IBM 2006 Annual Report Download - page 88

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(Dollars in millions)
HEDGE DESIGNATION
NET NON-HEDGE/
AT DECEMBER 31, 2005 FAIR VALUE CASH FLOW INVESTMENT OTHER
Derivatives—net asset/(liability):
Debt risk management $() $ () $ — $()
Long-term investments in foreign subsidiaries (“net investments”) — —  —
Anticipated royalties and cost transactions —  — —
Subsidiary cash and foreign currency asset/liability management — — — ()
Equity risk management — — — 
Other derivatives — — —
Total derivatives ()(a) (b) (c) ()(d)
Debt:
Long-term investments in foreign subsidiaries (“net investments”) — — (,)(e) —
Total $() $ $(,) $ ()
(a) Comprises assets of $34 million and liabilities of $150 million.
(b) Comprises assets of $363 million and liabilities of $118 million.
(c) Comprises assets of $150 million and liabilities of $30 million.
(d) Comprises assets of $25 million and liabilities of $117 million.
(e) Represents foreign currency denominated debt formally designated as a hedge of net investment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
86 2006 Annual Report
ACCUMULATED DERIVATIVE GAINS OR LOSSES
At December 31, 2006, in connection with its cash flow hedges
of anticipated royalties, and cost and commodity purchase trans-
actions, the company recorded losses of $49 million, net of tax, in
Accumulated gains and (losses) not affecting retained earnings. This
amount is expected to be reclassified to net income within the next year,
providing an offsetting economic impact against the underlying antici-
pated transactions. At December 31, 2006, losses of approximately $55
million, net of tax, were recorded in Accumulated gains and (losses)
not affecting retained earnings in connection with cash flow hedges of
the company’s borrowings. Of this amount $10 million is expected to
be reclassified to net income within the next year providing an offset-
ting economic impact against the underlying transactions.
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:
(Dollars in millions, net of tax)
DEBIT/(CREDIT)
December 31, 2003 $ 
Net losses reclassified into earnings
from equity during 2004 ()
Changes in fair value of derivatives in 2004 
December 31, 2004 
Net losses reclassified into earnings from
equity during 2005 ()
Changes in fair value of derivatives in 2005 ()
December 31, 2005 ()
Net gains reclassified into earnings
from equity during 2006 
Changes in fair value of derivatives in 2006 
December 31, 2006 $ 
For the years ending December 31, 2006, 2005 and 2004, there were
no significant gains or losses recognized in earnings representing
hedge ineffectiveness or excluded from the assessment of hedge effec-
tiveness (for fair value hedges and cash flow hedges), or associated
with an underlying exposure that did not or was not expected to occur
(for cash flow hedges); nor are there any anticipated in the normal
course of business.
Consolidated Statements ......................................................... 
Notes .....................................................................................
A-G ......................................................................................... 62
H-M ......................................................................................... 
H. Investments and Sundry Assets ...................................... 
I. Intangible Assets Including Goodwill ............................... 
J. Securitization of Receivables ........................................... 
K. Borrowings ....................................................................... 
L. Derivatives and Hedging Transactions ............................ 
M. Other Liabilities ............................................................... 
N-S .......................................................................................... 
T-X .......................................................................................... 
Black
MAC
390 CG10