IBM 1998 Annual Report Download - page 81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS International Business Machines Corporation and Subsidiary Companies
79
Stock options to purchase 2,062,365 shares in 1998, 165,833
shares in 1997 and 784,141 shares in 1996 were outstanding, but
were not included in the computation of diluted earnings per
share because the options’ exercise price was greater than the
average market price of the common shares, and therefore, the
VStock-Based Compensation Plans
The company applies Accounting Principles Board (APB)
Opinion No. 25 and related Interpretations in accounting for its
stock-based compensation plans. A description of the terms
of the company’s stock-based compensation plans follows:
Long-Term Performance Plan
Incentive awards are provided to officers and other key
employees under the terms of the IBM 1997 Long-Term Per-
formance Plan, which was approved by stockholders in April
1997, and its predecessor plan, the 1994 Long-Term Perfor-
mance Plan (“the Plans”). The Plans are administered by the
Executive Compensation and Management Resources Com-
mittee of the Board of Directors. The committee determines
the type and terms of the awards to be granted, including
vesting provisions.
Awards may include stock options, stock appreciation rights,
restricted stock, cash or stock awards, or any combination
thereof. The number of shares that may be issued under the
IBM 1997 Long-Term Performance Plan for awards is 50.3 mil-
lion, which was 5 percent of the outstanding common stock on
February 10, 1997. There were 34.3 million and 46.4 million
unused shares available for granting under the IBM 1997 Long-
Term Performance Plan as of December 31, 1998 and 1997,
respectively, and approximately 2.0 and 9.0 million shares
available for granting under the 1994 Long-Term Performance
Plan at December 31, 1998 and 1997, respectively.
These awards, which are expressed in terms of shares, are
adjusted to fair value at the end of each period and the change
in value is included in net income. Awards under the Plans
resulted in compensation expense of $322.4 million, $214.1 mil-
lion and $203.9 million in 1998, 1997 and 1996, respectively.
effect would be antidilutive. In addition, 2,565,519 restricted
stock units in 1998 relating to the company’s Long-Term
Performance Plan were not included in the computation of
diluted earnings as their effect would be antidilutive.
TEarnings Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share.
For the year ended December 31: 1998 1997 1996
Number of shares on which basic earnings per share is calculated:
Average outstanding during year 934,502,785 983,286,361 1,056,704,188
Add— Incremental shares under stock
compensation plans 25,562,450 27,648,581 23,004,716
Number of shares on which diluted earnings per share is calculated 960,065,235 1,010,934,942 1,079,708,904
Net income (millions) $«6,328 $«6,093 $«5,429
Less— Preferred stock dividends (millions) 20 20 20
Net income on which basic and diluted earnings per share
are calculated (millions) $«6,308 $«6,073 $«5,409
Basic earnings per share $«««6.75 $«««6.18 $«««5.12
Diluted earnings per share $«««6.57 $«««6.01 $«««5.01
URental Expense and Lease Commitments
Rental expense, including amounts charged to inventories and fixed assets and excluding amounts previously reserved, was
$1,431 million in 1998, $1,280 million in 1997 and $1,210 million in 1996. The table below depicts gross minimum rental commitments
under noncancelable leases, amounts related to vacant space that the company has reserved and sublease income commitments.
These amounts generally reflect activities related to office space and manufacturing equipment.
Beyond
(Dollars in millions) 1999 2000 2001 2002 2003 2003
Gross rental commitments $«1,398 $«1,242 $«1,085 $«877 $«623 $«1,417
Vacant space 205 188 150 98 59 222
Sublease income commitments 165 140 122 64 35 66