IBM 1999 Annual Report Download - page 86

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
84
V Stock-Based Compensation Plans
The company applies Accounting Principles Board (APB)
Opinion No. 25, “Accounting for Stock Issued to Employees,”
and related Interpretations in accounting for its stock-based
compensation plans. A description of the terms of the com-
pany’s stock-based compensation plans follows:
Long-Term Performance Plan
Incentive awards are provided to officers and other key employ-
ees under the terms of the IBM 1999 Long-Term Performance
Plan, which was approved by stockholders in April 1999, the
IBM 1997 Long-Term Performance Plan, which was approved by
stockholders in April 1997, and its predecessor plan, the IBM
1994 Long-Term Performance Plan (“the Plans”). The Plans are
administered by the Executive Compensation and Management
Resources Committee 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 1999 Long-Term Performance Plan is 118.7 million, which
was 6.5 percent of the company’s outstanding common stock on
February 10, 1999. No shares were issued under this Plan during
1999. There were 33.7 million and 68.8 million unused shares
available to be granted under the IBM 1997 Long-Term Perform-
ance Plan as of December 31, 1999 and 1998, respectively. As of
December 31, 1999, there were no unused shares under the IBM
1994 Long-Term Performance Plan. There were 4.1 million shares
available to be granted under that Plan as of December 31, 1998.
With the exception of stock options, 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 $267.3 million, $322.4 million and $214.1 million in
1999, 1998 and 1997, respectively.
STOCK OPTION GRANTS
Stock options are granted to employees at an exercise price
equal to the fair market value of the company’s stock at the
date of grant. Generally, options vest 25 percent per year, are
fully vested four years from the grant date and have a term of
10 years. The following tables summarize option activity under
the Plans during 1999, 1998 and 1997:
1999 1998 1997
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise No. of Shares Exercise No. of Shares Exercise No. of Shares
Price under Option Price under Option Price under Option
Balance at January 1 $««36 131,443,850 $«27 123,456,722 $«22 122,870,644
Options granted 115 42,786,845 53 41,175,350 36 42,942,456
Options exercised 28 (23,160,228) 22 (29,633,476) 21 (39,260,010)
Options canceled/ expired 61 (4,933,944) 36 (3,554,746) 28 (3,096,368)
Balance at December 31 $««60 146,136,523 $«36 131,443,850 $«27 123,456,722
Exercisable at December 31 $««29 51,599,735 $«22 46,191,636 $«19 53,239,096
The shares under option at December 31, 1999, were in the following exercise price ranges:
Options Outstanding Options Currently Exercisable
Wtd. Avg.
Wtd. Avg. Remaining Wtd. Avg.
No. of Exercise Contractual No. of Exercise
Exercise Price Range Options Price Life (in years) Options Price
$10 – 40 64,827,422 $«28 6 42,694,829 $«24
$41 – 70 37,007,973 52 8 8,234,965 52
$71 – 100 17,135,848 87 9 664,991 76
$101 and over 27,165,280 127 10 4,950 126
146,136,523 $«60 51,599,735 $«29