IBM 2011 Annual Report Download - page 121

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 119
Stock Options
Stock options are awards which allow the employee to purchase
shares of the company’s stock at a fixed price. Stock options are
granted at an exercise price equal to the company stock price on
the date of grant. These awards, which generally vest 25 percent
per year, are fully vested four years from the date of grant and have
a contractual term of 10 years.
The company estimates the fair value of stock options at the date
of grant using the Black-Scholes valuation model. Key inputs and
assumptions used to estimate the fair value of stock options include
the grant price of the award, the expected option term, volatility of
the company’s stock, the risk-free rate and the company’s dividend
yield. Estimates of fair value are not intended to predict actual future
events or the value ultimately realized by employees who receive equity
awards, and subsequent events are not indicative of the reasonableness
of the original estimates of fair value made by the company.
During the years ended December 31, 2011, 2010 and 2009, the
company did not grant stock options.
The following table summarizes option activity under the Plans during the years ended December 31, 2011, 2010 and 2009.
2011 2010 2009
Weighted
Average
Exercise Price
Number of
Shares
Under Option
Weighted
Average
Exercise Price
Number of
Shares
Under Option
Weighted
Average
Exercise Price
Number of
Shares
Under Option
Balance at January 1 $ 94 39,197,728 $ 98 73,210,457 $102 119,307,170
Options exercised 98 (18,144,309) 101 (33,078,316) 98 (28,100,192)
Options canceled/expired 107 (391,097) 108 (934,413) 127 (17,996,521)
Balance at December 31 $ 90 20,662,322 $ 94 39,197,728 $ 98 73,210,457
Exercisable at December 31 $ 90 20,662,322 $ 94 39,197,728 $ 98 72,217,126
The shares under option at December 31, 2011 were in the following exercise price ranges:
Options Outstanding and Exercisable
Exercise Price Range
Weighted
Average
Exercise Price
Number of
Shares
Under Option
Aggregate
Intrinsic
Value
Weighted Average
Remaining
Contractual Life
(in Years)
$61– $85 $ 78 8,079,175 $ 857,827,574 1.3
$86 – $105 97 11,061,890 957,308,722 2.6
$106 and over 106 1,521,257 118,474,466 2.0
$ 90 20,662,322 $1,933,610,763 2.1
In connection with various acquisition transactions, there was an
additional 1.0 million stock-based awards, consisting of stock options
and restricted stock units, outstanding at December 31, 2011, as a
result of the company’s assumption of stock-based awards previously
granted by the acquired entities. The weighted-average exercise
price of these awards was $59 per share.
Exercises of Employee Stock Options
The total intrinsic value of options exercised during the years ended
December 31, 2011, 2010 and 2009 was $1,269 million, $1,072 million
and $639 million, respectively. The total cash received from employees
as a result of employee stock option exercises for the years ended
December 31, 2011, 2010 and 2009 was approximately $1,786 million,
$3,347 million and $2,744 million, respectively. In connection with
these exercises, the tax benefits realized by the company for the
years ended December 31, 2011, 2010 and 2009 were $412 million,
$351 million and $243 million, respectively.
The company settles employee stock option exercises primarily
with newly issued common shares and, occasionally, with treasury
shares. Total treasury shares held at December 31, 2011 and 2010
were approximately 1,019 million and 934 million shares, respectively.