Kodak 2007 Annual Report Download - page 41

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates, commodity prices, and
interest rates, which may adversely affect its results of operations and financial position. In seeking to minimize the risks associated with such activities,
the Company may enter into derivative contracts. The Company does not utilize financial instruments for trading or other speculative purposes.
Foreign currency forward contracts are used to hedge existing foreign currency denominated assets and liabilities, especially those of the Company’s
International Treasury Center, as well as forecasted foreign currency denominated intercompany sales. Silver forward contracts are used to mitigate the
Company’s risk to fluctuating silver prices.
The Company’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Long-term debt is
generally used to finance long-term investments, while short-term debt is used to meet working capital requirements.
Using a sensitivity analysis based on estimated fair value of open foreign currency forward contracts using available forward rates, if the U.S. dollar had
been 10% stronger at December 31, 2007 and 2006, the fair value of open forward contracts would have decreased $66 million and increased $16 million,
respectively. Such gains or losses would be substantially offset by losses or gains from the revaluation or settlement of the underlying positions hedged.
Using a sensitivity analysis based on estimated fair value of open silver forward contracts using available forward prices, if available forward silver prices
had been 10% lower at December 31, 2007, the fair value of open forward contracts would have decreased $2 million. Such losses in fair value, if real-
ized, would be offset by lower costs of manufacturing silver-containing products. There were no open forward contracts hedging silver at December 31,
2006.
The Company is exposed to interest rate risk primarily through its borrowing activities and, to a lesser extent, through investments in marketable securi-
ties. The Company may utilize borrowings to fund its working capital and investment needs. The majority of short-term and long-term borrowings are in
fixed-rate instruments. There is inherent roll-over risk for borrowings and marketable securities as they mature and are renewed at current market rates.
The extent of this risk is not predictable because of the variability of future interest rates and business financing requirements.
Using a sensitivity analysis based on estimated fair value of short-term and long-term borrowings, if available market interest rates had been 10% (about
57 basis points) higher at December 31, 2007, the fair value of short-term and long-term borrowings would have decreased $1 million and $53 million,
respectively. Using a sensitivity analysis based on estimated fair value of short-term and long-term borrowings, if available market interest rates had been
10% (about 63 basis points) higher at December 31, 2006, the fair value of short-term and long-term borrowings would have decreased less than one
million and $59 million, respectively.
The Company’s financial instrument counterparties are high-quality investment or commercial banks with significant experience with such instruments. The
Company manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties. The Company
has procedures to monitor the credit exposure amounts. The maximum credit exposure at December 31, 2007 was not significant to the Company.