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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
82_ NotestoConsolidatedFinancialStatements
S.EarningsPerShareofCommonStock
Thefollowingtablesetsforththecomputationofbasicanddilutedearningspershareofcommonstock:
FORTHEYEARENDEDDECEMBER31: 2005 2004 2003
Weighted-averagenumberofsharesonwhichearningsper
sharecalculationsarebased:
Basic 1,600,591,264 1,674,959,086 1,721,588,628
Add—incrementalsharesunderstockcompensationplans 23,204,175 26,905,053 26,156,340
Add—incrementalsharesassociatedwithconvertiblenotes 3,791,228 4,273,541 4,695,956
Add—incrementalsharesassociatedwithcontingentlyissuableshares 45,995 1,094,028 406,818
Assumingdilution 1,627,632,662 1,707,231,708 1,752,847,742
(Dollarsinmillionsexceptpershareamounts)
Basic:
Incomefromcontinuingoperations $«7,994 $«7,497 $«6,588
Lossfromdiscontinuedoperations (24) (18) (30)
Cumulativeeffectofchangeinaccountingprinciple** (36) ——
Netincomefromtotaloperationsonwhichbasicearnings
pershareiscalculated $«7,934 $«7,479 $«6,558
Assumingdilution:
Incomefromcontinuingoperations $«7,994 $«7,497 $«6,588
Net loss applicabletocontingentlyissuableshares liability (2) ——
Lossfromdiscontinuedoperations (24) (18) (30)
Cumulativeeffectofchangeinaccountingprinciple** (36) ——
Netincomefromtotaloperationsonwhichdilutedearnings
pershareiscalculated $«7,932 $«7,479 $«6,558
Earnings/(loss)pershareofcommonstock:
Assumingdilution:
Continuingoperations $«««4.91 $«««4.39 $«««3.76
Discontinuedoperations ««(0.01) «««(0.01) «««(0.02)
Beforecumulativeeffectofchangeinaccountingprinciple «««4.90 4.38 3.74
Cumulativeeffectofchangeinaccountingprinciple** (0.02) ——
Total $«««4.87* $«««4.38 $«««3.74
Basic:
Continuingoperations $«««4.99 $«««4.48 $«««3.83
Discontinuedoperations (0.02) (0.01) (0.02)
Beforecumulativeeffectofchangeinaccountingprinciple «««4.98* «««4.47 «««3.81
Cumulativeeffectofchangeinaccountingprinciple** (0.02) ——
Total $«««4.96 $«««4.47 $«««3.81
* Doesnottotalduetorounding.
** ReflectsimplementationofFASBInterpretationNo.47.Seenote B,“AccountingChanges,” onpages61 and62 foradditionalinformation.
Stock options to purchase 165,615,293 common shares in 2005,133,220,730 common shares in 2004 and 124,840,510 common
sharesin2003wereoutstanding,butwerenotincludedinthecomputationofdilutedearningspersharebecausetheexerciseprice
oftheoptionswasgreaterthantheaveragemarketpriceofthecommonsharesforthefullyearand,therefore,theeffectwouldhave
beenantidilutive.