IBM 2007 Annual Report Download - page 104

102
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Management Discussion ..................................14
Consolidated Statements ..................................14
Notes ........................................................... 64
A-F ...................................................................64
G-M ..................................................................84
N-S ............................................................. 94
T-W ........................................................... 102
T. Stock-Based Compensation ................ 102
U. Retirement-Related Benefits ....................105
V. Segment Information ................................116
W. Subsequent Events ....................................119
reductions and restructuring actions taken through 1993, and in 1999,
2002 and 2005 (previously reserved), sublease income commitments
and capital lease commitments. These amounts reflect activities pri-
marily related to office space, as well as manufacturing facilities.
($ in millions)
2008 2009 2010 2011 2012 BEYOND 2012
Operating lease commitments:
Gross minimum rental commitments
(including Vacant space below) $1,220 $1,106 $852 $636 $507 $753
Vacant space $ 37 $ 32 $ 24 $ 23 $ 20 $ 63
Sublease income commitments $ 75 $ 54 $ 43 $ 25 $ 15 $ 13
Capital lease commitments $ 88 $ 68 $ 66 $ 22 $ 14 $ 38
lease term. Contingent rentals are included in the determination of
rental expense as accruable. The table below depicts gross minimum
rental commitments from continuing operations under noncancelable
leases, amounts related to vacant space associated with infrastructure
Note T. Stock-Based Compensation
Stock-based compensation cost is measured at grant date, based on
the fair value of the award, and is recognized over the employee
requisite service period. See note A, “Significant Accounting Policies,”
on page 70 for additional information.
The following table presents total stock-based compensation cost
included in the Consolidated Statement of Earnings:
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
Cost $ 166 $ 216 $ 330
Selling, general and administrative* 480 541 606
Research, development and engineering 68 89 107
Other (income) and expense** (1) — (8)
Pre-tax stock-based compensation cost 713 846 1,035
Income tax benefits (248) (305) (349)
Total stock-based compensation cost $ 464 $ 541 $ 686
* Includes $7 million of credits recorded during the year ended December 31, 2005, as a result
of awards forfeited in connection with the second-quarter 2005 workforce resource actions.
** Reflects the one-time effects of the divestiture of the Personal Computing business in the
second quarter of 2005 and the divestiture of the Printing Systems business in the second
quarter of 2007.
Total unrecognized compensation cost related to non-vested awards
at December 31, 2007 and 2006 was $1,101 million and $1,238 million,
respectively, and is expected to be recognized over a weighted-aver-
age period of approximately three years.
There was no significant capitalized stock-based compensation
cost at December 31, 2007, 2006 and 2005.
Incentive Awards
Stock-based incentive awards are provided to employees under the
terms of the company’s plans (the “Plans”). The Plans are administered
by the Executive Compensation and Management Resources Com-
mittee of the Board of Directors (the “Committee”). Awards under
the Plans principally include at-the-money stock options, restricted
stock units, performance stock units, stock appreciation rights or any
combination thereof. The nonmanagement members of the IBM
Board of Directors also received stock options under a director stock
option plan through December 31, 2006. The director stock option
plan was terminated effective January 1, 2007.
The amount of shares originally authorized to be issued under the
company’s existing Plans was 274.1 million at December 31, 2007 and
2006. In addition, certain incentive awards granted under previous
plans, if and when those awards were canceled, could be reissued
under the company’s existing Plans. As such, 46.7 million and 45.9
million additional awards were considered authorized to be issued
under the company’s existing Plans as of December 31, 2007 and
2006, respectively. There were 34.8 million and 51.6 million option
awards outstanding (which were included in the total options out-
standing at December 31, 2007 and 2006, respectively) under previous
plans that, if and when canceled, would increase the number of
authorized shares. There were 131.4 million and 131.8 million
unused shares available to be granted under the Plans as of December
31, 2007 and 2006, respectively.
Under the company’s long-standing practices and policies, all
stock option awards are approved prior to or on the date of grant. The
exercise price of at-the-money stock options is the average of the high
and low market price on the date of grant. The options approval pro-
cess specifies the individual receiving the grant, the number of options