ek2009_10k.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
X Annual
report pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the
year ended December 31, 2009 or
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period fromto
Commission
File Number 1-87
EASTMAN
KODAK COMPANY
(Exact
name of registrant as specified in its charter)
NEW
JERSEY
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16-0417150
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(State
of incorporation)
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(IRS
Employer Identification No.)
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343
STATE STREET, ROCHESTER, NEW YORK
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14650
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:585-724-4000
_____________
Securities
registered pursuant to Section 12(b) of the Act:
Title of each Class
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Name of each exchange on which
registered
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Common
Stock, $2.50 par value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes[X]No[ ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes[ ]No[X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes[X]No[ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months
(or for
such shorter period that the registrant was required to submit and post such
files).
Yes [ ] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated
filer,” “accelerated filer" and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer[X]Accelerated filer[ ]
Non-accelerated
filer[ ]Smaller reporting company[ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes[ ]No[X]
The
aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, as
of the last business day of the registrant's most recently completed second
fiscal quarter, June 30, 2009, was approximately $0.8 billion. The
registrant has no non-voting common stock.
The
number of shares outstanding of the registrant's common stock as of February 11,
2010 was 268,643,869 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
PART
III OF FORM 10-K
The
following items in Part III of this Form 10-K incorporate by reference
information from the Notice of 2010 Annual Meeting and Proxy
Statement:
Item 10
-DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Item 11
-EXECUTIVE
COMPENSATION
Item 12
-SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Item 13
-CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Item 14
-PRINCIPAL ACCOUNTING FEES AND
SERVICES
Eastman
Kodak Company
Form
10-K
December
31, 2009
Table
of Contents
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Page
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Business
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4
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Risk
Factors
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10
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Unresolved
Staff Comments
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19
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Properties
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19
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Legal
Proceedings
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20
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Submission
of Matters to a Vote of Security Holders
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22
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Executive
Officers of the Registrant
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22
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Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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25
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Selected
Financial Data
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27
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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27
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Liquidity
and Capital Resources
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54
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Quantitative
and Qualitative Disclosures About Market Risk
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62
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Financial
Statements and Supplementary Data
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63
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Consolidated
Statement of Operations
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64
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Consolidated
Statement of Financial Position
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65
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Consolidated
Statement of Shareholders' Equity
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66
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Consolidated
Statement of Cash Flows
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69
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Notes
to Financial Statements
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71
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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135
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Controls
and Procedures
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135
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Other
Information
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136
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Directors,
Executive Officers and Corporate Governance
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136
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Executive
Compensation
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136
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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136
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Certain
Relationships and Related Transactions, and Director
Independence
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138
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Principal
Accounting Fees and Services
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138
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Exhibits,
Financial Statement Schedules
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138
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139
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140
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Eastman
Kodak Company (the “Company” or “Kodak”) helps consumers, businesses, and
creative professionals unleash the power of pictures and printing to enrich
their lives. When used in this report, unless otherwise indicated,
“we,” “our,” “us,” the “Company” and “Kodak” refer to Eastman Kodak
Company. The Company’s products span:
·
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Digital
still and video cameras and related
accessories
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·
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Consumer
inkjet printers and media
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·
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Retail
printing kiosks, APEX drylab systems and related
media
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·
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KODAK
Gallery online imaging services
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·
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Prepress
equipment and consumables
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·
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Workflow
software for
commercial printing
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·
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Electrophotographic
equipment and consumables
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·
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Commercial
inkjet printing systems
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·
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Origination
and print films for the entertainment
industry
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·
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Consumer
and professional photographic film
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·
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Photographic
paper and processing chemicals
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·
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Wholesale
photofinishing services
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Kodak was
founded by George Eastman in 1880 and incorporated in 1901 in the State of New
Jersey. The Company is headquartered in Rochester, New
York.
The
recessionary trends in the global economy, which began in 2008 and continued
through much of 2009, significantly impacted the Company’s
revenue. While the rate of decline slowed significantly in the fourth
quarter of 2009, the level of business activity has not returned to
pre-recession levels. During this recessionary period, the Company
maintained market leading positions in large product segments and gained market
share with investments into large market categories in need of
transformation. The Company ended 2009 with a more efficient cost
structure and a strong cash position. The Company believes it is
entering 2010 with its most competitive digital portfolio ever, sustainable
traction in new markets, value propositions that are embraced by its customers
and a leaner cost structure that will help deliver profitable digital
growth.
The
Company’s key goals for 2010 are:
·
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Improve
segment earnings
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·
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Accelerate
digital revenue growth
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·
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Continue
to invest in new markets in need of
transformation
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·
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Exploit
benefits of operating leverage
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·
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Drive
positive cash flow before
restructuring
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REPORTABLE
SEGMENTS
As of and
for the year ended December 31, 2009, the Company reported financial information
for three reportable segments: Consumer Digital Imaging Group (“CDG”), Film,
Photofinishing and Entertainment Group (“FPEG”), and Graphic Communications
Group (“GCG”). The balance of the Company's operations, which
individually and in the aggregate do not meet the criteria of a reportable
segment, are reported in All Other.
The
following business discussion is based on the three reportable segments and All
Other as they were structured as of and for the year ended December 31,
2009. The Company's sales, earnings and assets by reportable segment
for these three reportable segments and All Other for each of the past three
years are shown in Note 24, “Segment Information,” in the Notes to Financial
Statements.
CONSUMER
DIGITAL IMAGING GROUP (“CDG”) SEGMENT
CDG's
mission is to enhance people’s lives and social interactions through the
capabilities of digital imaging technology, combined with Kodak’s unique
consumer knowledge, brand and intellectual property. This focus has
led to a full range of product and service offerings to the
consumer. CDG’s strategy is to extend image taking, searching and
organizing, sharing and printing to bring innovative new experiences to
consumers – in ways that extend Kodak’s legendary heritage in ease of
use.
Digital
Capture and Devices: Consumer digital capture and devices include digital
still and pocket video cameras, digital picture frames, and imaging essentials,
as well as branded licensed products. These product lines fuel
Kodak’s participation in the imaging device and accessory
markets. Products are sold directly to retailers or distributors, and
are also available to customers through the Internet at the KODAK Store (www.kodak.com) and
other online providers. In January 2010, Kodak extended its
pocket video camera line, following the success of the KODAK Zi6 Pocket Video
Camera, which was launched in 2009. The line now includes the KODAK
Zi8, which added an external mic jack; and the KODAK PlaySport pocket video
camera, which is rugged, waterproof and is designed for action and
adventure. KODAK pocket video cameras allow consumers to take
stunning high definition videos, which can be easily uploaded to YOUTUBE via a
built-in USB connector. Additionally, the Company also introduced a
variety of stylish and compact digital still cameras with the unique and
innovative ‘SHARE’ button that enables simple upload to YOUTUBE, FLICKR,
FACEBOOK, and KODAK Gallery (“Gallery”) for archiving and
gifting. Another unique product is the KODAK Slice TouchScreen
digital camera, a powerful camera and photo album in one that makes storing,
sorting and sharing pictures easy with its 2 GB internal memory and Smart Find
Facial Recognition Technology.
Digital
Capture and Devices also includes the licensing activities related to the
Company’s intellectual property in digital imaging products. These
arrangements provide the Company with design freedom, access to new markets and
partnerships, and the generation of cash and income.
Kodak is
a leader in the digital picture frame category. The newest product in
the line, announced at the Consumer Electronics Show in January 2010 is the
KODAK Pulse digital frame. This wireless picture frame has its own
email address that receives photos automatically and allows consumers to view
albums from FACEBOOK and Gallery. The full line of frames – both
standard and wireless – enable consumers to easily share and view images and
videos with family and friends simply and easily.
Retail
Systems Solutions: The Retail Systems Solutions group’s product and
service offerings to retailers include retail kiosks and consumables, consumer
and retailer software workflows, remote business monitoring, retail store
merchandising and identity programs, and after sale service and
support. Consumers can make a wide variety of photo gifts, including
among others, photobooks, posters and custom cards, all instantly and
around the corner at a KODAK kiosk.
The
DL2100 printer, which retailers can connect directly to a kiosk or Adaptive
Picture Exchange ("APEX") drylab system, enables customers to make double-sided
photobooks, calendars and greeting cards, almost instantly
in-store. This high-quality printer enables consumers to personalize
their products with sentiments and captions and then take home a finished,
personalized product. Other popular Kodak premium products available
quickly and easily in many of the world’s largest retailers include the KODAK
Picture-Movie DVD, which combines original artist music with the
consumer’s own pictures and creates a powerful multimedia show playable on any
DVD player, along with posters, collages and more.
Consumer
Inkjet Systems:
Since the introduction of the KODAK All-in-One Inkjet printers in 2007, the
portfolio has expanded through the introduction of a printer designed for
the small office/home office market, the introduction of new ink
cartridge options, and expansion into more markets. As of
January 2009, our newest wireless printers have a unique application that allows
consumers to print photos in multiple sizes with the free KODAK Pic Flick App
from an IPHONE or IPOD TOUCH, or photos and documents from a wifi enabled
smartphone. During 2009, we once again doubled the national installed
base for our consumer inkjet printers – to more than two million
units.
Online
Imaging Services: KODAK Gallery is a leading online merchandise and photo
sharing service. The Kodakgallery.com site provides consumers with a
secure and easy way to view, store and share their images with friends and
family, and to receive Kodak prints and other creative products from their
pictures, such as photo books, frames, calendars, and a host of other
personalized merchandise. Personalized photo cards are also available
with original designs by popular designers including Martha Stewart, Simon and
Kubuki and world-renown children’s author Eric Carle. Products are
distributed directly to consumers’ homes, or through major
retailers. The site is a chosen partner for leading companies such as
ADOBE, MICROSOFT, and AMAZON. In addition to Kodakgallery.com in the
U.S., we operate seven sites across Europe.
Kodak
also distributes KODAK EasyShare desktop software at no charge to consumers,
which provides easy organization and editing tools, and unifies the experience
between digital cameras, printers, and the KODAK Gallery services.
Imaging
Sensors: Kodak's line of CCD sensors provides an attractive market
opportunity, including mobile, automotive, industrial and professional imaging
sectors. Kodak has leading sensor architecture intellectual property
positions.
Marketing and Competition: The
Company faces competition from other online service companies, consumer
electronics and printer companies in the markets in which it competes, generally
competing on price, features, and technological advances.
The key
elements of CDG’s marketing strategy emphasize ease of use, quality and the
complete solution offered by KODAK Products and Services. This is
communicated through a combination of in-store presentation, an aggressive
social media strategy; online marketing, advertising, customer relationship
marketing and public relations. The Company's advertising programs
actively promote the segment’s products and services in its various markets, and
its principal trademarks, trade dress, and corporate symbol are widely used and
recognized. Kodak is frequently noted by trade and business
publications as one of the most recognized and respected brands in the
world.
FILM,
PHOTOFINISHING AND ENTERTAINMENT GROUP (“FPEG”) SEGMENT
This
segment is composed of traditional photographic products and services including
paper, film and chemistry used for consumer, professional and industrial imaging
applications and those products and services used in the creation and exhibition
of motion pictures. The Company manufactures and markets films
(motion picture, consumer, professional, industrial and aerial), one-time-use
cameras, photographic paper and photo chemicals, and industrial
components.
The
market for consumer and professional films, traditional photofinishing and
certain industrial and aerial films are in decline and expected to continue to
decline due to digital substitution.
Motion
picture and television production activities were impacted throughout most of
2009 by industry-specific labor issues, the overall economic impact on global
advertising spend (broadcast commercials) and the availability of financing for
independent feature filmmakers. These factors resulted in lower film
production and the use of digital technology, as expected. However, Kodak motion
picture print film showed slightly increased volumes despite a number of new
digital cinema installations feeding the 3D pipeline. Print
volumes have remained strong because the exhibition
market returned to growth in 2009. Kodak benefited from this growth
and gained market share due to a higher proportion of major studio release
activity.
Marketing and Competition: The
fundamental elements of the Company’s strategy with respect to the photographic
products in this segment are to maintain a profitable and sustainable business
model, serving customers for traditional products while aggressively managing
our cost structure for those businesses in decline.
As our
silver halide business continues to mature, we are also looking at different
ways to leverage these core capabilities outside of our traditional business
applications. Opportunities exist to grow existing, nascent
businesses and develop new businesses utilizing Kodak’s existing capabilities in
materials science, coating technology and base manufacture. Segments
on which we are currently focusing for these opportunities include gelatin,
silver and chemical components, industrial films, motion picture special effects
services and event imaging services.
The
Company’s strategy for the Entertainment Imaging business is to sustain motion
picture film’s position as the pre-eminent capture medium for the creation of
feature films, television dramas and commercials. Selective
investments to improve film’s superior image capture and quality characteristics
are part of this strategy. Kodak has the leading share of the
origination film market led by the new VISION3 family of color negative films,
and the widely acclaimed OSCAR-award-winning VISION2
series.
The
distribution of motion pictures to theaters on print film is another important
element of the business, one in which the Company continues to be widely
recognized as the market leader. Price competition is a bigger factor
in this segment of the motion picture market, but the Company continues to
maintain the leading share position, largely due to several multi-year
agreements with the major studios.
Throughout
the world, most Entertainment Imaging products are sold directly to studios,
laboratories, independent filmmakers or production companies. Quality
and availability are important factors for these products, which are sold in a
price-competitive environment. As the industry moves to digital
formats, the Company anticipates that it will face new competitors, including
some of its current customers and other electronics
manufacturers.
Film
products and services for the consumer and professional markets and traditional
photofinishing are sold throughout the world, both directly to retailers, and
increasingly through distributors. Price competition continues to
exist in all marketplaces. To be more cost competitive with its
traditional photofinishing and film offerings, and to shift towards a variable
cost model, the Company has rationalized capacity and restructured its
go-to-market models in many of its traditional segments. The Company
will continue to manage this business to focus on cash flow and earnings
performance in this period of ongoing revenue decline.
GRAPHIC
COMMUNICATIONS GROUP (“GCG”) SEGMENT
The
Graphic Communications Group segment of Kodak is committed to helping its
customers grow their businesses by offering innovative, powerful solutions that
enhance production efficiency, open new revenue opportunities, and improve
return on marketing investment. The Graphic Communications Group
segment serves a variety of customers in the creative, in-plant, data center,
commercial printing, packaging, newspaper, and digital prepress market segments
with a range of software, media, and hardware products. Representing
one of the broadest portfolios in the industry, product categories range from
prepress equipment, workflow software, and digital and traditional printing to
document scanning and multi-vendor services. Products include digital
and traditional prepress equipment and consumables, including plates, chemistry,
and media; workflow software and controller software for driving digital output
devices; color and black-and-white electrophotographic printing equipment and
consumables; high-speed, high-volume commercial inkjet printing systems;
high-speed production and workgroup document scanners; and micrographic
peripherals and media (including micrographic films). GCG also
provides maintenance and professional services for Kodak and other
manufacturers' products, as well as providing imaging services to
customers.
In the
third quarter of 2009, the Company acquired the scanner division of BÖWE BELL +
HOWELL, which markets a portfolio of production document scanners that
complements the products currently offered within the GCG
segment. Through this acquisition, Kodak expects to expand customer
value by providing a wider choice of production scanners. As Kodak
has provided field service to BÖWE BELL + HOWELL scanners since
2001, this acquisition is also expected to enhance global access to service and
support for channel partners and end-user customers
worldwide.
Marketing and
Competition: Around the world, graphic communications products
are sold through a variety of direct and indirect channels. The end
users of these products include businesses in the prepress, commercial printing,
data center, in-plant, newspaper and packaging market segments. The
Company has developed a wide-ranging portfolio of digital products - workflow,
equipment, media, and services - that combine to create a value-added complete
solution to customers. Maintenance and professional services for the
Company's products are sold either through product distribution channels or
directly to the end users. In addition, a range of inkjet products
for digital printing and proofing are sold through direct and indirect
means. Document scanners are sold primarily through a two-tiered
distribution channel to a number of different
industries.
FINANCIAL
INFORMATION BY GEOGRAPHIC AREA
Financial
information by geographic area for the past three years is shown in Note 24,
“Segment Information,” in the Notes to Financial Statements.
RAW
MATERIALS
The raw
materials used by the Company are many and varied, and are generally readily
available. Lithographic aluminum is
the primary material used in the manufacture of offset printing
plates. The Company procures raw aluminum coils from several
suppliers on a spot basis or under contracts generally in place over the next
one to three years. Silver is one of the essential materials
used in the manufacture of films and papers. The Company purchases
silver from numerous suppliers under annual agreements or on a spot
basis. Paper base is an essential material in the manufacture of
photographic papers. The Company has a contract to acquire paper base
from a certified photographic paper supplier over the next several
years.
SEASONALITY
OF BUSINESS
Sales and
earnings of the CDG segment are linked to the timing of holidays, vacations and
other leisure or gifting seasons. Sales of digital products are
typically highest in the last four months of the year. Digital
capture and consumer inkjet printing products have experienced peak sales in
this period as a result of the December holidays. However, the
economic downturn that continued through 2009 resulted in a significant decline
in consumer discretionary spending that negatively impacted the Company’s
digital camera and digital picture frame businesses in the CDG
segment. CDG net sales in the fourth quarter increased from 31% of
CDG’s full-year revenue for 2008 to 46% of full-year revenue for
2009. However, much of this was related to the timing of
non-recurring intellectual property arrangements as compared with the prior
year. Sales are normally lowest in the first quarter due to the
absence of holidays and fewer picture-taking and gift-giving opportunities
during that time.
Sales and
earnings of the FPEG segment are linked to the timing of holidays, vacations and
other leisure activities. Sales and earnings of traditional film and
photofinishing products are normally strongest in the second and third quarters
as demand is high due to heavy vacation activity and events such as weddings and
graduations. Sales of entertainment imaging film are typically
strongest in the second quarter reflecting demand due to the summer motion
picture season.
Sales and
earnings of the GCG segment generally exhibit modestly higher levels in the
fourth quarter, due to seasonal customer demand linked to commercial year-end
advertising processes.
RESEARCH
AND DEVELOPMENT
Through
the years, the Company has engaged in extensive and productive efforts in
research and development.
Research
and development expenditures for the Company’s three reportable segments and All
Other were as follows:
(in
millions)
|
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For
the Year Ended December 31,
|
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|
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2009
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2008
|
|
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2007
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Consumer
Digital Imaging Group
|
|
$ |
146 |
|
|
$ |
205 |
|
|
$ |
242 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
33 |
|
|
|
49 |
|
|
|
60 |
|
Graphic
Communications Group
|
|
|
171 |
|
|
|
221 |
|
|
|
207 |
|
All
Other
|
|
|
6 |
|
|
|
3 |
|
|
|
16 |
|
Total
|
|
$ |
356 |
|
|
$ |
478 |
|
|
$ |
525 |
|
|
|
|
|
|
|
|
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|
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Research
and development is headquartered in Rochester, New York. Other U.S.
groups are located in Boston, Massachusetts; New Haven, Connecticut; Dayton,
Ohio; and San Jose, Emeryville, and San Diego, California. Outside
the U.S., groups are located in Canada, England, Israel, Germany, Japan, China,
and Singapore. These groups work in close cooperation with
manufacturing units and marketing organizations to develop new products and
applications to serve both existing and new markets.
It has
been the Company's general practice to protect its investment in research and
development and its freedom to use its inventions by obtaining
patents. The ownership of these patents contributes to the Company's
ability to provide leadership products and to generate revenue from
licensing. The Company holds portfolios of patents in several areas
important to its business, including digital cameras and image sensors; network
photo sharing and fulfillment; flexographic and lithographic printing plates and
systems; digital printing workflow and color management proofing systems; color
and black-and-white electrophotographic printing systems; commercial, and
consumer inkjet printers; inkjet inks and media; thermal dye transfer and dye
sublimation printing systems; digital cinema; and color negative films,
processing and papers. Each of these areas is important to existing
and emerging business opportunities that bear directly on the Company's overall
business performance.
The
Company's major products are not dependent upon one single, material
patent. Rather, the technologies that underlie the Company's products
are supported by an aggregation of patents having various remaining lives and
expiration dates. There is no individual patent expiration or group
of patents expirations which are expected to have a material impact on the
Company's results of operations.
ENVIRONMENTAL
PROTECTION
The
Company is subject to various laws and governmental regulations concerning
environmental matters. The U.S. federal environmental legislation and
state regulatory programs having an impact on the Company include the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, the Clean
Air Act, the Clean Water Act, the NY State Chemical Bulk Storage Regulations and
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (the “Superfund Law”).
It is the
Company’s policy to carry out its business activities in a manner consistent
with sound health, safety and environmental management practices, and to comply
with applicable health, safety and environmental laws and
regulations. The Company continues to engage in programs for
environmental, health and safety protection and control.
Based
upon information presently available, future costs associated with environmental
compliance are not expected to have a material effect on the Company's capital
expenditures, results of operations or competitive position. However,
such costs could be material to results of operations in a particular future
quarter or year.
Environmental
protection is further discussed in Note 10, "Commitments and Contingencies," in
the Notes to Financial Statements.
EMPLOYMENT
At the
end of 2009, the Company employed the full time equivalent of approximately
20,250 people, of whom approximately 10,630 were employed in the
U.S. The actual number of employees may be greater because some
individuals work part time.
AVAILABLE
INFORMATION
The
Company files many reports with the Securities and Exchange Commission (“SEC”),
including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K. These reports, and amendments to these
reports, are made available free of charge as soon as reasonably practicable
after being electronically filed with or furnished to the SEC. They
are available through the Company's website at www.Kodak.com. To
reach the SEC filings, follow the links to Investor Center, and then SEC
Filings. The Company also makes available its annual report to
shareholders and proxy statement free of charge through its
website.
We have
included the CEO and CFO certifications required by Section 302 of the
Sarbanes-Oxley Act of 2002 as exhibits to this report. We have also
included these certifications with the Form 10-K for the year ended December 31,
2008 filed on February 27, 2009. Additionally, we filed with the New
York Stock Exchange (“NYSE”) the CEO certification, dated June 5, 2009,
regarding our compliance with the NYSE's corporate governance listing standards
pursuant to Section 303A.12(a) of the listing standards, and indicated that the
CEO was not aware of any violations of the listing standards by the Company.
Continued
weakness or worsening of economic conditions could continue to adversely affect
our financial performance and our liquidity.
The
global economic recession and declines in consumption in our end markets have
adversely affected sales of both commercial and consumer products and
profitability for such products. Further, the global financial
markets have been experiencing volatility. Slower sales of consumer
digital products due to the uncertain economic environment could lead to reduced
sales and earnings while inventory increases. Economic conditions
could also accelerate the continuing decline in demand for traditional products,
which could also place pressure on our results of operations and
liquidity. As a result of the tightening of credit in the global
financial markets, our commercial customers have experienced difficulty in
obtaining financing for significant equipment purchases, resulting in a decrease
in, or cancellation of, orders for our products and services and we can provide
no assurance that this trend will not continue. In addition, accounts
receivable and past due accounts could increase due to a decline in our
customers’ ability to pay as a result of the economic downturn and our treasury
operations could be negatively impacted by failures of financial instrument
counterparties, including banks and other financial institutions. If
the global economic weakness and tightness in the credit markets continue for a
greater period of time than anticipated or worsen, our profitability and related
cash generation capability could be adversely affected and, therefore, affect
our ability to meet our anticipated cash needs, impair our liquidity or increase
our costs of borrowing.
If
we are unsuccessful with the strategic investment decisions we have made, our
financial performance could be adversely affected.
We have
made a decision to focus our investments on businesses in large growth markets
that are positioned for technology and business model transformation, which are
consumer inkjet, commercial inkjet (including our Prosper line of products based
upon the Company’s Stream technology), enterprise workflow, and digital
packaging printing solutions, all of which we believe have significant growth
potential. Introduction of successful innovative products and the
achievement of scale are necessary for us to grow these businesses, improve
margins and achieve our future financial success. We are also
continuing to build upon our leading positions in businesses that participate in
large stable markets. Our current strategic plans require significant
attention from our management team and if events occur that distract
management’s attention and resources, our business could be
harmed. Further, if we are unsuccessful in growing our investment
businesses as planned and maintaining and building upon our leading market
positions, our financial performance could be adversely
affected.
If
we cannot effectively anticipate technology trends and develop and market new
products to respond to changing customer preferences, this could adversely
affect our revenues.
Due to
changes in technology and customer preferences, the market for traditional film
and paper products and services is in decline. Our success depends in part
on our ability to manage the decline of the market for these traditional
products by continuing to reduce our cost structure to maintain
profitability. In addition, we must develop and introduce new
products and services in a timely manner that keep pace with technological
developments and that are accepted in the market. Further, we may
expend significant resources to develop and introduce new products that are not
commercially accepted for any number of reasons, including, but not limited to,
failure to successfully market our products, competition from existing and new
competitors or product quality concerns. In addition, if we are
unable to anticipate and develop improvements to our current technology, to
adapt our products to changing customer preferences or requirements or to
continue to produce high quality products in a timely and cost effective manner
in order to compete with products offered by our competitors, this could
adversely affect our revenues.
The
competitive pressures we face could harm our revenue, gross margins and market
share.
The
markets in which we do business are highly competitive, and we encounter
aggressive price competition for all our products and services from numerous
companies globally. Over the past several years, price competition in
the market for digital products, film products and services has been
particularly intense as competitors have aggressively cut prices and lowered
their profit margins for these products. Our results of operations
and financial condition may be adversely affected by these and other industry
wide pricing pressures. If our products and services and pricing are
not sufficiently competitive with current and future competitors, we could also
lose market share, adversely affecting our revenue and gross
margins.
If
we have product quality issues, our expenses may increase, our liquidity may
decrease, or our reputation may be harmed, any of which could have an adverse
effect on our business.
In the
course of conducting our business, we must adequately address quality issues
associated with our products and services, including defects in our engineering,
design and manufacturing processes, as well as defects in third-party components
included in our products. Because our products are becoming
increasingly sophisticated and complicated to design and build as rapid advances
in technologies occur, the occurrence of defects may increase, particularly with
the introduction of new product lines. Although we have established
internal procedures to minimize risks that may arise from product quality
issues, there can be no assurance that we will be able to eliminate or mitigate
occurrences of these issues and associated liabilities. Finding
solutions to quality issues can be expensive and we may also incur expenses in
connection with, for example, product recalls and warranty or other service
obligations. We may also face lawsuits if our products do not meet
customer expectations. In addition, quality issues can impair our
relationships with new or existing customers and adversely affect our brand
image, and our reputation as a producer of high quality products could suffer,
which could adversely affect our business as well as our financial
results.
If
we cannot continue to license or enforce the intellectual property rights on
which our business depends, or if third parties assert that we violate their
intellectual property rights, our revenue, earnings, expenses and liquidity may
be adversely impacted.
We rely
upon patent, copyright, trademark and trade secret laws in the United States and
similar laws in other countries, and non-disclosure, confidentiality and other
types of agreements with our employees, customers, suppliers and other parties,
to establish, maintain and enforce our intellectual property
rights. Despite these measures, any of our direct or indirect
intellectual property rights could, however, be challenged, invalidated,
circumvented, infringed or misappropriated, or such intellectual property rights
may not be sufficient to permit us to take advantage of current market trends or
otherwise to provide competitive advantages, which could result in costly
product redesign efforts, discontinuance of certain product offerings or other
competitive harm. Further, the laws of certain countries do not
protect proprietary rights to the same extent as the laws of the United
States. Therefore, in certain jurisdictions, we may be unable to
protect our proprietary technology adequately against unauthorized third party
copying, infringement or use, which could adversely affect our competitive
position. Also, because of the rapid pace of technological change in
the information technology industry, much of our business and many of our
products rely on key technologies developed or licensed by third parties, and we
may not be able to obtain or continue to obtain licenses and technologies from
these third parties at all or on reasonable terms.
We have
made substantial investments in new, proprietary technologies and have filed
patent applications and obtained patents to protect our intellectual property
rights in these technologies as well as the interests of our
licensees. There can be no assurance that our patent applications
will be approved, that any patents issued will adequately protect our
intellectual property or that such patents will not be challenged by third
parties.
The
execution and enforcement of licensing agreements protects our intellectual
property rights and provides a revenue stream in the form of up-front payments
and royalties that enables us to further innovate and provide the marketplace
with new products and services. There can be no assurance that such
measures alone will be adequate to protect our intellectual
property. Our ability to execute our intellectual property licensing
strategies, including litigation strategies, such as our recent legal actions
against Apple Inc. and Research in Motion Limited, could also affect our revenue
and earnings. Additionally, the uncertainty around the timing and
magnitude of our intellectual property-related judgments and settlements could
have an adverse effect on our financial results and liquidity. Our
failure to develop and properly manage new intellectual property could adversely
affect our market positions and business opportunities. Furthermore,
our failure to identify and implement licensing programs, including identifying
appropriate licensees, could adversely affect the profitability of our
operations.
In
addition, third parties may claim that we, our customers, licensees or other
parties indemnified by us are infringing upon their intellectual property
rights. Such claims may be made by competitors seeking to block or
limit our access to digital markets. Additionally, in recent years,
individuals and groups have begun purchasing intellectual property assets for
the sole purpose of making claims of infringement and attempting to extract
settlements from large companies like ours. Even if we believe that
the claims are without merit, the claims can be time consuming and costly to
defend and distract management’s attention and resources. Claims of
intellectual property infringement also might require us to redesign affected
products, enter into costly settlement or license agreements or pay costly
damage awards, or face a temporary or permanent injunction prohibiting us from
marketing or selling certain of our products. Even if we have an
agreement to indemnify us against such costs, the indemnifying party may be
unable to uphold its contractual obligations. If we cannot or do not
license the infringed technology at all, license the technology on reasonable
terms or substitute similar technology from another source, our revenue and
earnings could be adversely impacted. Finally, we use open source
software in connection with our products and services. Companies that
incorporate open source software into their products have, from time to time,
faced claims challenging the ownership of open source software and/or compliance
with open source license terms. As a result, we could be subject to
suits by parties claiming ownership of what we believe to be open source
software or noncompliance with open source licensing terms. Some open
source software licenses require users who distribute open source software as
part of their software to publicly disclose all or part of the source code to
such software and/or make available any derivative works of the open source code
on unfavorable terms or at no cost. We have a corporate open source
governance board to monitor the use of open source software in our products and
services and try to ensure that none is used in a manner that would require us
to disclose the source code to the related product or service or that would
otherwise breach the terms of an open source agreement. Such use
could inadvertently occur and any requirement to disclose our source code or pay
damages for breach of contract could be harmful to our business results of
operations and financial condition.
If
we are unable to provide competitive financing arrangements to our customers or
if we extend credit to customers
whose creditworthiness deteriorates, this could adversely impact our revenues,
profitability and financial
position.
The
competitive environment in which we operate may require us to provide financing
to our customers in order to win a contract. Customer financing
arrangements may include all or a portion of the purchase price for our products
and services. We may also assist customers in obtaining financing
from banks and other sources and may provide financial guarantees on behalf of
our customers. Our success may be dependent, in part, upon our
ability to provide customer financing on competitive terms and on our customers’
creditworthiness. The tightening of credit in the global financial
markets has adversely affected the ability of our customers to obtain financing
for significant purchases, which resulted in a decrease in, or cancellation of,
orders for our products and services, and we can provide no assurance that this
trend will not continue. If we are unable to provide competitive financing
arrangements to our customers or if we extend credit to customers whose
creditworthiness deteriorates, this could adversely impact our revenues,
profitability and financial position.
Our
future pension and other postretirement plan costs and required level of
contributions could be unfavorably impacted by changes in actuarial assumptions,
future market performance of plan assets and obligations imposed by legislation
or pension authorities which could adversely affect our financial
position, results of operations, and cash flow.
We have
significant defined benefit pension and other postretirement benefit
obligations. The funded status of our U.S. and non U.S. defined
benefit pension plans and other postretirement benefit plans, and the related
cost reflected in our financial statements, are affected by various factors that
are subject to an inherent degree of uncertainty, particularly in the current
economic environment. Key assumptions used to value these benefit
obligations, funded status and expense recognition include the discount rate for
future payment obligations, the long term expected rate of return on plan
assets, salary growth, healthcare cost trend rates, and other economic and
demographic factors. Significant differences in actual experience, or
significant changes in future assumptions or obligations imposed by legislation
or pension authorities could lead to a potential future need to contribute cash
or assets to our plans in excess of currently estimated contributions and
benefit payments and could have an adverse effect on our consolidated results of
operations, financial position or liquidity.
If
we cannot attract, retain and motivate key employees, our business could be
harmed.
In order
for us to be successful, we must continue to attract, retain and motivate
executives and other key employees, including technical, managerial, marketing,
sales, research and support positions. Hiring and retaining qualified
executives, research professionals, and qualified sales representatives is
critical to our future. Competition for experienced employees in the
industries in which we compete is intense. The market for employees
with digital skills is highly competitive and, therefore, our ability to attract
such talent will depend on a number of factors, including compensation and
benefits, work location and persuading potential employees that we are well
positioned for success in the digital markets in which we are
operating. Given that our compensation plans are highly performance
based and given the potential impact of the global economy on our current and
future performance, it may become more challenging to retain key
employees. We also must keep employees focused on our strategic
initiatives and goals in order to be successful. Our past
restructuring actions harm our efforts to attract and retain key
employees. If we cannot attract properly qualified individuals,
retain key executives and employees or motivate our employees, our business
could be harmed.
Our
sales are typically concentrated in the last four months of the fiscal year,
therefore, lower than expected demand or increases in costs during that period
may have a pronounced negative effect on our results of operations.
The
demand for our consumer products is largely discretionary in nature, and sales
and earnings of our consumer businesses are linked to the timing of holidays,
vacations, and other leisure or gifting seasons. Accordingly, we have
typically experienced greater net sales in the fourth fiscal quarter as compared
to the other three quarters. Developments, such as
lower-than-anticipated demand for our products, an internal systems failure,
increases in materials costs, or failure of one of our key logistics, components
supply, or manufacturing partners, could have a material adverse impact on our
financial condition and operating results, particularly if such developments
occur late in the third quarter or during the fourth fiscal
quarter. Further, with respect to the Graphic Communications Group
segment, equipment and consumable sales in the commercial marketplace peak in
the fourth quarter based on increased commercial print demand. Tight
credit markets that limit capital investments or a weak economy that decreases
print demand could negatively impact equipment or consumable
sales. In addition, our inability to achieve intellectual property
licensing revenues in the timeframe and amount we anticipate could adversely
affect our revenues, earnings and cash flow. These external
developments are often unpredictable and may have an adverse impact on our
business and results of operations.
If
we fail to manage distribution of our products and services properly, our
revenue, gross margins and earnings could be adversely impacted.
We use a
variety of different distribution methods to sell and deliver our products and
services, including third party resellers and distributors and direct and
indirect sales to both enterprise accounts and
customers. Successfully managing the interaction of direct and
indirect channels to various potential customer segments for our products and
services is a complex process. Moreover, since each distribution
method has distinct risks and costs, our failure to implement the most
advantageous balance in the delivery model for our products and services could
adversely affect our
revenue, gross margins and earnings. Due to changes in our go to
market models, we are more reliant on fewer distributors than in past periods.
This has concentrated our credit and operational risk and could result in an
adverse impact on our financial performance.
Due
to the nature of the products we sell and our worldwide distribution, we are
subject to changes in currency exchange rates, interest rates and commodity
costs that may adversely impact our results of operations and financial
position.
As a
result of our global operating and financing activities, we are exposed to
changes in currency exchange rates and interest rates, which may adversely
affect our results of operations and financial position. Exchange
rates and interest rates in markets in which we do business tend to be volatile
and at times, our sales can be negatively impacted across all of our segments
depending upon the value of the U.S. dollar. In addition, our
products contain silver, aluminum, petroleum based or other commodity-based raw
materials, the changes in the costs of which can be volatile. If the
global economic situation remains uncertain or worsens, there could be further
volatility in changes in currency exchange rates, interest rates and commodity
prices, which could have negative effects on our revenue and
earnings.
We
have outsourced a significant portion of our overall worldwide manufacturing,
logistics and back office operations and face the risks associated with relying
on third party suppliers.
We have
outsourced a significant portion of our overall worldwide manufacturing,
logistics, customer support and administrative operations (such as credit and
collections, and general ledger accounting functions) to third
parties. To the extent that we rely on third party service providers,
we face the risk that those third parties may not be able to:
• develop
manufacturing methods appropriate for our products;
•
maintain an adequate control environment;
• quickly
respond to changes in customer demand for our products;
• obtain
supplies and materials necessary for the manufacturing process; or
•
mitigate the impact of labor shortages and/or disruptions.
As a
result of such risks, our costs could be higher than planned and the reliability
of our products could be negatively impacted. Other supplier problems
that we could face include component shortages, excess supply, risks related to
duration of our contracts with suppliers for components and materials and risks
related to dependency on single source suppliers on favorable terms or at
all. If any of these risks were to be realized, and assuming
alternative third party relationships could not be established, we could
experience interruptions in supply or increases in costs that might result in
our inability to meet customer demand for our products, damage to our
relationships with our customers, and reduced market share, all of which could
adversely affect our results of operations and financial condition.
Our
inability to effectively complete, integrate and manage acquisitions,
divestitures and other significant transactions could adversely impact our
business performance including our financial results.
As part
of our business strategy, we frequently engage in discussions with third parties
regarding possible investments, acquisitions, strategic alliances, joint
ventures, divestitures and outsourcing transactions and enter into agreements
relating to such transactions in order to further our business
objectives. In order to pursue this strategy successfully, we must
identify suitable candidates and successfully complete transactions, some of
which may be large and complex, and manage post closing issues such as the
integration of acquired companies or employees and the assessment of such
acquired companies’ internal controls. Integration and other risks of
transactions can be more pronounced for larger and more complicated
transactions, or if multiple transactions are pursued
simultaneously. If we fail to identify and complete successfully
transactions that further our strategic objectives, we may be required to expend
resources to develop products and technology internally, we may be at a
competitive disadvantage or we may be adversely affected by negative market
perceptions, any of which may have an adverse effect on our revenue, gross
margins and profitability. In addition, unpredictability surrounding
the timing of such transactions could adversely affect our financial
results.
System
integration issues could adversely affect our revenue and earnings.
Portions
of our information technology infrastructure may experience interruptions,
delays or cessations of service in connection with systems integration or
migration work that takes place from time to time. In particular, we
are in the process of completing integration of certain of our regional
operations’ systems into our corporate SAP structure. We may not be
successful in implementing new systems and transitioning data, which could cause
business disruptions and be more expensive, time consuming, disruptive and
resource intensive. Such disruption could adversely affect our
ability to fulfill orders and could also interrupt other
processes. Delayed sales, higher costs or lost customers resulting
from these disruptions could adversely affect our financial results and
reputation.
Business
disruptions could seriously harm our future revenue and financial condition and
increase our costs and expenses.
Our
worldwide operations could be subject to earthquakes, power shortages,
telecommunications failures, water shortages, tsunamis, floods, hurricanes,
typhoons, fires, extreme weather conditions, medical epidemics, political or
economic instability, and other natural or manmade disasters or business
interruptions, for which we are predominantly self insured. The
occurrence of any of these business disruptions could seriously harm our revenue
and financial condition and increase our costs and expenses. In
addition, some areas, including parts of the east and west coasts of the United
States, have previously experienced, and may experience in the future, major
power shortages and blackouts. These blackouts could cause
disruptions to our operations or the operations of our suppliers, distributors
and resellers, or customers. These events could seriously harm our
revenue and financial condition, and increase our costs and
expenses.
We
may be required to recognize additional impairments in the value of our
goodwill, which would increase expenses and reduce profitability.
Goodwill
represents the excess of the amount we paid to acquire businesses over the fair
value of their net assets at the date of the acquisition. We test
goodwill for impairment annually or whenever events occur or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. This may occur for various reasons
including changes in actual or expected income or cash flows of a reporting
unit. We continue to evaluate current conditions that may affect the
fair value of our reporting units to assess whether any goodwill impairment
exists. Secular declines in the results of the Film, Photofinishing
and Entertainment Group segment are likely to lead to impairment of goodwill
related to that segment in the future. In addition, impairments of
goodwill could occur in the future if market or interest rate environments
deteriorate, expected future cash flows of our reporting units decline, or if
reporting unit carrying values change materially compared with changes in
respective fair values.
The
private equity firm KKR may have interests that diverge from our interests and
the interests of our other security holders.
KKR
beneficially owns a significant equity position in the Company through its
warrant holdings and may have interests that diverge from our interests and the
interests of our security holders. In addition, so long as KKR
maintains beneficial ownership of specified thresholds of our shares of common
stock, it will have the right to nominate up to two members of our board of
directors and will be entitled to certain information rights and a right to
participate in future offerings of our equity securities. KKR is in the business
of investing in companies and they are not restricted from investing in our
current or future competitors. Future events may give rise to a
divergence of interests between KKR and us or our other security
holders.
Our
failure to implement plans to reduce our cost structure in anticipation of
declining demand for certain products or delays in implementing such plans could
negatively affect our consolidated results of operations, financial position and
liquidity.
We
recognize the need to continually rationalize our workforce and streamline our
operations to remain competitive in the face of an ever-changing business and
economic climate. If we fail to implement cost rationalization plans
such as restructuring of manufacturing, supply chain, marketing sales
and administrative resources ahead of declining demand for certain of our
products and services, our operations results, financial position and liquidity
could be negatively impacted. In 2009, we implemented a targeted cost
reduction program, which we refer to as the 2009 Program, to more appropriately
size the organization as a result of the economic downturn. While
most of the actions
under the
2009 Program were completed in 2009, we expect some remaining actions to be
completed during the first half of 2010. If we fail to successfully
execute our remaining rationalization activities under our 2009 Program, our
financial performance could be adversely affected. Additionally, if
the restructuring plans are not effectively managed, we may experience lost
customer sales, product delays and other unanticipated effects, causing harm to
our business and customer relationships. Finally, the timing and
implementation of these plans require compliance with numerous laws and
regulations, including local labor laws, and the failure to comply with such
requirements may result in damages, fines and penalties which could adversely
affect our business.
The
implementation of new legislation or regulations or changes in existing laws or
regulations could increase our cost to comply and consequently reduce our
profitability.
New
business legislation or regulations or changes to existing laws or regulation,
including interpretations of existing regulations by courts or regulators, could
adversely affect our results of operations by increasing our cost to
comply. For example, new tax, labor, health care, product safety,
environmental and securities laws and regulations have been proposed and such
proposals or other proposals may be enacted in the future that require us to
adopt new policies, internal controls and other compliance practices or modify
existing production facilities and operations. Each of these
compliance initiatives could lead to internal and external cost increases, and
negatively impact our profitability.
Our
future results could be harmed by economic, political, regulatory and other
risks associated with international sales and operations.
Because
we sell our products worldwide and many of the facilities where our devices are
manufactured, distributed and supported are located outside the United States,
our business is subject to risks associated with doing business internationally,
such as:
•
supporting multiple languages;
•
recruiting sales and technical support personnel with the skills to
design, manufacture, sell and support our
products;
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•
complying with governmental regulation of imports and exports, including
obtaining required import or export approval for our
products;
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•
complexity of managing international operations;
•
exposure to foreign currency exchange rate fluctuations;
•
commercial laws and business practices that may favor local
competition;
•
multiple, potentially conflicting, and changing governmental laws,
regulations and practices, including differing export, import, tax,
labor,
anti-bribery and employment laws;
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•
difficulties in collecting accounts receivable;
•
limitations or restrictions on the repatriation of cash;
• reduced
or limited protection of intellectual property rights;
•
managing research and development teams in geographically disparate
locations, including Canada, Israel, Japan, China, and
Singapore;
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•
complicated logistics and distribution arrangements; and
•
political or economic instability.
While we
sell our products in most parts of the world, one component of our strategy is
to further expand our international sales efforts. There can be no
assurance that we will be able to market and sell our products in all of our
targeted international markets. If our international efforts are not successful,
our business growth and results of operations could be harmed.
Our
results of operations may suffer if we do not effectively manage our inventory,
and we may incur inventory-related charges.
We need
to manage our inventory of component parts and finished goods effectively to
meet changing customer requirements. Accurately forecasting customers’ product
needs is difficult. Some of our products and supplies have in the
past, and may in the future, become obsolete while in inventory due to rapidly
changing customer tastes or a decrease in customer demand. If we are
not able to manage our inventory effectively, we may need to write down the
value of some of our existing inventory or write off non-saleable or obsolete
inventory, which would adversely affect
our results of operations. We have from time to time incurred
significant inventory-related charges. Any such charges we incur in
future periods could materially and adversely affect our results of
operations.
We
are subject to environmental laws and regulations and failure to comply with
such laws and regulations or liabilities imposed as a result of such laws and
regulations could have an adverse effect on our business, results of operations
and financial condition.
We are
subject to environmental laws and regulations in the jurisdictions in which we
conduct our business, including laws regarding the discharge of pollutants,
including greenhouse gases, into the air and water, the need for environmental
permits for certain operations, the management and disposal of hazardous
substances and wastes, the cleanup of contaminated sites, the content of our
products and the recycling and treatment and disposal of our
products. If we do not comply with applicable laws and regulations in
connection with the use and management of hazardous substances, then we could be
subject to liability and/or could be prohibited from operating certain
facilities, which could have a material adverse effect on our business, results
of operations and financial condition. In addition, failure to comply
with certain regulations could result in fines and civil or criminal sanctions,
third-party property damage or personal injury claims and clean up
costs. We cannot provide assurance that we have been or will be at
all times in complete compliance with all environmental laws, regulations and
permits.
Certain
environmental laws and regulations impose liability on current or previous
owners or operators of real property for the cost to investigate, remove or
remediate hazardous substances. These laws often impose liability
even if the owner or operator of property did not know of, or was not
responsible for, the release of such hazardous substances. These laws
and regulations also assess liability on persons who arrange for hazardous
substances to be sent to disposal, reclamation or treatment facilities when such
facilities are found to be contaminated. Such persons can be
responsible for cleanup costs even if they never owned or operated the
contaminated facility. At December 31, 2009, we had accrued
liabilities of $102 million for various environmental matters. The
majority of this reserve relates to contamination at our Eastman Business Park
site in Rochester, New York. Certain other costs relate to liability
at Superfund sites, including the Passaic River in the state of New
Jersey. While the accrued liabilities represent our current best
estimate of costs for those matters, the ultimate costs could exceed that
amount.
Environmental
laws and regulations are complex, change frequently and have tended to become
more stringent over time. We cannot assure you that our costs of
complying with current and future environmental laws and regulations and our
liabilities arising from past or future releases of, or exposure to, hazardous
substances (including our liability for the matters comprising our environmental
reserve) will not adversely affect our business, results of operations or
financial condition.
Our
substantial leverage could adversely affect our ability to fulfill our debt
obligations and may place us at a competitive disadvantage in our
industry.
We have
incurred significant debt and related interest expenses as a result of the
issuance of $300 million aggregate principal amount of the 10.5% 2017
Senior Notes and $400 million of our 7.00% Convertible Senior Notes
due 2017 in September 2009 and previously issued debt. In addition,
we may incur additional debt from time to time to finance working capital,
product development efforts, strategic acquisitions, investments and alliances,
capital expenditures or other general corporate purposes, subject to the
restrictions contained in our Credit Agreement and the indenture governing the
notes and in any other agreements under which we incur
indebtedness.
Our
significant debt and debt service requirements could adversely affect our
ability to operate our business and may limit our ability to take advantage of
potential business opportunities. For example, our high level of debt
presents the following risks:
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we
are required to use a substantial portion of our cash flow from operations
to pay principal and interest on our debt, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, product development efforts, acquisitions, investments and
strategic alliances and other general corporate requirements as well as
making it more difficult for us to make payments on the
notes;
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·
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our
substantial leverage increases our vulnerability to economic downturns and
adverse competitive and industry conditions and could place us at a
competitive disadvantage compared to those of our competitors that are
less leveraged;
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·
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our
debt service obligations could limit our flexibility in planning for, or
reacting to, changes in our business and our industry and could limit our
ability to pursue other business opportunities, borrow more money for
operations or capital in the future and implement our business
strategies;
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·
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our
level of debt and the covenants within our debt instruments may restrict
us from raising additional financing on satisfactory terms to fund working
capital, capital expenditures, product development efforts, strategic
acquisitions, investments and alliances, and other general corporate
requirements; and
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·
|
covenants
in our debt instruments limit our ability to pay dividends, issue new or
additional debt or make other restricted payments and
investments.
|
A failure
to comply with the covenants and other provisions of our debt instruments could
result in events of default under such instruments, which could permit
acceleration of our various outstanding notes. Any required repayment
of our indebtedness as a result of acceleration would lower our current cash on
hand such that we would not have those funds available for use in our
business. In addition, we may not have sufficient cash on hand to pay
all such amounts in the event of an acceleration.
If we are
at any time unable to generate sufficient cash flow from operations to service
our indebtedness when payment is due, we may be required to attempt to
renegotiate the terms of the instruments relating to the indebtedness, seek to
refinance all or a portion of the indebtedness or obtain additional
financing. There can be no assurance that we will be able to
successfully renegotiate such terms, that any such refinancing would be possible
or that any additional financing could be obtained on terms that are favorable
or acceptable to us.
Servicing
our debt requires a significant amount of cash and our ability to generate cash
may be affected by factors beyond our control.
Our
business may not generate cash flow in an amount sufficient to enable us to pay
the principal of, or interest on, our indebtedness, or to fund our other
liquidity needs, including working capital, capital expenditures, product
development efforts, strategic acquisitions, investments and alliances, and
other general corporate requirements.
Our
ability to generate cash is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control. We cannot assure you that:
·
|
our
business will generate sufficient cash flow from
operations;
|
·
|
we
will realize cost savings, revenue growth and operating improvements
resulting from the execution of our long-term strategic plan;
or
|
·
|
future
sources of funding will be available to us in amounts sufficient to enable
us to fund our liquidity needs.
|
If we
cannot fund our liquidity needs, we will have to take actions such as reducing
or delaying capital expenditures, product development efforts, strategic
acquisitions, investments and alliances, selling assets, restructuring or
refinancing our debt, including the notes, or seeking additional equity
capital. Such actions could further negatively impact our ability to
generate cash flows. We cannot assure you that any of these remedies
could, if necessary, be effected on commercially reasonable terms, or at all, or
that they would permit us to meet our scheduled debt service
obligations. Certain of our debt instruments limit the use of the
proceeds from any disposition of assets and, as a result, we may not be allowed,
under those instruments, to use the proceeds from such dispositions to satisfy
all current debt service obligations. In addition, if we incur
additional debt, the risks associated with our substantial leverage, including
the risk that we will be unable to service our debt or generate enough cash flow
to fund our liquidity needs, could intensify.
Restrictions
imposed by our debt instruments limit our ability to finance future
operations or capital needs or engage in other business activities that may be
in our interest.
Our debt
instruments impose operating and other restrictions on us and our
subsidiaries. Our debt instruments also limit, among other things,
the ability of us and our restricted subsidiaries to:
·
|
incur
additional indebtedness and issue certain preferred
stock;
|
·
|
pay
dividends or make distributions in respect of our capital
stock;
|
·
|
purchase
or redeem capital stock;
|
·
|
make
certain investments or other restricted
payments;
|
·
|
enter
into transactions with affiliates;
and
|
·
|
effect
a consolidation or merger.
|
However,
these limitations are subject to a number of important qualifications and
exceptions.
If
the excess availability under our Credit Agreement falls below $100 million for
a specified period, the Credit Agreement also requires us to maintain compliance
with a fixed charge coverage ratio. Our ability to comply with this
covenant may be affected by events beyond our control.
A breach
of any of the covenants contained in our Credit Agreement or our inability to
comply with the required financial ratio, when applicable, could result in a
default under the Credit Agreement. If an event of default occurs and
we are not able to obtain a waiver from the requisite lenders under the Credit
Agreement, the administrative agent of the Credit Agreement may, and at the
request of the requisite lenders shall, declare all of our outstanding
obligations under the Credit Agreement, together with accrued interest and fees,
to be immediately due and payable, and may terminate the lenders’ commitments
thereunder, cease making further loans and institute foreclosure proceedings
against our assets.
None.
The
Company's worldwide headquarters is located in Rochester, New
York.
The CDG
segment of Kodak’s business in the United States is headquartered in Rochester,
New York. Kodak Gallery operations are managed from Emeryville,
California. Kodak Consumer Inkjet Systems operations are located in
San Diego, California; Xiamen, China; Singapore; and Rochester, New
York. Many of CDG’s businesses rely on manufacturing assets,
company-owned or through relationships with design and manufacturing partners,
which are located close to end markets and/or supplier networks.
The FPEG segment of Kodak’s
business is centered in Rochester, New York, where film and photographic
chemicals and related materials are manufactured. A manufacturing
facility in Harrow, England produces photographic paper. Additional
manufacturing facilities supporting the business are located in Windsor,
Colorado; China; Mexico; India; Brazil;
and Russia. Entertainment Imaging has business operations in
Hollywood, California and Rochester, New
York.
Products
in the GCG segment are manufactured in the United States, primarily in
Rochester, New York; Dayton, Ohio; Columbus, Georgia; and Weatherford,
Oklahoma. Key manufacturing facilities outside the United States,
either company-owned or through relationships with manufacturing partners, are
located in the United Kingdom, Germany, Bulgaria, Mexico, China, and
Japan. During 2009, manufacturing and development facilities in
Windsor, Colorado; Israel; and Canada were impacted by capacity consolidations
into other sites around the world. While these sites continued to
develop or manufacture select products throughout the year, their product line
focus was narrowed.
Properties
within a country may be shared by all segments operating within that
country.
Regional
distribution centers are located in various places within and outside of the
United States. The Company owns or leases administrative, research
and development, manufacturing, marketing, and processing facilities in various
parts of the world. The leases are for various periods and are
generally renewable.
ITEM 3. LEGAL
PROCEEDINGS
During
March 2005, the Company was contacted by members of the Division of Enforcement
of the SEC concerning the announced restatement of the Company's financial
statements for the full year and all four quarters of 2003 and the first three
unaudited quarters of 2004. An informal inquiry by the staff of the
SEC into the substance of that restatement is continuing. The Company
continues to fully cooperate with this inquiry, and the staff has indicated that
the inquiry should not be construed as an indication by the SEC or its staff
that any violations of law have occurred. The Company has provided
all the information requested by the SEC and the SEC has not requested
additional information for more than three years.
On
October 12, 2009, the U.S. Environmental Protection Agency commenced an
administrative enforcement action against the Company under the Clean Water Act
alleging violations of regulations applicable to the management, training and
record keeping of certain oil storage operations at its primary manufacturing
facility in Rochester, NY. The Company and the EPA have reached an
agreement in principle to settle this matter for $88,000.
The
Company has been named as third-party defendant (along with approximately 200
other entities) in an action initially brought by the New Jersey Department of
Environmental Protection (NJDEP) in the Supreme Court of New Jersey, Essex
County against Occidental Chemical Corporation and several other companies that
are successors in interest to Diamond Shamrock Corporation. The NJDEP
seeks recovery of all costs associated with the investigation, removal, cleanup
and damage to natural resources occasioned by Diamond Shamrock's disposal of
various forms of chemicals in the Passaic River. The damages are alleged to
potentially range "from hundreds of millions to several billions of
dollars." Pursuant to New Jersey's Court Rules, the defendants were
required to identify all other parties which could be subject to permissive
joinder in the litigation based on common questions of law or
fact. Third-party complaints seeking contribution from more than 200
entities, which have been identified as potentially contributing to the
contamination in the Passaic, were filed on February 5, 2009. Based
on currently available information, the potential monetary exposure is likely to
be in excess of $100,000 but is not expected to be material.
On
November 17, 2008, the Company filed a complaint with the U.S. International
Trade Commission (“ITC”) against Samsung Electronics Company Ltd., Samsung
Electronics America Inc., and Samsung Telecommunications America, LLC, for
infringement of patents related to digital camera technology. The
hearing before the ITC was concluded on October 16, 2009 and an Initial
Determination was issued by the Administrative Law Judge on December 17, 2009
finding Kodak’s asserted patents valid and infringed. On December 22,
2009, the Company and Samsung agreed to negotiate a definitive agreement to
settle the ITC proceeding and a technology cross license
agreement. On January 8, 2010, the Company and Samsung executed a
settlement agreement (“Samsung Settlement”), entered into a technology cross
license agreement, and filed joint motions to terminate the patent infringement
proceeding pending before the ITC. These motions were granted on
February 2, 2010 and the proceeding was terminated.
On
February 17, 2009 Samsung Electronics Company Ltd. and Samsung Electronics
America Inc. filed a complaint with the ITC against the Company for infringement
of certain of their patents alleged to be related to digital camera
technology. The hearing before the ITC was concluded on October 1,
2009. Pursuant to the Samsung Settlement mentioned above, this
proceeding was terminated on February 12, 2010.
On
November 17, 2008, the Company commenced a lawsuit in Landgericht Düsseldorf,
Germany against Samsung Electronics GmbH for infringement of a patent related to
digital camera technology. Pursuant to the Samsung Settlement
mentioned above, this suit was terminated on February 3, 2010.
On
November 17, 2008, the Company filed complaints against Samsung Electronics
Company Ltd., Samsung Electronics America Inc., and Samsung Telecommunications
America, LLC in Federal District Court in Rochester, New York, for infringement
of patents related to digital camera technology. Pursuant to the
Samsung Settlement mentioned above, this suit was dismissed on February 4,
2010.
On
November 17, 2008, the Company filed a complaint with the ITC against LG
Electronics Inc., LG Electronics USA Inc. and LG Electronics MobileComm USA Inc.
(referred to collectively as “LG”) for infringement of patents related to
digital camera technology. The hearing before the ITC was concluded
on October 16, 2009. On November 30, 2009, the Company and LG entered
into an agreement settling their patent infringement lawsuits against each other
(“LG Settlement”) and agreed to file a joint request for termination of patent
infringement proceedings before the ITC. This request was granted and
the ITC proceeding was terminated on January 27, 2010. Separately the
Company entered into a technology cross license with LG.
On
February 20, 2009 LG Electronics Inc. (Seoul, Korea) filed a complaint with the
ITC against the Company for infringement of certain of their patents alleged to
be related to digital camera technology. Pursuant to the LG
Settlement mentioned above, this proceeding was terminated on February 16,
2010.
On
November 17, 2008 the Company filed complaints against LG Electronics Inc.,
LG Electronics USA Inc., and LG Electronics MobileComm USA, Inc. in Federal
District Court in Rochester, New York, for infringement of patents related to
digital camera technology. Pursuant to the LG Settlement mentioned
above, this suit was dismissed on December 22, 2009.
On
February 20, 2009 LG Electronics Inc. (Seoul, Korea) commenced two actions
against the Company in Federal District court in the Southern District of
California for infringement of certain of their patents alleged to be related to
digital camera technology. Pursuant to the LG Settlement mentioned
above, these suits were dismissed on December 18, 2009.
On
November 20, 2008, Research in Motion Ltd. and Research in Motion Corp.
(collectively “RIM”) filed a declaratory judgment action against the Company in
Federal District Court in Dallas, Texas. The suit seeks to invalidate
certain Company patents related to digital camera technology and software object
linking, and seeks a determination that RIM handheld devices do not infringe
such patents. On February 17, 2009, the Company filed its answer and
counterclaims for infringement of each of these same patents. The
Company intends to vigorously defend itself in this matter.
On
January 14, 2010 the Company filed a complaint with the ITC against Apple Inc.
and Research in Motion Limited (RIM) for infringement of patents related to
digital camera technology. The Company is seeking a limited exclusion
order preventing importation of infringing devices including IPHONES and camera
enabled BLACKBERRY devices. On February 16, 2010, the ITC ordered
that an investigation be instituted to determine whether importation or sale of
the accused Apple and RIM devices constitutes violation of the Tariff Act of
1930.
On
January 14, 2010 the Company filed two suits against Apple Inc. in the Federal
District Court in Rochester, New York claiming infringement of patents related
to digital cameras and certain computer processes. The Company is
seeking unspecified damages and other relief.
The
Company and its subsidiaries are involved in various lawsuits, claims,
investigations and proceedings, including commercial, customs, employment,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. In addition, the Company
is subject to various assertions, claims, proceedings and requests for
indemnification concerning intellectual property, including patent infringement
suits involving technologies that are incorporated in a broad spectrum of the
Company's products. These
matters
are in various stages of investigation and litigation, and are being vigorously
defended. Although the Company does not expect that the outcome in
any of these matters, individually or collectively, will have a material adverse
effect on its financial condition or results of operations, litigation is
inherently unpredictable. Therefore, judgments could be rendered or
settlements entered, that could adversely affect the Company’s operating results
or cash flows in a particular period. The Company routinely assesses
all of its litigation and threatened litigation as to the probability of
ultimately incurring a liability, and records its best estimate of the ultimate
loss in situations where it assesses the likelihood of loss as
probable.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Pursuant
to General Instructions G (3) of Form 10-K, the following list is included as an
unnumbered item in Part I of this report in lieu of being included in the Proxy
Statement for the Annual Meeting of Shareholders.
|
|
|
|
Date
First Elected
|
|
|
|
|
an
|
|
to
|
|
|
|
|
Executive
|
|
Present
|
Name
|
Age
|
|
Positions
Held
|
Officer
|
|
Office
|
|
|
|
|
|
|
|
Robert
L. Berman
|
52
|
|
Senior
Vice President
|
2002
|
|
2005
|
Philip
J. Faraci
|
54
|
|
President
and Chief Operating Officer
|
2005
|
|
2007
|
Joyce
P. Haag
|
59
|
|
General
Counsel and Senior Vice President
|
2005
|
|
2005
|
Brad
W. Kruchten
|
49
|
|
Senior
Vice President
|
2009
|
|
2009
|
Antonio
M. Perez
|
64
|
|
Chairman
of the Board, Chief Executive Officer
|
2003
|
|
2005
|
Eric
H. Samuels
|
42
|
|
Chief
Accounting Officer and Corporate Controller
|
2009
|
|
2009
|
Frank
S. Sklarsky
|
53
|
|
Chief
Financial Officer and Executive Vice President
|
2006
|
|
2006
|
Terry
R. Taber
|
55
|
|
Vice
President
|
2008
|
|
2008
|
|
|
|
|
|
|
|
Executive
officers are elected annually in February.
All of
the executive officers have been employed by Kodak in various executive and
managerial positions for at least five years, except Mr. Sklarsky who joined the
Company on October 30, 2006.
The
executive officers' biographies follow:
Robert
L. Berman
Robert
Berman was appointed to his current position in January 2002 and was elected a
Vice President of the Company in February 2002. In March 2005, he was
elected a Senior Vice President by the Board of Directors. In this
capacity, he is responsible for the design and implementation of all human
resources strategies, policies and processes throughout the corporation.
He is a member of the Eastman Kodak Company Executive Council, and serves on the
Company’s Senior Executive Diversity and Inclusion Council and Ethics
Committee. He works closely with Kodak’s CEO, Board of Directors and
Executive Compensation and Development Committee on all executive compensation
and development processes for the corporation. Prior to this position, Mr.
Berman was the Associate Director of Human Resources and the Director and
divisional vice president of Human Resources for Global Operations, leading the
delivery of strategic and operational human resources services to Kodak’s global
manufacturing, supply chain and regional operations around the world. He
has held a variety of other key human resources positions for Kodak over his 25
year career, including the Director and divisional vice president of Human
Resources for the global Consumer Imaging business and the Human Resources
Director for Kodak Colorado Division.
Philip
J. Faraci
Philip
Faraci was named President and Chief Operating Officer, Eastman Kodak Company,
in September 2007. As President and COO, Mr. Faraci is responsible
for the day-to-day management of Kodak’s two major digital businesses: the
Consumer Digital Imaging Group (“CDG”) and the Graphic Communications Group
(“GCG”). Mr. Faraci had been President of CDG and a Senior Vice
President of the Company. He joined Kodak as Director, Inkjet Systems
Program in December 2004. In February 2005, he was elected a Senior
Vice President of the Company. In June 2005, he was also named
Director, Corporate Strategy & Business Development.
Prior to
Kodak, Mr. Faraci served as Chief Operating Officer of Phogenix Imaging and
President and General Manager of Gemplus Corporation’s Telecom Business
Unit. Prior to these roles, he spent 22 years at Hewlett-Packard,
where he served as Vice President and General Manager of the Consumer Business
Organization and Senior Vice President and General Manager for the Inkjet
Imaging Solutions Group.
Joyce
P. Haag
Joyce
Haag began her Kodak career in 1981, as a lawyer on the Legal
Staff. She was elected Assistant Secretary in December 1991 and
elected Corporate Secretary in February 1995. In January 2001, she
was appointed to the additional position of Assistant General
Counsel. In August 2003, she became
Director, Marketing, Antitrust, Trademark and Litigation, Legal Staff
andin March 2004, she became General Counsel, Europe, Africa and Middle
East Region (“EAMER”). In July 2005, she was promoted to Senior Vice
President and General Counsel.
Prior to
joining the Kodak Legal Staff, Ms. Haag was an associate with Boylan, Brown,
Code, Fowler, Vigdor & Wilson LLP in Rochester, New York.
Brad
W. Kruchten
Brad
Kruchten is currently the President of the Film, Photofinishing &
Entertainment Group (FPEG). In this capacity, he is responsible for the
manufacture of all silver halide products. Mr. Kruchten was named Chief
Operating Officer of FPEG in January 2009, and he was appointed President
of FPEG in July 2009. The Board of Directors elected him a Senior
Vice President of the Company in July 2009. In addition, Mr. Kruchten has
responsibility for Qualex / Event Imaging Solutions, which is a wholly owned
subsidiary that provides photo services to guests at theme parks and other
attractions.
Prior to
his current position, Mr. Kruchten was the worldwide General Manager for Retail
Printing, and was responsible for the products and services that enable
retailers to offer an integrated retail solution to analog and digital
photographers. These products and services included kiosks, paper, retail
workflow software, service, and support. Before that, Mr. Kruchten was the
General Manager for the Consumer and Professional film business. The Board
of Directors elected him a Corporate Vice President in July 2002.
Mr.
Kruchten's career at Kodak began in 1982 as a Quality Engineer. Over his
first five years, he expanded his engineering experience in the Copy Products
Division as a Manufacturing Engineer and a Development/Research Engineer.
In 1986, he moved into a sales position for Copy Products, and over the next
five years held a number of sales and marketing positions within Printer
Products and Business Imaging Systems. In 1993, Mr. Kruchten became a
product line manager for Business Imaging Systems. In 1998, he was named
Strategic Business Unit Manager and a divisional vice president of the Capture
and Services business within the Document Imaging unit. In 2000, Mr.
Kruchten was named Chief Operating Officer and vice president of the Document
Imaging unit. As COO, he led the acquisition of the Imaging division of
Bell & Howell. In 2001, Mr. Kruchten was named Site Manager, Kodak
Colorado Division, and became a divisional vice president of Kodak's Global
Manufacturing unit. In 2002, he was the Chief Executive Officer of Encad
Inc., a wholly owned Kodak subsidiary.
Prior to
Kodak, Mr. Kruchten worked as a project engineer at Inland Steel and as a tool
designer for General Motors Corp.
Antonio
M. Perez
Since
joining the Company in April 2003, Kodak’s Chairman and Chief Executive Officer,
Antonio M. Perez, has led the worldwide transformation of Kodak from a business
based on film to one based primarily on digital technologies. In the past
four years, Kodak introduced an array of disruptive new digital technologies and
products for consumer and commercial applications that generated
$5.3
billion in revenues in 2009. Those include consumer inkjet printers, CMOS
sensors for digital cameras and mobile phones, dry labs and kiosks for printing
at retail, as well as high-volume digital production presses and digital plates
for commercial printing. The result is a new Kodak -- a company with 70
percent of revenue coming from digital products, higher gross margin
business-to-business revenues and a sustainable traditional business
model.
Mr. Perez
brings to the task his experience from a 25-year career at Hewlett-Packard
Company, where he was a corporate vice president and a member of the company’s
Executive Council. As President of H-P’s Consumer Business, Mr. Perez
spearheaded the company’s efforts to build a business in digital imaging and
electronic publishing, generating worldwide revenue of more than $16
billion.
Prior to
that assignment, Mr. Perez served as President and CEO of H-P’s inkjet imaging
business for five years. During that time, the installed base of H-P's inkjet
printers grew from 17 million to 100 million worldwide, with revenue totaling
more than $10 billion.
After
H-P, Mr. Perez was President and CEO of Gemplus International, where he led the
effort to take the company public. While at Gemplus, he transformed the
company into the leading Smart Card-based solution provider in the fast-growing
wireless and financial markets. In the first fiscal year, revenue at
Gemplus grew 70 percent, from $700 million to $1.2 billion.
Eric
H. Samuels
Eric H.
Samuels was appointed Corporate Controller and Chief Accounting Officer in July
2009. Mr. Samuels previously served as the Company’s Assistant Corporate
Controller and brings to his new position nearly 20 years of leadership
experience in corporate finance and public accounting. He joined Kodak in
2004 as Director, Accounting Research and Policy.
Prior to
joining Kodak, Mr. Samuels had a 14-year career in public accounting during
which he served as a senior manager at KPMG LLP's Department of Professional
Practice (National Office) in New York City. Prior to joining KPMG in
1996, he worked in Ernst & Young's New York City office.
Frank
S. Sklarsky
Frank
Sklarsky joined Kodak in October 2006 as Executive Vice President, and became
the Chief Financial Officer in November 2006.
Mr.
Sklarsky is responsible for worldwide financial operations, including Financial
Planning and Analysis, Treasury, Audit, Controllership, Tax, Investor Relations,
Aviation, Corporate Mergers and Acquisitions, Worldwide Information Systems and
Corporate Purchasing.
Prior to
joining Kodak, Mr. Sklarsky was Executive Vice President and Chief Financial
Officer of ConAgra Foods Inc., one of North America's leading packaged food
companies. At ConAgra, he implemented a new financial organization,
significantly strengthened the balance sheet, and played a major role in
building credibility with the investment community. He also helped expand
profit margins at the $14 billion company.
Prior to
joining ConAgra in 2004, Mr. Sklarsky was Vice President, Product Finance, at
DaimlerChrysler, a position he held between 2001 and 2004. He returned to
DaimlerChrysler to assist with the company's turnaround efforts after spending
more than one year as Vice President, Corporate Finance, and Vice President,
Finance, of Dell’s $5 billion consumer business. He first joined
DaimlerChrysler in 1983 and held a series of increasingly responsible finance
positions before leaving for Dell in 2000. At the time of his departure
for Dell, he was DaimlerChrysler’s Vice President, Corporate Financial
Activities, and also led the finance functions serving procurement, product
quality, cost management and worldwide manufacturing during his tenure.
Prior to DaimlerChrysler, Mr. Sklarsky, a certified public accountant, served as
a Senior Accountant at Ernst & Young International from 1978 to
1981.
Terry
R. Taber
Terry R.
Taber joined Kodak in 1980. In January 2009, he became Chief Technical
Officer. The Board of Directors elected him a Corporate Vice President in
December 2008.
Mr.
Taber was previously the Chief Operating Officer of Kodak’s Image Sensor
Solutions (“ISS”) business, a leading developer of advanced CCD and CMOS sensors
serving imaging and industrial markets. Prior to joining ISS in 2007, Mr.
Taber held a series of senior positions in Kodak’s research and development and
product organizations. During his 28 years at Kodak, Mr. Taber has been involved
in new materials research, product development and commercialization,
manufacturing, and executive positions in R&D and business
management.
Mr.
Taber’s early responsibilities included research on new synthetic materials, an
area in which he holds several patents. He then became a program manager
for several film products before completing the Sloan Fellows program at the
Massachusetts Institute of Technology. He returned from MIT to become the
worldwide consumer film business product manager from 1999 to 2002, and then
became an Associate Director of R&D from 2002 to 2005, followed by a
position as the director of Materials & Media R&D from 2005 to
2007.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Eastman
Kodak Company common stock is traded on the New York Stock Exchange under the
symbol "EK." There were 54,030 shareholders of record of common stock
as of January 31, 2010.
MARKET
PRICE DATA
|
|
2009
|
|
2008
|
Price
per share:
|
|
High
|
Low
|
|
High
|
Low
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$7.66
|
$2.01
|
|
$22.03
|
$16.31
|
2nd
Quarter
|
|
$4.57
|
$2.44
|
|
$19.60
|
$12.20
|
3rd
Quarter
|
|
$6.82
|
$2.65
|
|
$17.71
|
$12.80
|
4th
Quarter
|
|
$4.74
|
$3.26
|
|
$15.68
|
$5.83
|
|
|
|
|
|
|
|
DIVIDEND
INFORMATION
On April
30, 2009, the Company announced that its Board of Directors decided to suspend
future cash dividends on its common stock effective
immediately. Consequently, there were no dividends paid during
2009.
On May
14, and October 14, 2008, the Board of Directors declared semi-annual cash
dividends of $.25 per share payable to shareholders of record at the close of
business on June 1, and November 3, 2008, respectively. These
dividends were paid on July 16 and December 12, 2008. Total dividends
paid for the year ended December 31, 2008 were $139
million.
Dividends
may be restricted under the Company’s debt agreements. Refer to Note
8, “Short-Term Borrowings and Long-Term Debt,” in the Notes to Financial
Statements.
PERFORMANCE
GRAPH - SHAREHOLDER RETURN
The
following graph compares the performance of the Company's common stock with the
performance of the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Index by measuring the changes in common stock prices from
December 31, 2004, plus reinvested dividends.
Copyright©
2010 Standard & Poor's, a division of The McGraw-Hill Companies Inc.
All rights reserved.
(www.researchdatagroup.com/S&P.htm)
|
Copyright©
2010 Dow Jones & Company. All rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/04
|
12/05
|
12/06
|
12/07
|
12/08
|
12/09
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastman
Kodak Company
|
|
100.00
|
74.09
|
83.41
|
72.03
|
22.56
|
14.47
|
|
|
S&P
500
|
|
100.00
|
104.91
|
121.48
|
128.16
|
80.74
|
102.11
|
|
|
Dow
Jones US Industrial Average
|
|
100.00
|
101.72
|
121.10
|
131.86
|
89.75
|
110.11
|
|
|
S&P
Consumer Discretionary
|
|
100.00
|
93.64
|
111.10
|
96.42
|
64.13
|
90.61
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has elected to compare its total return with the S&P Consumer
Discretionary index, because it believes this index is more reflective of the
industries in which the Company operates, and therefore provides a better
comparison of returns than the Dow Jones U.S. Industrial
Average.
Share
Repurchase Program
On June
24, 2008, the Company announced that its Board of Directors authorized a share
repurchase program allowing the Company, at management’s discretion, to purchase
up to $1.0 billion of its common stock. The program expired on
December 31, 2009. For the three months ended December 31, 2009, the
Company made no purchases of its shares. From the inception of the
program through December 31, 2009, the Company repurchased approximately 20
million shares at an average price of $15.01 per share, for a total cost of $301
million.
ITEM 6. SELECTED FINANCIAL
DATA
Refer to
Summary of Operating Data on page 133.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS (“MD&A”) OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand the
results of operations and financial condition of Kodak for the three years ended
December 31, 2009. All references to Notes relate to Notes to the
Financial Statements in Item 8. “Financial Statements and Supplementary
Data.”
OVERVIEW
Kodak is
the world’s foremost imaging innovator and generates revenue and profits from
the sale of products, technology, solutions and services to consumers,
businesses and creative professionals. The Company’s portfolio is
broad, including image capture and output devices, consumables and systems and
solutions for consumer, business, and commercial printing
applications. Kodak has three reportable business segments, which are
more fully described later in this discussion in “Kodak Operating Model and
Reporting Structure.” The three business segments are: Consumer
Digital Imaging Group (“CDG”), Film, Photofinishing and Entertainment Group
(“FPEG”) and Graphic Communications Group (“GCG”).
During
2009, the Company established the following key priorities for the
year:
·
|
Align
the Company’s cost structure with external economic
realities
|
·
|
Transform
portions of its product portfolio
|
·
|
Drive
positive cash flow before
restructuring
|
The
recessionary trends in the global economy, which began in 2008, continued to
significantly affect the Company’s revenue throughout 2009. While the
rate of decline slowed significantly in the fourth quarter of 2009, the level of
business activity has not returned to pre-recession levels. However,
the Company believes that the actions taken, as described below, have helped to
mitigate the impacts to its results in 2009 and position it well for the future
as the global economy continues to rebound. The demand for the
Company’s consumer products is largely discretionary in nature, and sales and
earnings of the Company’s consumer businesses are linked to the timing of
holidays, vacations, and other leisure or gifting seasons. Continued
declines in consumer spending have had an impact in the Company’s digital camera
and digital picture frame businesses in the CDG segment. This decline
was more than offset by the completion, in 2009, of an anticipated nonrecurring
intellectual property transaction within CDG. In the GCG segment,
lack of credit availability, combined with the weak economy, has resulted in
lower capital spending by businesses, negatively impacting sales. The
Entertainment Imaging business within the FPEG segment improved in the fourth
quarter of 2009 due to the recovery in demand for entertainment
films. However, the secular decline of Film Capture, also within the
FPEG segment, continues to impact the traditional businesses. In
anticipation of the continuation of the recession in 2009, the Company
implemented a number of actions in order to successfully accomplish the key
priorities listed above.
Specifically,
the Company has implemented actions to focus business investments in certain
areas that are core to the Company’s strategy (see below), while also
maintaining an intense focus on cash generation and conservation in
2009. On April 30, 2009, the Company announced that its Board of
Directors decided to suspend future cash dividends on its common stock effective
immediately. Further, the Company also implemented temporary
compensation-related actions, which reduced compensation for the chief executive
officer and several other senior executives, as well as the Board of Directors,
of the Company for the rest of 2009. In addition, U.S. based
employees of the Company were required to take one week of unpaid leave during
2009. These actions are in addition to a targeted cost reduction
program announced in 2009 (the 2009 Program). This 2009 cost
reduction program is designed to more appropriately size the organization’s cost
structure with its expected revenue reductions as a result of the current
economic environment. The program involves the rationalization of
selling, marketing, administrative, research and development, supply chain and
other business resources in certain areas
and the
consolidation of certain facilities. Also, the Company has initiated
other actions to curb discretionary expenditures and employment-related costs,
as well as to reduce capital expenditures where possible.
As
previously disclosed, the Company is focusing its investments on consumer
inkjet, commercial inkjet workflow software, and packaging
businesses. The Company continues to build upon its leading market
positions in large and stable markets.
Additionally,
during 2009 and into 2010, the Company took a number of financing actions
designed to provide continued financial flexibility for the Company in this
challenging economic environment. On March 31, 2009, the Company and
its Canadian subsidiary entered into an Amended and Restated Credit Agreement
(the “Amended Credit Agreement”) with its lenders, which provides for an
asset-based revolving credit facility of up to $500 million, under certain
conditions, including up to $250 million of availability for letters of
credit. In September of 2009, the Company issued $300 million of
Senior Secured Notes due 2017, with detachable warrants, and $400 million of
Convertible Senior Notes due 2017. The combined net proceeds of the
two transactions, after transaction costs, discounts and fees, of approximately
$650 million, were used to repurchase $563 million of the Company’s existing
$575 million Convertible Senior Notes Due 2033 in October 2009, as well as for
general corporate purposes. Therefore, the new debt issuances served
as a refinancing of the debt structure of the Company.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
accompanying consolidated financial statements and notes to consolidated
financial statements contain information that is pertinent to management’s
discussion and analysis of the financial condition and results of
operations. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and the related disclosure
of contingent assets and liabilities.
The
Company believes that the critical accounting policies and estimates discussed
below involve the most complex management judgments due to the sensitivity of
the methods and assumptions necessary in determining the related asset,
liability, revenue and expense amounts. Specific risks associated
with these critical accounting policies are discussed throughout this MD&A,
where such policies affect our reported and expected financial
results. For a detailed discussion of the application of these and
other accounting policies, refer to the Notes to Financial Statements in Item
8.
REVENUE
RECOGNITION
The
Company's revenue transactions include sales of the following: products;
equipment; software; services; equipment bundled with products and/or services
and/or software; integrated solutions, and intellectual property
licensing. The Company recognizes revenue when it is realized or
realizable and earned. For the sale of multiple-element arrangements
whereby equipment is combined with services, including maintenance and training,
and other elements, including software and products, the Company allocates to,
and recognizes revenue from, the various elements based on their fair
value.
At the
time revenue is recognized, the Company also records reductions to revenue for
customer incentive programs. Such incentive programs include cash and
volume discounts, price protection, promotional, cooperative and other
advertising allowances and coupons. For those incentives that require
the estimation of sales volumes or redemption rates, such as for volume rebates
or coupons, the Company uses historical experience and both internal and
customer data to estimate the sales incentive at the time revenue is
recognized. In the event that the actual results of these items
differ from the estimates, adjustments to the sales incentive accruals would be
recorded.
Incremental
direct costs of a customer contract in a transaction that results in the
deferral of revenue are deferred and netted against revenue in proportion to the
related revenue recognized in each period if: (1) an enforceable contract for
the remaining deliverable items exists; and (2) delivery of the remaining items
in the arrangement is expected to generate positive margins allowing realization
of the deferred costs. Incremental direct
costs are defined as costs that vary with and are directly related to the
acquisition of a contract, which would not have been incurred but for the
acquisition of the contract.
VALUATION
OF LONG-LIVED ASSETS, INCLUDING GOODWILL AND PURCHASED INTANGIBLE
ASSETS
The
Company reviews the carrying value of its long-lived assets, including goodwill
and purchased intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable.
The
Company tests goodwill for impairment at a level of reporting referred to as a
reporting unit. A reporting unit is an operating segment or one level
below an operating segment (referred to as a component). A component
of an operating segment is a reporting unit if the component constitutes a
business for which discrete financial information is available and segment
management regularly reviews the operating results of that
component. When two or more components of an operating segment have
similar economic characteristics, the components are aggregated and deemed a
single reporting unit. An operating segment is deemed to be a
reporting unit if all of its components are similar, if none of its components
is a reporting unit, or if the segment comprises only a single
component.
The
components of the Film, Photofinishing and Entertainment Group (FPEG) operating
segment are similar and, therefore, the segment meets the requirement of a
reporting unit. The Consumer Digital Imaging Group (CDG) operating
segment has two reporting units, the Image Sensor Solutions reporting unit and
the Consumer Products reporting unit (consisting of the Digital Capture &
Devices, Retail Systems Solutions, Consumer Inkjet Systems, and Consumer Imaging
Services strategic product groups.). The Graphic Communications Group
(GCG) operating segment has two reporting units, the Document Imaging reporting
unit and the Commercial Printing reporting unit (consisting of the Prepress
Solutions, Enterprise Solutions and Digital Printing Solutions strategic product
groups). Both the Consumer Products and the Commercial Printing
reporting units consist of components that have been aggregated into their
respective reporting units because they have similar economic
characteristics. No other components have goodwill assigned to
them.
The
Company tests goodwill for impairment annually (on September 30), or whenever
events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount, by initially comparing
the fair value of each of the Company’s reporting units to their related
carrying values. If the fair value of the reporting unit is less than
its carrying value, the Company must determine the implied fair value of
goodwill associated with that reporting unit. The implied fair value
of goodwill is determined by first allocating the fair value of the reporting
unit to all of its assets and liabilities and then computing the excess of the
reporting unit’s fair value over the amounts assigned to the assets and
liabilities. If the carrying value of goodwill exceeds the implied
fair value of goodwill, such excess represents the amount of goodwill impairment
charge that must be recognized. The Company’s goodwill impairment
analysis also includes a comparison of the aggregate estimated fair value of all
reporting units to its total market capitalization.
Determining
the fair value of a reporting unit involves the use of significant estimates and
assumptions. The Company estimates the fair value of its reporting
units utilizing income and market approaches through the application of
discounted cash flow and market comparable methods, respectively. To
estimate fair value utilizing the income approach, the Company established an
estimate of future cash flows for each reporting unit and discounted those
estimated future cash flows to present value. Key assumptions used in
the income approach were: (a) expected cash flow for the period from October 1,
2009 to December 31, 2014; and (b) discount rates of 16% to 26.5%, which were
based on the Company’s best estimates of the after-tax weighted-average cost of
capital of each reporting unit.
To
estimate fair value utilizing the market comparable methodology, the Company
applied valuation multiples, derived from publicly-traded benchmark companies,
to operating data of each reporting unit. Benchmark companies are
selected for each reporting unit based on comparability of the underlying
business and economics, and if they could potentially purchase the reporting
unit. Key assumptions used in the market approach include the
selection of appropriate benchmark companies and the selection of an appropriate
market value multiple for each reporting unit based on a comparison of the
reporting unit with the benchmark companies as of the impairment testing
date.
Both the
income and market approaches estimate fair values based on ability to generate
earnings and are, therefore, meaningful in estimating the fair value of each of
the Company’s reporting units. The use of each methodology also
provides corroboration for the other methodology. Consistent with
prior years, with the exception of the FPEG reporting unit, the Company
determined fair value of each of its reporting units using 50% weighting for
each valuation methodology as the Company believes that each methodology
provides equally valuable information. The Company determined fair
value for the FPEG reporting unit using only the income approach due to the
unique circumstances of the film and photofinishing industry.
Based
upon the results of its September 30, 2009 analysis, no impairment of goodwill
was indicated.
A 20
percent change in estimated future cash flows or a 10 percentage point change in
discount rate would not have caused a goodwill impairment to be recognized by
the Company for any of its reporting units as of September 30,
2009. Impairment of goodwill could occur in the future if market or
interest rate environments deteriorate, expected future cash flows decrease, or
if reporting unit carrying values change materially compared with changes in
respective fair values. An impairment of goodwill within the FPEG
reporting unit is likely in the future due to the expectation of continued
secular declines in the film industry.
As of
December 31, 2008, due to the continuing challenging business conditions and the
significant decline in its market capitalization during the fourth quarter of
2008, the Company concluded there was an indication of possible
impairment. Certain key assumptions used to determine the fair value
of each reporting unit as of December 31, 2008 were revised from September 30,
2008 analysis related to the annual goodwill impairment assessment to reflect:
(a) significant reductions in future expected cash flows for the period from
2009 to 2013 due to the actual results for the fourth quarter of 2008 and
revised forecasts for 2009 and later years; and (b) discount rates of 18.5% to
23.0%, which were based on the Company’s best estimates of the after-tax
weighted-average cost of capital of each reporting unit, adjusted from September
30, 2008 for our latest assessment of financial risk and the increased risk
associated with the Company’s future operations. Based on its updated
analysis, the Company concluded that there was an impairment of goodwill related
to the Commercial Printing reporting unit within the GCG segment and, thus,
recognized a pre-tax charge of $785 million in the fourth quarter of
2008.
The fair
values of reporting units within the Company’s CDG and FPEG segments and the
Document Imaging reporting unit within the GCG segment were greater than their
respective carrying values as of December 31, 2008, so no goodwill impairment
was recorded for these reporting units. Reasonable changes in the
assumptions used to determine these fair values would not have resulted in
goodwill impairments in any of these reporting units.
The
Company’s long-lived assets, other than goodwill and indefinite-lived intangible
assets, are evaluated for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable. When
evaluating long-lived assets for impairment, the Company compares the carrying
value of an asset group to its estimated undiscounted future cash
flows. An impairment is indicated if the estimated future cash flows
are less than the carrying value of the asset group. The impairment
is the excess of the carrying value over the fair value of the long-lived asset
group.
Due to
increased uncertainty of future cash flows because of the continued impact of
the secular declines in the film and photofinishing industries, the Company
evaluated the long-lived assets of FPEG’s film business and paper and output
systems business for impairment as of September 30, 2009. Based on
this evaluation, the Company concluded that there were no impairments within
these asset groups.
Due to
continued operating losses and increased uncertainty of future cash flows
because of the economic environment in the fourth quarter of 2008, the Company
evaluated the long-lived assets of FPEG’s paper and output systems business and
GCG’s electrophotographic solutions business for impairment. Based on
this evaluation, the Company concluded that there were no impairments within
these asset groups.
INCOME
TAXES
The
Company recognizes deferred tax liabilities and assets for the expected future
tax consequences of operating losses, credit carryforwards and temporary
differences between the carrying amounts and tax basis of the Company's assets
and liabilities. The
Company
records a valuation allowance to reduce its net deferred tax assets to the
amount that is more likely than not to be realized. The Company has
considered forecasted earnings, future taxable income, the mix of earnings in
the jurisdictions in which the Company operates and prudent and feasible tax
planning strategies in determining the need for these valuation
allowances. As of December 31, 2009, the Company has net deferred tax
assets before valuation allowances of approximately $2.8 billion and a valuation
allowance related to those net deferred tax assets of approximately $2.1
billion, resulting in net deferred tax assets of approximately $700
million. If the Company were to determine that it would not be able
to realize a portion of its net deferred tax assets in the future, for which
there is currently no valuation allowance, an adjustment to the net deferred tax
assets would be charged to earnings in the period such determination was
made. Conversely, if the Company were to make a determination that it
is more likely than not that deferred tax assets, for which there is currently a
valuation allowance, would be realized, the related valuation allowance would be
reduced and a benefit to earnings would be recorded.
The
Company’s tax provision (benefit) considers the impact of undistributed earnings
of subsidiary companies outside of the U.S. Deferred taxes have not
been provided for the potential remittance of such undistributed earnings, as it
is the Company’s policy to indefinitely reinvest its retained
earnings. However, from time to time and to the extent that the
Company can repatriate overseas earnings on essentially a tax-free basis, the
Company's foreign subsidiaries will pay dividends to the
U.S.
The
Company operates within multiple taxing jurisdictions worldwide and is subject
to audit in these jurisdictions. These audits can involve complex
issues, which may require an extended period of time for
resolution. Although management believes that adequate provisions
have been made for such issues, there is the possibility that the ultimate
resolution of such issues could have an adverse effect on the earnings of the
Company. Conversely, if these issues are resolved favorably in the
future, the related provisions would be reduced, thus having a positive impact
on earnings.
PENSION
AND OTHER POSTRETIREMENT BENEFITS
The
Company’s defined benefit pension and other postretirement benefit costs and
obligations are dependent on the Company's key assumptions. These
assumptions, which are reviewed at least annually by the Company, include the
discount rate, long-term expected rate of return on plan assets (“EROA”), salary
growth, healthcare cost trend rate and other economic and demographic
factors. Actual results that differ from our assumptions are recorded
as unrecognized gains and losses and are amortized to earnings over the
estimated future service period of the active participants in the plan or, if
almost all of a plan’s participants are inactive, the average remaining lifetime
expectancy of inactive participants, to the extent such total net unrecognized
gains and losses exceed 10% of the greater of the plan's projected benefit
obligation or the calculated value of plan assets. Significant
differences in actual experience or significant changes in future assumptions
would affect the Company’s pension and other postretirement benefit costs and
obligations.
The EROA
assumption is based on a combination of formal asset and liability studies that
include forward-looking return expectations, given the current asset
allocation. The EROA, once set, is applied to the calculated value of
plan assets in the determination of the expected return component of the
Company’s pension income or expense. The Company uses a calculated
value of plan assets, which recognizes changes in the fair value of assets over
a four-year period, to calculate expected return on assets. At
December 31, 2009, the calculated value of the assets of the major U.S. defined
benefit pension plan (the Kodak Retirement Income Plan “KRIP”) was approximately
$5.6 billion and the fair value was approximately $4.6 billion. Asset
gains and losses that are not yet reflected in the calculated value of plan
assets are not included in amortization of unrecognized gains and losses until
they are recognized as a part of the calculated value of plan
assets.
The
Company reviews its EROA assumption annually. To facilitate this
review, every three years, or when market conditions change materially, the
Company’s larger plans will undertake asset allocation or asset and liability
modeling studies. In early 2008, an asset and liability modeling
study for the KRIP was completed and resulted in a 9.0% EROA assumption, which
is the same rate outcome as concluded by the prior study in
2005.
During
the fourth quarter of 2008, the Kodak Retirement Income Plan Committee
(“KRIPCO,” the committee that oversees KRIP) reevaluated certain portfolio
positions relative to current market conditions and accordingly approved a
change to the portfolio to reduce risk associated with the volatility in the
financial markets. The Company originally assumed an 8.0% EROA for
2009 for the KRIP based
on these
changes and the resulting asset allocation at December 31,
2008. During the first quarter of 2009, as intended, KRIPCO again
approved a change in the asset allocation for the KRIP. A new asset
and liability study was completed and resulted in an 8.75% EROA. As
the KRIP was remeasured as of March 31, 2009, the Company’s long term assumption
for EROA for the remainder of 2009 was updated at that time to reflect the
change in asset allocation. Certain of the Company’s other pension
plans also adjusted asset positions during the fourth quarter of
2008. EROA assumptions for 2009 for those plans were similarly based
on these changes and the resulting asset allocations as of the end of the
year. As with the KRIP, the asset allocations for certain of the
Company’s other pension plans were reassessed during 2009 and
updated. Asset and liability studies were therefore completed
for those plans during 2009. EROA assumptions for 2010 for those
plans were updated accordingly.
Generally,
the Company bases the discount rate assumption for its significant plans on high
quality corporate bond yields in the respective countries as of the measurement
date. Specifically, for its U.S. and Canada plans, the Company
determines a discount rate using a cash flow model to incorporate the expected
timing of benefit payments and an AA-rated corporate bond yield
curve. For the Company's U.S. plans, the Citigroup Above Median
Pension Discount Curve is used. For the Company’s other non-U.S.
plans, the discount rates are determined by comparison to published local high
quality bond yields or indices considering estimated plan duration and removing
any outlying bonds, as warranted.
The
salary growth assumptions are determined based on the Company’s long-term actual
experience and future and near-term outlook. The healthcare cost
trend rate assumptions are based on historical cost and payment data, the
near-term outlook and an assessment of the likely long-term trends.
The
following table illustrates the sensitivity to a change to certain key
assumptions used in the calculation of expense for the year ending December 31,
2010 and the projected benefit obligation (“PBO”) at December 31, 2009 for the
Company's major U.S. and non-U.S. defined benefit pension plans:
(in
millions)
|
|
Impact
on 2010
Pre-Tax
Pension Expense Increase (Decrease)
|
|
|
Impact
on PBO
December
31, 2009 Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in assumption:
|
|
|
|
|
|
|
|
|
|
|
|
|
25
basis point decrease in discount rate
|
|
$ |
(3 |
) |
|
$ |
5 |
|
|
$ |
116 |
|
|
$ |
126 |
|
25
basis point increase in discount rate
|
|
|
3 |
|
|
|
(4 |
) |
|
|
(108 |
) |
|
|
(117 |
) |
25
basis point decrease in EROA
|
|
|
14 |
|
|
|
7 |
|
|
|
N/A |
|
|
|
N/A |
|
25
basis point increase in EROA
|
|
|
(14 |
) |
|
|
(7 |
) |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
pension income from continuing operations before special termination benefits,
curtailments, and settlements for the major funded and unfunded defined benefit
pension plans in the U.S. is expected to increase from $134 million in 2009 to
$164 million in 2010, due primarily to lower interest cost. Pension
expense from continuing operations before special termination benefits,
curtailments and settlements for the major funded and unfunded non-U.S. defined
benefit pension plans is projected to increase from $2 million in 2009 to $18
million in 2010, which is primarily attributable to lower discount rates and
higher inflation. Absent a recovery of asset values, net pension
income will decline in future years.
Additionally,
due to changes in plan design, the Company expects the expense, before
curtailment and settlement gains and losses of its major other postretirement
benefit plans to decrease to approximately $26 million in 2010 as compared with
$44 million for 2009.
ENVIRONMENTAL
COMMITMENTS
Environmental
liabilities are accrued based on undiscounted estimates of known environmental
remediation responsibilities. The liabilities include accruals for
sites owned or leased by the Company, sites formerly owned or leased by the
Company, and other third party sites where the Company was designated as a
potentially responsible party (“PRP”). The amounts accrued for such
sites are based on these estimates, which are determined using the ASTM Standard
E 2137-06, “Standard Guide for Estimating Monetary Costs and Liabilities for
Environmental Matters.” The overall method includes the use of a
probabilistic model that forecasts a range of cost estimates for the remediation
required at individual sites. The Company’s estimate includes
equipment and operating costs for investigations, remediation and long-term
monitoring of the sites. Such estimates may be affected by changing
determinations of what constitutes an environmental liability or an acceptable
level of remediation. The Company’s estimate of its environmental
liabilities may also change if the proposals to regulatory agencies for desired
methods and outcomes of remediation are viewed as not acceptable, or additional
exposures are identified. The Company has an ongoing monitoring and
identification process to assess how activities, with respect to the known
exposures, are progressing against the accrued cost estimates, as well as to
identify other potential remediation issues that are presently unknown.
Additionally,
in many of the countries in which the Company operates, environmental
regulations exist that require the Company to handle and dispose of asbestos in
a special manner if a building undergoes major renovations or is
demolished. The Company records a liability equal to the estimated
fair value of its obligation to perform asset retirement activities related to
the asbestos, computed using an expected present value technique, when
sufficient information exists to calculate the fair
value.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
See Note
1, “Significant Accounting Policies,” in the Notes to Financial Statements in
Item 8.
KODAK
OPERATING MODEL AND REPORTING STRUCTURE
For 2009,
the Company had three reportable segments: Consumer Digital Imaging Group
(“CDG”), Film, Photofinishing and Entertainment Group (“FPEG”), and Graphic
Communications Group (“GCG”). Within each of the Company’s reportable
segments are various components, or Strategic Product Groups
(“SPGs”). Throughout the remainder of this document, references to
the segments’ SPGs are indicated in italics. The balance of the
Company's continuing operations, which individually and in the aggregate do not
meet the criteria of a reportable segment, are reported in All
Other. A description of the segments is as
follows:
Consumer Digital Imaging Group
Segment (“CDG”): CDG encompasses digital still and video
cameras, digital devices such as picture frames, kiosks and related media, APEX
drylab systems, consumer inkjet printing systems, Kodak Gallery products and
services, and imaging sensors. CDG also includes the licensing
activities related to the Company's intellectual property in digital imaging
products.
Film, Photofinishing and
Entertainment Group Segment (“FPEG”): FPEG encompasses
consumer and professional film, one-time-use cameras, graphic arts film, aerial
and industrial film, and entertainment imaging products and
services. In addition, this segment also includes paper and
output systems, and photofinishing services. This segment provides
consumers, professionals, cinematographers, and other entertainment imaging
customers with film-related products and services. As previously
announced, the Company closed its Qualex central lab operations in the U.S. and
Canada at the end of March 2009.
Graphic
Communications Group Segment (“GCG”): GCG serves a
variety of customers in the creative, in-plant, data center, commercial
printing, packaging, newspaper and digital service bureau market segments with a
range of software, media and hardware products that provide customers with a
variety of solutions for prepress equipment, workflow software, analog and
digital printing, and document scanning. Products and related
services include workflow software and
digital controllers; digital printing, which includes commercial inkjet and
electrophotographic products, including equipment, consumables and service;
prepress consumables; prepress equipment; and document scanners.
All Other: All
Other is composed of the Company’s display business and other small,
miscellaneous businesses. In December 2009, the Company sold assets
of its display business called OLED.
DETAILED
RESULTS OF OPERATIONS
Net
Sales from Continuing Operations by Reportable Segment and All Other
(1)
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
Change
|
|
|
Foreign Currency Impact
|
|
|
2008
|
|
|
Change
|
|
|
Foreign Currency Impact
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
the U.S.
|
|
$ |
1,618 |
|
|
|
-11 |
% |
|
|
0 |
% |
|
$ |
1,811 |
|
|
|
-10 |
% |
|
|
0 |
% |
|
$ |
2,012 |
|
Outside
the U.S.
|
|
|
1,001 |
|
|
|
-22 |
|
|
|
-4 |
|
|
|
1,277 |
|
|
|
+3 |
|
|
|
+3 |
|
|
|
1,235 |
|
Total
Consumer Digital Imaging Group
|
|
|
2,619 |
|
|
|
-15 |
|
|
|
-2 |
|
|
|
3,088 |
|
|
|
-5 |
|
|
|
+1 |
|
|
|
3,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film,
Photofinishing and Entertainment
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
the U.S.
|
|
|
508 |
|
|
|
-39 |
|
|
|
0 |
|
|
|
835 |
|
|
|
-21 |
|
|
|
0 |
|
|
|
1,054 |
|
Outside
the U.S.
|
|
|
1,749 |
|
|
|
-19 |
|
|
|
-4 |
|
|
|
2,152 |
|
|
|
-17 |
|
|
|
+3 |
|
|
|
2,578 |
|
Total
Film, Photofinishing and
Entertainment
Group
|
|
|
2,257 |
|
|
|
-24 |
|
|
|
-3 |
|
|
|
2,987 |
|
|
|
-18 |
|
|
|
+2 |
|
|
|
3,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphic
Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
the U.S.
|
|
|
831 |
|
|
|
-20 |
|
|
|
0 |
|
|
|
1,036 |
|
|
|
-12 |
|
|
|
0 |
|
|
|
1,178 |
|
Outside
the U.S.
|
|
|
1,895 |
|
|
|
-18 |
|
|
|
-3 |
|
|
|
2,298 |
|
|
|
+3 |
|
|
|
+5 |
|
|
|
2,235 |
|
Total
Graphic Communications Group
|
|
|
2,726 |
|
|
|
-18 |
|
|
|
-2 |
|
|
|
3,334 |
|
|
|
-2 |
|
|
|
+3 |
|
|
|
3,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
the U.S.
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Outside
the U.S.
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Total
All Other
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
the U.S.
|
|
|
2,962 |
|
|
|
-20 |
|
|
|
0 |
|
|
|
3,689 |
|
|
|
-13 |
|
|
|
0 |
|
|
|
4,254 |
|
Outside
the U.S.
|
|
|
4,644 |
|
|
|
-19 |
|
|
|
-4 |
|
|
|
5,727 |
|
|
|
-5 |
|
|
|
+4 |
|
|
|
6,047 |
|
Consolidated
Total
|
|
$ |
7,606 |
|
|
|
-19 |
% |
|
|
-2 |
% |
|
$ |
9,416 |
|
|
|
-9 |
% |
|
|
+2 |
% |
|
$ |
10,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Sales are reported based on the
geographic area of destination.
(Loss)
Earnings from Continuing Operations Before Interest Expense, Other Income
(Charges), Net and Income Taxes by Reportable Segment and All Other
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
Change
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
35 |
|
|
|
+120 |
% |
|
$ |
(177 |
) |
|
|
-941 |
% |
|
$ |
(17 |
) |
Film,
Photofinishing and Entertainment Group
|
|
|
159 |
|
|
|
-19 |
|
|
|
196 |
|
|
|
-30 |
|
|
|
281 |
|
Graphic
Communications Group
|
|
|
(42 |
) |
|
|
-235 |
|
|
|
31 |
|
|
|
-70 |
|
|
|
104 |
|
All
Other
|
|
|
(13 |
) |
|
|
+24 |
|
|
|
(17 |
) |
|
|
+32 |
|
|
|
(25 |
) |
Total
of segments
|
|
|
139 |
|
|
|
+321 |
|
|
|
33 |
|
|
|
-90 |
|
|
|
343 |
|
Restructuring
costs, rationalization and other
|
|
|
(258 |
) |
|
|
|
|
|
|
(149 |
) |
|
|
|
|
|
|
(662 |
) |
Postemployment
benefit changes
|
|
|
- |
|
|
|
|
|
|
|
94 |
|
|
|
|
|
|
|
- |
|
Other
operating income (expenses), net
|
|
|
88 |
|
|
|
|
|
|
|
(766 |
) |
|
|
|
|
|
|
96 |
|
Adjustments
to contingencies and legal
reserves/settlements
|
|
|
3 |
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
(7 |
) |
Interest
expense
|
|
|
(119 |
) |
|
|
|
|
|
|
(108 |
) |
|
|
|
|
|
|
(113 |
) |
Other
income (charges), net
|
|
|
30 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
86 |
|
Loss
from continuing operations before
income taxes
|
|
$ |
(117 |
) |
|
|
+87 |
% |
|
$ |
(874 |
) |
|
|
-240 |
% |
|
$ |
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
COMPARED WITH 2008
RESULTS
OF OPERATIONS - CONTINUING OPERATIONS
CONSOLIDATED
(in
millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
of Sales
|
|
|
2008
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
7,606 |
|
|
|
|
|
$ |
9,416 |
|
|
|
|
|
$ |
(1,810 |
) |
|
|
-19 |
% |
Cost
of goods sold
|
|
|
5,838 |
|
|
|
|
|
|
7,247 |
|
|
|
|
|
|
(1,409 |
) |
|
|
-19 |
% |
Gross
profit
|
|
|
1,768 |
|
|
|
23.2 |
% |
|
|
2,169 |
|
|
|
23.0 |
% |
|
|
(401 |
) |
|
|
-18 |
% |
Selling,
general and administrative expenses
|
|
|
1,302 |
|
|
|
17 |
% |
|
|
1,606 |
|
|
|
17 |
% |
|
|
(304 |
) |
|
|
-19 |
% |
Research
and development costs
|
|
|
356 |
|
|
|
5 |
% |
|
|
478 |
|
|
|
5 |
% |
|
|
(122 |
) |
|
|
-26 |
% |
Restructuring
costs, rationalization and
other
|
|
|
226 |
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
86 |
|
|
|
61 |
% |
Other
operating (income) expenses, net
|
|
|
(88 |
) |
|
|
|
|
|
|
766 |
|
|
|
|
|
|
|
(854 |
) |
|
|
111 |
% |
Loss
from continuing operations before interest expense,
other income (charges), net and income taxes
|
|
|
(28 |
) |
|
|
0 |
% |
|
|
(821 |
) |
|
|
-9 |
% |
|
|
793 |
|
|
|
97 |
% |
Interest
expense
|
|
|
119 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
11 |
|
|
|
10 |
% |
Other
income (charges), net
|
|
|
30 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
(25 |
) |
|
|
-45 |
% |
Loss
from continuing operations before income taxes
|
|
|
(117 |
) |
|
|
|
|
|
|
(874 |
) |
|
|
|
|
|
|
757 |
|
|
|
87 |
% |
Provision
(benefit) for income
taxes
|
|
|
115 |
|
|
|
|
|
|
|
(147 |
) |
|
|
|
|
|
|
262 |
|
|
|
-178 |
% |
Loss
from continuing
operations
|
|
|
(232 |
) |
|
|
-3 |
% |
|
|
(727 |
) |
|
|
-8 |
% |
|
|
495 |
|
|
|
68 |
% |
Earnings
from discontinued operations, net of income taxes
|
|
|
17 |
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
(268 |
) |
|
|
-94 |
% |
Extraordinary
item, net of tax
|
|
|
6 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
NET
LOSS
|
|
|
(209 |
) |
|
|
|
|
|
|
(442 |
) |
|
|
|
|
|
|
233 |
|
|
|
|
|
Less:
Net earnings attributable to
noncontrolling interests
|
|
|
(1 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
NET
LOSS ATTRIBUTABLE TO EASTMAN KODAK COMPANY
|
|
$ |
(210 |
) |
|
|
|
|
|
$ |
(442 |
) |
|
|
|
|
|
$ |
232 |
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2008
|
|
|
|
2009
Amount
|
|
|
Change
vs. 2008
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
7,606 |
|
|
|
-19.2 |
% |
|
|
-14.5 |
% |
|
|
-2.5 |
% |
|
|
-2.2 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
23.2 |
% |
|
0.2pp
|
|
|
|
n/a |
|
|
-3.6pp
|
|
|
-1.3pp
|
|
|
5.1pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
For the
year ended December 31, 2009, net sales decreased compared with 2008 primarily
due to volume declines within all three segments driven by lower demand likely
as a result of the global economic slowdown which began in the fourth quarter of
2008, particularly within Digital Capture and Devices in the CDG
segment and Prepress Solutions in the GCG
segment, as well as continued secular declines in Traditional Photofinishing
and Film Capture
in the FPEG segment. Foreign exchange negatively impacted
sales across all three segments, due to a stronger U.S.
dollar. Unfavorable price/mix was primarily driven by Digital Capture and Devices
within CDG, Entertainment Imaging within
FPEG, and Prepress Solutions
within GCG.
Gross
Profit
Gross
profit dollars declined in 2009, primarily due to unfavorable price/mix, which
impacted all segments but was most prominent in CDG, lower sales volumes as
discussed above, and unfavorable foreign exchange. These items were
partially offset by cost improvements, largely driven by ongoing cost reduction
efforts within CDG and FPEG, and lower benefit costs as a result of amendments
made in the third quarter of 2008 to certain of the Company’s U.S.
postemployment benefit plans. Gross profit margin as a
percentage of sales increased slightly from prior year, as unfavorable price/mix
(primarily within CDG) and unfavorable foreign exchange impacts (across all
segments) were more than offset by lower manufacturing and other costs for the
Company.
Included
in gross profit for the current year were non-recurring intellectual property
licensing agreements within Digital Capture and Devices
in the CDG segment. These licensing agreements contributed
approximately 5.7% of consolidated revenue to consolidated gross profit dollars
in 2009, as compared with 2.4% of consolidated revenue to consolidated gross
profit dollars for non-recurring agreements in 2008. The Company
expects to secure other new licensing agreements, the timing and amounts of
which are difficult to predict. These types of arrangements provide the Company
with a return on portions of its R&D investments, and new licensing
opportunities are expected to have a continuing impact on the results of
operations.
Selling,
General and Administrative Expenses
The
decrease in consolidated selling, general and administrative expenses (SG&A)
was a result of company-wide cost reduction actions implemented in 2009 in
response to current economic conditions.
Research
and Development Costs
The
decrease in consolidated research and development (R&D) costs was a result
of focused cost reduction efforts.
Restructuring
Costs, Rationalization and Other
These
costs, as well as the restructuring and rationalization-related costs reported
in cost of goods sold, are discussed under the "RESTRUCTURING COSTS,
RATIONALIZATION AND OTHER" section.
Other
Operating (Income) Expenses, Net
The other
operating (income) expenses, net category includes gains and losses on sales of
assets and businesses and certain impairment charges. The current year amount
primarily reflects a gain of approximately $100 million on the sale of assets of
the Company’s organic light emitting diodes (OLED) group. The prior year amount
primarily reflects a $785 million goodwill impairment charge related to the GCG
business.
In
November 2009, the Company agreed to terminate its patent infringement
litigation with LG Electronics, Inc., LG Electronics USA, Inc., and LG
Electronics Mobilecomm USA, Inc., entered into a technology cross license
agreement with LG Electronics, Inc. and agreed to sell assets of its OLED group
to Global OLED Technology LLC, an entity established by LG Electronics, Inc., LG
Display Co., Ltd. and LG Chem, Ltd. As the transactions were entered into in
contemplation of one another, in order to reflect the asset sale separately from
the licensing transaction, the total consideration was allocated between the
asset sale and the licensing transaction based on the estimated fair value of
the assets sold. Fair value of the assets sold was estimated using other
competitive bids received by the Company. Accordingly, $100 million of the
proceeds was allocated to the asset sale. The remaining gross proceeds of $414
million were allocated to the licensing transaction and reported in net sales of
the CDG segment.
Interest
Expense
The
increase in interest expense in 2009 compared with 2008 was primarily due to the
issuances in the third quarter of 2009 of $300 million aggregate principal
amount of 10.5% Senior Secured Notes due 2017 and $400 million aggregate
principal amount of 7% Convertible Senior Notes due 2017.
Other
Income (Charges), Net
The other
income (charges), net category primarily includes interest income, income and
losses from equity investments, and foreign exchange gains and
losses. The decrease in other income (charges), net was primarily
attributable to a decrease in interest income due to lower interest rates and
lower cash balances in the year 2009 as compared with 2008, partially offset by
the favorable impact of legal settlements in the
current year.
Income
Tax Provision (Benefit)
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Loss
from continuing operations before income taxes
|
|
$ |
(117 |
) |
|
$ |
(874 |
) |
Provision
(benefit) for income taxes
|
|
$ |
115 |
|
|
$ |
(147 |
) |
Effective
tax rate
|
|
|
(98.3 |
)% |
|
|
16.8 |
% |
The change in the
Company’s effective tax rate from continuing operations is primarily
attributable to: (1) a benefit recognized upon the receipt in 2008 of the
interest portion on an IRS tax refund, (2) a pre-tax goodwill impairment charge
of $785 million that resulted in a tax benefit of only $4 million due to a full
valuation allowance in the U.S. and limited amount of tax deductible goodwill
that existed as of December 31, 2008, (3) losses generated in the U.S. and in
certain jurisdictions outside the U.S. that were not benefited due to management’s conclusion
that it was not more likely than not that the tax benefits would be
realized, (4) the impact of previously established valuation allowances
in jurisdictions with current earnings, (5) the mix of earnings from operations
outside the U.S., (6) withholding taxes related to a non-recurring licensing
agreement entered into in 2009; and (7) changes in audit reserves and
settlements.
CONSUMER
DIGITAL IMAGING GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
of Sales
|
|
|
2008
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,619 |
|
|
|
|
|
$ |
3,088 |
|
|
|
|
|
$ |
(469 |
) |
|
|
-15 |
% |
Cost
of goods sold
|
|
|
1,955 |
|
|
|
|
|
|
2,495 |
|
|
|
|
|
|
(540 |
) |
|
|
-22 |
% |
Gross
profit
|
|
|
664 |
|
|
|
25.4 |
% |
|
|
593 |
|
|
|
19.2 |
% |
|
|
71 |
|
|
|
12 |
% |
Selling,
general and administrative expenses
|
|
|
483 |
|
|
|
18 |
% |
|
|
565 |
|
|
|
18 |
% |
|
|
(82 |
) |
|
|
-15 |
% |
Research
and development costs
|
|
|
146 |
|
|
|
6 |
% |
|
|
205 |
|
|
|
7 |
% |
|
|
(59 |
) |
|
|
-29 |
% |
Earnings
(loss) from continuing operations before
interest expense, other income (charges),
net and income taxes
|
|
$ |
35 |
|
|
|
1 |
% |
|
$ |
(177 |
) |
|
|
-6 |
% |
|
$ |
212 |
|
|
|
120 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2008
|
|
|
|
2009
Amount
|
|
|
Change
vs. 2008
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,619 |
|
|
|
-15.2 |
% |
|
|
-10.6 |
% |
|
|
-2.9 |
% |
|
|
-1.7 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
25.4 |
% |
|
6.2pp
|
|
|
|
n/a |
|
|
-7.3pp
|
|
|
-1.4pp
|
|
|
14.9pp
|
|
Revenues
CDG’s
2009 performance reflects the global economic downturn which began in the fourth
quarter of 2008. The demand for many of the consumer products within
the CDG portfolio is discretionary in nature and consumer discretionary spending
remains weak, leading to declines in CDG revenues for the year ended December
31, 2009.
Net sales
of Digital Capture and
Devices, which includes consumer digital still and video cameras, digital
picture frames, accessories, memory products, and intellectual property
royalties, decreased 21% in the year ended December 31, 2009 as compared with
the prior year, primarily reflecting lower volumes of digital cameras and
digital picture frames as a result of continuing weakness in consumer
demand. Unfavorable price/mix and foreign exchange also contributed
to the decline in sales.
Net sales
of Retail Systems Solutions,
which includes kiosks and related media and APEX drylab systems,
decreased 6% in the year ended December 31, 2009, driven by unfavorable foreign
exchange and price/mix, and lower volumes. Partially offsetting
equipment volume declines were media volume increases, primarily due to
increased demand outside the U.S. The Company and one of its
significant Retail Systems
Solutions customers will not renew a contract that expired on September
30, 2009. The Company plans to replace a significant portion of this
volume of business, although the timing and extent is uncertain. The
Company believes this will not have a material impact on its future cash flows
or
liquidity.
Net sales
of Consumer Inkjet
Systems, which includes inkjet printers and related consumables,
increased 57% due to higher volumes for printers and ink cartridges, and
favorable price/mix, partially offset by unfavorable foreign exchange and media
volume declines. The volume increases experienced by the Company
during the economic downturn significantly outpaced the consumer printing
industry, which management believes are reflective of favorable consumer
response to the Company’s unique value proposition.
Gross Profit
The
increase in gross profit, both in dollars and as a percentage of sales, for CDG
was primarily attributable to significantly lower product costs versus prior
year, particularly within Consumer Inkjet Systems
and Digital Capture and
Devices. Partially offsetting these
improvements were unfavorable price/mix, largely related to digital cameras and
digital picture frames, and unfavorable foreign exchange.
Included
in gross profit for the current year were non-recurring intellectual property
licensing agreements within Digital Capture and
Devices. These licensing agreements contributed approximately
16.6% of segment revenue to segment gross profit dollars in 2009, as compared
with 7.4% of segment revenue to segment gross profit dollars for non-recurring
agreements in 2008. The Company expects to secure other new licensing
agreements, the timing and amounts of which are difficult to predict. These
types of arrangements provide the Company with a return on portions of its
R&D investments, and new licensing opportunities are expected to have a
continuing impact on the results of operations.
A
technology cross license was entered into in January 2010, and became effective
in February 2010, with Samsung Electronics Co., Ltd. The Company received a
non-refundable payment in December 2009 of $100 million, before applicable
withholding taxes, as a deposit towards this license. The license calls for
additional payments totaling $450 million throughout 2010, which will be reduced
by applicable withholding taxes. No amount related to this agreement
has been recorded as revenue for 2009.
Selling,
General and Administrative Expenses
The
decrease in SG&A expenses for CDG was primarily driven by focused cost
reduction actions implemented in 2009 to respond to the current economic
conditions, partially offset by increased advertising expense within Consumer Inkjet Systems
related to the introduction of new models and geographic expansion of
product offerings.
Research
and Development Costs
The
decrease in R&D costs for CDG was primarily attributable to lower spending
related to Consumer Inkjet
Systems, resulting from the movement of product offerings from the
development phase into the market introduction and growth phases, as well as
portfolio rationalization within Digital Capture and Devices
and Imaging
Sensors.
FILM,
PHOTOFINISHING AND ENTERTAINMENT GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
of Sales
|
|
|
2008
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,257 |
|
|
|
|
|
$ |
2,987 |
|
|
|
|
|
$ |
(730 |
) |
|
|
-24 |
% |
Cost
of goods sold
|
|
|
1,775 |
|
|
|
|
|
|
2,335 |
|
|
|
|
|
|
(560 |
) |
|
|
-24 |
% |
Gross
profit
|
|
|
482 |
|
|
|
21.4 |
% |
|
|
652 |
|
|
|
21.8 |
% |
|
|
(170 |
) |
|
|
-26 |
% |
Selling,
general and administrative expenses
|
|
|
290 |
|
|
|
13 |
% |
|
|
407 |
|
|
|
14 |
% |
|
|
(117 |
) |
|
|
-29 |
% |
Research
and development costs
|
|
|
33 |
|
|
|
1 |
% |
|
|
49 |
|
|
|
2 |
% |
|
|
(16 |
) |
|
|
-33 |
% |
Earnings
from continuing operations before interest
expense, other income (charges), net
and income taxes
|
|
$ |
159 |
|
|
|
7 |
% |
|
$ |
196 |
|
|
|
7 |
% |
|
$ |
(37 |
) |
|
|
-19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2008
|
|
|
|
2009
Amount
|
|
|
Change
vs. 2008
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,257 |
|
|
|
-24.4 |
% |
|
|
-18.7 |
% |
|
|
-2.9 |
% |
|
|
-2.8 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
21.4 |
% |
|
-0.4pp
|
|
|
|
n/a |
|
|
-2.4pp
|
|
|
-1.9pp
|
|
|
3.9pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The
decrease in net sales for FPEG was driven by revenue declines across all SPGs
within the segment.
Traditional Photofinishing
sales decreased 24% in 2009 as compared with 2008, primarily driven by volume
declines resulting from the previously announced closure of the Qualex central
lab operations in the U.S. and Canada at the end of March 2009.
Net sales
of Film Capture
decreased 38% compared with the prior year due to secular declines in the
industry.
Net sales
for Entertainment
Imaging decreased 18% compared with the prior year, primarily reflecting
lower volumes due to (1) the uncertainty around the Screen Actors’ Guild
contract, which expired in June 2008 and was not replaced until June 2009, (2)
the impact of the current economic climate on film makers, resulting in lower
film production and the use of digital technology, as expected, and (3) industry
shifts in film release strategies and distribution. Entertainment Imaging
revenues were also impacted by unfavorable foreign exchange and
price/mix.
Gross
Profit
The
decrease in FPEG gross profit in both dollars and as a percentage of sales was
primarily driven by lower sales volumes as mentioned above, unfavorable
price/mix within Entertainment
Imaging, and unfavorable foreign exchange across all
SPGs. This was partially offset by lower benefit costs as a result of
amendments made in the third quarter of 2008 to certain of the Company’s U.S.
postemployment benefit plans, as well as lower raw material costs.
Selling,
General and Administrative Expenses
|
The
decline in SG&A expenses for FPEG was attributable to focused cost reduction
actions implemented in 2009 in response to economic conditions, as well as lower
postemployment benefit costs and the aforementioned closure of Qualex operations
in the U.S. and Canada.
Research
and Development Costs
|
The
decrease in R&D costs was due to focused cost reductions as well as lower
postemployment benefit costs.
GRAPHIC
COMMUNICATIONS GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
of Sales
|
|
|
2008
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,726 |
|
|
|
|
|
$ |
3,334 |
|
|
|
|
|
$ |
(608 |
) |
|
|
-18 |
% |
Cost
of goods sold
|
|
|
2,073 |
|
|
|
|
|
|
2,445 |
|
|
|
|
|
|
(372 |
) |
|
|
-15 |
% |
Gross
profit
|
|
|
653 |
|
|
|
24.0 |
% |
|
|
889 |
|
|
|
26.7 |
% |
|
|
(236 |
) |
|
|
-27 |
% |
Selling,
general and administrative expenses
|
|
|
524 |
|
|
|
19 |
% |
|
|
637 |
|
|
|
19 |
% |
|
|
(113 |
) |
|
|
-18 |
% |
Research
and development costs
|
|
|
171 |
|
|
|
6 |
% |
|
|
221 |
|
|
|
7 |
% |
|
|
(50 |
) |
|
|
-23 |
% |
(Loss)
earnings from continuing operations before
interest expense, other income (charges),
net and income taxes
|
|
$ |
(42 |
) |
|
|
-2 |
% |
|
$ |
31 |
|
|
|
1 |
% |
|
$ |
(73 |
) |
|
|
-235 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2008
|
|
|
|
2009
Amount
|
|
|
Change
vs. 2008
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,726 |
|
|
|
-18.2 |
% |
|
|
-14.5 |
% |
|
|
-1.7 |
% |
|
|
-2.0 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
24.0 |
% |
|
-2.7pp
|
|
|
|
n/a |
|
|
-1.1pp
|
|
|
-0.8pp
|
|
|
-0.8pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
GCG’s
2009 revenue declines likely reflect the impact of ongoing global economic
uncertainties, which depressed global print demand and associated capital
investments in the printing industry.
The
decrease in GCG net sales for 2009 was driven by volume declines and unfavorable
foreign exchange across all SPGs. Unfavorable price/mix,
primarily within Prepress
Solutions and Digital
Printing Solutions, reflects both a shift in demand toward products
requiring lower levels of customer investment and increased price pressures in
commercial printing due to the economic downturn in the industry, partially
offset by favorable price/mix within Document
Imaging.
Net sales
of Prepress Solutions
decreased 20%, primarily driven by volume declines, with unfavorable
price/mix and foreign exchange also contributing to the overall decrease in
revenues. The volume decreases were largely attributable to the
decline in worldwide print demand, which reduced demand for plate consumables
and prepress equipment.
Net sales
of Digital Printing Solutions
decreased 12%, as price/mix, volume, and foreign exchange were all
unfavorable. For equipment revenues within the SPG, unfavorable
volumes were driven by color electrophotographic equipment, while unfavorable
price/mix was largely attributable to commercial inkjet
equipment. For consumables revenues within the SPG, commercial inkjet
and black and white electrophotographic performance was driven by volume
declines, partially offset by favorable price/mix. Favorable color
electrophotographic consumable volumes were offset by unfavorable
price/mix. Equipment and consumable performance was impacted by
decreased capital investment levels in an uncertain economy and the worldwide
decline in print demand, which drove a shift in equipment placements toward
lower-priced models and increased competitive pricing.
Net sales
of Document Imaging
decreased 10%, driven by lower volumes and unfavorable foreign exchange,
partially offset by favorable price/mix in the scanner product
lines. The volume declines were largely attributable to decreased
demand for scanning and imaging products and services associated with delays in
upgrades of scanning capacity, partially offset by sales stemming from the
acquisition of the scanner division of BÖWE BELL + HOWELL, which
closed in the third quarter of 2009.
Net sales
of Enterprise Solutions
decreased 36%, primarily due to volume declines in sales of workflow software
and print controllers as a result of fewer prepress and digital printing
equipment placements.
Gross
Profit
Gross profit dollars
declined across all SPGs in the GCG segment. All SPGs in the segment
also experienced a decrease in gross profit as a percentage of sales except for
Document
Imaging, as favorable price/mix in
the scanner product lines offset unfavorable foreign exchange and increased
costs. The decline in global print demand negatively impacted
equipment and consumables sales volumes, driving down gross profit dollars while
also leading the Company to reduce its production levels. This
resulted in lower levels of factory cost absorption, and lower utilization of
service personnel. This impact was most pronounced in Prepress Solutions and Enterprise
Solutions. Constrained demand drove increased price pressures
in the industry as capital investments continue to be depressed, driving
unfavorable price/mix in Digital Printing
Solutions. These declines were partially offset by reduced
aluminum commodity costs, and cost reductions driven by product portfolio
rationalization.
Selling,
General and Administrative Expenses
The
decrease in SG&A expenses for GCG was primarily attributable to focused cost
reduction actions implemented in 2009 in response to economic
conditions.
Research
and Development Costs
The
decrease in R&D costs for GCG was largely driven by a rationalization and
refocusing of investments.
RESULTS
OF OPERATIONS – DISCONTINUED OPERATIONS
Total
Company earnings from discontinued operations for the year ended December 31,
2009 and 2008 of $17 million and $285 million, respectively, include a benefit
for income taxes of $8 million and $288 million,
respectively.
Earnings from discontinued
operations in 2009 were primarily driven by the reversal of certain
foreign tax reserves which had been recorded in conjunction with the divestiture
of the Health Group in 2007.
Earnings
from discontinued operations in 2008 were primarily driven by a tax refund that
the Company received from the U.S. Internal Revenue Service. The
refund was related to the audit of certain claims filed for tax years
1993-1998. A portion of the refund related to past federal income
taxes paid in relation to the 1994 sale of a subsidiary, Sterling Winthrop Inc.,
which was reported in discontinued operations. Refer to Note 15,
“Income Taxes,” in the Notes to Financial Statements for further discussion of
the tax refund.
For a
detailed discussion of the components of discontinued operations, refer to Note
22, “Discontinued Operations,” in the Notes to Financial Statements.
EXTRAORDINARY
GAIN
The terms
of the purchase agreement of the 2004 acquisition of NexPress Solutions LLC
called for additional consideration to be paid by the Company if sales of
certain products exceeded a stated minimum number of units sold during a
five-year period following the close of the transaction. In May 2009,
the earn-out period lapsed with no additional consideration required to be paid
by the Company. Negative goodwill, representing the contingent
consideration obligation of $17 million, was therefore reduced to
zero. The reversal of negative goodwill reduced Property, plant and
equipment, net by $2 million and Research and development expense by $7 million
and resulted in an extraordinary gain of $6 million, net of tax, during the year
ended December 31, 2009.
NET
LOSS ATTRIBUTABLE TO EASTMAN KODAK COMPANY
The
Company’s consolidated net loss attributable to Eastman Kodak Company for 2009
was $210 million, or a loss of $0.78 per basic and diluted share, as compared
with a net loss attributable to Eastman Kodak Company for 2008 of $442 million,
or a loss of $1.57 per basic and diluted share, representing an improvement in
earnings of $232 million. This improvement in earnings is
attributable to the reasons outlined above.
2008
COMPARED WITH 2007
RESULTS
OF OPERATIONS - CONTINUING OPERATIONS
CONSOLIDATED
(in
millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
of Sales
|
|
|
2007
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
9,416 |
|
|
|
|
|
$ |
10,301 |
|
|
|
|
|
$ |
(885 |
) |
|
|
-9 |
% |
Cost
of goods sold
|
|
|
7,247 |
|
|
|
|
|
|
7,757 |
|
|
|
|
|
|
(510 |
) |
|
|
-7 |
% |
Gross
profit
|
|
|
2,169 |
|
|
|
23.0 |
% |
|
|
2,544 |
|
|
|
24.7 |
% |
|
|
(375 |
) |
|
|
-15 |
% |
Selling,
general and administrative expenses
|
|
|
1,606 |
|
|
|
17 |
% |
|
|
1,802 |
|
|
|
17 |
% |
|
|
(196 |
) |
|
|
-11 |
% |
Research
and development costs
|
|
|
478 |
|
|
|
5 |
% |
|
|
525 |
|
|
|
5 |
% |
|
|
(47 |
) |
|
|
-9 |
% |
Restructuring
costs and
other
|
|
|
140 |
|
|
|
|
|
|
|
543 |
|
|
|
|
|
|
|
(403 |
) |
|
|
-74 |
% |
Other
operating expenses (income), net
|
|
|
766 |
|
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
862 |
|
|
|
-898 |
% |
Loss
from continuing operations before interest expense,
other income (charges), net and income taxes
|
|
|
(821 |
) |
|
|
-9 |
% |
|
|
(230 |
) |
|
|
-2 |
% |
|
|
(591 |
) |
|
|
-257 |
% |
Interest
expense
|
|
|
108 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
(5 |
) |
|
|
-4 |
% |
Other
income (charges), net
|
|
|
55 |
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
(31 |
) |
|
|
-36 |
% |
Loss
from continuing operations before income taxes
|
|
|
(874 |
) |
|
|
|
|
|
|
(257 |
) |
|
|
|
|
|
|
(617 |
) |
|
|
-240 |
% |
Benefit
for income
taxes
|
|
|
(147 |
) |
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
(96 |
) |
|
|
188 |
% |
Loss
from continuing
operations
|
|
|
(727 |
) |
|
|
-8 |
% |
|
|
(206 |
) |
|
|
-2 |
% |
|
|
(521 |
) |
|
|
-253 |
% |
Earnings
from discontinued operations, net of income taxes
|
|
|
285 |
|
|
|
|
|
|
|
884 |
|
|
|
|
|
|
|
(599 |
) |
|
|
-68 |
% |
NET
(LOSS) EARNINGS
|
|
|
(442 |
) |
|
|
|
|
|
|
678 |
|
|
|
|
|
|
|
(1,120 |
) |
|
|
|
|
Less:
Net earnings attributable to
noncontrolling interests
|
|
|
- |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
NET
(LOSS) EARNINGS ATTRIBUTABLE TO EASTMAN KODAK
COMPANY
|
|
$ |
(442 |
) |
|
|
|
|
|
$ |
676 |
|
|
|
|
|
|
$ |
(1,118 |
) |
|
|
-165 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2007
|
|
|
|
2008
Amount
|
|
|
Change
vs. 2007
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
9,416 |
|
|
|
-8.6 |
% |
|
|
-4.4 |
% |
|
|
-6.4 |
% |
|
|
2.2 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
23.0 |
% |
|
-1.7pp
|
|
|
|
n/a |
|
|
-5.5pp
|
|
|
0.2pp
|
|
|
3.6pp
|
|
Revenues
For the
year 2008, net sales decreased by 9% compared with 2007 due primarily to the
significant economic deterioration in the fourth quarter in which the Company’s
revenues were 24% lower than in the prior year quarter. The impact of
the downturn was particularly severe to the Company because of the normal
seasonality of its sales, which are typically highest in the last four months of
the year. For the full year, the downturn led to unfavorable
price/mix across all segments and accelerated volume declines in Film Capture and Traditional Photofinishing within FPEG. These declines were partially offset by volume
increases in CDG, and Document
Imaging within GCG, and favorable foreign exchange across all
segments. Within CDG, Digital Capture and Devices
and Consumer Inkjet
Systems experienced significant increases in volume in 2008, primarily
related to new product introductions in 2007 and throughout
2008.
Gross
Profit
Gross
profit declined in 2008 in both dollars and as a percentage of sales, due
largely to the broad deterioration late in the year in sales volume, as well as
unfavorable price/mix across all segments, partially offset by reductions in
manufacturing and other costs within CDG, and favorable foreign
exchange. The improvements in manufacturing and other costs were
driven by manufacturing efficiencies within CDG, the benefit of lower
depreciation expense as a result of the change in useful lives executed during
the first quarter of 2008 that benefited FPEG, lower benefit costs (including
other postemployment benefits), and lower restructuring-related charges,
partially offset by increased silver, aluminum, paper, and petroleum-based raw
material and other costs.
Included
in gross profit was a non-recurring amendment of an intellectual property
licensing agreement and a new non-recurring intellectual property licensing
agreement within Digital
Capture and Devices. These licensing agreements contributed
approximately 2.4% of consolidated revenue to consolidated gross profit dollars
in 2008, as compared with 2.3% of consolidated revenue to consolidated gross
profit dollars for non-recurring agreements in the prior year.
In the
first quarter of 2008, the Company performed an updated analysis of expected
industry-wide declines in the traditional film and paper businesses and its
useful lives on related assets. Based on additional experience in the
secular decline in these product groups, the Company assessed that overall film
demand had declined but at a slower rate than anticipated in 2005, notably in
the motion picture films category, which accounts for a substantial portion of
the manufacturing asset utilization in the film business. In
addition, the demand declines in the Company’s paper business have not been as
extensive as assumed in 2005. As a result, the Company revised the
useful lives of certain existing production machinery and equipment, and
manufacturing-related buildings effective January 1, 2008. These
assets, which were previously set to fully depreciate by mid-2010, are now being
depreciated with estimated useful lives ending from 2011 to 2015. The
change in useful lives reflects the Company’s estimate of future periods to be
benefited from the use of the property, plant, and equipment. As a
result of these changes, for full year 2008 the Company reduced depreciation
expense by approximately $107 million, of which approximately $95 million
benefited loss from continuing operations before income taxes. The
net impact of the change in estimate to loss from continuing operations for the
year ended December 31, 2008 was a reduced loss of $93 million, or $.33 on a
fully-diluted loss per share basis.
Selling,
General and Administrative Expenses
The
year-over-year decrease in consolidated selling, general and administrative
expenses (“SG&A”) was primarily attributable to company-wide cost reduction
actions, and lower benefit costs (including other postemployment benefits – see
below), partially offset by unfavorable foreign exchange, a contingency accrual
related to employment litigation matters of approximately $20 million, and costs
associated with the Company’s participation in the drupa tradeshow in the second
quarter of 2008.
Research
and Development Costs
The
decrease in consolidated research and development costs (“R&D”) compared
with prior year was primarily attributable to company-wide cost reduction
actions and significantly reduced spending in 2008 within CDG due to the
introduction of consumer inkjet printers in 2007. These decreases in
R&D spending were partially offset by investments in new workflow products
in Enterprise Solutions
and stream technology within Digital Printing Solutions,
and R&D related acquisitions made in the second quarter of 2008, both
within GCG.
Postemployment
Benefit Plan Changes
In the
third quarter of 2008, the Company amended certain of its U.S. postemployment
benefits effective as of January 1, 2009. As a result of these plan
changes, curtailment and other gains of $94 million were recognized in the third
quarter of 2008. The gains are reflected in the Consolidated
Statement of Operations as follows: $48
million in cost of goods sold, $27 million in SG&A, and $19 million in
R&D. The impact of these gains is not reflected in segment
results. Refer to Note 18, “Other Postretirement Benefits,” and Note
24, “Segment Information,” in the Notes to Financial
Statements.
Restructuring
Costs, Rationalization and Other
These
costs, as well as the restructuring and rationalization-related costs reported
in cost of goods sold, are discussed under the "RESTRUCTURING COSTS,
RATIONALIZATION AND OTHER" section.
Other
Operating Expenses (Income), Net
The Other
operating expenses (income), net category includes gains and losses on sales of
capital assets and businesses, and goodwill and other long-lived asset
impairment charges. The year-over-year change in Other operating
expenses (income), net was largely driven by the goodwill impairment charge of
$785 million in 2008, as compared with significant one-time gains on sales of
capital assets and businesses recognized in 2007. Refer to Note 5,
“Goodwill and Other Intangible Assets,” in the Notes to Financial Statements for
more information on the 2008 charge.
Other
Income (Charges), Net
The Other
income (charges), net category includes interest income, income and losses from
equity investments, and foreign exchange gains and losses. The
decrease in Other income (charges), net was primarily attributable to a decrease
in interest income due to lower interest rates and lower cash balances in 2008
as compared with 2007.
Income
Tax Benefit
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Loss
from continuing operations before income
taxes
|
|
$ |
(874 |
) |
|
$ |
(257 |
) |
Benefit
for income taxes
|
|
$ |
(147 |
) |
|
$ |
(51 |
) |
Effective
tax rate
|
|
|
16.8 |
% |
|
|
19.8 |
% |
The
change in the Company’s effective tax rate from continuing operations is
primarily attributable to: (1) a benefit recognized upon the receipt in 2008 of
the interest portion on an IRS tax refund, (2) losses generated in the U.S. and
in certain jurisdictions outside the U.S. that were not benefited due to
management’s conclusion that it was not more likely than not that the tax
benefits would be realized, (3) a tax benefit recorded in continuing operations
in 2007 for losses in certain jurisdictions due to the recognition of an
offsetting tax expense on the pre-tax gain in discontinued operations, (4) the
release or establishment of valuation allowances in certain jurisdictions
outside the U.S., which are evaluated separately by jurisdiction and dependent
on its specific circumstances, (5) the mix of earnings from
operations in jurisdictions outside the U.S., (6) adjustments for uncertain tax
positions and tax
audits, and (7) a pre-tax goodwill impairment charge of $785 million that
resulted in a tax benefit of only $4 million due to a full valuation allowance
in the U.S. and the limited amount of tax deductible goodwill that existed as of
December 31, 2008.
CONSUMER
DIGITAL IMAGING GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
of Sales
|
|
|
2007
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
3,088 |
|
|
|
|
|
$ |
3,247 |
|
|
|
|
|
$ |
(159 |
) |
|
|
-5 |
% |
Cost
of goods sold
|
|
|
2,495 |
|
|
|
|
|
|
2,419 |
|
|
|
|
|
|
76 |
|
|
|
3 |
% |
Gross
profit
|
|
|
593 |
|
|
|
19.2 |
% |
|
|
828 |
|
|
|
25.5 |
% |
|
|
(235 |
) |
|
|
-28 |
% |
Selling,
general and administrative expenses
|
|
|
565 |
|
|
|
18 |
% |
|
|
603 |
|
|
|
19 |
% |
|
|
(38 |
) |
|
|
-6 |
% |
Research
and development costs
|
|
|
205 |
|
|
|
7 |
% |
|
|
242 |
|
|
|
7 |
% |
|
|
(37 |
) |
|
|
-15 |
% |
Loss
from continuing operations before interest
expense, other income (charges), net
and income taxes
|
|
$ |
(177 |
) |
|
|
-6 |
% |
|
$ |
(17 |
) |
|
|
-1 |
% |
|
$ |
(160 |
) |
|
|
-941 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2007
|
|
|
|
2008
Amount
|
|
|
Change
vs. 2007
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
3,088 |
|
|
|
-4.9 |
% |
|
|
8.6 |
% |
|
|
-14.6 |
% |
|
|
1.1 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
19.2 |
% |
|
-6.3pp
|
|
|
|
n/a |
|
|
-13.4pp
|
|
|
0.7pp
|
|
|
6.4pp
|
|
Revenues
Net sales
for CDG decreased 5% in 2008 primarily as a result of the sharp decline in
global consumer demand experienced in the fourth quarter of 2008. The
economic downturn negatively impacted all industries that rely on consumer
discretionary spending. CDG net sales in the fourth quarter declined
from 42% of CDG’s full-year revenue for 2007 to only 31% of full-year revenue
for 2008. Volume increases in 2008 attributable to products
introduced in 2007 and throughout 2008 were more than offset by unfavorable
price/mix, as reduced demand resulted in downward price pressure and a shift in
consumer demand to lower-priced products. However, Kodak continued to
maintain or increase its market share position in key product categories in
which it participates.
Net sales
for CDG decreased primarily due to unfavorable price/mix in Digital Capture and Devices,
partially offset by volume growth in Consumer Inkjet and Digital Capture and Devices,
and favorable foreign exchange across all SPGs.
Net
worldwide sales of Digital
Capture and Devices, which includes consumer digital still and video
cameras, digital picture frames, accessories, memory products, snapshot printers
and related media, and intellectual property royalties, decreased 7% in the year
ended December 31, 2008 as compared with the prior year. This
decrease primarily reflects unfavorable price/mix for digital cameras and
digital picture frames, volume declines in snapshot printing, and lower
intellectual property royalties (see gross profit discussion below), partially
offset by increased volumes for digital cameras and digital picture frames as
well as favorable foreign exchange. Digital picture frames were
introduced at the end of the first quarter of 2007.
Net
worldwide sales of Consumer
Inkjet Systems, which includes inkjet printers and related consumables,
increased in the year ended December 31, 2008, primarily reflecting volume
improvements due to the launch of the product line at the end of the first
quarter of 2007 and the introduction of the second generation of printers
in the first quarter of 2008, partially offset by unfavorable
price/mix. Sell-through of inkjet printers for the full year more
than doubled compared with the prior year, resulting in an estimated installed
base of more than 1 million printers as of December 31, 2008.
Net
worldwide sales of Retail
Systems Solutions, which includes kiosks and related media and APEX
drylab systems, increased 1% in the year ended December 31, 2008 as compared
with the prior year, reflecting higher equipment and media volumes as well as
favorable foreign exchange, partially offset by unfavorable
price/mix.
Gross Profit
The
decrease in gross profit dollars and margin for CDG was primarily attributable
to unfavorable price/mix within Digital Capture and Devices
and lower intellectual property royalties, partially offset by reduced
manufacturing and other costs primarily in consumer inkjet printers, digital
cameras and digital frames, as well as favorable foreign
exchange.
Included
in gross profit was a non-recurring amendment of an intellectual property
licensing agreement with an existing licensee and a new non-recurring
intellectual licensing agreement. The impact of these agreements
contributed approximately 7.4% of segment revenue to segment gross profit
dollars in 2008, as compared with 7.3% of segment revenue to segment gross
profit dollars for non-recurring agreements in the prior year. The
new agreement also provides the Company with an opportunity for continued
collaboration with the licensee.
The
results also included approximately $126 million related to intellectual
property licensing arrangements under which the Company’s continuing obligations
were fulfilled as of December 31, 2008. The Company expects to secure
other new licensing agreements, the timing and amounts of which are difficult to
predict. These types of arrangements provide the Company with a return on
portions of its R&D investments, and new licensing opportunities are
expected to have a continuing impact on the results of
operations.
Selling,
General and Administrative Expenses
The
decrease in SG&A expenses for CDG was primarily driven by ongoing efforts to
achieve target cost models and lower benefit costs (including other
postemployment benefits), partially offset by unfavorable foreign
exchange.
Research
and Development Costs
The
decrease in R&D costs for CDG was primarily attributable to reduced spending
in 2008 as compared with the prior year due to the introduction of consumer
inkjet printers in 2007, as well as cost reduction actions taken throughout the
segment in 2008.
FILM,
PHOTOFINISHING AND ENTERTAINMENT GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
of Sales
|
|
|
2007
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,987 |
|
|
|
|
|
$ |
3,632 |
|
|
|
|
|
$ |
(645 |
) |
|
|
-18 |
% |
Cost
of goods sold
|
|
|
2,335 |
|
|
|
|
|
|
2,771 |
|
|
|
|
|
|
(436 |
) |
|
|
-16 |
% |
Gross
profit
|
|
|
652 |
|
|
|
21.8 |
% |
|
|
861 |
|
|
|
23.7 |
% |
|
|
(209 |
) |
|
|
-24 |
% |
Selling,
general and administrative expenses
|
|
|
407 |
|
|
|
14 |
% |
|
|
520 |
|
|
|
14 |
% |
|
|
(113 |
) |
|
|
-22 |
% |
Research
and development costs
|
|
|
49 |
|
|
|
2 |
% |
|
|
60 |
|
|
|
2 |
% |
|
|
(11 |
) |
|
|
-18 |
% |
Earnings
from continuing operations before interest
expense, other income (charges), net
and income taxes
|
|
$ |
196 |
|
|
|
7 |
% |
|
$ |
281 |
|
|
|
8 |
% |
|
$ |
(85 |
) |
|
|
-30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2007
|
|
|
|
2008
Amount
|
|
|
Change
vs. 2007
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
2,987 |
|
|
|
-17.8 |
% |
|
|
-18.6 |
% |
|
|
-1.3 |
% |
|
|
2.1 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
21.8 |
% |
|
-1.9pp
|
|
|
|
n/a |
|
|
-2.1pp
|
|
|
0.3pp
|
|
|
-0.1pp
|
|
Revenues
Net sales
for FPEG decreased 18% primarily due to Film Capture and Traditional Photofinishing,
reflecting continuing volume declines in the consumer film industry and
reduced demand due to the global economic slowdown that began in the latter part
of 2008, partially offset by favorable foreign exchange. Net worldwide
sales of Film Capture
and Traditional
Photofinishing decreased 40% and 19%, respectively, in 2008 as compared
with 2007.
Net
worldwide sales for Entertainment Imaging
decreased 5% compared with the prior year, driven by volume declines primarily
reflecting the effects of the writers’ strike in the first quarter of 2008, and
reduced demand in the second half of 2008 from the delay in creation of feature
films resulting from uncertainty surrounding industry labor contract issues, as
well as the weak economy. This decrease was partially offset by
favorable foreign exchange.
Gross
Profit
The
decrease in FPEG gross profit dollars is primarily a result of declines in sales
volume within Film Capture
as described above, unfavorable price/mix across all SPGs, partially
offset by favorable foreign exchange.
The
decrease in FPEG gross profit margin was primarily driven by unfavorable
price/mix across all SPGs. In addition, increased manufacturing and
other costs in Film
Capture were driven by higher costs of silver,
paper, and petroleum-based raw material and other costs. These cost increases
were largely offset by lower benefit costs (including other postemployment
benefits) and the benefit of lower depreciation expense as a result of the
change in useful lives executed during the first quarter of this
year.
Selling,
General and Administrative Expenses
The
decline in SG&A expenses for FPEG was attributable to lower benefit costs
(including other postemployment benefits) and ongoing efforts to achieve target
cost models, partially offset by unfavorable foreign exchange.
GRAPHIC
COMMUNICATIONS GROUP
(dollars
in millions)
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
of Sales
|
|
|
2007
|
|
|
%
of Sales
|
|
|
Increase
/ (Decrease)
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
3,334 |
|
|
|
|
|
$ |
3,413 |
|
|
|
|
|
$ |
(79 |
) |
|
|
-2 |
% |
Cost
of goods sold
|
|
|
2,445 |
|
|
|
|
|
|
2,438 |
|
|
|
|
|
|
7 |
|
|
|
0 |
% |
Gross
profit
|
|
|
889 |
|
|
|
26.7 |
% |
|
|
975 |
|
|
|
28.6 |
% |
|
|
(86 |
) |
|
|
-9 |
% |
Selling,
general and administrative expenses
|
|
|
637 |
|
|
|
19 |
% |
|
|
664 |
|
|
|
19 |
% |
|
|
(27 |
) |
|
|
-4 |
% |
Research
and development costs
|
|
|
221 |
|
|
|
7 |
% |
|
|
207 |
|
|
|
6 |
% |
|
|
14 |
|
|
|
7 |
% |
Earnings
from continuing operations before interest
expense, other income (charges), net
and income taxes
|
|
$ |
31 |
|
|
|
1 |
% |
|
$ |
104 |
|
|
|
3 |
% |
|
$ |
(73 |
) |
|
|
-70 |
% |
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
vs. 2007
|
|
|
|
2008
Amount
|
|
|
Change
vs. 2007
|
|
|
Volume
|
|
|
Price/Mix
|
|
|
Foreign
Exchange
|
|
|
Manufacturing
and Other Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
3,334 |
|
|
|
-2.3 |
% |
|
|
-1.6 |
% |
|
|
-4.1 |
% |
|
|
3.4 |
% |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit margin
|
|
|
26.7 |
% |
|
-1.9pp
|
|
|
|
n/a |
|
|
-1.1pp
|
|
|
-0.6pp
|
|
|
-0.2pp
|
|
Revenues
GCG net
sales decreased 2% in 2008 as compared with the prior year, driven by
unfavorable price/mix and volume declines, partially offset by favorable foreign
exchange. Recent global financial market disruptions affected
equipment placements across most product lines, and tightening credit
availability resulted in deferrals of some orders taken earlier this year at the
drupa tradeshow. In addition, the decline in global print demand
translated into decreased sales of consumables, especially in the second half of
2008.
Net
worldwide sales of Prepress
Solutions decreased 2% compared with 2007, driven primarily by volume
declines in analog plates and output devices, partially offset by volume growth
in digital plates and favorable foreign exchange. The decline in
global print demand accelerated the volume decline for analog plates and
negatively impacted the volume growth rate for digital
plates. Despite the effects of the economic downturn, digital plates
experienced volume growth in the high single digits during
2008.
Net
worldwide sales of Digital
Printing Solutions decreased 6% compared with the prior
year. Unfavorable price/mix and declines in volume were partially
offset by favorable foreign exchange for all products. Volume
declines were largely attributable to black-and-white electrophotographic
equipment and consumables due to overall market declines, as certain customers
convert to solutions that offer color options. Color
electrophotographic equipment and consumables volumes increased, driven by new
product line
introductions
and enhancements. Page volume growth of 12% in the color
electrophotographic space was a key contributor to the growth of color
consumable sales volumes. Unfavorable inkjet equipment volume and
price/mix were partially offset by favorable volume and price/mix in inkjet
consumables. General price erosion, declines in legacy product sales,
and a mix shift toward units requiring lower levels of capital investment were
contributors to this performance.
Net
worldwide sales of Document
Imaging decreased 2% in 2008 compared with
the prior year. Unfavorable price/mix was partially offset by volume
growth and favorable foreign exchange. While volume grew in both the
Production Scanner and Distributed Scanner categories, a shift toward low-page
volume units in both categories drove unfavorable price/mix.
Net
worldwide sales of Enterprise
Solutions decreased 1% as compared with the prior
year. Unfavorable price/mix and volume declines were partially offset
by favorable foreign exchange and acquisitions made during the second quarter of
2008.
Gross
Profit
The
decline in gross profit dollars and margin was primarily driven by Prepress Solutions and Digital Printing
Solutions. Increased manufacturing costs related to aluminum
and petroleum-based raw materials, as well as higher distribution expense and
volume declines, drove the decrease in the Prepress Solutions gross
profit dollars and margin. For Digital Printing Solutions,
higher costs of newly introduced digital printers, price erosion and adverse mix
were partially offset by manufacturing cost productivity.
Selling,
General and Administrative Expenses
The
decrease in SG&A expenses for GCG primarily reflects lower benefit costs
(including other postemployment benefits) and ongoing efforts to achieve target
cost models, partially offset by increased costs associated with the Company’s
participation in the drupa tradeshow in the second quarter of 2008, go-to-market
investments, and unfavorable foreign
exchange.
Research
and Development Costs
The
increase in R&D costs for GCG was primarily driven by investments in new
workflow products in Enterprise Solutions, R&D
related to acquisitions made in the second quarter of 2008, increased
investments for stream technology within Digital Printing Solutions,
and unfavorable foreign exchange. These increases were partially
offset by ongoing efforts to achieve target cost models.
RESULTS
OF OPERATIONS – DISCONTINUED OPERATIONS
Total
Company earnings from discontinued operations for the year ended December 31,
2008 and 2007 of $285 million and $884 million, respectively, include a benefit
for income taxes of $288 million and a provision for income taxes of $262
million, respectively.
Earnings
from discontinued operations in 2008 were primarily driven by a tax refund that
the Company received from the U.S. Internal Revenue Service. The
refund was related to the audit of certain claims filed for tax years
1993-1998. A portion of the refund related to past federal income
taxes paid in relation to the 1994 sale of a subsidiary, Sterling Winthrop Inc.,
which was reported in discontinued operations. Refer to Note 15,
“Income Taxes,” in the Notes to Financial Statements for further discussion of
the tax refund.
Earnings
from discontinued operations in 2007 were primarily driven by the $986 million
pre-tax gain on the sale of the Health Group segment on April 30, 2007, and the
$123 million pre-tax gain on the sale of Hermes Precisa Pty. Ltd. (“HPA”) on
November 2, 2007. Also included in discontinued operations in 2007
are the results of operations of the Health Group segment and HPA through their
respective dates of sale.
For a
detailed discussion of the components of discontinued operations, refer to Note
22, “Discontinued Operations,” in the Notes to Financial Statements.
NET
(LOSS) EARNINGS ATTRIBUTABLE TO EASTMAN KODAK COMPANY
The
Company’s consolidated net loss attributable to Eastman Kodak Company for 2008
was $442 million, or a loss of $1.57 per basic and diluted share, as compared
with net earnings attributable to Eastman Kodak Company for 2007 of $676
million, or earnings of $2.35 per basic and diluted share, representing a
decrease of $1,118 million or 165%. This decrease is attributable to
the reasons outlined above.
RESTRUCTURING
COSTS, RATIONALIZATION AND OTHER
On
December 17, 2008, the Company committed to a plan to implement a targeted cost
reduction program (the 2009 Program) to more appropriately size the organization
as a result of the current economic environment. The program involved
rationalizing selling, administrative, research and development, supply chain
and other business resources in certain areas and consolidating certain
facilities. The execution of the 2009 Program began in January
2009.
In connection with the
2009 Program, the Company expected to incur total restructuring charges in the
range of $250 million to $300 million, including $225 million to $265 million of
cash related charges for termination benefits and other exit costs, and $25
million to $35 million of non-cash related accelerated depreciation and asset
write-offs. The Company recorded actual charges of $258
million, net of reversals, including $22 million of charges for accelerated
depreciation and $10 million of charges for inventory write-downs, which were
reported in Cost of goods sold in the accompanying Consolidated Statement of
Operations for the year ended December 31, 2009. The remaining costs
incurred, net of reversals, of $226 million were reported as Restructuring
costs, rationalization and other in the accompanying Consolidated Statement of
Operations for the year ended December 31, 2009. The severance and
exit costs reserves require the outlay of cash, while long-lived asset
impairments, accelerated depreciation and inventory write-downs represent
non-cash items. The charges, net of
reversals, of $258 million recorded in 2009 included $69 million applicable to
FPEG, $34 million applicable to CDG, $112 million applicable to GCG, and $43
million that was applicable to manufacturing, research and development, and
administrative functions, which were shared across all
segments.
The 2009
Program was expected to require expenditures from corporate cash in the range of
$125 million to $175 million, as most of the termination benefits for U.S.
employees are provided in the form of special retirement benefits (Special
Termination Program (STP) benefits) payable from the Company’s over-funded U.S.
pension plan. Including cash expenditures related to rationalization
actions in 2008 and prior, the total expenditures from corporate cash in 2009
for restructuring actions were expected to total $225 million to $275
million. During the year ended December 31, 2009, the Company made
actual cash payments of approximately $177 million related to restructuring and
rationalization.
The majority of the
actions contemplated by the 2009 Program were completed in the first half of
2009. The 2009 Program was expected to result in employment
reductions in the range of 2,000 to 3,000 positions when complete and yield
annualized cash savings of $200 million to $250 million in 2009 and
beyond. The future annual cash savings of these actions are
now expected to be approximately $245 million. These savings are
expected to reduce future cost of goods sold, SG&A, and R&D expenses by
$95 million, $82 million, and $68 million, respectively. The Company
began realizing these savings in the first quarter of 2009, and expects the
savings to be fully realized by the end of the second quarter of 2010 as most of
the actions and severance payouts are completed.
When
combined with rationalization actions taken in late 2008, the Company expected
to reduce its worldwide employment by between 3,500 and 4,500 positions during
2009, approximately 14% to 18% of its total workforce, which was expected to
generate annual cash savings in the range of $300 million to $350
million. The future annual cash savings of these actions are now
expected to be approximately $373 million.
For the
year ended December 31, 2008, the Company incurred restructuring and
rationalization charges, net of reversals, of $149 million. The $149
million of restructuring and rationalization charges, net of reversals, included
$6 million of costs related to accelerated depreciation, and $3 million of
charges for inventory write-downs, which were reported in Cost of goods sold in
the accompanying Consolidated Statement of Operations. The remaining
costs incurred, net of reversals, of $140 million were reported as Restructuring
costs, rationalization and other in the accompanying Consolidated Statement of
Operations for the year ended December 31, 2008.
For the
year ended December 31, 2007, the Company incurred restructuring charges, net of
reversals, of $685 million, all under the 2004-2007 Restructuring Program,
including $23 million related to discontinued operations ($20 million of
severance costs and $3 million of exit costs), and $662 million related to
continuing operations ($107 million of accelerated depreciation, $12 million of
inventory write-downs, $270 million of asset impairments, $144 million of
severance costs, and $129 million of exit costs). The Company
substantially completed its 2004-2007 Restructuring Program as of December 31,
2007.
LIQUIDITY
AND CAPITAL RESOURCES
2009
Cash
Flow Activity
|
|
For
the Year Ended
|
|
|
|
|
(in
millions)
|
|
December
31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
cash used in continuing operations
|
|
$ |
(136 |
) |
|
$ |
(128 |
) |
|
$ |
(8 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
296 |
|
|
|
(296 |
) |
Net
cash (used in) provided by operating activities
|
|
|
(136 |
) |
|
|
168 |
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continuing operations
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
166 |
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) continuing operations
|
|
|
33 |
|
|
|
(746 |
) |
|
|
779 |
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash provided by (used in) financing activities
|
|
|
33 |
|
|
|
(746 |
) |
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
4 |
|
|
|
(36 |
) |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
$ |
(121 |
) |
|
$ |
(802 |
) |
|
$ |
681 |
|
Operating
Activities
Net cash
used in continuing operations from operating activities increased $8 million for
the year ended December 31, 2009 as compared with the prior year. Cash received
in 2009 related to non-recurring licensing agreements, net of applicable
withholding taxes, of $622 million, was $472 million higher than cash received
in 2008 related to a non-recurring licensing agreement of $150
million. Additionally, cash expended in 2008 for 2007 bonus
programs of $95 million had no comparable amount paid in 2009 for 2008 bonus
programs. These benefits to cash flows from operating activities for
2009 were partially offset by the receipt of the interest portion of an IRS tax
refund in 2008 of $275 million, with no comparable receipt in
2009. The combination of these and other factors led to the use of
cash in operating activities of $136 million in 2009, as compared with cash used
on the same basis of $128 million in 2008. Net cash provided by
discontinued operations decreased $296 million in 2009 as compared with 2008 due
primarily to the receipt of the refund of past federal income taxes referred to
above.
Investing
Activities
Net cash
used in investing activities decreased $166 million for the year ended December
31, 2009 as compared with 2008 due primarily to a decline of $102 million in
additions to properties and increased cash proceeds received from sales of
assets and businesses of $64 million, primarily from the sale of assets of the
Company’s OLED group.
Financing
Activities
Net cash provided by
financing activities increased $779 million for the year ended December 31, 2009
as compared with 2008 due primarily to approximately $650 million of net
proceeds from two new debt issuances in 2009, of which $563 million was used to
repurchase 2033 Convertible Senior Notes. Also, scheduled debt
repayments in 2008 were $250 million higher than in 2009, share repurchases were
$301 million in 2008, for which there were no comparable payments in 2009, and
dividend payments were $139 million in 2008, for which there were no comparable
payments in 2009.
Sources
of Liquidity
The
Company believes that its current cash balance, combined with cash flows from
operating activities and proceeds from sales of assets, will be sufficient to
meet its anticipated needs, including working capital, capital investments,
scheduled debt repayments, restructuring payments, and employee benefit plan
payments or required plan contributions. If the global economic
weakness trends continue for a greater period of time than anticipated, or
worsen, it could impact the Company's profitability and related cash generation
capability and therefore, affect the Company’s ability to meet its anticipated
cash needs. Refer to Item 1A. of Part I, "Risk
Factors." In addition to its existing cash balance, the Company has
financing arrangements, as described in more detail below under "Amended Credit
Agreement," to facilitate unplanned timing differences between required
expenditures and cash generated from operations or for unforeseen shortfalls in
cash flows from operating activities. The Company has not found it
necessary to borrow against these financing arrangements over the past four
years.
Depending
on market conditions, the Company reserves the right to pursue opportunities
that will further optimize its capital structure.
Refer to
Note 8, "Short-Term Borrowings and Long-Term Debt," in the Notes to Financial
Statements for further discussion of sources of liquidity, presentation of
long-term debt, related maturities and interest rates as of December 31, 2009
and 2008.
Short-Term
Borrowings
As of
December 31, 2009, the Company and its subsidiaries, on a consolidated basis,
maintained $511 million in committed bank lines of credit, which include $500
million under the Amended Credit Agreement and $11 million of other committed
bank lines of credit, and $156 million in uncommitted bank lines of credit to
ensure continued financial support through letters of credit, bank guarantees,
and similar arrangements, and short-term borrowing capacity. In addition, the $12
million aggregate principal amount of Convertible Senior Notes due 2033 (“2033
Convertible Notes”) are also included in Short-term borrowings and current
portion of long-term debt on the accompanying Consolidated Statement of
Financial Position.
Senior Secured
Notes due 2017
On
September 29, 2009, the Company issued (1) $300 million aggregate
principal amount of 10.5% Senior Secured Notes, and (2) Warrants to purchase
40 million shares of the Company’s common stock at an exercise price of
$5.50 per share. The warrants are exercisable at the holder’s option
at any time, in whole or in part, until September 29, 2017.
The
Company received net proceeds of approximately $273 million ($300 million
aggregate principal, less $12 million stated discount and $15 million placement
fee and reimbursable costs. The initial carrying value of the notes,
net of unamortized discount, of approximately $193 million is being accreted up
to the $300 million stated principal amount using the effective interest method
over the 8-year term of the Senior Secured Notes. Accretion of the
principal will be reported as a component of interest expense.
Interest
payments of approximately $30 million annually are payable semi-annually, on
October 1 and April 1 of each year, beginning on April 1, 2010. Cash
interest on the Senior Secured Notes will accrue at a rate of 10.0% per annum
and Payment-in-Kind interest (“PIK
Interest”)
will accrue at a rate of 0.5% per annum. PIK Interest is accrued as
an increase to the principal amount of the Senior Secured Notes and is to be
paid at maturity in 2017.
The
Indenture under the notes contains covenants limiting, among other things, the
Company’s ability to (subject to certain exceptions): incur additional debt or
issue certain preferred shares; pay dividends on or make other distributions in
respect of the Company’s capital stock or make other restricted payments; make
principal payments on, or purchase or redeem subordinated indebtedness prior to
any scheduled principal payment or maturity; make certain investments; sell
certain assets; create liens on assets; consolidate, merge, sell or otherwise
dispose of all or substantially all of the Company’s assets; and enter into
certain transactions with the Company’s affiliates. The Company was
in compliance with these covenants as of December 31, 2009.
Refer to
Note 8, “Short-Term Borrowings and Long-Term Debt,” for redemption provisions,
guarantees, events of default, and subordination and ranking of the Senior
Secured Notes.
2017
Convertible Senior Notes
On
September 23, 2009, the Company issued $400 million of aggregate principal
amount of 7% convertible senior notes due April 1, 2017 (the “2017 Convertible
Notes”). The initial carrying value of the debt of $293 million will
be accreted up to the $400 million stated principal amount using the effective
interest method over the 7.5 year term of the notes. Accretion of the
principal will be reported as a component of interest expense.
The
Company will pay interest of approximately $28 million
annually. Interest is payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on April 1, 2010.
The 2017
Convertible Notes are convertible at an initial conversion rate of 134.9528
shares of the Company’s common stock per $1,000 principal amount of convertible
notes (representing an initial conversion price of approximately $7.41 per share
of common stock) subject to adjustment in certain circumstances. Upon
conversion, the Company shall deliver or pay, at its election, solely shares of
its common stock or solely cash. Holders of the 2017 Convertible
Notes may require the Company to purchase all or a portion of the convertible
notes at a price equal to 100% of the principal amount of the convertible notes
to be purchased, plus accrued and unpaid interest, in cash, upon occurrence of
certain fundamental changes involving the Company including, but not limited to,
a change in ownership, consolidation or merger, plan of dissolution, or common
stock delisting from a U.S. national securities exchange.
Under
certain circumstances, the Company may redeem the 2017 Convertible Notes in
whole or in part for cash at any time on or after October 1, 2014 and
before October 1, 2016. The redemption price will equal 100% of the
principal amount of the Notes to be redeemed, plus any accrued and unpaid
interest.
Refer to
Note 8, “Short-Term Borrowings and Long-Term Debt,” for redemption provisions,
ranking and subordination of the 2017 Convertible Notes, and events of
default.
Amended
Credit Agreement
On March
31, 2009, the Company and its subsidiary, Kodak Canada Inc. (together, the
“Borrowers”), together with the Company’s U.S. subsidiaries as guarantors (the
“Guarantors”), entered into an Amended and Restated Credit Agreement, with
the named lenders (the “Lenders”) and Citicorp USA, Inc. as agent, in order
to amend and extend its Credit Agreement dated as of October 18, 2005
(the “Secured Credit Agreement”).
On
September 17, 2009, the Borrowers, together with the Guarantors, further amended
the Amended and Restated Credit Agreement with the Lenders and Citicorp USA,
Inc. as agent, in order to allow collateral under this agreement to be pledged
on a second-lien basis and for the Company to issue $700 million in aggregate
principal amount of debt, the net proceeds of which would be used to repurchase
its previously existing $575 million Convertible Senior Notes due 2033 as well
as for other general corporate purposes. The Amended and Restated
Credit Agreement and Amendment No. 1 to the Amended and Restated Credit
Agreement dated September 17, 2009 are collectively hereinafter referred to as
the “Amended Credit Agreement.” Pursuant to the terms of the Amended
Credit Agreement, the Company deposited $575 million of the net proceeds of the
two financing transactions discussed above in a cash collateral account to
be
used to
fund the repurchase of the 2033 Convertible Notes. During 2009, the
Company repurchased $563 million of its Convertible Senior Notes due
2033. As of December 31, 2009, approximately $12 million of the
original $575 million is maintained in the cash collateral account and is
considered restricted cash.
The
Amended Credit Agreement provides for an asset-based revolving credit facility
of up to $500 million, as further described below. The letters of
credit previously issued under the former Secured Credit Agreement continue
under the Amended Credit Agreement. Additionally, up to $100 million
of the Company’s and its subsidiaries’ obligations to various Lenders under
treasury management services, hedge or other agreements or arrangements are
secured by the asset-based collateral under the Amended Credit
Agreement. The Amended Credit Agreement can be used for general
corporate purposes. The termination date of the Amended Credit
Agreement with respect to the Lenders who agreed to the extension, and any
future lenders, is March 31, 2012, and with respect to the other Lenders
continues to be October 18, 2010. As of December 31, 2009,
approximately 75% of the facility amount has been extended to the 2012
termination date, and additional lenders may be added to increase this
amount.
Advances
under the Amended Credit Agreement will be available based on the Borrowers’
respective borrowing base from time to time. The borrowing base is
calculated based on designated percentages of eligible accounts receivable,
inventory, machinery and equipment and, once mortgages are recorded, certain
real property, subject to applicable reserves. As of December 31,
2009, based on this borrowing base calculation and after deducting the face
amount of letters of credit outstanding of $136 million and $100 million of
collateral to secure other banking arrangements, the Company had $201 million
available to borrow under the Amended Credit Agreement.
The
Amended Credit Agreement provides that advances made from time to time will bear
interest at applicable margins over the Base Rate, as defined, or the Eurodollar
Rate. The Company pays, on a quarterly basis, an annual fee ranging
from 0.50% to 1.00% to the Lenders based on the unused commitments.
As of
December 31, 2009, the Company had no debt for borrowed money outstanding under
the Amended Credit Agreement, but had outstanding letters of credit of $136
million. In addition to the letters of credit outstanding under the
Amended Credit Agreement, there were bank guarantees and letters of credit of
$30 million and surety bonds of $28 million outstanding under other banking
arrangements primarily to ensure the payment of possible casualty and workers'
compensation claims, environmental liabilities, legal contingencies, rental
payments, and to support various customs and trade
activities.
In
addition to the Amended Credit Agreement, the Company has other committed and
uncommitted lines of credit as of December 31, 2009 totaling $11 million and
$156 million, respectively. These lines primarily support operational
and borrowing needs of the Company’s subsidiaries, which include term loans,
overdraft coverage, revolving credit lines, letters of credit, bank guarantees
and vendor financing programs. Interest rates and other terms of
borrowing under these lines of credit vary from country to country, depending on
local market conditions. As of December 31, 2009, usage under these
lines was approximately $58 million, with $0 reflected in Short-term borrowings
and current portion of long-term debt on the accompanying Consolidated Statement
of Financial Position, and the balance supporting non-debt related
obligations.
On
February 10, 2010, the Borrowers, together with the Guarantors, further amended
the Amended Credit Agreement with the Lenders and Citicorp USA, Inc., as agent,
in order to allow the Company to incur additional permitted senior debt of up to
$200 million aggregate principal amount, and debt that refinances existing debt
and permitted senior debt so long as the refinancing debt meets certain
requirements. In connection with the amendment, the Company reduced
the commitments of its non-extending lenders by approximately $125
million. This change did not reduce the maximum borrowing
availability of $500 million under the Amended Credit Agreement.
See Note
8, “Short-Term Borrowings and Long-Term Debt,” for liens, restrictive covenants,
and events of default under the Amended Credit
Agreement.
Tender Offer on Senior Notes Due
2013
On
February 3, 2010, the Company issued a tender offer to purchase up to $100
million of its outstanding 7.25% Senior Notes due 2013 (the “2013 Notes”) for an
amount in cash equal to 91% of the principal amount of the 2013 Notes, plus
accrued and unpaid interest. The tender offer expires on March 4,
2010 unless extended or earlier terminated. A purchase price in cash equal
to 95% of the principal
amount of
the 2013 Notes was offered for notes tendered before an early termination date
of February 11, 2010. The Company’s obligation to pay for the 2013
Notes in the tender offer is subject to the satisfaction or waiver of a number
of conditions, included the raising of not less than $100 million of second lien
debt on terms reasonably satisfactory to it in order to finance the tender
offer. The tender offer is not contingent upon the tender of any
minimum principal amount of 2013 Notes. The Company reserves the right to
increase the maximum tender amount of $100 million, subject to compliance with
applicable law.
Credit
Quality
Moody's
and Standard & Poor’s (“S&P”) ratings for the Company, including their
outlooks, as of the filing date of this Form 10-K are as
follows:
|
|
|
Senior
|
|
Most
|
|
Corporate
|
Secured
|
Unsecured
|
|
Recent
|
|
Rating
|
Rating
|
Rating
|
Outlook
|
Update
|
|
|
|
|
|
|
Moody's
|
B3
|
NR
|
Caa1
|
Stable
|
February
19, 2010
|
S&P
|
B-
|
NR
|
CCC
|
Stable
|
February
11, 2010
|
|
|
|
|
|
|
On
February 19, 2010, Moody’s revised its rating outlook on the Company from
negative to stable, and affirmed its B3 corporate rating and Caa1 senior
unsecured rating.
On
February 11, 2010, S&P revised its B- rating outlook on the Company to
stable from negative. All ratings on the Company, including the B-
Corporate Rating, were affirmed.
The
Company does not have any rating downgrade triggers that would accelerate the
maturity dates of its debt. However, the Company could be required to
increase the dollar amount of its letters of credit or provide other financial
support up to an additional $54 million at the current credit
ratings. As of the filing date of this Form 10-K, the Company has not
been requested to materially increase its letters of credit or other financial
support. Downgrades in the Company’s credit rating or disruptions in
the capital markets could impact borrowing costs and the nature of its funding
alternatives.
Contractual
Obligations
The
impact that our contractual obligations are expected to have on the Company's
liquidity and cash flow in future periods is as follows:
|
|
|
|
|
As
of December 31, 2009
|
|
(in
millions)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
|
2015 |
+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (1)
|
|
$ |
1,425 |
|
|
$ |
62 |
|
|
$ |
50 |
|
|
$ |
50 |
|
|
$ |
550 |
|
|
$ |
- |
|
|
$ |
713 |
|
Interest
payments on debt
|
|
|
622 |
|
|
|
97 |
|
|
|
96 |
|
|
|
96 |
|
|
|
91 |
|
|
|
60 |
|
|
|
182 |
|
Operating
lease obligations
|
|
|
296 |
|
|
|
81 |
|
|
|
61 |
|
|
|
47 |
|
|
|
27 |
|
|
|
16 |
|
|
|
64 |
|
Purchase
obligations (2)
|
|
|
831 |
|
|
|
387 |
|
|
|
283 |
|
|
|
66 |
|
|
|
37 |
|
|
|
15 |
|
|
|
43 |
|
Total (3)
(4) (5)
|
|
$ |
3,174 |
|
|
$ |
627 |
|
|
$ |
490 |
|
|
$ |
259 |
|
|
$ |
705 |
|
|
$ |
91 |
|
|
$ |
1,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents
the maturity values of the Company's long-term debt
obligations. See Note 8, "Short-Term Borrowings and Long-Term
Debt," in the Notes to Financial Statements.
|
(2)
|
Purchase
obligations include agreements related to raw materials, supplies,
production and administrative services, as well as marketing and
advertising, that are enforceable and legally binding on the Company and
that specify all significant terms, including: fixed or minimum quantities
to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase
obligations exclude agreements that are cancelable without
penalty. The terms of these agreements cover the next one to
twelve years.
|
(3)
|
Due
to uncertainty regarding the completion of tax audits and possible
outcomes, the remaining estimate of the timing of payments related to
uncertain tax positions and interest cannot be made. See Note
15, “Income Taxes,” in the Notes to Financial Statements for additional
information regarding the Company’s uncertain tax
positions.
|
(4)
|
Funding
requirements for the Company's major defined benefit retirement plans and
other postretirement benefit plans have not been determined, therefore,
they have not been included. In 2009, the Company made
contributions to its major defined benefit retirement plans and benefit
payments for its other postretirement benefit plans of $122 million ($31
million relating to its U.S. defined benefit plans) and $166 million ($161
million relating to its U.S. other postretirement benefits plan),
respectively. The Company expects to contribute approximately
$135 million ($31 million relating to its U.S. defined benefit plans) and
$148 million ($142 million relating to its U.S. other postretirement
benefits plan), respectively, to its defined benefit plans and other
postretirement benefit plans in 2010.
|
(5)
|
Because
their future cash outflows are uncertain, the other long-term liabilities
presented in Note 9, “Other Long-Term Liabilities,” in the Notes to
Financial Statements are excluded from this table.
|
Off-Balance
Sheet Arrangements
The
Company guarantees debt and other obligations of certain
customers. The debt and other obligations are primarily due to banks
and leasing companies in connection with financing of customers' purchases of
equipment and product from the Company. At December 31, 2009, the
maximum potential amount of future payments (undiscounted) that the Company
could be required to make under these customer-related guarantees was $60
million. At December 31, 2009, the carrying amount of any liability
related to these customer guarantees was not
material.
The
customer financing agreements and related guarantees, which mature between 2010
and 2016, typically have a term of 90 days for product and short-term equipment
financing arrangements, and up to five years for long-term equipment financing
arrangements. These guarantees would require payment from the Company
only in the event of default on payment by the respective debtor. In
some cases, particularly for guarantees related to equipment financing, the
Company has collateral or recourse provisions to recover and sell the equipment
to reduce any losses that might be incurred in connection with the
guarantees. However, any proceeds received from the liquidation of
these assets may not cover the maximum potential loss under these
guarantees.
Eastman
Kodak Company (“EKC”) also guarantees potential indebtedness to banks and other
third parties for some of its consolidated subsidiaries. The maximum
amount guaranteed is $301 million, and the outstanding amount for those
guarantees is $190 million with $141 million recorded within the Short-term
borrowings and current portion of long-term debt, and Long-term debt, net of
current portion components in the accompanying Consolidated Statement of
Financial Position. These guarantees expire in 2010 through
2019. Pursuant to the terms of the Company's Amended Credit
Agreement, obligations of the Borrowers to the Lenders under the Amended Credit
Agreement, as well as secured agreements in an amount not to exceed $100
million, are guaranteed by the Company and the Company’s U.S.
subsidiaries.
During
the fourth quarter of 2007, EKC issued a guarantee to Kodak Limited (the
“Subsidiary”) and the Trustees (the “Trustees”) of the Kodak Pension Plan of the
United Kingdom (the “Plan”). Under this arrangement, EKC guarantees
to the Subsidiary and the Trustees the ability of the Subsidiary, only to the
extent it becomes necessary to do so, to (1) make contributions to the Plan to
ensure sufficient assets exist to make plan benefit payments, and (2) make
contributions to the Plan such that it will achieve full funded status by the
funding valuation for the period ending December 31, 2015. The
guarantee expires upon the conclusion of the funding valuation for the period
ending December 31, 2015 whereby the Plan achieves full funded status or
earlier, in the event that the Plan achieves full funded status for two
consecutive funding valuation cycles which are typically performed at least
every three years. The limit of potential future payments is
dependent on the funding status of the Plan as it fluctuates over the term of
the guarantee. The
Plan’s
local funding valuation was completed in March 2009. EKC and the
Subsidiary are in discussions with the Trustees regarding the amount of future
annual contributions and the date by which the Plan will achieve full funded
status. These negotiations may require changes to the existing
guarantee described above. The funding status of the Plan (calculated
in accordance with U.S. GAAP) is included in Pension and other postretirement
liabilities presented in the Consolidated Statement of Financial
Position.
The
Company issues indemnifications in certain instances when it sells businesses
and real estate, and in the ordinary course of business with its customers,
suppliers, service providers and business partners. Further, the
Company indemnifies its directors and officers who are, or were, serving at the
Company's request in such capacities. Historically, costs incurred to
settle claims related to these indemnifications have not been material to the
Company’s financial position, results of operations or cash
flows. Additionally, the fair value of the indemnifications that the
Company issued during the year ended December 31, 2009 was not material to the
Company’s financial position, results of operations or cash flows.
2008
Cash
Flow Activity
|
|
For
the Year Ended
|
|
|
|
|
(in
millions)
|
|
December
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
cash (used in) provided by continuing operations
|
|
$ |
(128 |
) |
|
$ |
365 |
|
|
$ |
(493 |
) |
Net
cash provided by (used in) discontinued operations
|
|
|
296 |
|
|
|
(37 |
) |
|
|
333 |
|
Net
cash provided by operating activities
|
|
|
168 |
|
|
|
328 |
|
|
|
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continuing operations
|
|
|
(188 |
) |
|
|
(41 |
) |
|
|
(147 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
2,449 |
|
|
|
(2,449 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(188 |
) |
|
|
2,408 |
|
|
|
(2,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continuing operations
|
|
|
(746 |
) |
|
|
(1,338 |
) |
|
|
592 |
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
44 |
|
|
|
(44 |
) |
Net
cash used in financing activities
|
|
|
(746 |
) |
|
|
(1,294 |
) |
|
|
548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(36 |
) |
|
|
36 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
$ |
(802 |
) |
|
$ |
1,478 |
|
|
$ |
(2,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash
used in continuing operations from operating activities increased $493
million. The key factor driving this change was the overall decline
in earnings for 2008 as compared with 2007, notably in the fourth quarter of
2008 as a consequence of the global economic downturn. The Company's
cash from operating activities benefited from lower restructuring payments in
2008 and receipt of a tax refund from the U.S. Internal Revenue Service of $581
million, of which $270 million, which represents interest net of state income
tax, was reflected in loss from continuing operations during the
year. However, the Company also recognized non-cash curtailment gains
during the year, and revenue for which cash was received in prior years or in
2009. In addition, net cash received in 2008 for current and prior
year non-recurring licensing arrangements of $150 million was $156 million lower
than net cash received in 2007 of $306 million. The Company also
utilized $128 million more cash in 2008 as compared with 2007, due to an
increase in inventories during 2008, as compared with a decrease in inventories
in 2007. Furthermore, the Company expended cash in 2008 to reduce
liabilities recorded as of the prior year end, which exceeded cash utilized in
2007 to liquidate liabilities as of year end 2006. The combination of
these and other factors led to the use of cash in continuing operations from
operating activities of $128 million in 2008, as compared with cash provided on
the same
basis of
$365 million in 2007. Net cash provided by (used in) discontinued
operations increased $333 million as compared with the prior year due primarily
to the receipt, in the second quarter of 2008, of the refund of past federal
income taxes referred to above, and more fully described in Note 15, “Income
Taxes,” in the Notes to Financial Statements.
Investing
Activities
Net cash
used in continuing operations from investing activities increased $147 million
for the year ended December 31, 2008 as compared with 2007 due primarily to
lower cash proceeds received from sales of assets and businesses of $92 million
in 2008 as compared with $227 million in 2007. Spending for capital
additions was $254 million in 2008 as compared with $259 million in
2007. The majority of this spending supports new products,
manufacturing capacity, productivity and quality improvements, infrastructure
improvements, equipment placements with customers, and ongoing environmental and
safety initiatives. Net cash provided by discontinued operations for
the year ended December 31, 2007 of $2,449 million represents the proceeds
received from the sale of the Health Group in the second quarter of 2007 and the
sale of the Company’s shares of Hermes Precisa Pty. Limited (“HPA”) in the
fourth quarter of 2007.
Financing
Activities
Net cash
used in financing activities decreased $548 million for the year ended December
31, 2008 as compared with 2007 due to lower repayments of borrowings, mainly due
to the repayment of the Company’s Secured Term Debt in the second quarter of
2007 that was required as a result of the sale of the Health
Group. These reductions in cash usage were partially offset by
repurchases of the Company’s common stock of $301 million in
2008.
OTHER
Refer to
Note 10, "Commitments and Contingencies," in the Notes to Financial Statements
for discussion regarding the Company's undiscounted liabilities for
environmental remediation costs, and other commitments and contingencies,
including legal matters.
CAUTIONARY
STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION
REFORM
ACT OF 1995
Certain
statements in this report may be forward-looking in nature, or "forward-looking
statements" as defined in the United States Private Securities Litigation Reform
Act of 1995. For example, references to the Company's expectations
regarding the following are forward-looking statements: revenue; revenue growth;
cost of goods sold; gross margins; selling, general and administrative expenses;
research and development costs;savings from restructuring and rationalization;
earnings; cash generation; increased demand for our products, including
commercial inkjet, consumer inkjet, workflow software and digital packaging
printing solutions; new product introductions; potential revenue, cash and
earnings from intellectual property licensing; liquidity, and benefit
costs.
Actual
results may differ from those expressed or implied in forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements include, among others, the risks,
uncertainties, assumptions and factors specified in Item 1A. "Risk
Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Cautionary Statement Pursuant to Safe
Harbor Provisions the Private Litigation Reform Act of 1995" and in other
filings the Company makes with the SEC from time to time. The Company cautions
readers to carefully consider such factors. Many of these factors are beyond the
Company’s control. In addition, any forward-looking statements represent the
Company’s estimates only as of the date they are made, and should not be relied
upon as representing the Company’s estimates as of any subsequent date. While
the Company may elect to update forward-looking statements at some point in the
future, the Company specifically disclaims any obligation to do so, even if its
estimates change.
Any
forward-looking statements in this report should be evaluated in light of the
factors and uncertainties referenced above and should not be unduly relied
upon.
SUMMARY
OF OPERATING DATA
A summary of operating data for 2009 and for the four years prior is shown
on page 133.
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company, 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. In seeking to minimize the risks associated with
such activities, the Company may enter into derivative contracts. The
Company does not utilize financial instruments for trading or other speculative
purposes.
Foreign
currency forward contracts are used to hedge existing foreign currency
denominated assets and liabilities, especially those of the Company’s
International Treasury Center, as well as forecasted foreign currency
denominated intercompany sales. Silver forward contracts are used to
mitigate the Company’s risk to fluctuating silver
prices.
The
Company’s exposure to changes in interest rates results from its investing and
borrowing activities used to meet its liquidity needs. Long-term debt
is generally used to finance long-term investments, while short-term debt is
used to meet working capital requirements.
Using a
sensitivity analysis based on estimated fair value of open foreign currency
forward contracts using available forward rates, if the U.S. dollar had been 10%
stronger at December 31, 2009 and 2008, the fair value of open forward contracts
would have decreased $17 million and $10 million, respectively. Such
losses would be substantially offset by gains from the revaluation or settlement
of the underlying positions hedged.
Using a
sensitivity analysis based on estimated fair value of open silver forward
contracts using available forward prices, if available forward silver prices had
been 10% lower at December 31, 2009 and 2008, the fair value of open forward
contracts would have decreased $4 million and $5 million,
respectively. Such losses in fair value, if realized, would be offset
by lower costs of manufacturing silver-containing
products.
The
Company is exposed to interest rate risk primarily through its borrowing
activities and, to a lesser extent, through investments in marketable
securities. The Company may utilize borrowings to fund its working
capital and investment needs. The majority of short-term and
long-term borrowings are in fixed-rate instruments. There is inherent
roll-over risk for borrowings and marketable securities as they mature and are
renewed at current market rates. The extent of this risk is not
predictable because of the variability of future interest rates and business
financing requirements.
Using a
sensitivity analysis based on estimated fair value of short-term and long-term
borrowings, if available market interest rates had been 10% (about 121 basis
points) lower at December 31, 2009, the fair value of short-term and long-term
borrowings would have increased less than $1 million and $59 million,
respectively. Using a sensitivity analysis based on estimated fair
value of short-term and long-term borrowings, if available market interest rates
had been 10% (about 178 basis points) lower at December 31, 2008, the fair value
of short-term and long-term borrowings would have increased $1 million and $40
million, respectively.
The
Company’s financial instrument counterparties are high-quality investment or
commercial banks with significant experience with such
instruments. The Company manages exposure to counterparty credit risk
by requiring specific minimum credit standards and diversification of
counterparties. The Company has procedures to monitor the credit
exposure amounts. The maximum credit exposure at December 31, 2009
was not significant to the Company.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors
and Shareholders of Eastman Kodak Company:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Eastman Kodak Company and its subsidiaries at December 31, 2009 and
2008, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Rochester,
New York
February
22, 2010
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
7,606 |
|
|
$ |
9,416 |
|
|
$ |
10,301 |
|
Cost
of goods sold
|
|
|
5,838 |
|
|
|
7,247 |
|
|
|
7,757 |
|
Gross
profit
|
|
|
1,768 |
|
|
|
2,169 |
|
|
|
2,544 |
|
Selling,
general and administrative expenses
|
|
|
1,302 |
|
|
|
1,606 |
|
|
|
1,802 |
|
Research
and development costs
|
|
|
356 |
|
|
|
478 |
|
|
|
525 |
|
Restructuring
costs, rationalization and
other
|
|
|
226 |
|
|
|
140 |
|
|
|
543 |
|
Other
operating (income) expenses , net
|
|
|
(88 |
) |
|
|
766 |
|
|
|
(96 |
) |
Loss
from continuing operations before interest expense, other
income (charges), net and income taxes
|
|
|
(28 |
) |
|
|
(821 |
) |
|
|
(230 |
) |
Interest
expense
|
|
|
119 |
|
|
|
108 |
|
|
|
113 |
|
Other
income (charges), net
|
|
|
30 |
|
|
|
55 |
|
|
|
86 |
|
Loss
from continuing operations before income taxes
|
|
|
(117 |
) |
|
|
(874 |
) |
|
|
(257 |
) |
Provision
(benefit) for income
taxes
|
|
|
115 |
|
|
|
(147 |
) |
|
|
(51 |
) |
Loss
from continuing
operations
|
|
|
(232 |
) |
|
|
(727 |
) |
|
|
(206 |
) |
Earnings
from discontinued operations, net of income taxes
|
|
|
17 |
|
|
|
285 |
|
|
|
884 |
|
Extraordinary
item, net of tax
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
NET
(LOSS) EARNINGS
|
|
|
(209 |
) |
|
|
(442 |
) |
|
|
678 |
|
Less:
Net earnings attributable to noncontrolling interests
|
|
|
(1 |
) |
|
|
- |
|
|
|
(2 |
) |
NET
(LOSS) EARNINGS ATTRIBUTABLE TO EASTMAN KODAK
COMPANY
|
|
$ |
(210 |
) |
|
$ |
(442 |
) |
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net (loss) earnings per share attributable to Eastman Kodak
Company common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.87 |
) |
|
$ |
(2.58 |
) |
|
$ |
(0.71 |
) |
Discontinued
operations
|
|
|
0.07 |
|
|
|
1.01 |
|
|
|
3.06 |
|
Extraordinary
item
|
|
|
0.02 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
(0.78 |
) |
|
$ |
(1.57 |
) |
|
$ |
2.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Eastman Kodak Company common shareholders (basic and
diluted earnings per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(233 |
) |
|
$ |
(727 |
) |
|
$ |
(205 |
) |
Discontinued
operations
|
|
|
17 |
|
|
|
285 |
|
|
|
881 |
|
Extraordinary
item
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
(210 |
) |
|
$ |
(442 |
) |
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$ |
- |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
(in
millions, except share and per share data)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
2,024 |
|
|
$ |
2,145 |
|
Receivables,
net
|
|
|
1,395 |
|
|
|
1,716 |
|
Inventories,
net
|
|
|
679 |
|
|
|
948 |
|
Other
current
assets
|
|
|
205 |
|
|
|
195 |
|
Total
current
assets
|
|
|
4,303 |
|
|
|
5,004 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment,
net
|
|
|
1,254 |
|
|
|
1,551 |
|
Goodwill
|
|
|
907 |
|
|
|
896 |
|
Other
long-term
assets
|
|
|
1,227 |
|
|
|
1,728 |
|
TOTAL
ASSETS
|
|
$ |
7,691 |
|
|
$ |
9,179 |
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable and other current
liabilities
|
|
$ |
2,811 |
|
|
$ |
3,267 |
|
Short-term
borrowings and current portion of long-term
debt
|
|
|
62 |
|
|
|
51 |
|
Accrued
income and other
taxes
|
|
|
23 |
|
|
|
120 |
|
Total
current
liabilities
|
|
|
2,896 |
|
|
|
3,438 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current
portion
|
|
|
1,129 |
|
|
|
1,252 |
|
Pension
and other postretirement
liabilities
|
|
|
2,694 |
|
|
|
2,382 |
|
Other
long-term
liabilities
|
|
|
1,005 |
|
|
|
1,119 |
|
Total
liabilities
|
|
|
7,724 |
|
|
|
8,191 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $2.50 par value, 950,000,000 shares
authorized; 391,292,760 shares issued as of December 31, 2009
and 2008; 268,630,514 and 268,169,055 shares
outstanding as of December 31, 2009 and
2008
|
|
|
978 |
|
|
|
978 |
|
Additional
paid in
capital
|
|
|
1,093 |
|
|
|
901 |
|
Retained
earnings
|
|
|
5,676 |
|
|
|
5,903 |
|
Accumulated
other comprehensive
loss
|
|
|
(1,760 |
) |
|
|
(749 |
) |
|
|
|
5,987 |
|
|
|
7,033 |
|
Treasury
stock, at cost;
122,662,246
shares as of December 31, 2009 and 123,123,705 shares as of December 31,
2008
|
|
|
(6,022 |
) |
|
|
(6,048 |
) |
Total
Eastman Kodak Company shareholders’ (deficit)
equity
|
|
|
(35 |
) |
|
|
985 |
|
Noncontrolling
interests
|
|
|
2 |
|
|
|
3 |
|
Total
(deficit) equity
|
|
|
(33 |
) |
|
|
988 |
|
TOTAL
LIABILITIES AND (DEFICIT) EQUITY
|
|
$ |
7,691 |
|
|
$ |
9,179 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF EQUITY
(in
millions, except share and per share data)
|
|
Eastman
Kodak Company Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid
In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Stock
(1)
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
|
Total
|
|
Equity
as of December 31,
2006
|
|
$ |
978 |
|
|
$ |
881 |
|
|
$ |
5,991 |
|
|
$ |
(634 |
) |
|
$ |
(5,803 |
) |
|
$ |
1,413 |
|
|
$ |
20 |
|
|
$ |
1,433 |
|
Net
earnings
|
|
|
- |
|
|
|
- |
|
|
|
676 |
|
|
|
- |
|
|
|
- |
|
|
|
676 |
|
|
|
2 |
|
|
|
678 |
|
Equity
transactions with noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(18 |
) |
|
|
(18 |
) |
Currency
revaluation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Unrealized
gains on
available-for-sale
securities ($16 million
pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Unrealized
gains arising
from hedging activity ($11
million pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
Reclassification
adjustment for hedging
related
gains included
in
net earnings ($1
million
pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
Currency
translation
adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114 |
|
|
|
- |
|
|
|
114 |
|
|
|
- |
|
|
|
114 |
|
Pension
and other
postretirement liability
adjustments ($986
million
pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
953 |
|
|
|
- |
|
|
|
953 |
|
|
|
- |
|
|
|
953 |
|
Other
comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,087 |
|
|
|
- |
|
|
|
1,087 |
|
|
|
- |
|
|
|
1,087 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,765 |
|
Cash
dividends declared ($.50 per common share)
|
|
|
- |
|
|
|
- |
|
|
|
(144 |
) |
|
|
- |
|
|
|
- |
|
|
|
(144 |
) |
|
|
- |
|
|
|
(144 |
) |
Recognition
of equity-based compensation expense
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
20 |
|
Treasury
stock issued, net (413,923 shares) (2)
|
|
|
- |
|
|
|
(6 |
) |
|
|
(18 |
) |
|
|
- |
|
|
|
25 |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Unvested
stock issuances (252,784 shares)
|
|
|
- |
|
|
|
(6 |
) |
|
|
(7 |
) |
|
|
- |
|
|
|
14 |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
as of December 31, 2007
|
|
$ |
978 |
|
|
$ |
889 |
|
|
$ |
6,498 |
|
|
$ |
453 |
|
|
$ |
(5,764 |
) |
|
$ |
3,054 |
|
|
$ |
6 |
|
|
$ |
3,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF EQUITY Cont’d.
(in
millions, except share and per share data)
|
|
Eastman
Kodak Company Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid
In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Stock
(1)
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
|
Total
|
|
Equity
as of December 31, 2007
|
|
$ |
978 |
|
|
$ |
889 |
|
|
$ |
6,498 |
|
|
$ |
453 |
|
|
$ |
(5,764 |
) |
|
$ |
3,054 |
|
|
$ |
6 |
|
|
$ |
3,060 |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
(442 |
) |
|
|
- |
|
|
|
- |
|
|
|
(442 |
) |
|
|
- |
|
|
|
(442 |
) |
Equity
transactions with noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
(4 |
) |
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains arising
from hedging activity ($8
million pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Reclassification
adjustment for hedging
related gains included
in
net earnings ($8
million
pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Currency
translation
adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(81 |
) |
|
|
- |
|
|
|
(81 |
) |
|
|
1 |
|
|
|
(80 |
) |
Pension
and other
postretirement liability
adjustments
($1,147
million pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,105 |
) |
|
|
- |
|
|
|
(1,105 |
) |
|
|
- |
|
|
|
(1,105 |
) |
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,202 |
) |
|
|
- |
|
|
|
(1,202 |
) |
|
|
1 |
|
|
|
(1,201 |
) |
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,643 |
) |
Cash
dividends declared ($.50 per common share)
|
|
|
- |
|
|
|
- |
|
|
|
(139 |
) |
|
|
- |
|
|
|
- |
|
|
|
(139 |
) |
|
|
- |
|
|
|
(139 |
) |
Recognition
of equity-based compensation expense
|
|
|
- |
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18 |
|
|
|
- |
|
|
|
18 |
|
Share
repurchases (20,046,396 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301 |
) |
|
|
(301 |
) |
|
|
- |
|
|
|
(301 |
) |
Treasury
stock issued, net (159,021 shares) (2)
|
|
|
- |
|
|
|
(5 |
) |
|
|
(12 |
) |
|
|
- |
|
|
|
14 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Unvested
stock issuances (56,600 shares)
|
|
|
- |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Equity
as of December 31, 2008
|
|
$ |
978 |
|
|
$ |
901 |
|
|
$ |
5,903 |
|
|
$ |
(749 |
) |
|
$ |
(6,048 |
) |
|
$ |
985 |
|
|
$ |
3 |
|
|
$ |
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF EQUITY Cont'd.
(in
millions, except share and per share data)
|
|
Eastman
Kodak Company Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid
In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Stock
(1)
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
|
Total
|
|
Equity
as of December 31, 2008
|
|
$ |
978 |
|
|
$ |
901 |
|
|
$ |
5,903 |
|
|
$ |
(749 |
) |
|
$ |
(6,048 |
) |
|
$ |
985 |
|
|
$ |
3 |
|
|
$ |
988 |
|
Net
(loss) earnings
|
|
|
- |
|
|
|
- |
|
|
|
(210 |
) |
|
|
- |
|
|
|
- |
|
|
|
(210 |
) |
|
|
1 |
|
|
|
(209 |
) |
Equity
transactions with noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
(2 |
) |
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains arising
from hedging activity ($17
million pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
Reclassification
adjustment for hedging
related gains included
in
net earnings ($5
million
pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
(5 |
) |
Currency
translation
adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Pension
and other
postretirement liability
adjustments
($1,111
million pre-tax)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,027 |
) |
|
|
- |
|
|
|
(1,027 |
) |
|
|
- |
|
|
|
(1,027 |
) |
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,011 |
) |
|
|
- |
|
|
|
(1,011 |
) |
|
|
- |
|
|
|
(1,011 |
) |
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,222 |
) |
Recognition
of equity-based compensation expense
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
20 |
|
Equity
component of debt issuances
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
|
|
181 |
|
Treasury
stock issued, net (328,099 shares) (2)
|
|
|
- |
|
|
|
(8 |
) |
|
|
(10 |
) |
|
|
- |
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unvested
stock issuances (133,360 shares)
|
|
|
- |
|
|
|
(1 |
) |
|
|
(7 |
) |
|
|
- |
|
|
|
8 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
Deficit
as of December 31, 2009
|
|
$ |
978 |
|
|
$ |
1,093 |
|
|
$ |
5,676 |
|
|
$ |
(1,760 |
) |
|
$ |
(6,022 |
) |
|
$ |
(35 |
) |
|
$ |
2 |
|
|
$ |
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) There
are 100 million shares of $10 par value preferred stock authorized, none of
which have been
issued.
(2)
|
Includes
stock options exercised in 2007, and other stock awards issued, offset by
shares surrendered for taxes.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in
millions)
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$ |
(209 |
) |
|
$ |
(442 |
) |
|
$ |
678 |
|
Adjustments
to reconcile to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations, net of income taxes
|
|
|
(17 |
) |
|
|
(285 |
) |
|
|
(884 |
) |
Earnings
from extraordinary items, net of income taxes
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
427 |
|
|
|
500 |
|
|
|
785 |
|
Gain
on sales of businesses/assets
|
|
|
(100 |
) |
|
|
(14 |
) |
|
|
(157 |
) |
Non-cash
restructuring and rationalization costs, asset impairments
and other
charges
|
|
|
28 |
|
|
|
801 |
|
|
|
336 |
|
(Benefit)
provision for deferred income taxes
|
|
|
(99 |
) |
|
|
16 |
|
|
|
54 |
|
Decrease
in receivables
|
|
|
363 |
|
|
|
148 |
|
|
|
161 |
|
Decrease
(increase) in inventories
|
|
|
276 |
|
|
|
(20 |
) |
|
|
108 |
|
Decrease
in liabilities excluding borrowings
|
|
|
(821 |
) |
|
|
(720 |
) |
|
|
(624 |
) |
Other
items, net
|
|
|
22 |
|
|
|
(112 |
) |
|
|
(92 |
) |
Total
adjustments
|
|
|
73 |
|
|
|
314 |
|
|
|
(313 |
) |
Net
cash (used in) provided by continuing operations
|
|
|
(136 |
) |
|
|
(128 |
) |
|
|
365 |
|
Net
cash provided by (used in) discontinued
operations
|
|
|
- |
|
|
|
296 |
|
|
|
(37 |
) |
Net
cash (used in) provided by operating activities
|
|
|
(136 |
) |
|
|
168 |
|
|
|
328 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
(152 |
) |
|
|
(254 |
) |
|
|
(259 |
) |
Proceeds
from sales of businesses/assets
|
|
|
156 |
|
|
|
92 |
|
|
|
227 |
|
Acquisitions,
net of cash acquired
|
|
|
(17 |
) |
|
|
(38 |
) |
|
|
(2 |
) |
Funding
of restricted cash account
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
Marketable
securities - sales
|
|
|
39 |
|
|
|
162 |
|
|
|
166 |
|
Marketable
securities - purchases
|
|
|
(36 |
) |
|
|
(150 |
) |
|
|
(173 |
) |
Net
cash used in continuing operations
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
(41 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
2,449 |
|
Net
cash (used in) provided by investing activities
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
2,408 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
repurchases
|
|
|
- |
|
|
|
(301 |
) |
|
|
- |
|
Proceeds
from borrowings
|
|
|
712 |
|
|
|
140 |
|
|
|
163 |
|
Debt
issuance costs
|
|
|
(30 |
) |
|
|
- |
|
|
|
- |
|
Repayment
of borrowings
|
|
|
(649 |
) |
|
|
(446 |
) |
|
|
(1,363 |
) |
Dividends
to shareholders
|
|
|
- |
|
|
|
(139 |
) |
|
|
(144 |
) |
Exercise
of employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
Net
cash provided by (used in) continuing operations
|
|
|
33 |
|
|
|
(746 |
) |
|
|
(1,338 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
Net
cash provided by (used in) financing activities
|
|
|
33 |
|
|
|
(746 |
) |
|
|
(1,294 |
) |
Effect
of exchange rate changes on cash
|
|
|
4 |
|
|
|
(36 |
) |
|
|
36 |
|
Net
(decrease) increase in cash and cash
equivalents
|
|
|
(121 |
) |
|
|
(802 |
) |
|
|
1,478 |
|
Cash
and cash equivalents, beginning of year
|
|
|
2,145 |
|
|
|
2,947 |
|
|
|
1,469 |
|
Cash
and cash equivalents, end of year
|
|
$ |
2,024 |
|
|
$ |
2,145 |
|
|
$ |
2,947 |
|
Eastman
Kodak Company
CONSOLIDATED
STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL
CASH FLOW INFORMATION
(in
millions)
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
paid for interest and income taxes was:
|
|
|
|
|
|
|
|
|
|
Interest,
net of portion capitalized of $2, $3 and $2 (1)
|
|
$ |
70 |
|
|
$ |
85 |
|
|
$ |
138 |
|
Income
taxes (1)
|
|
|
225 |
|
|
|
145 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following non-cash items are not reflected in the
Consolidated Statement
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and other postretirement benefits liability adjustments
|
|
$ |
1,027 |
|
|
$ |
1,105 |
|
|
$ |
953 |
|
Liabilities
assumed in acquisitions
|
|
|
4 |
|
|
|
2 |
|
|
|
- |
|
Issuance
of unvested stock, net of forfeitures
|
|
|
- |
|
|
|
1 |
|
|
|
6 |
|
(1) Includes
payments included in expense of discontinued operations.
The
accompanying notes are an integral part of these consolidated financial
statements.
Eastman
Kodak Company
NOTES
TO FINANCIAL STATEMENTS
NOTE
1: SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING
PRINCIPLES
The
consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America. The following is a description of the significant accounting
policies of Eastman Kodak Company.
BASIS
OF CONSOLIDATION
The
consolidated financial statements include the accounts of Eastman Kodak Company,
its wholly owned subsidiaries, and its majority owned subsidiaries (collectively
“the Company”). The Company consolidates variable interest entities
if the Company has a controlling financial interest and is determined to be the
primary beneficiary of the entity. The Company accounts for
investments in companies over which it has the ability to exercise significant
influence, but does not hold a controlling interest, under the equity method of
accounting, and the Company records its proportionate share of income or losses
in Other income (charges), net in the accompanying Consolidated Statements of
Operations. The Company accounts for investments in companies over
which it does not have the ability to exercise significant influence under the
cost method of accounting. These investments are carried at cost and
are adjusted only for other-than-temporary declines in fair
value. The Company has eliminated all significant intercompany
accounts and transactions, and net earnings are reduced by the portion of the
net earnings of subsidiaries applicable to minority
interests.
The
Company has evaluated subsequent events for recognition and disclosure in the
financial statements through the date of issuance, February 22, 2010.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at year end, and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
CHANGE
IN ESTIMATE
In the
first quarter of 2008, the Company performed an updated analysis of expected
industry-wide declines in the traditional film and paper businesses and its
useful lives on related assets. Based on additional experience in the
secular decline in these product groups, the Company assessed that overall film
demand had declined but at a slower rate than anticipated in 2005, notably in
the motion picture films category, which accounts for a substantial portion of
the manufacturing asset utilization in the film business. In
addition, the demand declines in the Company’s paper business have not been as
extensive as assumed in 2005. As a result, the Company revised the
useful lives of certain existing production machinery and equipment, and
manufacturing-related buildings effective January 1, 2008. These
assets, which were previously set to fully depreciate by mid-2010, are now being
depreciated with estimated useful lives ending from 2011 to 2015. The
change in useful lives reflects the Company’s estimate of future periods to be
benefited from the use of the property, plant, and equipment. As a
result of these changes, for full year 2008 the Company reduced depreciation
expense by approximately $107 million, of which approximately $95 million
benefited loss from continuing operations before income taxes. The
net impact of the change in estimate to loss from continuing operations for the
year ended December 31, 2008 was a decreased loss of $93 million, or $.33 on a
fully-diluted loss per share basis.
FOREIGN
CURRENCY
For most
subsidiaries and branches outside the U.S., the local currency is the functional
currency. The financial statements of these subsidiaries and branches
are translated into U.S. dollars as follows: assets and liabilities at year-end
exchange rates; income, expenses and cash flows at average exchange rates; and
shareholders’ equity at historical exchange rates. For those
subsidiaries for which the local currency is the functional currency, the
resulting translation adjustment is recorded as a component of Accumulated other
comprehensive
(loss) income in the accompanying Consolidated Statement of Financial
Position. Translation adjustments related to investments that are
permanent in nature are not tax-effected.
For
certain other subsidiaries and branches, operations are conducted primarily in
U.S. dollars, which is therefore the functional currency. Monetary
assets and liabilities of these foreign subsidiaries and branches, which are
recorded in local currency, are remeasured at year-end exchange rates, while the
related revenue, expense, and gain and loss accounts, which are recorded in
local currency, are remeasured at average exchange
rates. Non-monetary assets and liabilities, and the related revenue,
expense, and gain and loss accounts, are remeasured at historical
rates. Adjustments that result from the remeasurement of the assets
and liabilities of these subsidiaries are included in Net (loss) earnings in the
accompanying Consolidated Statement of Operations.
The
effects of foreign currency transactions, including related hedging activities,
are included in Other income (charges), net, in the accompanying Consolidated
Statement of Operations.
CONCENTRATION
OF CREDIT RISK
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents, receivables,
and derivative instruments. The Company places its cash and cash
equivalents with high-quality financial institutions and limits the amount of
credit exposure to any one institution. With respect to receivables,
such receivables arise from sales to numerous customers in a variety of
industries, markets, and geographies around the world. Receivables
arising from these sales are generally not collateralized. The
Company performs ongoing credit evaluations of its customers’ financial
conditions and no single customer accounts for greater than 10% of the sales of
the Company. The Company maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management’s
expectations. With respect to the derivative instruments, the
counterparties to these contracts are major financial
institutions. The Company has not experienced non-performance by any
of its derivative instruments counterparties.
DERIVATIVE
FINANCIAL INSTRUMENTS
All
derivative instruments are recognized as either assets or liabilities and are
measured at fair value. Certain derivatives are designated and
accounted for as hedges. The Company does not use derivatives for
trading or other speculative purposes. See Note 12, “Financial
Instruments,” in the Notes to Financial
Statements.
CASH
EQUIVALENTS
All
highly liquid investments with a remaining maturity of three months or less at
date of purchase are considered to be cash equivalents.
INVENTORIES
Inventories
are stated at the lower of cost or market. The cost of all of the
Company’s inventories is determined by either the “first in, first out” (“FIFO”)
or average cost method, which approximates current cost. The Company
provides inventory reserves for excess, obsolete or slow-moving inventory based
on changes in customer demand, technology developments or other economic
factors.
PROPERTIES
Properties
are recorded at cost, net of accumulated depreciation. The Company
capitalizes additions and improvements. Maintenance and repairs are
charged to expense as incurred. The Company calculates depreciation
expense using the straight-line method over the assets’ estimated useful lives,
which are as follows:
|
Years
|
Buildings
and building improvements
|
5-40
|
Land
improvements
|
20
|
Leasehold
improvements
|
3-20
|
Equipment
|
3-15
|
Tooling
|
1-3
|
Furniture
and fixtures
|
5-10
|
The
Company depreciates leasehold improvements over the shorter of the lease term or
the asset’s estimated useful life. Upon sale or other disposition,
the applicable amounts of asset cost and accumulated depreciation are removed
from the accounts and the net amount, less proceeds from disposal, is charged or
credited to net (loss) earnings.
GOODWILL
Goodwill
represents the excess of purchase price of an acquisition over the fair value of
net assets acquired. Goodwill is not amortized, but is required to be
assessed for impairment at least annually. The Company has elected to
make September 30 the annual impairment assessment date for all of its reporting
units, and will perform additional impairment tests when events or changes in
circumstances occur that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. A reporting unit is defined
as an operating segment or one level below an operating segment. The
Company estimates the fair value of its reporting units utilizing income and
market approaches through the application of discounted cash flow and market
comparable methods, respectively. The assessment is required to be
performed in two steps, step one to test for a potential impairment of goodwill
and, if potential losses are identified, step two to measure the impairment
loss. Determining the fair value of a reporting unit involves the use
of significant estimates and assumptions.
The
Company recorded a pre-tax goodwill impairment charge of $785 million in the
fourth quarter of 2008. See Note 5, “Goodwill and Other Intangible
Assets,” in the Notes to the Financial Statements.
REVENUE
The
Company’s revenue transactions include sales of the
following: products; equipment; software; services; equipment bundled
with products and/or services and/or software; integrated solutions; and
intellectual property licensing. The Company recognizes revenue when
realized or realizable and earned, which is when the following criteria are
met: persuasive evidence of an arrangement exists; delivery has
occurred; the sales price is fixed or determinable; and collectibility is
reasonably assured. At the time revenue is recognized, the Company
provides for the estimated costs of customer incentive programs, warranties and
estimated returns and reduces revenue accordingly.
For
product sales, the recognition criteria are generally met when title and risk of
loss have transferred from the Company to the buyer, which may be upon shipment
or upon delivery to the customer site, based on contract terms or legal
requirements in certain jurisdictions. Service revenues are
recognized as such services are rendered.
For
equipment sales, the recognition criteria are generally met when the equipment
is delivered and installed at the customer site. Revenue is
recognized for equipment upon delivery as opposed to upon installation when
there is objective and reliable evidence of fair value for the installation, and
the amount of revenue allocable to the equipment is not legally contingent upon
the completion of the installation. In instances in which the
agreement with the customer contains a customer acceptance clause, revenue is
deferred until customer acceptance is obtained, provided the customer acceptance
clause is considered to be substantive. For certain agreements, the
Company does not consider these customer acceptance clauses to be substantive
because the Company can and does replicate the customer acceptance test
environment and performs the agreed upon product testing prior to
shipment. In these instances, revenue is recognized upon installation
of the equipment.
Revenue
for the sale of software licenses is recognized when: (1) the Company enters
into a legally binding arrangement with a customer for the license of software;
(2) the Company delivers the software; (3) customer payment is deemed fixed or
determinable and free of contingencies or significant uncertainties; and (4)
collection from the customer is reasonably assured. If the Company
determines that collection of a fee is not reasonably assured, the fee is
deferred and revenue is recognized at the time collection becomes reasonably
assured, which is generally upon receipt of payment. Software
maintenance and support revenue is recognized ratably over the term of the
related maintenance period.
The
Company's transactions may involve the sale of equipment, software, and related
services under multiple element arrangements. The Company allocates
revenue to the various elements based on their fair value. Revenue
allocated to an individual element is recognized when all other revenue
recognition criteria are met for that element.
The
timing and the amount of revenue recognized from the licensing of intellectual
property depend upon a variety of factors, including the specific terms of each
agreement and the nature of the deliverables and obligations. When
the Company has continuing obligations related to a licensing arrangement,
revenue related to the ongoing arrangement is recognized over the period of the
obligation. Revenue
is only recognized after all of the following criteria are met: (1) the Company
enters into a legally binding arrangement with a licensee of Kodak’s
intellectual property, (2) the Company delivers the technology or intellectual
property rights, (3) licensee payment is deemed fixed or determinable and free
of contingencies or significant uncertainties, and (4) collection from the
licensee is reasonably assured.
At the
time revenue is recognized, the Company also records reductions to revenue for
customer incentive programs. Such incentive programs include cash and
volume discounts, price protection, promotional, cooperative and other
advertising allowances, and coupons. For those incentives that
require the estimation of sales volumes or redemption rates, such as for volume
rebates or coupons, the Company uses historical experience and internal and
customer data to estimate the sales incentive at the time revenue is
recognized.
In
instances where the Company provides slotting fees or similar arrangements, this
incentive is recognized as a reduction in revenue when payment is made to the
customer (or at the time the Company has incurred the obligation, if earlier)
unless the Company receives a benefit over a period of time, in which case the
incentive is recorded as an asset and is amortized as a reduction of revenue
over the term of the arrangement. Arrangements in which the Company
receives an identifiable benefit include arrangements that have enforceable
exclusivity provisions and those that provide a clawback provision entitling the
Company to a pro rata reimbursement if the customer does not fulfill its
obligations under the contract.
The
Company may offer customer financing to assist customers in their acquisition of
Kodak’s products. At the time a financing transaction is consummated,
which qualifies as a sales-type lease, the Company records equipment revenue
equal to the total lease receivable net of unearned income. Unearned
income is recognized as finance income using the effective interest method over
the term of the lease. Leases not qualifying as sales-type leases are
accounted for as operating leases. The Company recognizes revenue
from operating leases on an accrual basis as the rental payments become
due.
The
Company’s sales of tangible products are the only class of revenues that exceeds
10% of total consolidated net sales. All other sales classes are
individually less than 10%, and therefore, have been combined with the sales of
tangible products on the same line in accordance with Regulation
S-X.
Incremental
direct costs (i.e. costs that vary with and are directly related to the
acquisition of a contract which would not have been incurred but for the
acquisition of the contract) of a customer contract in a transaction that
results in the deferral of revenue are deferred and netted against revenue in
proportion to the related revenue recognized in each period if: (1) an
enforceable contract for the remaining deliverable items exists; and (2)
delivery of the remaining items in the arrangement is expected to generate
positive margins allowing realization of the deferred
costs. Otherwise, these costs are expensed as incurred and included
in cost of goods sold in the accompanying Consolidated Statement of Operations.
RESEARCH
AND DEVELOPMENT COSTS
Research
and development (“R&D”) costs, which include costs in connection with new
product development, fundamental and exploratory research, process improvement,
product use technology and product accreditation, are expensed in the period in
which they are incurred. In connection with business combinations
entered into prior to January 1, 2009, the purchase price allocated to research
and development projects that had not yet reached technological feasibility and
for which no alternative future use existed was expensed in the period of
acquisition. Effective January 1, 2009, the acquisition-date fair
value of research and development assets acquired in a business combination are
capitalized.
ADVERTISING
Advertising
costs are expensed as incurred and included in selling, general and
administrative expenses in the accompanying Consolidated Statement of
Operations. Advertising expenses amounted to $271 million, $350
million, and $394 million for the years ended December 31, 2009, 2008, and 2007,
respectively.
SHIPPING
AND HANDLING COSTS
Amounts
charged to customers and costs incurred by the Company related to shipping and
handling are included in net sales and cost of goods sold,
respectively.
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company reviews the carrying values of its long-lived assets, other than
goodwill and purchased intangible assets with indefinite useful lives, for
impairment whenever events or changes in circumstances indicate that the
carrying values may not be recoverable. The Company assesses the
recoverability of the carrying values of long-lived assets by first grouping its
long-lived assets with other assets and liabilities at the lowest level for
which identifiable cash flows are largely independent of the cash flows of other
assets and liabilities (the asset group) and, secondly, by estimating the
undiscounted future cash flows that are directly associated with and that are
expected to arise from the use of and eventual disposition of such asset
group. The Company estimates the undiscounted cash flows over the
remaining useful life of the primary asset within the asset group. If
the carrying value of the asset group exceeds the estimated undiscounted cash
flows, the Company records an impairment charge to the extent the carrying value
of the long-lived asset exceeds its fair value. The Company
determines fair value through quoted market prices in active markets or, if
quoted market prices are unavailable, through the performance of internal
analyses of discounted cash flows.
In
connection with its assessment of recoverability of its long-lived assets and
its ongoing strategic review of the business and its operations, the Company
continually reviews the remaining useful lives of its long-lived
assets. If this review indicates that the remaining useful life of
the long-lived asset has changed significantly, the Company adjusts the
depreciation on that asset to facilitate full cost recovery over its revised
estimated remaining useful life.
INCOME
TAXES
The
Company recognizes deferred tax liabilities and assets for the expected future
tax consequences of operating losses, credit carryforwards and temporary
differences between the carrying amounts and tax basis of the Company’s assets
and liabilities. Management provides valuation allowances against the
net deferred tax asset for amounts that are not considered more likely than not
to be realized. For discussion of the amounts and components of the
valuation allowances as of December 31, 2009 and 2008, see Note 15, “Income
Taxes,” in the Notes to Financial Statements.
EARNINGS
PER SHARE
Basic
earnings per share computations are based on the weighted-average number of
shares of common stock outstanding during the year. As a result of
the net loss from continuing operations presented for the years ended December
31, 2009, 2008, and 2007, the Company calculated diluted earnings per share
using weighted-average basic shares outstanding for each period, as utilizing
diluted shares would be anti-dilutive to loss per
share. Weighted-average basic shares outstanding for the years ended
December 31, 2009, 2008, and 2007 were 268.0 million, 281.8 million, and 287.7
million shares,
respectively.
If the
Company had reported earnings from continuing operations for the years ended
December 31, 2009, 2008, and 2007, the following potential shares of the
Company’s common stock would have been dilutive in the computation of diluted
earnings per share:
(in
millions of shares)
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
share-based awards
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.4 |
|
The
computation of diluted earnings per share for the years ended December 31, 2009,
2008, and 2007 also excluded the assumed conversion of outstanding employee
stock options and detachable warrants to purchase common shares, because the
exercise prices of these securities were greater than the average market price
of the Company’s common shares for each period presented, therefore, the effects
would be anti-dilutive. The following table sets forth the total
amount of outstanding employee stock options and detachable warrants to purchase
common shares as of December 31 for each reporting period:
(in
millions of shares)
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
23.5 |
|
|
|
25.2 |
|
|
|
30.9 |
|
Detachable
warrants to purchase common shares
|
|
|
40.0 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
63.5 |
|
|
|
25.2 |
|
|
|
30.9 |
|
Diluted
earnings per share calculations could also reflect shares related to the assumed
conversion of approximately $12 million in outstanding convertible senior notes
due 2033, and approximately $295 million convertible senior notes due 2017, if
dilutive. The Company’s diluted (loss) earnings per share exclude the
effect of these convertible securities, as they were anti-dilutive for all
periods presented. Refer to Note 8, “Short-Term Borrowings and
Long-Term Debt,” in the Notes to Financial Statements.
RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
In June
2009, the FASB issued authoritative guidance establishing two levels of U.S.
generally accepted accounting principles (GAAP) – authoritative and
nonauthoritative – and making the Accounting Standards Codification the source
of authoritative, nongovernmental GAAP, except for rules and interpretive
releases of the Securities and Exchange Commission. This guidance,
which was incorporated into ASC Topic 105, “Generally Accepted Accounting
Principles,” was effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The adoption changed
certain disclosure references to U.S. GAAP, but did not have any other impact on
the Company’s Consolidated Financial Statements.
In May
2009, the FASB issued authoritative guidance establishing general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued. This guidance, which was
incorporated into ASC Topic 855, “Subsequent Events,” was effective for interim
or annual financial periods ending after June 15, 2009, and the adoption did not
have any impact on the Company’s Consolidated Financial Statements.
In
December 2008, the FASB issued authoritative guidance requiring more detailed
disclosures about employers’ postretirement benefit plan assets. New
disclosures include information regarding investment strategies, major
categories of plan assets, concentrations of risk within plan assets and
valuation techniques used to measure the fair value of plan
assets. This guidance, which was incorporated into ASC Topic 715,
“Compensation – Retirement Benefits,” was effective for fiscal years ending
after December 15, 2009. The adoption of this guidance did not have
any impact on the Company’s Consolidated Financial Statements. See
Note 17, “Retirement Plans,” in the Notes to Financial Statements for the
required additional disclosures.
In March
2008, the FASB issued authoritative guidance amending and expanding the
disclosure requirements for derivative instruments and hedging activities, with
the intent to provide users of financial statements with an enhanced
understanding of how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how
derivative instruments and related hedged items affect an entity’s financial
statements. This guidance, which was incorporated into ASC Topic 815,
“Derivatives and Hedging,” was adopted by the Company as of January 1,
2009. See Note 12, “Financial Instruments,” in the Notes to Financial
Statements for the required disclosures.
In
December 2007, the FASB issued authoritative guidance establishing accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent. Specifically, this guidance requires the
presentation of noncontrolling interests as equity in the Consolidated Statement
of Financial Position, and separate identification and presentation in the
Consolidated Statement of Operations of net income attributable to the entity
and the noncontrolling interest. This guidance, which was
incorporated into ASC Topic 810, “Consolidation,” was adopted by the Company as
of January 1, 2009, and, as required, was applied retrospectively to the
prior
period’s financial statements. This guidance also established
accounting and reporting standards regarding deconsolidation and changes in a
parent’s ownership interest, which will be applied prospectively to any such
transactions in 2009 onward. The adoption did not have a material impact on the
Company’s Consolidated Financial Statements.
In
December 2007, the FASB issued revised authoritative guidance related to
business combinations, which provides for recognition and measurement of
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree at fair value. The guidance
also established disclosure requirements to enable the evaluation of the nature
and financial effects of a business combination. This guidance, which
was incorporated into ASC Topic 805, “Business Combinations,” was adopted by the
Company as of January 1, 2009, and the adoption did not have a material impact
on the Company’s Consolidated Financial Statements.
In
September 2006, the FASB issued authoritative guidance establishing a
comprehensive framework for measuring fair value and expanding disclosures about
fair value measurements. Specifically, this guidance sets forth a
definition of fair value, and establishes a hierarchy prioritizing the inputs to
valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to
unobservable inputs. The levels within the hierarchy are defined as
follows:
·
|
Level
1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that the reporting entity has the ability to access
at the measurement date.
|
·
|
Level
2 inputs are inputs, other than quoted prices included within Level 1,
which are observable for the asset or liability, either directly or
indirectly.
|
·
|
Level
3 inputs are unobservable inputs.
|
This
guidance, which was incorporated into ASC Topic 820, “Fair Value Measurements
and Disclosures,” was adopted by the Company for financial assets and
liabilities as of January 1, 2008, and for nonfinancial assets and liabilities
(that are not recognized or disclosed at fair value in the financial statements
on a recurring basis) as of January 1, 2009. There was no significant
impact on the Company’s Consolidated Financial Statements as a result of these
adoptions. For details on the levels at which the Company’s financial
assets and liabilities are classified within the fair value hierarchy, see Note
12, “Financial Instruments,” in the Notes to Financial Statements.
The FASB
has subsequently issued additional clarifying guidance related to fair value,
including:
·
|
In
October 2008, the FASB issued additional clarifying guidance related to
determination of the fair value of a financial asset in a market that is
not active. This guidance was effective as of December
31, 2008 for the Company.
|
·
|
In
September 2009, the FASB issued ASU No. 2009-12, "Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its
Equivalent)." The changes to the ASC as a result of this update
were effective as of October 1, 2009 for the
Company.
|
·
|
In
August 2009, the FASB issued ASU No. 2009-05, "Measuring Liabilities at
Fair Value.” The changes to the ASC as a result of this update
were effective October 1, 2009 for the
Company.
|
The
adoption of this additional clarifying guidance did not have any significant
impact on the Company’s Consolidated Financial Statements.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Updated (ASU) No. 2010-06, “Improving Disclosures about Fair Value
Measurements,” which amends the Accounting Standards Codification (ASC) Topic
820, “Fair Value Measures and Disclosures.” ASU No. 2010-06 amends
the ASC to require disclosure of transfers into and out of Level 1 and Level 2
fair value measurements, and also require more detailed disclosure about the
activity within Level 3 fair value measurements. The changes to the
ASC as a result of this update are effective for annual and interim reporting
periods beginning after December 15, 2009 (January 1, 2010 for the Company),
except for requirements related to Level 3 disclosures, which are effective for
annual and interim reporting periods beginning after December 15, 2010 (January
1, 2011 for the Company). This guidance requires new disclosures
only, and will have no impact on the Company’s Consolidated Financial
Statements.
In
October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable Revenue
Arrangements," which amends ASC Topic 605, "Revenue Recognition." ASU
No. 2009-13 amends the ASC to eliminate the residual method of allocation for
multiple-deliverable
revenue
arrangements, and requires that arrangement consideration be allocated at the
inception of an arrangement to all deliverables using the relative selling price
method. The ASU also establishes a selling price hierarchy for
determining the selling price of a deliverable, which includes: (1)
vendor-specific objective evidence if available, (2) third-party evidence if
vendor-specific objective evidence is not available, and (3) estimated selling
price if neither vendor-specific nor third-party evidence is
available. Additionally, ASU No. 2009-13 expands the disclosure
requirements related to a vendor's multiple-deliverable revenue
arrangements. The changes to the ASC as a result of this update are
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010 (January 1, 2011
for the Company), and the Company is currently evaluating the potential impact,
if any, of the adoption on its Consolidated Financial Statements.
In
October 2009, the FASB issued ASU No. 2009-14, "Certain Revenue Arrangements
That Include Software Elements," which amends ASC Topic 985,
"Software." ASU No. 2009-14 amends the ASC to change the accounting
model for revenue arrangements that include both tangible products and software
elements, such that tangible products containing both software and non-software
components that function together to deliver the tangible product's essential
functionality are no longer within the scope of software revenue
guidance. The changes to the ASC as a result of this update are
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010 (January 1, 2011
for the Company), and the Company is currently evaluating the potential impact,
if any, of the adoption on its Consolidated Financial Statements.
In June
2009, the FASB issued revised authoritative guidance related to variable
interest entities, which requires entities to perform a qualitative analysis to
determine whether a variable interest gives the entity a controlling financial
interest in a variable interest entity. The guidance also requires an
ongoing reassessment of variable interests and eliminates the quantitative
approach previously required for determining whether an entity is the primary
beneficiary. This guidance, which was reissued by the FASB in
December 2009 as ASU No. 2009-17, “Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities,” amends ASC Topic 810,
“Consolidation,” and will be effective as of the beginning of an entity’s first
annual reporting period that begins after November 15, 2009 (January 1, 2010 for
the Company). The Company does not expect that the adoption of this
guidance will have a significant impact on its Consolidated Financial
Statements.
NOTE
2: RECEIVABLES, NET
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
$ |
1,238 |
|
|
$ |
1,330 |
|
Miscellaneous
receivables
|
|
|
157 |
|
|
|
386 |
|
Total
(net of allowances of $98 and $113
|
|
|
|
|
|
|
|
|
as
of December 31, 2009 and
2008, respectively)
|
|
$ |
1,395 |
|
|
$ |
1,716 |
|
|
|
|
|
|
|
|
|
|
Of the
total trade receivable amounts of $1,238 million and $1,330 million as of
December 31, 2009 and 2008, respectively, approximately $218 million in both
years are expected to be settled through customer deductions in lieu of cash
payments. Such deductions represent rebates owed to the customer and
are included in Accounts payable and other current liabilities in the
accompanying Consolidated Statement of Financial Position at each respective
balance sheet date.
The
majority of the decrease in Miscellaneous receivables was the result of payments
received in the first two quarters of 2009 related to an intellectual property
licensing agreement for which the associated revenue was recognized in
2008.
NOTE
3: INVENTORIES, NET
(in
millions)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$ |
409 |
|
|
$ |
610 |
|
Work
in process
|
|
|
164 |
|
|
|
193 |
|
Raw
materials
|
|
|
106 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
679 |
|
|
$ |
948 |
|
|
|
|
|
|
|
|
|
|
NOTE
4: PROPERTY, PLANT AND EQUIPMENT, NET
(in
millions)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Land
|
|
$ |
64 |
|
|
$ |
81 |
|
Buildings
and building improvements
|
|
|
1,512 |
|
|
|
1,575 |
|
Machinery
and
equipment
|
|
|
4,792 |
|
|
|
5,033 |
|
Construction
in
progress
|
|
|
64 |
|
|
|
116 |
|
|
|
|
6,432 |
|
|
|
6,805 |
|
Accumulated
depreciation
|
|
|
(5,178 |
) |
|
|
(5,254 |
) |
Net
properties
|
|
$ |
1,254 |
|
|
$ |
1,551 |
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $354 million, $420 million, and $679 million for the years 2009,
2008, and 2007, respectively, of which approximately $22 million, $6 million,
and $107 million, respectively, represented accelerated depreciation in
connection with restructuring actions.
NOTE
5: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
was $907 million and $896 million as of December 31, 2009 and 2008,
respectively. The changes in the carrying amount of goodwill by
reportable segment for 2009 and 2008 were as follows:
(in
millions)
|
|
|
|
|
Film,
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Photofinishing
|
|
|
|
|
|
|
|
|
|
Digital
Imaging
|
|
|
and
Entertainment
|
|
|
Graphic
Communications
|
|
|
Consolidated
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
204 |
|
|
$ |
601 |
|
|
$ |
852 |
|
|
$ |
1,657 |
|
Accumulated
impairment losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
204 |
|
|
$ |
601 |
|
|
$ |
852 |
|
|
$ |
1,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
25 |
|
Purchase
accounting adjustments
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Currency
translation adjustments
|
|
|
(9 |
) |
|
|
12 |
|
|
|
(7 |
) |
|
|
(4 |
) |
Impairments
|
|
|
- |
|
|
|
- |
|
|
|
(785 |
) |
|
|
(785 |
) |
Balance
as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
195 |
|
|
|
613 |
|
|
|
873 |
|
|
|
1,681 |
|
Accumulated
impairment losses
|
|
|
- |
|
|
|
- |
|
|
|
(785 |
) |
|
|
(785 |
) |
|
|
$ |
195 |
|
|
$ |
613 |
|
|
$ |
88 |
|
|
$ |
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
Purchase
accounting adjustments
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
(1 |
) |
Currency
translation adjustments
|
|
|
- |
|
|
|
5 |
|
|
|
3 |
|
|
|
8 |
|
Balance
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
195 |
|
|
|
618 |
|
|
|
879 |
|
|
|
1,692 |
|
Accumulated
impairment losses
|
|
|
- |
|
|
|
- |
|
|
|
(785 |
) |
|
|
(785 |
) |
|
|
$ |
195 |
|
|
$ |
618 |
|
|
$ |
94 |
|
|
$ |
907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008, due to the continuing challenging business conditions and the
significant decline in its market capitalization during the fourth quarter of
2008, the Company concluded there was an indication of possible
impairment. Based on its updated analysis, the Company concluded that
there was an impairment of goodwill related to the Graphic Communications Group
(GCG) segment and, thus, recorded a pre-tax impairment charge of $785 million in
the fourth quarter of 2008 that was included in Other operating expenses
(income), net in the Consolidated Statement of
Operations.
The fair
values of reporting units within the Company’s Consumer Digital Imaging Group
(CDG) and Film, Photofinishing and Entertainment Group (FPEG) segments, and one
of the two GCG reporting units were greater than their respective carrying
values as of December 31, 2008, so no goodwill impairment was recorded for these
reporting units. Reasonable changes in the assumptions used to
determine these fair values would not have resulted in goodwill impairments in
any of these reporting units.
On September 1, 2009, the
Company completed the acquisition of the scanner division of BÖWE BELL +
HOWELL, a global supplier of documents scanners to value-added resellers, system
integrators, and end-users. The acquired scanner division is now a
part of the Company’s GCG segment. As a result of the acquisition,
the Company recorded $4 million and $8 million of goodwill and intangible
assets, respectively.
The
aggregate amount of goodwill additions during 2008 of $25 million was primarily
attributable to $14 million for the purchase of Intermate A/S and $10 million
for the purchase of Design2Launch in the second quarter of 2008, all within the
GCG segment. Refer to Note 21, “Acquisitions,” in the Notes to
Financial Statements.
The gross
carrying amount and accumulated amortization by major intangible asset category
as of December 31, 2009 and 2008 were as follows:
(in
millions)
|
|
As
of December 31, 2009
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
|
|
Weighted-Average
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
Amortization
Period
|
Technology-based
|
|
$ |
309 |
|
|
$ |
241 |
|
|
$ |
68 |
|
7
years
|
Customer-related
|
|
|
273 |
|
|
|
173 |
|
|
|
100 |
|
10
years
|
Other
|
|
|
64 |
|
|
|
48 |
|
|
|
16 |
|
11
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
646 |
|
|
$ |
462 |
|
|
$ |
184 |
|
9
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
As
of December 31, 2008
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Weighted-Average
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
Amortization
Period
|
Technology-based
|
|
$ |
300 |
|
|
$ |
190 |
|
|
$ |
110 |
|
7
years
|
Customer-related
|
|
|
276 |
|
|
|
156 |
|
|
|
120 |
|
10
years
|
Other
|
|
|
57 |
|
|
|
40 |
|
|
|
17 |
|
9
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
633 |
|
|
$ |
386 |
|
|
$ |
247 |
|
8
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to intangible assets was $73 million, $80 million, and $106
million for the years ended December 31, 2009, 2008, and 2007,
respectively.
Estimated
future amortization expense related to purchased intangible assets as of
December 31, 2009 was as follows (in millions):
2010
|
|
$ |
63 |
2011
|
|
|
42 |
2012
|
|
|
29 |
2013
|
|
|
10 |
2014
|
|
|
9 |
2015+ |
|
|
31 |
Total
|
|
$ |
184 |
|
|
|
|
NOTE
6: OTHER LONG-TERM ASSETS
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Overfunded
pension plans
|
|
$ |
169 |
|
|
$ |
773 |
|
Deferred
income taxes, net of valuation allowance
|
|
|
607 |
|
|
|
506 |
|
Intangible
assets
|
|
|
184 |
|
|
|
247 |
|
Non-current
receivables
|
|
|
67 |
|
|
|
59 |
|
Other
|
|
|
200 |
|
|
|
143 |
|
Total
|
|
$ |
1,227 |
|
|
$ |
1,728 |
|
|
|
|
|
|
|
|
|
|
See Note
17, “Retirement Plans,” in the Notes to Financial Statements for explanation of
the decrease in the overfunded pension plans balance.
The Other
component above consists of other miscellaneous long-term assets that,
individually, were less than 5% of the Company’s total assets, and therefore,
have been aggregated in accordance with Regulation S-X.
NOTE
7: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$ |
919 |
|
|
$ |
1,288 |
|
Accrued
employment-related liabilities
|
|
|
501 |
|
|
|
520 |
|
Accrued
customer rebates, advertising and promotional
expenses
|
|
|
369 |
|
|
|
416 |
|
Deferred
revenue
|
|
|
275 |
|
|
|
217 |
|
Accrued
restructuring liabilities
|
|
|
89 |
|
|
|
129 |
|
Other
|
|
|
658 |
|
|
|
697 |
|
Total
|
|
$ |
2,811 |
|
|
$ |
3,267 |
|
|
|
|
|
|
|
|
|
|
The Other
component above consists of other miscellaneous current liabilities that,
individually, were less than 5% of the Total current liabilities component
within the Consolidated Statement of Financial Position, and therefore, have
been aggregated in accordance with Regulation S-X.
NOTE
8: SHORT-TERM BORROWINGS AND LONG-TERM DEBT
SHORT-TERM
BORROWINGS AND CURRENT PORTION OF LONG-TERM DEBT
The
Company’s short-term borrowings and current portion of long-term debt were as
follows:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
62 |
|
|
$ |
50 |
|
Short-term
bank borrowings
|
|
|
- |
|
|
|
1 |
|
Total
|
|
$ |
62 |
|
|
$ |
51 |
|
|
|
|
|
|
|
|
|
|
The
weighted-average interest rate for Short-term bank borrowings outstanding at
December 31, 2008 was 5.60%.
LONG-TERM
DEBT, INCLUDING LINES OF CREDIT
Long-term
debt and related maturities and interest rates were as follows:
|
|
|
|
|
|
As
of December 31,
|
|
(in
millions)
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
Effective
Interest
|
|
|
Amount
|
|
|
Effective
Interest
|
|
|
Amount
|
|
Country
|
Type
|
|
Maturity
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
Convertible
|
|
2010
|
|
|
|
3.38 |
% |
|
$ |
12 |
|
|
|
3.38 |
% |
|
$ |
575 |
|
U.S.
|
Term
note
|
|
|
2010-2013 |
|
|
|
6.16 |
% |
|
|
35 |
|
|
|
6.16 |
% |
|
|
43 |
|
Germany
|
Term
note
|
|
|
2010-2013 |
|
|
|
6.16 |
% |
|
|
141 |
|
|
|
6.16 |
% |
|
|
171 |
|
U.S.
|
Term
note
|
|
|
2013 |
|
|
|
7.25 |
% |
|
|
500 |
|
|
|
7.25 |
% |
|
|
500 |
|
U.S.
|
Secured
term note
|
|
|
2017 |
|
|
|
19.36 |
% |
|
|
195 |
|
|
|
- |
|
|
|
- |
|
U.S.
|
Convertible
|
|
|
2017 |
|
|
|
12.75 |
% |
|
|
295 |
|
|
|
- |
|
|
|
- |
|
U.S.
|
Term
note
|
|
|
2018 |
|
|
|
9.95 |
% |
|
|
3 |
|
|
|
9.95 |
% |
|
|
3 |
|
U.S.
|
Term
note
|
|
|
2021 |
|
|
|
9.20 |
% |
|
|
10 |
|
|
|
9.20 |
% |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,191 |
|
|
|
|
|
|
|
1,302 |
|
Current
portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
(50 |
) |
Long-term
debt, net of current portion
|
|
|
|
|
|
|
$ |
1,129 |
|
|
|
|
|
|
$ |
1,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
maturities (in millions) of long-term debt outstanding at December 31, 2009 were
as follows:
|
|
Carrying
|
|
|
Principal
|
|
|
|
Value
|
|
|
Amount
|
|
|
|
|
|
|
|
|
2010
|
|
$ |
62 |
|
|
$ |
62 |
|
2011
|
|
|
45 |
|
|
|
50 |
|
2012
|
|
|
43 |
|
|
|
50 |
|
2013
|
|
|
538 |
|
|
|
550 |
|
2014
|
|
|
- |
|
|
|
- |
|
2015
and thereafter
|
|
|
503 |
|
|
|
713 |
|
Total
|
|
$ |
1,191 |
|
|
$ |
1,425 |
|
In
September 2009, the Company issued $300 million of Senior Secured Notes due 2017
and 40 million detachable warrants, as well as $400 million of 2017 Convertible
Senior Notes. Proceeds from these issuances were initially reflected
in the accompanying Consolidated Statement of Financial Position as follows and
as further described below:
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stated
Discount/
|
|
|
Paid-In
|
|
|
Long-Term
|
|
(in
millions)
|
|
Principal
|
|
|
Fee
to Holder
|
|
|
Capital
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Notes due 2017 and 40 million detachable warrants
|
|
$ |
300 |
|
|
$ |
(27 |
) |
|
$ |
(80 |
) |
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
Convertible Senior Notes
|
|
$ |
400 |
|
|
$ |
- |
|
|
$ |
(107 |
) |
|
$ |
293 |
|
Senior Secured
Notes due 2017
On
September 29, 2009, the Company issued to KKR Jet Stream (Cayman) Limited,
8 North America Investor (Cayman) Limited, a Cayman Islands exempted limited
company (“8NAI”), OPERF Co-Investment LLC, a Delaware limited liability company
(“OPERF”), and KKR Jet Stream LLC, a Delaware limited liability company (“Jet
Stream” and, together with 8NAI and OPERF, Jet Stream Cayman, the “Investors”)
(1) $300 million aggregate principal amount of 10.5%
Senior Secured Notes, and (2) Warrants to purchase 40 million
shares of the Company’s common stock at an exercise price of $5.50 per share
(the “Warrants”), subject to adjustment based on certain anti-dilution
protections. The warrants are exercisable at the holder’s option at
any time, in whole or in part, until September 29, 2017. The issuance
of the Senior Secured Notes and the Warrants are collectively referred to as the
“KKR Transaction.”
In
connection with the KKR Transaction, the Company and the subsidiary guarantors
(as defined below) entered into an indenture, dated as of September 29,
2009, with Bank of New York Mellon, as trustee and collateral agent (the
“Indenture”).
Upon
issuance of the Senior Secured Notes and Warrants, the Company received net
proceeds of approximately $273 million ($300 million aggregate principal, less
$12 million stated discount and $15 million placement fee and reimbursable costs
paid to KKR). In accordance with U.S. GAAP, the proceeds from the KKR
transaction were allocated to the notes and detachable warrants based on the
relative fair values of the notes excluding the warrants and of the warrants
themselves at the time of issuance. Based on this allocation,
approximately $193 million and $80 million of the net proceeds were initially
allocated to the notes and warrants, respectively, and were reported as
Long-term debt, net of current portion and Additional paid-in capital,
respectively. The initial carrying value of the notes, net of
unamortized discount, of approximately $193 million will be accreted up to the
$300 million stated principal amount using the effective interest method over
the 8-year term of the Senior Secured Notes. Accretion of the
principal will be reported as a component of interest
expense. Accordingly, the Company will recognize annual interest
expense on the debt at an effective interest rate of approximately
19%.
Interest
on the Senior Secured Notes is payable semiannually in arrears on October 1 and
April 1 of each year, beginning on April 1, 2010. Cash interest on the
Senior Secured Notes will accrue at a rate of 10.0% per annum and
Payment-in-Kind interest (“PIK Interest “) will accrue at a rate of 0.5% per
annum. PIK Interest is accrued as an increase to the principal amount
of the Senior Secured Notes and is to be paid at maturity in 2017.
At any
time prior to October 1, 2013, the Company will be entitled at its option
to redeem some or all of the Senior Secured Notes at a redemption price of 100%,
plus a premium equal to the present value of the remaining interest payments on
the Senior Secured Notes as of October 1, 2013, plus accrued and unpaid
interest. On and after October 1, 2013, the Company may redeem
some or all of the Senior Secured Notes at a redemption price of 100%, plus
accrued and unpaid interest. At any time prior to October 1,
2012, the Company may redeem the Senior Secured Notes with the net cash proceeds
received by the Company from certain equity offerings at a price equal to 110.5%
multiplied by the principal amount of the Senior Secured Notes, plus accrued and
unpaid interest, in an aggregate principal amount for all such redemptions not
to exceed $105 million, provided that the redemption takes place within
120 days after the closing of the related equity offering, and not less
than $195 million of Senior Secured Notes remains outstanding immediately
thereafter.
Upon the
occurrence of a change of control, each holder of the Senior Secured Notes has
the right to require the Company to repurchase some or all of such holder’s
Senior Secured Notes at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the repurchase
date.
The
Indenture contains covenants limiting, among other things, the Company’s ability
to (subject to certain exceptions): incur additional debt or issue certain
preferred shares; pay dividends on or make other distributions in respect of the
Company’s capital stock or make other restricted payments; make principal
payments on, or purchase or redeem subordinated indebtedness prior to any
scheduled principal payment or maturity; make certain investments; sell certain
assets; create liens on assets; consolidate, merge, sell or otherwise dispose of
all or substantially all of the Company’s assets; and enter into certain
transactions with the Company’s affiliates. The Company was in
compliance with these covenants as of December 31, 2009.
The
Senior Secured Notes are fully and unconditionally guaranteed on a senior
secured basis by each of the Company’s existing and future direct or indirect
100% owned domestic subsidiaries, subject to certain exceptions. The
Senior Secured Notes and subsidiary guarantees are secured by second-priority
liens, subject to permitted liens, on substantially all of the Company’s
domestic assets and substantially all of the domestic assets of the subsidiary
guarantors pursuant to a security agreement entered into with Bank of New York
Mellon as second lien collateral agent on September 29, 2009. The
carrying value of the assets pledged as collateral at December 31, 2009 was
approximately $2 billion.
The
Senior Secured Notes are the Company’s senior secured obligations and rank
senior in right of payment to any future subordinated indebtedness; rank equally
in right of payment with all of the Company’s existing and future senior
indebtedness; are effectively senior in right of payment to the Company’s
existing and future unsecured indebtedness, are effectively subordinated in
right of payment to indebtedness under the Company’s Amended Credit Agreement to
the extent of the collateral securing such indebtedness on a first-priority
basis; and effectively are subordinated in right of payment to all existing and
future indebtedness and other liabilities of the Company’s non-guarantor
subsidiaries.
Certain
events are considered events of default and may result in the acceleration of
the maturity of the Senior Secured Notes including, but not limited to: default
in the payment of principal or interest when it becomes due and payable; subject
to applicable grace periods, failure to purchase Senior Secured Notes tendered
when and as required; events of bankruptcy; and non-compliance with other
provisions and covenants and the acceleration or default in the payment of
principal of other forms of debt. If an event of default occurs, the
aggregate principal amount and accrued and unpaid interest may become due and
payable immediately.
2017
Convertible Senior Notes
On
September 23, 2009, the Company issued $400 million of aggregate principal
amount of 7% convertible senior notes due April 1, 2017 (the “2017 Convertible
Notes”). The Company will pay interest at an annual rate of 7% of the
principal amount at issuance, payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on April 1, 2010.
The 2017
Convertible Notes are convertible at an initial conversion rate of 134.9528
shares of the Company’s common stock per $1,000 principal amount of convertible
notes (representing an initial conversion price of approximately $7.41 per share
of common stock) subject to adjustment in certain
circumstances. Holders may surrender their 2017 Convertible Notes for
conversion at any time prior to the close of business on the business day
immediately preceding the maturity date for the notes. Upon
conversion, the Company shall deliver or pay, at its election, solely shares of
its common stock or solely cash. Holders of the 2017 Convertible
Notes may require the Company to purchase all or a portion of the convertible
notes at a price equal to 100% of the principal amount of the convertible notes
to be purchased, plus accrued and unpaid interest, in cash, upon occurrence of
certain fundamental changes involving the Company including, but not limited to,
a change in ownership, consolidation or merger, plan of dissolution, or common
stock delisting from a U.S. national securities exchange.
The
Company may redeem the 2017 Convertible Notes in whole or in part for cash at
any time on or after October 1, 2014 and before October 1, 2016 if the
closing sale price of the common stock for at least 20 of the 30 consecutive
trading days ending within three trading days prior to the date the Company
provides notice of redemption exceeds 130% of the conversion price in effect on
each such trading day, or at any time on or after October 1, 2016 and prior
to maturity regardless of the sale price of the Company’s common
stock. The redemption price will equal 100% of the principal amount
of the Notes to be redeemed, plus any accrued and unpaid interest.
In
accordance with U.S. GAAP, the principal amount of the 2017 Convertible Notes
was allocated to debt at the estimated fair value of the debt component of the
notes at the time of issuance, with the residual amount allocated to the equity
component. Approximately $293 million and $107 million of the
principal amount were initially allocated to the debt and equity components
respectively, and reported as Long-term debt, net of current portion and
Additional paid-in capital, respectively. The initial carrying value
of the debt of $293 million will be accreted up to the $400 million stated
principal amount using the effective interest method over the 7.5 year term of
the notes. Accretion of the principal will be reported as a component
of interest expense. Accordingly, the Company will recognize
annual interest expense on the debt at an effective interest rate of
12.75%.
The 2017
Convertible Notes are the Company’s senior unsecured obligations and rank:
(i) senior in right of payment to the Company’s existing and future
indebtedness that is expressly subordinated in right of payment to the 2017
Convertible Notes; (ii) equal in right of payment to the Company’s existing
and future unsecured indebtedness that is not so subordinated;
(iii) effectively subordinated in right of payment to any of the Company’s
secured indebtedness to the extent of the value of the assets securing such
indebtedness; and (iv) structurally subordinated to all existing and future
indebtedness and obligations incurred by the Company’s subsidiaries including
guarantees of the Company’s obligations by such subsidiaries.
Certain
events are considered events of default and may result in the acceleration of
the maturity of the 2017 Convertible Notes including, but not limited to:
default in the payment of principal or interest when it becomes due and payable;
failure to comply with an obligation
to
convert the 2017 Convertible Notes; not timely reporting a fundamental change;
events of bankruptcy; and non-compliance with other provisions and covenants and
other forms of indebtedness for borrowed money. If an event of
default occurs, the aggregate principal amount and accrued and unpaid interest
may become due and payable immediately.
Convertible
Senior Notes Due 2033
In October 2009, the
Company completed a tender offer to purchase any and all of its
outstanding 3.375% Convertible Senior Notes due 2033 (the “2033 Convertible
Notes”) for an amount in cash equal to 100% of the principal amount of the 2033
Convertible Notes, plus accrued and unpaid interest. As a result of
the tender offer, approximately $563 million of the 2033 Convertible Notes were
repurchased. Under the terms of the 2033 Convertible Notes, on
October 15, 2010 remaining holders will have the right to require the Company to
purchase their 2033 Convertible Notes for cash at a price equal to 100% of the
principal amount, plus any accrued and unpaid interest. Additionally,
the Company has the right to redeem some or all of the remaining 2033
Convertible Notes at any time on or after October 15, 2010 at a price equal to
100% of the principal amount, plus any accrued and unpaid
interest. The Company’s intent is to call any remaining outstanding
notes on October 15, 2010. As of December 31, 2009, the remaining
amount of the 2033 Convertible Notes outstanding was approximately $12 million,
and is reported as Short-term borrowings and current portion of long-term debt
in the accompanying Consolidated
Statement of Financial Position.
Amended
Credit Agreement
On March
31, 2009, the Company and its subsidiary, Kodak Canada Inc. (together, the
“Borrowers”), together with the Company’s U.S. subsidiaries as guarantors (the
“Guarantors”), entered into an Amended and Restated Credit Agreement, with
the named lenders (the “Lenders”) and Citicorp USA, Inc. as agent, in order
to amend and extend its Credit Agreement dated as of October 18, 2005
(the “Secured Credit Agreement”).
On
September 17, 2009, the Borrowers, together with the Guarantors, further amended
the Amended and Restated Credit Agreement with the Lenders and Citicorp USA,
Inc. as agent, in order to allow collateral under this agreement to be pledged
on a second-lien basis and for the Company to issue $700 million in aggregate
principal amount of debt, the net proceeds of which would be used to repurchase
its existing $575 million Convertible Senior Notes due 2033 as well as for other
general corporate purposes. The Amended and Restated Credit Agreement
and Amendment No. 1 to the Amended and Restated Credit Agreement dated September
17, 2009 are collectively hereinafter referred to as the “Amended Credit
Agreement.” Pursuant to the terms of the Amended Credit Agreement,
the Company deposited $575 million of the net proceeds of the two financing
transactions discussed above in a cash collateral account to be used to
fund the repurchase of the 2033 Convertible Notes. In October 2009,
the Company completed a tender offer to purchase any and all of
its outstanding 3.375% Convertible Senior Notes due 2033 (the “2033
Convertible Notes”) for an amount in cash equal to 100% of the principal amount
of the 2033 Convertible Notes, plus accrued and unpaid interest. As a
result of the tender offer, approximately $563 million of the 2033 Convertible
Notes were repurchased. The remaining amount in the cash
collateral account was approximately $12 million as of December 31, 2009 and is
considered restricted cash, which is included in Other current assets in the
accompanying Consolidated Statement of Financial
Position.
The
Amended Credit Agreement provides for an asset-based revolving credit facility
of up to $500 million, as further described below. The letters of
credit previously issued under the former Secured Credit Agreement continue
under the Amended Credit Agreement. Additionally, up to $100 million
of the Company’s and its subsidiaries’ obligations to various Lenders under
treasury management services, hedge or other agreements or arrangements are
secured by the asset-based collateral under the Amended Credit
Agreement. The Amended Credit Agreement can be used for general
corporate purposes. The termination date of the Amended Credit
Agreement with respect to the Lenders who agreed to the extension, and any
future lenders, is March 31, 2012, and with respect to the other Lenders
continues to be October 18, 2010. As of December 31, 2009,
approximately 75% of the facility amount has been extended to the 2012
termination date, and additional lenders may be added to increase this
amount.
Advances
under the Amended Credit Agreement will be available based on the Borrowers’
respective borrowing base from time to time. The borrowing base is
calculated based on designated percentages of eligible accounts receivable,
inventory, machinery and equipment and, once mortgages are recorded, certain
real property, subject to applicable reserves. As of December 31,
2009, based on this borrowing base calculation and after deducting the face
amount of letters of credit outstanding of $136 million and $100 million of
collateral to secure other banking arrangements, the Company had $201 million
available to borrow under the Amended Credit Agreement.
The
Amended Credit Agreement provides that advances made from time to time will bear
interest at applicable margins over the Base Rate, as defined, or the Eurodollar
Rate. The Company pays, on a quarterly basis, an annual fee ranging
from 0.50% to 1.00% to the Lenders based on the unused commitments.
The
obligations of the Borrowers are secured by liens on substantially all of their
non-real estate assets and by a pledge of 65% of the stock of certain of the
Company’s material non-U.S. subsidiaries, pursuant to Amended and Restated U.S.
and Canadian Security Agreements. In addition, the Company may
mortgage certain U.S. real property for inclusion in the borrowing base for
advances under the Amended Credit Agreement. The security interests
are limited to the extent necessary so that they do not trigger the
cross-collateralization requirements under the Company’s indenture with Bank of
New York as trustee, dated as of January 1, 1988, as amended by various
supplemental indentures.
Under the
terms of the Amended Credit Agreement, the Company has agreed to certain
affirmative and negative covenants customary in similar asset-based lending
facilities. In the event the Company’s excess availability under the
borrowing base formula under the Amended Credit Agreement falls below $100
million for three consecutive business days, among other things, the Company
must maintain a fixed charge coverage ratio of not less than 1.1 to 1.0 until
the excess availability is greater than $100 million for 30 consecutive
days. As of December 31, 2009, excess availability was greater than
$100 million. The Company is also required to maintain cash and cash
equivalents in the U.S. of at least $250 million. The negative covenants
limit, under certain circumstances, among other things, the Company’s ability to
incur additional debt or liens, make certain investments, make shareholder
distributions or prepay debt, except as permitted under the terms of the Amended
Credit Agreement. The Company was in compliance with all covenants
under the Amended Credit Agreement as of December 31, 2009.
The
Amended Credit Agreement contains customary events of default, including without
limitation, payment defaults (subject to grace and cure periods in certain
circumstances), breach of representations and warranties, breach of covenants
(subject to grace and cure periods in certain circumstances), bankruptcy events,
ERISA events, cross defaults to certain other indebtedness, certain judgment
defaults and change of control. If an event of default occurs and is continuing,
the Lenders may decline to provide additional advances, impose a default rate of
interest, declare all amounts outstanding under the Amended Credit Agreement
immediately due and payable, and require cash collateralization or similar
arrangements for outstanding letters of credit.
As of
December 31, 2009, the Company had no debt for borrowed money outstanding under
the Amended Credit Agreement, but had outstanding letters of credit of $136
million. In addition to the letters of credit outstanding under the
Amended Credit Agreement, there were bank guarantees and letters of credit of
$30 million and surety bonds of $28 million outstanding under other banking
arrangements primarily to ensure the payment of possible casualty and workers'
compensation claims, environmental liabilities, legal contingencies, rental
payments, and to support various customs and trade
activities.
In
addition to the Amended Credit Agreement, the Company has other committed and
uncommitted lines of credit as of December 31, 2009 totaling $11 million and
$156 million, respectively. These lines primarily support operational
and borrowing needs of the Company’s subsidiaries, which include term loans,
overdraft coverage, revolving credit lines, letters of credit, bank guarantees
and vendor financing programs. Interest rates and other terms of
borrowing under these lines of credit vary from country to country, depending on
local market conditions. As of December 31, 2009, usage under these
lines was approximately $58 million, all of which were supporting non-debt
related obligations.
On
February 10, 2010, the Borrowers, together with the Guarantors, further amended
the Amended Credit Agreement with the Lenders and Citicorp USA, Inc., as agent,
in order to allow the Company to incur additional permitted senior debt of up to
$200 million aggregate principal amount, and debt that refinances existing debt
and permitted senior debt so long as the refinancing debt meets certain
requirements. In connection with the amendment, the Company reduced
the commitments of its non-extending lenders by approximately $125
million. This change did not reduce the maximum borrowing
availability of $500 million under the Amended Credit Agreement.
Tender Offer on Senior Notes Due
2013
On
February 3, 2010, the Company issued a tender offer to purchase up to $100
million of its outstanding 7.25% Senior Notes due 2013 (the “2013 Notes”) for an
amount in cash equal to 91% of the principal amount of the 2013 Notes, plus
accrued and unpaid interest. The tender offer expires on March 4,
2010 unless extended or earlier terminated. A purchase price in cash
equal to 95% of the principal amount of the 2013 Notes was offered for notes
tendered before an early termination date of February 11, 2010. The
Company’s obligation to pay for the 2013 Notes in the tender offer is subject to
the satisfaction or waiver of a number of conditions, included the raising of
not less than $100 million of second lien debt on terms reasonably satisfactory
to it in order to finance the tender offer. The tender offer is not
contingent upon the tender of any minimum principal amount of 2013
Notes. The Company reserves the right to increase the maximum tender
amount of $100 million, subject to compliance with applicable
law.
NOTE 9: OTHER LONG-TERM
LIABILITIES
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Non-current
tax-related liabilities
|
|
$ |
477 |
|
|
$ |
474 |
|
Environmental
liabilities
|
|
|
102 |
|
|
|
115 |
|
Other
|
|
|
426 |
|
|
|
530 |
|
Total
|
|
$ |
1,005 |
|
|
$ |
1,119 |
|
The Other
component above consists of other miscellaneous long-term liabilities that,
individually, were less than 5% of the total liabilities component in the
accompanying Consolidated Statement of Financial Position, and therefore, have
been aggregated in accordance with Regulation S-X.
NOTE 10: COMMITMENTS AND
CONTINGENCIES
Environmental
Cash
expenditures for pollution prevention and waste treatment for the Company's
current facilities were as follows:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
costs for pollution prevention
and waste treatment
|
|
$ |
37 |
|
|
$ |
48 |
|
|
$ |
49 |
|
Capital
expenditures for pollution prevention
and waste treatment
|
|
|
3 |
|
|
|
2 |
|
|
|
4 |
|
Site
remediation costs
|
|
|
2 |
|
|
|
3 |
|
|
|
4 |
|
Total
|
|
$ |
42 |
|
|
$ |
53 |
|
|
$ |
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
expenditures that relate to an existing condition caused by past operations and
that do not provide future benefits are expensed as incurred. Costs
that are capital in nature and that provide future benefits are
capitalized. Liabilities are recorded when environmental assessments
are made or the requirement for remedial efforts is probable, and the costs can
be reasonably estimated. The timing of accruing for these remediation
liabilities is generally no later than the completion of feasibility
studies. The Company has an ongoing monitoring and identification
process to assess how the activities, with respect to the known exposures, are
progressing against the accrued cost estimates, as well as to identify other
potential remediation sites that are presently unknown.
At
December 31, 2009 and 2008, the Company’s undiscounted accrued liabilities for
environmental remediation costs amounted to $102 million and $115 million,
respectively. These amounts were reported in Other long-term
liabilities in the accompanying Consolidated Statement of Financial
Position.
The
Company is currently implementing a Corrective Action Program required by the
Resource Conservation and Recovery Act (“RCRA”) at Eastman Business Park
(formerly known as Kodak Park) in Rochester, NY. The Company is
currently in the process of completing, and in many cases has completed, RCRA
Facility Investigations (“RFI”), Corrective Measures Studies (CMS) and
Corrective
Measures Implementation (“CMI”) for areas at the site. At December
31, 2009, estimated future investigation and remediation costs of $51 million
were accrued for this site, the majority of which relates to long-term
operation, maintenance of remediation systems and monitoring costs.
In
addition, the Company has accrued for obligations with estimated future
investigation, remediation and monitoring costs of $10 million relating to other
operating sites, $21 million at sites associated with former operations, and $20
million of retained obligations for environmental remediation and Superfund
matters related to certain sites associated with the non-imaging health
businesses sold in 1994.
Cash
expenditures for the aforementioned investigation, remediation and monitoring
activities are expected to be incurred over the next twenty-six years for many
of the sites. For these known environmental liabilities, the accrual
reflects the Company’s best estimate of the amount it will incur under the
agreed-upon or proposed work plans. The Company’s cost estimates were
determined using the ASTM Standard E 2137-06, "Standard Guide for Estimating
Monetary Costs and Liabilities for Environmental Matters," and have not been
reduced by possible recoveries from third parties. The overall method
includes the use of a probabilistic model which forecasts a range of cost
estimates for the remediation required at individual sites. The
projects are closely monitored and the models are reviewed as significant events
occur or at least once per year. The Company’s estimate includes
investigations, equipment and operating costs for remediation and long-term
monitoring of the sites. The Company does not believe it is
reasonably possible that the losses for the known exposures could exceed the
current accruals by material amounts.
A Consent
Decree was signed in 1994 in settlement of a civil complaint brought by the U.S.
Environmental Protection Agency (“EPA”) and the U.S. Department of
Justice. In connection with the Consent Decree, the Company is
subject to a Compliance Schedule, under which the Company has improved its waste
characterization procedures, upgraded one of its incinerators, and has upgraded
its industrial sewer system. The Company submitted a certification
stating that it has completed the requirements of the Consent Decree, and
received an acknowledgement of completion from the EPA on February 5,
2010. No further capital expenditures are expected under this
program, but Kodak is required to continue the sewer inspection program until
the Decree is closed by the Court. Costs associated with the sewer
inspection program are not material.
The
Company is presently designated as a potentially responsible party (“PRP”) under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (the “Superfund Law”), or under similar state laws, for
environmental assessment and cleanup costs as the result of the Company’s
alleged arrangements for disposal of hazardous substances at
eight Superfund sites. With respect to each of these
sites, the Company’s liability is minimal. In addition, the Company
has been identified as a PRP in connection with the non-imaging health
businesses in two active Superfund sites. Numerous other PRPs have
also been designated at these sites. Although the law imposes joint
and several liability on PRPs, the Company’s historical experience demonstrates
that these costs are shared with other PRPs. Settlements and costs
paid by the Company in Superfund matters to date have not been
material. Future costs are also not expected to be material to the
Company’s financial position, results of operations or cash flows.
Uncertainties
associated with environmental remediation contingencies are pervasive and often
result in wide ranges of outcomes. Estimates developed in the early
stages of remediation can vary significantly. A finite estimate of
costs does not normally become fixed and determinable at a specific
time. Rather, the costs associated with environmental remediation
become estimable over a continuum of events and activities that help to frame
and define a liability, and the Company continually updates its cost
estimates. The Company has an ongoing monitoring and identification
process to assess how the activities, with respect to the known exposures, are
progressing against the accrued cost estimates, as well as to identify other
potential remediation issues.
Estimates
of the amount and timing of future costs of environmental remediation
requirements are by their nature imprecise because of the continuing evolution
of environmental laws and regulatory requirements, the availability and
application of technology, the identification of presently unknown remediation
sites and the allocation of costs among the potentially responsible
parties. Based upon information presently available, such future
costs are not expected to have a material effect on the Company’s competitive or
financial position. However, such costs could be material to results
of operations in a particular future quarter or year.
Asset
Retirement Obligations
As of
December 31, 2009 and 2008, the Company has recorded approximately $62 million
and $67 million, respectively, of asset retirement obligations within Other
long-term liabilities in the accompanying Consolidated Statement of Financial
Position. The Company’s asset retirement obligations primarily relate
to asbestos contained in buildings that the Company owns. In many of
the countries in which the Company operates, environmental regulations exist
that require the Company to handle and dispose of asbestos in a special manner
if a building undergoes major renovations or is
demolished. Otherwise, the Company is not required to remove the
asbestos from its buildings. The Company records a liability equal to
the estimated fair value of its obligation to perform asset retirement
activities related to the asbestos, computed using an expected present value
technique, when sufficient information exists to calculate the fair
value. The Company does not have a liability recorded related to
every building that contains asbestos because the Company cannot estimate the
fair value of its obligation for certain buildings due to a lack of sufficient
information about the range of time over which the obligation may be settled
through demolition, renovation or sale of the building.
The
following table provides asset retirement obligation activity:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement obligations as of January 1
|
|
$ |
67 |
|
|
$ |
64 |
|
|
$ |
92 |
|
Liabilities
incurred in the current period
|
|
|
4 |
|
|
|
9 |
|
|
|
24 |
|
Liabilities
settled in the current period
|
|
|
(13 |
) |
|
|
(9 |
) |
|
|
(55 |
) |
Accretion
expense
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Other
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Asset
retirement obligations as of December 31
|
|
$ |
62 |
|
|
$ |
67 |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Commitments and Contingencies
The
Company has entered into noncancelable agreements with several companies, which
provide Kodak with products and services to be used in its normal
operations. These agreements are related to raw materials, supplies,
production and administrative services, as well as marketing and
advertising. The terms of these agreements cover the next one to
twelve years. The minimum payments for obligations under these
agreements are approximately $387 million in 2010, $283 million in 2011, $66
million in 2012, $37 million in 2013, $15 million in 2014 and $43 million in
2015 and thereafter.
Rental
expense, net of minor sublease income, amounted to $108 million in 2009, $117
million in 2008 and $130 million in 2007. The approximate amounts of
noncancelable lease commitments with terms of more than one year, principally
for the rental of real property, reduced by minor sublease income, are $81
million in 2010, $61 million in 2011, $47 million in 2012, $27 million in 2013,
$16 million in 2014 and $64 million in 2015 and thereafter.
In
December 2003, the Company sold a property in France for approximately $65
million, net of direct selling costs, and then leased back a portion of this
property for a nine-year term. The entire gain on the
property sale of approximately $57 million was deferred and no gain was
recognizable upon the closing of the sale as the Company's continuing
involvement in the property is deemed to be significant. As a
result, the Company is accounting for the transaction as a financing
transaction. Future minimum lease payments under this noncancelable
lease commitment are approximately $5 million per year for 2010 through
2012.
The
Company’s Brazilian operations are involved in governmental assessments of
indirect and other taxes in various stages of litigation related to federal and
state value-added taxes. The Company is disputing these matters and
intends to vigorously defend its position. Based on the opinion of
legal counsel, management does not believe that the ultimate resolution of these
matters will materially impact the Company’s results of operations, financial
position or cash flows. The Company routinely assesses all these
matters as to the probability of ultimately incurring a liability in its
Brazilian operations and records its best estimate of the ultimate loss in
situations where it assesses the likelihood of loss as probable.
The
Company recorded a contingency accrual of approximately $21 million in the
fourth quarter of 2008 related to employment litigation matters. The
employment litigation matters related to a number of cases, which had similar
fact patterns related to legacy equal
employment
opportunity issues. On April 27, 2009, the plaintiffs filed an
unopposed motion for preliminary approval of a settlement in this action
pursuant to which the Company will establish a settlement fund in the amount of
$21 million that will be used for payments to plaintiffs and class members, as
well as attorney’s fees, litigation costs, and claims administration
costs. The settlement is subject to court
approval.
During
the third quarter of 2009, the Company reached a settlement of a patent
infringement suit related to products in the Company’s Graphic Communications
Group. The parties also entered into a cross license
agreement. This settlement did not have a material impact on the
Company’s consolidated results of operations or cash flows for the year ended
December 31, 2009, or to its financial position as of December 31,
2009.
The
Company and its subsidiaries are involved in various lawsuits, claims,
investigations and proceedings, including commercial, customs, employment,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. In addition, the Company
is subject to various assertions, claims, proceedings and requests for
indemnification concerning intellectual property, including patent infringement
suits involving technologies that are incorporated in a broad spectrum of the
Company’s products. These matters are in various stages of
investigation and litigation and are being vigorously
defended. Although the Company does not expect that the outcome in
any of these matters, individually or collectively, will have a material adverse
effect on its financial condition or results of operations, litigation is
inherently unpredictable. Therefore, judgments could be rendered or
settlements entered that could adversely affect the Company’s operating results
or cash flow in a particular period. The Company routinely assesses
all its litigation and threatened litigation as to the probability of ultimately
incurring a liability, and records its best estimate of the ultimate loss in
situations where it assesses the likelihood of loss as
probable.
NOTE 11: GUARANTEES
The
Company guarantees debt and other obligations of certain
customers. The debt and other obligations are primarily due to banks
and leasing companies in connection with financing of customers’ purchases of
equipment and product from the Company. At December 31, 2009, the
maximum potential amount of future payments (undiscounted) that the Company
could be required to make under these customer-related guarantees was $60
million. At December 31, 2009, the carrying amount of any liability
related to these customer guarantees was not
material.
The
customer financing agreements and related guarantees, which mature between 2010
and 2016, typically have a term of 90 days for product and short-term equipment
financing arrangements, and up to five years for long-term equipment financing
arrangements. These guarantees would require payment from the Company
only in the event of default on payment by the respective debtor. In
some cases, particularly for guarantees related to equipment financing, the
Company has collateral or recourse provisions to recover and sell the equipment
to reduce any losses that might be incurred in connection with the
guarantees. However, any proceeds received from the liquidation of
these assets may not cover the maximum potential loss under these
guarantees.
Eastman
Kodak Company (“EKC”) also guarantees potential indebtedness to banks and other
third parties for some of its consolidated subsidiaries. The maximum
amount guaranteed is $301 million, and the outstanding amount for those
guarantees is $190 million with $141 million recorded within the Short-term
borrowings and current portion of long-term debt, and Long-term debt, net of
current portion components in the accompanying Consolidated Statement of
Financial Position. These guarantees expire in 2010 through
2019. Pursuant to the terms of the Company's Amended Credit
Agreement, obligations of the Borrowers to the Lenders under the Amended Credit
Agreement, as well as secured agreements in an amount not to exceed $100
million, are guaranteed by the Company and the Company’s U.S. subsidiaries and
included in the above amounts.
During
the fourth quarter of 2007, EKC issued a guarantee to Kodak Limited (the
“Subsidiary”) and the Trustees (the “Trustees”) of the Kodak Pension Plan of the
United Kingdom (the “Plan”). Under this arrangement, EKC guarantees
to the Subsidiary and the Trustees the ability of the Subsidiary, only to the
extent it becomes necessary to do so, to (1) make contributions to the Plan to
ensure sufficient assets exist to make plan benefit payments, and (2) make
contributions to the Plan such that it will achieve full funded status by the
funding valuation for the period ending December 31, 2015. The
guarantee expires upon the conclusion of the funding valuation for the period
ending December 31, 2015 whereby the Plan achieves full funded status or
earlier, in the event that the Plan achieves full funded status for two
consecutive funding valuation cycles which are typically performed at least
every three years. The limit of potential future payments is
dependent on the funding status of the Plan as it fluctuates over the term
of the guarantee. The Plan's most recent local
funding
valuation was completed in March 2009. EKC and the Subsidiary are in
discussions with the Trustees regarding the amount of future annual
contributions and the date by which the Plan will achieve full funded
status. These negotiations may require changes to the existing
guarantee described above. The funded status of the Plan (calculated
in accordance with U.S. GAAP) is included in Pension and other postretirement
liabilities presented in the Consolidated Statement of Financial
Position.
Indemnifications
The
Company issues indemnifications in certain instances when it sells businesses
and real estate, and in the ordinary course of business with its customers,
suppliers, service providers and business partners. Further, the
Company indemnifies its directors and officers who are, or were, serving at the
Company's request in such capacities. Historically, costs incurred to
settle claims related to these indemnifications have not been material to the
Company’s financial position, results of operations or cash
flows. Additionally, the fair value of the indemnifications that the
Company issued during the year ended December 31, 2009 was not material to the
Company’s financial position, results of operations or cash flows.
Warranty
Costs
The
Company has warranty obligations in connection with the sale of its products and
equipment. The original warranty period is generally one year or
less. The costs incurred to provide for these warranty obligations
are estimated and recorded as an accrued liability at the time of
sale. The Company estimates its warranty cost at the point of sale
for a given product based on historical failure rates and related costs to
repair. The change in the Company's accrued warranty obligations
balance, which is reflected in Accounts payable and other current liabilities in
the accompanying Consolidated Statement of Financial Position, was as
follows:
(in
millions)
|
|
|
|
|
|
|
|
Accrued
warranty obligations as of December 31, 2007
|
|
$ |
44 |
|
Actual
warranty experience during 2008
|
|
|
(69 |
) |
2008
warranty provisions
|
|
|
90 |
|
Accrued
warranty obligations as of December 31, 2008
|
|
$ |
65 |
|
Actual
warranty experience during 2009
|
|
|
(92 |
) |
2009
warranty provisions
|
|
|
88 |
|
Accrued
warranty obligations as of December 31, 2009
|
|
$ |
61 |
|
|
|
|
|
|
The
Company also offers its customers extended warranty arrangements that are
generally one year, but may range from three months to three years after the
original warranty period. The Company provides repair services and
routine maintenance under these arrangements. The Company has not
separated the extended warranty revenues and costs from the routine maintenance
service revenues and costs, as it is not practicable to do
so. Therefore, these revenues and costs have been aggregated in the
discussion that follows. The change in the Company's deferred revenue
balance in relation to these extended warranty and maintenance arrangements,
which is reflected in Accounts payable and other current liabilities in the
accompanying Consolidated Statement of Financial Position, was as follows:
(in
millions)
|
|
|
|
|
|
|
|
Deferred
revenue as of December 31, 2007
|
|
$ |
148 |
|
New
extended warranty and maintenance arrangements in 2008
|
|
|
387 |
|
Recognition
of extended warranty and maintenance arrangement
revenue in 2008
|
|
|
(382 |
) |
Deferred
revenue as of December 31, 2008
|
|
$ |
153 |
|
New
extended warranty and maintenance arrangements in 2009
|
|
|
413 |
|
Recognition
of extended warranty and maintenance arrangement
revenue in 2009
|
|
|
(436 |
) |
Deferred
revenue as of December 31, 2009
|
|
$ |
130 |
|
Costs
incurred under these extended warranty and maintenance arrangements for the
years ended December 31, 2009 and 2008 amounted to $193 million and $175
million, respectively.
NOTE
12: FINANCIAL INSTRUMENTS
The
following table presents the carrying amounts, estimated fair values, and
location in the Consolidated Statement of Financial Position for the Company’s
financial instruments:
|
|
|
Assets
|
|
(in
millions)
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
Balance
Sheet Location
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
(1)
|
Other
long-term assets
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
7 |
|
Held-to-maturity
(2)
|
Other
current assets and Other long-term assets
|
|
|
8 |
|
|
|
9 |
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
contracts (1)
|
Other
current assets
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (1)
|
Other
current assets
|
|
|
7 |
|
|
|
7 |
|
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
(in
millions)
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
Balance
Sheet Location
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, net of current portion (2)
|
Long-term
debt, net of current portion
|
|
$ |
1,129 |
|
|
$ |
1,142 |
|
|
$ |
1,252 |
|
|
$ |
926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
contracts (1)
|
Accounts
payable and other current liabilities
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts (1)
|
Accounts
payable and other current liabilities
|
|
|
11 |
|
|
|
11 |
|
|
|
80 |
|
|
|
80 |
|
Foreign
exchange contracts (1)
|
Other
long-term liabilities
|
|
|
6 |
|
|
|
6 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Recorded
at fair value.
(2) Recorded
at historical cost.
Long-term
debt is generally used to finance long-term investments, while short-term
borrowings (excluding the current portion of long-term debt) are used to meet
working capital requirements. The Company 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 the Company’s forward contracts are determined using significant other
observable inputs (Level 2
fair
value measurements), and are based on the present value of expected future cash
flows considering the risks involved and using discount rates appropriate for
the duration of the contracts. 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,
trade receivables, short-term borrowings and payables (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 related hedging activities, are shown below:
(in
millions)
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
gain (loss)
|
|
$ |
(2 |
) |
|
$ |
7 |
|
|
$ |
2 |
|
Derivative
financial instruments
The
Company, 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. The Company manages such exposures, in part, with
derivative financial instruments.
Foreign
currency forward contracts are used to hedge existing foreign currency
denominated assets and liabilities, especially those of the Company’s
International Treasury Center. Silver forward contracts are used to
mitigate the Company’s risk to fluctuating silver prices. The
Company’s exposure to changes in interest rates results from its investing and
borrowing activities used to meet its liquidity needs.
The
Company’s financial instrument counterparties are high-quality investment or
commercial banks with significant experience with such
instruments. The Company manages exposure to counterparty credit risk
by requiring specific minimum credit standards and diversification of
counterparties. The Company has procedures to monitor the credit
exposure amounts. The maximum credit exposure at December 31, 2009
was not significant to the Company.
In the
event of a default under the Company’s Amended Credit Agreement, or a default
under any derivative contract or similar obligation of the Company, 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 December 31, 2009, the
Company had open derivative contracts in liability positions with a total fair
value of $17 million.
The
location and amounts of 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 Goods Sold
(Effective Portion)
|
|
|
Gain
(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
|
(in
millions)
|
|
For
the Year Ended
December
31,
|
|
|
For
the Year Ended
December
31,
|
|
|
For
the Year Ended
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
contracts
|
|
$ |
12 |
|
|
$ |
(16 |
) |
|
$ |
7 |
|
|
$ |
8 |
|
|
$ |
- |
|
|
$ |
- |
|
Foreign
exchange contracts
|
|
|
- |
|
|
|
- |
|
|
|
(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 Year Ended
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
Other
income (charges), net
|
|
$ |
29 |
|
|
$ |
(75 |
) |
Foreign
currency forward contracts
The
Company’s foreign currency forward contracts used to hedge 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). The notional amount of such
contracts open at December 31, 2009 was approximately $900
million. The majority of the contracts of this type held by the
Company are denominated in euros and British
pounds.
Additionally,
the Company may enter into foreign currency forward contracts that are
designated as cash flow hedges of exchange rate risk related to forecasted
foreign currency denominated purchases, sales and intercompany
sales.
A
subsidiary of the Company has entered into intercompany foreign currency forward
contracts that were designated as cash flow hedges of exchange rate risk related
to forecasted foreign currency denominated intercompany sales. By
December 31, 2009, all such contracts had been dedesignated as hedges according
to the hedge strategy and there were no related amounts remaining in accumulated
other comprehensive (loss) income. During 2009, a gain of less than
$1 million was reclassified into cost of goods sold. Hedge
ineffectiveness was insignificant. The fair value of the remaining
open contracts was a net gain of less than $1 million and the notional amount
was $2 million.
A
subsidiary of the Company has entered into intercompany foreign currency forward
contracts that were designated as cash flow hedges of exchange rate risk related
to forecasted foreign currency denominated purchases. By December 31,
2009, all such contracts had been dedesignated as hedges according to the hedge
strategy and there were no related amounts remaining in accumulated other
comprehensive (loss) income. During 2009, a loss of $2 million was
reclassified into cost of goods sold. Hedge ineffectiveness was
insignificant. The fair value of the remaining open contracts was a
net loss of less than $1 million and the notional amount was $5
million.
Silver
forward contracts
The
Company enters into silver forward contracts that are designated as cash flow
hedges of commodity price risk related to forecasted purchases of
silver. The value of the notional amounts of such contracts open at
December 31, 2009 was $41 million. Hedge gains and
losses
related to these silver forward contracts are reclassified into cost of goods
sold as the related silver-containing products are sold to third
parties. These gains or losses transferred to cost of goods sold are
generally offset by increased or decreased costs of silver purchased in the open
market. The amount of existing gains and losses at December 31, 2009
to be reclassified into earnings within the next 12 months is a net gain of $6
million. At December 31, 2009, the Company had hedges of forecasted
purchases through October 2010.
NOTE
13: OTHER OPERATING (INCOME) EXPENSES, NET
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
(Income)
expenses:
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment (1)
|
|
$ |
- |
|
|
$ |
785 |
|
|
$ |
- |
|
Long-lived
asset impairments
|
|
|
8 |
|
|
|
4 |
|
|
|
56 |
|
Gains
related to the sales of assets and businesses (2)
|
|
|
(100 |
) |
|
|
(25 |
) |
|
|
(158 |
) |
Other
|
|
|
4 |
|
|
|
2 |
|
|
|
6 |
|
Total
|
|
$ |
(88 |
) |
|
$ |
766 |
|
|
$ |
(96 |
) |
(1)
|
Refer
to Note 5, “Goodwill and Other Intangible Assets,” in the Notes to
Financial Statements.
|
(2)
|
In
November 2009, the Company agreed to terminate its patent infringement
litigation with LG Electronics, Inc., LG Electronics USA, Inc., and LG
Electronics Mobilecomm USA, Inc., entered into a technology cross license
agreement with LG Electronics, Inc. and agreed to sell assets of its OLED
group to Global OLED Technology LLC, an entity established by LG
Electronics, Inc., LG Display Co., Ltd. and LG Chem, Ltd. As the
transactions were entered into in contemplation of one another, in order
to reflect the asset sale separately from the licensing transaction, the
total consideration was allocated between the asset sale and the licensing
transaction based on the estimated fair value of the assets sold. Fair
value of the assets sold was estimated using other competitive bids
received by the Company. Accordingly, $100 million of the proceeds was
allocated to the asset sale. The remaining gross proceeds of $414 million
were allocated to the licensing transaction and reported in net sales of
the CDG segment.
|
NOTE 14: OTHER INCOME
(CHARGES), NET
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Income
(charges):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
12 |
|
|
$ |
71 |
|
|
$ |
95 |
|
(Loss)
gain on foreign exchange transactions
|
|
|
(2 |
) |
|
|
7 |
|
|
|
2 |
|
Support
for an educational institution
|
|
|
- |
|
|
|
(10 |
) |
|
|
- |
|
Legal
settlements
|
|
|
19 |
|
|
|
- |
|
|
|
- |
|
MUTEC
equity method investment impairment
|
|
|
- |
|
|
|
(4 |
) |
|
|
(5 |
) |
Other
|
|
|
1 |
|
|
|
(9 |
) |
|
|
(6 |
) |
Total
|
|
$ |
30 |
|
|
$ |
55 |
|
|
$ |
86 |
|
NOTE
15: INCOME TAXES
The
components of loss from continuing operations before income taxes and the
related (benefit) provision for U.S. and other income taxes were as
follows:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings from continuing operations
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
(410 |
) |
|
$ |
(382 |
) |
|
$ |
(354 |
) |
Outside
the U.S.
|
|
|
293 |
|
|
|
(492 |
) |
|
|
97 |
|
Total
|
|
$ |
(117 |
) |
|
$ |
(874 |
) |
|
$ |
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
provision (benefit)
|
|
$ |
8 |
|
|
$ |
(278 |
) |
|
$ |
(237 |
) |
Deferred
(benefit) provision
|
|
|
(7 |
) |
|
|
15 |
|
|
|
11 |
|
Income
taxes outside the U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
provision
|
|
|
113 |
|
|
|
72 |
|
|
|
141 |
|
Deferred
provision
|
|
|
- |
|
|
|
38 |
|
|
|
49 |
|
State
and other income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
(benefit) provision
|
|
|
(1 |
) |
|
|
7 |
|
|
|
(15 |
) |
Deferred
provision (benefit)
|
|
|
2 |
|
|
|
(1 |
) |
|
|
- |
|
Total
provision (benefit)
|
|
$ |
115 |
|
|
$ |
(147 |
) |
|
$ |
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
differences between income taxes computed using the U.S. federal income tax rate
and the (benefit) provision for income taxes for continuing operations were as
follows:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Amount
computed using the statutory rate
|
|
$ |
(41 |
) |
|
$ |
(306 |
) |
|
$ |
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(reduction) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and other income taxes, net of federal
|
|
|
1 |
|
|
|
4 |
|
|
|
(15 |
) |
Foreign
tax credits benefitted
|
|
|
- |
|
|
|
- |
|
|
|
(76 |
) |
Impact
of goodwill impairment
|
|
|
- |
|
|
|
229 |
|
|
|
- |
|
Operations
outside the U.S.
|
|
|
45 |
|
|
|
31 |
|
|
|
54 |
|
Valuation
allowance
|
|
|
117 |
|
|
|
146 |
|
|
|
152 |
|
Tax
settlements and adjustments, including
interest
|
|
|
(4 |
) |
|
|
(248 |
) |
|
|
(65 |
) |
Other,
net
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(11 |
) |
Provision
(benefit) for income taxes
|
|
$ |
115 |
|
|
$ |
(147 |
) |
|
$ |
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In June
2008, the Company received a tax refund from the U.S. Internal Revenue Service
(“IRS”) of $581 million. The refund is related to the audit of
certain claims filed for tax years 1993-1998, and is composed of a refund of
past federal income taxes paid of $306 million and $275 million of interest
earned on the refund. The federal tax refund claim related primarily
to a 1994 loss recognized on the Company’s sale of stock of a subsidiary,
Sterling Winthrop Inc., which was originally disallowed under IRS regulations in
effect at that time. The IRS subsequently issued revised regulations
that served as the basis for this refund.
The
refund had a positive impact of $565 million on the Company’s net earnings for
the year ended December 31, 2008. Of the $565 million increase in net
earnings, $295 million related to the 1994 sale of Sterling Winthrop Inc., which
was reflected in earnings from discontinued operations, net of income
taxes. The balance of $270 million, which represents interest, net of
state income tax, was reflected in loss from continuing operations and is
included in the “Tax settlements and adjustments, including interest” line item
above. The difference between the cash refund received of $581
million and the positive net earnings impact of $565 million represented
incremental state tax expense incurred and the release of an existing income tax
receivable related to the refund.
Deferred
Tax Assets and Liabilities
The
significant components of deferred tax assets and liabilities were as
follows:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Pension
and postretirement obligations
|
|
$ |
803 |
|
|
$ |
534 |
|
Restructuring
programs
|
|
|
16 |
|
|
|
28 |
|
Foreign
tax credit
|
|
|
350 |
|
|
|
270 |
|
Inventories
|
|
|
15 |
|
|
|
- |
|
Investment
tax credit
|
|
|
159 |
|
|
|
168 |
|
Employee
deferred compensation
|
|
|
91 |
|
|
|
84 |
|
Research
and development costs
|
|
|
146 |
|
|
|
29 |
|
Tax
loss carryforwards
|
|
|
931 |
|
|
|
912 |
|
Other
deferred revenue
|
|
|
32 |
|
|
|
35 |
|
Other
|
|
|
486 |
|
|
|
453 |
|
Total
deferred tax assets
|
|
$ |
3,029 |
|
|
$ |
2,513 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26 |
|
|
|
59 |
|
Leasing
|
|
|
51 |
|
|
|
58 |
|
Inventories
|
|
|
- |
|
|
|
16 |
|
Other
|
|
|
143 |
|
|
|
136 |
|
Total
deferred tax liabilities
|
|
|
220 |
|
|
|
269 |
|
Net
deferred tax assets before valuation allowance
|
|
|
2,809 |
|
|
|
2,244 |
|
Valuation
allowance
|
|
|
2,092 |
|
|
|
1,665 |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$ |
717 |
|
|
$ |
579 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets (liabilities) are reported in the following components within the
Consolidated Statement of Financial Position:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
$ |
121 |
|
|
$ |
114 |
|
Other
long-term assets
|
|
|
607 |
|
|
|
506 |
|
Accrued
income and other taxes
|
|
|
- |
|
|
|
(4 |
) |
Other
long-term liabilities
|
|
|
(11 |
) |
|
|
(37 |
) |
Net
deferred tax assets
|
|
$ |
717 |
|
|
$ |
579 |
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2009, the Company had available domestic and foreign net operating
loss carryforwards for income tax purposes of approximately $3,046 million, of
which approximately $561 million have an indefinite carryforward
period. The remaining $2,485 million expire between the years 2010
and 2029. Utilization of these net operating losses may be subject to
limitations in the event of significant changes in stock ownership of the
Company. As of December 31, 2009, the Company had unused foreign tax
credits and investment tax credits of $350 million and $159 million,
respectively, with various expiration dates through 2029.
The
Company has been granted a tax holiday in certain jurisdictions in China that
becomes effective when the net operating loss carryforwards are fully
utilized. The Company is eligible for a 50% reduction of the income
tax rate as a tax holiday incentive. The tax rate currently varies by
jurisdiction, due to the tax holiday, and will be 25% in all jurisdictions
within China in 2012.
Retained
earnings of subsidiary companies outside the U.S. were approximately $1,842
million and $1,814 million as of December 31, 2009 and 2008,
respectively. Deferred taxes have not been provided on such
undistributed earnings, as it is the Company’s policy to indefinitely reinvest
its retained earnings. Further, it is not practicable to determine
the related deferred tax liability. However, the Company periodically
repatriates a portion of these earnings to the extent that it can do so
tax-free, or at minimal cost.
The
Company’s valuation allowance as of December 31, 2009 was $2,092
million. Of this amount, $445 million was attributable to the
Company’s net deferred tax assets outside the U.S. of $910 million, and $1,647
million related to the Company’s net deferred tax assets in the U.S. of $1,899
million, which the Company believes it is not more likely than not that the
assets will be realized. The net deferred tax assets in excess of the
valuation allowance of $717 million relate primarily to net operating loss
carryforwards, certain tax credits, and pension related tax benefits which the
Company believes it is more likely than not that the assets will be realized.
The
valuation allowance as of December 31, 2008 was $1,665 million. Of
this amount, $378 million was attributable to the Company’s net deferred tax
assets outside the U.S. of $722 million, and $1,287 million related to the
Company’s net deferred tax assets in the U.S. of $1,522 million, which the
Company believes it is not more likely than not that the assets will be
realized. The net deferred tax assets in excess of the valuation
allowance of $579 million related primarily to net operating loss carryforwards
and certain tax credits which the Company believes it is more likely than not
that the assets will be
realized.
Accounting
for Uncertainty in Income Taxes
A
reconciliation of the beginning and ending amount of the Company’s liability for
income taxes associated with unrecognized tax benefits is as follows:
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1
|
|
$ |
296 |
|
|
$ |
303 |
|
|
$ |
305 |
|
Tax
positions related to the current year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
10 |
|
|
|
54 |
|
|
|
59 |
|
Reductions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax
positions related to prior years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
8 |
|
|
|
16 |
|
|
|
45 |
|
Reductions
|
|
|
(58 |
) |
|
|
(74 |
) |
|
|
(101 |
) |
Settlements
with taxing authorities
|
|
|
- |
|
|
|
(3 |
) |
|
|
(4 |
) |
Lapses
in statutes of limitations
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Balance
as of December 31
|
|
$ |
256 |
|
|
$ |
296 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s policy regarding interest and/or penalties related to income tax
matters is to recognize such items as a component of income tax (benefit)
expense. During the years ended December 31, 2009, 2008 and 2007, the
Company recognized interest and penalties of approximately $8 million, $10
million and $10 million, respectively, in income tax (benefit)
expense. Additionally, the Company had approximately $69 million and
$61 million of interest and penalties associated with uncertain tax benefits
accrued as of December 31, 2009 and 2008,
respectively.
If the
unrecognized tax benefits were recognized, they would favorably affect the
effective income tax rate in the period recognized. The Company has
classified certain income tax liabilities as current or noncurrent based on
management’s estimate of when these liabilities will be
settled. These noncurrent income tax liabilities are recorded in
Other long-term liabilities in the Consolidated Statement of Financial
Position. Current liabilities are recorded in Accrued income and
other taxes in the Consolidated Statement of Financial
Position.
It is
reasonably possible that the liability associated with the Company’s
unrecognized tax benefits will increase or decrease within the next twelve
months. These changes may be the result of ongoing audits or the
expiration of statutes of limitations. Settlements could range from
$0 to $100 million based on current estimates. Audit outcomes and the
timing of audit settlements are subject to significant
uncertainty. Although management believes that adequate provision has
been made for such issues, there is the possibility that the ultimate resolution
of such issues could have an adverse effect on the earnings of the
Company. Conversely, if these issues are resolved favorably in the
future, the related provision would be reduced, thus having a positive impact on
earnings. It is anticipated that audit settlements will be reached
during 2010 that could have a significant earnings impact. Due to the
uncertainty of amounts and in accordance with its accounting policies, the
Company has not recorded any potential impact of these
settlements.
The
Company files numerous consolidated and separate income tax returns in the U.S.
federal jurisdiction and in many state and foreign jurisdictions. The
Company has substantially concluded all U.S. federal income tax matters for
years through 2000. The Company’s U.S. tax matters for the years 2001
through 2008 remain subject to examination by the IRS. Substantially
all material state, local, and foreign income tax matters have been concluded
for years through 2000. The Company’s tax matters for the years 2001
through 2008 remain subject to examination by the respective state, local, and
foreign tax jurisdiction authorities.
NOTE
16: RESTRUCTURING AND RATIONALIZATION LIABILITIES
Actual
charges for restructuring and ongoing rationalization initiatives are recorded
in the period in which the Company commits to formalized restructuring or
ongoing rationalization plans, or executes the specific actions contemplated by
the plans and all criteria for liability recognition under the applicable
accounting guidance have been met.
Restructuring
and Ongoing Rationalization Reserve Activity
The
activity in the accrued balances and the non-cash charges and credits incurred
in relation to restructuring programs and ongoing rationalization activities
during the three years ended December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
Long-lived
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Costs
|
|
|
and
Inventory
|
|
|
Accelerated
|
|
|
|
|
(in
millions)
|
|
Reserve
|
|
|
Reserve
|
|
|
Write-downs
|
|
|
Depreciation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$ |
228 |
|
|
$ |
35 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
charges - continuing operations (1)
|
|
|
145 |
|
|
|
129 |
|
|
|
282 |
|
|
|
107 |
|
|
|
663 |
|
2007
charges - discontinued operations
|
|
|
20 |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
24 |
|
2007
reversals - continuing operations
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
2007
reversals - discontinued operations
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
2007
cash payments/utilization (2)
|
|
|
(289 |
) |
|
|
(135 |
) |
|
|
(282 |
) |
|
|
(107 |
) |
|
|
(813 |
) |
2007
other adj. & reclasses (3)
|
|
|
26 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
|
Balance
at December 31, 2007
|
|
|
129 |
|
|
|
35 |
|
|
|
- |
|
|
|
- |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
charges - continuing operations (4)
|
|
|
122 |
|
|
|
14 |
|
|
|
16 |
|
|
|
6 |
|
|
|
158 |
|
2008
reversals - continuing operations
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
|
(9 |
) |
2008
cash payments/utilization (5)
|
|
|
(111 |
) |
|
|
(22 |
) |
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(155 |
) |
2008
other adjustments & reclasses (6)
|
|
|
(25 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
|
(28 |
) |
Balance
at December 31, 2008
|
|
|
109 |
|
|
|
21 |
|
|
|
- |
|
|
|
- |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
charges - continuing operations (7)
|
|
|
193 |
|
|
|
27 |
|
|
|
16 |
|
|
|
22 |
|
|
|
258 |
|
2009
cash payments/utilization (8)
|
|
|
(154 |
) |
|
|
(23 |
) |
|
|
(16 |
) |
|
|
(22 |
) |
|
|
(215 |
) |
2009
other adjustments & reclasses (9)
|
|
|
(80 |
) |
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
(78 |
) |
Balance
at December 31, 2009 (10)
|
|
$ |
68 |
|
|
$ |
27 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Severance
reserve includes charges of $233 million, offset by net curtailment and
settlement gains related to these actions of $88
million.
|
(2)
|
During
the year ended December 31, 2007, the Company made cash payments of
approximately $446 million related to restructuring. Of this
amount, $424 million was paid out of restructuring liabilities, while $22
million was paid out of Pension and other postretirement liabilities.
|
(3)
|
Includes
$13 million of net credits for severance related pension plan
curtailments, settlements, and special termination
benefits. Also includes $1 million of environmental remediation
costs and $2 million of other severance related costs. The
remaining $13 million is related to foreign currency translation
adjustments.
|
(4)
|
Severance
reserve activity includes charges of $139 million, offset by net
curtailment gains related to these actions of $17
million.
|
(5)
|
During
the year ended December 31, 2008, the Company made cash payments of
approximately $143 million related to restructuring and
rationalization. Of this amount, $133 million was paid out of
restructuring liabilities, while $10 million was paid out of Pension and
other postretirement
liabilities.
|
(6)
|
Includes
$23 million of severance related charges for pension plan curtailments,
settlements, and special termination benefits, which are reflected in
Pension and other postretirement liabilities and Other long-term assets in
the Consolidated Statement of Financial Position. The remaining
amounts are primarily related to foreign currency translation
adjustment.
|
(7)
|
Severance
reserve activity includes charges of $191 million, and net curtailment and
settlement losses related to these actions of $2
million.
|
(8)
|
During
the year ended December 31, 2009, the Company made cash payments of
approximately $177 million related to restructuring and rationalization,
all of which was paid out of restructuring
liabilities.
|
(9)
|
Includes
$84 million of severance related charges for pension plan curtailments,
settlements, and special termination benefits, which are reflected in
Pension and other postretirement liabilities and Other long-term assets in
the Consolidated Statement of Financial Position, partially offset by
foreign currency translation
adjustments.
|
(10)
|
The
Company expects to utilize the majority of the December 31, 2009 accrual
balance in 2010.
|
2007
Activity
For the
year ended December 31, 2007, the Company incurred restructuring charges, net of
reversals, of $685 million, all under the 2004-2007 Restructuring Program,
including $23 million related to discontinued operations ($20 million of
severance costs and $3 million of exit costs), and $662 million related to
continuing operations ($107 million of accelerated depreciation, $12 million of
inventory write-downs, $270 million of asset impairments, $144 million of
severance costs, and $129 million of exit costs). The Company
substantially completed its 2004-2007 Restructuring Program as of December 31,
2007.
2008
Activity
The
Company recognizes the need to continually rationalize its workforce and
streamline its operations to remain competitive in the face of an ever-changing
business and economic climate. For 2008, these initiatives were
referred to as ongoing rationalization activities.
The
Company recorded $149 million of charges, net of reversals, including $6 million
of charges for accelerated depreciation and $3 million of charges for inventory
write-downs, which were reported in Cost of goods sold in the accompanying
Consolidated Statement of Operations for the year ended December 31,
2008. The remaining costs incurred, net of reversals, of $140 million
were reported as Restructuring costs, rationalization and other in the
accompanying Consolidated Statement of Operations for the year ended December
31, 2008. The severance and exit costs reserves require the outlay of
cash, while long-lived asset impairments, accelerated depreciation and inventory
write-downs represent non-cash items.
The
severance costs related to the elimination of approximately 2,350 positions,
including approximately 375 photofinishing, 1,050 manufacturing, 175 research
and development, and 750 administrative positions. The geographic
composition of the positions eliminated includes approximately 1,450 in the
United States and Canada, and 900 throughout the rest of the world.
The
charges, net of reversals, of $149 million recorded in 2008 included $36 million
applicable to the FPEG segment, $42 million applicable to the CDG segment, $49
million applicable to the GCG segment, and $22 million that was applicable to
manufacturing, research and development, and administrative functions, which are
shared across all segments.
As a
result of these initiatives, severance payments were paid during periods through
2009 since, in many instances, the employees whose positions were eliminated can
elect or are required to receive their payments over an extended period of
time. In addition, certain exit costs, such as long-term lease
payments, will continue to be paid over periods beyond 2009.
2009
Activity
On
December 17, 2008, the Company committed to a plan to implement a targeted cost
reduction program (the 2009 Program) to more appropriately size the organization
as a result of economic conditions. The program involved
rationalizing selling, administrative, research and development, supply chain
and other business resources in certain areas and consolidating certain
facilities.
The
Company recorded $258 million of charges, including $22 million of charges for
accelerated depreciation and $10 million of charges for inventory write-downs,
which were reported in Cost of goods sold in the accompanying Consolidated
Statement of Operations for the year ended December 31, 2009. The
remaining costs incurred of $226 million were reported as Restructuring costs,
rationalization and other in the accompanying Consolidated Statement of
Operations for the year ended December 31, 2009. The severance and
exit
costs
reserves require the outlay of cash, while long-lived asset impairments,
accelerated depreciation and inventory write-downs represent non-cash
items.
The
severance costs related to the elimination of approximately 3,225 positions,
including approximately 1,475 manufacturing, 750 research and development, and
1,000 administrative positions. The geographic composition of the
positions eliminated includes approximately 1,950 in the United States and
Canada, and 1,275 throughout the rest of the world.
The
charges of $258 million recorded in 2009 included $69 million applicable to the
FPEG segment, $34 million applicable to the CDG segment, $112 million applicable
to the GCG segment, and $43 million that was applicable to manufacturing,
research and development, and administrative functions, which are shared across
all segments.
As a
result of these initiatives, severance payments will be paid during periods
through 2010 since, in many instances, the employees whose positions were
eliminated can elect or are required to receive their payments over an extended
period of time. In addition, certain exit costs, such as long-term
lease payments, will be paid over periods throughout 2010 and
beyond.
NOTE
17: RETIREMENT PLANS
Substantially
all U.S. employees
are covered by a noncontributory defined benefit plan, the Kodak Retirement
Income Plan (“KRIP”), which is funded by Company contributions to an irrevocable
trust fund. The funding policy for KRIP is to contribute amounts
sufficient to meet minimum funding requirements as determined by employee
benefit and tax laws plus any additional amounts the Company determines to be
appropriate. Generally, benefits are based on a formula recognizing
length of service and final average earnings. Assets in the trust
fund are held for the sole benefit of participating employees and
retirees. They are comprised of corporate equity and debt securities,
U.S. government securities, partnership investments, interests in pooled funds,
real estate, and various types of interest rate, foreign currency, debt and
equity market financial instruments.
In March
1999, the Company amended the KRIP to include a separate cash balance formula
for all U.S. employees hired after February 1999. All U.S. employees
hired prior to that date were granted the option to choose the traditional KRIP
plan or the Cash Balance plan. Written elections were made by
employees in 1999, and were effective January 1, 2000. The Cash
Balance plan credits employees' accounts with an amount equal to 4% of their
pay, plus interest based on the 30-year treasury bond rate. In
addition, for employees participating in the Cash Balance plan and the Company's
defined contribution plan, the Savings and Investment Plan (“SIP”), the Company
matches dollar-for-dollar on the first 1% contributed to SIP and $.50 for each
dollar on the next 4% contributed. Company contributions to SIP were
$13 million and $14 million for 2008, and 2007, respectively. The
Company suspended its matching contribution for 2009, but resumed it in
2010.
The
Company also sponsors unfunded defined benefit plans for certain U.S. employees,
primarily executives. The benefits of these plans are obtained by
applying KRIP provisions to all compensation, including amounts being deferred,
and without regard to the legislated qualified plan maximums, reduced by
benefits under KRIP. Employees covered by the Cash Balance plan also
receive an additional benefit equal to 3% of their annual pensionable
earnings. The Company suspended this additional benefit for 2009, but
resumed it in 2010.
Many
subsidiaries and branches operating outside the U.S. have defined benefit
retirement plans covering substantially all employees. Contributions
by the Company for these plans are typically deposited under government or other
fiduciary-type arrangements. Retirement benefits are generally based
on contractual agreements that provide for benefit formulas using years of
service and/or compensation prior to retirement. The actuarial
assumptions used for these plans reflect the diverse economic environments
within the various countries in which the Company operates.
The
measurement date used to determine the pension obligation for all funded and
unfunded U.S. and Non-U.S. defined benefit plans is December 31.
Information
regarding the major funded and unfunded U.S. and Non-U.S. defined benefit plans
follows:
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation at January 1
|
|
$ |
4,602 |
|
|
$ |
3,005 |
|
|
$ |
4,963 |
|
|
$ |
4,217 |
|
Acquisitions/divestitures/other
transfers
|
|
|
(1 |
) |
|
|
2 |
|
|
|
3 |
|
|
|
- |
|
Service
cost
|
|
|
52 |
|
|
|
15 |
|
|
|
54 |
|
|
|
20 |
|
Interest
cost
|
|
|
293 |
|
|
|
181 |
|
|
|
307 |
|
|
|
218 |
|
Participant
contributions
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
6 |
|
Plan
amendment
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
|
|
(7 |
) |
Benefit
payments
|
|
|
(663 |
) |
|
|
(237 |
) |
|
|
(576 |
) |
|
|
(254 |
) |
Actuarial
(gain) loss
|
|
|
500 |
|
|
|
373 |
|
|
|
(186 |
) |
|
|
(399 |
) |
Curtailments
|
|
|
(19 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Settlements
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
Special
termination benefits
|
|
|
78 |
|
|
|
5 |
|
|
|
36 |
|
|
|
4 |
|
Currency
adjustments
|
|
|
- |
|
|
|
223 |
|
|
|
- |
|
|
|
(798 |
) |
Projected
benefit obligation at December 31
|
|
$ |
4,842 |
|
|
$ |
3,572 |
|
|
$ |
4,602 |
|
|
$ |
3,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1
|
|
$ |
5,098 |
|
|
$ |
2,349 |
|
|
$ |
7,098 |
|
|
$ |
3,614 |
|
Acquisitions/divestitures
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
Actual
gain (loss) on plan assets
|
|
|
292 |
|
|
|
152 |
|
|
|
(1,453 |
) |
|
|
(492 |
) |
Employer
contributions
|
|
|
31 |
|
|
|
90 |
|
|
|
29 |
|
|
|
72 |
|
Participant
contributions
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
6 |
|
Settlements
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
Benefit
payments
|
|
|
(663 |
) |
|
|
(237 |
) |
|
|
(576 |
) |
|
|
(254 |
) |
Currency
adjustments
|
|
|
- |
|
|
|
170 |
|
|
|
- |
|
|
|
(597 |
) |
Fair
value of plan assets at December 31
|
|
$ |
4,758 |
|
|
$ |
2,533 |
|
|
$ |
5,098 |
|
|
$ |
2,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over
(Under) Funded Status at December 31
|
|
$ |
(84 |
) |
|
$ |
(1,039 |
) |
|
$ |
496 |
|
|
$ |
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation at December 31
|
|
$ |
4,683 |
|
|
$ |
3,473 |
|
|
$ |
4,392 |
|
|
$ |
2,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decline in funded status from December 31, 2008 to December 31, 2009 was
primarily due to lower discount rates.
Amounts
recognized in the Consolidated Statement of Financial Position for all major
funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term assets
|
|
$ |
131 |
|
|
$ |
16 |
|
|
$ |
717 |
|
|
$ |
48 |
|
Accounts
payable and other current liabilities
|
|
|
(21 |
) |
|
|
- |
|
|
|
(22 |
) |
|
|
(1 |
) |
Pension
and other postretirement liabilities
|
|
|
(194 |
) |
|
|
(1,055 |
) |
|
|
(199 |
) |
|
|
(703 |
) |
Net amount recognized
|
|
$ |
(84 |
) |
|
$ |
(1,039 |
) |
|
$ |
496 |
|
|
$ |
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
with respect to the major funded and unfunded U.S. and Non-U.S. defined benefit
plans with an accumulated benefit obligation in excess of plan assets follows:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$ |
351 |
|
|
$ |
2,682 |
|
|
$ |
343 |
|
|
$ |
2,692 |
|
Accumulated
benefit obligation
|
|
|
349 |
|
|
|
2,609 |
|
|
|
331 |
|
|
|
2,623 |
|
Fair
value of plan assets
|
|
|
136 |
|
|
|
1,639 |
|
|
|
122 |
|
|
|
1,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in Accumulated other comprehensive loss for all major funded and
unfunded U.S. and Non-U.S. defined benefit plans consisted of:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
transition obligation
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
Prior
service cost (credit)
|
|
|
8 |
|
|
|
(1 |
) |
|
|
10 |
|
|
|
(4 |
) |
Net
actuarial loss
|
|
|
1,509 |
|
|
|
1,411 |
|
|
|
839 |
|
|
|
918 |
|
Total
|
|
$ |
1,517 |
|
|
$ |
1,411 |
|
|
$ |
849 |
|
|
$ |
915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in plan assets and benefit obligations recognized in other comprehensive income
(loss) during 2009 for all major funded and unfunded U.S. and Non-U.S. defined
benefit plans follows:
|
|
2009
|
|
|
2008
|
|
(in
millions)
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newly
established loss
|
|
$ |
695 |
|
|
$ |
428 |
|
|
$ |
1,810 |
|
|
$ |
352 |
|
Newly
established prior service cost
|
|
|
- |
|
|
|
2 |
|
|
|
3 |
|
|
|
(7 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Net
actuarial loss
|
|
|
(5 |
) |
|
|
(13 |
) |
|
|
(4 |
) |
|
|
(48 |
) |
Prior
service cost recognized due to curtailment
|
|
|
(1 |
) |
|
|
- |
|
|
|
1 |
|
|
|
- |
|
Net
curtailment gain not recognized in expense
|
|
|
(19 |
) |
|
|
(3 |
) |
|
|
10 |
|
|
|
4 |
|
Net
gain recognized in expense due to settlements
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
(8 |
) |
Total
amount recognized in Other comprehensive
loss
|
|
$ |
668 |
|
|
$ |
409 |
|
|
$ |
1,819 |
|
|
$ |
292 |
|
The
actuarial loss and prior service cost estimated to be amortized from Accumulated
other comprehensive loss into net periodic pension cost over the next year for
all major plans is $39 million and $2 million,
respectively.
Pension
(income) expense from continuing operations for all defined benefit plans
included:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Major
defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
52 |
|
|
$ |
15 |
|
|
$ |
54 |
|
|
$ |
20 |
|
|
$ |
71 |
|
|
$ |
27 |
|
Interest
cost
|
|
|
293 |
|
|
|
181 |
|
|
|
307 |
|
|
|
218 |
|
|
|
304 |
|
|
|
204 |
|
Expected
return on plan assets
|
|
|
(486 |
) |
|
|
(208 |
) |
|
|
(545 |
) |
|
|
(259 |
) |
|
|
(537 |
) |
|
|
(258 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Actuarial
loss
|
|
|
5 |
|
|
|
13 |
|
|
|
4 |
|
|
|
48 |
|
|
|
6 |
|
|
|
57 |
|
Pension
(income) expense before special termination
benefits, curtailments and settlements
|
|
|
(134 |
) |
|
|
2 |
|
|
|
(179 |
) |
|
|
28 |
|
|
|
(156 |
) |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
termination benefits
|
|
|
78 |
|
|
|
5 |
|
|
|
36 |
|
|
|
4 |
|
|
|
61 |
|
|
|
14 |
|
Curtailment
gains
|
|
|
- |
|
|
|
(1 |
) |
|
|
(13 |
) |
|
|
(6 |
) |
|
|
(25 |
) |
|
|
(4 |
) |
Settlement
losses (gains)
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
(61 |
) |
|
|
(4 |
) |
Net
pension (income) expense for
major defined
benefit plans
|
|
|
(56 |
) |
|
|
7 |
|
|
|
(156 |
) |
|
|
26 |
|
|
|
(181 |
) |
|
|
37 |
|
Other
plans including unfunded plans
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
13 |
|
Net
pension (income) expense from
continuing
operations
|
|
$ |
(56 |
) |
|
$ |
10 |
|
|
$ |
(156 |
) |
|
$ |
35 |
|
|
$ |
(181 |
) |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
special termination benefits of $83 million, $40 million, and $75 million for
the years ended December 31, 2009, 2008, and 2007, respectively, were incurred
as a result of the Company's restructuring actions and, therefore, have been
included in Restructuring costs, rationalization and other in the Consolidated
Statement of Operations for those respective periods. In addition,
curtailment and settlement gains for the major funded and unfunded U.S. and
Non-U.S. defined benefit plans totaling $14 million and $0 for 2008, and $32
million and $51 million for 2007 were also incurred as a result of the Company's
restructuring actions and, therefore, have been included in Restructuring costs,
rationalization and other in the Consolidated Statement of Operations for those
respective periods. There was no impact of curtailments or
settlements incurred as a result of the Company’s restructuring actions in
2009.
The
weighted-average assumptions used to determine the benefit obligation amounts as
of the end of the year for all major funded and unfunded U.S. and Non-U.S.
defined benefit plans were as follows:
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.75 |
% |
|
|
5.41 |
% |
|
|
7.00 |
% |
|
|
5.93 |
% |
Salary
increase rate
|
|
|
3.89 |
% |
|
|
3.86 |
% |
|
|
4.06 |
% |
|
|
3.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average assumptions used to determine net pension (income) expense for
all the major funded and unfunded U.S. and Non-U.S. defined benefit plans were
as follows:
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.76 |
% |
|
|
5.91 |
% |
|
|
6.52 |
% |
|
|
5.77 |
% |
|
|
6.12 |
% |
|
|
5.36 |
% |
Salary
increase rate
|
|
|
3.99 |
% |
|
|
3.45 |
% |
|
|
4.51 |
% |
|
|
3.92 |
% |
|
|
4.59 |
% |
|
|
3.84 |
% |
Expected
long-term rate of return on plan assets
|
|
|
8.49 |
% |
|
|
7.28 |
% |
|
|
8.99 |
% |
|
|
7.71 |
% |
|
|
8.99 |
% |
|
|
8.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
Asset Investment Strategy
The
investment strategy underlying the asset allocation for the pension assets is to
achieve an optimal return on assets with an acceptable level of risk while
providing for the long-term liabilities, and maintaining sufficient liquidity to
pay current benefits and other cash obligations of the plans. This is
primarily achieved by investing in a broad portfolio constructed of various
asset classes including equity and equity-like investments, debt and debt-like
investments, real estate, private equity and other assets and instruments.
Long duration bonds are used to partially match the long-term nature of plan
liabilities. Other investment objectives include maintaining broad
diversification between and within asset classes and fund managers, and managing
asset volatility relative to plan liabilities.
Every
three years, or when market conditions have changed materially, each of the
Company’s major pension plans will undertake an asset allocation or asset and
liability modeling study. The asset allocation and expected return on
the plans’ assets are individually set to provide for benefits and other cash
obligations and within each country’s legal investment constraints.
Actual
allocations may vary from the target asset allocations due to market value
fluctuations, the length of time it takes to implement changes in strategy, and
the timing of cash contributions and cash requirements of the
plans. The asset allocations are monitored, and are rebalanced in
accordance with the policy set forth for each plan.
Of the
total plan assets attributable to the major U.S. defined benefit plans at
December 31, 2009 and 2008, 97% relate to KRIP. The expected
long-term rate of return on plan assets assumption (“EROA”) is based on a
combination of formal asset and liability studies that include forward-looking
return expectations given the current asset allocation. In early
2008, an asset and liability modeling study for the KRIP was completed and
resulted in a 9% EROA assumption. During the fourth quarter of 2008,
the Kodak Retirement Income Plan Committee (“KRIPCO”, the committee that
oversees KRIP) reevaluated certain portfolio positions relative to current
market conditions and accordingly approved a change to the portfolio to reduce
risk associated with volatility in the financial markets. The Company
originally assumed an 8% EROA for 2009 for the KRIP based on its asset
allocation at December 31, 2008. During the first quarter of 2009,
KRIPCO again approved a change in the asset allocation for the
KRIP. A new asset and liability study was completed and resulted in
an 8.75% EROA. As the KRIP was remeasured as of March 31, 2009, the
Company’s long term assumption for EROA for the remainder of 2009 was updated at
that time to reflect the change in asset
allocation.
The
annual expected return on plan assets for the major non-U.S. pension plans range
from 3.64% to 8.10% for 2009. Certain of the Company’s non-U.S.
pension plans adjusted their target asset positions during the fourth quarter of
2008. EROA assumptions for 2009 for those plans were based on their
respective asset allocations as of the end of the year. As with the
KRIP, the asset allocations for certain of the Company’s other pension plans
were reassessed during 2009 and updated. Asset and liability studies
were therefore completed for those plans during 2009. EROA
assumptions for those plans were updated
accordingly.
Plan
Asset Risk Management
The
Company evaluates its defined benefit plans’ asset portfolios for the existence
of significant concentrations of risk. Types of concentrations that
are evaluated include, but are not limited to, investment concentrations in a
single entity, type of industry, foreign country, and individual
fund. As of December 31, 2009, there were no significant
concentrations (defined as greater than 10 percent of plan assets) of risk in
the Company’s defined benefit plan assets.
The
Company's weighted-average asset allocations for its major U.S. defined benefit
pension plans, by asset category, are as follows:
|
|
As
of December 31,
|
|
Asset
Category
|
|
2009
|
|
|
2008
|
|
|
2009
Target
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
21 |
% |
|
|
6 |
% |
|
|
18%-21 |
% |
Debt
securities
|
|
|
45 |
% |
|
|
25 |
% |
|
|
41%-47 |
% |
Real
estate
|
|
|
6 |
% |
|
|
7 |
% |
|
|
4%-10 |
% |
Cash
|
|
|
2 |
% |
|
|
17 |
% |
|
|
0%-3 |
% |
Other
|
|
|
26 |
% |
|
|
45 |
% |
|
|
24%-30 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's weighted-average asset allocations for its major non-U.S. defined
benefit pension plans, by asset category are as follows:
|
|
As
of December 31,
|
|
Asset
Category
|
|
2009
|
|
|
2008
|
|
|
2009
Target
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
15 |
% |
|
|
18 |
% |
|
|
12%-18 |
% |
Debt
securities
|
|
|
47 |
% |
|
|
30 |
% |
|
|
44%-50 |
% |
Real
estate
|
|
|
4 |
% |
|
|
5 |
% |
|
|
3%-9 |
% |
Cash
|
|
|
4 |
% |
|
|
9 |
% |
|
|
0%-5 |
% |
Other
|
|
|
30 |
% |
|
|
38 |
% |
|
|
27%-37 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Other
asset category in the tables above is primarily composed of private equity,
venture capital, and other investments.
Fair
Value Measurements
The
Company’s asset allocations by level within the fair value hierarchy at December
31, 2009 are presented in the tables below for the Company’s major defined
benefit plans. The Company’s plan assets were accounted for at fair
value and are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value of
assets and their placement within the fair value hierarchy
levels.
|
|
U.S.
|
|
(in
millions)
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
|
Significant Observable Inputs
(Level 2)
|
|
|
Significant Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
- |
|
|
$ |
84 |
|
|
$ |
- |
|
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Securities
|
|
|
979 |
|
|
|
14 |
|
|
|
- |
|
|
|
993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Bonds
|
|
|
800 |
|
|
|
- |
|
|
|
- |
|
|
|
800 |
|
Inflation-Linked
Bonds
|
|
|
63 |
|
|
|
756 |
|
|
|
- |
|
|
|
819 |
|
Investment
Grade Bonds
|
|
|
370 |
|
|
|
- |
|
|
|
- |
|
|
|
370 |
|
Global
High Yield & Emerging Market Debt
|
|
|
- |
|
|
|
144 |
|
|
|
- |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute
Return
|
|
|
- |
|
|
|
329 |
|
|
|
- |
|
|
|
329 |
|
Real
Estate
|
|
|
- |
|
|
|
- |
|
|
|
293 |
|
|
|
293 |
|
Private
Equity
|
|
|
- |
|
|
|
- |
|
|
|
958 |
|
|
|
958 |
|
Insurance
Contracts
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Derivatives
with unrealized
gains
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
Derivatives
with unrealized
losses
|
|
|
(38 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
(39 |
) |
|
|
$ |
2,179 |
|
|
$ |
1,328 |
|
|
$ |
1,251 |
|
|
$ |
4,758 |
|
For the
Company’s major U.S. defined benefit pension plans, equity investments are
invested broadly in U.S. equity, developed international equity, and emerging
markets. Fixed income investments are comprised primarily of long
duration U.S. Treasuries and global government bonds, as well as U.S. and
emerging market companies’ debt securities diversified by sector, geography, and
through a wide range of market capitalizations. Real estate
investments include investments in office, industrial, retail and apartment
properties. Other investments include private equity, hedge funds and
natural resource investments. Private equity investments are
primarily comprised of limited partnerships and fund-of-fund investments that
invest in distressed investments, venture capital, leveraged buyout and special
situation funds. Natural resource investments in oil and gas
partnerships and timber funds are also included in this
category. Absolute return investments are comprised of hedge funds
that use equity long-short strategies.
|
|
Non-U.S.
|
|
(in
millions)
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
|
Significant Observable Inputs
(Level 2)
|
|
|
Significant Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
- |
|
|
$ |
98 |
|
|
$ |
- |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
218 |
|
|
|
163 |
|
|
|
- |
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Bonds
|
|
|
432 |
|
|
|
116 |
|
|
|
- |
|
|
|
548 |
|
Inflation-Linked
Bonds
|
|
|
46 |
|
|
|
301 |
|
|
|
- |
|
|
|
347 |
|
Investment
Grade Bonds
|
|
|
43 |
|
|
|
64 |
|
|
|
- |
|
|
|
107 |
|
Global
High Yield & Emerging Market Debt
|
|
|
87 |
|
|
|
93 |
|
|
|
- |
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute
Return
|
|
|
- |
|
|
|
78 |
|
|
|
- |
|
|
|
78 |
|
Real
Estate
|
|
|
- |
|
|
|
4 |
|
|
|
99 |
|
|
|
103 |
|
Private
Equity
|
|
|
- |
|
|
|
2 |
|
|
|
242 |
|
|
|
244 |
|
Insurance
Contracts
|
|
|
- |
|
|
|
471 |
|
|
|
- |
|
|
|
471 |
|
Derivatives
with unrealized gains
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
Derivatives
with unrealized losses
|
|
|
(24 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
(27 |
) |
|
|
$ |
805 |
|
|
$ |
1,387 |
|
|
$ |
341 |
|
|
$ |
2,533 |
|
For the
Company’s major non-U.S. defined benefit pension plans, equity investments are
invested broadly in local equity, developed international and emerging
markets. Fixed income investments are comprised primarily of long
duration government and corporate bonds with some emerging market
debt. Real estate investments include investments in primarily
office, industrial, and retail properties. Other investments include
private equity, hedge funds, and insurance contracts. Private equity
investments are comprised of limited partnerships and fund-of-fund investments
that invest in distressed investments, venture capital and leveraged buyout
funds. Absolute return investments are comprised of hedge funds that
use equity long-short strategies.
Cash and
cash equivalents are valued utilizing cost approach valuation
techniques. Equity securities and debt securities are valued using a
market approach based on the closing price on the last business day of the year
(if the securities are traded on an active market), or based on the
proportionate share of the estimated fair value of the underlying assets (net
asset value). Other investments are valued using a combination of
market, income, and cost approaches, based on the nature of the
investment. Absolute return investments are primarily valued based on
net asset value. Real estate investments are primarily valued based
on independent appraisals and discounted cash flow models. Private
equity investments are primarily valued based on independent appraisals,
discounted cash flow models, cost, and comparable market
transactions. Insurance contracts are primarily valued based on
contract values, which approximate fair value.
Some of
the plans’ assets, primarily absolute return, real estate, and private equity,
do not have readily determinable market values due to the nature of these
investments. For these investments, fund manager or general partner
estimates were used where available. For investments with lagged
pricing, the Company used the available net asset values, and also considered
expected return, subsequent cash flows and material events.
For all
of the Company’s major defined benefit pension plans, investment managers are
selected that are expected to provide best-in-class asset management for their
particular asset class, and expected returns greater than those expected from
existing salable assets, especially if this would maintain the aggregate
volatility desired for each plan’s portfolio. Investment managers are
retained for the purpose of managing specific investment strategies within
contractual investment guidelines. Certain investment managers are
authorized to invest in derivatives such as futures, swaps and currency forward
contracts. These investments are used to achieve targeted exposure to
particular
index or
bond duration, provide value-added returns between asset classes, and to
partially hedge foreign currency risk. Additionally, the Company’s
major defined benefit pension plans invest in government bond futures or local
government bonds to partially hedge the liability risk of the
plans.
The
following is a reconciliation of the beginning and ending balances of level 3
assets of the Company’s major U.S. defined benefit pension plans:
(in
millions)
|
|
U.S.
|
|
|
|
Balance
at
January
1, 2009
|
|
|
Net
Realized and Unrealized Gains/(Losses)
|
|
|
Net
Purchases
and
Sales
|
|
|
Net
Transfer Into/(Out of)
Level
3
|
|
|
Balance
at
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
|
|
$ |
926 |
|
|
$ |
(5 |
) |
|
$ |
37 |
|
|
$ |
- |
|
|
$ |
958 |
|
Real
Estate
|
|
|
310 |
|
|
|
(36 |
) |
|
|
19 |
|
|
|
- |
|
|
|
293 |
|
Total
|
|
$ |
1,236 |
|
|
$ |
(41 |
) |
|
$ |
56 |
|
|
$ |
- |
|
|
$ |
1,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a reconciliation of the beginning and ending balances of level 3
assets of the Company’s major Non-U.S. defined benefit pension
plans:
(in
millions)
|
|
Non-U.S.
|
|
|
|
Balance
at
January
1, 2009
|
|
|
Net
Realized and Unrealized Gains/(Losses)
|
|
|
Net
Purchases
and
Sales
|
|
|
Net
Transfer Into/(Out of)
Level
3
|
|
|
Balance
at
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
|
|
$ |
223 |
|
|
$ |
(5 |
) |
|
$ |
24 |
|
|
$ |
- |
|
|
$ |
242 |
|
Real
Estate
|
|
|
140 |
|
|
|
(15 |
) |
|
|
(26 |
) |
|
|
- |
|
|
|
99 |
|
Total
|
|
$ |
363 |
|
|
$ |
(20 |
) |
|
$ |
(2 |
) |
|
$ |
- |
|
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company expects to contribute approximately $31 million and $104 million in 2010
for U.S. and Non-U.S. defined benefit pension plans,
respectively.
The
following pension benefit payments, which reflect expected future service, are
expected to be paid from the plans:
(in
millions)
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
2010
|
|
|
$ |
448 |
|
|
$ |
218 |
|
2011
|
|
|
|
418 |
|
|
|
212 |
|
2012
|
|
|
|
410 |
|
|
|
208 |
|
2013
|
|
|
|
418 |
|
|
|
204 |
|
2014
|
|
|
|
395 |
|
|
|
200 |
|
2015-2019 |
|
|
|
1,893 |
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 18: OTHER
POSTRETIREMENT BENEFITS
The
Company provides healthcare, dental and life insurance benefits to U.S. eligible
retirees and eligible survivors of retirees. Generally, to be
eligible for the plan, individuals retiring prior to January 1, 1996 were
required to be 55 years of age with ten years of service or their age plus years
of service must have equaled or exceeded 75. For those retiring after
December 31, 1995, the individuals must be 55 years of age with ten years of
service or have been eligible as of December 31, 1995. Based on the
eligibility requirements, these benefits are provided to U.S. retirees who are
covered by the Company's KRIP plan and are funded from the general assets of the
Company as they are incurred. However, those under the Cash Balance
Plus portion of the KRIP plan would be required to pay the full cost of their
benefits under the plan.
The
Company's subsidiaries in the United Kingdom and Canada offer similar
postretirement benefits.
On August
1, 2008, the Company adopted and announced certain changes to its U.S.
postretirement benefit plan affecting its post-September 1991 retirees beginning
January 1, 2009. For affected participants, the terms of the
amendment reduce the Company’s contribution toward retiree medical coverage from
its 2008 level by one percentage point per year for a 10-year period, phase-out
Company contributions for dependent medical coverage over the same 10-year
period with access only coverage beginning in 2018, and discontinue retiree
dental coverage and Company-paid life insurance.
The
changes made to the plan resulted in the remeasurement of the plan’s obligations
as of August 1, 2008, the date the changes were adopted and announced by the
Company. This remeasurement reduced the Company’s other
postretirement benefit obligation by $919 million, of which $772 million is
attributable to the plan changes. In addition, the Company recognized
a curtailment gain of $79 million as a result of the
amendment. The curtailment gain was included in Cost of goods sold,
Selling, general and administrative expenses, and Research and development costs
in the Consolidated Statement of Operations for the year ended December 31,
2008.
The
Company’s benefits to U.S. long-term disability recipients were also amended as
described above. These changes resulted in a reduction in Pension and
other postretirement liabilities, and a corresponding gain of $15 million was
included in the Cost of goods, Selling general and administrative expenses, and
Research and development costs in the Consolidated Statement of Operations for
the year ended December 31, 2008.
On
October 31, 2009, the Company adopted and announced certain changes to its U.S.
postretirement benefit plans effective January 1, 2010. Modifications
were made to certain retiree copays and prescription drug
coverage. These changes resulted in the remeasurement of the plan’s
obligations as of October 31, 2009.
The
measurement date used to determine the net benefit obligation for the Company's
other postretirement benefit plans is December 31.
Changes
in the Company’s benefit obligation and funded status for the U.S., United
Kingdom and Canada other postretirement benefit plans were as
follows:
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
benefit obligation at beginning of year
|
|
$ |
1,471 |
|
|
$ |
2,524 |
|
Service
cost
|
|
|
1 |
|
|
|
4 |
|
Interest
cost
|
|
|
92 |
|
|
|
136 |
|
Plan
participants’ contributions
|
|
|
25 |
|
|
|
26 |
|
Plan
amendments
|
|
|
(118 |
) |
|
|
(825 |
) |
Actuarial
loss (gain)
|
|
|
111 |
|
|
|
(141 |
) |
Acquisitions/divestitures
|
|
|
- |
|
|
|
2 |
|
Curtailments
|
|
|
3 |
|
|
|
- |
|
Settlements
|
|
|
- |
|
|
|
(2 |
) |
Benefit
payments
|
|
|
(192 |
) |
|
|
(230 |
) |
Currency
adjustments
|
|
|
11 |
|
|
|
(23 |
) |
Net
benefit obligation at end of year
|
|
$ |
1,404 |
|
|
$ |
1,471 |
|
|
|
|
|
|
|
|
|
|
Underfunded
status at end of year
|
|
$ |
(1,404 |
) |
|
$ |
(1,471 |
) |
Amounts
recognized in the Consolidated Statement of Financial Position for the Company's
U.S., United Kingdom, and Canada plans consisted of:
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$ |
(147 |
) |
|
$ |
(175 |
) |
Pension
and other postretirement liabilities
|
|
|
(1,257 |
) |
|
|
(1,296 |
) |
|
|
$ |
(1,404 |
) |
|
$ |
(1,471 |
) |
Amounts
recognized in Accumulated other comprehensive loss for the Company's U.S.,
United Kingdom, and Canada plans consisted of:
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
$ |
875 |
|
|
$ |
831 |
|
Net
actuarial loss
|
|
|
(468 |
) |
|
|
(380 |
) |
|
|
$ |
407 |
|
|
$ |
451 |
|
Changes
in benefit obligations recognized in other comprehensive loss during 2009 for
the Company’s U.S., United Kingdom, and Canada plans follows:
(in
millions)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Newly
established loss
|
|
$ |
111 |
|
|
$ |
(141 |
) |
Newly
established prior service credit
|
|
|
(118 |
) |
|
|
(825 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
71 |
|
|
|
53 |
|
Net
loss
|
|
|
(22 |
) |
|
|
(17 |
) |
Prior
service credit recognized due to curtailment
|
|
|
2 |
|
|
|
85 |
|
Total
amount recognized in Other comprehensive loss
|
|
$ |
44 |
|
|
$ |
(845 |
) |
|
|
|
|
|
|
|
|
|
Other
postretirement benefit cost from continuing operations for the Company's U.S.,
United Kingdom and Canada plans included:
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
8 |
|
Interest
cost
|
|
|
92 |
|
|
|
136 |
|
|
|
165 |
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(71 |
) |
|
|
(53 |
) |
|
|
(38 |
) |
Actuarial
loss
|
|
|
22 |
|
|
|
17 |
|
|
|
49 |
|
Other
postretirement benefit cost before curtailments and settlements
|
|
|
44 |
|
|
|
104 |
|
|
|
184 |
|
Curtailment
losses (gains)
|
|
|
1 |
|
|
|
(86 |
) |
|
|
(8 |
) |
Settlement
gains
|
|
|
- |
|
|
|
(2 |
) |
|
|
(1 |
) |
Net
other postretirement benefit cost from continuing operations
|
|
$ |
45 |
|
|
$ |
16 |
|
|
$ |
175 |
|
Included
in the curtailment gains of $86 million for the year ended December 31, 2008 was
a $79 million curtailment gain related to changes to the Company’s U.S.
postretirement benefit plan affecting its post-September 1991 retirees beginning
January 1, 2009, as discussed above.
The prior
service credit and net actuarial loss estimated to be amortized from Accumulated
other comprehensive loss into net periodic benefit cost over the next year is
$75 million and $27 million, respectively.
The U.S.
plan represents approximately 93% and 95%, respectively, of the total other
postretirement net benefit obligation as of December 31, 2009 and 2008 and,
therefore, the weighted-average assumptions used to compute the other
postretirement benefit amounts approximate the U.S. assumptions.
The
weighted-average assumptions used to determine the net benefit obligations were
as follows:
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
5.54 |
% |
|
|
7.00 |
% |
Salary
increase rate
|
|
|
3.90 |
% |
|
|
4.00 |
% |
The
weighted-average assumptions used to determine the net postretirement benefit
cost were as follows:
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
6.59 |
% |
|
|
7.23 |
% |
|
|
5.98 |
% |
Salary
increase rate
|
|
|
3.96 |
% |
|
|
4.48 |
% |
|
|
4.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average assumed healthcare cost trend rates used to compute the other
postretirement amounts were as follows:
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Healthcare
cost trend
|
|
|
8.00 |
% |
|
|
8.00 |
% |
Rate
to which the cost trend rate is assumed to decline (the ultimate
trend rate)
|
|
|
5.00 |
% |
|
|
5.00 |
% |
Year
that the rate reaches the ultimate trend rate
|
|
|
2013 |
|
|
|
2012 |
|
A
one-percentage point change in assumed healthcare cost trend rates would have
the following effects:
|
|
|
|
(in
millions)
|
|
1%
increase
|
|
|
1%
decrease
|
|
Effect
on total service and interest cost
|
|
$ |
2 |
|
|
$ |
(1 |
) |
Effect
on postretirement benefit obligation
|
|
|
29 |
|
|
|
(25 |
) |
The
Company expects to make $148 million of benefit payments for its unfunded other
postretirement benefit plans in 2010.
The
following other postretirement benefits, which reflect expected future service,
are expected to be paid:
(in
millions)
|
|
|
|
|
2010
|
|
|
$ |
148 |
|
2011
|
|
|
|
142 |
|
2012
|
|
|
|
140 |
|
2013
|
|
|
|
126 |
|
2014
|
|
|
|
119 |
|
2015-2019 |
|
|
|
511 |
|
|
|
|
|
|
|
NOTE 19: ACCUMULATED OTHER
COMPREHENSIVE (LOSS) INCOME
The
components of Accumulated other comprehensive (loss) income, net of tax, were as
follows:
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Realized
and unrealized gains (losses) from hedging activity, net
of tax
|
|
$ |
6 |
|
|
$ |
(6 |
) |
|
$ |
10 |
|
Currency
translation adjustments
|
|
|
235 |
|
|
|
231 |
|
|
|
312 |
|
Pension
and other postretirement benefit plan obligation
activity, net
of tax
|
|
|
(2,001 |
) |
|
|
(974 |
) |
|
|
131 |
|
Total
|
|
$ |
(1,760 |
) |
|
$ |
(749 |
) |
|
$ |
453 |
|
See Note
17, “Retirement Plans,” in the Notes to Financial Statements regarding the
pension and other postretirement plan obligation activity.
NOTE
20: STOCK OPTION AND COMPENSATION PLANS
The
Company recognized stock-based compensation expense in the amount of $20
million, $18 million and $20 million for the years ended December 31, 2009, 2008
and 2007, respectively. The impacts on the Company's cash flows for
2009, 2008 and 2007 were not material. Stock-based compensation costs
for employees related to manufacturing activities were included in the costs
capitalized in inventory at period end.
Of the
expense amounts noted above, compensation expense related to stock options
during the years ended December 31, 2009, 2008 and 2007 was $5 million, $10
million and $10 million, respectively. Compensation expense related
to unvested stock and performance awards during the years ended December 31,
2009, 2008 and 2007 was $15 million, $8 million and $10 million, respectively.
The
Company’s stock incentive plans consist of the 2005 Omnibus Long-Term
Compensation Plan (the “2005 Plan”), the 2000 Omnibus Long-Term Compensation
Plan (the “2000 Plan”), and the 1995 Omnibus Long-Term Compensation Plan (the
“1995 Plan”). The Plans are administered by the Executive
Compensation and Development Committee of the Board of
Directors. Stock options are generally non-qualified and are at
exercise prices not less than 100% of the per share fair market value on the
date of grant. Stock-based compensation awards granted under the
Company’s stock incentive plans are generally subject to a three-year vesting
period from the date of grant.
Under the
2005 Plan, 11 million shares of the Company's common stock may be granted to
employees between January 1, 2005 and December 31, 2014. This share
reserve may be increased by: shares that are forfeited pursuant to awards made
under the 1995, 2000, and 2005 Plans; shares retained for payment of tax
withholding; shares delivered for payment or satisfaction of tax withholding;
shares reacquired on the open market using cash proceeds from option exercises;
and awards that otherwise do not result in the issuance of
shares. The 2005 Plan is substantially similar to and is intended to
replace the 2000 Plan, which expired on January 18, 2005. Options
granted
under the 2005 Plan generally expire seven years from the date of grant, but may
be forfeited or canceled earlier if the optionee's employment terminates prior
to the end of the contractual term. The 2005 Plan provides for, but
is not limited to, grants of unvested stock, performance awards, and Stock
Appreciation Rights (“SARs”), either in tandem with options or
freestanding. SARs allow optionees to receive payment equal to the
increase in the market price of the Company's stock from the grant date to the
exercise date. As of December 31, 2009, 3,333 freestanding SARs were
outstanding under the 2005 Plan at an option price of
$24.59. Compensation expense recognized for the years ended December
31, 2009, 2008, or 2007 on those freestanding SARs was not
material.
Under the
2000 Plan, 22 million shares of the Company's common stock were eligible for
grant to a variety of employees between January 1, 2000 and December 31,
2004. The 2000 Plan was substantially similar to, and was intended to
replace, the 1995 Plan, which expired on December 31, 1999. The
options generally expire ten years from the date of grant, but may expire sooner
if the optionee's employment terminates. The 2000 Plan provided for,
but was not limited to, grants of unvested stock, performance awards, and SARs,
either in tandem with options or freestanding. As of December 31,
2009, 44,671 freestanding SARs were outstanding under the 2000 Plan at option
prices ranging from $23.25 to $60.50. Compensation expense recognized
for the years ended December 31, 2009, 2008, or 2007 on those freestanding SARs
was not material.
Under the
1995 Plan, 22 million shares of the Company’s common stock were eligible for
grant to a variety of employees between February 1, 1995 and December 31,
1999. The options generally expire ten years from the date of grant,
but may expire sooner if the optionee’s employment terminates. The
1995 Plan provided for, but was not limited to, grants of unvested stock,
performance awards, and SARs, either in tandem with options or
freestanding. As of December 31, 2009, no freestanding SARs were
outstanding under the 1995 Plan.
Further
information relating to stock options is as follows:
|
|
|
Shares
|
|
Weighted-Average
|
|
|
|
Under
|
Range
of Price
|
Exercise
|
(Amounts
in thousands, except per share amounts)
|
|
Option
|
Per
Share
|
Price
Per Share
|
|
|
|
|
|
|
Outstanding
on December 31, 2006
|
|
|
34,611
|
$20.12
- $92.31
|
$45.57
|
Granted
|
|
|
1,813
|
$23.28
- $28.44
|
$23.50
|
Exercised
|
|
|
235
|
$22.58
- $27.70
|
$24.91
|
Terminated,
Expired, Surrendered
|
|
|
5,296
|
$23.25
- $92.31
|
$73.22
|
Outstanding
on December 31, 2007
|
|
|
30,893
|
$20.12
- $87.59
|
$39.70
|
Granted
|
|
|
2,813
|
$7.41
- $18.55
|
$7.60
|
Exercised
|
|
|
0
|
N/A
|
N/A
|
Terminated,
Expired, Surrendered
|
|
|
8,499
|
$20.12
- $87.59
|
$52.78
|
Outstanding
on December 31, 2008
|
|
|
25,207
|
$7.41
- $79.63
|
$31.71
|
Granted
|
|
|
1,229
|
$2.64
- $6.76
|
$4.61
|
Exercised
|
|
|
0
|
N/A
|
N/A
|
Terminated,
Expired, Surrendered
|
|
|
2,916
|
$7.41
- $79.63
|
$45.73
|
Outstanding
on December 31, 2009
|
|
|
23,520
|
$2.64
- $65.91
|
$28.55
|
|
|
|
|
|
|
Exercisable
on December 31, 2007
|
|
|
27,546
|
$20.12
- $87.59
|
$41.51
|
Exercisable
on December 31, 2008
|
|
|
20,772
|
$21.93
- $79.63
|
$35.56
|
Exercisable
on December 31, 2009
|
|
|
20,018
|
$7.41
- $65.91
|
$31.96
|
|
|
|
|
|
|
The
following table summarizes information about stock options as of December 31,
2009:
(Number
of options in thousands)
|
Options
Outstanding
|
Options
Exercisable
|
Range
of Exercise
|
|
Weighted-Average
|
|
|
|
Prices
|
|
Remaining
|
|
|
|
At Less
|
|
Contractual
Life
|
Weighted-Average
|
|
Weighted-Average
|
Least Than
|
Options
|
(Years)
|
Exercise
Price
|
Options
|
Exercise
Price
|
$ 2 - $20
|
3,989
|
6.03
|
$6.68
|
1,042
|
$7.58
|
$20 - $30
|
5,698
|
3.02
|
$25.38
|
5,143
|
$25.58
|
$30 - $40
|
11,558
|
1.67
|
$32.90
|
11,558
|
$32.90
|
$40 - $50
|
566
|
1.08
|
$41.70
|
566
|
$41.70
|
$50 - $60
|
1,451
|
0.24
|
$54.86
|
1,451
|
$54.86
|
$60 - $70
|
258
|
0.04
|
$65.27
|
258
|
$65.27
|
|
23,520
|
|
|
20,018
|
|
|
|
|
|
|
|
At
December 31, 2009, the weighted-average remaining contractual term of all
options outstanding and exercisable was 2.62 years and 2.05 years
respectively. There was no intrinsic value of options outstanding and
exercisable due to the fact that the market price of the Company's common stock
as of December 31, 2009 was below the weighted-average exercise price of
options. The total intrinsic value of options exercised during the
year ended December 31, 2007 was $1 million. There were no option
exercises during 2008 or 2009.
In
November 2005, the FASB issued authoritative guidance related to the accounting
for tax effects of share-based payment awards. During the third
quarter of 2007, the Company elected to adopt the alternative transition method
provided in this guidance for calculating the tax effects of stock-based
compensation. The alternative transition method included simplified
methods to determine the beginning balance of the additional paid-in capital
(“APIC”) pool related to the tax effects of stock-based compensation, and to
determine the subsequent impact on the APIC pool and the statement of cash flows
of the tax effects of stock-based awards that were fully vested and
outstanding. The adoption of this guidance did not have a material
impact on the Company’s cash flows or results of operations for the years ended
December 31, 2009, 2008 and 2007, or its financial position as of December 31,
2009 and 2008.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model that uses the assumptions noted in the
following table. Expected volatilities are based on historical
volatility of the Company's stock, management's estimate of implied volatility
of the Company's stock, and other factors. The expected term of
options granted is derived from the vesting period of the award, as well as
historical exercise behavior, and represents the period of time that options
granted are expected to be outstanding. The risk-free rate is
calculated using the U.S. Treasury yield curve, and is based on the expected
term of the option. The Company uses historical data to estimate
forfeitures.
The
Black-Scholes option pricing model was used with the following weighted-average
assumptions for options issued in each year:
|
|
For
the Year Ended
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Weighted-average
risk-free interest rate
|
|
2.63%
|
|
1.83%
|
|
3.5%
|
Risk-free
interest rates
|
|
1.9%
- 2.7%
|
|
1.8%
- 2.9%
|
|
3.2%
- 5.0%
|
Weighted-average
expected option lives
|
|
6
years
|
|
6
years
|
|
5
years
|
Expected
option lives
|
|
6
years
|
|
4 -
6 years
|
|
4 -
7 years
|
Weighted-average
volatility
|
|
45%
|
|
32%
|
|
32%
|
Expected
volatilities
|
|
45%
|
|
30%
- 32%
|
|
31%
- 35%
|
Weighted-average
expected dividend yield
|
|
0.4%
|
|
7.4%
|
|
2.0%
|
Expected
dividend yields
|
|
0.0%
- 7.1%
|
|
3.1%
- 7.4%
|
|
1.9%
- 2.1%
|
|
|
|
|
|
|
|
The
weighted-average fair value per option granted in 2009, 2008, and 2007 was
$2.06, $0.93, and $6.19, respectively.
As of
December 31, 2009, there was $5 million of total unrecognized compensation cost
related to unvested options. The cost is expected to be recognized
over a weighted-average period of 1.8 years.
The
Company has a policy of issuing shares of treasury stock to satisfy share option
exercises. Cash received for option exercises for the year ended
December 31, 2007 was $6 million. The actual tax benefit realized for
the tax deductions from option exercises was not material for
2007. There were no option exercises during 2008 or
2009.
NOTE
21: ACQUISITIONS
2009
In the
third quarter of 2009, the Company acquired the scanner division of BÖWE BELL +
HOWELL, which markets a portfolio of production document scanners that
complements the products currently offered within the GCG
segment. Through this acquisition, Kodak expects to expand customer
value by providing a wider choice of production scanners. Since Kodak
has provided field service to BÖWE BELL + HOWELL scanners since 2001, this
acquisition is also expected to enhance global access to service and support for
channel partners and end-user customers worldwide. This acquisition
was immaterial to the Company’s financial position as of December 31, 2009, and
its results of operations and cash flows for the year ended December 31,
2009.
2008
On April
4, 2008, the Company completed the acquisition of Design2Launch (“D2L”), a
developer of collaborative end-to-end digital workflow solutions for marketers,
brand owners and creative teams. D2L is part of the Company’s GCG
segment.
On April
10, 2008, the Company completed the acquisition of Intermate A/S, a global
supplier of remote monitoring and print connectivity solutions used extensively
in transactional printing. Intermate A/S is part of the Company’s GCG
segment.
The two
acquisitions had an aggregate purchase price of approximately $37 million and
were individually immaterial to the Company’s financial position as of December
31, 2008, and its results of operations and cash flows for the year ended
December 31, 2008.
2007
There
were no significant acquisitions in 2007.
NOTE
22: DISCONTINUED OPERATIONS
The
significant components of earnings from discontinued operations, net of income
taxes, are as follows:
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from Health Group operations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
754 |
|
Revenues
from HPA operations
|
|
|
- |
|
|
|
- |
|
|
|
148 |
|
Total
revenues from discontinued operations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income from Health Group operations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
27 |
|
Pre-tax
gain on sale of Health Group segment
|
|
|
- |
|
|
|
- |
|
|
|
986 |
|
Pre-tax
income from HPA operations
|
|
|
- |
|
|
|
- |
|
|
|
11 |
|
Pre-tax
gain on sale of HPA
|
|
|
- |
|
|
|
- |
|
|
|
123 |
|
Benefit
(provision) for income taxes related to discontinued
operations
|
|
|
8 |
|
|
|
288 |
|
|
|
(262 |
) |
All
other items, net
|
|
|
9 |
|
|
|
(3 |
) |
|
|
(1 |
) |
Earnings
from discontinued operations, net of income taxes
|
|
$ |
17 |
|
|
$ |
285 |
|
|
$ |
884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Tax Refund
In the
second quarter of 2008, the Company received a tax refund from the U.S. Internal
Revenue Service. The refund was related to the audit of certain
claims filed for tax years 1993-1998. A portion of the refund related
to past federal income taxes paid in relation to the 1994 sale of a subsidiary,
Sterling Winthrop Inc., which was reported in discontinued
operations. The refund had a positive impact on the Company’s
earnings from discontinued operations, net of income taxes, for the year ended
December 31, 2008 of $295 million. See Note 15, “Income Taxes,” in
the Notes to Financial Statements for further discussion of the tax
refund.
2007
Health
Group segment
On April
30, 2007, the Company sold all of the assets and business operations of its
Health Group segment to Onex Healthcare Holdings, Inc. (“Onex”) (now known as
Carestream Health, Inc.), a subsidiary of Onex Corporation, for up to $2.55
billion. The price was composed of $2.35 billion in cash at closing
and $200 million in additional future payments if Onex achieves certain returns
with respect to its investment.
The
Company recognized a pre-tax gain of $986 million on the sale of the Health
Group segment during 2007. This pre-tax gain excludes the following:
up to $200 million of potential future payments related to Onex's return on its
investment as noted above; potential charges related to settling pension
obligations with Onex in future periods; and any adjustments that may be made in
the future that are currently under review.
The
Company was required to use a portion of the initial $2.35 billion cash proceeds
to fully repay its approximately $1.15 billion of Secured Term
Debt. In accordance with EITF No 87-24, “Allocation of Interest to
Discontinued Operations,” the Company allocated to discontinued operations the
interest expense related to the Secured Term Debt because it was required to be
repaid as a result of the sale. Interest expense allocated to discontinued
operations totaled $30 million for the year ended December 31,
2007.
HPA
On
October 17, 2007, the shareholders of Hermes Precisa Pty. Ltd. (“HPA”), a
majority owned subsidiary of Kodak (Australasia) Pty. Ltd., a wholly owned
subsidiary of the Company, approved an agreement to sell all of the shares of
HPA to Salmat Limited. The sale was approved by the Federal Court of
Australia on October 18, 2007, and closed on November 2, 2007. Kodak
received $139 million in cash at closing for its shares of HPA, and recognized a
pre-tax gain on the sale of $123 million.
NOTE
23: EXTRAORDINARY ITEM
The terms
of the purchase agreement of the 2004 acquisition of NexPress Solutions LLC
called for additional consideration to be paid by the Company if sales of
certain products exceeded a stated minimum number of units sold during a
five-year period following the close of the transaction. In May 2009,
the earn-out period lapsed with no additional consideration required to be paid
by the Company. Negative goodwill, representing the contingent
consideration obligation of $17 million, was therefore reduced to
zero. The reversal of negative goodwill reduced Property, plant and
equipment, net by $2 million and Research and development expense by $7 million
and resulted in an extraordinary gain of $6 million, net of tax, during the year
ended December 31, 2009.
NOTE
24: SEGMENT INFORMATION
Current
Segment Reporting Structure
For 2009,
the Company had three reportable segments: Consumer Digital Imaging Group
(“CDG”), Film, Photofinishing and Entertainment Group (“FPEG”), and Graphic
Communications Group (“GCG”). The balance of the Company's continuing
operations, which individually and in the aggregate do not meet the criteria of
a reportable segment, are reported in All Other. A description of the
segments is as follows:
Consumer Digital Imaging Group
Segment (“CDG”): CDG encompasses digital still and video
cameras, digital devices such as picture frames, kiosks and related media, APEX
drylab systems, consumer inkjet printing systems, Kodak Gallery products and
services, and imaging sensors. CDG also includes the licensing
activities related to the Company's intellectual property in digital imaging
products.
Film, Photofinishing and
Entertainment Group Segment (“FPEG”): FPEG encompasses
consumer and professional film, one-time-use cameras, graphic arts film, aerial
and industrial film, and entertainment imaging products and
services. In addition, this segment also includes paper and
output systems, and photofinishing services. This segment provides
consumers, professionals, cinematographers, and other entertainment imaging
customers with film-related products and services. As previously
announced, the Company closed its Qualex central lab operations in the U.S. and
Canada at the end of March 2009.
Graphic
Communications Group Segment (“GCG”): GCG serves a
variety of customers in the creative, in-plant, data center, commercial
printing, packaging, newspaper and digital service bureau market segments with a
range of software, media and hardware products that provide customers with a
variety of solutions for prepress equipment, workflow software, analog and
digital printing, and document scanning. Products and related
services include workflow software and
digital controllers; digital printing, which includes commercial inkjet and
electrophotographic products, including equipment, consumables and service;
prepress consumables; prepress equipment; and document scanners.
All Other: All
Other is composed of the Company’s display business and other small,
miscellaneous businesses. In December 2009, the Company sold assets
of its display business called OLED.
Transactions
between segments, which are immaterial, are made on a basis intended to reflect
the market value of the products, recognizing prevailing market prices and
distributor discounts. Differences between the reportable segments’
operating results and assets and the Company’s consolidated financial statements
relate primarily to items held at the corporate level, and to other items
excluded from segment operating measurements.
No single
customer represented 10% or more of the Company's total net sales in any period
presented.
Segment
financial information is shown below.
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales from continuing operations:
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
2,619 |
|
|
$ |
3,088 |
|
|
$ |
3,247 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
2,257 |
|
|
|
2,987 |
|
|
|
3,632 |
|
Graphic
Communications Group
|
|
|
2,726 |
|
|
|
3,334 |
|
|
|
3,413 |
|
All
Other
|
|
|
4 |
|
|
|
7 |
|
|
|
9 |
|
Consolidated
total
|
|
$ |
7,606 |
|
|
$ |
9,416 |
|
|
$ |
10,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings from continuing operations before interest
expense, other income (charges), net and income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
35 |
|
|
$ |
(177 |
) |
|
$ |
(17 |
) |
Film,
Photofinishing and Entertainment Group
|
|
|
159 |
|
|
|
196 |
|
|
|
281 |
|
Graphic
Communications Group
|
|
|
(42 |
) |
|
|
31 |
|
|
|
104 |
|
All
Other
|
|
|
(13 |
) |
|
|
(17 |
) |
|
|
(25 |
) |
Total
of segments
|
|
|
139 |
|
|
|
33 |
|
|
|
343 |
|
Restructuring
costs, rationalization and other
|
|
|
(258 |
) |
|
|
(149 |
) |
|
|
(662 |
) |
Postemployment
benefit changes
|
|
|
- |
|
|
|
94 |
|
|
|
- |
|
Other
operating (expenses) income, net
|
|
|
88 |
|
|
|
(766 |
) |
|
|
96 |
|
Adjustments
to contingencies and legal reserves/settlements
|
|
|
3 |
|
|
|
(33 |
) |
|
|
(7 |
) |
Interest
expense
|
|
|
(119 |
) |
|
|
(108 |
) |
|
|
(113 |
) |
Other
income (charges), net
|
|
|
30 |
|
|
|
55 |
|
|
|
86 |
|
Consolidated
loss from continuing operations before income
taxes
|
|
$ |
(117 |
) |
|
$ |
(874 |
) |
|
$ |
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Segment
total assets:
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
1,203 |
|
|
$ |
1,647 |
|
|
$ |
2,442 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
1,992 |
|
|
|
2,563 |
|
|
|
3,778 |
|
Graphic
Communications Group
|
|
|
1,737 |
|
|
|
2,190 |
|
|
|
3,723 |
|
All
Other
|
|
|
4 |
|
|
|
8 |
|
|
|
17 |
|
Total
of segments
|
|
|
4,936 |
|
|
|
6,408 |
|
|
|
9,960 |
|
Cash
and marketable securities
|
|
|
2,031 |
|
|
|
2,155 |
|
|
|
2,976 |
|
Deferred
income tax assets
|
|
|
728 |
|
|
|
620 |
|
|
|
757 |
|
Other
corporate reserves
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(34 |
) |
Consolidated
total assets
|
|
$ |
7,691 |
|
|
$ |
9,179 |
|
|
$ |
13,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Intangible
asset amortization expense from
continuing operations:
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
- |
|
|
$ |
5 |
|
|
$ |
6 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
2 |
|
|
|
2 |
|
|
|
25 |
|
Graphic
Communications Group
|
|
|
71 |
|
|
|
73 |
|
|
|
74 |
|
All
Other
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Consolidated
total
|
|
$ |
73 |
|
|
$ |
80 |
|
|
$ |
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
86 |
|
|
$ |
100 |
|
|
$ |
86 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
151 |
|
|
|
191 |
|
|
|
354 |
|
Graphic
Communications Group
|
|
|
94 |
|
|
|
120 |
|
|
|
121 |
|
All
Other
|
|
|
1 |
|
|
|
3 |
|
|
|
11 |
|
Sub-total
|
|
|
332 |
|
|
|
414 |
|
|
|
572 |
|
Restructuring-related
depreciation
|
|
|
22 |
|
|
|
6 |
|
|
|
107 |
|
Consolidated
total
|
|
$ |
354 |
|
|
$ |
420 |
|
|
$ |
679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
additions from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Digital Imaging Group
|
|
$ |
61 |
|
|
$ |
96 |
|
|
$ |
94 |
|
Film,
Photofinishing and Entertainment Group
|
|
|
23 |
|
|
|
40 |
|
|
|
65 |
|
Graphic
Communications Group
|
|
|
67 |
|
|
|
118 |
|
|
|
98 |
|
All
Other
|
|
|
1 |
|
|
|
- |
|
|
|
2 |
|
Consolidated
total
|
|
$ |
152 |
|
|
$ |
254 |
|
|
$ |
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers attributed
to (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
The
United States
|
|
$ |
3,083 |
|
|
$ |
3,834 |
|
|
$ |
4,403 |
|
Europe,
Middle East and Africa
|
|
$ |
2,358 |
|
|
$ |
3,089 |
|
|
$ |
3,264 |
|
Asia
Pacific
|
|
|
1,298 |
|
|
|
1,500 |
|
|
|
1,592 |
|
Canada
and Latin America
|
|
|
867 |
|
|
|
993 |
|
|
|
1,042 |
|
Foreign
countries total
|
|
$ |
4,523 |
|
|
$ |
5,582 |
|
|
$ |
5,898 |
|
Consolidated
total
|
|
$ |
7,606 |
|
|
$ |
9,416 |
|
|
$ |
10,301 |
|
(1) Sales
are reported in the geographic area in which they originate.
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Property,
plant and equipment, net located
in :
|
|
|
|
|
|
|
|
|
|
The
United States
|
|
$ |
819 |
|
|
$ |
1,079 |
|
|
$ |
1,270 |
|
Europe,
Middle East and Africa
|
|
$ |
219 |
|
|
$ |
243 |
|
|
$ |
290 |
|
Asia
Pacific
|
|
|
159 |
|
|
|
146 |
|
|
|
145 |
|
Canada
and Latin America
|
|
|
57 |
|
|
|
83 |
|
|
|
106 |
|
Foreign
countries total
|
|
$ |
435 |
|
|
$ |
472 |
|
|
$ |
541 |
|
Consolidated
total
|
|
$ |
1,254 |
|
|
$ |
1,551 |
|
|
$ |
1,811 |
|
NOTE
25: QUARTERLY SALES AND EARNINGS DATA – UNAUDITED
(in
millions, except per share data)
|
|
4th Qtr.
|
|
|
|
|
|
3rd Qtr.
|
|
|
|
|
|
2nd Qtr.
|
|
|
|
|
|
1st Qtr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales from continuing operations
|
|
$ |
2,582 |
|
|
|
|
|
$ |
1,781 |
|
|
|
|
|
$ |
1,766 |
|
|
|
|
|
$ |
1,477 |
|
|
|
|
Gross
profit from continuing operations
|
|
|
887 |
|
|
|
|
|
|
361 |
|
|
|
|
|
|
326 |
|
|
|
|
|
|
194 |
|
|
|
|
Earnings
(loss) from continuing operations
|
|
|
430 |
|
|
|
(4 |
) |
|
|
(111 |
) |
|
|
(3 |
) |
|
|
(191 |
) |
|
|
(2 |
) |
|
|
(360 |
) |
|
|
(1 |
) |
Earnings
(loss) from discontinued operations (9)
|
|
|
14 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
7 |
|
|
|
|
|
Extraordinary
item, net of tax (10)
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Net
loss (earnings)
|
|
|
444 |
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
(353 |
) |
|
|
|
|
Less:
Net earnings attributable to noncontrolling interests
|
|
|
(1 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Net
(loss) earnings attributable to Eastman Kodak Company
|
|
|
443 |
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
(353 |
) |
|
|
|
|
Basic
net earnings (loss) per share attributable to Eastman Kodak Company common
shareholders (11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
1.60 |
|
|
|
|
|
|
|
(0.41 |
) |
|
|
|
|
|
|
(0.71 |
) |
|
|
|
|
|
|
(1.34 |
) |
|
|
|
|
Discontinued
operations
|
|
|
0.05 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
0.02 |
|
|
|
|
|
Extraordinary
item
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Total
|
|
|
1.65 |
|
|
|
|
|
|
|
(0.41 |
) |
|
|
|
|
|
|
(0.70 |
) |
|
|
|
|
|
|
(1.32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings (loss) per share attributable to Eastman Kodak Company common
shareholders (11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
1.36 |
|
|
|
|
|
|
|
(0.41 |
) |
|
|
|
|
|
|
(0.71 |
) |
|
|
|
|
|
|
(1.34 |
) |
|
|
|
|
Discontinued
operations
|
|
|
0.04 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
0.02 |
|
|
|
|
|
Extraordinary
item
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Total
|
|
|
1.40 |
|
|
|
|
|
|
|
(0.41 |
) |
|
|
|
|
|
|
(0.70 |
) |
|
|
|
|
|
|
(1.32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales from continuing operations
|
|
$ |
2,433 |
|
|
|
|
|
|
$ |
2,405 |
|
|
|
|
|
|
$ |
2,485 |
|
|
|
|
|
|
$ |
2,093 |
|
|
|
|
|
Gross
profit from continuing operations
|
|
|
499 |
|
|
|
|
|
|
|
661 |
|
|
|
|
|
|
|
585 |
|
|
|
|
|
|
|
424 |
|
|
|
|
|
(Loss)
earnings from continuing operations
|
|
|
(914 |
) |
|
|
(8 |
) |
|
|
101 |
|
|
|
(7 |
) |
|
|
200 |
|
|
|
(6 |
) |
|
|
(114 |
) |
|
|
(5 |
) |
(Loss)
earnings from discontinued operations (9)
|
|
|
(4 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
295 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Net
(loss) earnings
|
|
|
(918 |
) |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
495 |
|
|
|
|
|
|
|
(115 |
) |
|
|
|
|
Less:
Net earnings attributable to noncontrolling interests
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Net
(loss) earnings attributable to Eastman Kodak Company
|
|
|
(918 |
) |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
495 |
|
|
|
|
|
|
|
(115 |
) |
|
|
|
|
Basic
net earnings (loss) per share attributable to Eastman Kodak Company common
shareholders (11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(3.40 |
) |
|
|
|
|
|
|
0.36 |
|
|
|
|
|
|
|
0.69 |
|
|
|
|
|
|
|
(0.40 |
) |
|
|
|
|
Discontinued
operations
|
|
|
(0.02 |
) |
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
1.03 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Total
|
|
|
(3.42 |
) |
|
|
|
|
|
|
0.34 |
|
|
|
|
|
|
|
1.72 |
|
|
|
|
|
|
|
(0.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) earnings per share attributable to Eastman Kodak Company common
shareholders (11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(3.40 |
) |
|
|
|
|
|
|
0.35 |
|
|
|
|
|
|
|
0.66 |
|
|
|
|
|
|
|
(0.40 |
) |
|
|
|
|
Discontinued
operations
|
|
|
(0.02 |
) |
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
0.96 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Total
|
|
|
(3.42 |
) |
|
|
|
|
|
|
0.33 |
|
|
|
|
|
|
|
1.62 |
|
|
|
|
|
|
|
(0.40 |
) |
|
|
|
|
(1)
|
Includes
pre-tax restructuring and rationalization charges of $116 million ($7
million included in Cost of goods sold and $109 million included in
Restructuring costs, rationalization and other), which increased net loss
from continuing operations by $108 million; a pre-tax legal contingency of
$5 million (included in Cost of goods sold), which increased net loss from
continuing operations by $5 million; a pre-tax loss on asset sales of $4
million (included in Other operating expenses (income), net), which
increased net loss from continuing operations by $4 million; and other
discrete tax items, which reduced net loss from continuing operations by
$12 million.
|
(2)
|
Includes
pre-tax restructuring and rationalization charges of $46 million ($9
million included in Cost of goods sold and $37 million included in
Restructuring costs, rationalization and other), which increased net loss
from continuing operations by $42 million; a pre-tax reversal of negative
goodwill of $7 million (included in Research and development costs), which
reduced net loss from continuing operations by $7 million; a pre-tax
reversal of a value-added tax reserve of $5 million (included in Interest
expense, and Other income (charges), net), which reduced net loss from
continuing operations by $5 million; and other discrete tax items, which
increased net loss from continuing operations by $45
million.
|
(3)
|
Includes
pre-tax restructuring and rationalization charges of $35 million ($2
million included in Cost of goods sold and $33 million included in
Restructuring, rationalization and other), which increased net loss from
continuing operations by $32 million; a pre-tax loss on asset sales of $10
million (included in Other operating expenses (income), net), which
increased net loss from continuing operations by $10 million; and other
discrete tax items, which increased net loss from continuing operations by
$6 million.
|
(4)
|
Includes
pre-tax restructuring and rationalization charges of $61 million ($14
million included in Cost of goods sold and $47 million included in
Restructuring, rationalization and other), which reduced net earnings from
continuing operations by $55 million; a pre-tax asset impairment charge of
$6 million (included in Other operating (income) expenses, net), which
reduced net earnings from continuing operations by $6
million; pre-tax gains on sales of assets of $107 million,
which increased net earnings from continuing operations by $107 million; a
pre-tax reversal of a value-added tax reserve of $4 million ($2
million included in Cost of goods sold, $1 million in Interest expense,
and $1 million in Other income (charges), net), which increased net
earnings from continuing operations by $4 million; and other discrete tax
items, which increased net earnings from continuing operations by $40
million.
|
(5)
|
Includes
pre-tax gains on curtailments due to focused cost reduction actions of $10
million (included in Restructuring costs, rationalization and other),
which reduced net loss from continuing operations by $9 million; pre-tax
gains of $10 million related to the sales of assets and business
operations, which reduced net loss from continuing operations by $10
million; a pre-tax legal settlement of $10 million (included in Cost of
goods sold), which increased net loss from continuing operations by $10
million; and discrete tax items, which increased net loss from continuing
operations by $10 million.
|
(6)
|
Includes
pre-tax gains of $7 million related to the sales of assets and business
operations, which increased net earnings from continuing operations by $7
million; support for an educational institution, which reduced net
earnings from continuing operations by $10 million; a $270 million IRS
refund, offset by $18 million of other discrete tax items, which increased
net earnings from continuing operations by $252 million; and a pre-tax
loss of $3 million related to rationalization charges (included in
Restructuring costs, rationalization and other), which reduced net
earnings from operations by $4
million.
|
(7)
|
Includes
pre-tax restructuring and rationalization charges of $52 million ($4
million included in Cost of goods sold and $48 million included in
Restructuring costs, rationalization and other), which reduced net
earnings from continuing operations $49 million; changes to postemployment
benefit plans, which increased pre-tax earnings and net earnings from
continuing operations by $94 million; a $3 million pre-tax loss on the
sale of assets and businesses, net, which reduced net earnings from
continuing operations by $2 million; a pre-tax legal contingency of $10
million ($4 million included in Cost of goods sold), which reduced net
earnings from continuing operations by $6 million; and other discrete tax
items, which increased net earnings from continuing operations by $4
million.
|
(8)
|
Includes
a pre-tax goodwill impairment charge of $785 million (included in Other
operating expenses (income), net), which increased net loss from
continuing operations by $781 million; pre-tax restructuring and
rationalization charges of $103 million ($3 million included in Cost of
goods sold and $100 million included in Restructuring costs,
rationalization and other), which increased net loss from continuing
operations by $96 million; foreign contingency adjustments
(included in Cost of goods sold), which reduced net loss from continuing
operations by $3 million; a pre-tax legal contingency of $21 million
(included in SG&A), which increased net loss from continuing
operations by $21 million; a pre-tax gain related to property sales, net
of impairment charges of $4 million, which reduced net loss from
continuing operations by $4 million; and discrete tax items, which
increased net loss from continuing operations by $2
million.
|
(9)
|
Refer
to Note 22, “Discontinued Operations,” in the Notes to Financial
Statements for a discussion regarding earnings (loss) from discontinued
operations.
|
(10)
Refer to Note 23, “Extraordinary Item,” in the Notes to Financial Statements.
(11)
|
Each
quarter is calculated as a discrete period and the sum of the four
quarters may not equal the full year amount. The Company's
diluted net earnings (loss) per share in the above table may include the
effect of convertible debt
instruments.
|
NOTE
26: CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On
September 29, 2009, the Company issued to Kohlberg Kravis & Company L.P. and
certain of its affiliates (1) $300 million aggregate principal amount of 10.5%
Senior Secured Notes due 2017 (“Senior Secured Notes”), and (2) detachable
warrants to purchase 40 million shares of the Company’s common stock at an
exercise price of $5.50 per share (the “Warrants”), subject to adjustment based
on certain anti-dilution protections. The warrants are exercisable at
the holder’s option at any time, in whole or in part, until September 29,
2017.
The
Company’s Senior Secured Notes are fully and unconditionally guaranteed on a
senior secured basis by each of the Company’s existing and future direct or
indirect 100% owned domestic subsidiaries (“Guarantor Subsidiaries”), jointly
and severally.
The
condensed consolidating financial information presented below reflects
information regarding Eastman Kodak Company (“Parent”), the issuer of the Senior
Secured Notes, the Guarantor Subsidiaries and all other subsidiaries
(“Non-Guarantor Subsidiaries”). This basis of presentation is not
intended to present our financial condition, results of operations or cash flows
for any purpose other than to comply with the specific requirements for
subsidiary guarantor reporting. The condensed consolidating
information is prepared following the same accounting policies as applied to the
Company’s consolidated financial statements except that the individual parent
and combined subsidiaries’ accounts follow the equity method of
accounting.
The
following reflects the condensed consolidating Statement of Operations for the
year ended December 31, 2009:
(in
millions)
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,196 |
|
|
$ |
250 |
|
|
$ |
4,861 |
|
|
$ |
(1,701 |
) |
|
$ |
7,606 |
|
Cost
of goods sold
|
|
|
3,451 |
|
|
|
219 |
|
|
|
3,869 |
|
|
|
(1,701 |
) |
|
|
5,838 |
|
Gross
profit
|
|
|
745 |
|
|
|
31 |
|
|
|
992 |
|
|
|
- |
|
|
|
1,768 |
|
Selling,
general and administrative expenses
|
|
|
683 |
|
|
|
48 |
|
|
|
571 |
|
|
|
- |
|
|
|
1,302 |
|
Research
and development costs
|
|
|
300 |
|
|
|
8 |
|
|
|
48 |
|
|
|
- |
|
|
|
356 |
|
Restructuring
costs, rationalization and other
|
|
|
109 |
|
|
|
13 |
|
|
|
104 |
|
|
|
- |
|
|
|
226 |
|
Other
operating expenses (income), net
|
|
|
(92 |
) |
|
|
8 |
|
|
|
(4 |
) |
|
|
- |
|
|
|
(88 |
) |
(Loss)
earnings from continuing operations before interest expense, other income
(charges), net and income taxes
|
|
|
(255 |
) |
|
|
(46 |
) |
|
|
273 |
|
|
|
- |
|
|
|
(28 |
) |
Interest
expense
|
|
|
103 |
|
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
119 |
|
Other
income (charges), net
|
|
|
19 |
|
|
|
4 |
|
|
|
7 |
|
|
|
- |
|
|
|
30 |
|
Other
intercompany income (charges), net
|
|
|
61 |
|
|
|
- |
|
|
|
(61 |
) |
|
|
- |
|
|
|
- |
|
Equity
in undistributed earnings of subsidiaries
|
|
|
125 |
|
|
|
34 |
|
|
|
- |
|
|
|
(159 |
) |
|
|
- |
|
(Loss)
earnings from continuing operations before income taxes
|
|
|
(153 |
) |
|
|
(8 |
) |
|
|
203 |
|
|
|
(159 |
) |
|
|
(117 |
) |
Provision
for income taxes
|
|
|
70 |
|
|
|
- |
|
|
|
45 |
|
|
|
- |
|
|
|
115 |
|
(Loss)
earnings from continuing operations
|
|
|
(223 |
) |
|
|
(8 |
) |
|
|
158 |
|
|
|
(159 |
) |
|
|
(232 |
) |
Earnings
(loss) from discontinued operations, net of income taxes
|
|
|
7 |
|
|
|
(2 |
) |
|
|
12 |
|
|
|
- |
|
|
|
17 |
|
Extraordinary
item, net of tax
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
Net
(loss) earnings
|
|
|
(210 |
) |
|
|
(10 |
) |
|
|
170 |
|
|
|
(159 |
) |
|
|
(209 |
) |
Less:
Net income attributable to
noncontrolling
interests
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
Net
(loss) earnings attributable to Eastman Kodak Company
|
|
$ |
(210 |
) |
|
$ |
(10 |
) |
|
$ |
169 |
|
|
$ |
(159 |
) |
|
$ |
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following reflects the condensed consolidating Statement of Operations for the
year ended December 31, 2008:
(in
millions)
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,947 |
|
|
$ |
435 |
|
|
$ |
5,969 |
|
|
$ |
(1,935 |
) |
|
$ |
9,416 |
|
Cost
of goods sold
|
|
|
4,005 |
|
|
|
426 |
|
|
|
4,751 |
|
|
|
(1,935 |
) |
|
|
7,247 |
|
Gross
profit
|
|
|
942 |
|
|
|
9 |
|
|
|
1,218 |
|
|
|
- |
|
|
|
2,169 |
|
Selling,
general and administrative expenses
|
|
|
816 |
|
|
|
55 |
|
|
|
735 |
|
|
|
- |
|
|
|
1,606 |
|
Research
and development costs
|
|
|
396 |
|
|
|
9 |
|
|
|
73 |
|
|
|
- |
|
|
|
478 |
|
Restructuring
costs, rationalization and other
|
|
|
68 |
|
|
|
- |
|
|
|
72 |
|
|
|
- |
|
|
|
140 |
|
Other
operating expenses (income), net
|
|
|
219 |
|
|
|
(1 |
) |
|
|
548 |
|
|
|
- |
|
|
|
766 |
|
Loss
from continuing operations before interest expense, other income
(charges), net and income taxes
|
|
|
(557 |
) |
|
|
(54 |
) |
|
|
(210 |
) |
|
|
- |
|
|
|
(821 |
) |
Interest
expense
|
|
|
74 |
|
|
|
- |
|
|
|
34 |
|
|
|
- |
|
|
|
108 |
|
Other
income (charges), net
|
|
|
3 |
|
|
|
- |
|
|
|
52 |
|
|
|
- |
|
|
|
55 |
|
Other
intercompany income (charges), net
|
|
|
902 |
|
|
|
18 |
|
|
|
(920 |
) |
|
|
- |
|
|
|
- |
|
Equity
in undistributed loss of subsidiaries
|
|
|
(1,253 |
) |
|
|
(7 |
) |
|
|
- |
|
|
|
1,260 |
|
|
|
- |
|
Loss
from continuing operations before income taxes
|
|
|
(979 |
) |
|
|
(43 |
) |
|
|
(1,112 |
) |
|
|
1,260 |
|
|
|
(874 |
) |
(Benefit)
provision for income taxes
|
|
|
(256 |
) |
|
|
- |
|
|
|
109 |
|
|
|
- |
|
|
|
(147 |
) |
Loss
from continuing operations
|
|
|
(723 |
) |
|
|
(43 |
) |
|
|
(1,221 |
) |
|
|
1,260 |
|
|
|
(727 |
) |
Earnings
from discontinued operations, net of income taxes
|
|
|
281 |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
285 |
|
Net
loss attributable to Eastman Kodak Company
|
|
$ |
(442 |
) |
|
$ |
(43 |
) |
|
$ |
(1,217 |
) |
|
$ |
1,260 |
|
|
$ |
(442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following reflects the condensed consolidating Statement of Operations for the
year ended December 31, 2007:
(in
millions)
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,600 |
|
|
$ |
574 |
|
|
$ |
6,153 |
|
|
$ |
(2,026 |
) |
|
$ |
10,301 |
|
Cost
of goods sold
|
|
|
4,209 |
|
|
|
533 |
|
|
|
5,041 |
|
|
|
(2,026 |
) |
|
|
7,757 |
|
Gross
profit
|
|
|
1,391 |
|
|
|
41 |
|
|
|
1,112 |
|
|
|
- |
|
|
|
2,544 |
|
Selling,
general and administrative expenses
|
|
|
950 |
|
|
|
49 |
|
|
|
803 |
|
|
|
- |
|
|
|
1,802 |
|
Research
and development costs
|
|
|
451 |
|
|
|
16 |
|
|
|
58 |
|
|
|
- |
|
|
|
525 |
|
Restructuring
costs, rationalization and other
|
|
|
70 |
|
|
|
- |
|
|
|
473 |
|
|
|
- |
|
|
|
543 |
|
Other
operating expenses (income), net
|
|
|
(22 |
) |
|
|
(1 |
) |
|
|
(73 |
) |
|
|
- |
|
|
|
(96 |
) |
Loss
from continuing operations before interest expense, other income
(charges), net and income taxes
|
|
|
(58 |
) |
|
|
(23 |
) |
|
|
(149 |
) |
|
|
- |
|
|
|
(230 |
) |
Interest
expense
|
|
|
79 |
|
|
|
- |
|
|
|
34 |
|
|
|
- |
|
|
|
113 |
|
Other
income (charges), net
|
|
|
39 |
|
|
|
- |
|
|
|
47 |
|
|
|
- |
|
|
|
86 |
|
Other
intercompany income (charges), net
|
|
|
340 |
|
|
|
- |
|
|
|
(340 |
) |
|
|
- |
|
|
|
- |
|
Equity
in undistributed (loss) earnings of subsidiaries
|
|
|
(620 |
) |
|
|
95 |
|
|
|
- |
|
|
|
525 |
|
|
|
- |
|
(Loss)
earnings from continuing operations before income taxes
|
|
|
(378 |
) |
|
|
72 |
|
|
|
(476 |
) |
|
|
525 |
|
|
|
(257 |
) |
(Benefit)
provision for income taxes
|
|
|
(243 |
) |
|
|
2 |
|
|
|
190 |
|
|
|
- |
|
|
|
(51 |
) |
(Loss)
earnings from continuing operations
|
|
|
(135 |
) |
|
|
70 |
|
|
|
(666 |
) |
|
|
525 |
|
|
|
(206 |
) |
Earnings
(loss) from discontinued operations, net of income taxes
|
|
|
811 |
|
|
|
(1 |
) |
|
|
74 |
|
|
|
- |
|
|
|
884 |
|
Net
Earnings (loss)
|
|
|
676 |
|
|
|
69 |
|
|
|
(592 |
) |
|
|
525 |
|
|
|
678 |
|
Less:
Net income attributable to
noncontrolling
interests
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(2 |
) |
Net
earnings (loss) attributable to Eastman Kodak Company
|
|
$ |
676 |
|
|
$ |
69 |
|
|
$ |
(594 |
) |
|
$ |
525 |
|
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following reflects the condensed consolidating Statement of Financial Position
as of December 31, 2009:
(in
millions)
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
804 |
|
|
$ |
8 |
|
|
$ |
1,212 |
|
|
$ |
- |
|
|
$ |
2,024 |
|
Receivables,
net
|
|
|
406 |
|
|
|
14 |
|
|
|
975 |
|
|
|
- |
|
|
|
1,395 |
|
Inventories,
net
|
|
|
340 |
|
|
|
11 |
|
|
|
386 |
|
|
|
(58 |
) |
|
|
679 |
|
Intercompany
receivables and advances
|
|
|
1,005 |
|
|
|
1,233 |
|
|
|
539 |
|
|
|
(2,777 |
) |
|
|
- |
|
Other
current assets
|
|
|
119 |
|
|
|
2 |
|
|
|
84 |
|
|
|
- |
|
|
|
205 |
|
Total
current assets
|
|
|
2,674 |
|
|
|
1,268 |
|
|
|
3,196 |
|
|
|
(2,835 |
) |
|
|
4,303 |
|
Property,
plant and equipment, net
|
|
|
775 |
|
|
|
44 |
|
|
|
435 |
|
|
|
- |
|
|
|
1,254 |
|
Goodwill
|
|
|
293 |
|
|
|
47 |
|
|
|
567 |
|
|
|
- |
|
|
|
907 |
|
Investment
in subsidiaries
|
|
|
2,886 |
|
|
|
137 |
|
|
|
- |
|
|
|
(3,023 |
) |
|
|
- |
|
Other
long-term assets
|
|
|
471 |
|
|
|
8 |
|
|
|
748 |
|
|
|
- |
|
|
|
1,227 |
|
TOTAL
ASSETS
|
|
$ |
7,099 |
|
|
$ |
1,504 |
|
|
$ |
4,946 |
|
|
$ |
(5,858 |
) |
|
$ |
7,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and other current liabilities
|
|
$ |
1,534 |
|
|
$ |
61 |
|
|
$ |
1,216 |
|
|
$ |
- |
|
|
$ |
2,811 |
|
Intercompany
payables and loans
|
|
|
2,423 |
|
|
|
76 |
|
|
|
336 |
|
|
|
(2,835 |
) |
|
|
- |
|
Short-term
borrowings and current portion of long-term debt
|
|
|
22 |
|
|
|
- |
|
|
|
40 |
|
|
|
- |
|
|
|
62 |
|
Accrued
income and other taxes
|
|
|
(18 |
) |
|
|
- |
|
|
|
41 |
|
|
|
- |
|
|
|
23 |
|
Total
current liabilities
|
|
|
3,961 |
|
|
|
137 |
|
|
|
1,633 |
|
|
|
(2,835 |
) |
|
|
2,896 |
|
Long-term
debt
|
|
|
1,028 |
|
|
|
- |
|
|
|
101 |
|
|
|
- |
|
|
|
1,129 |
|
Pension
and other postretirement liabilities
|
|
|
1,411 |
|
|
|
16 |
|
|
|
1,267 |
|
|
|
- |
|
|
|
2,694 |
|
Other
long-term liabilities
|
|
|
734 |
|
|
|
98 |
|
|
|
173 |
|
|
|
- |
|
|
|
1,005 |
|
Total
liabilities
|
|
|
7,134 |
|
|
|
251 |
|
|
|
3,174 |
|
|
|
(2,835 |
) |
|
|
7,724 |
|
Total
Eastman Kodak Company shareholders'
(deficit)
equity
|
|
|
(35 |
) |
|
|
1,253 |
|
|
|
1,770 |
|
|
|
(3,023 |
) |
|
|
(35 |
) |
Noncontrolling
interest
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
(Deficit)
Equity
|
|
|
(35 |
) |
|
|
1,253 |
|
|
|
1,772 |
|
|
|
(3,023 |
) |
|
|
(33 |
) |
TOTAL
LIABILITIES AND (DEFICIT) EQUITY
|
|
$ |
7,099 |
|
|
$ |
1,504 |
|
|
$ |
4,946 |
|
|
$ |
(5,858 |
) |
|
$ |
7,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following reflects the condensed consolidating Statement of Financial Position
as of December 31, 2008:
(in
millions)
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
848 |
|
|
$ |
10 |
|
|
$ |
1,287 |
|
|
$ |
- |
|
|
$ |
2,145 |
|
Receivables,
net
|
|
|
651 |
|
|
|
26 |
|
|
|
1,039 |
|
|
|
- |
|
|
|
1,716 |
|
Inventories,
net
|
|
|
468 |
|
|
|
16 |
|
|
|
528 |
|
|
|
(64 |
) |
|
|
948 |
|
Intercompany
receivables and advances
|
|
|
1,027 |
|
|
|
1,192 |
|
|
|
551 |
|
|
|
(2,770 |
) |
|
|
- |
|
Other
current assets
|
|
|
102 |
|
|
|
6 |
|
|
|
87 |
|
|
|
- |
|
|
|
195 |
|
Total
current assets
|
|
|
3,096 |
|
|
|
1,250 |
|
|
|
3,492 |
|
|
|
(2,834 |
) |
|
|
5,004 |
|
Property,
plant and equipment, net
|
|
|
994 |
|
|
|
84 |
|
|
|
473 |
|
|
|
- |
|
|
|
1,551 |
|
Goodwill
|
|
|
318 |
|
|
|
47 |
|
|
|
531 |
|
|
|
- |
|
|
|
896 |
|
Investment
in subsidiaries
|
|
|
3,180 |
|
|
|
145 |
|
|
|
- |
|
|
|
(3,325 |
) |
|
|
- |
|
Other
long-term assets
|
|
|
1,071 |
|
|
|
4 |
|
|
|
653 |
|
|
|
- |
|
|
|
1,728 |
|
TOTAL
ASSETS
|
|
$ |
8,659 |
|
|
$ |
1,530 |
|
|
$ |
5,149 |
|
|
$ |
(6,159 |
) |
|
$ |
9,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and other current liabilities
|
|
$ |
1,735 |
|
|
$ |
90 |
|
|
$ |
1,442 |
|
|
$ |
- |
|
|
$ |
3,267 |
|
Intercompany
payables and loans
|
|
|
2,502 |
|
|
|
- |
|
|
|
332 |
|
|
|
(2,834 |
) |
|
|
- |
|
Short-term
borrowings and current portion of long-term debt
|
|
|
10 |
|
|
|
1 |
|
|
|
40 |
|
|
|
- |
|
|
|
51 |
|
Accrued
income and other taxes
|
|
|
3 |
|
|
|
- |
|
|
|
117 |
|
|
|
- |
|
|
|
120 |
|
Total
current liabilities
|
|
|
4,250 |
|
|
|
91 |
|
|
|
1,931 |
|
|
|
(2,834 |
) |
|
|
3,438 |
|
Long-term
debt
|
|
|
1,121 |
|
|
|
- |
|
|
|
131 |
|
|
|
- |
|
|
|
1,252 |
|
Pension
and other postretirement liabilities
|
|
|
1,485 |
|
|
|
15 |
|
|
|
882 |
|
|
|
- |
|
|
|
2,382 |
|
Other
long-term liabilities
|
|
|
818 |
|
|
|
112 |
|
|
|
189 |
|
|
|
- |
|
|
|
1,119 |
|
Total
liabilities
|
|
|
7,674 |
|
|
|
218 |
|
|
|
3,133 |
|
|
|
(2,834 |
) |
|
|
8,191 |
|
Total
Eastman Kodak Company shareholders'
equity
|
|
|
985 |
|
|
|
1,312 |
|
|
|
2,013 |
|
|
|
(3,325 |
) |
|
|
985 |
|
Noncontrolling
interest
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
Equity
|
|
|
985 |
|
|
|
1,312 |
|
|
|
2,016 |
|
|
|
(3,325 |
) |
|
|
988 |
|
TOTAL
LIABILITIES AND EQUITY
|
|
$ |
8,659 |
|
|
$ |
1,530 |
|
|
$ |
5,149 |
|
|
$ |
(6,159 |
) |
|
$ |
9,179 |
|
The
following reflects the condensed consolidating Statement of Cash Flows for the
year ended December 31, 2009:
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
(in
millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by continuing operations
|
|
$ |
(251 |
) |
|
$ |
- |
|
|
$ |
115 |
|
|
$ |
- |
|
|
$ |
(136 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash (used in) provided by operating activities
|
|
|
(251 |
) |
|
|
- |
|
|
|
115 |
|
|
|
- |
|
|
|
(136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
(65 |
) |
|
|
(5 |
) |
|
|
(82 |
) |
|
|
- |
|
|
|
(152 |
) |
Proceeds
from sales of businesses/assets
|
|
|
107 |
|
|
|
3 |
|
|
|
46 |
|
|
|
- |
|
|
|
156 |
|
Acquisitions,
net of cash acquired
|
|
|
(17 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(17 |
) |
Funding
of restricted cash account
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12 |
) |
Advances
from (to) Kodak companies
|
|
|
4 |
|
|
|
- |
|
|
|
(15 |
) |
|
|
11 |
|
|
|
- |
|
Marketable
securities - sales
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
|
|
- |
|
|
|
39 |
|
Marketable
securities - purchases
|
|
|
- |
|
|
|
- |
|
|
|
(36 |
) |
|
|
- |
|
|
|
(36 |
) |
Intercompany
dividends
|
|
|
99 |
|
|
|
- |
|
|
|
- |
|
|
|
(99 |
) |
|
|
- |
|
Net
cash provided by (used in) investing activities
|
|
|
116 |
|
|
|
(2 |
) |
|
|
(48 |
) |
|
|
(88 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
679 |
|
|
|
- |
|
|
|
33 |
|
|
|
- |
|
|
|
712 |
|
Debt
issuance costs
|
|
|
(30 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(30 |
) |
Repayment
of borrowings
|
|
|
(573 |
) |
|
|
- |
|
|
|
(76 |
) |
|
|
- |
|
|
|
(649 |
) |
Advances
from (to) Kodak companies
|
|
|
15 |
|
|
|
- |
|
|
|
(4 |
) |
|
|
(11 |
) |
|
|
- |
|
Intercompany
dividends
|
|
|
- |
|
|
|
- |
|
|
|
(99 |
) |
|
|
99 |
|
|
|
- |
|
Net
cash provided by (used in) financing activities
|
|
|
91 |
|
|
|
- |
|
|
|
(146 |
) |
|
|
88 |
|
|
|
33 |
|
Effect
of exchange rate changes on cash
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
Net
decrease in cash and cash equivalents
|
|
|
(44 |
) |
|
|
(2 |
) |
|
|
(75 |
) |
|
|
- |
|
|
|
(121 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
848 |
|
|
|
10 |
|
|
|
1,287 |
|
|
|
- |
|
|
|
2,145 |
|
Cash
and cash equivalents, end of period
|
|
$ |
804 |
|
|
$ |
8 |
|
|
$ |
1,212 |
|
|
$ |
- |
|
|
$ |
2,024 |
|
The
following reflects the condensed consolidating Statement of Cash Flows for the
year ended December 31, 2008:
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
(in
millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by continuing operations
|
|
$ |
(362 |
) |
|
$ |
11 |
|
|
$ |
223 |
|
|
$ |
- |
|
|
$ |
(128 |
) |
Net
cash provided by discontinued operations
|
|
|
296 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
296 |
|
Net
cash (used in) provided by operating activities
|
|
|
(66 |
) |
|
|
11 |
|
|
|
223 |
|
|
|
- |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
(133 |
) |
|
|
(23 |
) |
|
|
(98 |
) |
|
|
- |
|
|
|
(254 |
) |
Proceeds
from sales of businesses/assets
|
|
|
87 |
|
|
|
- |
|
|
|
5 |
|
|
|
- |
|
|
|
92 |
|
Acquisitions,
net of cash acquired
|
|
|
(38 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(38 |
) |
Advances
(to) from Kodak companies
|
|
|
(29 |
) |
|
|
- |
|
|
|
(14 |
) |
|
|
43 |
|
|
|
- |
|
Marketable
securities - sales
|
|
|
- |
|
|
|
- |
|
|
|
162 |
|
|
|
- |
|
|
|
162 |
|
Marketable
securities - purchases
|
|
|
- |
|
|
|
- |
|
|
|
(150 |
) |
|
|
- |
|
|
|
(150 |
) |
Intercompany
dividends
|
|
|
602 |
|
|
|
- |
|
|
|
- |
|
|
|
(602 |
) |
|
|
- |
|
Net
cash provided by (used in) investing activities
|
|
|
489 |
|
|
|
(23 |
) |
|
|
(95 |
) |
|
|
(559 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
|
|
- |
|
|
|
140 |
|
Repayment
of borrowings
|
|
|
(257 |
) |
|
|
- |
|
|
|
(189 |
) |
|
|
- |
|
|
|
(446 |
) |
Stock
repurchases
|
|
|
(301 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(301 |
) |
Dividends
to shareholders
|
|
|
(139 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(139 |
) |
Advances
from (to) Kodak companies
|
|
|
14 |
|
|
|
- |
|
|
|
29 |
|
|
|
(43 |
) |
|
|
- |
|
Intercompany
dividends
|
|
|
- |
|
|
|
- |
|
|
|
(602 |
) |
|
|
602 |
|
|
|
- |
|
Net
cash used in financing activities
|
|
|
(683 |
) |
|
|
- |
|
|
|
(622 |
) |
|
|
559 |
|
|
|
(746 |
) |
Effect
of exchange rate changes on cash
|
|
|
- |
|
|
|
- |
|
|
|
(36 |
) |
|
|
- |
|
|
|
(36 |
) |
Net
decrease in cash and cash equivalents
|
|
|
(260 |
) |
|
|
(12 |
) |
|
|
(530 |
) |
|
|
- |
|
|
|
(802 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
1,108 |
|
|
|
22 |
|
|
|
1,817 |
|
|
|
- |
|
|
|
2,947 |
|
Cash
and cash equivalents, end of period
|
|
$ |
848 |
|
|
$ |
10 |
|
|
$ |
1,287 |
|
|
$ |
- |
|
|
$ |
2,145 |
|
The
following reflects the condensed consolidating Statement of Cash Flows for the
year ended December 31, 2007:
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
(in
millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by continuing operations
|
|
$ |
(324 |
) |
|
$ |
54 |
|
|
$ |
635 |
|
|
$ |
- |
|
|
$ |
365 |
|
Net
cash provided by (used in) discontinued operations
|
|
|
59 |
|
|
|
- |
|
|
|
(96 |
) |
|
|
- |
|
|
|
(37 |
) |
Net
cash (used in) provided by operating activities
|
|
|
(265 |
) |
|
|
54 |
|
|
|
539 |
|
|
|
- |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
(99 |
) |
|
|
(39 |
) |
|
|
(121 |
) |
|
|
- |
|
|
|
(259 |
) |
Proceeds
from sales of businesses/assets
|
|
|
52 |
|
|
|
1 |
|
|
|
174 |
|
|
|
- |
|
|
|
227 |
|
Acquisitions,
net of cash acquired
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(2 |
) |
Advances
(to) from Kodak companies
|
|
|
301 |
|
|
|
- |
|
|
|
23 |
|
|
|
(324 |
) |
|
|
- |
|
Marketable
securities - sales
|
|
|
- |
|
|
|
- |
|
|
|
166 |
|
|
|
- |
|
|
|
166 |
|
Marketable
securities - purchases
|
|
|
- |
|
|
|
- |
|
|
|
(173 |
) |
|
|
- |
|
|
|
(173 |
) |
Intercompany
dividends
|
|
|
244 |
|
|
|
- |
|
|
|
- |
|
|
|
(244 |
) |
|
|
- |
|
Net
cash provided by (used in) investing activities
|
|
|
498 |
|
|
|
(38 |
) |
|
|
67 |
|
|
|
(568 |
) |
|
|
(41 |
) |
Net
cash provided by discontinued operations
|
|
|
1,433 |
|
|
|
- |
|
|
|
1,016 |
|
|
|
- |
|
|
|
2,449 |
|
Net
cash provided by (used in) investing activities
|
|
|
1,931 |
|
|
|
(38 |
) |
|
|
1,083 |
|
|
|
(568 |
) |
|
|
2,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
- |
|
|
|
- |
|
|
|
163 |
|
|
|
- |
|
|
|
163 |
|
Repayment
of borrowings
|
|
|
(868 |
) |
|
|
- |
|
|
|
(495 |
) |
|
|
- |
|
|
|
(1,363 |
) |
Dividends
to shareholders
|
|
|
(144 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(144 |
) |
Advances
from (to) Kodak companies
|
|
|
(23 |
) |
|
|
- |
|
|
|
(301 |
) |
|
|
324 |
|
|
|
- |
|
Intercompany
dividends
|
|
|
- |
|
|
|
|
|
|
|
(244 |
) |
|
|
244 |
|
|
|
- |
|
Exercise
of employee stock options
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
Net
cash used in financing activities
|
|
|
(1,029 |
) |
|
|
- |
|
|
|
(877 |
) |
|
|
568 |
|
|
|
(1,338 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
44 |
|
Net
cash used in financing activities
|
|
|
(1,029 |
) |
|
|
- |
|
|
|
(833 |
) |
|
|
568 |
|
|
|
(1,294 |
) |
Effect
of exchange rate changes on cash
|
|
|
- |
|
|
|
- |
|
|
|
36 |
|
|
|
- |
|
|
|
36 |
|
Net
increase in cash and cash equivalents
|
|
|
637 |
|
|
|
16 |
|
|
|
825 |
|
|
|
- |
|
|
|
1,478 |
|
Cash
and cash equivalents, beginning of period
|
|
|
471 |
|
|
|
6 |
|
|
|
992 |
|
|
|
- |
|
|
|
1,469 |
|
Cash
and cash equivalents, end of period
|
|
$ |
1,108 |
|
|
$ |
22 |
|
|
$ |
1,817 |
|
|
$ |
- |
|
|
$ |
2,947 |
|
Eastman
Kodak Company
SUMMARY
OF OPERATING DATA - UNAUDITED
(in
millions, except per share data, shareholders, and employees)
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales from continuing operations
|
|
$ |
7,606 |
|
|
|
|
|
$ |
9,416 |
|
|
|
|
|
$ |
10,301 |
|
|
|
|
|
$ |
10,568 |
|
|
|
|
|
$ |
11,395 |
|
|
|
|
Loss
from continuing operations before interest expense, other
income (charges), net and income taxes
|
|
|
(28 |
) |
|
|
|
|
|
(821 |
) |
|
|
|
|
|
(230 |
) |
|
|
|
|
|
(476 |
) |
|
|
|
|
|
(1,073 |
) |
|
|
|
(Loss)
earnings from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(232 |
) |
|
|
(1 |
) |
|
|
(727 |
) |
|
|
(2 |
) |
|
|
(206 |
) |
|
|
(3 |
) |
|
|
(796 |
) |
|
|
(4 |
) |
|
|
(1,650 |
) |
|
|
(5 |
) |
Discontinued
operations
|
|
|
17 |
|
|
|
(6 |
) |
|
|
285 |
|
|
|
(6 |
) |
|
|
884 |
|
|
|
(6 |
) |
|
|
209 |
|
|
|
|
|
|
|
458 |
|
|
|
|
|
Cumulative
effect of
accounting change
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(55 |
) |
|
|
|
|
Extraordinary
item, net of
tax
|
|
|
6 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Net
(Loss) Earnings
|
|
|
(209 |
) |
|
|
|
|
|
|
(442 |
) |
|
|
|
|
|
|
678 |
|
|
|
|
|
|
|
(587 |
) |
|
|
|
|
|
|
(1,247 |
) |
|
|
|
|
Less:
Net earnings attributable to noncontrolling interests
|
|
|
(1 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Net
(Loss) Earnings Attributable to Eastman Kodak Company
|
|
|
(210 |
) |
|
|
|
|
|
|
(442 |
) |
|
|
|
|
|
|
676 |
|
|
|
|
|
|
|
(594 |
) |
|
|
|
|
|
|
(1,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
and Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
% of net sales from
continuing operations
|
|
|
-3.1 |
% |
|
|
|
|
|
|
-7.7 |
% |
|
|
|
|
|
|
-2.0 |
% |
|
|
|
|
|
|
-7.5 |
% |
|
|
|
|
|
|
-14.5 |
% |
|
|
|
|
Net
(loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
% return on average
equity
|
|
|
-44.0 |
% |
|
|
|
|
|
|
-21.8 |
% |
|
|
|
|
|
|
30.2 |
% |
|
|
|
|
|
|
-31.3 |
% |
|
|
|
|
|
|
-39.1 |
% |
|
|
|
|
Basic
and diluted (loss) earnings per share attributable to Eastman Kodak
Company common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(0.87 |
) |
|
|
|
|
|
|
(2.58 |
) |
|
|
|
|
|
|
(0.71 |
) |
|
|
|
|
|
|
(2.78 |
) |
|
|
|
|
|
|
(5.72 |
) |
|
|
|
|
Discontinued
operations
|
|
|
0.07 |
|
|
|
|
|
|
|
1.01 |
|
|
|
|
|
|
|
3.06 |
|
|
|
|
|
|
|
0.71 |
|
|
|
|
|
|
|
1.56 |
|
|
|
|
|
Cumulative
effect of
accounting change
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(0.19 |
) |
|
|
|
|
Extraordinary
item, net of
tax
|
|
|
0.02 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(0.78 |
) |
|
|
|
|
|
|
(1.57 |
) |
|
|
|
|
|
|
2.35 |
|
|
|
|
|
|
|
(2.07 |
) |
|
|
|
|
|
|
(4.35 |
) |
|
|
|
|
Cash
dividends declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
on common shares
|
|
|
- |
|
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
144 |
|
|
|
|
|
-
per comon share
|
|
|
- |
|
|
|
|
|
|
|
0.50 |
|
|
|
|
|
|
|
0.50 |
|
|
|
|
|
|
|
0.50 |
|
|
|
|
|
|
|
0.50 |
|
|
|
|
|
Common
shares outstanding at year end
|
|
|
268.6 |
|
|
|
|
|
|
|
268.2 |
|
|
|
|
|
|
|
288.0 |
|
|
|
|
|
|
|
287.3 |
|
|
|
|
|
|
|
287.2 |
|
|
|
|
|
Shareholders
at year end
|
|
|
54,078 |
|
|
|
|
|
|
|
56,115 |
|
|
|
|
|
|
|
58,652 |
|
|
|
|
|
|
|
63,193 |
|
|
|
|
|
|
|
75,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Financial Position Data
|
|
|
|
|
|
|
|
Working
capital
|
|
|
1,407 |
|
|
|
|
|
|
|
1,566 |
|
|
|
|
|
|
|
1,631 |
|
|
|
|
|
|
|
1,027 |
|
|
|
|
|
|
|
624 |
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,254 |
|
|
|
|
|
|
|
1,551 |
|
|
|
|
|
|
|
1,811 |
|
|
|
|
|
|
|
2,602 |
|
|
|
|
|
|
|
3,464 |
|
|
|
|
|
Total
assets
|
|
|
7,691 |
|
|
|
|
|
|
|
9,179 |
|
|
|
|
|
|
|
13,659 |
|
|
|
|
|
|
|
14,320 |
|
|
|
|
|
|
|
15,236 |
|
|
|
|
|
Short-term
borrowings and current portion of long-term
debt
|
|
|
62 |
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
819 |
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
1,129 |
|
|
|
|
|
|
|
1,252 |
|
|
|
|
|
|
|
1,289 |
|
|
|
|
|
|
|
2,714 |
|
|
|
|
|
|
|
2,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Information
|
|
|
|
|
|
|
|
Net
sales from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
CDG
|
|
$ |
2,619 |
|
|
|
|
|
|
$ |
3,088 |
|
|
|
|
|
|
$ |
3,247 |
|
|
|
|
|
|
$ |
3,013 |
|
|
|
|
|
|
$ |
3,315 |
|
|
|
|
|
-
FPEG
|
|
|
2,257 |
|
|
|
|
|
|
|
2,987 |
|
|
|
|
|
|
|
3,632 |
|
|
|
|
|
|
|
4,254 |
|
|
|
|
|
|
|
5,453 |
|
|
|
|
|
-
GCG
|
|
|
2,726 |
|
|
|
|
|
|
|
3,334 |
|
|
|
|
|
|
|
3,413 |
|
|
|
|
|
|
|
3,287 |
|
|
|
|
|
|
|
2,604 |
|
|
|
|
|
-
All Other
|
|
|
4 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
Research
and development costs
|
|
|
356 |
|
|
|
|
|
|
|
478 |
|
|
|
|
|
|
|
525 |
|
|
|
|
|
|
|
573 |
|
|
|
|
|
|
|
714 |
|
|
|
|
|
Depreciation
|
|
|
354 |
|
|
|
|
|
|
|
420 |
|
|
|
|
|
|
|
679 |
|
|
|
|
|
|
|
1,075 |
|
|
|
|
|
|
|
1,191 |
|
|
|
|
|
Taxes
(excludes payroll, sales and excise taxes) (7)
|
|
|
149 |
|
|
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
320 |
|
|
|
|
|
|
|
788 |
|
|
|
|
|
Wages,
salaries and employee benefits (8)
|
|
|
1,732 |
|
|
|
|
|
|
|
2,141 |
|
|
|
|
|
|
|
2,846 |
|
|
|
|
|
|
|
3,480 |
|
|
|
|
|
|
|
3,941 |
|
|
|
|
|
Employees
as of year end
|
|
|
|
|
|
|
|
-
in the U.S. (7)
|
|
|
10,630 |
|
|
|
|
|
|
|
12,800 |
|
|
|
|
|
|
|
14,200 |
|
|
|
|
|
|
|
20,600 |
|
|
|
|
|
|
|
25,500 |
|
|
|
|
|
-
worldwide (7)
|
|
|
20,250 |
|
|
|
|
|
|
|
24,400 |
|
|
|
|
|
|
|
26,900 |
|
|
|
|
|
|
|
40,900 |
|
|
|
|
|
|
|
51,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(footnotes
on next page)
SUMMARY
OF OPERATING DATA
Eastman
Kodak Company
(footnotes
for previous page)
(1)
|
Includes
pre-tax restructuring and rationalization charges of $258 million; a $5
million charge related to a legal settlement; $94 million of income
related to gains on asset sales; $7 million of income related to the
reversal of negative goodwill; $10 million of income related to reversals
of value-added tax reserves; and a $6 million asset impairment charge.
These items increased net loss from continuing operations by $138
million.
|
(2)
|
Includes
a pre-tax goodwill impairment charge of $785 million; pre-tax
restructuring and rationalization charges of $149 million, net of
reversals; $21 million of income related to gains on sales of assets and
businesses; $3 million of charges related to asset impairments; $41
million of charges for legal contingencies and settlements; $10 million of
charges for support of an educational institution; $94 million of income
related to postemployment benefit plans; $3 million of income for a
foreign export contingency; $270 million of income related to an IRS
refund; and charges of $27 million related to other discrete tax
items. These items increased net loss from continuing
operations by $610
million.
|
(3)
|
Includes
pre-tax restructuring charges of $662 million, net of reversals; $157
million of income related to property and asset sales; $57 million of
charges related to asset impairments; $6 million of charges for the
establishment of a loan reserve; $9 million of charges for a foreign
export contingency; and tax adjustments of $14 million. These
items increased net loss from continuing operations by $464
million.
|
(4)
|
Includes
pre-tax restructuring charges of $698 million, net of reversals; $2
million of income related to legal settlements; $46 million of income
related to property and asset sales; and $11 million of charges related to
asset impairments. These items increased net loss by $691
million. Also included is a valuation allowance of $89 million
recorded against the Company's net deferred assets in certain
jurisdictions outside the U.S., portions of which are reflected in the
aforementioned net loss
impact.
|
(5)
|
Includes
pre-tax restructuring charges of $1,092 million; $52 million of purchased
R&D; $44 million for charges related to asset impairments; $41 million
of income related to the gain on the sale of properties in connection with
restructuring actions; $21 million for unfavorable legal settlements and a
$6 million tax charge related to a change in estimate with respect to a
tax benefit recorded in connection with a land donation in a prior
period. These items increased net loss by $1,080
million. Also included is a valuation allowance of $961 million
recorded against the Company's net deferred tax assets in the U.S.,
portions of which are reflected in the aforementioned net loss
impact.
|
(6)
|
Refer
to Note 22, “Discontinued Operations” in the Notes to Financial Statements
for a discussion regarding the earnings from discontinued
operations.
|
(7)
|
Amounts
for 2006 and prior years have not been adjusted to remove amounts
associated with the Health Group.
|
(8)
|
Amounts
for 2007 and prior years have not been adjusted to remove wages, salaries
and employee benefits associated with the Health Group.
|
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
|
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including the
Company’s Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. The Company’s
management, with participation of the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the fiscal year covered by
this Annual Report on Form 10-K. The Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this Annual Report on Form 10-K, the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) were effective.
Management’s
Report on Internal Control Over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company’s internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America. The Company’s
internal control over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in
judgment or breakdowns resulting from human failures. Internal
control over financial reporting also can be circumvented by collusion or
improper management override.
Because
of such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in "Internal
Control-Integrated Framework.” Based on management’s assessment using
the COSO criteria, management has concluded that the Company's internal control
over financial reporting was effective as of December 31, 2009. The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, the Company’s
independent registered public accounting firm, as stated in their report which
appears on page 63 of this Annual Report on Form 10-K.
Changes
in Internal Control over Financial Reporting
In
connection with the evaluation of disclosure controls and procedures described
above, there was no change identified in the Company’s internal control over
financial reporting that occurred during the Company’s fourth fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
The
information required by Item 10 regarding directors is incorporated by reference
from the information under the caption "Board Structure and Corporate Governance
- Board of Directors" in the Company's Notice of 2010 Annual Meeting and Proxy
Statement (the “Proxy Statement”), which will be filed within 120 days after
December 31, 2009. The information required by Item 10 regarding
audit committee financial expert disclosure is incorporated by reference from
the information under the caption "Board Structure and Corporate Governance -
Audit Committee Financial Qualifications" in the Proxy Statement. The
information required by Item 10 regarding executive officers is contained in
Part I under the caption "Executive Officers of the Registrant" on page
22. The information required by Item 10 regarding the Company's
written code of ethics is incorporated by reference from the information under
the captions "Board Structure and Corporate Governance - Corporate Governance
Guidelines" and "Board Structure and Corporate Governance - Business Conduct
Guide and Directors' Code of Conduct" in the Proxy Statement. The
information required by Item 10 regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from the
information under the caption "Reporting Compliance - Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE
COMPENSATION
The
information required by Item 11 is incorporated by reference from the
information under the following captions in the Proxy
Statement: "Board Structure and Corporate Governance" and
"Compensation Discussion and Analysis."
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Most of
the information required by Item 12 is incorporated by reference from the
information under the captions "Beneficial Ownership" in the Proxy
Statement. "Stock Options and SARs Outstanding under Shareholder and
Non-Shareholder Approved Plans" is shown below:
STOCK
OPTIONS AND SARS OUTSTANDING UNDER SHAREHOLDER AND NON-SHAREHOLDER APPROVED
PLANS
As
required by Item 201(d) of Regulation S-K, the Company's total options
outstanding of 23,679,834, including total SARs outstanding of 159,735, have
been granted under equity compensation plans that have been approved by security
holders and that have not been approved by security holders as
follows:
Plan
Category
|
|
Number
of Securities to be issued Upon Exercise of Outstanding
Options,
Warrants
and Rights
|
|
|
Weighted-Average
Exercise Price of Outstanding Options,
Warrants
and Rights
|
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders (1)
|
|
|
21,213,455 |
|
|
$ |
27.73 |
|
|
|
7,382,719 |
|
Equity
compensation plans not approved by security holders (2)
|
|
|
2,466,379 |
|
|
|
35.96 |
|
|
|
0 |
|
Total
|
|
|
23,679,834 |
|
|
$ |
28.59 |
|
|
|
7,382,719 |
|
(1)
|
The
Company's equity compensation plans approved by security holders include
the 2005 Omnibus Long-Term Compensation Plan, the 2000 Omnibus Long-Term
Compensation Plan, the Eastman Kodak Company 1995 Omnibus Long-Term
Compensation Plan, and the Wage Dividend Plan.
|
(2)
|
The
Company's equity compensation plans not approved by security holders
include the Eastman Kodak Company 1997 Stock Option Plan and the Kodak
Stock Option Plan.
|
The 1997
Stock Option Plan, a plan formerly maintained by the Company for the purpose of
attracting and retaining senior executive officers, became effective on February
13, 1997, and expired on December 31, 2003. The Compensation
Committee administered this plan and continues to administer these plan awards
that remain outstanding. The plan permitted awards to be granted in
the form of stock options, shares of common stock and restricted shares of
common stock. The maximum number of shares that were available for
grant under the plan was 3,380,000. The plan required all stock
option awards to be non-qualified, have an exercise price not less than 100% of
fair market value of the Company’s stock on the date of the option's grant and
expire on the tenth anniversary of the date of grant. Awards issued
in the form of shares of common stock or restricted shares of common stock were
subject to such terms, conditions and restrictions as the Compensation Committee
deemed appropriate.
The Kodak
Stock Option Plan, an "all employee stock option plan" which the Company
formerly maintained, became effective on March 13, 1998, and terminated on March
12, 2003. The plan was used in 1998 to grant an award of 100
non-qualified stock options or, in those countries where the grant of stock
options was not possible, 100 freestanding stock appreciation rights, to almost
all full-time and part-time employees of the Company and many of its domestic
and foreign subsidiaries. In March of 2000, the Company made
essentially an identical grant under the plan to generally the same category of
employees. The Compensation Committee administered this plan and
continues to administer these plan awards that remain outstanding. A
total of 16,600,000 shares were available for grant under the
plan. All awards granted under the plan generally contained the
following features: 1) a grant price equal to the fair market value
of the Company's common stock on the date of grant; 2) a two-year vesting
period; and 3) a term of 10
years.
On
December 31, 2009, the equity overhang, or the percentage of outstanding shares
(plus shares that could be issued pursuant to plans represented by all stock
incentives granted and available for future grant under all plans) was
13.0%.
The
following table sets forth information regarding awards granted and earned, the
run rate for each of the last three fiscal years, and the average run rate over
the last three years.
RUN
RATE (shares in thousands)
|
|
|
|
Run
Rate for the Year Ended December 31,
|
|
(shares
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
3-year Average
|
|
Stock
options granted
|
|
|
1,229 |
|
|
|
2,813 |
|
|
|
1,813 |
|
|
|
1,952 |
|
Unvested
service-based stock granted
|
|
|
7,585 |
|
|
|
796 |
|
|
|
183 |
|
|
|
2,855 |
|
Actual
performance-based stock awards earned
|
|
|
563 |
|
|
|
164 |
|
|
|
63 |
|
|
|
263 |
|
Basic
common shares outstanding at fiscal year end
|
|
|
268,631 |
|
|
|
268,169 |
|
|
|
288,000 |
|
|
|
274,933 |
|
Run
rate
|
|
|
3.49 |
% |
|
|
1.41 |
% |
|
|
0.71 |
% |
|
|
1.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company continues to manage its run rate
of awards granted over time to levels it believes are reasonable in light of
changes in its business and number of outstanding shares while ensuring that our
overall executive compensation program is competitive, relevant, and
motivational.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
|
The
information required by Item 13 is incorporated by reference from the
information under the captions "Compensation of Named Executive Officers -
Employment and Retention Arrangements" and "Board Structure and Corporate
Governance - Board Independence" in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING
FEES AND SERVICES
The
information required by Item 14 regarding principal auditor fees and services is
incorporated by reference from the information under the caption "Committee
Reports - Report of the Audit Committee" in the Proxy
Statement.
ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
|
Pa
Page No.
|
(a)1. Consolidated financial
statements:
|
|
Report of independent registered
public accounting firm
|
63
|
Consolidated statement of
operations
|
64
|
Consolidated statement of
financial position
|
65
|
Consolidated statement of equity
|
66-68
|
Consolidated statement of cash
flows
|
69-70
|
Notes to financial statements
|
71-132
|
|
|
2. Financial statement
schedule:
|
|
|
|
II
- Valuation and qualifying accounts
|
140
|
|
|
All
other schedules have been omitted because they are not applicable or the
information required is shown in the financial statements or notes
thereto.
|
|
|
|
3.Additional data required to
be furnished:
|
|
|
|
Exhibits
required as part of this report are listed in the index appearing on pages
141 through 148.
|
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
EASTMAN
KODAK COMPANY
(Registrant)
By: By:
/s/
Antonio M. Perez
/s/ Frank S. Sklarsky
Antonio
M.
Perez
Frank S. Sklarsky
Chairman
& Chief Executive
Officer
Chief Financial Officer and
Executive
Vice President
/s/ Eric H. Samuels
Eric H. Samuels
Chief Accounting Officer and
Corporate Controller
Date:February 22, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
/s/ Richard S.
Braddock
/s/ Debra L. Lee
Richard S. Braddock,
Director Debra L. Lee, Director
/s/ Herald
Chen
/s/ Delano E. Lewis
Herald Chen,
Director
Delano E. Lewis, Director
/s/ Adam
Clammer
/s/ William G. Parrett
Adam
Clammer,
Director
William G. Parrett, Director
/s/
Timothy M.
Donahue
/s/ Antonio M. Perez
Timothy
M. Donahue, Director Antonio M. Perez, Director
/s/
Michael
Hawley
/s/ Joel Seligman
Michael
Hawley,
Director
Joel Seligman, Director
/s/
William H.
Hernandez
/s/ Dennis F. Strigl
William
H. Hernandez, Director Dennis F. Strigl, Director
/s/
Douglas R.
Lebda /s/ Laura D’Andrea Tyson
Douglas
R. Lebda,
Director
Laura D’Andrea Tyson,
Director
Date:February 22, 2010
Eastman
Kodak Company
Valuation
and Qualifying Accounts
|
|
Balance
at
|
|
|
Charges
to
|
|
|
Amounts
|
|
|
Balance
at
|
|
|
|
Beginning
|
|
|
Earnings
|
|
|
Written
|
|
|
End
of
|
|
(in
millions)
|
|
Of
Period
|
|
|
and
Equity
|
|
|
Off
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
in the Statement of Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Current Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
90 |
|
|
$ |
23 |
|
|
$ |
34 |
|
|
$ |
79 |
|
Reserve
for loss on returns and allowances
|
|
|
23 |
|
|
|
25 |
|
|
|
29 |
|
|
|
19 |
|
Total
|
|
$ |
113 |
|
|
$ |
48 |
|
|
$ |
63 |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Long-Term Receivables and Other Noncurrent
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
8 |
|
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$ |
1,665 |
|
|
$ |
633 |
|
|
$ |
206 |
|
|
$ |
2,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
in the Statement of Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Current Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
83 |
|
|
$ |
42 |
|
|
$ |
35 |
|
|
$ |
90 |
|
Reserve
for loss on returns and allowances
|
|
|
31 |
|
|
|
16 |
|
|
|
24 |
|
|
|
23 |
|
Total
|
|
$ |
114 |
|
|
$ |
58 |
|
|
$ |
59 |
|
|
$ |
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Long-Term Receivables and Other Noncurrent
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
6 |
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$ |
1,249 |
|
|
$ |
542 |
|
|
$ |
126 |
|
|
$ |
1,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
in the Statement of Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Current Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
97 |
|
|
$ |
25 |
|
|
$ |
39 |
|
|
$ |
83 |
|
Reserve
for loss on returns and allowances
|
|
|
37 |
|
|
|
16 |
|
|
|
22 |
|
|
|
31 |
|
Total
|
|
$ |
134 |
|
|
$ |
41 |
|
|
$ |
61 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Long-Term Receivables and Other Noncurrent
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for doubtful accounts
|
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$ |
1,849 |
|
|
$ |
11 |
|
|
$ |
611 |
|
|
$ |
1,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastman
Kodak Company
Exhibit
Number
(3.1
|
Certificate
of Incorporation, as amended and restated May 11,
2005.
|
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2005, Exhibit
3.)
|
(3.2)
|
By-laws,
as amended and restated February 24,
2009.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date February 24, 2009, as filed on March 3, 2009, Exhibit
3.2.)
|
(4.1)
|
Indenture
dated as of January 1, 1988 between Eastman Kodak Company and The Bank of
New York as Trustee.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 25, 1988, Exhibit
4.)
|
(4.2)
|
First
Supplemental Indenture dated as of September 6, 1991 and Second
Supplemental Indenture dated as of September 20, 1991, each between
Eastman Kodak Company and The Bank of New York as Trustee, supplementing
the Indenture described in
(4.1).
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, Exhibit
4.)
|
(4.3)
|
Third
Supplemental Indenture dated as of January 26, 1993, between Eastman Kodak
Company and The Bank of New York as Trustee, supplementing the Indenture
described in (4.1).
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, Exhibit
4.)
|
(4.4)
|
Fourth
Supplemental Indenture dated as of March 1, 1993, between Eastman Kodak
Company and The Bank of New York as Trustee, supplementing the Indenture
described in (4.1).
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, Exhibit
4.)
|
(4.5)
|
Form
of the 7.25% Senior Notes due 2013.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date October 10, 2003 as filed on October 10, 2003, Exhibit
4.)
|
(4.6)
|
Resolutions
of the Committee of the Board of Directors of Eastman Kodak Company,
adopted on October 7, 2003, establishing the terms of the
Securities.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date October 10, 2003 as filed on October 10, 2003, Exhibit
4.)
|
(4.7)
|
Fifth
Supplemental Indenture, dated October 10, 2003, between Eastman Kodak
Company and The Bank of New York, as
Trustee.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date October 10, 2003 as filed on October 10, 2003, Exhibit
4.)
|
(4.8)
|
Secured
Credit Agreement, dated as of October 18, 2005, among Eastman Kodak
Company and Kodak Graphic Communications Canada Company, the banks named
therein, Citigroup Global Markets Inc., as lead arranger and bookrunner,
Lloyds TSB Bank PLC, as syndication agent, Credit Suisse, Cayman Islands
Branch, Bank of America, N. A. and The CIT Group/Business Credit, Inc., as
co-documentation agents, and Citicorp USA, Inc., as agent for the
lenders.
|
(Incorporated by reference to the Eastman Kodak Company Current Report on
Form 8-K, filed on October 24, 2005, Exhibit 4.1.)
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
Amendment
No. 1 to the Credit Agreement (including Exhibit A – Amended and Restated Credit
Agreement), dated as of March 31, 2009, among Eastman Kodak Company, Kodak
Graphic Communications Canada Company, and Kodak Canada Inc., the lenders party
thereto, and Citicorp USA, Inc. as agent.
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date March 31, 2009, as filed on April 3, 2009, Exhibit
4.8.)
|
|
Amendment
No. 1 to the Amended and Restated Credit Agreement, dated as of September
17, 2009.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date September 17, 2009, as filed on September 18, 2009, Exhibit
10.1.)
|
|
Amendment
No. 2 to the Amended and Restated Credit Agreement, dated as of February
10, 2010, among Eastman Kodak Company, Kodak Canada Inc., the lenders
party thereto and Citicorp USA, Inc., as Agent.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date February 10, 2010, as filed on February 12, 2010, Exhibit
10.1.)
|
(4.9)
|
Security
Agreement, dated as of October 18, 2005, amended and restated as of March
31, 2009, from the grantors party thereto to Citicorp USA, Inc.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date March 31, 2009, as filed on April 3, 2009, Exhibit 4.9.)
|
(4.10)
|
Canadian
Security Agreement, dated October 18, 2005, amended and restated as of
March 31, 2009, from the grantors party thereto to Citicorp USA, Inc.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K for
the date March 31, 2009, as filed on April 3, 2009, Exhibit 4.10.)
|
(4.11)
|
Indenture,
dated as of September 23, 2009, between Eastman Kodak Company and The Bank
of New York Mellon, as trustee.
|
(Incorporated by reference to the
Eastman Kodak Company Current Report on Form 8-K for the date September 23,
2009, as filed on September 23, 2009, Exhibit 4.1.)
(4.12)
|
Indenture,
dated as of September 29, 2009, between Eastman Kodak Company and The Bank
of New York Mellon, as trustee.
|
(Incorporated by reference to the
Eastman Kodak Company Current Report on Form 8-K for the date September 29,
2009, as filed on September 30, 2009, Exhibit 4.1.)
(Incorporated by reference to the
Eastman Kodak Company Current Report on Form 8-K for the date September 29,
2009,
as filed on September 30, 2009, Exhibit 10.2.)
(4.14)
|
Registration
Rights Agreement, dated as of September 29,
2009.
|
Incorporated by reference to the
Eastman Kodak Company Current Report on Form 8-K for the date September
29, 2009, as
filed on September 30, 2009, Exhibit 10.3.)
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
(4.15)
|
Purchase
Agreement, dated as of September 16,
2009.
|
(Incorporated by reference to the
Eastman Kodak Company Current Report on Form 8-K for the date September 29,
2009, as
filed on September 30, 2009, Exhibit 10.1.)
Eastman
Kodak Company and certain subsidiaries are parties to instruments defining the
rights of holders of long-term debt that was not registered under the Securities
Act of 1933. Eastman Kodak Company has undertaken to furnish a copy
of these instruments to the Securities and Exchange Commission upon
request.
(10.1)
Philip J. Faraci Agreement dated
November 3, 2004.
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2005, Exhibit 10.)
Amendment,
dated February 28, 2007, to Philip J. Faraci Letter Agreement dated November 3,
2004.
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K, filed on
March 1, 2007, Exhibit 99.2.)
Second
Amendment, dated December 9, 2008, to Philip J. Faraci Letter Agreement Dated
November 3, 2004.
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.1.)
(10.2)
|
Eastman
Kodak Company Deferred Compensation Plan for Directors, as amended and
restated effective January 1,
2009.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, Exhibit
10.2.)
|
(10.3)
|
Eastman Kodak
Company Non-Employee Director Annual Compensation
Program. The equity portion of the retainer became
effective December 11, 2007; the cash portion of the retainer became
effective January 1, 2008.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2007, Exhibit 10.)
|
(10.4)
|
1982
Eastman Kodak Company Executive Deferred Compensation Plan, as amended and
restated effective January 1, 2009.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, Exhibit
10.4.)
|
(10.5)
|
Eastman
Kodak Company 2005 Omnibus Long-Term Compensation Plan, as amended,
effective January
1,2009.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, Exhibit
10.5.)
|
|
Form
of Notice of Award of Non-Qualified Stock Options pursuant to the 2005
Omnibus Long-Term Compensation Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K,
filed on May 11, 2005, Exhibit
10.2.)
|
Eastman Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
|
Form
of Notice of Award of Restricted Stock, pursuant to the 2005 Omnibus
Long-Term Compensation Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K,
filed on May 11, 2005, Exhibit
10.3.)
|
|
Form
of Notice of Award of Restricted Stock with a Deferral Feature, pursuant
to the 2005 Omnibus Long-Term Compensation Plan.
|
(Incorporated by reference to the
Eastman Kodak Company Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2005, Exhibit 10.)
|
Form
of Administrative Guide for Annual Officer Stock Options Grant under the
2005 Omnibus Long-Term Compensation Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2005, Exhibit
10.)
|
|
Form
of Award Notice for Annual Director Stock Option Grant under the 2005
Omnibus Long-Term Compensation
Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2005, Exhibit
10.)
|
|
Form
of Award Notice for Annual Director Restricted Stock Grant under the 2005
Omnibus Long-Term Compensation Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2005, Exhibit
10.)
|
Form of Administrative
Guide for Leadership Stock Program under the 2005 Omnibus Long-Term Compensation
Plan.
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2008, Exhibit 10.)
(10.7)
|
Administrative
Guide for the 2007 Performance Cycle of the Leadership Stock Program under
Article 7 (Performance Awards) of the 2005 Omnibus Long-Term Compensation
Plan.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.7.)
(10.8)
|
Administrative
Guide for the 2008 Performance Cycle of the Leadership Stock Program under
Article 7 (Performance Awards) of the 2005 Omnibus Long-Term Compensation
Plan.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.8.)
Administrative
Guide for the 20__ Performance Cycle of the Leadership Stock Program under
Article 7 (Performance Awards) of the 2005 Omnibus Long-Term Compensation
Plan.
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2009, Exhibit 10.6.)
(10.9)
|
Administrative
Guide for September 16, 2008 Restricted Stock Unit Grant under the 2005
Omnibus Long-term Compensation Plan.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.9.)
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
(10.10)
|
Form
of Administrative Guide for Restricted Stock Unit Grant under the 2005
Omnibus Long-term Compensation Plan.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.10.)
(10.11)Frank S. Sklarsky Agreement dated
September 19, 2006.
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2006, Exhibit
10.1.)
|
Amendment, dated September 26, 2006, to Frank S. Sklarsky Agreement dated
September 19, 2006.
(Incorporated by reference to the
Eastman Kodak Company Quarterly Report on Form 10-Q for the quarterly period
ended
September 30, 2006, Exhibit 10.2.)
(10.12)
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Eastman
Kodak Company 1995 Omnibus Long-Term Compensation Plan, as amended,
effective as of November 12, 2001.
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(Incorporated by reference
to the Eastman Kodak Company Annual Report on Form 10-K for the fiscal year
ended
December
31, 1996, the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1997, the Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1998, the Quarterly
Report on Form 10-Q for the quarterly
period ended June 30, 1998, the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998, the
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999,
the Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, and the Annual Report on Form 10-K for
the fiscal year ended December 31,
2001,
Exhibit 10.)
(10.13)
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Kodak
Executive Financial Counseling
Program.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Exhibit 10.)
(10.14)
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Personal
Umbrella Liability Insurance Coverage.
|
Eastman Kodak Company
provides $5,000,000 personal umbrella liability insurance coverage to its
approximately 160
key
executives. The coverage, which is insured through The
Mayflower Insurance Company, Ltd., supplements
participants’ personal coverage. The Company pays the cost of this
insurance. Income is imputed to
participants.
(Incorporated by reference to the Eastman Kodak Company Annual Report on Form
10-K for the fiscal year ended
December 31, 1995, Exhibit 10.)
(10.15)
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Kodak
Stock Option Plan, as amended and restated August 26,
2002.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2002, Exhibit
10.)
|
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
(10.17)
|
Eastman
Kodak Company 1997 Stock Option Plan, as amended effective as of March 13,
2001.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 and the Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2001, Exhibit
10.)
|
(10.18)
|
Eastman
Kodak Company 2000 Omnibus Long-Term Compensation Plan, as amended,
effective January 1, 2009.
|
(Incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, Exhibit 10.18.)
|
Form
of Notice of Award of Non-Qualified Stock Options Granted To ________,
Pursuant to the 2000 Omnibus Long-Term Compensation Plan; and Form of
Notice of Award of Restricted Stock Granted To ______, Pursuant to the
2000 Omnibus Long-Term Compensation
Plan.
|
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, Exhibit
10.)
|
(10.19)Administrative Guide for the 2004-2005
Performance Cycle of the Leadership Program under Article 12 of the 2000
Omnibus Long-Term Compensation Plan, as amended January 1, 2009.
(Incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, Exhibit 10.19.)
(10.20)
|
Administrative
Guide for the 2004-2005 Performance Cycle of the Leadership Program under
Section 13 of the 2000 Omnibus Plan, as amended January 1, 2009.
|
(Incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, Exhibit 10.20.)
(10.21)
|
Eastman
Kodak Company Executive Compensation for Excellence and Leadership Plan,
as amended, effective January 1,
2009.
|
(Incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year
ended
December 31, 2008, Exhibit 10.21.)
(10.22)
|
Eastman
Kodak Company Executive Protection Plan, as amended December 12, 2008,
effective January 1, 2009.
|
(Incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year ended
December
31, 2008, Exhibit 10.22.)
(10.23)
|
Eastman
Kodak Company Estate Enhancement Plan, as adopted effective March 6,
2000.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, Exhibit 10.)
(10.24)Antonio M. Perez Agreement dated March
3, 2003.
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2003, Exhibit 10
Z.)
|
Letter
dated May 10, 2005, from the Chair, Executive Compensation and Development
Committee, to Antonio M. Perez.
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K, filed on
May 11, 2005, Exhibit 10.2.).
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
Notice of
Award of Restricted Stock with a Deferral Feature Granted to Antonio M. Perez,
effective June 1, 2005, pursuant to the 2005 Omnibus Long-Term Compensation
Plan.
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2005, Exhibit 10 CC.)
Amendment,
dated February 27, 2007, to Antonio M. Perez Letter Agreement dated March 3,
2003.
(Incorporated
by reference to the Eastman Kodak Company Current Report on Form 8-K, filed on
March 1, 2007, Exhibit 99.1).
|
Second
Amendment, dated December 9, 2008, to Antonio M. Perez Letter Agreement
dated March 3, 2003.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, Exhibit 10.24.)
Amendment,
dated September 28, 2009, to Antonio M. Perez Letter Agreement dated March 3,
2003.
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009.)
(10.25)Mary Jane Hellyar Retention Agreement
dated August 14, 2006.
|
(Incorporated
by reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 2006, Exhibit
10.)
|
(10.26)
|
Asset
Purchase Agreement between Eastman Kodak Company and Onex Healthcare
Holdings, Inc., dated as of January 9, 2007.
|
|
Amendment
No. 1 To the Asset Purchase
Agreement.
|
(Incorporated
by reference to the Eastman Kodak Company Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007, Exhibit 10 CC.)
(10.27)
|
Administrative
Guide For September 28, 2009 Restricted Stock Unit (RSU) Grant under the
2005 Omnibus Long-Term Compensation Plan (For
Executives).
|
(Incorporated by reference to the
Eastman Kodak Company Quarterly Report on Form 10-Q for the quarterly
period ended
September 30, 2009.)
(10.28)
|
Administrative
Guide For September 28, 2009 Restricted Stock Unit (RSU) Grant under the
2005 Omnibus Long-Term Compensation Plan (For Executive Council and
Operations Council Members).
|
(Incorporated by reference to the
Eastman Kodak Company Quarterly Report on Form 10-Q for the quarterly
period ended
September
30, 2009.)
Eastman
Kodak Company
Index
to Exhibits (continued)
Exhibit
Number
(10.29)
|
Administrative
Guide For September 28, 2009 Restricted Stock Unit (RSU) Grant under the
2005 Omnibus Long-Term Compensation Plan (Hold Until Retirement
Provision).
|
(Incorporated by reference to the
Eastman Kodak Company Quarterly Report on Form 10-Q for the quarterly
period ended
September 30, 2009.)
(12) Statement Re Computation of Ratio of
Earnings to Fixed Charges.
(21) Subsidiaries of Eastman Kodak
Company.
(23) Consent of Independent Registered Public
Accounting Firm.
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|