Dell 2006 Annual Report Download - page 91

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The 2002 Incentive Plan provides for the granting of stock-based incentive awards to Dell's employees, non-employee
directors, and certain consultants and advisors to Dell. Awards may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, nonqualified stock options, restricted stock, or restricted stock units. There were
approximately 271 million, 272 million, and 291 million shares of Dell's common stock available for future grants under the
Stock Plans at February 2, 2007, February 3, 2006, and January 28, 2005, respectively. To satisfy stock option exercises,
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 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. Dell has not issued any options to consultants or advisors to Dell since Fiscal 1999. In conjunction with the adoption
of SFAS 123(R) in the first quarter of Fiscal 2007, Dell changed its method of attributing the value of stock-based
compensation expense from an accelerated approach to a straight-line method. Compensation expense for all stock option
awards granted on or prior to February 3, 2006 is recognized using an accelerated approach with the exception of stock
options granted in Fiscal 2002 and Fiscal 2003, for which compensation expense is recognized using a straight-line method.
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 five- to seven-year period beginning on the date of 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 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 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. In accordance with SFAS
123(R), deferred compensation related to restricted stock awards issued prior to Fiscal 2007, which was previously classified
as "other" in stockholders' equity, was classified as capital in excess of par value upon adoption.
Temporary Suspension of Option Exercises, Vesting of Restricted Stock Units, and 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 vesting of restricted stock units, and the purchase of shares under the ESPP. Dell expects to resume the
exercise of employee stock options by employees, the vesting of restricted stock units, and the purchase of shares under the
ESPP when it is again current in its reporting obligations under the Securities Exchange Act of 1934.
Dell agreed to pay cash to certain current and former employees who held in-the-money stock options (options that have an
exercise price less than the current stock market price) that expired during the period of unexercisability. Within 45 days after
Dell files its Annual Report on Form 10-K for Fiscal 2007, Dell will make payments relating to in-the-money stock options that
expired in the second and third quarters of
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