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Generally, the changes in valuation allowances on deferred tax as- sets and corresponding impacts on the effective income tax rate, as presented in the table above, result from management’s assess- ment of the Company’s ability to utilize certain operating loss and tax credit carryforwards. Total tax benefits of carryforwards at year- end 2003 and 2002 were approximately $40 million and $21 mil- lion, respectively. Of the total carryforwards at year-end 2003, ap- proximately $6 million expire during 2004 and another $26 million expire within five years. Based on management’s assess- ment of the Company’s ability to utilize these benefits prior to ex- piration, the carrying value of deferred tax assets associated with carryforwards was reduced by valuation allowances to approxi- mately $10 million at December 27, 2003. 

The deferred tax assets and liabilities included in the balance sheet at year end were: 

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At December 27, 2003, foreign subsidiary earnings of approxi- mately $1.09 billion were considered permanently invested in those businesses. Accordingly, U.S. income taxes have not been provided on these earnings. 

Cash paid for income taxes was (in millions): 2003-$289; 2002- $250; 2001-$196. The 2001 amount is net of a tax refund of ap- proximately $73 million related to the cash-out of Keebler em- ployee and director stock options upon acquisition of Keebler Foods Company. 

## Note 12 Financial instruments and credit risk concentration 

The fair values of the Company's financial instruments are based on carrying value in the case of short-term items, quoted market prices for derivatives and investments, and, in the case of long- term debt, incremental borrowing rates currently available on loans with similar terms and maturities. The carrying amounts of the Company's cash, cash equivalents, receivables, and notes payable approximate fair value. The fair value of the Company’s long-term debt at December 27, 2003, exceeded its carrying value by approximately $499 million. 

The Company is exposed to certain market risks which exist as a part of its ongoing business operations and uses derivative finan- cial and commodity instruments, where appropriate, to manage these risks. In general, instruments used as hedges must be effec- tive at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. In accordance with SFAS No. 133 (refer to Note 1), the Company designates derivatives as either cash flow hedges, fair value hedges, net investment hedges, or other contracts used to reduce volatility in the translation of foreign currency earnings to U.S. Dollars. The fair values of all hedges are recorded in accounts receivable or other current liabilities. Gains and losses representing either hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or hedges of translational exposure are recorded in other income (expense), net. 

## Cash flow hedges 

Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted transaction. Gains and losses on these instruments are recorded in other comprehensive income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accu- mulated other comprehensive income to the Statement of Earnings on the same line item as the underlying transaction. For all cash flow hedges, gains and losses representing either hedge ineffectiveness or hedge components excluded from the assess- ment of effectiveness were insignificant during the periods pre- sented. 

The total net loss attributable to cash flow hedges recorded in ac- cumulated other comprehensive income at December 27, 2003, was $51.9 million, related primarily to forward-starting interest rate swaps settled during 2001 (refer to Note 7). This loss is being reclassified into interest expense over periods of 5 to 30 years. Other insignificant amounts related to foreign currency and com- modity price cash flow hedges will be reclassified into earnings during the next 18 months. 

## Fair value hedges 

Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized asset, liability, or firm commit- 

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