IBM 2001 Annual Report Download - page 97

Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION
and Subsidiary Companies
95
IBM EMPLOYEES STOCK PURCHASE PLAN
The IBM Employees Stock Purchase Plan (ESPP) enables
substantially all regular employees to purchase full or frac-
tional 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 business 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 finan-
cial condition. Approximately 16.5 million, 26.3 million and
57.3 million reserved unissued shares were available for
purchase under ESPP at December 31, 2001, 2000 and
1999, respectively.
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:
2001 2000 1999
(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 $«7,713 $«6,474 $«8,073 $«7,183 $«7,692 $«7,044
Earnings per share of common stock :
A ssuming dilution $«««4.35 $«««3.69 $«««4.44 $«««3.99 $«««4.12 $«««3.78
Basic $÷«4.45 $«««3.74 $«««4.58 $«««4.07 $«««4.25 $«««3.89
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 December 31, 2001, 2000 and 1999.
The fair market value of stock option grants is estimated using the Black-Scholes option-pricing model with the follow-
ing assumptions:
2001 2000 1999
Te rm (years)*4/54/55/6
Volatility** 37.7% 32.0% «27.3%
Risk-free interest rate (zero coupon U.S. treasury note) 4.4% 5.1% 6.6%
Dividend yield 0.5% 0.5% 0.4%
Weighted-average fair value per option $«««42 $«««36 $«««46
*Option term is 4 years for tax incentive options and 5 years for non-tax incentive options for the years ended December 31, 2001 and 2000. Option term is 5 years for tax
incentive options and 6 years for non-tax incentive options for the year ended December 31, 1999.
** 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.
The shares under option at December 31, 2001, were in the following exercise price ranges:
Options Outstanding Options Currently Exercisable
Wtd. Avg.
Remaining
Wtd. Avg. Contractual Wtd. Avg.
Exercise Price Range Exercise Price No. of Options Life (in years) Exercise Price No. of Options
$ 12 — 50 $««28 35,220,555 4 $««28 34,918,554
$ 51 — 90 63 38,048,214 6 60 24,215,708
$ 91 — 110 104 53,168,401 9 105 9,934,212
$ 111 and over 122 51,519,320 9 131 11,705,506
$««85 177,956,490 7 $««62 80,773,980