Note 19 - Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Text Block]

NOTE 19:  FINANCIAL INSTRUMENTS

The following table presents the carrying amounts, estimated fair values, and location in the Consolidated Statement of Financial Position for Kodak’s financial instruments:

		Value Of Items Recorded At Fair Value
(in millions)		As of March 31, 2013
		Total		Level 1		Level 2		Level 3
ASSETS
Marketable securities
Short-term available-for-sale	Other current assets	$	5	$	5	$	-	$	-
Long-term available-for-sale	Other long-term assets		7		7		-		-
Derivatives
Short-term foreign exchange contracts	Receivables, net		3		-		3		-
LIABILITIES
Derivatives
Short-term foreign exchange contracts	Other current liabilities		1		-		1		-

			Value Of Items Not Recorded At Fair Value
			As of March 31, 2013
			Total		Level 1		Level 2		Level 3
ASSETS
Marketable securities
Long-term held-to-maturity	Other long-term assets	Carrying value	$	23	$	23	$	-	$	-
		Fair value		23		23		-		-
LIABILITIES
Debt
Short-term debt	Short-term borrowings and current portion of long-term debt	Carrying value		862		-		862		-
		Fair value		874		-		874		-
Long-term debt	Long-term debt, net of current portion	Carrying value		370		-		370		-
		Fair value		303		-		303		-
Debt subject to compromise	Liabilities subject to compromise	Carrying value		683		-		683		-
		Fair value		86		-		86		-

Kodak does not utilize financial instruments for trading or other speculative purposes.

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 Kodak’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 three months ended March 31, 2013.

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 and trade receivables (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:

(in millions)	Three Months Ended
	March 31,
	2013			2012
Net loss	$	(9	)	$	(7	)

Derivative Financial Instruments

Kodak, 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. Kodak 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.  Silver forward contracts are used to mitigate Kodak’s risk to fluctuating silver prices.  Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs.

Kodak’s financial instrument counterparties are high-quality investment or commercial banks with significant experience with such instruments.  Kodak manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties.  Kodak has procedures to monitor the credit exposure amounts.  The maximum credit exposure at March 31, 2013 was not significant to Kodak.

In the event of a default under the Company’s Amended and Restated Senior DIP Credit Agreement, or Junior DIP Credit Agreement, or one of the Company’s Indentures (already in default), or a default under any derivative contract or similar obligation of Kodak, subject to certain minimum thresholds, 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 March 31, 2013, Kodak had open derivative contracts in liability positions with a total fair value of $1 million.

The location and amounts of pre-tax 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 Sales (Effective Portion)					Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(in millions)	For the three months ended March 31,				For the three months ended March 31,					For the three months ended March 31,
	2013		2012		2013		2012			2013		2012
Commodity contracts	$	-	$	1	$	-	$	(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 three months ended March 31,
		2013		2012
Foreign exchange contracts	Other income (charges), net	$	2	$	(8	)

Foreign Currency Forward Contracts

Kodak’s foreign currency forward contracts used to mitigate currency risk related to existing foreign currency denominated assets and liabilities are not designated as hedges, and are marked to market through net (loss) earnings at the same time that the exposed assets and liabilities are remeasured through net (loss) earnings (both in Other income (charges), net in the Consolidated Statement of Operations).  The notional amount of such contracts open at March 31, 2013 was approximately $772 million.  The majority of the contracts of this type held by Kodak are denominated in euros and Swiss francs.

Silver Forward Contracts

Kodak may enter into silver forward contracts that are designated as cash flow hedges of commodity price risk related to forecasted purchases of silver.  Kodak had no open hedges as of March 31, 2013.

In January 2012, Kodak terminated all its existing hedges at a loss of $5 million.  These hedges were designated as secured agreements under the Second Amended and Restated Credit Agreement and needed to be settled prior to the termination of that facility in conjunction with the Company’s Original Senior DIP Credit Agreement.  Hedge gains and losses related to these silver forward contracts are reclassified into Cost of sales in the Consolidated Statement of Operations as the related silver containing products are sold to third parties.  These gains or losses transferred to Cost of sales are generally offset by increased or decreased costs of silver purchased in the open market.  As of March 31, 2013, there were no existing gains or losses to be reclassified to Cost of sales within the next twelve months.