IBM 2000 Annual Report Download - page 87

page no.
eighty-five
notes to consolidated financial statements
international business machines corporation
and Subsidiary Companies
2000 1999 1998
(dollars in millions except per share amounts) As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income applicable to
common stockholders $«8,073 $«7,183 $«7,692 $«7,044 $«6,308 $«5,985
Earnings per share of common stock :
Assuming dilution $«««4.44 $«««3.99 $«««4.12 $«««3.78 $«««3.29 $«««3.12
Basic $÷«4.58 $«««4.07 $«««4.25 $«««3.89 $«««3.38 $«««3.20
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. Effective July 1,
2000, ESPP was amended whereby the share price paid by an
employee changed from 85 percent of the average market
price on the last business day of each pay period, to the lesser
of 85 percent of the average market price on the first busi-
ness day of each offering period or 85 percent of the average
market price on the last business day of each pay period. The
current plan provides semi-annual offerings over the five-
year period commencing July 1, 2000. ESPP participants are
restricted from purchasing more than $25,000 of common
stock in one calendar year or 1,000 shares in an offering
period. This change is not expected to have a significant
effect on the company’s financial condition. The stockholders
approved the current plan in 2000. Approximately 26.3 mil-
lion, 57.3 million and 63.0 million reserved unissued shares
were available for purchase under ESPP at December 31,
2000, 1999 and 1998, respectively. Shares for ESPP may be
sourced from authorized but unissued shares, treasury shares
or shares repurchased from time to time.
Pursuant to the provisions of the ESPP, during 2000,
1999 and 1998, employees paid $621 million, $514 million
and $415 million, respectively, to purchase 6.9 million, 5.7
million and 8.0 million shares, respectively, all of which were
treasury 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 at the grant date 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.
The pro forma amounts that are disclosed in accordance
with SFAS No. 123 reflect the portion of the estimated fair
value of awards that was earned for the years ended Dec-
ember 31, 2000, 1999 and 1998.
The fair market value of stock option grants is estimated
using the Black-Scholes option-pricing model with the
fol lowing assumptions:
2000 1999 1998
Term (years)*4/55/65/6
Volatility** 32.0% 27.3% 26.4%
Risk-free interest rate (zero
coupon U.S. treasury note) 5.1% 6.6% 5.1%
Dividend yield 0.5% 0.4% 0.8%
Weighted-average fair
value per option $«36 $«46 $«18
*Option term is 4 years for tax incentive options and 5 years for non-tax incentive
options for the year ended December 31, 2000. Option term is 5 years for tax
incentive options and 6 years for non-tax incentive options for the years ended
December 31, 1999 and 1998.
** To determine volatility, the company measured the daily price changes of the stock
over the respective term for tax incentive options and non-tax incentive options.
VRETIREMENT PLANS
The company and its subsidiaries have defined benefit and
defined contribution retirement plans that cover substan-
tially all regular employees, and a supplemental retirement
plan that covers certain executives. Total retirement plan
(income)/cost for the years ended December 31, 2000, 1999
and 1998, was $(728) million, $(288) million and $(89) mil-
lion, respectively. Total retirement-related (income)/cost
including postretirement medical coverage (see note W,
“Nonpension Postretirement Benefits,” on pages 88 and 89)
for the years ended December 31, 2000, 1999 and 1998, was
$(327) million, $83 million and $286 million, respectively.
U.S. Plans
U.S. regular, full-time and part-time employees are covered
by a noncontributory plan that is funded by company con-
tributions to an irrevocable trust fund, which is held for the
sole benefit of participants.