said today it will invest $3 billion to fully fund its U.S. pension plan by the end of this month. The funding will be made in cash and/or stock.
After-hours trading was halted briefly. After resuming, the stock added 31 cents. Earlier, it closed down $1.52 or 1.8% to $83.69.
The announcement reflects a switch in strategy from October, when IBM laid out a plan to stretch out the contributions over a longer time period. At the time, the plan was underfunded by $4.5 billion. The company said then that it would funnel $1.5 billion a year in contributions to the pension plan through 2005, in order to fully fund the plan.
But in the intervening two months, a rise in the stock market has added a healthy $1.5 billion to its pension plan, meaning IBM currently faces a smaller, $3 billion gap.
As a result, CFO John Joyce said in a prepared statement that the company has decided to fully fund the plan. "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," he said. "We believe that funding the pension plan achieves the right balance among the interests and needs of IBM employees, retirees and shareholders."
This will mark the first time IBM has had to fork over money to its plan since 1995. But the company stressed that the contributions will not affect R&D and other competitive investments.
As a result of the move, IBM will see a corresponding $3 billion increase in its core debt. But on a conference call, Joyce said the company aims to get debt back to "conservative levels" by the end of 2003. He added that IBM has been conferring with Standard & Poor's and Moody's, which say they will make no change in IBM's debt rating. But a third rating agency, Fitch, is still reviewing its assessment.