IBM 2010 Annual Report Download - page 103

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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 101
The Effect of Derivative Instruments in the Consolidated Statement of Earnings
($ in millions)
Gain (Loss) Recognized in Earnings
Consolidated
Statement of Recognized on Attributable to Risk
Earnings Line Item Derivatives (1) Being Hedged
(2)
For the year ended December 31: 2010 2009 2010 2009
Derivative instruments in fair value hedges:
Interest rate contracts Cost of financing $ 241 $(172) $ (70) $344
Interest expense 160 (97) (46) 193
Derivative instruments not designated
as hedging instruments:
(1)
Foreign exchange contracts Other (income)
and expense 299 (128) N/A N/A
Equity contracts SG&A expense 105 177 N/A N/A
Tot a l $ 805 $(219) $(116) $537
Gain (Loss) Recognized in Earnings and Other Comprehensive Income
Consolidated (Ineffectiveness) and
Effective Portion Statement of Effective Portion Reclassified Amounts Excluded from
Recognized in AOCI Earnings Line Item from AOCI to Earnings Effectiveness Testing(3)
For the year ended December 31: 2010 2009 2010 2009 2010 2009
Derivative instruments in cash flow hedges:
Interest rate contracts $ — $ (0) Interest expense $ (8) $ (13) $ — $ —
Foreign exchange contracts Other (income)
371 (718) and expense (54) 143 (4) (3)
Cost of sales (92) (49) — —
SG&A expense (49) 14 — —
Instruments in net investment hedges:(4)
Foreign exchange contracts 178 (162)(5) Interest expense 0 — (3) 1
Tot a l $549 $(880) $(203) $ 94 $ (7) $ (2)
Note: AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity.
(1) The amount 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.
(2) The amount 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.
(3) The amount of gain (loss) recognized in income represents ineffectiveness on hedge relationships.
(4) Instruments in net investment hedges include derivative and non-derivative instruments.
(5) Amount revised from the company’s 2009 Annual Report.
For the 12 months ending December 31, 2010, and 2009, there
were no significant gains or losses recognized in earnings repre-
senting 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 normal
course of business.
Refer to Note A, “Significant Accounting Policies,” on pages
75 and 76 for additional information on the company’s use of
derivative financial instruments.