IBM 2007 Annual Report Download - page 89

87
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Pre-swap annual contractual maturities of long-term debt outstanding
at December 31, 2007, are as follows:
($ in millions)
2008 $ 3,705
2009 8,373
2010 2,212
2011 1,670
2012 2,996
2013 and beyond 7,406
Total $26,362
Interest on Debt
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
Cost of Financing $ 811 $ 692 $ 525
Interest expense* 753 398 327
Net investment hedging activity * (142) (120) (107)
Interest capitalized 9 11 16
Total interest paid and accrued $1,431 $ 981 $ 761
* Reclassified to conform with 2007 presentation to disclose changes in the fair value of the
portion of a net investment hedging derivative excluded from the effectiveness assessment.
See note A, “Significant Accounting Policies,” on pages 71 and 72 under “Derivatives”
for additional information.
Refer to the related discussion on page 118 in note V, “Segment
Information,” for total interest expense of the Global Financing seg-
ment. See note K, “Derivatives and Hedging Transactions,” on pages
88 to 91 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, 2007, the company extended by one year its 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 amending the company’s existing five-
year $10 billion Credit Agreement (the “Existing Agreement”) dated
June 28, 2006. The Existing Agreement was not otherwise due to
expire until June 28, 2011. The total expense recorded by the com-
pany related to these facilities was $6.2 million in 2007, $7.4 million
in 2006 and $8.9 million in 2005. The amended 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 com-
pany 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 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 warran-
ties, 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 approximately $9,992 million and
$9,429 million at December 31, 2007 and 2006, respectively. Interest
rates and other terms of borrowing under these lines of credit vary
from country to country, depending on local market conditions.
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
($ in millions)
2007 2006
AT DECEMBER 31: AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
Fixed-rate debt* $10,922 5.48% $ 8,758 5.25%
Floating-rate debt** 15,807 4.76% 7,790 6.30%
Total $26,729 $16,548
* Includes $2,600 million in 2007 and $1,500 million in 2006 of notional interest rate swaps that effectively convert floating-rate long-term debt into fixed-rate debt. (See note K,
“Derivatives and Hedging Transactions,” on pages 88 to 91).
** Includes $9,606 million in 2007 and $6,616 million in 2006 of notional interest rate swaps that effectively convert the fixed-rate long-term debt into floating-rate debt.