ARMONK, N.Y. - 04 Dec 2002: IBM today announced that it plans to fund the company's U.S. pension plan fully through a contribution of cash and/or stock this year. IBM currently estimates a difference of $3.0 billion between the U.S. plan's assets and projections of benefit obligations on an accumulated benefit obligation or ABO basis. The amount and structure of the contribution will be determined by year-end 2002, with the final funding decision dependent upon several variables, primarily the performance of capital markets and interest rates.
"During our analyst briefings, we said that we were considering contributing up to $1.5 billion a year to the U.S. pension fund through 2005. At that time, the U.S. plan was underfunded by approximately $4.5 billion," said John R. Joyce, IBM's senior vice president and chief financial officer. "Since then, the equity markets have improved and the status of our pension fund has also improved. Assuming that the capital markets and interest rates do not deteriorate significantly between now and year-end, we plan to restore the U.S. pension plan -- by far our largest pension plan -- to fully funded status this year.
"Although we are not required to fund the U.S. pension plan at this time, we want to deal with the pension gap now. We believe that funding the pension plan achieves the right balance among the interests and needs of IBM employees, retirees and shareholders."
IBM has not contributed to the U.S. pension plan since 1995. Mr. Joyce indicated that any contribution to the pension plan would not affect operating budgets or strategic initiatives.
"We will continue to invest approximately $5 billion in research and development and $5 billion in capital expenditures, and we will continue to look for external investments that support our e-business on demand strategy," said Mr. Joyce. "In addition, we do not expect this funding plan to change our expectations for earnings per share in 2003."
While some of the non-U.S. pension plans will be overfunded at year's end, IBM will continue to fund the non-U.S. underfunded plans over time.
"We have generated $21 billion of free cash flow over the last three years and our balance sheet and cash flow are strong enough to deal with issues like pension funding as they arise," said Mr. Joyce.
Conference Call and Webcast
IBM will conduct a conference call regarding its pension plans and funding decision, scheduled to begin at 5:00 p.m. EDT, today. Investors may participate by viewing the webcast at http://www.ibm.com/investor/events/ibm1202. Additional materials of interest to shareholders, including a transcript of Mr. Joyce's remarks, will also be available on that site.
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