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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
105
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: 2015 2014 2013 2015 2014 2013
Derivative instruments in fair value hedges
(5)
Interest rate contracts Cost of fi nancing $108 $ 231 $(109) $(1) $(127) $202
Interest expense 94 206 (74) (1) (114) 138
Derivative instruments not designated
as hedging instruments
(1)
Foreign exchange contracts
Other (income)
and expense 127 (776) (328) N/A N/A N/A
Interest rate contracts
Other (income)
and expense (1) 34 — N/A N/A N/A
Equity contracts SG&A expense (27) 51 164 N/A N/A N/A
Other (income)
and expense (9) (9) — N/A N/A N/A
Total $291 $(263) $(347) $(1) $(241) $340
($ inmillions)
Gain/(Loss) Recognized in Earnings and Other Comprehensive Income
Effective Portion
Recognized in OCI Consolidated
Statement of
Earnings Line Item
Effective Portion
Reclassifi ed from AOCI
Ineffectiveness and
Amounts Excluded from
Effectiveness Testing (3)
For the year ended December 31: 2015 2014 2013 2015 2014 2013 2015 2014 2013
Derivative instruments in
cash fl ow hedges
Interest rate contracts $ — $ — $ — Interest expense $ 0 $ (1) $ — $ — $— $—
Foreign exchange contracts 618 958 43
Other (income)
and expense 731 98 162 5(1) 0
Cost of sales 192 (15) (34) ———
SG&A expense 149 15 39 ———
Instruments in net investment hedges
(4)
Foreign exchange contracts 889 1,136 173 Interest expense ———13 03
Total $1,507 $2,095 $216 $1,072 $ 97 $167 $18 $ (1) $ 3
(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 years ended December31, 2015 and December 31, 2014, fair value hedges resulted in a loss of $2million and a gain of $4million in ineffectiveness, respectively.
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, 2015, 2014 and 2013, 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.