SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-2360
A. Full title of the plan and address of the plan, if different from that of
the issuer named below:
IBM SAVINGS PLAN
DIRECTOR OF COMPENSATION AND BENEFITS
CAPITAL ACCUMULATION PROGRAMS
IBM CORPORATION
NORTH CASTLE DRIVE
ARMONK, NEW YORK 10504
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
INTERNATIONAL BUSINESS MACHINES CORPORATION
NEW ORCHARD ROAD
ARMONK, NEW YORK 10504
REQUIRED INFORMATION
Page
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REPORT OF INDEPENDENT ACCOUNTANTS 4
FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits
at December 31, 2002 and 2001 5
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2002 6
Notes to Financial Statements 7
SUPPLEMENTAL SCHEDULE:
Schedule I - Schedule of Assets Held at End of Year
At December 31, 2002 19
EXHIBITS
Exhibit 23 - Consent of Independent Accountants 20
Exhibit 99.1 - Certification by CEO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 21
Exhibit 99.2 - Certification by CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 22
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SIGNATURE
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed by the undersigned hereunto duly
authorized.
IBM SAVINGS PLAN
Date: June 27, 2003 By: /s/ Robert F. Woods
------------------- ---------------------------------------------
Robert F. Woods
Vice President and Controller
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of the International Business Machines Corporation (IBM)
Retirement Plans Committee and the Participants of the IBM Savings Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the IBM Savings Plan (the "Plan") at December 31, 2002 and 2001, and the
changes in net assets available for benefits for the year ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
at end of year is presented for the purpose of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, NY
June 27, 2003
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IBM SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AT DECEMBER 31,
(Dollars in thousands)
2002 2001
------------ ------------
ASSETS:
Investments, at fair value (Note 7) $ 17,956,462 $ 20,370,312
Receivables:
Employer contribution 8,310 --
Participant contributions 25,062 --
Income and sales proceeds receivable 3,547 2,259
Loans receivable 287,370 315,954
------------ ------------
324,289 318,213
------------ ------------
Total assets 18,280,751 20,688,525
LIABILITIES:
Expenses payable 476 516
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 18,280,275 $ 20,688,009
============ ============
The accompanying notes are an integral part of these financial statements.
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IBM SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31,
(Dollars in thousands)
2002
------------
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Contributions
Participant contributions $ 1,062,472
Employer contribution 306,472
------------
Total contributions 1,368,944
Transfers from other benefits plans, net 25,233
Interest and dividend income from investments 332,609
------------
Total additions 1,726,786
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Net depreciation in fair value of investments (Note 7) 3,206,796
Distributions to participants 902,898
Administrative expenses 24,826
------------
Total deductions 4,134,520
NET DECREASE IN NET ASSETS DURING THE YEAR 2,407,734
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 20,688,009
------------
End of year $ 18,280,275
============
The accompanying notes are an integral part of these financial statements.
-6-
IBM SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN
Effective October 1, 2002, the IBM TDSP 401(k) Plan was renamed the IBM Savings
Plan (the "Plan"), and the following description of the Plan provides only
general information. Participants should refer to the Plan prospectus for a
complete description of the Plan's provisions.
GENERAL
The Plan was established by resolution of IBM's Retirement Plans Committee (the
"Committee") effective July 1, 1983 and is held in trust for the benefit of its
participants. The Plan offers all eligible active, regular full-time and
part-time U.S. employees of IBM and certain of its domestic related companies
and partnerships an opportunity to defer from one to eighty percent of their
eligible compensation for contribution to any of twenty-one investment funds.
The annual contribution is subject to the legal limit allowed by Internal
Revenue Service (IRS) regulations. The investment objectives of these funds
are described in Note 3, Description of Investment Funds.
At December 31, 2002 and 2001, the number of participants in the Plan was
227,246 and 225,679 respectively.
The Plan qualifies under Section 401(a) of the Internal Revenue Code of 1986, as
amended, and is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended.
ADMINISTRATION
The Plan is administered by the Committee which appointed officials of IBM to
assist in administering the Plan. The Committee appointed State Street Bank and
Trust Corporation as of November 1, 1999 as Trustee to safeguard the assets of
the funds and State Street Global Advisors (the institutional investment
management affiliate of State Street Bank and Trust Corporation), The Vanguard
Group and other investment managers to direct investments in the various funds.
Effective October 1, 2002, Hewitt Associates ("Hewitt") replaced Metropolitan
Life Insurance Company as provider of recordkeeping, participant services and
communications services, and operator of the IBM Savings Plan Service Center in
Lincolnshire, Illinois.
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CONTRIBUTIONS
IBM contributes to the Plan an amount equal to fifty percent of the first six
percent of annual eligible compensation the employee defers (maximum is three
percent). Eligible compensation includes regular salary, commissions, overtime,
shift premium and similar additional compensation payments for nonscheduled
workdays, recurring payments under any form of variable compensation plan,
regular Sickness and Accident Income Plan payments, holiday pay, and vacation
pay.
Participants may choose to have their contributions invested entirely in one of,
or in any combination of, the following funds in multiples of one percent. These
funds and their investment objectives are more fully described in Note 3,
Description of Investment Funds.
LIFE STRATEGY FUNDS (4)
Income Plus Life Strategy Fund
Conservative Life Strategy Fund
Moderate Life Strategy Fund
Aggressive Life Strategy Fund
CORE FUNDS (5)
Stable Value Fund
Inflation-Protected Bond Fund
Total Bond Market Fund
Total Stock Market Index Fund
Total International Stock Market Index Fund
EXTENDED CHOICE FUNDS (12)
Money Market Fund
Long-Term Corporate Bond Index Fund
Equity Income Fund
Vanguard European Stock Index Fund
Large Company Index Fund
Vanguard Growth Index Fund
Vanguard Value Index Fund
Vanguard Small-Cap Value Index Fund
Small/Mid-Cap Stock Index Fund
Vanguard Pacific Stock Index Fund
Vanguard Small-Cap Growth Index Fund
IBM Stock Fund
Participants may change their deferral percentage and investment selection for
future contributions at any time. The changes will take effect for the next
eligible pay cycle so long as the request is completed before the respective
cutoff dates. Also, the participant may transfer part or all of existing account
balances among funds in the Plan once daily, but will incur a service fee for
each transfer in excess of eight in a calendar year. However, participant
balances in the Stable Value Fund may not be transferred directly into the
Money Market Fund, and if such balances are transferred into another fund,
they may not subsequently be transferred to the Money Market Fund for 90 days.
-8-
PARTICIPANT ACCOUNTS
The Plan recordkeeper (Hewitt) maintains an account in the name of each
participant to which each participant's contributions and share of the net
earnings, losses and expenses, if any, of the various investment funds are
recorded. The earnings on the assets held in each of the funds and all proceeds
from the sale of such assets are held and reinvested in the respective funds.
Participants may transfer rollover contributions of pre-tax dollars from other
qualified savings plans or conduit Individual Retirement Accounts (IRAs that
exclusively hold a pre-tax distribution from a qualified plan) into their Plan
accounts. Rollovers must be made in cash within the time limits specified by the
IRS; stock or in-kind rollovers cannot be accepted. These rollovers are limited
to active employees on the payroll of IBM (or affiliated companies) who have
existing accounts in the Plan. Retirees or employees on leave or bridge leave of
absence are not eligible for such rollovers, except that a retiree or separated
employee who has an existing account in the Plan may rollover a lump-sum
distribution from an IBM-sponsored qualified retirement plan, including the IBM
Personal Pension Plan.
The interest of each participant in each of the funds is represented by units
credited to the participant's account.
On each valuation date, the unit value of each fund is determined by dividing
the current market value of the assets in that fund on that date by the number
of units in the fund. In determining the unit value, new contributions that are
to be allocated as of the valuation date are excluded from the calculation. The
number of additional units to be credited to a participant's account for each
fund, due to new contributions, is equal to the amount of the participant's new
contributions to the fund divided by the unit value for the applicable fund as
determined on the valuation date.
Contributions made to the Plan as well as interest, dividends or other earnings
of the Plan are generally not included in the taxable income of the participant
until withdrawal, at which time all earnings and contributions withdrawn
generally are taxed as ordinary income to the participant. Additionally,
withdrawals by the participant before attaining age 59 1/2 generally are subject
to a penalty tax of 10 percent.
Consistent with provisions established by the IRS, the Plan's 2002 limit on
employee salary deferrals was $11,000 (the limit increases to $12,000 for 2003).
Those who were age 50 or older during 2002 could take advantage of higher
pre-tax contribution limit of $12,000 (the limit increases to $14,000 for
2003). The 2002 maximum annual deferral amount for employees residing in
Puerto Rico was limited by local government regulations to the lesser of
$8,000 or ten percent of eligible compensation.
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VESTING
Participants in the Plan are at all times fully vested in their account balance,
including deferral contributions, matching contributions and earnings thereon.
DISTRIBUTIONS
Participants who have attained age 59 1/2 may request a distribution of all or
part of the value in the account. Up to four distributions are allowed each year
and the minimum amount of any such distribution shall be the lesser of the
participant's account balance or $500.
In addition, participants who (1) retire under the prior IBM Retirement Plan
provisions of the IBM Personal Pension Plan, or (2) become eligible for benefits
under the IBM Long-Term Disability Plan or the IBM Medical Disability Income
Plan, or (3) separate and have attained age 55, may also elect to receive the
balance of their account either in annual installments over a period not to
exceed ten years or over the participant's life expectancy, recalculated
annually, or defer distribution until age 70 1/2.
Withdrawals for financial hardship are permitted provided they are for a severe
and immediate financial need, and the distribution is necessary to satisfy that
need. Employees are required to fully use the Plan loan program, described
below, before requesting a hardship withdrawal. Only an employee's deferral
contributions are eligible for hardship withdrawal; earnings and IBM matching
contributions are not eligible for withdrawal. Employees must submit evidence of
hardship to Hewitt, who will determine whether the situation qualifies for a
hardship withdrawal. A hardship withdrawal is taxed as regular income to the
employee and may be subject to the 10 percent additional tax on early
distributions.
Upon the death of a participant, the value of the participant's account will be
distributed to the participant's beneficiary in a lump-sum payment. If the
participant is married, the beneficiary must be the participant's spouse, unless
the participant's spouse has previously given written, notarized consent to
designate another person as beneficiary. If the participant marries or
remarries, any prior beneficiary designation is canceled and the spouse
automatically becomes the beneficiary. If the participant is single, the
beneficiary may be anyone previously designated by the participant under the
Plan. In the absence of an effective designation under the Plan at the time of
death, the proceeds normally will be paid in the following order: the
participant's spouse, the participant's children in equal shares, or to
surviving parents equally. If no spouse, child, or parent is living, payments
will be made to the executors or administrators of the participant's estate.
PARTICIPANT LOANS
Participants may borrow up to one-half of the value of the account balance, not
to exceed $50,000 within a twelve month period. Loans will be granted in $50
increments subject to a minimum loan amount of $500. Participants are limited to
two simultaneous outstanding Plan loans. Repayment of a loan shall be made
through semi-monthly payroll deductions over a term of one to four years. The
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loan shall bear a fixed rate of interest, set quarterly, for the term of the
loan, determined by the plan administrator to be 1.25 percent above the prime
rate. The interest shall be credited to the participant's account as the
semi-monthly repayments of principal and interest are made. Interest rates on
outstanding loans at December 31, 2002 ranged from 6.0 percent to 11.5 percent.
Participants may prepay the entire remaining loan principal after payments have
been made for three full months. Employees on an approved leave of absence may
elect to make scheduled loan payments directly to the Plan. Participants may
continue to contribute to the Plan while having an outstanding loan, provided
that the loan is not in default.
Participants who retire or separate from IBM and have outstanding Plan loans may
choose automated loan repayments or coupon payment options to continue monthly
loan repayments according to their original amortization schedule.
TERMINATION OF SERVICE
The value of the participant's account that is $5,000 or less will be
distributed to the participant in a lump-sum payment as soon as practical
following the termination of the participant's employment with IBM. If the
account balance is greater than $5,000 at the time of separation, the
participant may elect to defer distribution of the account until age 70 1/2.
TERMINATION OF THE PLAN
IBM reserves the right to terminate this Plan at any time by action of the
Committee. In that event, each participant or beneficiary receiving or entitled
to receive payments under the Plan would receive the balance of the account at
such time and in such manner as the Committee shall determine at its discretion.
In the event of a full or partial termination of the Plan, or upon complete
discontinuance of contributions under the Plan, the rights of all affected
participants in the value of their accounts would be nonforfeitable.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options that invest in any combination
of equities, fixed income securities, guaranteed investment contracts (GICs),
and derivative contracts. Investment securities are exposed to various risks,
such as interest rates, credit and overall market volatility. Due to the level
of risk associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities, it is
reasonably possible that changes in risks in the near term could materially
affect participants' account balances and the amounts reported.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared under the accrual basis of
accounting.
VALUATION OF INVESTMENTS
The fair value of the net assets of the Plan is based on the estimated fair
values of the underlying assets and liabilities. Investments in registered
investment companies and pooled funds are valued at the net asset values per
share as quoted by such companies or funds as of the valuation date. IBM common
stock is valued daily at the New York Stock Exchange closing price. Interest
accrued on investments is recorded separately as interest receivable until paid
and reinvested. Participant loans are valued at cost which approximates fair
value.
Investments in fully benefit-responsive bank and insurance company investment
contracts are stated at contract value which is equal to cost plus reinvested
interest. The market value of the contracts are approximately $5,172 million.
The crediting interest rates at December 31, 2002 for the contracts range from
4.88 percent to 6.93 percent.
PAYMENT OF BENEFITS
Benefit payments to participants are recorded upon distribution.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and changes therein, and disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are recorded on a trade-date basis. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis.
ADMINISTRATIVE EXPENSES AND INVESTMENT MANAGEMENT FEES
All administrative costs of the Plan are deducted from participants' account
balances. These costs include (a) brokerage fees and commissions which are
included in the cost of investments and in determining net proceeds on sales of
investments, (b) investment management fees which are paid from the assets of
the respective funds; those fees comprise fixed annual charges and charges based
on a percentage of net asset value, and (c) operational expenses required for
administration of the Plan including trustee, recordkeeping, participant
reports and communications, and service center expenses, which are charged
against the fund's assets on a pro rata basis throughout the year.
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NOTE 3 - DESCRIPTION OF INVESTMENT FUNDS
The objectives of the twenty-one investment funds to which employees may
contribute monies are described below:
LIFE STRATEGY FUNDS - four blended funds that build a portfolio of diversified
investments - - U.S. Stocks, international stocks, and fixed-income investments
-- from the existing core funds noted below. The funds are managed by a
combination of the IBM Retirement Fund and the managers of the underlying funds.
- INCOME PLUS LIFE STRATEGY FUND - target allocation 20% stocks, 80% bonds;
seeks returns that modestly outpace inflation on a fairly consistent basis.
- CONSERVATIVE LIFE STRATEGY FUND - target allocation 40% stocks, 60% bonds;
seeks returns that moderately outpace inflation over the long term.
- MODERATE LIFE STRATEGY FUND - target allocation 60% stocks, 40% bonds;
seeks relatively high returns at a moderate risk level.
- AGGRESSIVE LIFE STRATEGY FUND - target allocation 80% stocks, 20% bonds;
seeks high returns over the long term. Returns may be volatile from year to
year.
CORE FUNDS - five funds that provide an opportunity to custom-build a portfolio
from a selection of broadly diversified U.S. and international stock funds and
from funds tracking the fixed-income markets.
- STABLE VALUE FUND - seeks to preserve principal and provide income at a
stable rate of interest that is competitive with intermediate-term rates of
return. The fund is managed by multiple money managers.
- INFLATION-PROTECTED BOND FUND - seeks over the long term to provide a rate
of return over and above the rate of inflation, thereby preserving the
long-term spending power of the money invested. The fund is managed by
State Street Global Advisors.
- TOTAL BOND MARKET FUND - seeks to modestly exceed the return of its
benchmark index (Lehman Brothers Aggregate Bond Index), which consists of
more than 5,000 U.S. Treasury and federal agency, mortgage-backed, and
corporate securities. The fund is managed by State Street Global Advisors.
- TOTAL STOCK MARKET INDEX FUND - seeks long-term growth of capital and
income. It attempts to match the performance of the Wilshire 5000 Total
Market Index. The fund is managed by The Vanguard Group.
- TOTAL INTERNATIONAL STOCK MARKET INDEX FUND - seeks long-term capital
growth with a market rate of return for a diversified group of non-U.S.
equities in such major markets as Europe and Asia plus the emerging markets
of the world. It attempts to match the performance of the Morgan Stanley
Capital International All Country World Ex-U.S. Free Index. The fund is
managed by State Street Global Advisors.
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EXTENDED CHOICE FUNDS - twelve funds that provide an opportunity to fine tune an
investment portfolio with funds that are less broadly diversified, focusing
instead on discrete sectors of the stock and bond markets.
- MONEY MARKET FUND - seeks liquidity and preservation of capital while
providing a variable rate of income based on current short-term market
interest rates. The fund is managed by State Street Global Advisors.
- LONG-TERM CORPORATE BOND INDEX FUND - seeks a high and sustainable level of
interest income by investing in a widely diversified group of long-term
bonds issued by corporations with strong credit ratings. The fund is
managed by State Street Global Advisors.
- EQUITY INCOME FUND - seeks both long-term capital appreciation and dividend
income by investing in large- and mid-cap U.S. stocks. The fund is managed
by State Street Global Advisors.
- VANGUARD EUROPEAN STOCK INDEX FUND - seeks long-term growth of capital that
corresponds to an index of European stocks. It attempts to match the
investment results of the Morgan Stanley Capital International Europe
Index. The fund is managed by The Vanguard Group.
- LARGE COMPANY INDEX FUND - seeks long-term growth of capital and income
from dividends by holding all the stocks that make up the Standard & Poor's
500 Index. The fund is managed by The Vanguard Group.
- VANGUARD GROWTH INDEX FUND - seeks long-term growth of capital by holding
all the stocks in the Standard and Poor's 500/BARRA Growth Index in
approximately the same proportion as those stocks represented in the index.
The fund is managed by The Vanguard Group.
- VANGUARD VALUE INDEX FUND - seeks long-term growth of capital and income
from dividends. The fund holds all the stocks in the Standard and Poor's
500/BARRA Value Index in approximately the same proportion as those stocks
represented in the index. The fund is managed by The Vanguard Group.
- VANGUARD SMALL-CAP VALUE INDEX FUND - seeks long-term growth of capital by
attempting to replicate the performance of the Standard and Poor's SmallCap
600/BARRA Value Index. The fund is managed by The Vanguard Group.
- SMALL/MID-CAP STOCK INDEX FUND - seeks long-term growth of capital with a
market rate of return from a diversified group of medium- and small-company
stocks. The fund holds stocks in the Russell 3000 index that are not part
of the Standard and Poor's 500 index and attempts to match the performance
of the Russell SmallCap Completeness Index. The fund is managed by State
Street Global Advisors.
- VANGUARD PACIFIC STOCK INDEX FUND - seeks long-term growth of capital by
attempting to match the performance of the Morgan Stanley Capital
International Pacific Free Index. The fund is managed by The Vanguard
Group.
- VANGUARD SMALL-CAP GROWTH INDEX FUND - seeks long-term growth of capital by
attempting to match the performance of the Standard and Poor's SmallCap
600/BARRA Growth Index. The fund is managed by The Vanguard Group.
- IBM STOCK FUND - invests in IBM common stock and holds a small
interest-bearing cash balance of approximately 0.25% for liquidity
purposes. The fund is managed by State Street Global Advisors.
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Within the investment funds, stock loan transactions are permitted as a means to
add return to the portfolio. Certain funds may lend securities held in that fund
to unaffiliated broker-dealers registered under the Securities Exchange Act of
1934, or banks organized in the United States of America. At all times, the
borrower must maintain cash or equivalent collateral equal in value to at least
102 percent of the value of the domestic securities loaned and 105 percent of
the value of international securities loaned. The cash collateral is reinvested
to generate income which is credited to the portfolio return. The primary risk
in lending securities is a borrower may default during a sharp rise in the price
of the security that was borrowed, resulting in a deficiency in the collateral
posted by the borrower. The funds seek to minimize this risk by requiring that
the value of the securities that are loaned is computed each day and that
additional collateral is furnished each day, if necessary. The addition of the
securities lending provision does not change the investment objectives for the
funds. The value of loaned securities in the State Street Bank agency program
amounted to $941 million and $1,074 million at December 31, 2002 and 2001,
respectively. In the Vanguard and SSGA commingled funds, securities lending is
also permitted.
NOTE 4 - PLAN TRANSFERS
The transfers below represent participant account balances attributable to
employees transferred to IBM in 2002 primarily as a result of IBM acquisitions
or outsourcing agreements:
Significant transfers were:
- Iris Associates, Inc.- net transfer totaling $18,685,000 (487
participants).
- CrossWorlds Software, Inc. - net transfer totaling $5,500,000 (244
participants).
In 2002, there were also transfers into the Plan totaling $1,048,000 from
approximately 62 employees related to participant account balances from other
companies.
NOTE 5 - TAX STATUS
The Trust established under the Plan is qualified under Section 401 (a) of the
Internal Revenue Code and the Trustees intend to continue it as a qualified
trust. The Plan received a favorable determination letter from the IRS on June
14, 1993. The Plan has been amended since receiving the determination letter.
The Plan administrator continues to believe the Plan is designed and is being
operated in compliance with the applicable requirements of the Internal Revenue
Code. Accordingly, a provision for federal income taxes has not been made.
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NOTE 6 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 as of:
(Dollars in thousands)
DECEMBER 31,
2002 2001
------------ ------------
Net assets available for benefits per the financial
statements $ 18,280,275 $ 20,688,009
Benefit obligations currently payable 3,893 6,416
------------ ------------
Net assets available for benefits per the
Form 5500 $ 18,276,382 $ 20,681,593
============ ============
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
(Dollars in thousands)
YEAR ENDED
DECEMBER 31,
2002
------------
Benefits paid to participants per the financial statements $ 902,898
Less:
Amounts payable at December 31, 2001 6,416
Plus:
Amounts payable at December 31, 2002 3,893
------------
Benefits paid to participants per the Form 5500 $ 900,375
============
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NOTE 7 - INVESTMENT VALUATIONS
The following schedules summarize the value of investments, and the related net
depreciation in fair value of investments by type of investment:
(Dollars in thousands)
VALUE DETERMINED BY
------------------------------------------
QUOTED
MARKET CONTRACT
PRICES VALUE TOTAL
------------------------------------------
AT DECEMBER 31, 2002
INVESTMENTS AT FAIR VALUE
Interest in equity-oriented funds $ 7,708,809 -- $ 7,708,809
Interest in short-term investment-oriented funds 1,223,486 -- 1,223,486
Interest in fixed income-oriented funds 1,555,683 -- 1,555,683
IBM common stock 2,539,347 -- 2,539,347
------------ ------------ ------------
Total $ 13,027,325 -- $ 13,027,325
============ ============ ============
INVESTMENTS AT CONTRACT VALUE
Investment contracts -- $ 4,929,137 4,929,137
------------ ------------ ------------
Total $ 13,027,325 $ 4,929,137 $ 17,956,462
============ ============ ============
AT DECEMBER 31, 2001
INVESTMENTS AT FAIR VALUE
Interest in equity-oriented funds $ 10,276,048 -- $ 10,276,048
Interest in short-term investment-oriented funds 1,199,437 -- 1,199,437
Interest in fixed income-oriented funds 965,121 -- 965,121
IBM common stock 3,336,587 -- 3,336,587
------------ ------------ ------------
Total $ 15,777,193 -- $ 15,777,193
============ ============ ============
INVESTMENTS AT CONTRACT VALUE
Investment contracts -- $ 4,593,119 4,593,119
------------ ------------ ------------
Total $ 15,777,193 $ 4,593,119 $ 20,370,312
============ ============ ============
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NOTE 7 - INVESTMENT VALUATIONS (CONTINUED)
NET DEPRECIATION IN FAIR VALUE OF INVESTMENTS (INCLUDING GAINS AND LOSSES ON
INVESTMENTS BOUGHT AND SOLD, AS WELL AS HELD DURING THE YEAR):
(Dollars in thousands)
2002
-------------
Investments at fair value as determined by quoted market price:
Interests in funds $ (1,923,235)
IBM common stock (1,283,561)
-------------
Total $ (3,206,796)
=============
INVESTMENTS
The investments that represent 5% or more of the Plan's net assets available for
benefits at December 31, 2002 and 2001 are as follows:
(Dollars in thousands)
2002 2001
------------ ------------
Stable Value Fund $ 4,935,808 $ 4,573,448
Large Company Index Fund 3,670,955 5,148,416
IBM Stock Fund 2,541,809 3,339,703
Small/Mid-Cap Stock Index Fund 1,699,141 2,264,639
Moderate Life Strategy Fund 1,045,700 1,177,481
Money Market Fund 966,820 1,003,391
NOTE 8 - RELATED-PARTY TRANSACTIONS
At December 31, 2002, a significant portion of the Plan's assets were invested
in State Street Global Advisors funds. State Street Global Advisors' parent
company, State Street Bank and Trust Corporation also acts as the trustee for
the Plan and, therefore, these investments qualify as party-in-interest
transactions.
At December 31, 2002, the Plan held 32,765,774 shares of IBM common stock valued
at $2,539,347,485. At December 31, 2001, the Plan held 27,584,218 shares of IBM
common stock valued at $3,336,587,009.
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SCHEDULE I
IBM SAVINGS PLAN
SCHEDULE OF ASSETS HELD AT END OF YEAR
AT DECEMBER 31, 2002
(Dollars in thousands)
COST CURRENT VALUE
------------ -------------
INTEREST IN STATE STREET GLOBAL ADVISORS*
AND VANGUARD GROUP FUNDS:
Discretionary Cash Funds $ 1,223,486 $ 1,223,486
============ =============
Equity Index Funds 11,472,190 7,708,809
============ =============
Bond Index Funds 1,374,240 1,555,683
============ =============
COMMON STOCK
IBM Common Stock* $ 3,154,261 $ 2,539,347
============ =============
LOANS TO PARTICIPANTS
(interest rates range: 6.0% - 11.5%,
Terms: one to four years) $ 287,370
=============
* Party-in-interest
(Dollars in thousands)
RATE
OF MATURITY CONTRACT
INVESTMENT CONTRACTS INTEREST DATE VALUE
------------ ------------ ------------
New York Life Insurance Company
GA-30721 6.88% 01/02/03 $ 14,227
Principal Mutual
#4-23271-4 6.93% 03/31/03 29,347
------------
Total $ 43,574
Synthetic GIC Global Wrapper 4.88% Non-Maturing 4,885,563
Total Investment Contracts $ 4,929,137
============
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