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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
117
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
(in millions)
2014 2013
For the year ended December 31: Amount Average Rate Amount Average Rate
Fixed-rate debt $27,255 3.09% $30,123 3.07%
Floating-rate debt* 12,420 0.82% 6,587 0.87%
Total $39,675 $36,710
* Includes $5,839 million in 2014 and $3,106 million in 2013 of notional interest rate swaps that effectively convert fixed-rate long-term debt into floating-rate debt. (See note D,
“Financial Instruments,” on pages 105 through 109).
The company’s indenture governing its debt securities and its
various credit facilities each contain significant covenants which
obligate the company to promptly pay principal and interest, limit
the aggregate amount of secured indebtedness and sale and
leaseback transactions to 10percent of the company’s consoli-
dated net tangible assets, and restrict the company’s ability to
merge or consolidate unless certain conditions are met. The credit
facilities also include a covenant on the company’s consolidated
net interest expense ratio, which cannot be less than 2.20 to 1.0,
as well as a cross default provision with respect to other defaulted
indebtedness of at least $500 million.
The company is in compliance with all of its significant debt
covenants and provides periodic certifications to its lenders. The
failure to comply with its debt covenants could constitute an event
of default with respect to the debt to which such provisions apply.
If certain events of default were to occur, the principal and interest
on the debt to which such event of default applied would become
immediately due and payable.
Pre-swap annual contractual maturities of long-term debt out-
standing at December31, 2014, are as follows:
($ in millions)
Total
2015 $ 4,600
2016 5,331
2017 5,242
2018 2,621
2019 4,069
2020 and beyond 17,874
Total $39,737
Interest on Debt
($ in millions)
For the year ended December 31: 2014 2013 2012
Cost of financing $ 542 $ 587 $ 545
Interest expense 484 405 470
Net investment derivative activity 0(3) (11)
Interest capitalized 422 18
Total interest paid and accrued $1,030 $1,011 $1,022
Refer to the related discussion on page 148 in note T, “Segment
Information,” for total interest expense of the Global Financing seg-
ment. See note D, “Financial Instruments,” on pages 105 through
109 for a discussion of the use of currency and interest rate swaps
in the company’s debt risk management program.
Lines of Credit
In 2014, the company extended the term of its five-year, $10 billion
Credit Agreement (the “Credit Agreement”) by one year to Novem-
ber 10, 2019. The total expense recorded by the company related
to this global credit facility was $5.4 million in 2014, $5.4 million in
2013 and $5.3 million in 2012. The 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 Credit Agreement up to an additional $2.0
billion. Subject to certain terms of the Credit Agreement, the com-
pany 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 Agree-
ment 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, 2014, 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.