Dell 2006 Annual Report Download - page 77

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Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The nature of the restatement adjustments and the impact of the adjustments to Fiscal 2005 are shown in the following table:
Fiscal 2005
Adjustments
Revenue Other Provision
recognition reserves for
As Software Warranty and income As
Reported sales Other liabilities accruals tax(a) Restated
(in millions, except per share data)
Net revenue $ 49,205 $ (105) $ 21 $ — $ — $ — $ 49,121
Cost of net revenue 40,190 (93) 21 21 (36) — 40,103
Gross margin 9,015 (12) — (21) 36 — 9,018
Operating expenses:
Selling, general, and administrative 4,298 — — — 54 — 4,352
Research, development, and engineering 463 — — — (3) — 460
Total operating expenses 4,761 — — — 51 — 4,812
Operating income 4,254 (12) — (21) (15) — 4,206
Investment and other income, net 191 — 1 — 5 — 197
Income before income taxes 4,445 (12) 1 (21) (10) — 4,403
Income tax provision 1,402 (17) 1,385
Net income $ 3,043 $ 3,018
Earnings per common share:
Basic $ 1.21 $ 1.20
Diluted $ 1.18 $ 1.18
Weighted-average shares outstanding:
Basic 2,509 2,509
Diluted 2,568 2,568
(a) Primarily represents the aggregate tax impact of the adjustments
Revenue Recognition Adjustments
Software Sales — The largest revenue recognition adjustment relates to correcting the timing and amount of revenue
recognized on the sale of certain software products. Dell is a reseller of a broad array of third-party developed software.
Individually significant categories of software are analyzed for application of the appropriate accounting under American
Institute of Certified Public Accountants ("AICPA") Statement of Position No. 97-2, Software Revenue Recognition
("SOP 97-2"). However, the allocation of software sales revenue between the software license (recognized at point of sale)
and post-contract support (deferred and recognized over time) for other high volume, lower dollar value software products
has historically been assessed as a group and the post-contract support revenue was deferred based on an estimate of
average "Vendor Specific Objective Evidence" ("VSOE"). During the course of its internal reviews, Dell determined
74