Skip to main content

Notes to consolidated financial statements (audited)
International Business Machines Corporation and Subsidiary Companies

J. Borrowings

Short-term debt

($ in millions)
At December 31: 2007 2006
Commercial paper $ 5,831 $ 3,779
Short-term loans 2,714 2,355
Long-term debt—current maturities 3,690 2,768
Total $ 12,235 $ 8,902

The weighted-average interest rates for commercial paper at December 31, 2007 and 2006, were 4.4 percent and 5.3 percent, respectively. The weighted-average interest rates for short-term loans were 4.8 percent and 3.0 percent at December 31, 2007 and 2006, respectively.

Long-term debt

Pre-Swap Borrowing
($ in millions)
At December 31: Maturities 2007 2006*

* Reclassified to conform with 2007 presentation.

** As part of the company’s 2002 acquisition of PricewaterhouseCoopers’ Global Business Consulting and Technology Services Unit, the company issued convertible notes bearing interest at a stated rate of 3.43 percent with a face value of approximately $328 million to certain of the acquired PricewaterhouseCoopers’ Global Business Consulting and Technology Services Unit partners. The notes were convertible into 4,764,543 shares of IBM common stock at the option of the holders at any time based on a fixed conversion price of $68.81 per share of the company’s common stock. As of December 31, 2007, all of the shares have been issued.

*** On January 29, 2008, IBM International Group Capital LLC, which is an indirect, 100 percent-owned finance subsidiary of the company, issued $3.5 billion of 18-month floating rate notes. These proceeds will be utilized to reduce the 364-day bridge loan associated with the 2007 accelerated share repurchase transaction. (See note M, “Stockholders’ Equity,” for additional information.) As such, the 2007 amount includes $3.5 billion of the bridge loan balance which has been reclassified to long-term debt in accordance with SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced”.

+ $4.1 billion in debt securities issued by IBM International Group Capital LLC, as defined in Rule 3-10(b) of Regulation S-X is included in 2008-2011 ($2.6 billion) and 2012-2013 ($1.5 billion). Debt securities issued by IBM International Group Capital LLC are fully and unconditionally guaranteed by the company.

++ In accordance with the requirements of SFAS No. 133, the portion of the company’s fixed rate debt obligations that is hedged is reflected in the Consolidated Statement of Financial Position as an amount equal to the sum of the debt’s carrying value plus an SFAS No. 133 fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates.

U.S. Dollar Notes and Debentures (average
interest rate at December 31, 2007):**
4.48% 2008–2011 $ 12,295***+ $ 7,137
5.34% 2012–2013 3,545+ 2,047
5.69% 2014–2018 3,026 26
8.375% 2019 750 750
7.00% 2025 600 600
6.22% 2027 469 469
6.50% 2028 313 313
5.875% 2032 600 600
7.00% 2045 150 150
7.125% 2096 850 850
  22,598 12,942
Other currencies (average interest
rate at December 31, 2007, in parentheses):
Euros (3.4%) 2008–2013 2,466 2,234
Japanese yen (2.2%) 2010–2014 767 796
Swiss francs (1.5%) 2008 442 410
Other (2.7%) 2008–2013 89 66
    26,362 16,448
Less: Net unamortized discount   65 64
Add: SFAS No. 133 fair value adjustment++   432 164
    26,729 16,548
Less: Current maturities   3,690 2,768
Total   $ 23,039 $ 13,780

Post-swap borrowing (long-term debt, including current portion)

($ in millions)
2007 2006
At December 31: Amount Average Rate Amount Average Rate

* 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”).

** 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.

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  

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

* 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,” for additional information.

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

Refer to the related discussion in note V, “Segment Information,” for total interest expense of the Global Financing segment. See note K, “Derivatives and Hedging Transactions,” 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 company 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 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 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. 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.

($ in millions)
At December 31: 2007 2006
Unused lines:
From the committed global credit facility $ 9,792 $ 9,875
From other committed and uncommitted lines 7,895 7,215
Total unused lines of credit $ 17,687 $ 17,090
Previous
|Next
Back to Top