M. Stockholders’ equity activity
The authorized capital stock of IBM consists of 4,687,500,000 shares of common stock, $.20 par value, of which 1,385,234,138 shares were outstanding at December 31, 2007 and 150,000,000 shares of preferred stock, $.01 par value, none of which were outstanding at December 31, 2007.
Stock repurchases
From time to time, the Board of Directors authorizes the company to repurchase IBM common stock. The company repurchased 178,385,436 common shares at a cost of $18,783 million, 97,564,462 common shares at a cost of $8,022 million and 90,237,800 common shares at a cost of $7,671 million in 2007, 2006 and 2005, respectively.
Included in the 2007 repurchases highlighted above, in May, IBM International Group (IIG), a wholly owned foreign subsidiary of the company repurchased 118.8 million shares of common stock for $12.5 billion under accelerated share repurchase (ASR) agreements with three banks.
Pursuant to the ASR agreements, executed on May 25, 2007, IIG paid an initial purchase price of $105.18 per share for the repurchase. The initial purchase price is subject to adjustment based on the volume weighted-average price of IBM common stock over a settlement period of three months for each of the banks. The adjustment will also reflect certain other amounts including the banks’ carrying costs, compensation for ordinary dividends declared by the company during the settlement period and interest benefits for receiving the $12.5 billion payment in advance of the anticipated purchases by each bank of shares in the open market during the respective settlement periods. The adjustment amount can be settled in cash, registered shares or unregistered shares at IIG’s option. Under the ASR agreements, IIG will have a separate settlement with each of the three banks. The first settlement occurred on September 6, 2007, resulting in a settlement payment to the bank of $151.8 million. The second settlement occurred on December 5, 2007, resulting in a settlement payment to the bank of $253.1 million. The amounts were paid in cash at the election of IIG in accordance with the provisions of the ASR agreements and were recorded as adjustments to Stockholders’ equity in the Consolidated Statement of Financial Position on the settlement dates.
The remaining settlement is expected to occur in March 2008, and any amounts to be paid or received by IIG under any of the settlement alternatives in connection with the price adjustment will be recorded as an adjustment to Stockholders’ equity in the Consolidated Statement of Financial Position on the settlement date.
The estimated fair value of the cash settlement and share settlement alternatives under the ASR agreements as of December 31, 2007 would result in the payment of approximately $33 million or 0.3 million registered shares or unregistered shares, by IIG. In comparison, each $1 increase in the volume weighted-average share price would increase these estimates by approximately $40 million or approximately 0.3 million registered and unregistered shares under the cash settlement and share settlement alternatives, respectively. IIG cannot be required to deliver more than 119 million shares if it elects the share settlement options for the remaining settlement, regardless of the volume weighted-average share price.
On December 3, 2007, the company announced that it planned to repurchase up to $1.0 billion of its outstanding common stock in open market transactions by the end of February 2008. These repurchases, originally planned for March and April of 2008, are in addition to the $12.5 billion ASR discussed previously.
The company issued 9,282,055 treasury shares in 2007, 3,489,803 treasury shares in 2006 and 2,594,786 treasury shares in 2005, as a result of exercises of stock options by employees of certain recently acquired businesses and by non-U.S. employees. At December 31, 2007, $1,210 million of Board authorized repurchases was still available. The company plans to purchase shares on the open market or in private transactions from time to time, depending on market conditions. In connection with the issuance of stock as part of the company’s stock-based compensation plans, 1,282,131 common shares at a cost of $134 million, 633,769 common shares at a cost of $52 million and 606,697 common shares at a cost of $52 million in 2007, 2006 and 2005, respectively, were remitted by employees to the company in order to satisfy minimum statutory tax withholding requirements. Such amounts are included in the Treasury stock balance in the Consolidated Statement of Financial Position and the Consolidated Statement of Stockholders’ Equity.
Accumulated gains and (losses) not affecting retained earnings (net of tax)
| ($ in millions) | ||||||
| Retirement-Related Benefit Plans | ||||||
|---|---|---|---|---|---|---|
| Net Unrealized Gains/(Losses) on Cash Flow Hedge Derivatives | Foreign Currency Translation Adjustments* | Minimum Pension Liability Adjustments | Prior Service Costs/(Credits), Net Gains/(Losses) and Transition Assets, Net of Amortization | Net Unrealized Gains on Marketable Securities | Accumulated Gains/(Losses) Not Affecting Retained Earnings | |
|
* Foreign currency translation adjustments are presented gross with associated hedges shown net of tax. |
||||||
| December 31, 2005 | $ 238 | $ 1,908 | $ (4,229) | $ — | $ 67 | $ (2,016) |
| Change for period | (342) | 1,020 | 1,881 | — | 53 | 2,613 |
| Adoption of SFAS No. 158 | — | — | 2,348 | (11,846) | — | (9,498) |
| December 31, 2006 | (104) | 2,929 | — | (11,846) | 119 | (8,901) |
| Change for period | (123) | 726 | — | 4,678 | 206 | 5,487 |
| December 31, 2007 | $ (227) | $ 3,655 | $ — | $ (7,168) | $ 325 | $ (3,414) |
Net change in unrealized gains on marketable securities (net of tax)
| ($ in millions) | ||
| For the Period Ended December 31: | 2007 | 2006 |
|---|---|---|
|
* Includes writedowns of $6.4 million and $2.9 million in 2007 and 2006, respectively. |
||
| Net unrealized gains arising during the period | $ 246 | $ 77 |
| Less: Net gains included in net income for the period | 40* | 24* |
| Net change in unrealized gains on marketable securities | $ 206 | $ 53 |
