IBM 2015 Annual Report Download - page 129

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
127
Acquisitions
In connection with various acquisition transactions, there was
an additional 0.4million shares of stock-based awards, consist-
ing of stock options and restricted stock units, outstanding at
December31, 2015, as a result of the company’s conversion of
stock-based awards previously granted by the acquired entities.
The weighted-average exercise price of these awards was $50
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 con-
tinues as long as shares remain available under the ESPP, unless
terminated earlier at the discretion of the Board of Directors. Indi-
vidual 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, 1.3million and 1.5million
shares under the ESPP during the years ended December31,
2015, 2014 and 2013, 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 23.1million, 24.4million and 2.3million shares
were available for purchase under the ESPP at December31, 2015,
2014 and 2013, respectively.
NOTES.
RETIREMENT-RELATED BENEFITS
Description of Plans
IBM sponsors defined benefit pension plans and defined contri-
bution plans that cover eligible regular employees, a supplemental
retention plan that covers certain U.S. executives and nonpension
postretirement benefit plans primarily consisting 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 (qual-
ified) 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 par-
ticipant-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 termination
of employment.
Benefit accruals under the Retention Plan ceased Decem-
ber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. Under the IBM 401(k) Plus Plan, eligible employees receive a
dollar-for-dollar match of their contributions generally up to 6per-
cent 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 addition, eligible employ-
ees generally 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 match-
ing contributions after the completion of one year of service.