Kodak 2010 Annual Report Download - page 72

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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 changes in the fair value of foreign exchange contracts, are shown below:
(in millions)
For the Year Ended December 31,
2010
2009
2008
Net gain (loss)
$ (5)
$ (2)
$ 7
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 mitigate currency risk related to 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, 2010 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, 2010 and 2009, the Company had open derivative contracts in liability
positions with a total fair value of $8 million and $17 million, respectively.
The location and amounts of gains and losses related to derivatives reported in the Consolidated Statement of Operations are shown
in the following tables:
Derivatives in
Cash Flow
Hedging
Relationships
Gain (Loss) Recognized
in OCI on Derivative
(Effective Portion)
Gain (Loss) Reclassified
from Accumulated OCI
Into Cost of Goods Sold
(Effective Portion)
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
(in millions)
For the Year Ended
December 31,
For the Year Ended
December 31,
For the Year Ended
December 31,
2010
2009
2008
2010
2009
2008
2010
2009
2008
Commodity
contracts
$ 6
$ 12
$ (16)
$ 10
$ 7
$ 8
$ -
$ -
$ -
Foreign exchange
contracts
(2)
-
-
(2)
(2)
-
-
-
-
Derivatives Not Designated as
Hedging Instruments
Location of Gain or (Loss)
Recognized in Income on
Derivative
Gain (Loss) Recognized in
Income on Derivative
(in millions)
For the Year Ended December 31,
2010
2009
2008
Foreign exchange contracts
Other income (charges), net
$ 32
$ 29
$ (75)