IBM 2010 Annual Report Download - page 111

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 109
($ in millions)
2011 2012 2013 2014 2015 Beyond 2015
Operating lease commitments:
Gross minimum rental commitments
(including vacant space below) $1,521 $1,184 $917 $732 $518 $638
Vacant space $ 46 $ 24 $ 6 $ 6 $ 5 $ 3
Sublease income commitments $ 40 $ 21 $ 12 $ 8 $ 5 $ 7
Capital lease commitments $ 25 $ 21 $ 45 $ 8 $ 8 $ 5
Note S.
Rental Expense and
Lease Commitments
Rental expense, including amounts charged to inventories and
fixed assets, and excluding amounts previously reserved, was
$1,727 million in 2010, $1,677 million in 2009 and $1,681 million in
2008. Rental expense in agreements with rent holidays and sched-
uled rent increases is recorded on a straight-line basis over the
Note T.
Stock-Based Compensation
Stock-based compensation cost is measured at grant date, based
on the fair value of the award, and is recognized over the employee
requisite service period. See note A, “Significant Accounting Policies,”
on page 74 for additional information.
The following table presents total stock-based compensation
cost included in the Consolidated Statement of Earnings.
($ in millions)
For the year ended December 31: 2010 2009 2008
Cost $ 94 $ 94 $ 116
Selling, general and administrative 488 417 484
Research, development and engineering 48 47 58
Other (income) and expense* (1) — —
Pre-tax stock-based compensation cost 629 558 659
Income tax benefits (240) (221) (224)
Total stock-based
compensation cost $ 389 $ 337 $ 435
* Reflects the one-time effects of the sale of the Product Lifecycle Management
activities.
Total unrecognized compensation cost related to non-vested awards
at December 31, 2010 and 2009 was $1,044 million and $1,082
million, respectively, and is expected to be recognized over a
weighted-average period of approximately 2.5 years.
There was no significant capitalized stock-based compensation
cost at December 31, 2010, 2009 and 2008.
Incentive Awards
Stock-based incentive awards are provided to employees under
the terms of the company’s long-term performance plans (the
“Plans”). The Plans are administered by the Executive Compen-
lease term. Contingent rentals are included in the determination
of rental expense as accruable. The table below depicts gross
minimum rental commitments under noncancelable leases, amounts
related to vacant space associated with infrastructure reductions
and special actions taken through 1994, and in 1999, 2002 and 2005
(previously reserved), sublease income commitments and capital
lease commitments. These amounts reflect activities primarily related
to office space, as well as manufacturing facilities.
sation and Management Resources Com mittee of the Board of
Directors (the “Committee”). Awards available under the Plans prin-
cipally include stock options, restricted stock units, performance
share units or any combination thereof. The non-management mem-
bers of the IBM Board of Directors also received stock options under
a director stock option plan through December 31, 2006. The direc-
tor 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,
2010. 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, 66.2 million additional
awards were considered authorized to be issued under the com-
pany’s existing Plans as of December 31, 2010. There were 130.7
million unused shares available to be granted under the Plans as
of December 31, 2010.
Under the company’s long-standing practices and policies, all
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
process specifies the individual receiving the grant, the number
of options or the value of the award, the exercise price or formula
for determining the exercise price and the date of grant. All awards
for senior management are approved by the Committee. All awards
for employees other than senior management are approved by
senior management pursuant to a series of delegations that were
approved by the Committee, and the grants made pursuant to
these delegations are reviewed periodically with the Committee.
Awards that are given as part of annual total compensation for
senior management and other employees are made on specific
cycle dates scheduled in advance. With respect to awards given
in connection with promotions or new hires, the company’s policy
requires approval of such awards prior to the grant date, which is
typically the date of the promotion or the date of hire.