IBM 2006 Annual Report Download - page 98

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T. RENTAL EXPENSE AND
LEASE COMMITMENTS
Rental expense from continuing operations, including amounts
charged to inventories and fixed assets, and excluding amounts
previously reserved, was $1,263 million in 2006, $1,345 million in
2005 and $1,442 million in 2004. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
96 2006 Annual Report
determination of rental expense as accruable. The table below depicts
gross minimum rental commitments from continuing operations
under noncancelable leases, amounts related to vacant space associ-
ated with infrastructure reductions and restructuring actions taken
through 1993, and in 1999, 2002 and 2005 (previously reserved),
sublease income commitments and capital lease commitments. These
amounts reflect activities primarily related to office space, as well as
manufacturing facilities.
(Dollars in millions)
2007 2008 2009 2010 2011 BEYOND 2011
Operating lease commitments:
Gross minimum rental commitments
(including Vacant space below) $, $, $ $ $ $
Vacant space      
Sublease income commitments () () () () () ()
Capital lease commitments      
U. STOCK-BASED COMPENSATION
Effective January 1, 2005, the company adopted the fair value rec-
ognition provisions for stock-based awards granted to employees
using the modified retrospective application method provided by
SFAS No. 123(R), “Share-Based Payment,” (SFAS No. 123(R)).
Stock-based compensation cost is measured at grant date, based on
the fair value of the award, and is recognized as expense over the
employee requisite service period. See note A, “Significant Accounting
Policies,” on page 68 for additional information.
The following table represents total stock-based compensation
expense included in the Consolidated Statement of Earnings:
(Dollars in millions)
FOR THE YEAR ENDED DECEMBER 31: 2006 2005 2004
Cost $  $  $ 
Selling, general and
administrative*   
Research, development and
engineering   
Other (income) and expense** — () —
Pre-tax stock-based
compensation expense  , ,
Income tax benefits () () ()
Total stock-based
compensation expense $  $  $,
* Includes $7 million of credits recorded during the year ended December 31, 2005,
as a result of awards forfeited in connection with the company’s second-quarter
2005 workforce resource actions.
** Reflects the one-time effects on stock-based compensation expense as a result of the
divestiture of the Personal Computing business.
Total unrecognized compensation costs related to non-vested awards at
December 31, 2006 and 2005 were $1,238 million and $1,512 million,
respectively, and are expected to be recognized over a weighted-aver-
age period of approximately two years.
There were no significant capitalized stock-based compensation
costs at December 31, 2006, 2005 and 2004.
Consolidated Statements ......................................................... 
Notes .....................................................................................
A-G ......................................................................................... 
H-M ......................................................................................... 
N-S .......................................................................................... 
T-X .......................................................................................... 
T. Rental Expense and Lease Commitments ....................... 
U. Stock-Based Compensation ............................................ 
V. Retirement-Related Benefits ......................................... 
W. Segment Information.................................................... 
X. Subsequent Events ........................................................ 
Black
MAC
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