IBM 2014 Annual Report Download - page 109

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
108
Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position
($ in millions)
Fair Value of Derivative Assets Fair Value of Derivative Liabilities
At December 31:
Balance Sheet
Classification 2014 2013
Balance Sheet
Classification 2014 2013
Designated as hedging instruments:
Interest rate contracts
Prepaid expenses and
other current assets $ 5 $ —
Other accrued
expenses and liabilities $ 0 $ 0
Investments and
sundry assets 628 308 Other liabilities —13
Foreign exchange contracts
Prepaid expenses and
other current assets 632 187
Other accrued
expenses and liabilities 50 331
Investments and
sundry assets 17 26 Other liabilities 21 112
Fair value of
derivative assets $1,281 $522
Fair value of
derivative labilities $ 72 $ 456
Not designated as hedging instruments:
Foreign exchange contracts
Prepaid expenses and
other current assets $ 90 $ 94
Other accrued
expenses and liabilities $ 101 $ 40
Investments and
sundry assets 37 67 Other liabilities 41
Equity contracts
Prepaid expenses and
other current assets 24 36
Other accrued
expenses and liabilities 14 4
Investments and
sundry assets 0— Other liabilities 5—
Fair value of
derivative assets $ 151 $197
Fair value of
derivative liabilities $ 125 $ 45
Total debt designated as hedging instruments
Short-term debt N/A N/A $ 0 $ 190
Long-term debt N/A N/A $7,766 $6,111
Total $1,432 $719 $7,963 $6,802
N/A—Not applicable
Other Risks
The company may hold warrants to purchase shares of common
stock in connection with various investments that are deemed
derivatives because they contain net share or net cash settle-
ment provisions. The company records the changes in the fair
value of these warrants in other (income) and expense in the Con-
solidated Statement of Earnings. The company did not have any
warrants qualifying as derivatives outstanding at December31,
2014 and 2013.
The company is exposed to a potential loss if a client fails to pay
amounts due under contractual terms. The company may utilize
credit default swaps to economically hedge its credit exposures.
These derivatives have terms of one year or less. 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 did not have any derivative instruments relating to
this program outstanding at December31, 2014 and 2013.
The company is exposed to market volatility on certain invest-
ment securities. The company may utilize options or forwards
to economically hedge its market exposure. The derivatives are
recorded at fair value with gains and losses reported in other
(income) and expense in the Consolidated Statement of Earn-
ings. At December31, 2014, the total notional amount of derivative
instruments in economic hedges of investment securities was
$0.1 billion. No amounts were outstanding under this program at
December31, 2013.
The following tables provide a quantitative summary of the
derivative and non-derivative instrument- related risk management
activity as of December31, 2014 and 2013, as well as for the years
ended December31, 2014, 2013 and 2012, respectively.