Dell 2008 Annual Report Download - page 80

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expense Information under SFAS 123(R)
Stock-based compensation expense was allocated as follows:
Fiscal Year Ended
January 30, February 1, February 2,
2009 2008 2007
(in millions)
Cost of net revenue $ 62 $ 62 $ 59
Operating expenses 356 374 309
Stock-based compensation expense before taxes 418 436 368
Income tax benefit (131) (127) (110)
Stock-based compensation expense, net of income taxes $ 287 $ 309 $ 258
Stock-based compensation in the table above includes $104 million of expense for accelerated options and a reduction of $1 million for the release
of the accrual for expired stock options in Fiscal 2009 and $107 million of cash expense in Fiscal 2008 for expired stock options, as previously
discussed.
Stock-based compensation expense is based on awards expected to vest, reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Valuation Information
SFAS 123(R) requires the use of a valuation model to calculate the fair value of stock option awards. Dell has elected to use the Black-Scholes
option pricing model, which incorporates various assumptions, including volatility, expected term, and risk-free interest rates. The volatility is based
on a blend of implied and historical volatility of Dell's common stock over the most recent period commensurate with the estimated expected term of
Dell's stock options. Dell uses this blend of implied and historical volatility, as well as other economic data, because management believes such
volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and
conditions of the stock awards granted to employees. The dividend yield of zero is based on the fact that Dell has never paid cash dividends and has
no present intention to pay cash dividends.
The weighted-average fair value of stock options and purchase rights under the employee stock purchase plan was determined based on the Black-
Scholes option pricing model weighted for all grants utilizing the assumptions in the following table:
Fiscal Years Ended
January 30, February 1, February 2,
2009 2008 2007
Expected term:
Stock options 3.6 years 3.5 years 3.6 years
Employee stock purchase plan N/A(a) N/A(a) 3 months
Risk-free interest rate (U.S. Government Treasury Note) 2.3% 4.4% 4.8%
Volatility 37% 27% 26%
Dividends 0% 0% 0%
(a) No purchase rights were granted under the ESPP in Fiscal 2009 and Fiscal 2008 due to Dell suspending the ESPP on April 4, 2007, and subsequently discontinuing the plan
effective the first quarter of Fiscal 2009 as a part of an overall assessment of its benefits strategy.
401(k) Plan — Dell has a defined contribution retirement plan (the "401(k) Plan") that complies with Section 401(k) of the Internal Revenue Code.
Substantially all employees in the U.S. are eligible to participate in the 401(k) Plan. Effective January 1, 2008, Dell
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