Dell Reports Fiscal Year 2014 Second Quarter Financial Results

Additional Information and Where to Find It

In connection with the proposed merger transaction, the Company filed with the SEC a definitive proxy statement and other relevant documents, including a form of proxy card, on May 31, 2013, and a revised definitive proxy statement on August 14, 2013. The definitive proxy statement and a form of proxy have been mailed to the Company’s stockholders. Stockholders are urged to read the proxy statement and any other documents filed with the SEC in connection with the proposed merger or incorporated by reference in the proxy statement because they contain important information about the proposed merger.

Investors will be able to obtain a free copy of documents filed with the SEC at the SEC’s website at http://www.sec.gov. In addition, investors may obtain a free copy of the Company’s filings with the SEC from the Company’s website at http://content.dell.com/us/en/corp/investor-financial-reporting.aspx or by directing a request to: Dell Inc. One Dell Way, Round Rock, Texas 78682, Attn: Investor Relations, (512) 728-7800, Email Contact.

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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