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2006 Annual Report 43
Years Ended July 29, 2006 July 30, 2005 July 31, 2004
NET SALES:
Product $ 23,917 $ 20,853 $ 18,550
Service 4,567 3,948 3,495
Total net sales 28,484 24,801 22,045
COST OF SALES:
Product 8,114 6,758 5,766
Service 1,623 1,372 1,153
Total cost of sales 9,737 8,130 6,919
GROSS MARGIN 18,747 16,671 15,126
OPERATING EXPENSES:
Research and development 4,067 3,322 3,192
Sales and marketing 6,031 4,721 4,530
General and administrative 1,169 959 867
Amortization of purchased intangible assets 393 227 242
In-process research and development 91 26 3
Total operating expenses 11,751 9,255 8,834
OPERATING INCOME 6,996 7,416 6,292
Interest income, net 607 552 512
Other income, net 30 68 188
Interest and other income, net 637 620 700
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 7,633 8,036 6,992
Provision for income taxes 2,053 2,295 2,024
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,580 5,741 4,968
Cumulative effect of accounting change, net of tax — — (567)
NET INCOME $ 5,580 $ 5,741 $ 4,401
Income per share before cumulative effect of accounting change—basic $ 0.91 $ 0.88 $ 0.73
Income per share before cumulative effect of accounting change—diluted $ 0.89 $ 0.87 $ 0.70
Net income per share—basic $ 0.91 $ 0.88 $ 0.64
Net income per share—diluted $ 0.89 $ 0.87 $ 0.62
Shares used in per-share calculation—basic 6,158 6,487 6,840
Shares used in per-share calculation—diluted 6,272 6,612 7,057
Supplemental Information
Net income for scal 2006 included stock-based compensation expense under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS 123(R)”) of $836 million, net of tax, which consisted of stock-based compensation expense of $756 million, net of tax, related to employee stock options
and employee stock purchases and stock-based compensation expense of $80 million, net of tax, related to acquisitions and investments. Net income for scal 2005
and scal 2004 included stock-based compensation expense of $149 million and $241 million, respectively, net of tax, related to acquisitions and investments. There was
no stock-based compensation expense related to employee stock options and employee stock purchases under Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (“SFAS 123”), in scal 2005 and scal 2004 because the Company did not adopt the recognition provisions of SFAS 123.
Net income including pro forma stock-based compensation expense as previously disclosed in the notes to the Consolidated Financial Statements for scal 2005 and
scal 2004 was $4.7 billion or $0.71 per diluted share, and $3.2 billion or $0.45 per diluted share, respectively. See Note 10 to the Consolidated Financial Statements for
additional information.
See Notes to Consolidated Financial Statements.
Consolidated Statements of Operations
(in millions, except per-share amounts)