Dell 2003 Annual Report Download - page 41
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Table of Contents
Earnings Per Common Share — Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by
dividing net income by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the
weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued
assuming exercise or conversion of all potentially dilutive common shares outstanding. Dell excludes equity instruments from the calculation of diluted
weighted average shares outstanding if the effect of including such instruments is antidilutive to earnings per share. Accordingly, certain employee stock
options and equity put contracts (during fiscal 2003 and 2002 only) have been excluded from the calculation of diluted weighted average shares totaling
138 million, 192 million, and 232 million shares during fiscal 2004, 2003, and 2002, respectively. The following table sets forth the computation of basic and
diluted earnings per share for each of the past three fiscal years:
Fiscal Year Ended
January 30, January 31, February 1,
2004 2003 2002
(in millions, except per share amounts)
Numerator:
Net income $ 2,645 $ 2,122 $ 1,246
Denominator:
Weighted average shares outstanding:
Basic 2,565 2,584 2,602
Employee stock options and other 54 60 124
Diluted 2,619 2,644 2,726
Earnings per common share:
Basic $ 1.03 $ 0.82 $ 0.48
Diluted $ 1.01 $ 0.80 $ 0.46
Pro Forma Effects of Stock-Based Compensation — As of January 30, 2004, Dell had four stock-based compensation plans and an employee stock purchase
plan where stock options or purchase rights were outstanding. See Note 5 of "Notes to Consolidated Financial Statements." Dell currently applies the
recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations in accounting for those plans.
Under SFAS No. 123, Accounting for Stock-Based Compensation, the value of each option is estimated on the date of grant using the Black-Scholes option
pricing model, which was developed for use in estimating the value of freely traded options. Similar to other option pricing models, it requires the input of
highly subjective assumptions, including stock price volatility. Because (1) Dell's employee stock options have characteristics significantly different from
those of traded options and (2) changes in the subjective input assumptions can materially affect the estimated fair value, management's opinion is that the
existing option pricing models (including Black-Scholes) do not provide a reliable measure of the fair value of Dell's employee stock options.
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