IBM 2013 Annual Report Download - page 125

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
124
Weighted-average stock options to purchase 8,797 common shares
in 2013 were outstanding, but were not included in the computation
of diluted earnings per share because the exercise price of the
options was greater than the average market price of the common
shares for the full year, and therefore, the effect would have been
antidilutive. There were no stock options outstanding in 2012 and
2011 that were considered antidilutive and not included in the diluted
earnings per share calculation.
NOTE Q.
RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense, including amounts charged to inventories and fixed
assets, and excluding amounts previously reserved, was $1,759 mil-
lion in 2013, $1,767 million in 2012 and $1,836 million in 2011. Rental
expense in agreements with rent holidays and scheduled rent
increases is recorded on a straight-line basis over the lease term.
Contingent rentals are included in the determination of rental
NOTE R.
STOCK-BASED COMPENSATION
Stock-based compensation cost is measured at grant date, based
on the fair value of the award, and is recognized over the employee
requisite service period. See note A, “Significant Accounting Policies,”
on page 90 for additional information.
The following table presents total stock-based compensation
cost included in the Consolidated Statement of Earnings.
($ in millions)
For the year ended December 31: 2013 2012 2011
Cost $ 122 $ 132 $ 120
Selling, general and administrative 435 498 514
Research, development
and engineering 57 59 62
Other (income) and expense —(1 )—
Pre-tax stock-based
compensation cost 614 688 697
Income tax benefits (213) (240)(246)
Total stock-based
compensation cost $ 402 $ 448 $ 450
Total unrecognized compensation cost related to non-vested
awards at December 31, 2013 and 2012 was $995 million and $1,101
million, respectively. The amount at December 31, 2013 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, 2013, 2012 and 2011.
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 prin-
cipally 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, 2013. In
addition, certain incentive awards granted under previous plans, if and
when those awards were canceled, could be reissued under the com -
pany’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, 2013. There were 118.6 million unused shares
available to be granted under the Plans as of December 31, 2013.
Under the company’s long-standing practices and policies, all
awards are approved prior to or on the date of grant. The awards
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 man-
agement 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.
expense as accruable. The table below depicts gross minimum
rental commitments under noncancelable leases, amounts related
to vacant space associated with infrastructure reductions, sublease
income commitments and capital lease commitments. These
amounts reflect activities primarily related to office space, as well as
manufacturing facilities.
($ in millions)
2014 2015 2016 2017 2018 Beyond 2018
Operating lease commitments
Gross minimum rental commitments
(including vacant space below) $1,492 $1,286 $1,016 $799 $620 $778
Vacant space $ 24 $ 16 $ 6 $ 4 $ 1 $ 0
Sublease income commitments $ 22 $ 16 $ 14 $ 9 $ 4 $ 7
Capital lease commitments $ 16 $ 12 $ 13 $ 3 $ 9 $ 5