Dell Reports Record EPS on Strength of Enterprise Solutions and Services
-- Record earnings per share of 49 cents
-- Revenue of $15 billion and operating income of $1.2 billion
-- Enterprise solutions and services revenue up 5 percent to $4.4 billion
led by server revenue increase of 11 percent
ROUND ROCK, Texas--(BUSINESS WIRE)-- Dell's strategy to deliver efficient and flexible information technology solutions that are open, capable and affordable continues to yield solid financial results. In the company's fiscal first quarter revenue improved and profit increased substantially on the strength of its commercial enterprise business.
In the past two years, Dell has made strategic acquisitions to address customers' needs for next-generation computing solutions, intelligent data management, services, security and cloud offerings. Additionally, the company has announced plans to invest $1 billion this fiscal year to deliver new solutions, build cloud capabilities and add significant numbers of new engineering, development and solutions-based sales resources in the U.S. and globally to support its enterprise solutions and services focus. Key investments include the launch of vStart for faster provisioning of virtual machines, the build out of data centers to provide customers access to public and private cloud technologies, and new solution centers where customers can test their applications.
The strong first quarter results also reflect Dell's improved profitability in end-user-computing, particularly Dell's client desktop and laptop offerings. This improved performance is the result of a higher-value product portfolio, good cost management, better sales execution and a significantly improved supply chain.
Results
-- Revenuein the quarter increased 1 percent to $15 billion, with
enterprise solutions and services accounting for 30 percent of the
total.
-- GAAP earnings per share was 49 cents; non-GAAP EPS was 55 cents.
-- GAAP operating income was $1.2 billion, or 8.1 percent of revenue.
Non-GAAP operating income was $1.4 billion, or 9.2 percent of revenue.
-- Cash flow from operations was $465 million for the quarter and $4.2
billion over the last four quarters. Dell ended the quarter with $15.2
billion in cash and investments.
Fiscal-Year 2012 First Quarter Highlights (in millions) FY12 FY11 Change Revenue $15,017 $14,874 1% Operating Income (GAAP) $1,212 $519 134% Net Income (GAAP) $945 $341 177% EPS (GAAP) $0.49 $0.17 188% Operating Income (non-GAAP) $1,376 $824 67% Net Income (non-GAAP) $1,050 $584 80% EPS (non-GAAP) $0.55 $0.30 83%
Information about Dell's use of non-GAAP financial information is provided under "Non-GAAP Financial Measures" below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.
Strategic Highlights:
-- Revenue for Dell's commercial business improved 3 percent to $12
billion, with record profitability. Commercial services revenue
increased 6 percent.
-- Enterprise solutions and services revenue grew 5 percent to $4.4 billion
in the quarter and represents 30 percent of Dell's consolidated revenue.
-- Servers and networking revenue increased 11 percent.
-- Dell-owned storage technology, which includes Compellent, EqualLogic,
PowerVault and DX Object Storage, grew 11 percent in the quarter, offset
by declines in EMC storage. The company's overall storage business
revenue declined 13 percent. Dell closed the acquisition of Compellent
during the quarter, has already developed a strong pipeline of business
and is on track with integration plans for the period.
-- Dell Services revenue grew 5 percent to $2 billion. Transactional
support and outsourcing revenue were up 5 percent and 3 percent,
respectively, while the project services business grew 13 percent. Dell
also added enterprise-class security capability in Q1 with the closing
of its acquisition of SecureWorks.
-- The company expanded its global financing capability during the quarter
with the announcement of its intent to acquire from CIT Dell Financial
Services (DFS) Canada Ltd., as well as CIT Vendor Finance's Dell-related
assets and sales and servicing functions in Europe.
Business Units and Regions:
-- Large Enterprisehadrecord operating income of $504 million, or 11.3
percent of revenue on $4.5 billion of revenue,up 5 percent from a year
ago. Enterprise solutions and services revenue was $1.8 billion, a 2
percent increase. Revenue from desktop and laptop computers grew 7
percent as the client refresh among large corporate accounts continued.
-- Public revenue was $3.8 billion, a 2 percent decline resulting from
weaker spending on desktop and laptop products. Enterprise solutions and
services revenue was up 3 percent Server revenues increased 9 percent.
Operating income for the quarter was $370 million, or 9.8 percent of
revenue.
-- Small and Medium Business had record profit in the quarter with revenue
up 7 percent to $3.8 billion, a two-year high driven by strong demand
across all products and services. Operating income was $463 million, or
12.3 percent of revenue. Enterprise solutions and services revenue was
up 16 percent, driven by a gain in servers of 19 percent; services of 16
percent, and storage of 7 percent.
-- Consumer revenue was $3 billion, down 7 percent, as demand was softer
than expected. However, profit significantly improved with operating
income of $136 million, or 4.5 percent of revenue, benefiting from a
simplified brand structure that now includes an improved line of
Inspiron, re-launched XPS, and Alienware products, a shift to higher
value products, and structural and component cost improvements in the
supply chain.
-- Revenue from growth markets (which excludes the U.S., Canada, Western
Europe and Japan) grew 17 percent and represents 27 percent of total
company revenue. Revenue from BRIC countries grew 18 percent, with India
up 28 percent and China up 22 percent.
Quotes:
Michael Dell, chairman and chief executive officer: "We're off to a solid start in our fiscal year 2012. Our substantial profit increase demonstrates that our strategy is working and our execution is improving."
Brian Gladden, chief financial officer: "We continue to build momentum with our strategy to expand our enterprise solutions and services business, and it's contributing to our strong financial results. We have built an $18 billion enterprise solutions and services business with exciting growth potential and our execution in the core client business continues to be very good. We are positioned to continue delivering value to our customers and investors."
Company Outlook:
Dell expects mid-single digit revenue growth in its second quarter, which is slightly above its normal, sequential seasonal growth of 2-3 percent. The Public business is expected to benefit from stronger spending among state and local governments and education customers as they close out their fiscal year. The company also expects its Small and Medium Business and Consumer businesses will experience above average seasonality due to the timing of demand for Dell's Sandy Bridge based offerings, a solid consumer back-to-school spending season and a refreshed portfolio of XPS products. Dell's updated outlook for fiscal 2012 includes revenue growth of 5-9 percent and an increase in non-GAAP operating income growth to 12-18 percent.
About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services that give them the power to do more. For more information, visit www.dell.com. As previously announced, the first quarter analyst call with Michael Dell, chairman and CEO; Brian Gladden, CFO; and Paul Bell, president, Large Enterprise and Public, will be webcast live today at 4 p.m. CDT and archived at www.dell.com/investor. To monitor highlighted facts from the analyst call, follow on the Dell Investor Relations Twitter account at: http://twitter.com/dellshares or hashtag #DellEarnings. To communicate directly with Dell, go to www.dell.com/dellshares.
Non-GAAP Financial Measures:
This press release includes information about non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP operating expenses, the "non-GAAP financial measures"), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading "Reconciliation of Non-GAAP Financial Measures" and has presented a detailed discussion of its reasons for including the non-GAAP financial measures and the limitations associated with those measures under the heading "Use of Non-GAAP Financial Measures." Dell encourages investors to review the reconciliation and the non-GAAP discussion in conjunction with Dell's presentation of these non-GAAP financial measures.
Special Note on Forward Looking Statements:
Statements in this press release that relate to future results and events (including statements about Dell's future financial and operating performance, planned capital expenditures, storage growth opportunities, anticipated customer demand, including seasonal trends and commercial momentum, enterprise solutions strategies, component costs, cost controls, supply chain improvements, and new products, as well as the financial guidance with respect to revenue and non-GAAP operating income) are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "could," "estimate," "expect," "intend," "confidence," "may," "plan," "potential," "should," "will" and "would," or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: intense competition; Dell's cost-cutting measures; Dell's ability to effectively manage the growth of its distribution capabilities and add to its product and services offerings; Dell's ability to effectively manage periodic product and services transitions; weak global economic conditions and instability in financial markets; Dell's ability to generate substantial non-U.S. net revenue; weak economic conditions and additional regulation affecting Dell's financial services activities; Dell's ability to achieve favorable pricing from its vendors; Dell's ability to deliver consistent quality products and services; Dell's reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; successful implementation of Dell's acquisition strategy; Dell's product, customer, and geographic sales mix, and seasonal sales trends; access to the capital markets by Dell or its customers; loss of government contracts; the risk of temporary suspension or debarment from contracting with U.S. federal, state and local governments as a result of settlements of an SEC investigation by Dell and Dell's Chairman and CEO; customer terminations of or pricing changes in services contracts, or Dell's failure to perform as it anticipates at the time it enters into services contracts; Dell's ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; information technology and manufacturing infrastructure disruptions or breaches of data security; Dell's ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default; unfavorable results of legal proceedings; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; Dell's ability to attract, retain, and motivate key personnel; Dell's ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended Jan. 28, 2011. In particular, Dell's expectations with regard to revenue and non-GAAP operating income for the full fiscal year ending Feb. 3, 2012 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, no significant change in product mix patterns, Dell's ability to realize its pipeline opportunities, no supply chain disruptions, and no significant adverse component pricing or supply movements. Dell assumes no obligation to update its forward-looking statements.
Consolidated statements of income, financial position and cash flows and other financial data follow.
Dell, EqualLogic and PowerVault, are trademarks 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
April 29, January 28, April 30,
2011 2011 2010 Sequential Yr. to
Yr.
Net revenue
Products $ 12,059 $ 12,751 $ 12,086 (5 %) (0 %)
Services, including 2,958 2,941 2,788 1 % 6 %
software related
Net revenue 15,017 15,692 14,874 (4 %) 1 %
Cost of net revenue
Products 9,436 10,337 10,385 (9 %) (9 %)
Services, including 2,149 2,064 1,973 4 % 9 %
software related
Total cost of net 11,585 12,401 12,358 (7 %) (6 %)
revenue
Gross margin 3,432 3,291 2,516 4 % 36 %
Selling, general 2,025 1,977 1,830 2 % 11 %
and administrative
Research,
development and 195 169 167 15 % 17 %
engineering
Total operating 2,220 2,146 1,997 3 % 11 %
expenses
Operating income 1,212 1,145 519 6 % 134 %
Interest and other, (42 ) (18 ) (68 ) (140 %) 38 %
net
Income before 1,170 1,127 451 4 % 159 %
income taxes
Income tax 225 200 110 12 % 105 %
provision
Net income $ 945 $ 927 $ 341 2 % 177 %
Earnings per share:
Basic $ 0.50 $ 0.48 $ 0.17 4 % 194 %
Diluted $ 0.49 $ 0.48 $ 0.17 2 % 188 %
Weighted average
shares outstanding:
Basic 1,908 1,924 1,961 (1 %) (3 %)
Diluted 1,923 1,938 1,973 (1 %) (3 %)
Percentage of Total
Net Revenue:
Gross margin 22.9 % 21.0 % 16.9 %
Selling, general 13.5 % 12.6 % 12.3 %
and administrative
Research and 1.3 % 1.1 % 1.1 %
development
Operating expenses 14.8 % 13.7 % 13.4 %
Operating income 8.1 % 7.3 % 3.5 %
Income before 7.8 % 7.2 % 3.0 %
income taxes
Net income 6.3 % 5.9 % 2.3 %
Income tax rate 19.2 % 17.8 % 24.4 %
Net Revenue by
Product Category:
Servers and $ 1,973 $ 2,090 $ 1,785 (6 %) 11 %
Networking
Storage 481 574 554 (16 %) (13 %)
Services 1,984 1,943 1,891 2 % 5 %
Software and 2,567 2,651 2,496 (3 %) 3 %
Peripherals
Mobility 4,716 4,850 4,563 (3 %) 3 %
Desktop PCs 3,296 3,584 3,585 (8 %) (8 %)
Consolidated net $ 15,017 $ 15,692 $ 14,874 (4 %) 1 %
revenue
Percentage of Total
Net Revenue:
Servers and 13 % 13 % 12 %
Networking
Storage 3 % 4 % 4 %
Services 13 % 12 % 13 %
Software and 17 % 17 % 17 %
Peripherals
Mobility 32 % 31 % 30 %
Desktop PCs 22 % 23 % 24 %
Net Revenue by
Global Segment:
Large Enterprise $ 4,477 $ 4,692 $ 4,246 (5 %) 5 %
Public 3,767 3,973 3,856 (5 %) (2 %)
Small and Medium 3,768 3,749 3,524 0 % 7 %
Business
Consumer 3,005 3,278 3,248 (8 %) (7 %)
Consolidated net $ 15,017 $ 15,692 $ 14,874 (4 %) 1 %
revenue
Percentage of Total
Net Revenue:
Large Enterprise 30 % 30 % 28 %
Public 25 % 25 % 26 %
Small and Medium 25 % 24 % 24 %
Business
Consumer 20 % 21 % 22 %
Consolidated
Operating Income:
Large Enterprise $ 504 $ 502 $ 283
Public 370 366 298
Small and Medium 463 450 313
Business
Consumer 136 69 17
Consolidated
segment operating 1,473 1,387 911
income
Severance and (19 ) (17 ) (57 )
facility actions
Broad based
long-term (97 ) (101 ) (87 )
incentives
Amortization of (92 ) (85 ) (88 )
intangible assets
Acquisition-related (53 ) (39 ) (20 )
Other(1) - - (140 )
Consolidated $ 1,212 $ 1,145 $ 519
operating income
Note: Percentage growth rates and ratios are calculated based on underlying
data in thousands.
(1) Other for the three months ended April 30, 2010 includes amounts for the $100 million settlement of the SEC investigation and a $40 million settlement for a securities litigation matter.
DELL INC.
Condensed Consolidated Statement of Financial Position and Related Financial
Highlights
(in millions, except for "Ratios")
(unaudited)
April 29, January 28, April 30,
2011 2011 2010
Assets:
Current assets:
Cash and cash equivalents $ 14,061 $ 13,913 $ 10,255
Short-term investments 418 452 627
Accounts receivable, net 6,196 6,493 5,880
Financing receivables, net 3,205 3,643 3,221
Inventories, net 1,276 1,301 1,182
Other current assets 3,217 3,219 3,619
Total current assets 28,373 29,021 24,784
Property, plant and equipment, net 1,987 1,953 2,049
Investments 762 704 714
Long-term financing receivables, net 1,123 799 528
Goodwill 5,406 4,365 4,181
Purchased intangible assets, net 1,941 1,495 1,658
Other non-current assets 196 262 327
Total assets $ 39,788 $ 38,599 $ 34,241
Liabilities and Equity:
Current liabilities:
Short-term debt $ 816 $ 851 $ 1,079
Accounts payable 10,442 11,293 11,402
Accrued and other 3,590 4,181 3,549
Short-term deferred services revenue 3,282 3,158 2,950
Total current liabilities 18,130 19,483 18,980
Long-term debt 6,794 5,146 3,582
Long-term deferred services revenue 3,608 3,518 3,194
Other non-current liabilities 2,886 2,686 2,607
Total liabilities 31,418 30,833 28,363
Stockholders' equity 8,370 7,766 5,878
Total liabilities and equity $ 39,788 $ 38,599 $ 34,241
Ratios:
Days of sales outstanding (1) 40 40 38
Days supply in inventory 10 9 9
Days in accounts payable (81 ) (82 ) (83 )
Cash conversion cycle (31 ) (33 ) (36 )
Average total revenue/unit (approximate) $ 1,380 $ 1,360 $ 1,360
Note: Ratios are calculated based on underlying data in thousands.
(1) 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 in the other current assets. At April 29, 2011, January 28, 2011, and April 30, 2010, DSO and days of customer shipments not yet recognized were 37 and 3 days, 37 and 3 days, 35 and 3 days, respectively.
DELL INC.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited)
Three Months Ended
April 29, April 30,
2011 2010
Cash flows from operating activities:
Net income $ 945 $ 341
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 216 247
Stock-based compensation 99 76
Effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies - 30
Deferred Income Taxes (63 ) (31 )
Provision for doubtful accounts - including financing 47 122
receivables
Other (5 ) -
Changes in assets and liabilities, net of effects from
acquisitions:
Accounts receivable 471 (119 )
Financing receivables 21 (208 )
Inventories 38 (132 )
Other assets 110 69
Accounts payable (925 ) 22
Deferred services revenue 191 72
Accrued and other liabilities (680 ) (251 )
Change in cash from operating activities 465 238
Cash flows from investing activities:
Investments:
Purchases (240 ) (350 )
Maturities and sales 222 169
Capital expenditures (137 ) (46 )
Proceeds from sale of facility and land 12 -
Collections on purchased financing receivables 67 -
Acquisition of business, net of cash received (1,473 ) (133 )
Change in cash from investing activities (1,549 ) (360 )
Cash flows from financing activities:
Repurchase of common stock (450 ) (200 )
Issuance of common stock under employee plans 10 7
Issuance (repayment) of commercial paper (maturity 90 - 234
days or less), net
Proceeds from debt 1,930 268
Repayments of debt (323 ) (566 )
Other 3 3
Change in cash from financing activities 1,170 (254 )
Effect of exchange rate changes on cash and cash 62 (4 )
equivalents
Change in cash and cash equivalents 148 (380 )
Cash and cash equivalents at beginning of period 13,913 10,635
Cash and cash equivalents at end of period $ 14,061 $ 10,255
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
The tables on the following pages set forth, for the periods indicated, a reconciliation of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively, the "non-GAAP financial measures") to the most comparable GAAP financial measures. These non-GAAP financial measures may not be directly comparable to similarly titled measures reported by other companies. See "Use of Non-GAAP Financial Measures" following the tables for additional information regarding Dell's reasons for including the non-GAAP financial measures and for material limitations with respect to the usefulness of these measures.
DELL INC.
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data and percentages)
(unaudited)
Three Months Ended % Growth Rates
April 29, January 28, April 30,
2011 2011 2010 Sequential Yr. to
Yr.
GAAP gross margin $ 3,432 $ 3,291 $ 2,516 4 % 36 %
Non-GAAP
adjustments:
Amortization of 71 69 68
intangibles
Severance and 5 6 29
facility actions
Acquisition-related 3 2 1
Non-GAAP gross $ 3,511 $ 3,368 $ 2,614 4 % 34 %
margin
GAAP operating $ 2,220 $ 2,146 $ 1,997 3 % 11 %
expenses
Non-GAAP
adjustments:
Amortization of (21 ) (16 ) (20 )
intangibles
Severance and (14 ) (11 ) (28 )
facility actions
Acquisition-related (50 ) (37 ) (19 )
Other(1) - - (140 )
Non-GAAP operating $ 2,135 $ 2,082 $ 1,790 3 % 19 %
expenses
GAAP operating $ 1,212 $ 1,145 $ 519 6 % 134 %
income
Non-GAAP
adjustments:
Amortization of 92 85 88
intangibles
Severance and 19 17 57
facility actions
Acquisition-related 53 39 20
Other(1) - - 140
Non-GAAP operating $ 1,376 $ 1,286 $ 824 7 % 67 %
income
GAAP net income $ 945 $ 927 $ 341 2 % 177 %
Non-GAAP
adjustments:
Amortization of 92 85 88
intangibles
Severance and 19 17 57
facility actions
Acquisition-related 53 39 20
Other(1) - - 140
Aggregate
adjustment for (59 ) (50 ) (62 )
income taxes
Non-GAAP net Income $ 1,050 $ 1,018 $ 584 3 % 80 %
GAAP earnings per $ 0.49 $ 0.48 $ 0.17 2 % 188 %
share - diluted
Non-GAAP
adjustments per 0.06 0.05 0.13
share - diluted
Non-GAAP earnings $ 0.55 $ 0.53 $ 0.30 4 % 83 %
per share - diluted
GAAP Diluted WAS 1,923 1,938 1,973
Percentage of Total
Net Revenue:
GAAP gross margin 22.9 % 21.0 % 16.9 %
Non-GAAP adjustment 0.5 % 0.5 % 0.7 %
Non-GAAP gross 23.4 % 21.5 % 17.6 %
margin
GAAP operating 14.8 % 13.7 % 13.4 %
expenses
Non-GAAP adjustment (0.6 %) (0.4 %) (1.4 %)
Non-GAAP operating 14.2 % 13.3 % 12.0 %
expenses
GAAP operating 8.1 % 7.3 % 3.5 %
income
Non-GAAP adjustment 1.1 % 0.9 % 2.0 %
Non-GAAP operating 9.2 % 8.2 % 5.5 %
income
GAAP net income 6.3 % 5.9 % 2.3 %
Non-GAAP adjustment 0.7 % 0.6 % 1.6 %
Non-GAAP net income 7.0 % 6.5 % 3.9 %
Note: Percentage growth rates and ratios are calculated based on underlying
data in thousands.
(1) Other for the three months ended April 30, 2010 includes amounts for the $100 million settlement of the SEC investigation and a $40 million settlement for a securities litigation matter.
USE OF NON-GAAP FINANCIAL MEASURES
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 operating income growth as projected for Fiscal 2012, which is a forward looking non-GAAP financial measure, excludes the following items, 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: acquisition-related charges, amortization of purchased intangible assets related to acquisitions, and severance and facility action costs. The historical non-GAAP financial measures, as defined by Dell, represent the comparable GAAP measures adjusted to exclude these same items as well as amounts for the settlement of the SEC investigation, and the settlement of a securities litigation matter, which were both incurred during the first quarter of Fiscal 2011. 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.
The non-GAAP financial measures for the periods indicated in the tables above reflect adjustments related to the following items:
-- Acquisition-related 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 include incremental business costs
that are primarily 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 Dell may incur these types of expenses in connection
with future acquisitions, Dell believes eliminating acquisition-related
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.
-- 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. 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.
-- 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 Dell does expect to continue to incur severance and
facility costs with any new cost reduction activities, Dell excludes
these severance and facility action costs for purposes of calculating
the non-GAAP financial measures because it believes that these
historical costs do not reflect expected future operating expenses and
do not contribute to a meaningful evaluation of Dell's current operating
performance or comparisons to Dell's past operating performance.
-- Other Fees and Settlements - Dell also adjusts its GAAP results for
certain settlements. For the first quarter of Fiscal 2011, Dell recorded
a $100 million settlement amount for the SEC investigation into certain
of Dell's accounting and financial matters, which was initiated in 2005,
and also incurred $40 million for a securities litigation class action
lawsuit that was filed against Dell during Fiscal 2007. Dell is
excluding these settlements from the operating results of Fiscal 2011
for the purpose of calculating the non-GAAP financial measures because
it believes these settlements are outside Dell's ordinary course of
business and do not contribute to a meaningful evaluation of Dell's
current operating performance.
-- 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 jurisdictions where the adjustments were
incurred.
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.
Source: Dell Inc.
Released May 17, 2011