Kodak 2008 Annual Report Download - page 80

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NOTE 12: FINANCIAL INSTRUMENTS
The following table presents the carrying amounts of the assets (liabilities) and the estimated fair values of financial instruments:
As of December 31,
(in millions) 2008
2007
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities:
Available-for-sale (1) $ 7 $ 7 $ 7 $ 7
Held-to-maturity (2) 12 12 30 30
Long-term borrowings, net of current portion (2) (1,252) (926) (1,289) (1,285)
Foreign currency forward contracts with
unrealized gains (1) 18 18 10 10
Foreign currency forward contracts with
unrealized losses (1) (83) (83) (32) (32)
Silver forward contracts with unrealized
gains (1) 1 1 3 3
Silver forward contracts with unrealized
losses (1) (4) (4) - -
(1) Recorded at fair value.
(2) Recorded at historical cost.
The fair values of marketable securities are determined using quoted prices in active markets for identical assets (Level 1 fair value
measurements). Fair values for the Company’s forward contracts are determined using significant other observable inputs (Level 2
fair value measurements), and are based on the present value of expected future cash flows considering the risks involved and
using discount rates appropriate for the duration of the contracts. The fair values of long-term borrowings are determined by
reference to quoted market prices, if available, or by pricing models based on the value of related cash flows discounted at current
market interest rates. The carrying values of cash and cash equivalents, trade receivables, short-term borrowings and payables
approximate their fair values.
Foreign exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the
entity involved are included in Other income (charges), net in the accompanying Consolidated Statement of Operations. The effects
of foreign currency transactions, including related hedging activities, were net gains of $7 million and $2 million and a net loss of $1
million in the years 2008, 2007, and 2006, respectively.
Long-term debt is generally used to finance long-term investments, while short-term debt is used to meet working capital
requirements. The Company does not utilize financial instruments for trading or other speculative purposes.
Derivative Financial Instruments
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. The Company
manages such exposures, in part, with derivative financial instruments. The fair values of these derivative contracts are reported in
Other current assets, Accounts payable and other current liabilities, or Other long-term liabilities in the accompanying Consolidated
Statement of Financial Position.
Foreign currency forward contracts are used to hedge existing foreign currency denominated assets and liabilities, especially those
of the Company’s International Treasury Center. 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.
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, 2008 was not significant to the Company.