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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
109
The Effect of Derivative Instruments in the Consolidated Statement of Earnings
($ in millions)
Gain/(Loss) Recognized in Earnings
Consolidated
Statement of
Earnings Line Item Recognized on Derivatives (1) Attributable to Risk Being Hedged (2)
For the year ended December 31: 2014 2013 2012 2014 2013 2012
Derivative instruments in fair value hedges
(5)
Interest rate contracts Cost of financing $ 231 $(109) $ 65 $(127) $202 $ 59
Interest expense 206 (74) 55 (114) 138 50
Derivative instruments not designated
as hedging instruments
(1)
Foreign exchange contracts
Other (income)
and expense (776) (328) (311) N/A N/A N/A
Interest rate contracts
Other (income)
and expense 34 — — N/A N/A N/A
Equity contracts SG&A expense 51 164 110 N/A N/A N/A
Other (income)
and expense (9) — — N/A N/A N/A
Total $(263) $(347) $ (81) $(241) $340 $108
($ in millions)
Gain/(Loss) Recognized in Earnings and Other Comprehensive Income
Effective Portion
Recognized in OCI
Consolidated
Statement of
Earnings Line Item
Effective Portion
Reclassified from AOCI
Ineffectiveness and
Amounts Excluded from
Effectiveness Testing (3)
For the year ended December 31: 2014 2013 2012 2014 2013 2012 2014 2013 2012
Derivative instruments in cash flow hedges
Interest rate contracts $ — $ — $ — Interest expense $ (1) $ — $ (6) $— $— $ —
Foreign exchange contracts 958 43 32
Other (income)
and expense 98 162 237 (1) 0 3
Cost of sales (15) (34) 7 —— —
SG&A expense 15 39 16 —— —
Instruments in net investment hedges (4)
Foreign exchange contracts 1,136 173 (26) Interest expense —— — 03 11
Total $2,095 $216 $ 6$ 97 $167 $253 $(1) $ 3 $14
(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)
For the year ended December31, 2014, fair value hedges resulted in a gain of $4 million in ineffectiveness. There were no amounts recorded as ineffectiveness on fair value hedges
for the year ended December31, 2013.
N/A—Not applicable
For the 12 months ending December31, 2014, 2013 and 2012, 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.