Kodak 2011 Annual Report Download - page 87

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 other observable inputs (Level 2 fair value measurements), and
are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using
discount rates appropriate for the duration of the contracts. Transfers between levels of the fair value hierarchy are recognized based on the actual
date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the
year 2011.
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, 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 changes in the fair value of foreign exchange contracts, are shown below:
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, 2011 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, 2011 and 2010, the Company had open derivative contracts in liability positions with a total fair value of $10 million and $8 million, respectively.
(in millions)
For the Year Ended
December 31,
2011 2010 2009
Net loss
$
(14
)
$
(5
)
$
(2
)
85