IBM 1999 Annual Report Download - page 87

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
85
IBM Employees Stock Purchase Plan
The IBM Employees Stock Purchase Plan (ESPP) enables
substantially all regular employees to purchase full or fractional
shares of IBM common stock through payroll deductions of up
to 10 percent of eligible compensation. The price an employee
pays is 85 percent of the average market price on the last day
of the applicable pay period. The stockholders approved the
current plan in 1995. Approximately 57.3 million, 63.0 million
and 71.0 million reserved unissued shares were available for
purchase under the ESPP at December 31, 1999, 1998 and
1997, respectively.
During 1999, 1998 and 1997, employees purchased 5.7 million,
8.0 million and 9.4 million shares, respectively, all of which were
The pro forma amounts that are disclosed in accordance with
SFAS 123 reflect the portion of the estimated fair value of awards
that was earned in 1999, 1998 and 1997.
The company used the Black-Scholes model to value the stock
options that it granted in 1999, 1998 and 1997. The assumptions
that the company used to estimate the fair value of the options
and the weighted-average estimated fair value of an option on
the date of grant are as follows:
1999 1998 1997
Term (years)*5/ 6 5/ 6 5/ 6
Volatility** 27.3% 26.4% 23.0%
Risk-free interest rate (zero
coupon U.S. treasury note) 6.6% 5.1% 6.2%
Dividend yield 0.4% 0.8% 1.0%
Weighted-average fair
value per option $«46 $«18 $«13
*Option term is 5 years for tax incentive options and 6 years for non-tax
incentive options.
**To determine volatility, the company measured the daily price changes of
the stock over the last 5- and 6-year periods for tax incentive options and
non-tax incentive options, respectively.
treasury shares, and paid to IBM $514 million, $415 million and
$354 million, respectively, for these shares.
Pro Forma Disclosure
In accordance with APB Opinion No. 25, the company does not
recognize expense for stock options granted under the Plans or
for employee stock purchases under the ESPP. SFAS No. 123,
“Accounting for Stock-Based Compensation,” requires a company
to determine the fair market value of all awards of stock-based
compensation using an option-pricing model and to disclose
pro forma net income and earnings per share as if the resulting
stock-based compensation amounts were recorded in the
Consolidated Statement of Earnings. The table below presents
these pro forma disclosures.
1999 1998 1997
(Dollars in millions except per share amounts) As reported Pro forma As reported Pro forma As reported Pro forma
Net income applicable to
common shareholders $«7,692 $«7,044 $«6,308 $«5,985 $«6,073 $«5,866
Earnings per share of
common stock—assuming dilution $«««4.12 $«««3.78 $«««3.29 $«««3.12 $«««3.00 $«««2.91
Earnings per share of
common stock—basic $÷«4.25 $«««3.89 $«««3.38 $«««3.20 $«««3.09 $«««2.98