IBM 2008 Annual Report Download - page 94

Download and view the complete annual report

Please find page 94 of the 2008 IBM annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128


Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
Management Discussion ............................................................................................. 18
Consolidated Statements ............................................................................................ 60
Notes ............................................................................................................................... 66
A – E ........................................................................................................................66
F – J ........................................................................................................................86
K– Q .......................................................................................................................88
K. BORROWINGS ................................................................................................. 88
L. DERIVATIVES AND HEDGING TRANSACTIONS ..............................................90
M. OTHER LIABILITIES ..........................................................................................94
N. STOCKHOLDERS’ EQUITY ACTIVITY ...............................................................95
O. CONTINGENCIES AND COMMITMENTS ..........................................................97
P. TAXES ...............................................................................................................99
Q. RESEARCH, DEVELOPMENT AND ENGINEERING ......................................... 101
R –W ..................................................................................................................... 10 2
    
/ 
The company uses its Global Treasury Centers to manage the cash of
its subsidiaries. These centers principally use currency swaps to con-
vert cash flows in a cost-effective manner. In addition, the company
uses foreign exchange forward contracts to economically hedge, on a
net basis, the foreign currency exposure of a portion of the company’s
nonfunctional currency assets and liabilities. The terms of these for-
ward and swap contracts are generally less than six months. The
changes in the fair values of these contracts and of the underlying
hedged exposures are generally offsetting and are recorded in other
(income) and expense in the Consolidated Statement of Earnings.
  
The company is exposed to equity price changes related to certain
obligations to employees. These equity exposures are primarily related
to market price movements in certain broad equity market indices
and in the company’s common stock. Changes in the overall value of
these employee compensation obligations are recorded in SG&A
expense in the Consolidated Statement of Earnings. Although not
designated as accounting hedges, the company utilizes equity deriva-
tives, including equity swaps and futures, to economically hedge the
exposures related to certain employee compensation obligations. The
derivatives are linked to the total return on certain broad equity
market indices or the total return on the company’s common stock.
They are recorded at fair value with gains or losses also reported in
SG&A expense in the Consolidated Statement of Earnings.
 
The company holds warrants in connection with certain investments
that are deemed derivatives because they contain net share or net
cash settlement provisions. The company records the changes in the
fair value of these warrants in other (income) and expense in the
Consolidated Statement of Earnings.
The company is exposed to a potential loss if a client fails to pay
amounts due under contractual terms (credit risk). The company
utilizes credit default swaps to economically hedge its credit expo-
sures. The swaps are recorded at fair value with gains and losses
reported in other (income) and expense in the Consolidated
Statement of Earnings. The company had no credit default swaps
outstanding at December ,.
To economically hedge its foreign exchange exposure not covered
by any of the previously discussed programs, the company also uses
certain forward contracts that are not designated as accounting
hedges. These derivatives are recorded at fair value with gains and
losses reported in other (income) and expense in the Con solidated
Statement of Earnings.
The tables on page  summarize the net fair value of the
derivative instruments and the carrying value of foreign currency
denominated debt designated as a hedge of net investment at Decem-
ber , and  (included in the Consolidated Statement of
Financial Position).