 %
and administrative
Research,
development and 162 167 149 (3 %) 9 %
engineering
Total operating 1,841 1,997 1,720 (8 %) 7 %
expenses
Operating income 745 519 671 44 % 11 %
Interest and other, (49 ) (68 ) (42 ) 28 % (16 %)
net
Income before 696 451 629 55 % 11 %
income taxes
Income tax 151 110 157 38 % (4 %)
provision
Net income $ 545 $ 341 $ 472 60 % 16 %
Earnings per share:
Basic $ 0.28 $ 0.17 $ 0.24 65 % 17 %
Diluted $ 0.28 $ 0.17 $ 0.24 65 % 17 %
Weighted average
shares outstanding:
Basic 1,952 1,961 1,955 (0 %) (0 %)
Diluted 1,960 1,973 1,960 (1 %) 0 %
Percentage of Total
Net Revenue:
Gross margin 16.6 % 16.9 % 18.7 %
Selling, general 10.8 % 12.3 % 12.3 %
and administrative
Research and 1.0 % 1.1 % 1.2 %
development
Operating expenses 11.8 % 13.4 % 13.5 %
Operating income 4.8 % 3.5 % 5.2 %
Income before 4.5 % 3.0 % 4.9 %
income taxes
Net income 3.5 % 2.3 % 3.7 %
Income tax rate 21.7 % 24.4 % 25.0 %
Net Revenue by
Product Category:
Servers and $ 1,890 $ 1,785 $ 1,403 6 % 35 %
Networking
Storage 624 554 551 13 % 13 %
Services(1) 1,915 1,891 1,218 1 % 57 %
Software and 2,535 2,496 2,382 2 % 6 %
Peripherals
Mobility 4,700 4,563 3,891 3 % 21 %
Desktop PCs 3,870 3,585 3,319 8 % 17 %
Consolidated net $ 15,534 $ 14,874 $ 12,764 4 % 22 %
revenue
Percentage of Total
Net Revenue:
Servers and 12 % 12 % 11 %
Networking
Storage 4 % 4 % 4 %
Services(1) 12 % 13 % 10 %
Software and 17 % 17 % 19 %
Peripherals
Mobility 30 % 30 % 30 %
Desktop PCs 25 % 24 % 26 %
Net Revenue by
Global Segment:
Large Enterprise $ 4,549 $ 4,246 $ 3,285 7 % 38 %
Public 4,580 3,856 3,798 19 % 21 %
Small and Medium 3,535 3,524 2,820 0 % 25 %
Business
Consumer 2,870 3,248 2,861 (12 %) 0 %
Consolidated net $ 15,534 $ 14,874 $ 12,764 4 % 22 %
revenue
Percentage of Total
Net Revenue:
Large Enterprise 29 % 28 % 26 %
Public 30 % 26 % 30 %
Small and Medium 23 % 24 % 22 %
Business
Consumer 18 % 22 % 22 %
Consolidated
Operating Income:
Large Enterprise $ 288 $ 283 $ 172
Public 369 298 383
Small and Medium 323 313 246
Business
Consumer (21 ) 17 89
Consolidated
segment operating 959 911 890
income
Severance and (24 ) (57 ) (87 )
facility actions
Broad based
long-term (87 ) (87 ) (92 )
incentives
Amortization of (87 ) (88 ) (40 )
intangible assets
Acquisition-related (16 ) (20 ) -
Other(2) - (140 ) -
Consolidated $ 745 $ 519 $ 671
operating income
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
(1)Includes the results of Perot Systems Corporation ("Perot Systems"), which
was acquired on November 3, 2009, from the date of acquisition.
(2)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 Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
Six Months Ended % Growth Rates
July 30, July 31,
2010(1) 2009 Yr. to Yr.
Net revenue
Products $ 24,731 $ 20,855 19 %
Services, including software related 5,677 4,251 34 %
Net revenue 30,408 25,106 21 %
Cost of net revenue
Products 21,316 17,764 20 %
Services, including software related 3,990 2,783 43 %
Total cost of net revenue 25,306 20,547 23 %
Gross margin 5,102 4,559 12 %
Selling, general and administrative 3,509 3,184 10 %
Research, development and engineering 329 290 13 %
Total operating expenses 3,838 3,474 10 %
Operating income 1,264 1,085 16 %
Interest and other, net (117 ) (44 ) (166 %)
Income before income taxes 1,147 1,041 10 %
Income tax provision 261 279 (6 %)
Net income $ 886 $ 762 16 %
Earnings per share:
Basic $ 0.45 $ 0.39 15 %
Diluted $ 0.45 $ 0.39 15 %
Weighted average shares outstanding:
Basic 1,956 1,952 0 %
Diluted 1,967 1,956 1 %
Percentage of Total Net Revenue:
Gross margin 16.8 % 18.2 %
Selling, general and administrative 11.5 % 12.7 %
Research and development 1.1 % 1.1 %
Operating expenses 12.6 % 13.8 %
Operating income 4.2 % 4.3 %
Income before income taxes 3.8 % 4.1 %
Net income 2.9 % 3.0 %
Income tax rate 22.8 % 26.8 %
Net Revenue by Product Category:
Servers and Networking $ 3,675 $ 2,689 37 %
Storage 1,178 1,085 9 %
Services(1) 3,806 2,456 55 %
Software and Peripherals 5,031 4,628 9 %
Mobility 9,263 7,766 19 %
Desktop PCs 7,455 6,482 15 %
Consolidated net revenue $ 30,408 $ 25,106 21 %
Percentage of Total Net Revenue:
Servers and Networking 12 % 11 %
Storage 4 % 4 %
Services(1) 12 % 10 %
Software and Peripherals 17 % 18 %
Mobility 30 % 31 %
Desktop PCs 25 % 26 %
Net Revenue by Global Segment:
Large Enterprise $ 8,795 $ 6,685 32 %
Public 8,436 6,969 21 %
Small and Medium Business 7,059 5,787 22 %
Consumer 6,118 5,665 8 %
Consolidated net revenue $ 30,408 $ 25,106 21 %
Percentage of Total Net Revenue:
Large Enterprise 29 % 27 %
Public 28 % 28 %
Small and Medium Business 23 % 23 %
Consumer 20 % 22 %
Consolidated Operating Income:
Large Enterprise $ 571 $ 364
Public 667 676
Small and Medium Business 636 476
Consumer (4 ) 88
Consolidated segment operating income 1,870 1,604
Severance and facility actions (81 ) (272 )
Broad based long-term incentives (174 ) (168 )
Amortization of intangible assets (175 ) (79 )
Acquisition-related (36 ) -
Other(2) (140 ) -
Consolidated operating income $ 1,264 $ 1,085
Note: Percentage growth rates and ratios are calculated based on underlying
data in thousands.
(1)Includes the results of Perot Systems Corporation ("Perot Systems"), which
was acquired on November 3, 2009, from the date of acquisition.
(2)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 30, April 30, July 31,
2010 2010 2009(2)
Assets:
Current assets:
Cash and cash equivalents $ 11,694 $ 10,255 $ 11,699
Short-term investments 744 627 299
Accounts receivable, net 6,565 5,880 5,403
Financing receivables, net 3,272 3,221 2,252
Inventories, net 1,372 1,182 839
Other current assets 3,562 3,619 3,348
Total current assets 27,209 24,784 23,840
Property, plant and equipment, net 1,980 2,049 2,117
Investments 633 714 746
Long-term financing receivables, net 622 528 263
Goodwill 4,264 4,181 1,748
Purchased intangible assets, net 1,638 1,658 646
Other non-current assets 294 327 698
Total assets $ 36,640 $ 34,241 $ 30,058
Liabilities and Equity:
Current liabilities:
Short-term debt $ 1,627 $ 1,079 $ 49
Accounts payable 12,465 11,402 9,698
Accrued and other 3,812 3,549 3,709
Short-term deferred services revenue 3,009 2,950 2,831
Total current liabilities 20,913 18,980 16,287
Long-term debt 3,623 3,582 3,394
Long-term deferred services revenue 3,311 3,194 3,051
Other non-current liabilities 2,632 2,607 2,701
Total liabilities 30,479 28,363 25,433
Stockholders' equity 6,161 5,878 4,625
Total liabilities and equity $ 36,640 $ 34,241 $ 30,058
Ratios:
Days of sales outstanding (1) 41 38 42
Days supply in inventory 10 9 7
Days in accounts payable (87 ) (83 ) (84 )
Cash conversion cycle (36 ) (36 ) (35 )
Average total revenue/unit (approximate) $ 1,340 $ 1,360 $ 1,280
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 30, 2010,
April 30, 2010, and July 31, 2009, DSO and days of customer shipments not yet
recognized were 38 and 3 days, 35 and 3 days, 38 and 4 days, respectively.
(2)Prior period amounts have been revised to reflect a reclassification
between short-term deferred service revenue and accrued and other.
DELL INC.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited)
Three Months Ended Six Months Ended
July 30, July 31, July 30, July 31,
2010 2009(1) 2010 2009(1)
Cash flows from operating
activities:
Net income $ 545 $ 472 $ 886 $ 762
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 264 201 511 402
Stock-based compensation 80 79 156 146
Effects of exchange rate
changes on monetary assets and
liabilities denominated in 7 26 37 26
foreign currencies
Deferred income taxes (24 ) (114 ) (55 ) (140 )
Provision for doubtful
accounts - including financing 95 105 217 210
receivables
Other 4 1 4 19
Changes in assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (777 ) (973 ) (896 ) (593 )
Financing receivables (205 ) (352 ) (413 ) (379 )
Inventories (186 ) 5 (318 ) 29
Other assets (33 ) (571 ) 36 (24 )
Accounts payable 1,109 1,801 1,131 1,318
Deferred services revenue 193 69 265 44
Accrued and other liabilities 263 327 12 17
Change in cash from operating 1,335 1,076 1,573 1,837
activities
Cash flows from investing
activities:
Investments:
Purchases (713 ) (348 ) (1,063 ) (776 )
Maturities and sales 669 340 838 982
Capital expenditures (145 ) (99 ) (191 ) (179 )
Proceeds from sale of facility 18 16 18 16
and land
Acquisition of business, net (89 ) - (222 ) (3 )
of cash received
Change in cash from investing (260 ) (91 ) (620 ) 40
activities
Cash flows from financing
activities:
Repurchase of common stock (200 ) - (400 ) -
Issuance of common stock under 2 - 9 -
employee plans
Issuance of commercial paper
(maturity 90 days or less), 490 (100 ) 724 (100 )
net
Proceeds from debt 341 994 609 1,491
Repayments of debt (253 ) - (819 ) (12 )
Other (1 ) - 2 -
Change in cash from financing 379 894 125 1,379
activities
Effect of exchange rate
changes on cash and cash (15 ) 129 (19 ) 91
equivalents
Change in cash and cash 1,439 2,008 1,059 3,347
equivalents
Cash and cash equivalents at 10,255 9,691 10,635 8,352
beginning of period
Cash and cash equivalents at $ 11,694 $ 11,699 $ 11,694 $ 11,699
end of period
(1)Prior period amounts have been reclassified to conform to the
current year presentation.
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 30, April 30, July 31,
2010 2010 2009 Sequential Yr. to Yr.
GAAP gross margin $ 2,586 $ 2,516 $ 2,391 3 % 8 %
Non-GAAP
adjustments:
Amortization of 70 68 27
intangibles
Severance and 14 29 14
facility actions
Acquisition-related 1 1 -
Non-GAAP gross $ 2,671 $ 2,614 $ 2,432 2 % 10 %
margin
GAAP operating $ 1,841 $ 1,997 $ 1,720 (8 %) 7 %
expenses
Non-GAAP
adjustments:
Amortization of (17 ) (20 ) (13 )
intangibles
Severance and (10 ) (28 ) (73 )
facility actions
Acquisition-related (15 ) (19 ) -
Other(1) - (140 )
Non-GAAP operating $ 1,799 $ 1,790 $ 1,634 1 % 10 %
expenses
GAAP operating $ 745 $ 519 $ 671 44 % 11 %
income
Non-GAAP
adjustments:
Amortization of 87 88 40
intangibles
Severance and 24 57 87
facility actions
Acquisition-related 16 20 -
Other(1) - 140
Non-GAAP operating $ 872 $ 824 $ 798 6 % 9 %
income
GAAP net income $ 545 $ 341 $ 472 60 % 16 %
Non-GAAP
adjustments:
Amortization of 87 88 40
intangibles
Severance and 24 57 87
facility actions
Acquisition-related 16 20 -
Other(1) 140 -
Aggregate adjustment (43 ) (62 ) (24 )
for income taxes
Non-GAAP net Income $ 629 $ 584 $ 575 8 % 9 %
GAAP earnings per $ 0.28 $ 0.17 $ 0.24 65 % 17 %
share - diluted
Non-GAAP adjustments 0.04 0.13 0.05
per share - diluted
Non-GAAP earnings $ 0.32 $ 0.30 $ 0.29 7 % 10 %
per share - diluted
GAAP Diluted WAS 1,960 1,973 1,960
Percentage of Total
Net Revenue:
GAAP gross margin 16.6 % 16.9 % 18.7 %
Non-GAAP adjustment 0.6 % 0.7 % 0.4 %
Non-GAAP gross 17.2 % 17.6 % 19.1 %
margin
GAAP operating 11.8 % 13.4 % 13.5 %
expenses
Non-GAAP adjustment (0.2 %) (1.4 %) (0.7 %)
Non-GAAP operating 11.6 % 12.0 % 12.8 %
expenses
GAAP operating 4.8 % 3.5 % 5.2 %
income
Non-GAAP adjustment 0.8 % 2.0 % 1.1 %
Non-GAAP operating 5.6 % 5.5 % 6.3 %
income
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
(1) Includes amounts for the $100 million settlement of the SEC investigation
and a $40 million settlement for a securities litigation matter.
DELL INC.
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data and percentages)
(unaudited)
Six Months Ended % Growth Rates
July 30, July 31,
2010 2009 Yr. to Yr.
GAAP gross margin $ 5,102 $ 4,559 12 %
Non-GAAP adjustments:
Amortization of intangibles 138 53
Severance and facility actions 43 79
Acquisition-related 2 -
Non-GAAP gross margin $ 5,285 $ 4,691 13 %
GAAP operating expenses $ 3,838 $ 3,474 10 %
Non-GAAP adjustments:
Amortization of intangibles (37 ) (26 )
Severance and facility actions (38 ) (193 )
Acquisition-related (34 ) -
Other(1) (140 ) -
Non-GAAP operating expenses $ 3,589 $ 3,255 10 %
GAAP operating income $ 1,264 $ 1,085 16 %
Non-GAAP adjustments:
Amortization of intangibles 175 79
Severance and facility actions 81 272
Acquisition-related 36 -
Other(1) 140 -
Non-GAAP operating income $ 1,696 $ 1,436 18 %
GAAP net income $ 886 $ 762 16 %
Non-GAAP adjustments:
Amortization of intangibles 175 79
Severance and facility actions 81 272
Acquisition-related 36 -
Other(1) 140 -
Aggregate adjustment for income taxes (105 ) (52 )
Non-GAAP net Income $ 1,213 $ 1,061 14 %
GAAP earnings per share - diluted $ 0.45 $ 0.39 15 %
Non-GAAP adjustments per share - diluted 0.17 0.15
Non-GAAP earnings per share - diluted $ 0.62 $ 0.54 15 %
GAAP Diluted WAS 1,967 1,956
Percentage of Total Net Revenue:
GAAP gross margin 16.8 % 18.2 %
Non-GAAP adjustment 0.6 % 0.5 %
Non-GAAP gross margin 17.4 % 18.7 %
GAAP operating expenses 12.6 % 13.8 %
Non-GAAP adjustment (0.8 %) (0.8 %)
Non-GAAP operating expenses 11.8 % 13.0 %
GAAP operating income 4.2 % 4.3 %
Non-GAAP adjustment 1.4 % 1.4 %
Non-GAAP operating income 5.6 % 5.7 %
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
(1) 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 provides non-GAAP financial information to investors to supplement GAAP financial information. 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 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 than that used to prepare GAAP-based financial measures, and exclude certain amounts pertaining to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Non-GAAP operating income growth as projected for Fiscal 2011, which is a forward looking non-GAAP financial measure, excludes the following items, some of which Dell cannot forecast; acquisition related charges, amortization of purchased intangible assets related to acquisitions, severance and facility action costs, and amounts for the settlement of the SEC investigation as well as a securities litigation matter that were incurred during the first quarter of Fiscal 2011. The historical non-GAAP financial measures, as defined by Dell, represent the comparable GAAP measures adjusted to exclude these same items. In the future, Dell expects that it may again exclude such items and may incur expenses similar to these excluded items, including in connection with any future acquisitions. 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. Dell believes the non-GAAP financial measures will provide investors with useful information to help them evaluate Dell's operating results and projections. These non-GAAP financial measures facilitate an enhanced understanding of historical results and projections, and enable more meaningful period to period comparisons.
This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for gross margin, operating expenses, operating income, net income, and earnings per share prepared in accordance with GAAP.
The non-GAAP financial measures for the periods indicated in the tables above reflect adjustments related to the following items:
-- Acquisition-related charges are expensed as incurred and consist
primarily of retention payments, integration costs, bankers' fees, legal
fees, and consulting fees. Retention payments include stock-based
compensation and cash incentives awarded to employees, which are
recognized over the vesting period. Integration costs include
incremental business costs that are directly attributable to the
acquisition of Perot Systems during the fourth quarter of Fiscal 2010
and are being incurred during the integration period. These costs
primarily include IT costs related to the integration of IT systems and
processes, costs related to the integration of Perot Systems 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 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 GAAP 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 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, including certain employee cost synergies
realized through our strategic acquisitions. Management measures the
performance of Dell excluding the effects of severance and facility
action costs and has been, for recent quarters, providing the effects to
investors to supplement GAAP financial information. 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.
-- 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. During
the first quarter of Fiscal 2011, Dell 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 the first half of Fiscal 2011for 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 jurisdictions where the adjustments were
incurred.
There are limitations to the use of non-GAAP financial measures. 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. Lastly, 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 primarily on Dell's GAAP results and using non-GAAP financial measures only supplementally or for projections when comparable GAAP measures are not available. Non-GAAP financial measures are not an alternative to GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis when available. 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.
Source: Dell Inc.
Released August 19, 2010