Dell 1997 Annual Report Download - page 21

Warranty and Other Post-sales Support Programs -- The Company provides currently
for the estimated costs that may be incurred under its initial warranty and
other post-sales support programs.
Advertising Costs -- Advertising costs are charged to expense as incurred.
Advertising expenses for fiscal years 1998, 1997 and 1996 were $137 million, $87
million and $83 million, respectively.
Stock-Based Compensation -- The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," in the
fiscal year ended February 2, 1997. On adoption, the Company continued to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option and stock purchase plans. As a
result, no expense has been recognized for options granted with an exercise
price equal to market value at the date of grant or in connection with the
employee stock purchase plan. For stock options that have been issued at
discounted prices, the Company accrues for compensation expense over the vesting
period for the difference between the exercise price and fair market value on
the measurement date.
Income Taxes -- The provision for income taxes is based on income before income
taxes as reported in the Consolidated Statement of Income. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Earnings Per Common Share -- The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," in the fiscal year ended
February 1, 1998. Basic earnings per share is based on the weighted effect of
all common shares issued and outstanding, and is calculated by dividing net
income available to common stockholders by the weighted average shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income available to common stockholders 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 conversion of all
potentially dilutive common shares outstanding. All historical earnings
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per share data have been restated to conform to this presentation. Below is the
calculation of basic and diluted earnings per share for each of the past three
fiscal years:
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 1, FEBRUARY 2, JANUARY 28,
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net income.............................................. $ 944 $ 518 $ 272
Less: preferred stock dividends......................... -- -- (12)
----- ----- -----
Net income available to common stockholders............. $ 944 $ 518 $ 260
===== ===== =====
Weighted average shares outstanding -- Basic............ 658 710 716
Employee stock options and other........................ 80 72 74
----- ----- -----
Weighted average shares outstanding -- Diluted.......... 738 782 790
===== ===== =====
Earnings per common share:
Basic................................................. $1.44 $0.73 $0.36
Diluted............................................... $1.28 $0.66 $0.33
Recently Issued Accounting Pronouncement -- On March 4, 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants, issued Statement of Position 98-1 (SoP 98-1), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
provides guidance concerning the capitalization of costs related to such
software. The SoP 98-1 must be adopted by the Company effective as of fiscal
year 2000 and is not expected to have a material impact on the Company's
consolidated results of operations or financial position.
NOTE 2 -- FINANCIAL INSTRUMENTS
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of marketable securities, long-term debt and interest rate
derivative instruments has been estimated based upon market quotes from brokers.
The fair value of foreign currency forward contracts has been estimated using
market quoted rates of foreign currencies at the applicable balance sheet date.
The estimated fair value of foreign currency purchased option contracts is based
on market quoted rates at the applicable balance sheet date and the
Black-Scholes options pricing model. Considerable judgment is necessary in
interpreting market data to develop estimates of fair value. Accordingly, the