IBM 2011 Annual Report Download - page 120

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies118
($ in millions)
2012 2013 2014 2015 2016 Beyond 2016
Operating lease commitments
Gross minimum rental commitments
(including vacant space below) $1,562 $1,324 $1,000 $689 $443 $613
Vacant space $ 29 $ 10 $ 9 $ 7 $ 3 $ 1
Sublease income commitments $ 29 $ 14 $ 9 $ 5 $ 4 $ 8
Capital lease commitments $ 19 $ 28 $ 13 $ 14 $ 7 $ 5
Note Q.
Rental Expense and Lease Commitments
Rental expense, including amounts charged to inventories and
fixed assets, and excluding amounts previously reserved, was
$1,836 million in 2011, $1,727 million in 2010 and $1,677 million in 2009.
Rental expense in agreements with rent holidays and scheduled rent
increases is recorded on a straight-line basis over the lease term.
Note R.
Stock-Based Compensation
Stock-based compensation cost is measured at grant date, based
on the fair value of the award, and is recognized over the employee
requisite service period. See note A, “Significant Accounting Policies,”
on page 82 for additional information.
The following table presents total stock-based compensation
cost included in the Consolidated Statement of Earnings.
($ in millions)
For the year ended December 31: 2011 2010 2009
Cost $ 120 $ 94 $ 94
Selling, general and administrative 514 488 417
Research, development
and engineering 62 48 47
Other (income) and expense* — (1) —
Pre-tax stock-based
compensation cost 697 629 558
Income tax benefits (246) (240)(221)
Total stock-based
compensation cost $ 450 $ 389 $ 337
* 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, 2011 and 2010 was $1,169 million and $1,044 million,
respectively, and is expected to be recognized over a weighted-
average period of approximately three years.
There was no significant capitalized stock-based compensation
cost at December 31, 2011, 2010 and 2009.
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.
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 sation
and Management Resources Com mittee of the Board of Directors
(the “Committee”). Awards available under the Plans principally
include stock options, restricted stock units, performance share
units or any combination thereof.
The amount of shares originally authorized to be issued under
the company’s existing Plans was 274.1 million at December 31, 2011.
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 company’s existing
Plans as of December 31, 2011. There were 124.8 million unused shares
available to be granted under the Plans as of December 31, 2011.
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.