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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
113
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 consol-
idated 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 $500million.
The company is in compliance with all of its significant debt
covenants and provides periodic certifications to its lenders. The
failure to comply with its debt covenants could constitute an event
of default with respect to the debt to which such provisions apply.
If certain events of default were to occur, the principal and interest
on the debt to which such event of default applied would become
immediately due and payable.
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
($ inmillions)
2015 2014**
For the year ended December 31: Amount Average Rate Amount Average Rate
Fixed-rate debt $25,499 3.41% $27,180 3.09%
Floating-rate debt* 13,199 0.96% 12,412 0.82%
Total $38,699 $39,593
* Includes $7,338million in 2015 and $5,839 million in 2014 of notional interest rate swaps that effectively convert fixed-rate long-term debt into floating-rate debt. (See noteD,
“Financial Instruments,” on pages 101 through 105).
** Reclassified to reflect adoption of the FASB guidance on debt issuance costs in consolidated financial statements. Refer to noteB, “Accounting Changes,” for additional information.
Pre-swap annual contractual maturities of long-term debt out-
standing at December31, 2015, are as follows:
($ inmillions)
Total
2016 $ 5,273
2017 5,674
2018 4,691
2019 4,003
2020 4,505
2021 and beyond 14,675
Total $38,820
Interest on Debt
($ inmillions)
For the year ended December 31: 2015 2014 2013
Cost of fi nancing $ 540 $ 542 $ 587
Interest expense 481 484 405
Net investment derivative activity (13)0 (3)
Interest capitalized 0422
Total interest paid and accrued $1,008 $1,030 $1,011
Refer to the related discussion on page144 in noteT, “Segment
Information,” for total interest expense of the Global Financing seg-
ment. See noteD, “Financial Instruments,” on pages 101 through
105 for a discussion of the use of currency and interest rate swaps
in the company’s debt risk management program.
Lines of Credit
In 2015, the company extended the term of its five-year, $10bil-
lion Credit Agreement (the “Credit Agreement”) by one year to
November10, 2020. The total expense recorded by the com-
pany related to this global credit facility was $5.3million in 2015,
$5.4million in 2014 and $5.4million in 2013. 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 Agree-
ment, 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 Agree-
ment 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 Agree-
ment. 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,
2015, 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.