New Accounting Standard Revenue Recognition. April 26, 2018

Transcription

1 New Accounting Standard Revenue Recognition April 6, 08

2 Legal note Non-GAAP Financial Measures This presentation includes information about non-gaap revenue, non-gaap gross margin, non-gaap operating expenses, non-gaap operating income, EBITDA and adjusted EBITDA (collectively the non-gaap financial measures ), which are not measurements of financial performance prepared in accordance with US generally accepted accounting principles. We have provided a reconciliation of the historical non-gaap financial measures to the most directly comparable GAAP measures in the slides captioned Supplemental Non-GAAP Measures in Appendix C. Special Note on Forward Looking Statements Statements in this presentation that relate to future results and events are forward-looking statements and are based on Dell Technologies 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 those discussed in Dell Technologies periodic reports filed with the Securities and Exchange Commission. We assume no obligation to update our forward-looking statements. Special Note on the Divestitures During Fiscal 07, we closed the Dell Services, Dell Software Group (DSG), and Enterprise Content Division (ECD) divestiture transactions. We received total cash consideration of approximately $7.0 billion from the divestitures and recorded a gain on sale, net of tax, of approximately $.9 billion. Accordingly, the results of operations of Dell Services, DSG and ECD, as well as the related gains or losses on sale, have been excluded from the results of continuing operations in the periods presented.

3 Agenda ASC 606 Overview and Impact to Dell Technologies Recast Consolidated Financial Results Recast Business Unit Financial Results Appendices 3

4 Considerations in Financial Reporting Dell Technologies has adopted ASC 606, Revenue From Contracts With Customers, in the first quarter of FY 9. GAAP results will include substantial non-cash purchase accounting for the next several years related to the EMC acquired businesses. An assessment of the tax impact of ASC 606 is still in process, and therefore, only operating income/(loss) and selected balance sheet amounts have been included and Consolidated Statement of Financial Position, cash flows, and net income have been excluded from this presentation. VMware business unit results, which reflect the operations of VMware, Inc. within Dell Technologies, are different from VMware, Inc. s results on a stand-alone basis. FY 7 includes results of the EMC acquired businesses, including VMware, as of the date of acquisition (September 7, 06). FY 7 financial results are presented on a continuing operations basis and exclude the results of operations and related gains or losses associated with the divestiture transactions. FY 7 was a 53-week year relative to FY 8, which was a typical 5-week year. 4

5 Overview of New Standard and Impact to FY 8 Net revenue change (FY 8) +$0.4 billion <% vs. Reported Gross margin change (FY 8) +$0.5 billion +.4% vs. Reported Operating loss change (FY 8) +$0.9 billion +7.5% vs. Reported Periods covered FY 8 and FY 7 recast for comparability EMC acquired businesses included as of the acquisition date, Sept. 7, 06 Impacts prior to FY 7 recorded into retained earnings No change Bookings Customer billings Total operating cash flow Timing of revenue recognition for product hardware and services Primary changes Income Statement change: Revenue value allocation and timing Software License Offerings Third-party Software Extended Warranty Revenue Customer Rebates Timing of sales commissions Balance Sheet change: Deferred revenue impact commensurate with earlier revenue recognition Gross presentation of certain deferred costs and return rights Reported is defined as ASC 605, Revenue, and related guidance used for financial reporting prior to adoption of ASC 606, Revenue from Contracts with Customers. 5

6 FY 8: Reported to Recast Revenue FY 8 ($ in billions) Deferred Revenue February, 08 ($ in billions) Reported Upfront Revenue Recognition Recast to Prior Years Recast Reported Upfront Revenue Recognition Gross Presentation Recast Timing of: Software License Offerings Third-party Software Extended Warranty Revenue Rebates Deferred revenue impact commensurate with earlier revenue recognition Certain Deferred Costs Amounts presented may not foot and cross reference due to rounding. 6

7 Consolidated Results, Primary Changes GAAP $ in millions Reported FY'7 FY'8 Y/Y Recast Change ($) Reported Recast Change ($) Reported Recast Revenue 6,64 6, ,660 79, % 7.% Gross margin,959 3, ,054 0, % 50.5% GM % of revenue.0%.0% +90 bps 5.5% 6.0% +50 bps +450 bps +400 bps Operating loss (3,5) (,390) 86 (3,333) (,46) 97 (.5%) (.%) Operating loss % of revenue (5.3%) (3.8%) +40 bps (4.%) (3.%) +0 bps +00 bps +80 bps Adjustments to reconcile Non-GAAP to GAAP are unchanged in FY 8 under ASC 606 There is no change to recognition of cost as a result of the new standard Non-GAAP $ in millions Reported FY'7 3 FY'8 Y/Y Change Change Recast ($) Reported Recast ($) Reported Recast Revenue 3 6,8 63, ,99 80, % 6.8% Gross margin 6,89 7, ,85 5, % 46.8% GM % of revenue 6.8% 7.6% +80 bps 3.5% 3.0% +50 bps +470 bps +440 bps Operating income 5,3 5, ,855 7, % 30.7% Operating income % of revenue 8.% 9.4% +30 bps 8.6% 9.7% +0 bps +40 bps +30 bps Adjusted EBITDA 5,94 6, ,7 9, % 34.8% Adj EBITDA % of revenue 9.5% 0.7% +0 bps 0.3%.4% +0 bps +80 bps +70 bps Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. See Appendix C for reconciliation of Non-GAAP to GAAP measures. 3 Non-GAAP FY 7 revenue includes a one-time $8 million ASC 606 impact to purchase accounting associated with the going-private transaction. GAAP operating loss and Non-GAAP operating income improved under ASC 606 due to an increase in upfront revenue recognition and a decrease in operating expenses due to the deferral of commissions Under ASC 606: Commissions with contracts > year are capitalized and amortized typically over 3 to 7 years; on average over 36 months Rebates are deferred and amortized on average over 36 months 7

8 Recast by Business Unit Primary Changes Client Solutions Group Infrastructure Solutions Group $ in millions Reported FY'7 FY'8 Y/Y $ in millions Reported Recast Change Reported Recast Change Reported Recast Commercial 6,006 5,773 (33) 7,747 7,507 (40) 6.7% 6.7% Consumer 0,748 0,736 (),708, % 9.% Total revenue 36,754 36,509 (45) 39,455 39,8 (37) 7.3% 7.4% Operating income,845,75 (94),93,044 (49) 8.9% 6.7% OpInc % of revenue 5.0% 4.8% -0 bps 5.6% 5.% -35 bps +60 bps +40 bps FY'7 FY'8 Y/Y Recast Change Reported Recast Change Reported Recast Servers & networking,834, ,398 5, % 9.7% Storage 8,94 9, ,54 5, % 69.% Total revenue,776, ,65 30, % 40.% Operating income,393,90 57,79 3, % 5.% OpInc % of revenue.0% 3.% +0 bps 7.% 9.9% +80 bps -390 bps -330 bps Recast includes business unit reporting changes in order to conform to FY 9 presentation: Virtustream is reported as a part of Other businesses instead of the Infrastructure Solutions Group (ISG) Certain after-point-of-sale (APOS) services revenue is now reported in ISG instead of the Client Solutions Group (CSG) Recast CSG changes are primarily due to the APOS reporting change The change from Reported to Recast revenue for ISG and VMware is <% for each business unit VMware $ in millions Reported FY'7 FY'8 Y/Y Recast Change Reported Recast Change Reported Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. The VMware business unit results reflect the operations of VMware within Dell Technologies and are different from VMware s results on a standalone basis. Recast Total revenue 3,5 3, ,95 7, % 5.6% Operating income,3,56 403,50, % 85.3% OpInc % of revenue 34.5% 4.8% +830 bps 3.8% 35.% +330 bps -70 bps -770 bps Recast operating income for ISG and VMware had a larger impact due to the timing of the EMC acquisition and the impact to software in the new standard Impact to Recast ISG operating income is also due to the business unit reporting changes mentioned above 8

9 9

10 0 Appendix A New Accounting Standard ASC 606 Examples

11 Example: Product and Software Solution Offering Income Statement change Revenue value allocation between products and services More upfront revenue and less deferred Less value assigned to software maintenance Balance Sheet change Deferred revenue impact commensurate with earlier revenue recognition No change Customer billings and cash flows Timing of revenue recognition for hardware Example impact on revenue recognition A solution that includes hardware, software licenses, software maintenance, and other software elements. Reported Recast Year Year Year 3 Customer billings 3,800 Product revenue, Services revenue Deferred revenue Year Year Year 3 Customer billings 3,800 Product revenue 3, Services revenue Deferred revenue Reason for change ASC 605 included specific transaction value allocation rules for software and software-related elements. This generally resulted in a higher amount of value in the arrangement to be deferred and recognized over time in services revenue. ASC 606 changed the specific software allocation rules and, as a result, discounts in arrangements will be allocated to product and services performance obligations based on their respective fair values, thereby increasing product revenue and decreasing services revenue. Timing of the separate performance obligations will be recognized upon transfer of control.

12 Example: Extended Warranty Revenue Income Statement change Less value assigned to extended warranty More upfront revenue to hardware Revenue value allocation between products and services Balance Sheet change Deferred revenue impact commensurate with earlier revenue recognition No change Customer billings and cash flows Standard warranty Example impact on revenue recognition Hardware sold with standard warranty and a separately stated extended warranty. Reported Recast Year Year Year 3 Customer billings,000 Product revenue, Services revenue Deferred revenue Year Year Year 3 Customer billings,000 Product revenue, Services revenue Deferred revenue Reason for change ASC 605 included specific guidance that the value allocated to the extended warranty be the amount separately stated on the contract. This generally resulted in more of the value in the arrangement to be deferred and recognized over time in services revenue. ASC 606 changed this requirement and, as a result, amounts are now allocated to the product and services performance obligations based on their respective fair values, thereby increasing product revenue and decreasing services revenue. Timing of the separate performance obligations will be recognized upon transfer of control.

13 Example: Third-Party Software Income Statement change Revenue value allocation between products and services Cost of revenue allocation between products and services More upfront revenue and cost of revenue Balance Sheet change Deferred revenue impact commensurate with earlier revenue recognition Gross presentation of certain deferred costs No change Customer billings and cash flows Timing of revenue recognition for software maintenance Example impact on revenue recognition Third-party software sold to customer with software maintenance provided over three years. Reported Year Year Year 3 Recast Year Year Year 3 Customer billings 600 Product revenue Services revenue Deferred revenue Customer billings 600 Product revenue Services revenue Deferred revenue Reason for change ASC 605 includes valuation allocation and separation criteria (e.g., vendor specific evidence of fair value (VSOE)) to separate software license value from the software maintenance value. Dell generally did not meet the separation criteria for third-party software, causing the value of the entire arrangement to be deferred and recognized over time in services revenue. ASC 606 eliminated the separation criteria and now the value of the license will be separated from the value of the software maintenance. The license value will be recognized in product revenue and the value of the software maintenance will continue to be recognized in services revenue. Timing of the separate performance obligations will be recognized upon transfer of control. 3

14 Example: Software License Offerings Income Statement change More upfront revenue to product Balance Sheet change Deferred revenue impact commensurate with earlier revenue recognition No change Customer billings and cash flows Example impact on revenue recognition Perpetual license with promised upgrade to be provided in month three. For illustrative purposes, the example excludes software maintenance. Reported Recast Month Month Month 3 Customer billings,000 Product revenue - -,000 Deferred revenue,000,000 - Month Month Month 3 Customer billings,000 Product revenue Deferred revenue Reason for change ASC 605 required deferral of all license revenue related to the sale of its perpetual licenses in the event certain revenue recognition criteria were not met due to vendor-specific objective evidence of fair value criteria. ASC 606 eliminated the separation requirement, allowing substantially all license revenue related to the sale of licenses to be recognized upon transfer of control. This change impacts arrangements that also included offers of future products. 4

15 Example: Term-based Software Licenses Income Statement change Revenue value allocation between products and services More upfront revenue recognized on transfer of control of the license Balance Sheet change Deferred revenue impact commensurate with earlier revenue recognition No change Customer billings and cash flows Timing of revenue recognition for software maintenance arrangements Example impact on revenue recognition Dell-owned term-based software license sold to customer with software maintenance provided over three years. Reported Year Year Year 3 Recast Year Year Year 3 Customer billings,00 Product revenue Services revenue Deferred revenue Customer billings,00 Product revenue Services revenue Deferred revenue Reason for change Like third-party software, ASC 605 included valuation allocation and separation criteria (VSOE) to separate software license value from software maintenance value. Dell generally did not meet the separation criteria for Dell-owned term-based software licenses, causing the value of the entire arrangement to be deferred and recognized over time in services revenue. With elimination of separation criteria, value of the license will be separated from the value of the software maintenance in most cases. The license value will be recognized in product revenue and the value of the software maintenance will continue to be recognized in services revenue. Timing of the separate performance obligations will be recognized upon transfer of control. 5

16 6 Appendix B Supplemental financial results

17 Recast Income Statement Summary, GAAP Reported Recast Change ($ in millions) FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 Products 48,706,968 4,355 4,680 6,798 58,80 5,057 3,634 5,0 5,0 7,395 6,5, ,450 Services,936 4,848 4,944 4,930 5,37 9,859,07 4,366 4,49 4,436 4,568 7,789 (,89) (48) (55) (494) (569) (,070) Revenue 6,64 7,86 9,99 9,60,935 78,660 6,64 8,000 9,5 9,556,963 79, (54) Products 4,69,459,378,369 4,009 50,5 43,388,83,775,573 4,6 5,433, ,8 Services 6,54,055,,078,46 8,39 5,7,70,778,763,809 7,070 (,387) (335) (334) (35) (337) (,3) Cost of revenue 48,683 3,54 4,490 4,447 6,55 58,606 48,55 3,543 4,553 4,336 6,07 58,503 (68) 9 63 () (84) (03) Products 6,537,509,977,3,789 8,586 7,669,8,37,547 3,33 9,88, ,3 Services 6,4,793,83,85,99,468 5,980,646,64,673,759 0,79 (44) (47) (9) (79) (3) (749) Gross margin,959 4,30 4,809 5,63 5,780 0,054 3,649 4,457 4,968 5,0 5,89 0, GM as % of revenue.0% 4.% 4.9% 6.3% 6.4% 5.5%.0% 4.8% 5.4% 6.7% 6.8% 6.0% 0.9% 0.6% 0.5% 0.4% 0.5% 0.5% Operating expenses 6, 5,80 5,788 5,696 6,0 3,387 6,039 5,79 5,633 5,630 5,96,953 (7) (73) (55) (66) (40) (434) Operating loss (3,5) (,500) (979) (533) (3) (3,333) (,390) (,7) (665) (40) (69) (,46) OpInc (Loss) as % of revenue -5.3% -8.4% -5.% -.7% -.5% -4.% -3.8% -7.% -3.4% -.% -0.3% -3.%.4%.4%.7% 0.6%.%.% Non-GAAP Reported Recast Change Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. See Appendix C for reconciliation of Non-GAAP to GAAP measures. 3 Non-GAAP FY 7 revenue includes a one-time $8 million ASC 606 impact to purchase accounting associated with the going-private transaction. 7 ($ in millions) FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 Products 49,006 3,03 4,405 4,73 6,830 58,97 5,357 3,689 5,5 5,53 7,47 6,4, ,450 Services 3,86 5,48 5,9 5,9 5,389 0,958,959 4,666 4,704 4,698 4,80 8,888 (,857) (48) (55) (494) (569) (,070) Revenue 3 6,8 8,7 9,634 9,905,9 79,99 63,36 8,355 9,856 9,85,47 80, (54) Products 39,660 0,494,436,440 3,07 46,44 40,879 0,858,833,644 3,35 47,660, ,8 Services 6,343,03,098,048,5 8,30 4,956,696,764,733,788 6,98 (,387) (335) (334) (35) (337) (,3) Cost of revenue 46,003,55 3,534 3,488 5,97 54,744 45,835,554 3,597 3,377 5,3 54,64 (68) 9 63 () (84) (03) Products 9,346,59,969 3,73 3,758,59 0,478,83 3,39 3,509 4,0 3,76, ,3 Services 7,473 3,7 3,3 3,44 3,64,656 7,003,970,940,965 3,03,907 (470) (47) (9) (79) (3) (749) Gross margin 6,89 5,646 6,00 6,47 7,0 5,85 7,48 5,80 6,59 6,474 7,34 5, GM as % of revenue 6.8% 3.% 3.% 3.% 3.6% 3.5% 7.6% 3.6% 3.5% 3.6% 3.% 3.0% 0.8% 0.5% 0.5% 0.4% 0.5% 0.5% Operating expenses,706 4,449 4,548 4,43 4,90 8,330,534 4,376 4,393 4,365 4,76 7,896 (7) (73) (55) (66) (40) (434) Operating income 5,3,97,55,986,0 6,855 5,947,45,866,09,37 7, OpInc as % of revenue 8.% 6.6% 7.9% 0.0% 9.5% 8.6% 9.4% 7.8% 9.4% 0.6% 0.7% 9.7%.3%.%.5% 0.6%.%.% Adjusted EBITDA 5,94,567,866,38,466 8,7 6,775,795,80,44,78 9, Adj EBITDA as % of revenue 9.5% 8.6% 9.5%.6%.% 0.3% 0.7% 9.8%.0%.3%.%.4%.%.%.5% 0.7%.%.%

18 Business Unit Revenue and Operating Income/(Loss) Summary Reported Recast $ in millions FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 FY'7 Q'8 Q'8 3Q'8 4Q'8 FY'8 Revenue CSG 36,754 9,056 9,85 9,959 0,589 39,455 36,509 9,048 9,866 9,89 0,475 39,8 ISG,776 6,96 7,406 7,58 8,8 30,65,070 6,96 7,467 7,535 8,954 30,97 VMware 3,5,736,907,953,39 7,95 3,543,88,984,933,59 7,994 Reportable segment net revenue 6,755 7,709 9,64 9,430,73 78,03 6, 7,87 9,37 9,97,688 78,9 Other businesses, ,90, ,95 Unallocated transactions 4 () 0 (4) (4) 4 () (4) (3) (7) (5) Impact of purchase accounting (,80) (355) (335) (95) (84) (,69) (,5) (355) (335) (95) (84) (,69) Total GAAP revenue 6,64 7,86 9,99 9,60,935 78,660 6,64 8,000 9,5 9,556,963 79,040 Operating income/(loss) CSG, ,93, ,044 ISG, ,79, ,045 3,068 VMware, ,50, ,809 Reportable segment operating income 5,35,83,557,988,63 6,89 6,87,44,903,34,44 7,9 Other businesses (39) 3 6 (3) () (4) (3) (9) (9) (54) (5) Unallocated transactions (99) (6) (8) () (6) (98) 6 (8) (6) (6) (4) Impact of purchase accounting (,94) (43) (406) (366) (35) (,546) (,66) (43) (406) (366) (35) (,546) Amortization of intangibles (3,68) (,776) (,740) (,734) (,730) (6,980) (3,68) (,776) (,740) (,734) (,730) (6,980) Transaction related expense (,488) (9) (38) (86) (87) (50) (,488) (9) (38) (86) (87) (50) Other corporate expense (90) (307) (47) (333) (73) (,60) (90) (307) (47) (333) (73) (,60) Total GAAP operating loss (3,5) (,500) (979) (533) (3) (3,33) (,390) (,7) (665) (40) (69) (,46) CSG - OpInc as % of revenue 5.0% 4.% 5.7% 6.7% 5.5% 5.6% 4.8% 3.6% 5.4% 6.4% 5.4% 5.% ISG - OpInc as % of revenue.0% 4.7% 5.8% 9.0% 8.5% 7.% 3.% 7.3% 8.7%.5%.7% 9.9% VMware - OpInc as % of revenue 34.5% 8.0% 9.4% 3.7% 35.8% 3.8% 4.8% 33.6% 36.7% 3.8% 37.0% 35.% Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. The VMware business unit results reflect the operations of VMware within Dell Technologies and are different from VMware s results on a standalone basis 8

19 Selected Balance Sheet Amounts Reported Recast Change ($ in millions) 4Q'7 Q'8 Q'8 3Q'8 4Q'8 4Q'7 Q'8 Q'8 3Q'8 4Q'8 4Q'7 Q'8 Q'8 3Q'8 4Q'8 Selected assets Cash and cash equivalents 9,474 9,554 9,3,706 3,94 9,474 9,554 9,3,706 3, Short-term investments,975,60,05,008,87,975,60,05,008, Accounts receivable, net 9,40 8,834 9,76 9,89,77 9,889 9,34 0,69 9,7, Short-term financing receivables, net 3, 3,55 3,473 3,643 3,99 3, 3,55 3,473 3,643 3, Inventories, net,538,466,594,58,678,538,466,594,58, Other current assets 4,44 4,655 5,94 5,397 5,054 4,807 5,38 5,944 6,69 5, Other non-current assets,364,49,68,75,86,739,95,35,35, Selected liabilities Accounts payable 4,4 5,064 6,96 6,7 8,334 4,4 5,064 6,96 6,7 8, Accrued and other 7,9 6,376 6,798 6,90 7,66 7,406 6,659 7,8 7, 8, Short-term deferred revenue 0,65 0,354 0,76 0,895,04 0,0 0,0 0,393 0,566,56 (53) (333) (333) (39) (46) Long-term deferred revenue 8,43 8,330 8,878 9,6 0,3 7,803 7,656 8,094 8,99 9,0 (68) (674) (784) (86) (,03) The pre-tax impact to the opening Consolidated Statement of Financial Position as of January 9, 06 is expected to be an approximately $ billion benefit to accumulated deficit. Does not include the tax impact of ASC

20 0 Appendix C Supplemental Non-GAAP Measures

21 Supplemental Non-GAAP Measures Revenue Reported $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Products,968 4,355 4,680 6,798 48,706 58,80 Services 4,848 4,944 4,930 5,37,936 9,859 Consolidated GAAP revenue 7,86 9,99 9,60,935 6,64 78,660 Non-GAAP adjustments Products Services ,099 Impact of purchase accounting ,80,69 Products 3,03 4,405 4,73 6,830 49,006 58,97 Services 5,48 5,9 5,9 5,389 3,86 0,958 Non-GAAP revenue 8,7 9,634 9,905,9 6,8 79,99 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction.

22 Supplemental Non-GAAP Measures Revenue Recast $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Products 3,634 5,0 5,0 7,395 5,057 6,5 Services 4,366 4,49 4,436 4,568,07 7,789 Consolidated GAAP revenue 8,000 9,5 9,556,963 6,64 79,040 Non-GAAP adjustments Products Services ,099 Impact of purchase accounting ,5,69 Products 3,689 5,5 5,53 7,47 5,357 6,4 Services 4,666 4,704 4,698 4,80,959 8,888 Non-GAAP revenue 8,355 9,856 9,85,47 63,36 80,309 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction.

23 Supplemental Non-GAAP Measures Gross Margin Reported $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Products,509,977,3,789 6,537 8,586 Services,793,83,85,99 6,4,468 Consolidated GAAP gross margin 4,30 4,809 5,63 5,780,959 0,054 Non-GAAP adjustments Products ,65 3,694 Services Amortization of intangibles ,653 3,694 Products ,04 3 Services ,099 Impact of purchase accounting ,007,3 Products 6 4 Services Transaction costs Products Services Other corporate expenses Total adjustments to gross margin,344,9,54,4 3,860 5,3 Products,59,969 3,73 3,758 9,346,59 Services 3,7 3,3 3,44 3,64 7,473,656 Non-GAAP gross margin 5,646 6,00 6,47 7,0 6,89 5,85 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 3

24 Supplemental Non-GAAP Measures Gross Margin Recast $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Products,8,37,547 3,33 7,669 9,88 Services,646,64,673,759 5,980 0,79 Consolidated GAAP gross margin 4,457 4,968 5,0 5,89 3,649 0,537 Non-GAAP adjustments Products ,65 3,694 Services Amortization of intangibles ,653 3,694 Products ,04 3 Services ,099 Impact of purchase accounting ,979,3 Products 6 4 Services Transaction costs Products Services Other corporate expenses Total adjustments to gross margin,344,9,54,4 3,83 5,3 Products,83 3,39 3,509 4,0 0,478 3,76 Services,970,940,965 3,03 7,003,907 Non-GAAP gross margin 5,80 6,59 6,474 7,34 7,48 5,668 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 4

25 Supplemental Non-GAAP Measures Operating Expenses Reported $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating expenses 5,80 5,788 5,696 6,0 6, 3,387 Non-GAAP adjustments Amortization of intangibles (86) (80) (80) (80) (,08) (3,86) Impact of purchase accounting (58) (58) (59) (59) (87) (34) Transaction costs 3 (84) (8) (8) (85) (,445) (478) Other corporate expenses 4 (85) (34) (305) (35) (745) (,059) Total adjustments to operating expenses (,353) (,40) (,65) (,99) (4,505) (5,057) Non-GAAP operating expenses 4,449 4,548 4,43 4,90,706 8,330 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 5

26 Supplemental Non-GAAP Measures Operating Expenses Recast $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating expenses 5,79 5,633 5,630 5,96 6,039,953 Non-GAAP adjustments Amortization of intangibles (86) (80) (80) (80) (,08) (3,86) Impact of purchase accounting (58) (58) (59) (59) (87) (34) Transaction costs 3 (84) (8) (8) (85) (,445) (478) Other corporate expenses 4 (85) (34) (305) (35) (745) (,059) Total adjustments to operating expenses (,353) (,40) (,65) (,99) (4,505) (5,057) Non-GAAP operating expenses 4,376 4,393 4,365 4,76,534 7,896 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 6

27 Supplemental Non-GAAP Measures Operating Income / (Loss) Reported $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating loss (,500) (979) (533) (3) (3,5) (3,333) Non-GAAP adjustments Amortization of intangibles,776,740,734,730 3,68 6,980 Impact of purchase accounting ,94,546 Transaction costs , Other corporate expenses ,60 Total adjustments to operating income,697,53,59,44 8,365 0,88 Non-GAAP operating income,97,55,986,0 5,3 6,855 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 7

28 Supplemental Non-GAAP Measures Operating Income / (Loss) Recast $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating loss (,7) (665) (40) (69) (,390) (,46) Non-GAAP adjustments Amortization of intangibles,776,740,734,730 3,68 6,980 Impact of purchase accounting ,66,546 Transaction costs , Other corporate expenses ,60 Total adjustments to operating income,697,53,59,44 8,337 0,88 Non-GAAP operating income,45,866,09,37 5,947 7,77 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 8

29 Supplemental Non-GAAP Measures Adjusted EBITDA Reported $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating loss (,500) (979) (533) (3) (3,5) (3,333) Depreciation and amortization,,4,37,43 4,840 8,634 EBITDA 7,63,604,8,588 5,30 Non-GAAP adjustments Stock based compensation Impact of purchase accounting ,96,74 Transaction costs ,55 50 Other corporate expenses Total adjustments to EBITDA ,353,96 Adjusted EBITDA,567,866,38,466 5,94 8,7 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 9

30 Supplemental Non-GAAP Measures Adjusted EBITDA Recast $ in millions Q'8 Q'8 3Q'8 4Q'8 FY'7 FY'8 Consolidated GAAP operating loss (,7) (665) (40) (69) (,390) (,46) Depreciation and amortization,,4,37,43 4,840 8,634 EBITDA 940,477,77,074,450 6,8 Non-GAAP adjustments Stock based compensation Impact of purchase accounting ,898,74 Transaction costs ,55 50 Other corporate expenses Total adjustments to EBITDA ,35,96 Adjusted EBITDA,795,80,44,78 6,775 9,34 Results presented on a continuing operations basis. Historical results prior to 3Q 7 do not include EMC acquired businesses. This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction. 3 Consists of acquisition, integration and divestiture-related costs. 4 Consists of severance and facility action costs as well as stock-based compensation. 30