IBM 2009 Annual Report Download - page 98

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Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The Effect of Derivative Instruments on the Consolidated Statement of Earnings
($ in millions)
For the year ended December 31, 2009:
Gain (loss) recognized in earnings
Derivative instruments in Consolidated Statement of Recognized on Attributable to risk
fair value hedges Earnings line item derivatives(2) being hedged(3)
Interest rate contracts Cost of financing $(172) $344
Interest expense (97) 193
Total $(269) $537
Gain (loss) recognized in earnings and other comprehensive income
Effective portion Ineffectiveness and
Derivative instruments in Effective portion Consolidated Statement reclassified from amounts excluded from
cash flow hedges recognized in AOCI of Earnings line item AOCI to earnings effectiveness testing(4)
Interest rate contracts $ (0) Interest income $ (13) $—
Foreign exchange contracts (718) Other (income)
and expense 143 (3)
Cost of sales (49)
SG&A expense 14
Total $(718) $ 94 $(3)
Gain (loss) recognized in earnings and other comprehensive income
Effective portion Ineffectiveness and
Derivative instruments in Effective portion Consolidated Statement reclassified from amounts excluded from
net investment hedges recognized in AOCI of Earnings line item AOCI to earnings effectiveness testing(5)
Foreign exchange contracts $234 Interest income $— $ 1
Other (income)
and expense $— $—
Derivative instruments not Consolidated Statement Gain (loss) recognized
designated as hedging instruments(1) of Earnings line item in earnings
Foreign exchange contracts Other (income)
and expense $(128)
Equity contracts SG&A expense 177
Total $ 50
Note: AOCI represents Accumulated other comprehensive income/(loss) in Consolidated Statement of Changes in Equity.
(1)
See pages 76 and 77 for additional information on the purpose for entering into derivatives not designated as hedging instruments.
(2) Includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these
derivative contracts.
(3) Includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated
hedging relationships during the period.
(4) Amount of gain (loss) recognized in income represents ineffectiveness on hedge relationships.
(5) Amount of gain (loss) recognized in income represents amounts excluded from effectiveness assessment.
At December 31, 2009, in connection with cash flow hedges
of anticipated royalties and cost transactions, the company
recorded net losses of $718 million (before taxes), in accumu-
lated other comprehensive income/(loss); $427 million of losses
are expected to be reclassified to net income within the next 12
months, providing an offsetting economic impact against the
underlying anticipated transactions. At December 31, 2009, net
losses of approximately $18 million (before taxes), were recorded
in accumulated other comprehensive income/(loss) in connec-
tion with cash flow hedges of the company’s borrowings; $10
million of losses are expected to be reclassified to net income
within the next 12 months, providing an offsetting economic
impact against the underlying transactions.
For the 12 months ending December 31, 2009, there were
no significant gains or losses recognized in earnings represent-
ing hedge ineffectiveness or excluded from the assessment of
hedge effectiveness (for fair value 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 nor-
mal course of business.
Refer to note A, “Significant Accounting Policies”, on pages
76 and 77 for additional information.
96