Borrowings:

9 Months Ended

Sep. 30, 2014

11. Borrowings:

Short-Term Debt

	At September 30,		At December 31,
(Dollars in millions)	2014		2013
Commercial paper	$	6,474	$	2,458
Short-term loans		329		551
Long-term debt—current maturities		6,073		3,854
Total	$	12,876	$	6,862

The weighted-average interest rate for commercial paper at September 30, 2014 and December 31, 2013 was 0.1 percent at both periods. The weighted-average interest rate for short-term loans was 7.6 percent and 5.1 percent at September 30, 2014 and December 31, 2013, respectively.


Long-Term Debt

Pre-Swap Borrowing

				Balance		Balance
(Dollars in millions)		Maturities	9/30/2014		12/31/2013
U.S. dollar notes and debentures (average interest rate at September 30, 2014):
0.58%	2014–2015		$	5,423	$	6,456
2.75%	2016–2017			9,531		8,465
3.34%	2018–2021			8,056		6,206
1.88%		2022		1,000		1,000
3.38%		2023		1,500		1,500
3.63%		2024		2,000		–
7.00%		2025		600		600
6.22%		2027		469		469
6.50%		2028		313		313
5.88%		2032		600		600
8.00%		2038		83		83
5.60%		2039		745		745
4.00%		2042		1,107		1,107
7.00%		2045		27		27
7.13%		2096		316		316
			$	31,770	$	27,887
Other currencies (average interest rate at September 30, 2014, in parentheses):				\
Euros (2.0%)	2015–2025			4,438		5,894
Pound sterling (2.75%)	2017–2020			1,224		1,254
Japanese yen (0.5%)	2017			801		1,057
Swiss francs (3.8%)	2015–2020			169		181
Canadian (2.2%)		2017		447		471
Other (9.79%)	2015–2018			256		291
			$	39,106	$	37,036
Less: net unamortized discount				857		872
Add: fair value adjustment*				646		546
			$	38,894	$	36,710
Less: current maturities				6,073		3,854
Total			$	32,821	$	32,856

Note: The 2014-2015 maturities at 12/31/2013 includes $17 million of debt securities issued by IBM International Group Capital, LLC, which is an indirect, 100 percent owned finance subsidiary of the company which matured in the first half of 2014. Debt securities issued by IBM International Group Capital LLC are fully and unconditionally guaranteed by the company.

* 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 a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates.

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 consolidated 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 outstanding at September 30, 2014, are as follows:


(Dollars in millions)	Total
2014 (for Q4)	$	1,409
2015		4,717
2016		5,175
2017		5,328
2018		2,617
2019 and beyond		19,860
Total	$	39,106

Interest on Debt


(Dollars in millions)
For the nine months ended September 30:	2014		2013
Cost of financing	$	407	$	444
Interest expense		366		292
Net investment derivative activity		1		(3)
Interest capitalized		3		19
Total interest paid and accrued	$	777	$	752

Refer to the company’s 2013 Annual Report, note T, “Segment Information,” on page 143 for total interest expense of the Global Financing segment. See note 3, “Financial Instruments,” for a discussion of the use of currency and interest rate swaps in the company’s debt risk management program.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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