IBM 2006 Annual Report Download - page 85

Black
MAC
390 CG10
POST-SWAP BORROWING (LONG-TERM DEBT, INCLUDING CURRENT PORTION)
(Dollars in millions)
2006 2005
AT DECEMBER 31: AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
Fixed-rate debt $ , .% $ , .%
Floating-rate debt* , .% , .%
Total $, $,
* Includes $6,616 million in 2006 and $7,811 million in 2005 of notional long-term interest rate swaps that effectively convert the fixed-rate debt into floating-rate debt. (See note L,
“Derivatives and Hedging Transactions,” on pages 83 through 86).
Pre-swap annual contractual maturities of long-term debt outstanding
at December 31, 2006, are as follows:
(Dollars in millions)
2007 $ ,
2008 ,
2009 ,
2010 ,
2011 ,
2012 and beyond ,
Total $,
INTEREST ON DEBT
(Dollars in millions)
FOR THE YEAR ENDED DECEMBER 31: 2006 2005 2004
Cost of Global Financing $ $ $
Interest expense   
Interest capitalized   
Total interest on debt $ $ $
Refer to the related discussion on page 113 in note W, “Segment
Information,” for total interest expense of the Global Financing seg-
ment. See note L, “Derivatives and Hedging Transactions,” on pages
83 through 86 for a discussion of the use of currency and interest rate
swaps in the company’s debt risk management program.
LINES OF CREDIT
On June 28, 2006, the company entered into a new five-year $10
billion Credit Agreement (the “Credit Agreement”) with JPMorgan
Chase Bank, N.A., as Administrative Agent, and Citibank, N.A., as
Syndication Agent replacing the company’s existing five-year $10 bil-
lion Credit Agreement (the “Existing Agreement”) dated May 27,
2004. The Existing Agreement was not otherwise due to expire until
May 27, 2009. The total expense recorded by the company related to
these facilities was $7.4 million in 2006 and $8.9 million in both 2005
and 2004. The new Credit Agreement permits the company and its
Subsidiary Borrowers to borrow up to $10 billion on a revolving basis.
Borrowings of the Subsidiary Borrowers will be unconditionally
backed by the company. The company may also, upon the agreement
of either existing Lenders, or of the additional banks not currently
party to the Credit Agreement, increase the commitments under the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
83
Credit Agreement up to an additional $2.0 billion. Subject to certain
terms of the Credit Agreement, the company and Subsidiary Borrowers
may borrow, prepay and reborrow amounts under the Credit
Agreement at any time during the Credit Agreement. Interest rates on
borrowings under the Credit Agreement will be based on prevailing
market interest rates, as further described in the Credit Agreement.
The Credit Agreement contains customary representations and war-
ranties, covenants, events of default, and indemnification provisions.
The company believes that circumstances that might give rise to
breach of these covenants or an event of default, as specified in the
Credit Agreement are remote. The company’s other lines of credit,
most of which are uncommitted, totaled $9,429 million and $10,057
million at December 31, 2006 and 2005, respectively. Interest rates
and other terms of borrowing under these lines of credit vary from
country to country, depending on local market conditions.
(Dollars in millions)
AT DECEMBER 31: 2006 2005
Unused lines:
From the committed
global credit facility $ , $ ,
From other committed and
uncommitted lines , ,
Total unused lines of credit $, $,
L. DERIVATIVES AND HEDGING
TRANSACTIONS
The company operates in multiple functional currencies and is a
significant lender and borrower in the global markets. In the normal
course of business, the company is exposed to the impact of interest
rate changes and foreign currency fluctuations, and to a lesser extent
equity price changes and client credit risk. The company limits these
risks by following established risk management policies and proce-
dures, including the use of derivatives, and, where cost-effective,
financing with debt in the currencies in which assets are denominated.
For interest rate exposures, derivatives are used to align rate move-
ments between the interest rates associated with the company’s lease
and other financial assets and the interest rates associated with its
financing debt. Derivatives are also used to manage the related cost of
debt. For foreign currency exposures, derivatives are used to limit the
effects of foreign exchange rate fluctuations on financial results.