Kraft 2006 Annual Report Download - page 98

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immaterial at December 31, 2006 and 2005. At December 31, 2006 and 2005, the Company had net long commodity positions of $533 million and $521 million,
respectively.
Ineffectiveness related to cash flow hedges was not material for the years ended December 31, 2006, 2005 and 2004. At December 31, 2006, the Company
was hedging forecasted transactions for periods not exceeding the next fifteen months, and expects substantially all amounts reported in accumulated other
comprehensive earnings (losses) to be reclassified to the consolidated statement of earnings within the next twelve months.
Derivative gains or losses reported in accumulated other comprehensive earnings (losses) are a result of qualifying hedging activity. Transfers of gains or
losses from accumulated other comprehensive earnings (losses) to earnings are offset by corresponding gains or losses on the underlying hedged item. Hedging
activity affected accumulated other comprehensive earnings (losses), net of income taxes, during the years ended December 31, 2006, 2005 and 2004, as follows
(in millions):
2006
2005
2004
(Loss) gain as of January 1 $ (4) $ 6 $ 1
Derivative losses (gains) transferred to earnings 32 (42) (1)
Change in fair value (32) 32 6
(Loss) gain at December 31 $ (4) $ (4) $ 6
Credit exposure and credit risk:
The Company is exposed to credit loss in the event of nonperformance by counterparties. However, the Company does not anticipate nonperformance, and
such exposure was not material at December 31, 2006.
Fair value:
The aggregate fair value, based on market quotes, of the Company's third-party debt at December 31, 2006, was $10,421 million as compared with its
carrying value of $10,214 million. The aggregate fair value of the Company's third-party debt at December 31, 2005, was $10,750 million as compared with its
carrying value of $10,548 million.
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements," which will be effective for financial statements issued for fiscal years
beginning after November 15, 2007. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. The adoption of this statement will not have a material impact on the Company's financial statements.
See Notes 4, 8 and 9 for additional disclosures of fair value for short-term borrowings and long-term debt.
Note 18. Contingencies:
Kraft and its subsidiaries are parties to a variety of legal proceedings arising out of the normal course of business, including a few cases in which substantial
amounts of damages are sought. While the results of litigation cannot be predicted with certainty, management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
93
Source: KRAFT FOODS INC, 10-K, March 01, 2007