IBM 2014 Annual Report Download - page 129

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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
128
NOTE Q.
RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense, including amounts charged to inventories and
fixed assets, and excluding amounts previously reserved, was
$1,592 million in 2014, $1,759 million in 2013 and $1,767 million in
2012. Within these amounts, rental expense reflected in discon-
tinued operations was $95 million, $115 million and $110 million, in
2014, 2013 and 2012, respectively. Rental expense in agreements
with rent holidays and scheduled rent increases is recorded on
a straight-line basis over the lease term. Contingent rentals are
included in the determination of rental expense as accruable.
The table below depicts gross minimum rental commitments
under noncancelable leases, amounts related to vacant space
associated with infrastructure reductions, sublease income com-
mitments and capital lease commitments. These amounts reflect
activities primarily related to office space, as well as datacenters.
($ in millions)
2015 2016 2017 2018 2019 Beyond 2019
Operating lease commitments
Gross minimum rental commitments
(including vacant space below) $1,350 $1,161 $988 $848 $754 $1,051
Vacant space $ 24 $ 9 $ 6 $ 2 $ 0 $ —
Sublease income commitments $ 12 $ 10 $ 8 $ 6 $ 5 $ 6
Capital lease commitments $ 13 $ 7 $ 2 $ 2 $ 2 $ 2
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 Committee of the Board of
Directors (the “Committee”). Awards available under the Plans
principally include restricted stock units, performance share units,
stock options or any combination thereof.
The amount of shares originally authorized to be issued under
the company’s existing Plans was 274 million at December31,
2014. In addition, certain incentive awards granted under previ-
ous 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, 2014. There were
115.5 million unused shares available to be granted under the Plans
as of December31, 2014.
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 Commit-
tee. All awards for employees other than senior management are
approved by senior management pursuant to a series of delega-
tions 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 compen-
sation for senior management and other employees are made on
NOTE R.
STOCK-BASED COMPENSATION
The following table presents total stock-based compensation cost
included in income from continuing operations:
($ in millions)
For the year ended December 31: 2014 2013 2012
Cost $ 121 $ 122 $ 132
Selling, general and administrative 350 435 498
Research, development
and engineering 54 57 59
Other (income) and expense* (13) — (1)
Pre-tax stock-based
compensation cost 512 614 688
Income tax benefits (174) (213)(240)
Net stock-based
compensation cost $ 338 $ 402 $ 448
* Reflects the one-time effects related to the divestitures of the customer care and
industry standard server businesses in 2014.
The amount of stock-based compensation cost included in dis-
continued operations, net of tax, was immaterial in all periods.
Total unrecognized compensation cost related to non-vested
awards at December31, 2014 and 2013 was $874 million and $995
million, respectively. The amount at December31, 2014 is expected
to be recognized over a weighted-average period of approximately
2.5years.
There was no significant capitalized stock-based compensa-
tion cost at December31, 2014, 2013 and 2012.