So what will happen if market tanks again? Market Rebound Helps IBM To Fund Its U.S. Pension Plan
By JOHN HECHINGER
Staff Reporter of THE WALL STREET JOURNAL
International Business Machines Corp., showing that the stock market's rebound has mitigated the big hit that corporate retirement funds have taken in the market downdraft, said it will add as much as $3 billion to its pension plan for U.S. employees by the end of this year.
That was twice the sum IBM had indicated in recent weeks. The No. 1 computer maker had told analysts that its U.S. pension plan was underfunded by about $4.5 billion, and that the company would contribute as much as $1.5 billion a year through 2005 to meet its obligations.
On Wednesday, John R. Joyce, IBM's chief financial officer, said that because of the stock market's recent rebound, the company now could fully fund its pension plan with a $3 billion contribution. Mr. Joyce said half would be in cash and half in IBM treasury stock.
"We want the current U.S. shortfall behind us. Period," Mr. Joyce said in a conference call with analysts. But an IBM spokeswoman said the company couldn't rule out making future payments.
Move Won't Hurt Earnings
Mr. Joyce said that the expenditure wouldn't damp 2003 earnings, and that the payment isn't expected to hurt the company's rating with major bond agencies.
To come up with the money, the company is increasing its debt level and slowing share repurchases. Mr. Joyce cautioned that the $3 billion might not be enough to fund fully the pension plan if the stock market turns south again before the end of the year.
Mr. Joyce didn't address any impact on the company's fourth-quarter results, and a spokeswoman declined to elaborate, citing a policy against commenting on the current quarter.
But Steven Milunovich, an analyst with Merrill Lynch & Co., said he believed the release of treasury shares would result in only slight dilution of per-share earnings. "It sounds like it will be lost in the rounding," he said.
First Contribution Since 1995
IBM hasn't made a contribution to its U.S. pension plan since 1995. In fact, as much as any U.S. corporation, IBM reaped an earnings bonanza because of soaring returns in its pension plan in the 1990s.
That is because corporations are permitted to report excess pension-fund income as net income. Last year, the company reported $1.45 billion in pension income from its U.S. and non-U.S. plans, accounting for 13% of its $10.95 billion in pretax profit.
The IBM U.S. retirement fund had $39.6 billion in assets at the end of 2001, down from $44.6 billion in 2000.
The company decision doesn't affect non-U.S. pension plans, with $21.5 billion in assets. Mr. Joyce said the company expected to continue to make contributions to those plans of "several hundred million" dollars annually, as it has in the past.
As of 4 p.m. in New York Stock Exchange composite trading Wednesday, IBM shares fell $1.52 to $83.69.
Write to John Hechinger at john.hechinger@wsj.com
Updated December 5, 2002 |
