Kraft 2010 Annual Report Download - page 91

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Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable
market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including
counterparty credit risk.
Cash Flow Hedges:
Cash flow hedges affected accumulated other comprehensive earnings / (losses), net of income taxes, as follows:
2010 2009 2008
(in millions)
Accumulated gain / (loss) at beginning of period $ 101 $ (23) $ 27
Transfer of realized (gains) / losses in fair value to earnings (25) 111 26
Unrealized gain / (loss) in fair value 3 13 (76)
Accumulated gain / (loss) at December 31 $ 79 $ 101 $ (23)
The effect of cash flow hedges for the years ended December 31, 2010 and 2009 was:
2010 2009
Gain / (Loss)
Recognized in OCI
(Gain) / Loss
Reclassified from
AOCI into Earnings
Gain / (Loss)
Recognized in OCI
(Gain) / Loss
Reclassified from
AOCI into Earnings
(in millions) (in millions)
Foreign exchange contracts - intercompany loans $ 2 $ (10) $ (12) $ -
Foreign exchange contracts - forecasted transactions 17 (1) (40) (27)
Commodity contracts 74 (15) (27) 138
Interest rate contracts (90) 1 92 -
Total $ 3 $ (25) $ 13 $ 111
2010 2009
Gain / (Loss) on
Ineffectiveness
Recognized
in Earnings
Gain / (Loss) on
Amount Excluded
from Effectiveness
Testing Recognized
in Earnings
Gain / (Loss) on
Ineffectiveness
Recognized
in Earnings
Gain / (Loss) on
Amount Excluded
from Effectiveness
Testing Recognized
in Earnings
(in millions) (in millions)
Foreign exchange contracts - intercompany loans $ - $ - $ - $ -
Foreign exchange contracts - forecasted transactions - - - -
Commodity contracts (6) 3 12 1
Interest rate contracts - - - -
Total $ (6) $ 3 $ 12 $ 1
We record (i) the gain or loss reclassified from accumulated other comprehensive earnings / (losses) into earnings, (ii) the gain or loss on ineffectiveness, and
(iii) the gain or loss on the amount excluded from effectiveness testing in:
• cost of sales for commodity contracts;
• cost of sales or selling, general and administrative expenses for foreign exchange contracts related to forecasted transactions, depending on the
type of transaction; and
• interest and other expense, net for interest rate contracts and foreign exchange contracts related to intercompany loans.
We expected to transfer unrealized gains of $52 million (net of taxes) for commodity cash flow hedges and unrealized gains of $16 million (net of taxes) for
foreign currency cash flow hedges and unrealized losses of $1 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
88