Kodak 2000 Annual Report Download - page 41

stantially offset by gains from the revaluation or settlement of the
underlying positions hedged.
The Company has entered into silver forw a rd contracts that
a re designated as cash flow hedges of price risk related to fore-
casted worldwide silver purchas es. The Company used silver for-
w a rd contracts to minimize virtually all of its exposure to incre a s e s
in silver prices in 2000. At December 31, 2000, the Company had
open forw a rd contracts, with maturity dates ranging from January
2001 to December 2001, hedging virtually all of its planned silver
re q u i rements through the fourth quarter of 2001.
At December 31, 2000, the fair value of open contracts was
a pre-tax unrealized loss of $17 million, re c o rded in other com-
p rehensive income. If this amount were to be realized, $16 mil-
lion (pre-tax) of this loss would be reclassified into cost of goods
sold within the next twelve months. During the year, a realized loss
of $3 million (pre-tax) was re c o rded in cost of goods sold. At
December 31, 2000, realized losses of $4 million (pre - t a x ) ,
related to closed silver contracts, were re c o rded in other com-
p rehensive income. These losses will be reclassified into cost of
goods sold as silver-containing products are s old (all within the
next twelve months). Hedge ineffectiveness was insignificant.
A sensitivity analysis indicates that, based on bro k e r- q u o t e d
t e rmination values, if the price of silver decreased 10% from spot
rates at December 31, 2000 and 1999, the fair value of silver for-
w a rd contracts would be reduced by $27 million and $5 million,
re s p e c t i v e l y. Such losses in fair value, if realized, would be off s e t
by lower costs of manufacturing silver-containing pro d u c t s .
The C ompany is exposed to interest rate ris k primarily
t h rough its borrowing activities and, to a lesser extent, thro u g h
investments in marketable securities. The Company utilizes U.S.
dollar denominated as well as foreign currency denominated
b o rrowings to fund its working capital and investment needs. The
majority of short - t e rm and long-term borrowings are in fixed
rate instruments. There is inherent roll-over risk for borro w i n g s
and marketable s ecurities as they mature and are renewed at
c u rrent market rates. The extent of this risk is not pre d i c t a b l e
because of the variability of future interest rates and business
financing re q u i re m e n t s .
Using a yield-to-maturity analysis, if December 31, 2000
i n t e rest rates increased 10% (about 62 basis points) with the
c u rrent period’s level of debt, the fair value of short - t e rm and long-
t e rm borrowings would decrease $2 million and $20 million,
re s p e c t i v e l y. If December 31, 1999 interest rates increased 10%
(about 55 basis points) with the December 31, 1999 level of debt,
the fair value of short - t e rm and long-term borrowings would
d e c reas e $1 million and $18 million, re s p e c t i v e l y.
The Company’s financial instrument counterparties are high
quality investment or commercial banks with significant experi-
ence with such instruments . The Company manages exposure
to counterparty credit risk by requiring specific minimum cre d i t
s t a n d a rds and diversification of counterparties. The Company has
p ro c e d u res to monitor the credit exposure amounts. The maxi-
mum credit exposure at December 31, 2000 was not significant
to the Company.
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