IBM 2015 Annual Report Download - page 106

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
104
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 settlement
provisions. The company records the changes in the fair value
of these warrants in other (income) and expense in the Consol-
idated Statement of Earnings. The company did not have any
warrants qualifying as derivatives outstanding at December31,
2015 and 2014.
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, 2015 and 2014.
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 Earnings.
At December31, 2015 and 2014, the total notional amount of deriv-
ative instruments in economic hedges of investment securities was
less than $0.1billion for both periods.
The following tables provide a quantitative summary of the
derivative and non-derivative instrument-related risk management
activity as of December31, 2015 and 2014, as well as for the years
ended December31, 2015, 2014 and 2013, respectively.
Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position
($ inmillions)
Fair Value of Derivative Assets Fair Value of Derivative Liabilities
At December 31:
Balance Sheet
Classifi cation 2015 2014
Balance Sheet
Classifi cation 2015 2014
Designated as hedging instruments
Interest rate contracts
Prepaid expenses and
other current assets $ — $ 5
Other accrued
expenses and liabilities $ — $ 0
Investments and
sundry assets 656 628 Other liabilities 3—
Foreign exchange contracts
Prepaid expenses and
other current assets 197 632
Other accrued
expenses and liabilities 70 50
Investments and
sundry assets 517 Other liabilities 19 21
Fair value of
derivative assets $858 $1,281
Fair value of
derivative liabilities $ 92 $ 72
Not designated as hedging instruments
Foreign exchange contracts
Prepaid expenses and
other current assets $ 90 $ 90
Other accrued
expenses and liabilities $ 75 $ 101
Investments and
sundry assets 40 37 Other liabilities —4
Equity contracts
Prepaid expenses and
other current assets 624
Other accrued
expenses and liabilities 19 14
Investments and
sundry assets —0Other liabilities —5
Fair value of
derivative assets $136 $ 151
Fair value of
derivative liabilities $ 94 $ 125
Total debt designated as hedging instruments
Short-term debt N/A N/A $ — $ 0
Long-term debt N/A N/A $7,945 $7,747*
Total $994 $1,432 $8,131 $7,944 *
* Reclassified to reflect adoption of the FASB guidance on debt issuance costs in consolidated financial statements. Refer to noteB, “Accounting Changes,” for additional information.
N/A—Not applicable