Dell 2010 Annual Report Download - page 34

Table of Contents
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 expenses 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 only 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:
• 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 we may incur these types of expenses in connection with future acquisitions, we believe eliminating
acquisition-related 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, customer lists, acquired technology, trade names, and non-compete covenants 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 amount from period to period and
are significantly impacted by the timing and magnitude of our acquisitions. Consequently, we exclude these charges for purposes of
calculating the non-GAAP financial measures to facilitate a more meaningful evaluation of our current operating performance and
comparisons to our 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 we expect to continue to incur
severance and facility costs with any new cost reduction activities, we exclude these severance and facility action costs for purposes
of calculating the non-GAAP financial measures because we believe that these historical costs do not reflect expected future
operating expenses and do not contribute to a meaningful evaluation of our current operating performance or comparisons to our past
operating performance. See Note 10 of the Notes to Consolidated Financial Statements included in "Part II — Item 8 — Financial
Statements and Supplementary Data" for additional information on severance and facility action costs.
• Other Fees and Settlements — We also adjust our GAAP results for certain fees and settlements. During Fiscal 2011, we received a
$72 million fee in connection with the termination of a merger agreement. We also recorded
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