Dell 2011 Annual Report Download - page 36

Table of Contents
Non-GAAP Financial Measures
We use non-GAAP financial measures to supplement the financial information presented on a GAAP basis. We believe that excluding certain items from our
GAAP results allows our management to better understand our consolidated financial performance from period to period and in relationship to the operating
results of our segments, as management does not believe that the excluded items are reflective of our underlying operating performance. We also believe that
excluding certain items from our GAAP results allows our management to better project our future consolidated financial performance because our forecasts
are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP financial
measures will provide investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating
performance, and enabling them to make more meaningful period to period comparisons.
The non-GAAP financial measures presented in this report include non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income,
non-GAAP net income, and non-GAAP earnings per share. These non-GAAP financial measures, as defined by us, represent the comparable GAAP measures
adjusted to exclude severance and facility action costs and acquisition-related charges, amortization of purchased intangible assets related to acquisitions, the
settlements related to the SEC investigation and a securities litigation matter, which were both incurred during the first quarter of Fiscal 2011, and a merger
termination fee, which we received during the third quarter of Fiscal 2011, and for non-GAAP net income and non-GAAP earnings per share, the aggregate
adjustment for income taxes related to the exclusion of such items. We provide more detail below regarding each of these items and our reasons for excluding
them. In future fiscal periods, we may 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 our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or
unusual.
There are limitations to the use of the non-GAAP financial measures presented in this report. Our non-GAAP financial measures may not be comparable to
similarly titled measures of other companies. Other companies, including companies in our industry, may calculate the non-GAAP financial measures
differently than we do, 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-related charges that are excluded from the non-GAAP financial measures can have a material impact on earnings. Our management compensates
for the foregoing limitations by relying primarily on our GAAP results and using non-GAAP financial measures supplementally or for projections when
comparable GAAP financial measures are not available. The non-GAAP financial measures are not meant to be considered as indicators of performance in
isolation from or as a 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. We provide below reconciliations of each non-GAAP
financial measure to its most directly comparable GAAP financial measure, and encourage you to review the reconciliations in conjunction with the
presentation of the non-GAAP financial measures for each of the past three fiscal years.
The following is a summary of the costs and other items excluded from the most comparable GAAP financial measures to calculate the non-GAAP financial
measures presented in this management's discussion and analysis:
•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 we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP
financial measures facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
•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. We incur charges relating to the amortization
of these intangibles, and those charges are included in our Consolidated Financial Statements. Amortization charges for our purchased intangible assets
are inconsistent in
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