Dell 2006 Annual Report Download - page 72

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
owned subsidiary. Pursuant to Accounting Research Bulletin 51, Consolidated Financial Statements (as amended), these
shares are not considered to be outstanding on Dell's consolidated financial statements.
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
February 2, February 3, January 28,
2007 2006 2005
As As
Restated Restated
(in millions, except per share amounts)
Numerator:
Net income $ 2,583 $ 3,602 $ 3,018
Denominator:
Weighted-average shares outstanding:
Basic 2,255 2,403 2,509
Effect of dilutive options, restricted stock units, restricted stock, and other 16 46 59
Diluted 2,271 2,449 2,568
Earnings per common share:
Basic $ 1.15 $ 1.50 $ 1.20
Diluted $ 1.14 $ 1.47 $ 1.18
Stock-Based Compensation — At February 2, 2007, Dell had four stock-based compensation plans and an employee stock
purchase plan with outstanding stock or stock options.
Effective February 4, 2006, Dell adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using the
modified prospective transition method which does not require revising the presentation in prior periods for stock-based
compensation. Under this transition method, stock-based compensation expense for Fiscal 2007 includes compensation
expense for all stock-based compensation awards granted prior to, but not yet vested at February 4, 2006, based on the
grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). Stock-based compensation expense for all stock-based compensation awards granted after
February 3, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Dell
recognizes this compensation expense net of an estimated forfeiture rate over the requisite service period of the award,
which is generally the vesting term of five years for stock options and five-to-seven years for restricted stock awards. In
March 2005, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 107 ("SAB 107")
regarding the SEC's interpretation of SFAS 123(R) and the valuation of share-based payments for public companies. Dell
has applied the provisions of SAB 107 in its adoption of SFAS 123(R). See Note 6 of Notes to Consolidated Financial
Statements for further discussion of stock-based compensation.
Prior to the adoption of SFAS 123(R), Dell measured compensation expense for its employee stock-based compensation
plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"). Dell applied the disclosure provisions of SFAS 123 such that the fair value of employee
stock-based compensation was disclosed in the notes to its financial statements. Under APB 25, when the exercise price of
Dell's employee stock options equaled the market price of the underlying stock at the date of the grant, no compensation
expense was recognized.
Recently Issued Accounting Pronouncements — In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Instruments ("SFAS 155"), which is an amendment of SFAS 133, and SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
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