DELL LBO Model Part 1 Completed

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Dell Inc. - LBO Model for Private Equity Interview Case Study($ in Millions Except Per Share Data)

Transaction Assumptions

Company Name: Dell Inc. Transaction Close Date: 2/1/2013 EBITDA Purchase Multiple: 5.1 x"Undisturbed" Share Price: $ 10.88 Equity Purchase Price: $ 24,675 Baseline EBITDA Exit Multiple: 4.0 xOffer Premium: 25.5% Transaction Enterprise Value: 21,212

Advisory Fee %: 0.10%Offer Price Per Share: $ 13.65 Funds Required: Financing Fee %: 0.60%

Equity Purchase Price: $ 24,675 Legal & Misc. Fees: $ 30 Refinance Existing Debt? No Plus: Debt Refinanced: -

Less: Excess Cash: (6,220)% Debt Used for "Funds Required": 90% Less: Founder Cash Contribution: (750)Debt Used: 12,650 Less: Founder Rollover: (3,726) LIBOR Units: 10,000Pro-Forma TTM Debt / EBITDA: 5.2 x Total Funds Required (Excl. Fees): $ 13,979

Purchase Price Calculations: Diluted Shares: Minimum Cash Balance: $ 3,000 Tax Rate for Repatriated Cash: 35.0%

Shares Owned by Founder: 273.0 Company Effective Tax Rate: 21.2%Common Shares: 1,762.0 ExerciseDiluted Shares: 1,807.7 Name Number Price Dilution

Options A: 8.0 $ 7.38 3.675 Diluted Equity Value: $ 24,675 Options B: 42.0 15.57 -

Less: Cash & Cash-Equivalents: (12,569) Options C: 45.0 25.86 - Plus: Debt 9,085 Options D: 31.0 34.31 - Plus: Noncontrolling Interests 21 Options E: 17.0 40.23 - Plus: Preferred Stock - RSUs: 42.0 42.000 Plus: Other Liabilities - Total 45.675

Enterprise Value: $ 21,212

Debt Assumptions

Interest Rates: Principal Repayment %:Revolver Commitment (Undrawn): $ 1,100 Revolver: L + 100 Revolver: N/ATotal Existing Debt (if assumed): $ 9,085 Total Existing Debt: 3.66% Total Existing Debt: (See schedule)

%: $ Amount:Total Debt Raised: $ 12,650 Term Loan B: 32% 4,000 Term Loan B: L + 250 Term Loan B: 5.0%Term Loan C: 12% 1,500 Term Loan C: L + 350 Term Loan C: 1.0%ABL Facility: 15% 1,900 ABL Facility: 5.50% ABL Facility: 0.0%1st Lien Fixed Rate Notes: 16% 2,000 1st Lien Fixed Rate Notes: 6.00% 1st Lien Fixed Rate Notes: 0.0%2nd Lien Fixed Rate Notes: 10% 1,250 2nd Lien Fixed Rate Notes: 6.50% 2nd Lien Fixed Rate Notes: 0.0%Microsoft - Subordinated Note: 16% 2,000 Microsoft - Subordinated Note: 7.50% Microsoft - Subordinated Note: 0.0%

J14
Administrator: This cash is held almost entirely overseas, so if repatriated and used to fund the transaction, Dell would pay taxes on it.
J15
Administrator: Per merger agreement pg. 3 - contribution from Michael Dell and MSDC.
J16
Administrator: Per terms of merger agreement - "approximately 273 million common shares."
O19
Administrator: Basing this on Dell's plans to repatriate up to $8B; higher than that here to get the Silver Lake equity contribution to work. http://www.ft.com/intl/cms/s/0/2b7eefaa-714d-11e2-9056-00144feab49a.html#axzz2LUYQwcTm
O21
Administrator: Based on average of 4 most recent years; lower than statutory due to low-tax regions overseas.
K36
Administrator: Currently at L + 87.5 bps for existing undrawn facility.
K37
Administrator: Simple interest expense on pg. 108 of 10-K divided by avg. debt over FY12. Mostly fixed interest, so we're just assuming that here.
F43
Administrator: Updated after merger agreement.
K46
Administrator: 10-year loan with "7 to 8% interest" according to press release: http://www.reuters.com/article/2013/02/05/us-dell-buyout-idUSBRE9140NF20130205

Sources & Uses

Sources: Uses:Revolver: $ - Equity Value of Company: $ 24,675 Term Loan B: 4,000 Refinance Existing Debt: - Term Loan C: 1,500 Assume Existing Debt: 9,085 ABL Facility: 1,900 Advisory Fees: 25 Bridge Loan (1st Lien Fixed Rate Notes): 2,000 Capitalized Financing Fees: 76 Bridge Loan (2nd Lien Fixed Rate Notes): 1,250 Legal & Misc. Fees: 30 Microsoft - Subordinated Note: 2,000 Total Uses: $ 33,891 Assume Existing Debt: 9,085 Company - Excess Cash: 6,220 Founder - Cash Contribution for Equity: 750 MD Investors - Founder Rollover Equity: 3,726 Silver Lake - Investor Equity: 1,460

Total Sources: $ 33,891

Ownership Percentages, Pre and Post-Deal:

Pre-Deal Ownership Percentages: Post-Deal Ownership Percentages:Michael Dell: 15.1% Michael Dell: 75.4%Silver Lake Partners: 0.0% Silver Lake Partners: 24.6%Institutional Investors: 84.9% Institutional Investors: 0.0%

Total: 100.0% Total: 100.0%

Goodwill Creation & Purchase Price Allocation

Goodwill Calculation: Fixed Asset Write-Up:Equity Purchase Price: $ 24,675 PP&E Write-Up %: 10.0%Less: Seller Book Value: (10,680) PP&E Write-Up Amount: 213 Plus: Write-Off of Existing Goodwill: 9,304 Depreciation Period (Years): 8

Total Allocable Purchase Premium: $ 23,299 Intangible Asset Write-Up:

Less: Write-Up of PP&E: $ (213) Purchase Price to Allocate: 23,299 Less: Write-Up of Intangibles: (4,660) % Allocated to Intangibles: 20.0%Less: Write-Down of DTL: - Intangibles Write-Up Amount: 4,660 Plus: New Deferred Tax Liability: 1,032 Amortization Period (Years): 5

Total Goodwill Created: $ 19,459

Financing Fees Amortization Period: 5 New Deferred Tax Liability: $ 1,032

F51
Administrator: Undrawn initially.
F59
Administrator: This cash is held almost entirely overseas, so if repatriated and used to fund the transaction, Dell would pay taxes on it.
F60
Administrator: Per merger agreement pg. 3 - contribution from Michael Dell and MSDC.
F61
Administrator: Per terms of merger agreement - "approximately 273 million common shares."
F62
Administrator: Should be close to the $1.4 billion Silver Lake committed to in the merger agreement...

Margins, Expense and Working Capital Trends, and BS / CFS Assumptions

Historical Transaction Adjustments ProjectedFY Ending February 1, 2010 2011 2012 2013 Debit Credit 2013 2014 2015 2016 2017 2018

Revenue Growth %: (13.4%) 16.2% 0.9% (8.3%)COGS % Revenue: 82.5% 81.5% 77.7% 78.6%SG&A % Revenue: 12.2% 11.9% 13.7% 14.2%R&D % Revenue: 1.2% 1.1% 1.4% 1.9%Effective Tax Rate: 29.2% 21.3% 17.6% 16.5%

AR % Revenue: 11.0% 10.6% 10.4% 11.6%Inventory % COGS: 2.4% 2.6% 2.9% 3.1%Prepaid Expenses % SG&A: 56.3% 44.1% 40.2% 49.0%

Accounts Payable % COGS: 26.1% 22.5% 24.2% 25.9%Accrued Expenses % SG&A: 60.1% 57.3% 46.2% 45.0%ST Deferred Revenue % Revenue: 5.7% 5.1% 5.7% 7.7%LT Deferred Revenue % Revenue: 5.7% 5.7% 6.2% 7.0%

D&A % Revenue: 1.6% 1.6% 1.5% 2.0%SBC % Revenue: 0.6% 0.5% 0.6% 0.6%Deferred Taxes % Total Taxes: (8.8%) (6.3%) 2.5% (91.3%)CapEx % Revenue: 0.7% 0.7% 1.1% 0.9%

Income StatementHistorical Transaction Adjustments Projected

FY Ending February 1, 2010 2011 2012 2013 Debit Credit 2013 2014 2015 2016 2017 2018

Revenue: $ 61,101 $ 52,902 $ 61,494 $ 62,071 $ 56,940 Cost of Goods Sold: 43,641 50,098 48,260 44,754

Gross Profit: 9,261 11,396 13,811 12,186

SG&A Expense: 6,465 7,302 8,524 8,102 R&D Expense: 624 661 856 1,072

Depreciation of PP&E Write-Up: - - - - New Intangibles Amortization: - - - - Amortization of Financing Fees: - - - - Operating Income: 2,172 3,433 4,431 3,012

Investment & Other Income, Net: (148) (83) (191) (171)Pre-Tax Income: 2,024 3,350 4,240 2,841

Income Tax Provision: 591 715 748 469

Net Income: 1,433 2,635 3,492 2,372 EBITDA: $ 3,024 $ 4,403 $ 5,367 $ 4,156

Balance SheetHistorical Transaction Adjustments Projected

FY Ending February 1, 2010 2011 2012 2013 Debit Credit 2013 2014 2015 2016 2017 2018Assets:

Current Assets:Cash & Cash-Equivalents: $ 10,635 $ 13,913 $ 13,852 $ 12,569 Short-Term Investments: 373 452 966 208 Accounts Receivable, Net: 5,837 6,493 6,476 6,629 Short-Term Financing Receivables, Net: 2,706 3,643 3,327 3,213 Inventories, Net: 1,051 1,301 1,404 1,382 Prepaid Expenses & Other: 3,643 3,219 3,423 3,967

Total Current Assets: 24,245 29,021 29,448 27,968

Long-Term Assets:Net PP&E: 2,181 1,953 2,124 2,126 Long-Term Investments: 781 704 3,404 2,565 Long-Term Financing Receivable, Net: 332 799 1,372 1,349 Other Non-Current Assets: 6,113 6,122 490 854 Goodwill: - - 5,838 9,304 Intangible Assets: - - 1,857 3,374 Capitalized Financing Fees: - - - -

Total Long-Term Assets: 9,407 9,578 15,085 19,572

Total Assets: $ 33,652 $ 38,599 $ 44,533 $ 47,540

Liabilities & Shareholders' Equity:Current Liabilities:

Revolver: $ - $ - $ - $ - Accounts Payable: 11,373 11,293 11,656 11,579 Accrued Expenses & Other: 3,884 4,181 3,934 3,644 Short-Term Deferred Revenue: 3,040 3,158 3,544 4,373

Total Current Liabilities: 18,297 18,632 19,134 19,596

Long-Term Liabilities:Total Existing Debt: 4,080 5,997 9,254 9,085 Long-Term Deferred Revenue: 3,029 3,518 3,836 3,971 Other Long-Term Liabilities: 2,605 2,686 3,392 4,187 Term Loan B: - - - - Term Loan C: - - - - ABL Facility: - - - - 1st Lien Fixed Rate Notes: - - - - 2nd Lien Fixed Rate Notes: - - - - Microsoft - Subordinated Note: - - - - Long-Term Deferred Tax Liability: - - - -

Total Long-Term Liabilities: 9,714 12,201 16,482 17,243

Total Liabilities: $ 28,011 $ 30,833 $ 35,616 $ 36,839

Equity:Shareholders' Equity: 5,641 7,766 8,917 10,680 Noncontrolling Interests: - - - 21 Founder Equity:Sponsor Common Equity:

Total Equity: $ 5,641 $ 7,766 $ 8,917 $ 10,701

Total Liabilities & Equity: $ 33,652 $ 38,599 $ 44,533 $ 47,540

BALANCE CHECK: OK! OK! OK! OK!

B170
Administrator: Simplification - combining short-term and long-term balances to avoid need to track balances.

Cash Flow StatementHistorical Transaction Adjustments Projected

FY Ending February 1, 2010 2011 2012 2013 Debit Credit 2013 2014 2015 2016 2017 2018

Net Income: $ 1,433 $ 2,635 $ 3,492 $ 2,372 Depreciation & Amortization: 852 970 936 1,144 Stock-Based Compensation: 312 332 362 347 FX Rate Effects: 59 (4) (5) 18 Deferred Income Taxes: (52) (45) 19 (428)Provision For Doubtful Accounts: 429 382 234 258 Other: 102 26 21 19 Depreciation of PP&E Write-Up:New Intangibles Amortization:Amortization of Financing Fees:

Changes in Operating Assets & Liabilities:Accounts Receivable: (660) (707) (53) (150)Financing Receivables: (1,085) (709) (372) (193)Inventories: (183) (248) (52) 48 Other Assets: (225) 516 (28) (334)Accounts Payable: 2,833 (151) 327 (74)Deferred Revenue: 135 551 720 382 Accrued And Other Liabilities: (44) 421 (74) (126)

Cash Flow from Operations: 3,906 3,969 5,527 3,283

Cash Flow from Investing:Purchases of Investments: (1,383) (1,360) (4,656) (2,615)Maturities And Sales of Investments: 1,538 1,358 1,435 4,354 Capital Expenditures (367) (444) (675) (513)Proceeds From Asset Sales: 16 18 14 135 Purchase of Financing Receivables: - (430) - - Collections of Financing Receivables: - 69 278 167 Acquisition Of Businesses: (3,613) (376) (2,562) (4,844)

Cash Flow from Investing: (3,809) (1,165) (6,166) (3,316)

Cash Flow from Financing:Repurchases Of Common Stock: - (800) (2,717) (724)Cash Dividends Paid: - - - (278)Issuance Of Common Stock: 2 12 40 52 Issuance (Repayment) Of Comm. Paper: 76 (176) 635 (331)Proceeds From Debt: 2,058 3,069 4,050 3,311 Repayments Of Debt: (122) (1,630) (1,435) (3,248)Other: (2) 2 4 8

Cash Flow from Financing: 2,012 477 577 (1,210)

Cash Flow Avail. for Debt Repayment: 2,109 3,281 (62) (1,243)

Revolver: - - - - Total Existing Debt: - - - - Term Loan B: - - - - Term Loan C: - - - - ABL Facility: - - - - 1st Lien Fixed Rate Notes: - - - - 2nd Lien Fixed Rate Notes: - - - - Microsoft - Subordinated Note: - - - -

Total Cash Flow Used to Repay Debt: - - - -

Effect of Exchange Rates: 174 (3) 1 (40)

Net Change in Cash: 2,283 3,278 (61) (1,283)

Beginning Cash Balance: 8,352 10,635 13,913 13,852 Ending Cash Balance: 10,635 13,913 13,852 12,569

Debt & Interest SchedulesProjected

FY Ending February 1, 2014 2015 2016 2017 2018

LIBOR Curve: 0.30% 0.30% 0.50% 0.75% 1.00%Fixed

Interest Rate Assumptions: LIBOR + InterestRevolver: 1.00%Total Existing Debt: 3.66%Term Loan B: 2.50%Term Loan C: 3.50%ABL Facility: 5.50%1st Lien Fixed Rate Notes: 6.00%2nd Lien Fixed Rate Notes: 6.50%Microsoft - Subordinated Note: 7.50%Cash & Cash-Equivalents and All Investments:

Interest Income / (Expense) Calculations:Revolver:Total Existing Debt:Term Loan B:Term Loan C:ABL Facility:1st Lien Fixed Rate Notes:2nd Lien Fixed Rate Notes:Microsoft - Subordinated Note:Cash & Cash-Equivalents and All Investments:

Net Interest Income / (Expense):

Sources of Funds:Beginning Cash Balance:Less: Minimum Cash Balance:Plus: Cash Flow Available for Debt Repayment:

Subtotal Before Revolver:Revolver Borrowing Required:

Total Sources of Funds:

Uses of Funds:Mandatory Debt Repayment:

Total Existing Debt: 1,404 1,291 701 400 300 Term Loan B:Term Loan C:ABL Facility:Bridge Loan (1st Lien Fixed Rate Notes):Bridge Loan (2nd Lien Fixed Rate Notes):Microsoft - Subordinated Note:

Mandatory Repayment Total:

Optional Debt Repayment:Revolver:Total Existing Debt:Term Loan B:Term Loan C:ABL Facility:Bridge Loan (1st Lien Fixed Rate Notes):Bridge Loan (2nd Lien Fixed Rate Notes):Microsoft - Subordinated Note:

Optional Repayment Total:

Cash Generated on Balance Sheet:Total Uses of Funds:

Investor ReturnsFY Ending February 1, 2013 2014 2015 2016 2017 2018

EBITDA:EBITDA Multiple:Enterprise Value:Investor Equity:

IRR:

Q297
Administrator: Very rough estimate based on $2500 debt maturing after 2017 and $400 in that year.

Dell Inc. - Revenue, Operating Income, and Market Share and Market Data($ in Millions Except Per Share Data)

Income Statement - Segment-Level Revenue & Operating Income and Market DataHistorical

FY Ending February 1, 2010 2011 2012 2013

Revenue by Business Unit:Global Large Enterprise: $ 18,111 $ 18,786 $ 17,781 Global Public: 16,377 16,070 14,828 Global Small And Medium Business: 12,608 13,547 13,413 Global Consumer: 14,398 13,668 10,918

Total Revenue: 52,902 61,494 62,071 56,940

Market Share of Business Units:Global Large Enterprise: 8.9% 8.6% 8.7% 7.0%Global Public: 12.0% 12.8% 13.0% 12.0%Global Small And Medium Business: 20.9% 17.7% 16.9% 15.0%Global Consumer: 31.8% 29.3% 26.5% 24.0%

Operating Income by Business Unit:Global Large Enterprise: 1,490 1,889 1,553 Global Public: 1,446 1,584 1,238 Global Small And Medium Business: 1,383 1,581 1,505 Global Consumer: 180 433 (11)

Total Operating Income: 3,327 4,499 5,487 4,285

Revenue by Product:Servers and Networking: 6,032 7,609 8,336 9,294 Storage: 2,192 2,295 1,943 1,699 Services: 5,622 7,673 8,322 8,396 Software & Peripherals: 9,499 10,261 10,222 9,257 Mobility: 16,610 18,971 19,104 15,303 Desktop PCs: 12,947 14,685 14,144 12,991

Total Revenue: 52,902 61,494 62,071 56,940

Market Share by Product:Servers and Networking: 12.1% 14.4% 15.0% 17.1%Storage: N/A N/A N/A N/AServices: N/A N/A N/A N/ASoftware & Peripherals: N/A N/A N/A N/AMobility: 12.1% 11.7% 11.9% 10.1%Desktop PCs: 13.2% 13.7% 13.5% 12.3%

Total Market Size by Product Segment:Servers and Networking: $ 49,851 $ 52,840 $ 55,573 $ 54,351 Storage: N/A N/A N/A N/AServices: N/A N/A N/A N/ASoftware & Peripherals: N/A N/A N/A N/AMobility: 136,920 162,145 160,538 151,515 Desktop PCs: 98,198 107,582 104,770 105,618

Other Data - Global Desktop, Notebook, and Tablet Shipments (Millions):Enterprise Desktops: 94.7 84.4 89.9 87.6 89.3 Enterprise Notebooks: 69.9 68.3 80.8 86.2 86.0 Consumer Desktops: 48.0 47.1 49.9 48.2 42.7 Consumer Notebooks: 59.1 69.0 89.1 98.8 95.3 Consumer Netbooks: 12.9 32.7 34.4 24.4 17.1

Total, Branded PCs: 301.5 344.1 345.2 330.4 Non-Branded PCs: 23.9 20.8 27.5 43.2 60.2

Total Shipments: 322.3 371.6 388.4 390.6

Tablet Shipments: 0.0 18.0 70.0 125.0

Total Enterprise Shipments: 164.6 152.7 170.7 173.8 175.3 Total Consumer Shipments: 120 148.8 173.4 171.4 155.1 Total Desktop Shipments: 142.7 131.5 139.8 135.8 132.0 Total Notebook Shipments: 141.9 170.0 204.3 209.4 198.4

Growth Rates by Segment:Enterprise: (7.2%) 11.8% 1.8% 0.9%Consumer: 24.0% 16.5% (1.2%) (9.5%)Desktop: (7.8%) 6.3% (2.9%) (2.8%)Notebook: 19.8% 20.2% 2.5% (5.3%)Non-Branded PCs: (13.0%) 32.2% 57.1% 39.4%Tablets: N/A N/A 288.9% 78.6%

I39
Administrator: Estimate based on Q3 2012 numbers (http://www.idc.com/getdoc.jsp?containerId=prUS23808612#.USSXiKVJOAg).
I47
Administrator: Not exactly accurate because of netwrking revenue in here, but close enough (within 5-10%).

Services Segment Metrics:Deferred Revenue from Warranties: $ 5,900 $ 6,400 $ 7,000 N/A Contracted Services Backlog: 6,900 7,500 8,500 N/A

Total Services Backlog: 12,800 13,900 15,500 $ 16,300

New Signings: N/A N/A 1,900 2,100 Growth Rate: N/A 17.0% N/A 10.5%

B81
Administrator: $2 million or more in revenue with contract term of at least 18 months per pg. 44 of 10-K.
H84
Administrator: Per Q4 earnings call transcript.
I84
Administrator: Per Q4 earnings call transcript.
G85
Administrator: Per Q4 earnings call transcript, "up 17%."

Transaction Adjustments ProjectedDebit Credit 2013 2014 2015 2016 2017 2018

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