IBM 2014 Annual Report Download - page 132

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
131
Acquisitions
In connection with various acquisition transactions, there was
an additional 0.5 million shares of stock-based awards, consist-
ing of stock options and restricted stock units, outstanding at
December31, 2014, 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 $56
per share.
IBM Employees Stock Purchase Plan
The company maintains a non-compensatory Employees Stock
Purchase Plan (ESPP). The ESPP enables eligible participants
to purchase full or fractional shares of IBM common stock at a
5-percent discount off the average market price on the day of
purchase through payroll deductions of up to 10percent of eligible
compensation. Eligible compensation includes any compensation
received by the employee during the year. The ESPP provides
for offering periods during which shares may be purchased and
continues as long as shares remain available under the ESPP,
unless terminated earlier at the discretion of the Board of Direc-
tors. Individual ESPP participants are restricted from purchasing
more than $25,000 of common stock in one calendar year or 1,000
shares in an offering period.
Employees purchased 1.3 million, 1.5 million and 1.6 million
shares under the ESPP during the years ended December31,
2014, 2013 and 2012, respectively. Cash dividends declared and
paid by the company on its common stock also include cash
dividends on the company stock purchased through the ESPP.
Dividends are paid on full and fractional shares and can be rein-
vested. The company stock purchased through the ESPP is
considered outstanding and is included in the weighted-average
outstanding shares for purposes of computing basic and diluted
earnings per share.
In July 2014, the “2014 ESPP Reserve” became effective and
25 million additional shares of authorized common stock were
reserved and approved for issuance. The 2014 ESPP provides for
semi-annual offerings commencing July 1, 2014, and continuing as
long as shares remain available under the ESPP, unless terminated
earlier at the discretion of the Board of Directors.
Approximately 24.4 million, 2.3 million and 3.8 million shares
were available for purchase under the ESPP at December31, 2014,
2013 and 2012, respectively.
NOTE S.
RETIREMENT-RELATED BENEFITS
Description of Plans
IBM sponsors defined benefit pension plans and defined con-
tribution plans that cover substantially all regular employees, a
supplemental retention plan that covers certain U.S. executives
and nonpension postretirement benefit plans primarily consist-
ing of retiree medical and dental benefits for eligible retirees
and dependents.
U.S. Plans
Defined Benefit Pension Plans
IBM Personal Pension Plan
IBM provides U.S. regular, full-time and part-time employees hired
prior to January 1, 2005 with noncontributory defined benefit pen-
sion benefits via the IBM Personal Pension Plan. Prior to 2008, the
IBM Personal Pension Plan consisted of a tax qualified (qualified)
plan and a non-tax qualified (nonqualified) plan. Effective January
1, 2008, the nonqualified plan was renamed the Excess Personal
Pension Plan (Excess PPP) and the qualified plan is now referred
to as the Qualified PPP. The combined plan is now referred to as
the PPP. The Qualified PPP is funded by company contributions
to an irrevocable trust fund, which is held for the sole benefit of
participants and beneficiaries. The Excess PPP, which is unfunded,
provides benefits in excess of IRS limitations for qualified plans.
Benefits provided to the PPP participants are calculated using
benefit formulas that vary based on the participant. The first
method uses a five-year, final pay formula that determines benefits
based on salary, years of service, mortality and other participant-
specific factors. The second method is a cash balance formula
that calculates benefits using a percentage of employees’ annual
salary, as well as an interest crediting rate.
Benefit accruals under the IBM Personal Pension Plan ceased
December 31, 2007 for all participants.
U.S. Supplemental Executive Retention Plan
The company also sponsors a nonqualified U.S. Supplemental
Executive Retention Plan (Retention Plan). The Retention Plan,
which is unfunded, provides benefits to eligible U.S. executives
based on average earnings, years of service and age at termina-
tion of employment.
Benefit accruals under the Retention Plan ceased December
31, 2007 for all participants.
Defined Contribution Plans
IBM 401(k) Plus Plan
U.S. regular, full-time and part-time employees are eligible to par-
ticipate in the IBM 401(k) Plus Plan, which is a qualified defined
contribution plan under section 401(k) of the Internal Revenue
Code. Effective January 1, 2008, under the IBM 401(k) Plus Plan,
eligible employees receive a dollar-for-dollar match of their con-
tributions up to 6percent of eligible compensation for those hired
prior to January 1, 2005, and, generally up to 5percent of eligible
compensation for those hired on or after January 1, 2005. In addi-
tion, eligible employees receive automatic contributions from the
company equal to 1, 2 or 4percent of eligible compensation based
on their eligibility to participate in the PPP as of December31,
2007. Employees generally receive automatic contributions and
matching contributions after the completion of one year of service.
Further, through June 30, 2009, IBM contributed transition credits
to eligible participants’ 401(k) Plus Plan accounts. The amount of
the transition credits was based on a participant’s age and service
as of June 30, 1999.