Dell 2010 Annual Report Download - page 105

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
344 million, 320 million, and 313 million shares of Dell's common stock available for future grants under the Stock Plans at January 28,
2011, January 29, 2010, and January 30, 2009, respectively. To satisfy stock option exercises and vested restricted stock awards, Dell has
a policy of issuing new shares as opposed to repurchasing shares on the open market.
Stock Option Agreements — The right to purchase shares pursuant to existing stock option agreements typically vests pro-rata at each
option anniversary date over a three- to five-year period. The options, which are granted with option exercise prices equal to the fair
market value of Dell's common stock on the date of grant, generally expire within ten to twelve years from the date of grant.
Compensation expense for stock options is recognized on a straight-line basis over the requisite services period.
Restricted Stock Awards — Awards of restricted stock may be either grants of restricted stock, restricted stock units, or performance-
based stock units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant, the recipient has all rights of a
stockholder, subject to certain restrictions on transferability and a risk of forfeiture. Restricted stock grants typically vest over a three- to
seven-year period beginning on the date of the grant. For restricted stock units, legal ownership of the shares is not transferred to the
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
employee's continuing employment through the vesting period, which is generally over a three- to five-year period. Compensation costs
recorded in connection with these performance-based restricted stock units are 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 costs for restricted stock awards with a service condition is recognized on a straight-line basis over the requisite service
period. Compensation costs 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.
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