IBM 2005 Annual Report Download - page 85
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
84_ NotestoConsolidatedFinancialStatements
Thefollowingtable summarizes optionactivityunderthePlansduring2005,2004 and2003.
2005 2004 2003
WTD. AVG. WTD. AVG. WTD. AVG.
EXERCISE NO. OFSHARES EXERCISE NO. OFSHARES EXERCISE NO. OFSHARES
PRICE UNDEROPTION PRICE UNDEROPTION PRICE UNDEROPTION
BalanceatJanuary1 $««89 249,347,906 $«86 244,966,052 $««84 222,936,700
Optionsgranted 100 13,016,765 97 26,537,055 83 41,275,832
Optionsexercised 47 (11,690,186) 47 (14,035,038) 40 (11,205,228)
Optionscanceled/expired 97 (14,604,445) 93 (8,120,163) 100 (8,041,252)
BalanceatDecember31 $««91 236,070,040 $«89 249,347,906 $««86 244,966,052
ExercisableatDecember31 $««92 176,962,180 $«89 159,607,886 $««85 134,735,326
DuringtheyearsendedDecember 31,2005 and 2004,the company granted approximately12.5millionand5.0millionstockoptions,
respectively,withexercisepricesgreaterthanthestockpriceatthedateofgrant.Thesestockoptionshadweighted-averageexercise
prices of$100and$106fortheyearsendedDecember31,2005and2004,respectively,andareincludedinthetableabove.
ThesharesunderoptionatDecember31,2005,wereinthefollowingexercisepriceranges:
OPTIONSOUTSTANDING
WTD. AVG.
WTD. AVG. NUMBER AGGREGATE REMAINING
EXERCISE OFSHARES INTRINSIC CONTRACTUAL
EXERCISEPRICERANGE PRICE UNDEROPTION VALUE LIFE(INYEARS)
$26-$60 $««48 35,593,399 $«1,212,877,220 3
$61-$85 77 50,945,363 264,034,471 7
$86-$105 98 86,319,099 — 7
$106andover 117 63,212,179 — 5
$««91 236,070,040 $«1,476,911,691 6
OPTIONS EXERCISABLE
WTD. AVG.
WTD. AVG. NUMBER AGGREGATE REMAINING
EXERCISE OFSHARES INTRINSIC CONTRACTUAL
EXERCISEPRICERANGE PRICE UNDEROPTION VALUE LIFE(INYEARS)
$26-$60 $««47 32,957,932 $«1,156,119,178 2
$61-$85 76 29,865,255 185,271,642 7
$86-$105 98 50,977,898 — 5
$106andover 117 63,161,095 — 5
$««92 176,962,180 $«1,341,390,820 5
upontheprobabilityofachievementofperformancetargets.The
ultimatenumberofsharesissuedandtherelatedcompensation
costrecognizedasexpensewillbebasedonacomparisonofthe
finalperformancemetricstothespecifiedtargets.
A majority of stock-based compensation expense for the
yearsendedDecember31,2005,2004and2003wasgenerated
from stock options. Stock options are awards which allow the
employeetopurchasesharesofthecompany’sstockatafixed
price.Stockoptionsaregrantedatanexercisepriceequaltoor
greaterthanthecompanystockpriceatthedateofgrant.These
awards,whichgenerallyvest25percentperyear,arefullyvested
fouryearsfromthegrantdateandhaveacontractualtermoften
years. In 2004, the company implemented a new stock-based
program for its senior executives, designed to drive improved
performanceandincreasetheownershipexecutiveshaveinthe
company. Under this program, the company’s top executives
receivestockoptionspricedata10percentpremiumtotheaver-
age market price of IBM stock on the grant date. In addition,
these executives have the opportunity to receive at-the-money
optionsbyagreeingtodeferacertainpercentageoftheirannual
incentivecompensationintoIBMequity,whereitisheldforthree
yearsoruntilretirement.In2005,thisprogramwasexpandedto
coverallexecutivesofthecompany.Optionsunderthisprogram
become100percentvested threeyears fromthe dateofgrant
andhaveacontractualtermoftenyears.