Dell Delivers Record Results in Fiscal-Year 2011 Fourth Quarter and Full Year
-- Record earnings per share in fiscal fourth quarter
-- Enterprise solutions and services revenue up 27 percent for full year
-- Revenue increase of $8.6 billion in FY11 - largest single-year increase
in company history
ROUND ROCK, Texas--(BUSINESS WIRE)-- Dell's expanding strength as an enterprise solutions provider and continued strong execution during the fiscal fourth quarter drove record results and one of the company's most successful financial quarters ever.
Results
-- Revenuein the quarter was $15.7 billion and totaled $61.5 billion for
the fiscal year, an $8.6 billion or 16 percent increase from the
previous fiscal year, including the impact of acquisitions.
-- The company had its highest operating income in five years. GAAP
operating income was $1.1 billion, or 7.3 percent of revenue. Non-GAAP
operating income was $1.3 billion, or 8.2 percent of revenue.
-- GAAP earnings per share was a record 48 cents; non-GAAP EPS was 53
cents.
-- GAAP gross margin in the quarter was 21 percent and 18.5 percent for the
year. Non-GAAP gross marginwas 21.5 percent in the quarter and 19.1
percent for the year, the result of record profitability in the
enterprise solutions and services business, lower component costs and
strong commercial execution.
-- Cash flow from operations was $1.5 billion, and Dell ended the quarter
with $15 billion in cash and investments.
Fiscal-Year 2011 Fourth Quarter and Full Year Highlights
Fourth Quarter Fiscal Year
(in millions) FY11 FY10 Change FY11 FY10 Change
Revenue $ 15,692 $ 14,900 5 % $ 61,494 $ 52,902 16 %
Operating Income $ 1,145 $ 510 124 % $ 3,433 $ 2,172 58 %
(GAAP)
Net Income (GAAP) $ 927 $ 334 177 % $ 2,635 $ 1,433 84 %
EPS (GAAP) $ 0.48 $ 0.17 182 % $ 1.35 $ 0.73 85 %
Operating Income $ 1,286 $ 798 61 % $ 4,149 $ 2,974 40 %
(non-GAAP)
Net Income $ 1,018 $ 544 87 % $ 3,106 $ 2,054 51 %
(non-GAAP)
EPS (non-GAAP) $ 0.53 $ 0.28 89 % $ 1.59 $ 1.05 51 %
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, a merger termination fee, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.
Strategic Highlights:
-- Revenue for enterprise solutions and services grew 7 percent to $4.6
billion in the quarter and now represents 29 percent of the company's
consolidated revenue. Server revenue increased 16 percent. EqualLogic
sales grew 49 percent and, combined with Dell PowerVault sales,
accounted for almost two-thirds of the company's storage revenue and
more than 80 percent of the company's storage gross margin dollars.
Revenue for the combined Large Enterprise, Public and SMB businesses was
up 9 percent to $12.4 billion in the quarter, with revenue for
commercial laptop and desktop computers growing 10 percent.
-- Strong demand and profitability across all commercial business segments
drove consolidated GAAP operating income of $1.1 billion, or 7.3 percent
of revenue. Non-GAAP operating income was $1.3 billion, a 61 percent
increase and 8.2 percent of revenue.
-- Client profitability improved notably in the second half of the year
driven by solid supply-chain performance, lower input costs and improved
product quality. The company's product availability improved 37 percent
and order-to-delivery times improved 33 percent over the previous year.
For the full year, client revenue grew 14 percent to $33.7 billion
driven by a continuing corporate refresh cycle.
-- Dell Services revenue grew one percent to $1.9 billion as the company
delivered on its first-year revenue and cost-synergy targets associated
with the successful integration of Perot Systems. The services
organization now has annual revenue of $7.7 billion.
-- Dell extended its core capabilities in the quarter and exited the year
with a significantly enhanced enterprise solutions and services
portfolio. The company is making sustained organic and inorganic
investments to build its intellectual property and provide customers
optimal, open and affordable solutions. Among these investments are the
recently completed acquisitions of SecureWorks Inc., a provider of
information-security services; Boomi, which offers a
Software-as-a-Service platform to ease data exchange between cloud-based
and on-premise applications; and Insite One, a leader in cloud-based
medical archiving solutions.
Business Units and Regions:
-- Large Enterpriserevenue was $4.7 billion,up 12 percent from a year ago.
Operating income was $502 million, or 10.7 percent of revenue and a 26
percent sequential increase. Enterprise solutions and services revenue
was $1.9 billion, a 5 percent increase, with server revenue up 14
percent. Revenue from desktop and laptop computers grew 20 percent as
the strong client refresh among large corporate accounts continued.
-- Public revenue was $4 billion, a 4 percent increase driven by strong
server and storage sales. Operating income for the quarter was $366
million, or 9.2 percent of revenue. For the full year, Public delivered
strong performance with operating income of $1.5 billion, or 8.8 percent
of revenue. Server revenue growth of 13 percent and storage growth of 12
percent balanced demand decline for desktop and laptop computers.
-- Small and Medium Business revenue was $3.7 billion, up 12 percent to its
highest level in two years. SMB had another quarter of record
profitability, with operating income hitting $450 million in the
quarter, or 12 percent of revenue. Server revenue was up 22 percent and
storage revenue was up 20 percent. Revenue for desktop computers and
mobile devices increased 10 percent. During the quarter, Dell added the
Vostro V130 ultraportable laptop for mobile entrepreneurs.
-- Consumer revenue was $3.3 billion, up 11 percent sequentially but, as
expected, down year over year by 8 percent relative to a strong Windows
7 launch last year. Operating income was $69 million, or 2.1 percent of
revenue. Dell introduced the Inspiron duo, which has a unique flip-hinge
design to combine the simplicity of a tablet and the functionality of a
laptop with full keyboard.
-- Asia-Pacific and Japan revenue grew 17 percent, EMEA increased 3 percent
and the Americaswere up 3 percent. Revenue in Brazil, Russia, India and
China (BRIC) grew 21 percent and represents 13 percent of total company
revenue. For the full year, revenue in those countries was up 38
percent.
Quotes:
Michael Dell, chairman and chief executive officer: "I'm very pleased with our fiscal year results and the strong performance we're seeing in our commercial businesses. We remain focused on developing and acquiring new technologies and capabilities, and our IT solutions portfolio has never been stronger. Customers are now seeing Dell in a fresh light, and we're heading into the new year with strength and optimism."
Brian Gladden, chief financial officer: "Our outstanding fourth quarter and full-year results align well with our long-term value creation framework, and we're pleased with the sustainable operational improvements we've made across the company, including in our consumer business. With our strong cash flow, solid balance sheet and improving overall profitability, we believe we are well positioned to deliver strong performance for our shareholders."
Company Outlook:
For its fiscal-year 2012, Dell expects revenue growth of 5 to 9 percent, non-GAAP operating income growth of 6 to 12 percent, and continued strong execution on cash flow with cash flow from operations exceeding net income. In its first quarter of fiscal-year 2012, Dell expects normal seasonal declines in its consumer and public businesses and, as such, a slight sequential decline in revenue.
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. As previously announced, the fourth-quarter analyst call with Michael Dell, chairman and CEO; Brian Gladden, CFO; and Steve Schuckenbrock, senior vice president, Dell Services, will be webcast live today at 4:00 CST 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 gross margin, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with 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, announced and planned acquisitions, anticipated customer demand, including seasonal trends and commercial momentum, enterprise solutions strategies, component costs, cost controls, supply chain improvements, and new products, 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: 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; 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; 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. 29, 2010 and its Quarterly Report on Form 10-Q for the quarter ended July 30, 2010. 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 delays in pursuing the enterprise strategy, 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, PowerVault, Vostro
and Inspiron 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
January 28, October 29, January 29,
2011 2010 2010 Sequential Yr. to
Yr.
Net revenue
Products $ 12,751 $ 12,520 $ 12,096 2 % 5 %
Services, including 2,941 2,874 2,804 2 % 5 %
software related
Net revenue 15,692 15,394 14,900 2 % 5 %
Cost of net revenue
Products 10,337 10,415 10,501 (1 %) (2 %)
Services, including 2,064 1,976 1,930 4 % 7 %
software related
Total cost of net 12,401 12,391 12,431 0 % (0 %)
revenue
Gross margin 3,291 3,003 2,469 10 % 33 %
Selling, general 1,977 1,816 1,780 9 % 11 %
and administrative
Research,
development and 169 163 179 4 % (6 %)
engineering
Total operating 2,146 1,979 1,959 8 % 10 %
expenses
Operating income 1,145 1,024 510 12 % 124 %
Interest and other, (18 ) 52 (41 ) (134 %) 57 %
net(1)
Income before 1,127 1,076 469 5 % 140 %
income taxes
Income tax 200 254 135 (21 %) 49 %
provision
Net income $ 927 $ 822 $ 334 13 % 177 %
Earnings per share:
Basic $ 0.48 $ 0.42 $ 0.17 14 % 182 %
Diluted $ 0.48 $ 0.42 $ 0.17 14 % 182 %
Weighted average
shares outstanding:
Basic 1,924 1,939 1,957 (1 %) (2 %)
Diluted 1,938 1,949 1,971 (1 %) (2 %)
Percentage of Total
Net Revenue:
Gross margin 21.0 % 19.5 % 16.6 %
Selling, general 12.6 % 11.8 % 12.0 %
and administrative
Research and 1.1 % 1.0 % 1.2 %
development
Operating expenses 13.7 % 12.8 % 13.2 %
Operating income 7.3 % 6.7 % 3.4 %
Income before 7.2 % 7.0 % 3.2 %
income taxes
Net income 5.9 % 5.3 % 2.2 %
Income tax rate 17.8 % 23.6 % 28.7 %
Net Revenue by
Product Category:
Servers and $ 2,090 $ 1,844 $ 1,804 13 % 16 %
Networking
Storage 574 543 599 6 % (4 %)
Services 1,943 1,924 1,922 1 % 1 %
Software and 2,651 2,579 2,477 3 % 7 %
Peripherals
Mobility 4,850 4,858 4,653 (0 %) 4 %
Desktop PCs 3,584 3,646 3,445 (2 %) 4 %
Consolidated net $ 15,692 $ 15,394 $ 14,900 2 % 5 %
revenue
Percentage of Total
Net Revenue:
Servers and 13 % 12 % 12 %
Networking
Storage 4 % 3 % 4 %
Services 12 % 12 % 13 %
Software and 17 % 17 % 17 %
Peripherals
Mobility 31 % 32 % 31 %
Desktop PCs 23 % 24 % 23 %
Net Revenue by
Global Segment:
Large Enterprise $ 4,692 $ 4,326 $ 4,197 8 % 12 %
Public 3,973 4,442 3,820 (11 %) 4 %
Small and Medium 3,749 3,665 3,336 2 % 12 %
Business
Consumer 3,278 2,961 3,547 11 % (8 %)
Consolidated net $ 15,692 $ 15,394 $ 14,900 2 % 5 %
revenue
Percentage of Total
Net Revenue:
Large Enterprise 30 % 28 % 28 %
Public 25 % 29 % 26 %
Small and Medium 24 % 24 % 22 %
Business
Consumer 21 % 19 % 24 %
Consolidated
Operating Income:
Large Enterprise $ 502 $ 400 $ 281
Public 366 451 333
Small and Medium 450 391 282
Business
Consumer 69 - 9
Consolidated
segment operating 1,387 1,242 905
income
Severance and (17 ) (31 ) (86 )
facility actions
Broad based
long-term (101 ) (75 ) (107 )
incentives
Amortization of (85 ) (89 ) (86 )
intangible assets
Acquisition-related (39 ) (23 ) (116 )
Consolidated $ 1,145 $ 1,024 $ 510
operating income
Note: Percentage growth rates and ratios are calculated based on underlying
data in thousands.
(1) Interest and other, net for the three months ended October 29, 2010
includes Dell's receipt of a $72 million merger termination fee.
DELL INC.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
Fiscal Year Ended % Growth Rates
January 28, January 29,
2011(1) 2010(1) Yr. to Yr.
Net revenue
Products $ 50,002 $ 43,697 14 %
Services, including software related 11,492 9,205 25 %
Net revenue 61,494 52,902 16 %
Cost of net revenue
Products 42,068 37,534 12 %
Services, including software related 8,030 6,107 31 %
Total cost of net revenue 50,098 43,641 15 %
Gross margin 11,396 9,261 23 %
Selling, general and administrative 7,302 6,465 13 %
Research, development and 661 624 6 %
engineering
Total operating expenses 7,963 7,089 12 %
Operating income 3,433 2,172 58 %
Interest and other, net(2) (83 ) (148 ) 44 %
Income before income taxes 3,350 2,024 66 %
Income tax provision 715 591 21 %
Net income $ 2,635 $ 1,433 84 %
Earnings per share:
Basic $ 1.36 $ 0.73 86 %
Diluted $ 1.35 $ 0.73 85 %
Weighted average shares outstanding:
Basic 1,944 1,954 (1 %)
Diluted 1,955 1,962 (0 %)
Percentage of Total Net Revenue:
Gross margin 18.5 % 17.5 %
Selling, general and administrative 11.9 % 12.2 %
Research and development 1.0 % 1.2 %
Operating expenses 12.9 % 13.4 %
Operating income 5.6 % 4.1 %
Income before income taxes 5.4 % 3.8 %
Net income 4.3 % 2.7 %
Income tax rate 21.3 % 29.2 %
Net Revenue by Product Category:
Servers and Networking $ 7,609 $ 6,032 26 %
Storage 2,295 2,192 5 %
Services(1) 7,673 5,622 36 %
Software and Peripherals 10,261 9,499 8 %
Mobility 18,971 16,610 14 %
Desktop PCs 14,685 12,947 13 %
Consolidated net revenue $ 61,494 $ 52,902 16 %
Percentage of Total Net Revenue:
Servers and Networking 12 % 11 %
Storage 4 % 4 %
Services(1) 12 % 11 %
Software and Peripherals 17 % 18 %
Mobility 31 % 31 %
Desktop PCs 24 % 25 %
Net Revenue by Global Segment:
Large Enterprise $ 17,813 $ 14,285 25 %
Public 16,851 14,484 16 %
Small and Medium Business 14,473 12,079 20 %
Consumer 12,357 12,054 3 %
Consolidated net revenue $ 61,494 $ 52,902 16 %
Percentage of Total Net Revenue:
Large Enterprise 29 % 27 %
Public 27 % 27 %
Small and Medium Business 24 % 23 %
Consumer 20 % 23 %
Consolidated Operating Income:
Large Enterprise $ 1,473 $ 819
Public 1,484 1,361
Small and Medium Business 1,477 1,040
Consumer 65 107
Consolidated segment operating 4,499 3,327
income
Severance and facility actions (129 ) (481 )
Broad based long-term incentives (350 ) (353 )
Amortization of intangible assets (349 ) (205 )
Acquisition-related (98 ) (116 )
Other(3) (140 ) -
Consolidated operating income $ 3,433 $ 2,172
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.
(2) Interest and other, net for the fiscal year ended January 28, 2011 includes
Dell's receipt of a $72 million merger termination fee.
(3) Other for the fiscal year ended January 28, 2011 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)
January 28, October 29, January 29,
2011 2010 2010
Assets:
Current assets:
Cash and cash equivalents $ 13,913 $ 12,889 $ 10,635
Short-term investments 452 492 373
Accounts receivable, net 6,493 6,407 5,837
Financing receivables, net 3,643 3,588 2,706
Inventories, net 1,301 1,294 1,051
Other current assets 3,219 3,118 3,643
Total current assets 29,021 27,788 24,245
Property, plant and equipment, net 1,953 1,948 2,181
Investments 704 662 781
Long-term financing receivables, net 799 709 332
Goodwill 4,365 4,259 4,074
Purchased intangible assets, net 1,495 1,553 1,694
Other non-current assets 262 235 345
Total assets $ 38,599 $ 37,154 $ 33,652
Liabilities and Equity:
Current liabilities:
Short-term debt $ 851 $ 826 $ 663
Accounts payable 11,293 11,278 11,373
Accrued and other 4,181 3,898 3,884
Short-term deferred services revenue 3,158 3,093 3,040
Total current liabilities 19,483 19,095 18,960
Long-term debt 5,146 5,168 3,417
Long-term deferred services revenue 3,518 3,447 3,029
Other non-current liabilities 2,686 2,631 2,605
Total liabilities 30,833 30,341 28,011
Stockholders' equity 7,766 6,813 5,641
Total liabilities and equity $ 38,599 $ 37,154 $ 33,652
Ratios:
Days of sales outstanding(1) 40 41 38
Days supply in inventory 9 9 8
Days in accounts payable (82 ) (82 ) (82 )
Cash conversion cycle (33 ) (32 ) (36 )
Average total revenue/unit $ 1,360 $ 1,380 $ 1,340
(approximate)
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 January 28,
2011, October 29, 2010, and January 29, 2010, DSO and days of customer
shipments not yet recognized were 37 and 3 days, 38 and 3 days, 35 and 3
days, respectively.
DELL INC.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited)
Three Months Ended Fiscal Year Ended
January 28, January 29, January 28, January 29,
2011 2010(1) 2011 2010(1)
Cash flows from
operating activities:
Net income $ 927 $ 334 $ 2,635 $ 1,433
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation and 225 259 970 852
amortization
Stock-based compensation 107 101 332 312
Effects of exchange rate
changes on monetary
assets and
liabilities denominated (27 ) 1 (4 ) 59
in foreign currencies
Provision for doubtful
accounts - including 83 139 382 429
financing receivables
Other 12 63 (19 ) 50
Changes in assets and
liabilities, net of
effects from
acquisitions:
Accounts receivable (119 ) (204 ) (707 ) (660 )
Financing receivables (250 ) (529 ) (709 ) (1,085 )
Inventories (7 ) (100 ) (248 ) (183 )
Other assets (227 ) (318 ) 516 (225 )
Accounts payable 24 1,282 (151 ) 2,833
Deferred services 149 101 551 135
revenue
Accrued and other 586 139 421 (44 )
liabilities
Change in cash from 1,483 1,268 3,969 3,906
operating activities
Cash flows from
investing activities:
Investments:
Purchases (174 ) (201 ) (1,360 ) (1,383 )
Maturities and sales 174 231 1,358 1,538
Capital expenditures (160 ) (118 ) (444 ) (367 )
Proceeds from sale of - - 18 16
facility and land
Purchase of financing - - (430 ) -
receivables
Collections on purchased 49 - 69 -
financing receivables
Acquisition of business, (130 ) (3,610 ) (376 ) (3,613 )
net of cash received
Change in cash from (241 ) (3,698 ) (1,165 ) (3,809 )
investing activities
Cash flows from
financing activities:
Repurchase of common (200 ) - (800 ) -
stock
Issuance of common stock 1 2 12 2
under employee plans
Issuance (repayment) of
commercial paper - 33 (176 ) 76
(maturity 90 days or
less), net
Proceeds from debt 515 310 3,069 2,058
Repayments of debt (515 ) (60 ) (1,630 ) (122 )
Other - (2 ) 2 (2 )
Change in cash from (199 ) 283 477 2,012
financing activities
Effect of exchange rate
changes on cash and cash (19 ) (13 ) (3 ) 174
equivalents
Change in cash and cash 1,024 (2,160 ) 3,278 2,283
equivalents
Cash and cash
equivalents at beginning 12,889 12,795 10,635 8,352
of period
Cash and cash
equivalents at end of $ 13,913 $ 10,635 $ 13,913 $ 10,635
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
January October January
28, 29, 29,
2011 2010 2010 Sequential Yr. to
Yr.
GAAP gross margin $ 3,291 $ 3,003 $ 2,469 10 % 33 %
Non-GAAP
adjustments:
Amortization of 69 71 71
intangibles
Severance and 6 4 55
facility actions
Acquisition-related 2 - 1
Non-GAAP gross $ 3,368 $ 3,078 $ 2,596 9 % 30 %
margin
GAAP operating $ 2,146 $ 1,979 $ 1,959 8 % 10 %
expenses
Non-GAAP
adjustments:
Amortization of (16 ) (18 ) (15 )
intangibles
Severance and (11 ) (27 ) (31 )
facility actions
Acquisition-related (37 ) (23 ) (115 )
Non-GAAP operating $ 2,082 $ 1,911 $ 1,798 9 % 16 %
expenses
GAAP operating $ 1,145 $ 1,024 $ 510 12 % 124 %
income
Non-GAAP
adjustments:
Amortization of 85 89 86
intangibles
Severance and 17 31 86
facility actions
Acquisition-related 39 23 116
Non-GAAP operating $ 1,286 $ 1,167 $ 798 10 % 61 %
income
GAAP net income $ 927 $ 822 $ 334 13 % 177 %
Non-GAAP
adjustments:
Amortization of 85 89 86
intangibles
Severance and 17 31 86
facility actions
Acquisition-related 39 23 116
Other(1) - (72 ) -
Aggregate
adjustment for (50 ) (18 ) (78 )
income taxes
Non-GAAP net Income $ 1,018 $ 875 $ 544 16 % 87 %
GAAP earnings per $ 0.48 $ 0.42 $ 0.17 14 % 182 %
share - diluted
Non-GAAP
adjustments per 0.05 0.03 0.11
share - diluted
Non-GAAP earnings $ 0.53 $ 0.45 $ 0.28 18 % 89 %
per share - diluted
GAAP Diluted WAS 1,938 1,949 1,971
Percentage of Total
Net Revenue:
GAAP gross margin 21.0 % 19.5 % 16.6 %
Non-GAAP adjustment 0.5 % 0.5 % 0.8 %
Non-GAAP gross 21.5 % 20.0 % 17.4 %
margin
GAAP operating 13.7 % 12.8 % 13.2 %
expenses
Non-GAAP adjustment (0.4 %) (0.4 %) (1.1 %)
Non-GAAP operating 13.3 % 12.4 % 12.1 %
expenses
GAAP operating 7.3 % 6.7 % 3.4 %
income
Non-GAAP adjustment 0.9 % 0.9 % 2.0 %
Non-GAAP operating 8.2 % 7.6 % 5.4 %
income
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
(1) Other for the three months ended October 29, 2010 consists of Dell's receipt
of a $72 million merger termination fee which on a GAAP basis is recorded in
Interest and Other, Net.
DELL INC.
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data and percentages)
(unaudited)
Fiscal Year Ended % Growth Rates
January 28, January 29,
2011 2010 Yr. to Yr.
GAAP gross margin $ 11,396 $ 9,261 23 %
Non-GAAP adjustments:
Amortization of intangibles 278 151
Severance and facility actions 53 236
Acquisition-related 4 1
Non-GAAP gross margin $ 11,731 $ 9,649 22 %
GAAP operating expenses $ 7,963 $ 7,089 12 %
Non-GAAP adjustments:
Amortization of intangibles (71 ) (54 )
Severance and facility actions (76 ) (245 )
Acquisition-related (94 ) (115 )
Other(1) (140 ) -
Non-GAAP operating expenses $ 7,582 $ 6,675 14 %
GAAP operating income $ 3,433 $ 2,172 58 %
Non-GAAP adjustments:
Amortization of intangibles 349 205
Severance and facility actions 129 481
Acquisition-related 98 116
Other(1) 140 -
Non-GAAP operating income $ 4,149 $ 2,974 40 %
GAAP net income $ 2,635 $ 1,433 84 %
Non-GAAP adjustments:
Amortization of intangibles 349 205
Severance and facility actions 129 481
Acquisition-related 98 116
Other(1) 68 -
Aggregate adjustment for income (173 ) (181 )
taxes
Non-GAAP net Income $ 3,106 $ 2,054 51 %
GAAP earnings per share - diluted $ 1.35 $ 0.73 85 %
Non-GAAP adjustments per share - 0.24 0.32
diluted
Non-GAAP earnings per share - $ 1.59 $ 1.05 51 %
diluted
GAAP Diluted WAS 1,955 1,962
Percentage of Total Net Revenue:
GAAP gross margin 18.5 % 17.5 %
Non-GAAP adjustment 0.6 % 0.7 %
Non-GAAP gross margin 19.1 % 18.2 %
GAAP operating expenses 12.9 % 13.4 %
Non-GAAP adjustment (0.6 %) (0.8 %)
Non-GAAP operating expenses 12.3 % 12.6 %
GAAP operating income 5.6 % 4.1 %
Non-GAAP adjustment 1.1 % 1.5 %
Non-GAAP operating income 6.7 % 5.6 %
Note: Percentage growth rates and ratios are calculated based on underlying
data in thousands.
(1) Other for the fiscal year ended January 28, 2011 includes amounts for the
$100 million settlement of the SEC investigation and a $40 million settlement
for a securities litigation matter, which are both recorded in operating
expenses, offset by Dell's receipt of a $72 million merger termination fee,
which is recorded in Interest and Other, Net.
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 the following items, 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: acquisition related charges, amortization of purchased intangible assets related to acquisitions, and severance and facility action costs. The historical non-GAAP financial measures, as defined by Dell, represent the comparable GAAP measures adjusted to exclude these same items as well as a merger termination fee that was received during the third quarter of Fiscal 2011, 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. 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,
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 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,
including certain employee cost synergies realized through our strategic
acquisitions. While Dell does expect to continue to incur severance and
facility costs with any new cost reduction activities, 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 fees and settlements. During the third quarter of Fiscal 2011,
Dell received a $72 million fee in connection with the termination of a
merger agreement. 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 fees and settlements from the operating results of
Fiscal 2011 for the purpose of calculating the non-GAAP financial
measures because it believes these fees and 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. 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 primarily on Dell's GAAP results and using non-GAAP financial measures only 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 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. 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
Released February 15, 2011