Dell 2000 Annual Report Download - page 26

Effective January 29, 2000, the Company changed its accounting for revenue recognition in accordance with Securities and Exchange
Commission's Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). Previously, the
Company had recognized revenue at the date of shipment. Under the new accounting method adopted retroactive to January 29, 2000,
the Company now recognizes product revenue when both title and risk of loss transfers to the customer, provided that no significant
obligations remain. The cumulative effect of the change on prior years' retained earnings resulted in a charge to fiscal 2001 income of
$59 million (net of income taxes of $25 million). Had SAB 101 been effective for all prior fiscal years presented, the pro forma results
and earnings per share would not have been materially different from the previously reported results.
Warranty — The Company provides for the estimated costs that may be incurred under its basic limited warranty.
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Table of Contents
Advertising Costs — Advertising costs are charged to expense as incurred. Advertising expenses for fiscal years 2001, 2000, and 1999
were $431 million, $325 million, and $199 million, respectively.
Stock-Based Compensation — The Company applies the intrinsic value method in accounting for its stock option and stock purchase
plans. Accordingly, no compensation 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.
Income Taxes — Deferred tax assets and liabilities are recorded 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 — 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 conversion of all potentially dilutive common shares
outstanding. 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, January 28, January 29,
2001 2000 1999
(dollars in millions)
Net income $ 2,177 $ 1,666 $ 1,460
Weighted average shares outstanding:
Basic 2,582 2,536 2,531
Employee stock options and other 164 192 241
Diluted 2,746 2,728 2,772
Earnings per common share:
Before cumulative effect of change in accounting principle
Basic $ 0.87 $ 0.66 $ 0.58
Diluted $ 0.81 $ 0.61 $ 0.53
After cumulative effect of change in accounting principle
Basic $ 0.84 $ 0.66 $ 0.58
Diluted $ 0.79 $ 0.61 $ 0.53
Comprehensive Income — The Company's comprehensive income is comprised of net income, foreign currency translation
adjustments and unrealized gains and losses on investments classified as available-for-sale.
Recently Issued Accounting Pronouncements — Effective February 3, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the
Consolidated Statement of Financial Position and measure those instruments at fair value. The adoption of this statement will not have
a material effect on the Company's financial condition or results of operations. However, its application may increase the volatility of
investment and other income, net in the Consolidated Statement of Income and other comprehensive income in the Consolidated
Statement of Stockholders' Equity.
Reclassifications — Certain prior year amounts have been reclassified to conform to the fiscal year 2001 presentation.
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