IBM 2004 Annual Report Download - page 71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
69
International Business Machines Corporation and Subsidiary Companies
ibm annual report 2004
n. Stockholders’ Equity Activity
In the fourth quarter of 2002, in connection with the PwCC acquisition, the company issued
3,677,213 shares of restricted stock valued at approximately $254 million and recorded an
additional $30 million for stock to be issued in future periods as part of the purchase price
consideration paid to the PwCC partners. See note c, “Acquisitions/Divestitures,” on pages
59 and 60, for further information regarding this acquisition and related payments made
by the company. Additionally, in the fourth quarter of 2002, in conjunction with the funding
of the company’s U.S. pension plan, the company issued an additional 24,037,354 shares
of common stock from treasury shares valued at $1,871 million.
stock repurchases
From time to time, the Board of Directors authorizes the company to repurchase IBM
common stock. The company repurchased 78,562,974 common shares at a cost of
$7,275 million, 49,994,514 common shares at a cost of $4,403 million and 48,481,100
common shares at a cost of $4,212 million in 2004, 2003 and 2002, respectively. The com-
pany issued 2,840,648 treasury shares in 2004, issued 2,120,293 treasury shares in 2003
and 979,246 treasury shares in 2002, as a result of exercises of stock options by employ-
ees of certain recently acquired businesses and by non-U.S. employees. At December 31,
2004, $3,686 million of Board-authorized repurchases remained. The company plans to
purchase shares on the open market or in private transactions from time to time, depend-
ing on market conditions. In connection with the issuance of stock as part of the company’s
stock compensation plans, 422,338 common shares at a cost of $38 million, 291,921 com-
mon shares at a cost of $24 million and 189,797 common shares at a cost of $18 million in
2004, 2003 and 2002, respectively, were remitted by employees to the company in order
to satisfy minimum statutory tax withholding requirements. Such amounts are included in
the Treasury stock balance in the Consolidated Statement of Financial Position and the
Consolidated Statement of Stockholders’ Equity.
accumulated gains and (losses) not affecting retained earnings*
(Dollars in millions)
Net Net Accumulated
Unrealized Foreign Minimum Unrealized Gains/(Losses)
Losses Currency Pension (Losses)/Gains Not Affecting
on Cash Flow Translation Liability on Marketable Retained
Hedge Derivatives Adjustments Adjustment Securities Earnings
December 31, 2002 $«(363) $««««238 $«(3,291) $««(2) $«(3,418)
Change for period (91) 1,768 (162) 7 1,522
December 31, 2003 (454) 2,006 (3,453) 5 (1,896)
Change for period (199) 1,055 (1,066) 45 (165)
December 31, 2004 $«(653) $«3,061 $«(4,519) $«50 $«(2,061)
*Net of tax
net change in unrealized gains/(losses) on marketable securities (net of tax)
(Dollars in millions)
AT DECEMBER 31: 2004 2003
Net unrealized gains arising during the period $«52 $«4
Less: net gains/(losses) included in net income for the period 7(3) *
Net change in unrealized gains on marketable securities $«45 $«7
*Includes writedowns of $0.1 million and $7 million in 2004 and 2003, respectively.
The following table shows the company’s investments’ gross unrealized losses and fair
value, aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, at December 31, 2004.
(Dollars in millions)
Less than 12 Months 12 Months or More Total
Unrealized Unrealized Unrealized
Description of Securities Fair Value Losses Fair Value Losses Fair Value Losses
U.S. Treasury obligations and
direct obligations of
U.S. government agencies $«— $«— $«— $«— $«— $«—
Foreign government bonds —— 22— 22—
Corporate bonds —— —— ——
Subtotal, debt securities —— 22— 22—
Common stock 31 —— 31
Total temporarily impaired
securities $«««3 $«««1 $«22 $«— $«25 $«««1
o. Contingencies and Commitments
contingencies
The company is involved in a variety of claims, suits, investigations and proceedings that
arise from time to time in the ordinary course of its business, including actions with respect
to contracts, IP, product liability, employment, securities, and environmental matters. The
following is a discussion of some of the more significant legal matters involving the company.
On July 31, 2003, the U.S. District Court for the Southern District of Illinois, in Cooper
et al. vs. The IBM Personal Pension Plan and IBM Corporation, held that the company’s pen-
sion plan violated the age discrimination provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). On September 29, 2004, the company announced that IBM
and plaintiffs agreed in principle to resolve certain claims in the litigation. Under the terms
of the agreement, plaintiffs will receive an incremental pension benefit in exchange for the