Part 3 -- Dell options --
The following table summarizes stock option activity:
FISCAL YEAR ENDED
---------------------------------------------------------
FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARE DATA IN MILLIONS)
Outstanding at beginning of year... 113 $ 3.89 94 $2.10 90 $1.13
Granted............................ 22 $27.21 43 $6.58 32 $3.91
Canceled........................... (5) $ 6.19 (7) $2.34 (8) $1.02
Exercised.......................... (20) $ 3.02 (17) $1.50 (20) $1.05
--- --- ---
Outstanding at end of year......... 110 $ 8.99 113 $3.89 94 $2.10
=== === ===
Exercisable at year-end............ 25 $11.90 19 $1.81 19 $1.30
The following is additional information relating to options outstanding as of
February 1, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
EXERCISE NUMBER AVERAGE AVERAGE NUMBER AVERAGE
PRICE OF EXERCISE CONTRACTUAL OF EXERCISE
RANGE SHARES PRICE LIFE (YEARS) SHARES PRICE
- --------------- ------ -------- ------------ ------- ---------
(SHARE DATA IN MILLIONS)
$ 0.01 - $ 1.99 28 $ 1.16 5.8 12 $ 1.38
$ 2.00 - $ 4.99 27 $ 3.61 7.5 7 $ 3.47
$ 5.00 - $ 9.99 27 $ 6.16 8.3 4 $ 6.18
$10.00 - $19.99 14 $14.08 8.9 2 $11.24
$20.00 - $50.50 14 $36.00 9.4 -- $ --
--- --
110 25
=== ==
During fiscal 1998, 1997 and 1996 the Company granted 1 million shares, 3
million shares and 6 million shares, respectively, of restricted stock. For
substantially all 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 shares typically vest over
a seven-year period beginning on the date of grant and restrictions may not
extend more than ten years from the date of grant. The Company records unearned
compensation equal to the market value of the restricted shares on the date of
grant and charges the unearned compensation to expense over the vesting period.
There were 10 million, 29 million and 68 million shares of common stock
available for future grants under the Incentive Plan at February 1, 1998,
February 2, 1997, and January 28, 1996, respectively.
The Company also has an employee stock purchase plan that qualifies under
Section 423 of the Internal Revenue Code and permits substantially all employees
to purchase shares of common stock. Participating employees may purchase common
stock through payroll deductions at the end of each participation period at a
purchase price equal to 85% of the lower of the fair market value of the common
stock at the beginning or the end of the participation period. Common stock
reserved for future employee purchases under the plan aggregated 13 million
shares at February 1, 1998, 15 million shares at February 2, 1997, and 19
million shares at January 28, 1996. Shares issued under this plan were 2 million
shares in fiscal 1998, 3 million shares in fiscal 1997 and 3 million shares in
fiscal 1996.
The weighted average fair value of stock options at date of grant was $16.26,
$3.73, and $2.22 per option for options granted during fiscal years 1998, 1997,
and 1996, respectively. Additionally, the weighted average fair value of the
purchase rights under the employee stock purchase plan granted in fiscal years
1998, 1997, and 1996 was $6.11, $2.04, and $1.01 per right, respectively. The
weighted average fair value of options was determined based on the Black-Scholes
model, utilizing the following weighted average assumptions:
FISCAL YEAR ENDED
------------------------------------------------------
FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996
---------------- ---------------- ----------------
Expected term:
Stock options................................ 5 years 5 years 5 years
Employee stock purchase plan................. 6 months 6 months 6 months
Interest rate.................................. 6.28% 6.40% 6.20%
Volatility..................................... 54.92% 56.54% 57.36%
Dividends...................................... 0% 0% 0%
Had the Company accounted for its stock option and stock purchase plans by
recording compensation expense based on the fair value at the grant date on a
straight line basis over the vesting period, stock-based compensation costs
would have reduced pretax income by $100 million ($69 million, net of taxes),
$22 million ($16 million, net of taxes) and $8 million ($6million, net of taxes)
in fiscal 1998, 1997 and 1996, respectively. The pro forma effect on diluted
earnings per common share would have been a reduction of $0.09, $0.02 and $0.01
for fiscal years 1998, 1997 and 1996, respectively. The pro forma effect on basic
earnings per common share would have been a reduction of $0.11, $0.02 and $0.01
for fiscal years 1998, 1997 and 1996, respectively.
401(k) Plan -- The Company has a defined contribution retirement 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 plan. The Company
matches 100% of each participant's voluntary contributions, subject to a maximum
Company contribution of 3% of the participant's compensation. During each of
fiscal 1998, fiscal 1997 and fiscal 1996, the Company made discretionary
contributions for every eligible employee, regardless of whether the employee
was a plan participant, equal to 2% of the employee's actual earnings during
calendar years 1997, 1996 and 1995, respectively. The Company's matching and
discretionary contributions during fiscal years 1998, 1997 and 1996 were $20
million, $13 million and $10 million, respectively.
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