Dell 2008 Annual Report Download - page 77

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
employee until the unit vests, which is generally over a three- to five-year period. Dell also grants performance-based restricted stock units as a long-
term incentive in which an award recipient receives shares contingent upon Dell achieving performance objectives and the employees' continuing
employment through the vesting period, which is generally over a three- to five-year period. Compensation expense recorded in connection with
these performance-based restricted stock units is based on Dell's best estimate of the number of shares that will eventually be issued upon
achievement of the specified performance criteria and when it becomes probable that certain performance goals will be achieved. The cost of these
awards is determined using the fair market value of Dell's common stock on the date of the grant. Compensation expense for restricted stock awards
with a service condition is recognized on a straight-line basis over the vesting term. Compensation expense for performance-based restricted stock
awards is recognized on an accelerated multiple-award approach based on the most probable outcome of the performance condition.
Acceleration of Vesting of Options — On January 23, 2009, Dell's Board of Directors approved the acceleration of the vesting of unvested
"out-of-the-money" stock options (options that have an exercise price greater than the current market stock price) with exercise prices equal to or
greater than $10.14 per share for approximately 2,800 employees holding options to purchase approximately 21 million shares of common stock.
Dell concluded the modification to the stated vesting provisions was substantive after Dell considered the volatility of its share price and the exercise
price of the amended options in relation to recent share values. Because the modification was considered substantive, the remaining unearned
compensation expense of $104 million was recorded as an expense in Fiscal 2009. The weighted-average exercise price of the options that were
accelerated was $21.90.
Temporary Suspension of Option Exercises, Vesting of Restricted Stock Units, and Employee Stock Purchase Plan ("ESPP") Purchases — As a
result of Dell's inability to timely file its Annual Report on Form 10-K for Fiscal 2007, Dell suspended the exercise of employee stock options, the
settlement of restricted stock units, and the purchase of shares under the ESPP on April 4, 2007. Dell resumed allowing the exercise of employee
stock options by employees and the settlement of restricted stock units on October 31, 2007. The purchase of shares under the ESPP was not
resumed as the plan was discontinued during the first quarter of Fiscal 2009.
Dell decided to pay cash to current and former employees who held "in-the-money" stock options (options that have an exercise price less than the
current market stock price) that expired during the period of unexercisability due to Dell's inability to timely file its Annual Report on Form 10-K for
Fiscal 2007. During Fiscal 2008, Dell made payments of approximately $107 million, which were expensed, relating to in-the-money stock options
that expired in the second and third quarters of Fiscal 2008.
General Information
Stock Option Activity — The following table summarizes stock option activity for the Stock Plans during Fiscal 2009:
Weighted-
Weighted- Average
Number Average Remaining Aggregate
of Exercise Contractual Intrinsic
Options Price Term Value
(in millions) (per share) (in years) (in millions)
Options outstanding — February 1, 2008 264 $ 32.30
Granted 13 19.71
Exercised (4) 19.08
Forfeited (4) 23.97
Cancelled/expired (39) 33.14
Options outstanding — January 30, 2009 230 $ 31.85
Vested and expected to vest (net of estimated forfeitures) — January 30,
2009(a)(b) 230 $ 31.86 3.9 $ -
Exercisable — January 30, 2009(a)(b) 230 $ 31.86 3.9 $ -
(a) For options vested and expected to vest and options exercisable, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between Dell's closing stock price on January 30, 2009, and the exercise price multiplied by the number of in-the-money options) that would have been received by the option
holders had the holders exercised their options on January 30, 2009. The intrinsic value changes based on changes in the fair market value of Dell's common stock.
(b) No options were in-the-money at January 30, 2009.
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