IBM 2002 Annual Report Download - page 88

Notes to Consolidated Financial Statements
86 international business machines corporation and Subsidiary Companies
Accumulated Derivative Gains or Losses
As illustrated, the company makes extensive use of cash flow
hedges, principally in the anticipated royalties and cost trans-
actions risk management program. In connection with the
company’s cash flow hedges, it has recorded approximately
$363 million of net losses in Accumulated gains and (losses)
not affecting retained earnings as of December 31, 2002, net
of tax, of which approximately $322 million is expected to be
reclassified to net income within the next year, providing an
offsetting economic impact against the underlying antici-
pated cash flows hedged.
The following table summarizes activity in the Accumulated
gains and (losses) not affecting retained earnings section of the
Consolidated Statement of Stockholders’ Equity related to all
derivatives classified as cash flow hedges held by the company
during the periods January 1, 2001 (the date of the company’s
adoption of SFAS No. 133) through December 31, 2002:
debit/
(dollars in millions, net of tax) (credit)
Cumulative effect of adoption of
SFAS No. 133 as of January 1, 2001 $«(219)
Net gains reclassified into earnings
from equity during 2001 379
Changes in fair value of derivatives in 2001 (456)
December 31, 2001 «(296)
Net losses reclassified into earnings
from equity during 2002 (5)
Changes in fair value of derivatives in 2002 664
december 31, 2002 $«363
At December 31, 2002, there were no significant gains or
losses on derivative transactions or portions thereof that were
either ineffective as hedges, excluded from the assessment of
hedge effectiveness, or associated with an underlying exposure
that did not occur; nor are there any anticipated in the normal
course of business.
mOther Liabilities
(dollars in millions)
at december 31: 2002 2001*
Deferred taxes $«1,450 $«1,485
Deferred income 1,079 1,145
Executive compensation accruals 851 868
Restructuring actions 1,024 589
Postemployment/
preretirement liability 573 493
Environmental accruals 208 215
Other 766 670
Total $«5,951 $«5,465
*Reclassified to conform with 2002 presentation.
Each year the company takes certain workforce rebalancing
actions to improve productivity and competitive position. The
non-current contractually obligated future payments associated
with these ongoing activities are reflected in the postemploy-
ment/preretirement liability caption in the table above.
In addition, the company executed certain actions prior to
1994, and in 1999 and 2002. The non-current liabilities asso-
ciated with these actions are reflected in restructuring actions
in the table above.The reconciliation of the December 31,
2001 to 2002, balances of the current and non-current liabil-
ities for restructuring actions are presented in the table on
page 87. The current liabilities presented in the table are
included in Other accrued expenses and liabilities in the
Consolidated Statement of Financial Position.
hedge designation
(dollars in millions) net non-hedge/
at december 31, 2001 fair value cash flow investment other
Derivatives:
Debt risk management $«301 $««(26) $«««««««— $«(13)
Long-term investments in foreign subsidiaries (“net investments”) ——92—
Anticipated royalties and cost transactions —«««375 — —
Subsidiary cash and foreign currency asset/liability management ———«16
Equity risk management ———«22
Other derivatives ——— 3
Total derivatives «301(a) «349(b) «««««««92(c) ««28 (d)
Debt:
Long-term investments in foreign subsidiaries (“net investments”) ——(5,519) *«««—
Total $«301 $«349 $«(5,427) $««28
*Represents fair value of foreign denominated debt issuances formally designated as a hedge of net investment.
(a) Comprises assets of $301 million.
(b) Comprises assets of $383 million and liabilities of $34 million.
(c) Comprises assets of $92 million.
(d) Comprises assets of $60 million and liabilities of $32 million.