Dell Reports First Quarter Financial Results
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USE OF NON-GAAP FINANCIAL MEASURES
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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 projections for Fiscal 2013, which are
forward looking non-GAAP financial measures, exclude
acquisition-related charges, severance and facility action costs,
and amortization of purchased intangible assets related to
acquisitions, 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.
The historical non-GAAP financial measures, as defined by Dell,
represent the comparable GAAP measures adjusted to exclude these
same items. 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.
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The non-GAAP financial measures for the periods indicated in the
tables above reflect adjustments related to the following items:
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• Severance and Facility Actions and Acquisition-related Costs
- Severance and facility action costs are primarily related to
facilities charges including accelerated depreciation and severance
and benefits for employees terminated pursuant to cost synergies
related to strategic acquisitions and actions taken as part of a
comprehensive review of costs. Acquisition-related charges are
expensed as incurred and consist primarily of retention payments,
integration costs, and other costs. Retention payments include
stock-based compensation and cash incentives awarded to employees,
which are recognized over the vesting period. Integration costs
primarily include IT costs related to the integration of IT systems
and processes, costs related to the integration of employees, costs
related to full-time employees who are working on the integration,
and consulting expenses. Severance and facility actions and
acquisition-related charges are inconsistent in amount and are
significantly impacted by the timing and nature of these events.
Therefore, although Dell may incur these types of expenses in the
future, Dell believes eliminating these 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.
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• Amortization of Intangible Assets - Amortization of
purchased intangible assets consists primarily of amortization of
customer relationships, acquired technology, non-compete covenants,
and trade names 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.
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• 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 tax jurisdictions where the
above items were incurred.
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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 on Dell’s GAAP results and using non-GAAP
financial measures 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 substitutes 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.
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