IBM 2003 Annual Report Download - page 111

109
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
U
rental expense and lease commitments
Rental expense from continuing operations, including amounts charged to inventories and fixed assets, and excluding
amounts previously reserved, was $1,419 million in 2003, $1,377 million in 2002 and $1,324 million in 2001. The table below
depicts gross minimum rental commitments from continuing operations under noncancelable leases, amounts related to
vacant space associated with infrastructure reduction and restructuring actions taken through 1993, and in 1999 and 2002
(previously reserved), and sublease income commitments. These amounts reflect activities primarily related to office space as
well as manufacturing equipment.
(dollars in millions)
2004 2005 2006 2007 2008 BEYOND 2008
Gross minimum rental commitments
(including vacant space below) $«1,401 $«1,127 $«951 $«832 $«701 $«1,402
Vacant space 149 116 72 78 35 58
Sublease income commitments (53) (47) (32) (31) (27) (21)
V
stock-based compensation plans
The following is a description of the terms of the company’s
stock-based compensation plans:
INCENTIVE PLANS
Incentive awards are provided to employees and members of
the Board of Directors under the terms of the company’s
plans (the Plans). Employee awards are administered by the
Executive Compensation and Management Resources
Committee of the Board of Directors (the Committee). The
Committee determines the type and terms of the awards to
be granted to employees, including vesting provisions.
Awards under the Plans may include stock options, stock
appreciation rights, restricted stock, cash or stock awards, or
any combination thereof. The amount of shares authorized to
be issued under the company’s existing Plans is 274.1 million at
December 31, 2003. Certain incentive awards granted under
previous plans, if and when those awards are cancelled, can be
reissued under the company’s existing Plans. As such, 40.5 mil-
lion additional awards are considered authorized to be issued
under the company’s Plans as of December 31, 2003. There
were 87.1 million option awards outstanding under previous
plans included in the total number of shares under option at
December 31, 2003. There were 148.1 million and 183.3 million
unused shares available to be granted under the Plans as of
December 31, 2003 and 2002, respectively. Awards under the
Plans resulted in compensation expense of $117 million, $183 mil-
lion and $170 million in 2003, 2002 and 2001, respectively.
Stock Option Grants
Stock options are granted to employees and directors 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 ten years. The following tables summarize
option activity under the Plans during 2003, 2002 and 2001.
2003 2002 2001
WTD. AVG. NUMBER WTD. AVG. NUMBER WTD. AVG. NUMBER
EXERCISE OF SHARES EXERCISE OF SHARES EXERCISE OF SHARES
PRICE UNDER OPTION PRICE UNDER OPTION PRICE UNDER OPTION
Balance at January 1 $««84 222,936,700 $««85 177,956,490 $««73 160,557,003
Options granted 83 41,275,832 77 59,966,106 110 43,410,364
Options exercised 40 (11,205,228) 33 (7,490,424) 37 (20,354,701)
Options canceled/expired 100 (8,041,252) 103 (7,495,472) 100 (5,656,176)
Balance at December 31 $««86 244,966,052 $««84 222,936,700 $««85 177,956,490
Exercisable at December 31 $««85 134,735,326 $««75 108,347,895 $««62 80,773,980