IBM 2012 Annual Report Download - page 106

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
105
Pre-swap annual contractual maturities of long-term debt outstand-
ing at December 31, 2012, are as follows:
($ in millions)
To t a l
2013 $ 5,561
2014 3,791
2015 2,677
2016 3,058
2017 4,531
2018 and beyond 10,042
To t a l $29,660
Debt Exchange
In the second quarter of 2012, the company completed an exchange
of approximately $6 million of principal of its 7.125 percent deben-
tures due 2096, $104 million of principal of its 8.00 percent notes
due in 2038 and $800 million of principal of its 5.600 percent senior
notes due in 2039 for approximately $1,107 million of 4.00 percent
senior notes due in 2042 and cash of approximately $121 million.
The exchange was completed to retire high coupon debt in the cur-
rent favorable interest rate environment.
The debt exchange was accounted for as a non-revolving debt
modification in accordance with accounting guidance, and therefore
it did not result in any gain or loss recorded in the Consolidated
Statement of Earnings. Cash payments will be amortized over the
life of the new debt. Administrative fees with third parties in relation
to the exchange were expensed as incurred.
Interest on Debt
($ in millions)
For the year ended December 31: 2012 2011 2010
Cost of financing $ 545 $553 $555
Interest expense 470 402 365
Net investment derivative activity (11)9 3
Interest capitalized 18 9 5
Total interest paid and accrued $1,022 $973 $928
Refer to the related discussion on page 136 in note T, “Seg ment
Infor mation,” for total interest expense of the Global Financing
segment. See note D, “Financial Instruments,” on pages 92 to 98
for a discussion of the use of currency and interest rate swaps in
the company’s debt risk management program.
Lines of Credit
In 2011, the company renewed its five-year, $10 billion Credit Agree-
ment (the “Credit Agreement”), which expires on November 10,
2016. In 2012, the company extended the term of the global credit
facility by one year to November 10, 2017. The total expense
recorded by the company related to this facility was $5.3 million in
2012, $5.0 million in 2011 and $6.2 million in 2010. The Credit Agree-
ment 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 Agree-
ment, 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 warranties, 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. As of December 31, 2012, there were no borrowings by
the company, or its subsidiaries, under the Credit Agreement.
The company also has other committed lines of credit in some
of the geographies which are not significant in the aggregate. Inter-
est 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)
2012 2011
For the year ended December 31: Amount Average Rate Amount Average Rate
Fixed-rate debt $24,049 3.43% $18,547 4.38%
Floating-rate debt* 5,631 1.91% 8,614 1.54%
To t a l $29,680 $27,161
* Includes $4,252 million in 2012 and $5,898 million in 2011 of notional interest rate swaps that effectively convert the fixed-rate long-term debt into floating-rate debt. (See note D,
“Financial Instruments,” on pages 92 to 98.)