Dell 2008 Annual Report Download - page 64

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, February 1, February 2,
2009 2008 2007
(in millions, except per share amounts)
Numerator:
Net income $ 2,478 $ 2,947 $ 2,583
Denominator:
Weighted-average shares outstanding:
Basic 1,980 2,223 2,255
Effect of dilutive options, restricted stock units, restricted stock, and other 6 24 16
Diluted 1,986 2,247 2,271
Earnings per common share:
Basic $ 1.25 $ 1.33 $ 1.15
Diluted $ 1.25 $ 1.31 $ 1.14
Stock-Based Compensation — Effective February 4, 2006, stock-based compensation expense is recorded based on the grant date fair value estimate
in accordance with the provisions of SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"). In March 2005, the SEC issued
SAB No. 107 ("SAB 107") regarding the SEC's interpretation of SFAS 123(R) and the valuation of share-based payments for public companies. We
have applied the provisions of SAB 107 in our adoption of SFAS 123(R). See Note 5 of Notes to Consolidated Financial Statements included for
further discussion of stock-based compensation.
Recently Issued and Adopted Accounting Pronouncements — In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157"), which defines fair value, provides a framework for measuring fair value, and expands the disclosures required for assets and
liabilities measured at fair value. SFAS 157 applies to existing accounting pronouncements that require fair value measurements; it does not require
any new fair value measurements. Dell adopted the effective portions of SFAS 157 beginning the first quarter of Fiscal 2009, and it did not have a
material impact to Dell's consolidated financial statements. In February 2008, FASB issued FASB Staff Position ("FSP") 157-2, Effective Date of
FASB Statement No. 157 ("FSP 157-2"), which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the
first quarter of Fiscal 2010. Dell is currently evaluating the inputs and techniques used in these measurements, including items such as impairment
assessments of fixed assets and goodwill impairment testing. Management does not expect the adoption of FSP 157-2 to have a material impact on
Dell's results of operations, financial position, and cash flows. See Note 2 of Notes to Consolidated Financial Statements for the impact of the
adoption SFAS 157.
On October 10, 2008, the FASB issued FSP No. FAS 157-3 "Determining the Fair Value of a Financial Asset When the Market for that Asset is Not
Active" ("FSP FAS 157-3"), which clarifies the application of SFAS 157 in a market that is not active. Additional guidance is provided regarding
how the reporting entity's own assumptions should be considered when relevant observable inputs do not exist, how available observable inputs in a
market that is not active should be considered when measuring fair value, and how the use of market quotes should be considered when assessing the
relevance of inputs available to measure fair value. FSP FAS 157-3 became effective immediately upon issuance. Dell considered the additional
guidance with respect to the valuation of its financial assets and liabilities and their corresponding designation within the fair value hierarchy. Its
adoption did not have a material effect on Dell's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"), which
provides companies with an option to report selected financial assets and liabilities at fair value with the changes in fair value recognized in earnings
at each subsequent reporting date. SFAS 159 provides an opportunity to mitigate potential volatility in earnings
60