Kodak 2009 Annual Report Download - page 85

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Fair Value
The fair values of marketable securities are determined using quoted prices in active markets for identical assets (Level 1 fair value
measurements). Fair values of 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. 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 (which are
not shown in the table above) approximate their fair values.
Foreign Exchange
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 net
effects of foreign currency transactions, including related hedging activities, are shown below:
(in millions) For the Year Ended December 31,
2009 2008 2007
Net gain (loss) $ (2) $ 7 $ 2
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.
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, 2009 was not significant to the Company.
In the event of a default under the Company’s Amended Credit Agreement, or a default under any derivative contract or similar
obligation of the Company, the derivative counterparties would have the right, although not the obligation, to require immediate
settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset
positions with the same counterparty. At December 31, 2009, the Company had open derivative contracts in liability positions with a
total fair value of $17 million.