IBM 1998 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS International Business Machines Corporation and Subsidiary Companies
74
LInterest on Debt
Interest paid and accrued on borrowings of the company and its
subsidiaries amounted to $1,585 million in 1998, $1,596 million
in 1997 and $1,565 million in 1996. Of these amounts, $28 mil-
lion in 1998, $32 million in 1997 and $31 million in 1996 were
capitalized. The remainder was charged to the cost of rentals
and financing in the amounts of $844 million in 1998, $836 mil-
lion in 1997 and $818 million in 1996, or interest expense in
the amounts of $713 million in 1998, $728 million in 1997 and
$716 million in 1996. The decrease in total interest expense in
1998 versus 1997 was due primarily to lower average interest
rates, partially offset by higher levels of debt. The increase in
total interest expense in 1997 versus 1996 was primarily due
to higher levels of debt, partially offset by lower interest rates.
The average interest rate for total debt was 5.7 percent,
6.4 percent and 7.0 percent in 1998, 1997 and 1996, respec-
tively. These rates include the results of currency and interest
rate swaps applied to the debt described in note K, “Debt,” on
page 73.
MFinancial Instruments
The company maintains portfolios of financial instruments
both on- and off-balance sheet.
Financial Instruments On-Balance Sheet (excluding derivatives)
Financial assets with carrying values approximating fair value
include cash and cash equivalents, marketable securities, notes
and other accounts receivable and other investments. Financial
liabilities with carrying values approximating fair value include
accounts payable and other accrued expenses and liabilities,
and short-term and long-term debt.
The following table summarizes the company’s marketable
securities and other investments, all of which were considered
available for sale.
MARKETABLE SECURITIES AND OTHER INVESTMENTS
(Dollars in millions) Carrying Value
At December 31: 1998 1997
Current marketable securities:
U.S. government securities $«««15 $«««93
Time deposits and other bank obligations 335 181
Non-U.S. government securities and
other fixed-term obligations 43 173
Total $«393 $«447
Marketable securities— non-current:*
U.S. government securities $«««— $«««54
Time deposits and other bank obligations 271 183
Non-U.S. government securities and
other fixed-term obligations 10 58
Total $«281 $«295
Other investments:*
Alliance investments— Other $«138 $«236
*Included within Investments and sundry assets on the Consolidated
Statement of Financial Position (See note H on page 72).
Financial Instruments Off-Balance Sheet (excluding derivatives)
IBM has guaranteed certain loans and financial commitments of
affiliates. The approximate amount of these financial guarantees
were $1,158 million and $861 million at December 31, 1998 and
1997, respectively. Additionally, the company is responsible for
fulfilling financial commitments associated with certain con-
tracts to which it is a party. These commitments, which in the
aggregate were approximately $1,600 million and $600 million
at December 31, 1998 and 1997, respectively, are not expected
to have a material adverse effect on the company’s financial
position or results of operations.
The company’s dealers had unused lines of credit available from
IBM for working capital financing of approximately $3.6 billion
and $2.1 billion at December 31, 1998 and 1997, respectively.
Derivative Financial Instruments
The company has used derivative instruments as an element
of its risk management strategy for many years. Although
derivatives entail a risk of nonperformance by counterparties,
the company manages this risk by establishing explicit dollar
and term limitations that correspond to the credit rating of
each carefully selected counterparty. The company has not
sustained a material loss from these instruments nor does it
anticipate any material adverse effect on its results of opera-
tions or financial position in the future.