NOTE 14 — STOCK-BASED COMPENSATION AND BENEFIT PLANS

Stock-based Compensation

Description of the Plans

Employee Stock Plans — Dell is currently issuing stock grants under the Dell Amended and Restated 2002 Long-Term Incentive Plan (the “2002 Incentive Plan”), which was approved by shareholders on December 4, 2007. There are previous plans that have been terminated, except for options previously granted under those plans which remain outstanding. In Fiscal 2012, in connection with a business acquisition, Dell assumed the stock incentive plan of one of its acquired companies. No future grants will be made under the assumed plan. The 2002 Incentive Plan, all previous plans, and the assumed plan are all collectively referred to as the “Stock Plans.”

The 2002 Incentive Plan provides for the grant of stock-based incentive awards to Dell's employees and non-employee directors. Awards may be incentive stock options within the meaning of Section 422 of the Internal Revenue Code, non-qualified stock options, restricted stock, restricted stock units, or performance-based restricted stock units. There were approximately 342 million, 344 million, and 320 million shares of Dell's common stock available for future grants under the 2002 Incentive Plan at February 3, 2012, January 28, 2011, and January 29, 2010, respectively. To satisfy stock option exercises and vested restricted stock awards, Dell has a policy of issuing new shares rather than repurchasing shares on the open market.

Stock Option Agreements — Stock options granted under the 2002 Incentive Plan typically vest pro-rata at each option anniversary date over a three- to five-year period. These 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. In connection with business acquisitions, during Fiscal 2012, Dell converted or assumed a small number of stock options granted under the stock incentive plans of acquired companies, which are collectively referred to as the "assumed options." These assumed options vest over a period of up to four years and generally expire within ten years from the date of assumption. Compensation expense for all stock options is recognized on a straight-line basis over the requisite service 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 units vest, which is generally over a three- to five-year period. The cost of these awards is determined using the fair market value of Dell's common stock on the date of the grant. 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 objectives and when it becomes probable that such performance objectives will be achieved.

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.

Stock Option Activity

The following table summarizes stock option activity for the Stock Plans during Fiscal 2010, Fiscal 2011, and Fiscal 2012:



	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in millions)		(per share)		(in years)	(in millions)
Options outstanding — January 30, 2009	230		$	31.85
Granted ^(a)	11		9.83
Exercised	—		12.05
Forfeited	—		14.73
Cancelled/expired	(36	)	35.59
Options outstanding — January 29, 2010	205		30.00
Granted ^(a)	17		14.82
Exercised	(1	)	9.18
Forfeited	(2	)	13.85
Cancelled/expired	(58	)	36.44
Options outstanding — January 28, 2011	161		26.49
Granted and assumed through acquisitions	28		13.79
Exercised	(4	)	9.38
Forfeited	(5	)	13.35
Cancelled/expired	(37	)	24.85
Options outstanding — February 3, 2012 ^(b)	143		25.37		4.2	$	177
Vested and expected to vest (net of estimated forfeitures) — February 3, 2012^(b)	138		$	25.72	4.1	$	163
Exercisable — February 3, 2012^(b)	108		$	29.02	2.8	$	54

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^(a)	In Fiscal 2011 and Fiscal 2010, Dell did not convert or assume any options in connection with business acquisitions.

^(b)

For options vested and expected to vest, options exercisable, and options outstanding, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Dell's closing stock price on February 3, 2012 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 February 3, 2012. The intrinsic value changes based on changes in the fair value of Dell's common stock.

In connection with Fiscal 2012 acquisitions, Dell assumed approximately 6 million stock options with a weighted-average exercise price per share of $7.38.

Information about options outstanding and exercisable at February 3, 2012 is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life	Number Exercisable	Weighted-Average Exercise Price Per Share
	(in millions)			(in years)	(in millions)
$ 0 - $9.99	8	$	7.38	3.9	3	$	7.42
$10.00 - $19.99	42	$	15.57	8.1	12	$	16.72
$20.00 - $29.99	45	$	25.86	1.8	45	$	25.86
$30.00 - $39.99	31	$	34.31	2.2	31	$	34.31
$40 and over	17	$	40.23	3.1	17	$	40.23
Total	143	$	25.37	4.2	108	$	29.02

Other information pertaining to stock options for the Stock Plans is as follows:



	Fiscal Year Ended
	February 3, 2012		January 28, 2011		January 29, 2010
	(in millions, except per option data)
Total fair value of options vested	$	56	$	13	$	—
Total intrinsic value of options exercised^(a)	$	27	$	7	$	—

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^(a)	The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the fiscal year.

At February 3, 2012, January 28, 2011, and January 29, 2010, there was $114 million, $65 million, and $28 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted-average period of 1.9 years, 2.0 years, and 2.2 years, respectively.

Valuation of Awards

For stock options granted under the 2002 Incentive Plan, Dell uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant date. For stock options assumed through business acquisitions, Dell uses the lattice binomial valuation model to estimate fair value. For a limited number of performance-based units that include a market-based condition, Dell uses the Monte Carlo simulation valuation model to estimate fair value. Stock-based compensation expense recognized for awards assumed through acquisitions as well as awards that include a market-based condition was not material for Fiscal 2012, Fiscal 2011, or Fiscal 2010.

For stock options granted under the 2002 Incentive Plan, the estimated fair values incorporate various assumptions, including volatility, expected term, and risk-free interest rates. Expected 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 granted under the 2002 Incentive Plan was determined based on the Black-Scholes option pricing model. The assumptions utilized in this model as well as the weighted-average grant date fair value of stock options granted during Fiscal 2012, Fiscal 2011, and Fiscal 2010 are presented below:



	Fiscal Year Ended
	February 3, 2012			January 28, 2011			January 29, 2010
Weighted-average grant date fair value of stock options granted per option	$	5.13		$	5.01		$	3.71
Expected term (in years)	4.6			4.5			4.5
Risk-free interest rate (U.S. Government Treasury Note)	1.9		%	2.2		%	1.8		%
Volatility	36		%	37		%	44		%
Dividends	—		%	—		%	—		%

Restricted Stock Awards

Non-vested restricted stock awards and activities For Fiscal 2010, Fiscal 2011, and Fiscal 2012 were as follows:



	Number of Shares		Weighted- Average Grant Date Fair Value
	(in millions)		(per share)
Non-vested restricted stock:
Non-vested restricted stock balance as of January 30, 2009	36		$	22.45
Granted	22		11.39
Vested^(a)	(13	)	22.78
Forfeited	(5	)	18.23
Non-vested restricted stock balance as of January 29, 2010	40		16.84
Granted	26		14.53
Vested^(a)	(17	)	19.10
Forfeited	(7	)	15.21
Non-vested restricted stock balance as of January 28, 2011	42		14.71
Granted	22		15.19
Vested^(a)	(18	)	16.47
Forfeited	(4	)	14.05
Non-vested restricted stock balance as of February 3, 2012	42		$	14.29

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^(a)

Upon vesting of restricted stock units, some of the underlying shares are generally sold to cover the required withholding taxes. However, select participants may choose the net shares settlement method to cover withholding tax requirements. Total shares withheld were approximately 426,000, 354,000, and 157,000 for Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively. Total payments for the employee's tax obligations to the taxing authorities were $6 million, $5 million, and $2 million in Fiscal 2012, 2011, and 2010, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows.

For Fiscal 2012, Fiscal 2011, and Fiscal 2010, the total estimated vest date fair value of restricted stock awards was $273 million, $250 million, and $134 million, respectively.

At February 3, 2012, January 28, 2011, and January 29, 2010, there was $348 million, $341 million, and $393 million, respectively, of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards. These awards are expected to be recognized over a weighted-average period of approximately 1.8, 1.9, and 1.8 years, respectively.

Stock-based Compensation Expense

Stock-based compensation expense was allocated as follows:



	Fiscal Year Ended
	February 3, 2012			January 28, 2011			January 29, 2010
	(in millions)
Stock-based compensation expense:
Cost of net revenue	$	59		$	57		$	47
Operating expenses	303			275			265
Stock-based compensation expense before taxes	362			332			312
Income tax benefit	(108		)	(97		)	(91		)
Stock-based compensation expense, net of income taxes	$	254		$	235		$	221

Employee Benefit Plans

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 matches 100% of each participant's voluntary contributions, subject to a maximum contribution of 5% of the participant's compensation, and participants vest immediately in all Dell contributions to the 401(k) Plan. Dell's contributions during Fiscal 2012, Fiscal 2011, and Fiscal 2010 were $153 million, $132 million, and $91 million, respectively. Dell's contributions are invested according to each participant's elections in the investment options provided under the Plan. Investment options include Dell common stock, but neither participant nor Dell contributions are required to be invested in Dell common stock. During Fiscal 2010, Dell also contributed $4 million to Perot Systems' 401(k) Plan (the "Perot Plan") after the acquisition of the company on November 3, 2009. The Perot Plan was merged into the 401(k) Plan during Fiscal 2011.

Deferred Compensation Plan — Dell has a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees and non-employee directors. The Deferred Compensation Plan permits the deferral of base salary and annual incentive bonus. The deferrals are held in a separate trust, which has been established by Dell to administer the Plan. The assets of the trust are subject to the claims of Dell's creditors in the event that Dell becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (known as a “Rabbi Trust”). In accordance with the accounting provisions for deferred compensation arrangements where amounts earned are held in a Rabbi Trust and invested, the assets and liabilities of the Deferred Compensation Plan are presented in Long-term investments and Accrued and other liabilities, respectively, in the Consolidated Statements of Financial Position. The assets held by the trust are classified as trading securities with changes recorded to Interest and other, net. These assets were valued at $105 million at February 3, 2012, and are disclosed in Note 3 of the Notes to Consolidated Financial Statements. Changes in the deferred compensation liability are recorded to compensation expense.