IBM 2014 Annual Report Download - page 105

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
104
Loans and Long-Term Receivables
Fair values are based on discounted future cash flows using cur-
rent interest rates offered for similar loans to clients with similar
credit ratings for the same remaining maturities. At December31,
2014 and 2013, the difference between the carrying amount and
estimated fair value for loans and long-term receivables was
immaterial. If measured at fair value in the financial statements,
these financial instruments would be classified as Level3 in the
fair value hierarchy.
Long-Term Debt
Fair value of publicly traded long-term debt is based on quoted
market prices for the identical liability when traded as an asset
in an active market. For other long-term debt for which a quoted
market price is not available, an expected present value technique
that uses rates currently available to the company for debt with
similar terms and remaining maturities is used to estimate fair
value. The carrying amount of long-term debt is $35,073 million
During the year ended December31, 2014, the company trans-
ferred trading security investments valued at $74 million from
Level2 to Level1 due to the expiration of certain regulatory restric-
tions. There were no transfers between Levels1 and 2 for the year
ended December31, 2013.
Financial Assets and Liabilities Not Measured at Fair Value
Short-Term Receivables and Payables
Notes and other accounts receivable and other investments are
financial assets with carrying values that approximate fair value.
Accounts payable, other accrued expenses and short-term debt
(excluding the current portion of long-term debt) are financial liabili-
ties with carrying values that approximate fair value. If measured
at fair value in the financial statements, these financial instruments
would be classified as Level3 in the fair value hierarchy.
($ in millions)
At December 31, 2013: Level 1 Level 2 Level 3 Total
Assets
Cash equivalents
(1)
Time deposits and certificates of deposit $ — $4,754 $— $4,754
Commercial paper — 1,507 — 1,507
Money market funds 1,728 — — 1,728
Other securities — 8 — 8
Total 1,728 6,269 — 7,997(6)
Debt securities—current
(2) — 350 — 350(6)
Debt securities—noncurrent
(3) 1 7 — 9
Available-for-sale equity investments
(3) 18 — — 18
Derivative assets
(4)
Interest rate contracts — 308 — 308
Foreign exchange contracts — 375 — 375
Equity contracts — 36 — 36
Total — 719 — 719 (7)
Total assets $1,747 $7,345 $— $9,092 (7)
Liabilities
Derivative liabilities
(5)
Interest rate contracts $ — $ 13 $— $ 13
Foreign exchange contracts — 484 — 484
Equity contracts — 4 — 4
Total liabilities $ — $ 501 $— $ 501 (7)
(1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position.
(2) Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position.
(3) Included within investments and sundry assets in the Consolidated Statement of Financial Position.
(4)
The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of
Financial Position at December31, 2013 were $318 million and $401 million, respectively.
(5)
The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at
December31, 2013 were $375 million and $126 million, respectively.
(6) Available-for-sale securities with carrying values that approximate fair value.
(7)
If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability
positions would have been reduced by $251 million each.