1
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, 2000 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $2.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. X
At December 31, 2000 290,484,266 shares of Common Stock of the registrant
were outstanding. The aggregate market value (based upon the closing
price of these shares on the New York Stock Exchange at February 5, 2001)
of the voting stock held by nonaffiliates was approximately $13.0 billion.
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PART I
ITEM 1. BUSINESS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing and marketing consumer, professional, health and
other imaging products and services. Kodak's sales, earnings and
identifiable assets by operating segment for the past three years are
shown in Note 17, Segment Information.
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CONSUMER IMAGING SEGMENT
Sales of the Consumer Imaging segment for 2000, 1999 and 1998 were (in
millions) $7,406, $7,411 and $7,164, respectively.
Kodak manufactures and markets various components of consumer imaging
systems. For traditional consumer amateur photography, Kodak supplies
films, photographic papers, processing services, photofinishing equipment,
photographic chemicals, cameras (including one-time-use) and projectors.
The Advanced Photo System is an amateur system of cameras, films and
photofinishing which delivers a variety of consumer features such as drop-
in loading, multiple print size options, index prints, and negatives
returned in the cartridge. Kodak has also developed products that bridge
traditional silver halide and digital products. These products include
kiosks and scanning systems to digitize images, digital media for storing
images, software for enhancing images and a network for transmitting
images. In addition, other digitization options have been created to
stimulate more pictures in use, adding to the consumption of film and
paper, including Kodak Picture CD, Kodak PhotoNet Online, Kodak/America
Online (AOL) "You've Got Pictures" SM, Kodak Picture Disk, Kodak Photo CD,
and Kodak Picture Maker. The Company presently has relationships with
Intel, Hewlett-Packard, AOL, Adobe Systems, Weave Innovations, and others
to expand the category for silver halide and digital products.
Marketing and Competition. Kodak's consumer imaging products and services
are distributed worldwide through a variety of channels. Individual
products are often used in substantial quantities in more than one market.
Most sales of the Consumer Imaging segment are made through retailers.
Independent retail outlets selling Kodak amateur products total many
thousands. In a few areas abroad, Kodak products are marketed by
independent national distributors. In addition, certain consumer products
may be purchased through the Internet.
Kodak's advertising programs actively promote its consumer imaging
products and services in its various markets, and its principal
trademarks, trade dress and corporate symbol are widely used and
recognized.
Kodak's consumer imaging products and services compete with similar
products and services of others. Competition in traditional and digital
consumer imaging markets is strong throughout the world. Many large and
small companies offer similar consumer products and services that compete
with Kodak's business. Kodak's products are continually improved to meet
the changing needs and preferences of its customers.
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Raw Materials. The raw materials used by the Consumer Imaging segment are
many and varied and generally available. Silver is one of the essential
materials in traditional photographic film and paper manufacturing.
Digital electronic components are also prevalent in product offerings.
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KODAK PROFESSIONAL SEGMENT
Sales of the Kodak Professional segment for 2000, 1999 and 1998 were (in
millions) $1,706, $1,910 and $1,840, respectively.
Products of the Kodak Professional segment include films, photographic
papers, digital cameras, printers and scanners, chemicals, and services
targeted to professional customers. These products serve professional
photofinishers, professional photographers and commercial printers and
publishers.
Kodak Polychrome Graphics, a 50/50 joint venture with Sun Chemical
Corporation, was formed on December 31, 1997. The joint venture assumed
responsibility for the photographic plate business, as well as for the
marketing of Kodak graphic arts film, and proofing materials and
equipment.
In September 1997, Kodak and Heidelberger Druckmaschinen AG (Heidelberg)
established the NexPress joint venture for the purpose of developing and
marketing new digital color printing solutions for the graphic arts
industry. In connection with the 1999 sale of the Office Imaging business
as further discussed, the Company and Heidelberg also expanded their joint
venture company, NexPress, to include the black-and-white
electrophotographic business. The Company contributed its toner and
developer operations in Rochester and Kirkby, England to the joint
venture.
Marketing and Competition. Kodak's professional imaging products and
services are distributed through a variety of channels, including the
Internet. Most sales of the Kodak Professional segment are made to
professional photographers, printers and publishers.
Kodak's professional imaging products and services compete with similar
products and services of other small and large companies. Strong
competition exists throughout the world in these markets. Kodak's
products are continually improved to meet the changing needs and
preferences of its customers.
Raw Materials. The raw materials used by the Kodak Professional segment
are many and varied and generally available. Silver is one of the
essential materials used in the manufacturing of professional
photographic, industrial x-ray, and graphic arts film, and paper. Digital
electronic components are becoming more prevalent in product offerings.
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HEALTH IMAGING SEGMENT
Sales of the Health Imaging segment for 2000, 1999 and 1998 were (in
millions) $2,185, $2,120 and $1,526, respectively.
The products of the Health Imaging segment are used to capture, store,
process, print and display images and information in a variety of forms
for customers in the healthcare industry, for both primary and referral
diagnoses.
Products of the Health Imaging segment include traditional analog products
such as medical films, chemicals, and processing equipment, as well as
services for healthcare professionals. In addition, this segment provides
digital medical imaging systems which are a key component of sales and
earnings growth. These include computed radiography systems, Picture
Archiving and Communications Systems (PACS), digital print film, and laser
imagers. The Health Imaging segment serves customers for general
radiology products and specialty health markets, including cardiology,
dental, mammography, and oncology imaging.
On November 30, 1998, Kodak acquired the worldwide medical imaging
business of Imation Corp., which includes Imation's manufacturing
facilities in White City, Oregon and Oakdale, Minnesota, and all of the
outstanding shares of Imation's Cemax-Icon subsidiary in Fremont,
California. At the time of acquisition, this business generated
approximately $500 million in annual revenues.
Marketing and Competition. Kodak's health imaging products and services
are distributed through a variety of channels, primarily to healthcare
organizations.
Kodak's health imaging products and services compete with similar products
and services of other small and large companies. Strong competition
exists throughout the world in these markets. Kodak's products are
continually improved to meet the changing needs and preferences of its
healthcare customers.
Raw Materials. The raw materials used by the Health Imaging segment are
many and varied and generally available. Silver is one of the essential
materials used in X-ray film manufacturing.
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OTHER IMAGING SEGMENT
Sales of the Other Imaging segment for 2000, 1999 and 1998 were (in
millions) $2,697, $2,648 and $2,876, respectively.
Products of the Other Imaging segment include motion picture films,
audiovisual equipment, consumer digital cameras and printers, microfilm
products, applications software, printers, scanners and other business
equipment, aerial film, image capture products, optics and optical
systems, as well as supplies and service agreements to support certain of
these products. These products serve customers primarily in motion
picture and television, document imaging, and government markets.
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In April 1999, the Company sold its digital printer, copier-duplicator,
and roller assembly operations primarily associated with its Office
Imaging business to Heidelberg, which included its operations in
Rochester, NY, Muehlhausen, Germany and Tijuana, Mexico. In November
1999, the Company sold The Image Bank, a wholly-owned subsidiary which
markets and licenses image reproduction rights, to Getty Images, Inc. In
November 1999, the Company sold its Motion Analysis Systems Division,
which manufactures digital cameras and digital video cameras for the
automotive and industrial markets, to Roper Industries, Inc. In 2000, the
Company divested its Eastman Software subsidiary and also acquired the
remaining ownership interest in PictureVision, Inc., the leading provider
of digital imaging network services and solutions at retail.
Marketing and Competition. Products and services of the Other Imaging
segment are distributed through a variety of channels. The Company also
sells and leases business equipment directly to users, and has a presence
on the Internet.
These products and services compete with similar products and services of
other small and large companies. Strong competition exists throughout the
world in these markets. Kodak's products are continually improved to meet
the changing needs and preferences of its customers.
Raw Materials. The raw materials used are many and varied and generally
available. Silver is one of the essential materials in traditional film
manufacturing. Electronic components represent a significant portion of
the cost of the materials used in the manufacture of business equipment
and digital cameras.
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RESEARCH AND DEVELOPMENT
Through the years, Kodak has engaged in extensive and productive efforts
in research and development. Research and development expenditures for
2000, 1999 and 1998 were (in millions) $784, $817 and $922, respectively.
The 2000 figure includes a $10 million charge for the write-off of in-
process research and development associated with the acquisition of the
remaining ownership interest in PictureVision, Inc. The 1998 figure
includes a $42 million charge for the write-off of in-process research and
development associated with the acquisition of Imation Corp.'s worldwide
medical imaging business on November 30, 1998. See Note 15, Acquisitions
and Joint Ventures.
Research and development is headquartered in Rochester, New York. Other
U.S. groups are located in Boston, Massachusetts; Washington, D.C.; and
Menlo Park, California. Outside the U.S., groups are located in
Australia, England, France, Japan and China. 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.
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It has been Kodak'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 Kodak'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 color negative films, processing and papers; digital
cameras; network photo fulfillment; and organic light-emitting diodes.
Each of these areas is important to existing and emerging business
opportunities that bear directly on the Company's overall business
performance.
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ENVIRONMENTAL PROTECTION
Kodak is subject to various laws and governmental regulations concerning
environmental matters. Some of the U.S. federal environmental legislation
having an impact on Kodak includes the Toxic Substances Control Act, the
Resource Conservation and Recovery Act (RCRA), the Clean Air Act, 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. Kodak continues to engage in a program for
environmental protection and control.
Environmental protection is further discussed in the Notes to Financial
Statements.
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EMPLOYMENT
At the end of 2000, the Company employed 78,400 people, of whom 43,200
were employed in the U.S.
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Financial information by geographic areas for the past three years is
shown in Note 17, Segment Information.
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ITEM 2. PROPERTIES
The Consumer Imaging segment of Kodak's business in the United States is
centered in Rochester, New York, where photographic goods are
manufactured. Another manufacturing facility near Windsor, Colorado, also
produces sensitized photographic goods.
Consumer Imaging manufacturing facilities outside the United States are
located in Australia, Brazil, Canada, China, England, France, India,
Indonesia, Mexico, Nepal and Russia. Kodak maintains marketing and
distribution facilities in many parts of the world. The Company also owns
processing laboratories in numerous locations worldwide.
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Products in the Kodak Professional segment are manufactured in the United
States, primarily in Rochester, New York. Manufacturing facilities
outside the United States are located in Brazil, Canada, China, England,
France, Germany, Japan and Mexico.
Products in the Health Imaging segment are manufactured in the United
States, primarily in Rochester, New York; Windsor, Colorado; Oakdale,
Minnesota; White City, Oregon; and Fremont, California. Manufacturing
facilities outside the United States are located in Brazil, China, France,
Germany, India and Mexico.
Products in the Other Imaging segment are manufactured in the United
States, primarily in Rochester, New York and Windsor, Colorado.
Manufacturing facilities outside the United States are located in Brazil,
Canada, England, France, Germany, Japan, India and Mexico.
Properties within a country are generally 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,
manufacturing, marketing and processing facilities in various parts of the
world. The leases are for various periods and are generally renewable.
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Item 3. LEGAL PROCEEDINGS
On October 6, 2000, the U.S. Environmental Protection Agency, Region 2,
initiated an administrative enforcement action against the Company,
alleging violations of air monitoring requirements under the Resource
Conservation and Recovery Act (RCRA), the law that regulates the
management of hazardous waste. These issues arose as the result of an
inspection conducted by EPA at the Company's Kodak Park manufacturing
facility in Rochester, New York in May 1999. The complaint, alleging six
counts of failing to test and monitor certain valves, containers, and
pumps at Kodak Park, seeks a penalty of $303,064 and an Order requiring
the Company to come into compliance within sixty days.
Although the Company does not dispute the allegations with respect to some
equipment, many of the Agency's allegations are based on its more
expansive interpretation of the applicability of the hazardous waste
program to equipment that the Company believes to be process equipment
(and therefore exempt). Settlement discussions are ongoing.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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.
(as of December 31, 2000)
Date First Elected
an to
Executive Present
Name Age Positions Held Officer Office
Joerg D. Agin 58 Senior Vice President 1996 1996
Michael P. Benard 53 Vice President 1994 1994
Charles S. Brown 50 Senior Vice President 2000 2000
Robert H. Brust 57 Chief Financial Officer
and Executive Vice
President 2000 2000
Daniel A. Carp 52 Chairman of the Board,
President and
Chief Executive Officer 1995 2000
Martin M. Coyne, II 51 Executive Vice President 1997 2000
Carl E. Gustin, Jr. 49 Senior Vice President 1995 1995
Theodore G. Lewis 59 Senior Vice President 2000 2000
Carl A. Marchetto 45 Senior Vice President 2001 2001
J. M. McQuade 45 Senior Vice President 2000 2000
Michael P. Morley 57 Executive Vice President 1994 2000
Candy M. Obourn 50 Senior Vice President 1997 2000
Daniel P. Palumbo 42 Senior Vice President 1997 2000
E. Mark Rajkowski 42 Controller 1998 1998
Willy C. Shih 49 Senior Vice President 1997 2000
Patrick T. Siewert 45 Senior Vice President 1997 2000
Eric L. Steenburgh 59 Executive Vice President
of Operations 1998 2000
James C. Stoffel 54 Senior Vice President 2000 2000
David Swift 42 Senior Vice President 2000 2000
Gary P. Van Graafeiland 54 General Counsel and
Senior Vice President 1992 1992
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Executive officers are elected annually in February.
All of the executive officers have been employed by Kodak in various
executive and managerial positions for more than five years, except Mr.
Marchetto, who joined the Company on July 15, 1996; Mr. Palumbo, who
joined the Company on May 19, 1997; Mr. Shih, who joined the Company on
July 7, 1997; Mr. Stoffel, who joined the Company on September 22, 1997;
Mr Steenburgh, who joined the Company on April 13, 1998; Mr. Rajkowski,
who joined the Company on July 13, 1998; Mr. McQuade, who joined the
Company on January 1, 1999; Mr. Brust, who joined the Company on January
3, 2000; and Mr. Lewis, who joined the Company on October 9, 2000. Prior
to joining Kodak in 1996, Mr. Marchetto was a commercial satellite program
director in the Astro Space Division of Lockheed Martin. Prior to joining
that company, Mr. Marchetto held positions with Jet Propulsion Laboratory.
Prior to joining Kodak in 1997, Mr. Palumbo served in domestic and
European line management roles at Procter & Gamble. Prior to joining
Kodak in 1997, Mr. Shih was Vice President of Marketing for Technical
Computing at Silicon Graphics Computer Systems, which he joined in 1995.
Prior to joining that company, Mr. Shih held executive positions with DEC,
which he joined in 1994, and IBM Corporation. Prior to joining Kodak in
1997, Mr. Stoffel was Vice President and Chief Engineer at Xerox
Corporation. Prior to joining Kodak in 1998, Mr. Steenburgh held senior
management positions at Xerox Corporation, Ricoh Company, Ltd., Goulds
Pumps, and, most recently, was President of the Industrial Pump Group
Worldwide at ITT Fluid Technology Corporation, a part of ITT Industries.
Prior to joining Kodak in 1998, Mr. Rajkowski was employed at Price
Waterhouse LLP (now PricewaterhouseCoopers LLP) where he was the Upstate
New York Technology Group Managing Partner and an Audit and Business
Advisory Services Partner. Prior to joining Kodak in 1999, Mr. McQuade
was the General Manager of Imation's medical imaging systems business.
Prior to joining that company, Mr. McQuade held a number of positions with
3M since 1982. Prior to joining Kodak in 2000, Mr. Brust was Senior Vice
President and Chief Financial Officer with Unisys Corporation since 1997.
Prior to joining that company, Mr. Brust held a variety of management
positions with General Electric since 1965. Prior to joining Kodak in
2000, Mr. Lewis was the President and CEO of DaimlerChrysler R&D in Palo
Alto, California.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of
the ability and integrity of any executive officer during the past five
years.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Eastman Kodak Company common stock is principally traded on the New York
Stock Exchange. There are 113,308 shareholders of record of common stock
as of December 31, 2000. See Liquidity and Capital Resources, and Market
Price Data in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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ITEM 6. SELECTED FINANCIAL DATA
Refer to Summary of Operating Data on page 67.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
(in millions, except per share data)
2000 Change 1999 Change 1998
Sales $13,994 - 1% $14,089 + 5% $13,406
Earnings from operations 2,214 +11 1,990 + 5 1,888
Net earnings 1,407 + 1 1,392 - 1,390
Basic earnings per share 4.62 + 5 4.38 + 2 4.30
Diluted earnings per share 4.59 + 6 4.33 + 2 4.24
2000
The Company's results for the year included the following:
Pre-tax charges of approximately $50 million ($33 million after tax)
associated with the sale and exit of one of the Company's equipment
manufacturing facilities. The costs for this effort, which began in 1999,
related to accelerated depreciation of assets still in use prior to the
sale of the facility in the second quarter, and costs for relocation of
the operations. Additional relocation costs of approximately $10 million
pre-tax, per quarter, will be recorded through the first half of 2001 in
connection with these actions.
Excluding the above, net earnings were $1,440 million. Basic earnings per
share were $4.73 and diluted earnings per share were $4.70.
1999
The Company's results for the year included the following:
A pre-tax restructuring charge of $350 million ($231 million after tax)
related to worldwide manufacturing and photofinishing consolidation and
reductions in selling, general and administrative positions worldwide.
See Note 11, Restructuring Programs and Cost Reduction. In addition, the
Company incurred pre-tax charges of $11 million ($7 million after tax)
related to accelerated depreciation of assets still in use during 1999 and
sold in 2000, in connection with the exit of one of the Company's
equipment manufacturing facilities.
Pre-tax charges totaling approximately $103 million ($68 million after
tax) associated with the exits of the Eastman Software business ($51
million pre-tax) and Entertainment Imaging's sticker print kiosk product
line ($32 million pre-tax) as well as the write-off of the Company's
Calcomp investment ($20 million pre-tax), which was determined to be
unrecoverable.
11
Pre-tax gains of approximately $120 million ($79 million after tax)
related to the sale of The Image Bank ($95 million pre-tax gain) and the
Motion Analysis Systems Division ($25 million pre-tax gain). See Note 16,
Sales of Assets and Divestitures.
Excluding the above items, net earnings were $1,619 million. Basic
earnings per share were $5.09 and diluted earnings per share were $5.03.
1998
The Company's results for the year included the following:
The sales of its NanoSystems subsidiary and a portion of the Company's
investment in Gretag Imaging Group (Gretag), resulting in pre-tax gains of
$87 and $66 million ($57 and $44 million after tax), respectively. See
Note 16, Sales of Assets and Divestitures.
A pre-tax charge of $132 million ($87 million after tax) for asset write-
downs and employee severance in the Office Imaging division due to volume
reductions from Danka Business Systems PLC (Danka). See Note 16, Sales of
Assets and Divestitures.
A pre-tax charge of $45 million ($30 million after tax), primarily for in-
process research and development (R&D), associated with the acquisition of
the medical imaging business of Imation Corp. (the Imation charge). See
Note 15, Acquisitions and Joint Ventures.
Excluding the above items, and pre-tax litigation charges of $35 million
($23 million after tax) related primarily to Health Imaging, net earnings
were $1,429 million. Basic earnings per share were $4.42 and diluted
earnings per share were $4.37.
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DETAILED RESULTS OF OPERATIONS
Sales by Operating Segment
(in millions)
2000 Change 1999 Change 1998
Consumer Imaging
Inside the U.S. $ 3,738 + 5% $ 3,562 + 7% $ 3,342
Outside the U.S. 3,668 - 5 3,849 + 1 3,822
------- --- ------- --- -------
Total Consumer Imaging 7,406 0 7,411 + 3 7,164
------- --- ------- --- -------
Kodak Professional
Inside the U.S. 711 - 7 766 + 6 725
Outside the U.S. 995 -13 1,144 + 3 1,115
------- --- ------- --- -------
Total Kodak Professional 1,706 -11 1,910 + 4 1,840
------- --- ------- --- -------
Health Imaging
Inside the U.S. 1,038 + 9 954 +43 668
Outside the U.S. 1,147 - 2 1,166 +36 858
------- --- ------- --- -------
Total Health Imaging 2,185 + 3 2,120 +39 1,526
------- --- ------- --- -------
Other Imaging
Inside the U.S. 1,323 + 1 1,312 -16 1,558
Outside the U.S. 1,374 + 3 1,336 + 1 1,318
------- --- ------- --- -------
Total Other Imaging 2,697 + 2 2,648 - 8 2,876
------- --- ------- --- -------
Total Sales $13,994 - 1% $14,089 + 5% $13,406
======= === ======= === =======
Earnings From Operations and Net Earnings by Operating Segment - See Note
17, Segment Information.
13
2000 COMPARED WITH 1999
CONSOLIDATED
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Worldwide sales of $13,994 million declined less than 1% from 1999.
Excluding portfolio adjustments, which reduced revenue by 2%, and the
negative impact of currency, which reduced revenue by 3%, sales were up 4%
compared with 1999. Deteriorating U.S. economic conditions in the second
half of the year adversely impacted sales across a number of the Company's
businesses, particularly the consumer business. Consumer film and paper
experienced slight sales declines while the Company's Kodak Professional
segment experienced more significant declines. However, a number of the
Company's businesses did achieve sales growth in 2000, including Health
Imaging, Entertainment Imaging, Digital and Applied Imaging and Commercial
and Government Systems.
During 2000, the Company amended its definition of digital to better
reflect the digital product components of its graphics business as well as
some additional product reassignments. This principally includes computer
to plate products and digital proofing systems. Under this new
definition, digital revenues for the year were $3,001 million, an increase
of 5% over 1999. Digital products and services represented 21% of the
Company's 2000 sales. Sales of consumer digital products and services
increased 16%, while sales of commercial digital products and services
were flat. Growth in consumer digital was led by increased revenues from
consumer digital cameras while the commercial digital business saw sales
increases in healthcare-related offerings largely offset by reduced
graphics sales. Earnings from operations associated with the above sales
were a negative $58 million compared with a profit of $13 million in 1999.
Included in 2000 earnings from operations for the digital business are pre-
tax charges of approximately $45 million related to the Company's
PictureVision acquisition and write-downs at the Company's divested
Eastman Software business.
Sales in emerging markets increased 7% from 1999, and represent 18% of the
Company's total revenue in 2000. Revenues generally increased in all
major regions in which Kodak participates, with Greater China up 10%,
Asian Emerging Markets up 9%, Greater Russia up 39%, Latin America up 3%,
and Eastern Europe up 2%.
Gross profit declined 2% with margins declining .6 percentage points from
43.3% in 1999 to 42.7% in 2000. Excluding special charges in both years,
gross profit margins decreased 2.6 percentage points from 45.7% in 1999 to
43.1% in the current year. The decline in margin was driven primarily by
lower prices, increased sales of lower margin products, like one-time-use
cameras and consumer digital cameras, and the negative impact of exchange.
Productivity gains that were recognized earlier in the year were partially
offset during the fourth quarter as the Company reduced inventories in the
face of slowing demand and retailer inventory reductions.
Selling, general and administrative (SG&A) expenses decreased 10% from
23.4% of sales in 1999 to 21.3% in 2000. Excluding special charges in
1999, SG&A decreased 6% from the prior year from 22.5% of sales to 21.3%.
The reduction in SG&A expenses primarily reflects the success of the
Company's cost reduction initiatives and portfolio actions.
14
R&D expenses decreased 4% during the year from 5.8% of sales in 1999 to
5.6% in 2000. This decline primarily reflects the benefit of portfolio
actions, primarily the divestiture of Eastman Software.
Earnings from operations increased 11% or $224 million in 2000. Adjusting
for special charges in both years, earnings from operations declined $190
million or 8% as increased sales volumes in many of the Company's
businesses and the success of cost savings initiatives did not offset
lower effective selling prices and adverse currency movements.
Interest expense increased 25% over 1999 reflecting higher average
borrowing and rising interest rates. Other income decreased by $165
million or 63% from 1999 due largely to the inclusion of gains of $120
million from the sale of the Image Bank and Motion Analysis Systems
Division in 1999. Excluding the gains from the sale of these businesses,
other income declined $45 million, primarily reflecting lower equity
earnings from the Company's Kodak Polychrome Graphics (KPG) joint venture.
The effective tax rate for both 2000 and 1999 was 34%.
CONSUMER IMAGING
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Sales in the Consumer Imaging segment of $7,406 were essentially flat
compared with 1999, as increased volumes were offset by lower prices and
adverse currency movements. Excluding unfavorable exchange movements,
sales increased 3%. U.S. sales increased 5% while sales outside the U.S.
declined by 5%, but increased 2% excluding the unfavorable effect of
exchange movements.
Worldwide film sales (including 35mm film, Advantix film, and one-time-use
cameras) decreased 1% from 1999 as increased volumes in all major
categories could not offset pricing pressures and adverse currency
movements. U.S. film sales increased 2% primarily due to volume increases
of 17% in one-time-use cameras and 15% in Advantix film. The Company
successfully held total film market share in the U.S. for the 3rd
consecutive year. Outside the U.S., film sales to dealers declined 3% as
increased volumes were offset by lower prices and negative currency
movements.
Throughout 2000, the Company continued to successfully shift consumers to
the differentiated, higher value MAX and Advantix product lines. By the
fourth quarter, combined U.S. sales of MAX and Advantix films grew to more
than 62% of total U.S. consumer roll film revenues, up 6 percentage points
over year-end 1999.
15
Worldwide paper sales declined 3% in 2000 as volume gains could not offset
lower prices and negative exchange. U.S. paper sales increased by 1%, as
3% volume increases offset lower prices. Outside the U.S., paper sales
decreased 5% as increased volumes could not offset lower prices and
negative exchange movements.
The penetration rate for the number of rolls scanned at Qualex wholesale
laboratories averaged 4.1% for the full year, equivalent to approximately
260 million scanned images. By the end of 2000, the number of placements
of Kodak Picture Maker kiosks was over 29,000, an increase of 6,000 from
year-end 1999.
SG&A expenses for the segment decreased 6%, from 25.2% of sales in 1999
to 23.7% in 2000, reflecting the benefits of the Company's cost reduction
efforts. SG&A excluding advertising decreased 6%, from 17.5% of sales in
1999 to 16.4% in 2000. R&D expenses decreased 9%, from 4.7% of sales in
1999 to 4.3% in 2000.
Earnings from operations decreased 9%, reflecting reduced profit margins
driven primarily by lower effective selling prices, unfavorable product
mix and adverse exchange movements. Lower gross profit was partially
offset by reduced SG&A and R&D spending. Net earnings were $860 million,
which reflects a 4% decrease from the prior year, due primarily to lower
earnings from operations.
KODAK PROFESSIONAL
- ------------------
Sales in the Kodak Professional segment decreased 11% from 1999, 8%
excluding adverse currency movements. Adjusting the year-over-year
comparison for the impact of the formation of the KPG joint venture in
Japan, sales declined 9%. U.S. revenues decreased 7% and revenues outside
the U.S. decreased 13%, or 8% excluding the unfavorable impact of
exchange.
Total commercial products revenue declined 14% primarily due to lower
sensitized film and paper sales, as well as declines in professional
digital camera sales, all of which suffered from volume declines and
pricing pressure. The graphics business also experienced revenue declines
of approximately 26%, due to reduced sales to the Company's KPG joint
venture. The segment's Portrait/Social business increased 2% reflecting
increased sales of digitization services and 35mm film, which increased
both on a dollar and unit basis.
SG&A expenses for the segment were in line with 1999 in dollar terms but
increased as a percentage of sales, from 18.1% to 20.3%. Excluding
advertising expenses, SG&A expenses increased 1%, from 15.9% of sales to
18.0%. R&D spending decreased 10% in dollar terms, but remained level on
a percentage of sales basis at 7.4%. The decrease is primarily due to the
reclassification of NexPress R&D costs to below earnings from operations
upon the formation of the NexPress joint venture in 1999. Excluding this
reclassification, R&D decreased 2%.
16
Earnings from operations decreased 30%, while net earnings declined 58%.
Included in 1999 earnings from operations is a $20 million pre-tax charge
related to the write-off of the Company's investment in CalComp
Corporation. Excluding this charge, other income (charges) decreased $141
million from a positive $48 million in 1999 to a negative $93 million in
2000, primarily reflecting a reduction in joint venture income from KPG
and the reclassification of NexPress R&D.
HEALTH IMAGING
- --------------
Sales in the Health Imaging segment increased 3% from the prior year, or
6% excluding the adverse effect of currency movements. Sales inside the
U.S. increased 9%, while sales outside the U.S. decreased 2%, despite an
increase of 7% in emerging market sales. Excluding negative exchange
movements, sales outside the U.S. increased 4%.
Sales of digital products (including laser printers, digital media,
digital capture equipment and Picture Archiving and Communication Systems
(PACS)) increased 11% over fiscal 1999. Placements of DryView laser
imagers increased 67% in 2000. DryView media sales increased 48% on
higher volumes, while digital capture products and PACS increased 51%.
The growth in these digital product lines was partially mitigated by an
expected decline in wet laser imaging sales.
Sales of traditional medical products, including analog film, equipment,
chemistry and services, declined 3% for the year but were flat when
adjusted for exchange. For traditional analog film (excluding specialty
films), year-over-year sales declined 6% reflecting flat volumes,
unfavorable exchange and anticipated price declines. Mammography and
Oncology specialty products grew by 12% primarily on higher volumes, while
sales of dental products increased 5% on slightly higher volumes and
favorable pricing.
SG&A expenses for the segment decreased 6%, from 20.0% of sales in 1999 to
18.2% in 2000. Excluding advertising expenses, SG&A expenses decreased
8%, from 19.1% of sales to 17.1%, reflecting the benefits of cost control
initiatives and the continued successful integration of the Imation
business acquired in December 1998. R&D expenses increased 5%, from 6.0%
of sales in 1999 to 6.2% in 2000.
Earnings from operations increased 7%, as higher sales and lower SG&A
costs more than offset increased R&D spending. Segment net earnings
increased 10%, from $315 million to $346 million.
17
OTHER IMAGING
- -------------
Sales in the Other Imaging segment increased 2% from the prior year, or 5%
excluding exchange. Adjusting for the impact of portfolio changes,
segment sales were up 10%. Sales growth in 2000 was led by strong digital
camera sales and increased sales performance in the Commercial &
Government Systems unit. Sales of motion picture film and services also
increased, reflecting the motion picture film industry's recovery from the
softness of a year ago. U.S. sales increased 1%, while sales outside the
U.S. were up 3%, but up 9% excluding exchange.
Consumer digital camera sales increased 26% with over 70% higher unit
volumes partially offset by lower prices that reflect the competitiveness
of this business. U.S. digital camera sales grew by 17% while camera
sales outside the U.S. increased 38%, both reflecting higher unit volumes
and lower prices.
SG&A expenses for the segment decreased 12%, from 20.6% of sales in 1999
to 17.7% in 2000. Adjusting for special charges taken in 1999, SG&A
expenses declined 8%. Excluding advertising expenses, SG&A expenses
decreased 17%, from 17.4% of sales to 14.2%. Current-year SG&A expenses
included charges of approximately $23 million primarily related to the
Company's PictureVision acquisition and write-downs at the Company's
divested Eastman Software business, while prior year included SG&A from
divested businesses. R&D expenses increased 1% in dollar terms, but were
level on a percentage of sales basis at 7.7%. R&D expenses in 2000
include approximately $10 million of charges for the write-off of in-
process R&D related to the PictureVision acquisition.
Earnings from operations were $227 million, which is $30 million or 15%
higher than 1999. Excluding special charges in both years, earnings from
operations of $237 million decreased $45 million, or 16% year over year.
The lower earnings are primarily due to lower prices on consumer digital
cameras and CD media, and adverse currency movements, which more than
offset SG&A savings. Net earnings for the segment were $161 million, a
decrease of 27% from the prior year reflecting lower earnings from
operations in 2000 and the inclusion of gains from portfolio actions in
1999.
18
1999 COMPARED WITH 1998
CONSOLIDATED
- ------------
Worldwide sales for 1999 increased 5% over the prior year. The impact of
portfolio actions on the year-to-year comparison was essentially neutral.
Currency changes against the dollar negatively affected sales by $12
million. Sales growth in 1999 was achieved across numerous businesses,
including Health Imaging film (analog film as well as laser imaging
products of the acquired Imation medical imaging business), consumer and
professional digital cameras, Consumer Imaging color paper and film
(especially Advantix film and one-time-use cameras), CD media, and inkjet
media.
Sales in emerging markets increased 6%, and accounted for approximately
16% of the Company's 1999 worldwide sales. The emerging markets portfolio
showed growth across a wide geographical range, with China up 30%, Korea
up 36% and India up 19%. Strong growth in Mexico of 16% was offset by a
16% decline in Brazil, resulting in a 2% decline in the Latin American
Region. Sales in Russia were weak, reflecting a 33% sales decline from
1998.
Overall gross profit margins decreased 2.3 percentage points from 45.6% in
1998 to 43.3% in 1999. Excluding special charges in both years, gross
profit margins decreased .4 percentage points from 46.1% in 1998 to 45.7%
in 1999. Gross profit margins were pressured by lower prices, increased
levels of goodwill amortization, startup costs in the China manufacturing
project, and the acquired Imation medical imaging business, which had
gross profit rates lower than the Company average. These pressures were
offset, almost entirely, by gains in manufacturing productivity,
improvements in digital businesses, and the beneficial effects of
portfolio actions taken, including the divestiture of Office Imaging and a
significant portion of Consumer Imaging's retail business.
SG&A expenses for the Company were essentially level, but decreased from
24.6% of sales in 1998 to 23.4% in 1999. Excluding restructuring charges,
SG&A expenses decreased 2% from the prior year and declined as a
percentage of sales from 24.1% in 1998 to 22.5% in 1999. SG&A excluding
advertising expenses also decreased, from 18.5% to 17.4% of sales. The
decrease in rates, excluding restructuring charges, is due to higher sales
and cost reduction activities as well as reductions in advertising
expense.
Excluding the Imation charge in 1998, R&D decreased 7%, from 6.6% of sales
in 1998 to 5.8% in 1999, as a result of a number of factors, including
improvement in the R&D cost structure, a more tightly focused portfolio,
and more joint development, with more work shared with partners.
19
Earnings from operations increased 5% to $1,990 million. Excluding
special charges in both years, earnings from operations increased $389
million or 19%, as the benefits of higher unit sales volumes across many
of the Company's key products, manufacturing productivity, and cost
reductions more than offset lower effective selling prices and the
unfavorable effects of currency rate changes.
Interest expense increased 29% in 1999 to $142 million, primarily due to
higher average borrowings. Other income (charges) decreased $67 million
from the prior year. Excluding special charges and credits from 1999 and
1998, other income (charges) decreased $70 million, resulting primarily
from reduced investment income, lower gains on asset sales and R&D
investments in the NexPress joint venture. The effective tax rates were
34% in both 1999 and 1998.
20
CONSUMER IMAGING
- ----------------
Consumer Imaging segment sales increased 3% in 1999. Excluding the impact
of the divestiture of the Fox Photo operating unit in September 1998,
sales increased 6%, as higher volumes more than offset lower effective
selling prices and the negative effects of exchange. Sales inside the
U.S. increased 7%, as higher volumes were partly offset by lower effective
selling prices and the impact of portfolio changes. Sales outside the U.S.
increased 1%, as higher volumes more than offset lower effective selling
prices and the negative effects of exchange.
Worldwide film sales increased 4% over 1998, as volume increases of 10%
more than offset lower effective selling prices. Sales inside the U.S.
increased 2%, as higher unit volumes more than offset lower effective
selling prices. Sales outside the U.S. increased 5%, as higher volumes
more than offset lower effective selling prices and the unfavorable
effects of currency rate changes.
Worldwide color paper sales increased 6% over 1998, as volume increases of
9% more than offset lower effective selling prices. Sales inside the U.S.
were particularly strong, increasing 12%, due to higher unit volumes and
slightly higher effective selling prices. Sales outside the U.S.
increased 2%, as higher volumes more than offset lower effective selling
prices and the unfavorable effects of currency rate changes.
SG&A expenses for the segment decreased 5% in dollar terms, and from 27.4%
of sales in 1998 to 25.2% in 1999, reflecting the benefits of Consumer
Imaging's sales growth and cost reduction activities. Excluding
advertising expenses, SG&A expenses decreased 4%, from 18.9% of sales in
1998 to 17.5% in 1999. R&D expenses decreased 5%, from 5.1% of sales in
1998 to 4.7% in 1999.
Earnings from operations increased 20% in 1999, as higher sales volumes,
cost reductions and manufacturing productivity more than offset lower
effective selling prices and the unfavorable effects of currency rate
changes. Net earnings were $900 million, an increase of 15% from the
prior year, which included a $44 million after-tax gain related to the
sale of a portion of the Company's investment in Gretag. Excluding the
1998 Gretag gain, net earnings increased 21%, as a result of increases in
earnings from operations.
KODAK PROFESSIONAL
- ------------------
Kodak Professional segment sales increased 4% in 1999. Adjusting for the
contribution of the Japan graphics business to the KPG joint venture,
sales increased 8%, as higher volumes more than offset lower effective
selling prices. Sales inside the U.S. increased 6%, as higher volumes
more than offset lower effective selling prices. Sales outside the U.S.
increased 3%, as higher volumes more than offset decreases from portfolio
changes.
21
Worldwide Graphics film sales increased 9% in 1999 on the strength of a
25% volume increase which more than offset lower graphics film prices.
Worldwide Portrait/Social sales increased 10%, as higher volumes and the
favorable effects of exchange were partially offset by lower effective
selling prices. Sales inside the U.S. increased 10%, due to higher
volumes and higher effective selling prices. Sales outside the U.S.
increased 9%, as volume increases and the favorable effects of exchange
were partially offset by lower effective selling prices.
SG&A expenses for the segment decreased 7%, from 20.3% of sales in 1998 to
18.1% in 1999. Excluding advertising expenses, SG&A expenses decreased
7%, from 17.7% of sales in 1998 to 15.9% in 1999. R&D expenses decreased
23%, from 9.9% of sales in 1998 to 7.4% in 1999. The decrease in R&D
reflects the formation of the NexPress joint venture, whose R&D
investments were reclassified to other income (charges) during 1999.
Earnings from operations increased 13%, or 20% excluding the pre-tax
charge of $20 million for CalComp (discussed previously), as higher sales
volumes, manufacturing productivity, and cost reductions in SG&A and R&D
more than offset lower effective selling prices. Net earnings increased
12%, primarily reflecting strong contributions from earnings from
operations.
HEALTH IMAGING
- --------------
Sales of the Health Imaging segment increased 39% in 1999, primarily due
to the acquisition of Imation's medical imaging business. Excluding the
effect of the acquisition, sales increased 2%, as higher volumes more than
offset lower effective selling prices. Sales inside the U.S. increased
43%, due primarily to the acquisition and higher volumes, offset by lower
effective selling prices. Sales outside the U.S. increased 36%, due to
the acquisition and higher volumes, partly offset by lower effective
selling prices.
Worldwide analog film sales increased 19% over 1998, as higher volumes
more than offset lower effective selling prices. Analog film sales inside
the U.S. increased 9%, as higher volumes more than offset lower effective
selling prices. Outside the U.S., analog film sales increased 25%, as
higher volumes more than offset lower effective selling prices. Overall,
significant volume growth worldwide is primarily attributable to the
acquisition of Imation's medical imaging business.
Sales of digital products (including digital print film, laser printers
and digital media) also benefited from the Imation acquisition, increasing
98% in 1999.
22
SG&A expenses increased 34% over 1998, due primarily to the acquisition of
Imation's medical imaging business, but decreased as a percentage of sales
from 20.7% in 1998 to 20.0% in 1999. Excluding advertising expenses, SG&A
expenses increased 34%, but decreased from 19.7% of sales in 1998 to 19.1%
in 1999. Excluding the 1998 Imation charge, R&D expenses increased 21%,
but decreased from 6.9% of sales in 1998 to 6.0% in 1999.
Earnings from operations increased 46%, or 29% excluding from 1998 the pre-
tax Imation charge of $45 million, as higher unit sales volumes,
manufacturing productivity, and cost reductions in SG&A and R&D more than
offset 1999's lower effective selling prices. Net earnings increased 54%,
or 27% excluding from 1998 the charges for Imation and litigation, as a
result of the increase in earnings from operations.
OTHER IMAGING
- -------------
Sales in the Other Imaging segment decreased 8% in 1999, as higher unit
volumes were more than offset by portfolio changes (primarily the sale of
the Office Imaging business) and lower effective selling prices.
Excluding the impact of portfolio adjustments, segment sales increased 5%.
Sales of digital cameras and CD media increased significantly, while sales
of motion picture films decreased due to softness in the motion picture
industry. Sales inside the U.S. decreased 16%, as decreases from
portfolio changes more than offset higher volumes. Sales outside the U.S.
increased 1%, as higher volumes more than offset lower effective selling
prices.
Worldwide digital camera sales increased 97%, as significantly higher
volumes were only slightly offset by lower effective selling prices.
Digital camera sales inside the U.S. increased 106%, due to higher
volumes. Outside the U.S., sales increased 87%, as considerably higher
volumes were only partially mitigated by lower effective selling prices.
SG&A expenses decreased 17%, from 22.8% of sales in 1998 to 20.6% in 1999.
Excluding advertising expenses, SG&A expenses decreased 19%, from 19.8% of
sales in 1998 to 17.4% in 1999. R&D expenses decreased 11%, from 8.0% of
sales in 1998 to 7.7% in 1999.
Earnings from operations increased 25% in 1999. Excluding special charges
in both 1998 and 1999, earnings from operations decreased 2%, as higher
volumes and manufacturing productivity were offset by lower effective
selling prices and the unfavorable effects of exchange. Net earnings
increased 37%, but decreased 21% excluding special charges and credits
from both years. This decrease reflects lower earnings from operations
and lower gains on sales of properties.
23
RESTRUCTURING PROGRAMS
- ----------------------
The Company recorded a $350 million pre-tax restructuring charge in the
third quarter of 1999. Actions under this program were effectively
completed in 2000. The Company realized approximate savings associated
with this program of $90 million in 2000, and expects an additional $50
million of savings in 2001, resulting in a total annual run-rate savings
of $140 million. The Company anticipates recovering the net cash cost of
this program in two years. Approximately 2,900 positions were eliminated
worldwide under this program (see Note 11, Restructuring Programs and Cost
Reduction).
OUTLOOK
- --------
The Company expects the overall slowdown in the U.S. economy and the
corresponding industry-wide decrease in photographic activity to continue
through the first two quarters of 2001 before recovering in the second
half of the year. The Company will continue to take actions to minimize
the financial impact of this slowdown. These actions include efforts to
better manage production and inventory levels while at the same time
reducing discretionary spending to further hold down costs. The Company
will also consider additional actions, including reductions in staff in
certain areas of the Company, aimed at making its operations more cost
competitive and improving margins.
During 2000, the Company completed an ongoing program of real estate
divestitures and portfolio rationalization that contributed to other
income (charges) reaching an annual average of $100 million over the past
three years. Now that this program is largely complete, the other income
(charges) category is expected to run in the $0 to negative $50 million
range annually.
The Company expects a 1% reduction in its effective tax rate from 34% in
2000 to 33% in 2001. This reduction was reflected in the earnings
guidance issued January 17th, 2001.
From a liquidity and capital resource perspective, the Company will look
to reduce its debt levels by focusing on increasing cash flow, lowering
capital spending and reducing inventory and receivable levels.
24
THE EURO
- --------
The Treaty on European Union provided that an economic and monetary union
(EMU) be established in Europe whereby a single European currency, the
Euro, replaces the currencies of participating member states. The Euro
was introduced on January 1, 1999, at which time the value of
participating member state currencies was irrevocably fixed against the
Euro and the European Currency Unit (ECU) was replaced at the rate of one
Euro to one ECU. For the three-year transitional period ending December
31, 2001, the national currencies of member states will continue to
circulate, but as sub-units of the Euro. New public debt will be issued
in Euros and existing debt may be redenominated into Euros. At the end of
the transitional period, Euro banknotes and coins will be issued, and the
national currencies of the member states will cease to be legal tender no
later than June 30, 2002. The countries that adopted the Euro on January
1, 1999 are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, and Spain. Greece will now be part
of the transition. The Company has operations in all of these countries.
As a result of the Euro conversion, it is possible that selling prices of
the Company's products and services will experience downward pressure, as
current price variations among countries are reduced due to easy
comparability of Euro prices across countries. Prices will tend to
harmonize, although value added taxes and transportation costs will still
justify price differentials. Adoption of the Euro will probably
accelerate existing market and pricing trends including pan-European
buying and general price erosion.
On the other hand, currency exchange and hedging costs will be reduced;
lower prices and pan-European buying will benefit the Company in its
purchasing endeavors; the number of banks and suppliers needed will be
reduced; there will be less variation in payment terms; and it will be
easier for the Company to expand into new marketing channels such as mail
order and Internet marketing.
The Company is in the process of making changes in areas such as marketing
and pricing, purchasing, contracts, payroll, taxes, cash management and
treasury operations. Under the 'no compulsion no prohibition' rules,
billing systems have been modified so that the Company is now able to show
total gross, value added tax, and net in Euros on national currency
invoices. This enables customers to pay in the new Euro currency if they
wish to do so. Countries that have installed ERP/SAP software in
connection with the Company's enterprise resource planning project are
able to invoice and receive payments in Euros as well as in other
currencies. Systems for pricing, payroll and expense reimbursements will
continue to use national currencies until year-end 2001. The functional
currencies of the Company's operations in affected countries will remain
the national currencies until approximately May 2001 (except Germany and
Austria (November 2001)), when they will change to the Euro. Systems
changes for countries not on SAP (Finland and Greece) are also being
implemented in 2001.
25
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in 2000 was $982 million, as net
earnings of $1,407 million, adjusted for depreciation and amortization,
provided $2,296 million of operating cash. This was partially offset by
increases in receivables of $247 million, largely due to the timing of
sales late in the fourth quarter; increases in inventories of $282
million, reflecting lower than expected sales performance in the second
half of the year particularly consumer films and paper and consumer
digital camera sales; and decreases in liabilities (excluding borrowings)
of $755 million related primarily to severance payments for restructuring
programs and reductions in accounts payable and accrued benefit costs.
Net cash used in investing activities of $783 million in 2000 was utilized
primarily for capital expenditures of $945 million and business
acquisitions of $130 million, partially offset by proceeds of $276 million
from sales of businesses/assets. Net cash used in financing activities of
$314 million in 2000 was the result of stock repurchases and dividend
payments, largely funded by net increases in borrowings of $1,313 million.
Cash dividends per share of $1.76, payable quarterly, were declared in
each of the years 2000, 1999 and 1998. Total cash dividends of
approximately $545 million, $563 million and $569 million were paid in
2000, 1999 and 1998, respectively.
Net working capital (excluding short-term borrowings) increased to $1,482
million from $838 million at year-end 1999. This increase is mainly
attributable to lower payable levels and higher receivable and inventory
balances, as discussed above.
Capital additions were $945 million in 2000, with the majority of the
spending supporting manufacturing productivity and quality improvements,
new products including e-Commerce initiatives, digital photofinishing and
digital cameras, and ongoing environmental and safety spending. In 2001,
the Company expects to reduce its capital spending (excluding
acquisitions) from its 2000 spending levels. Capital additions by segment
are included in Note 17, Segment Information.
Under its stock repurchase programs, the Company repurchased $1,099
million, $925 million and $258 million of its shares in 2000, 1999 and
1998, respectively. During the second quarter of 1999, the Company
completed stock repurchases under its 1996 $2 billion authorization. That
program, initiated in May 1996, resulted in 26.8 million shares being
repurchased. Under the $2 billion program announced on April 15, 1999,
the Company repurchased an additional 21.6 million shares for $1,099
million in 2000 and 9.8 million shares for $656 million in 1999. On
December 7, 2000, Kodak's board of directors authorized the repurchase of
up to an additional $2 billion of the Company's stock over the next 4
years.
26
The Company has access to a $3.5 billion revolving credit facility
expiring in November 2001. The Company also has a shelf registration
statement for debt securities with an available balance of $1.9 billion.
See Note 8, Commitments and Contingencies, for other commitments of the
Company.
- --------------------------------------------------------------------------
OTHER
Kodak is subject to various laws and governmental regulations concerning
environmental matters. See Note 8, Commitments and Contingencies.
- ------------------------------------------------------------------------
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 earnings per share expectations for 2001 are forward-looking
statements.
Actual results may differ from those expressed or implied in forward-
looking statements. The forward-looking statements contained in this
report are subject to a number of risk factors, including: the Company's
ability to implement its product strategies (including its category
expansion and digitization strategies and its plans for digital products
and Advantix products), to develop its e-commerce strategies, and to
complete information systems upgrades; the successful completion of
various portfolio actions; the ability of the Company to reduce
inventories, improve receivables performance, and reduce capital
expenditures; the inherent unpredictability of currency fluctuations and
raw material costs; competitive actions, including pricing; the ability to
reduce spending and realize operating efficiencies, including a
significant reduction in SKU's; the ability to achieve planned
improvements in Kodak Professional; the nature and pace of technology
substitution; the ability of the Company to develop its business in
emerging markets like China and India; general economic and business
conditions, including the timing of a business upturn; and other factors
disclosed previously and from time to time in the Company's filings with
the Securities and Exchange Commission.
Any forward-looking statements in this report should be evaluated in light
of these important risk factors.
- --------------------------------------------------------------------------
MARKET PRICE DATA
2000 1999
Price per
share: High Low High Low
1st Qtr. $67.50 $53.31 $80.38 $62.31
2nd Qtr. 63.63 53.19 79.81 60.81
3rd Qtr. 65.69 39.75 78.25 68.25
4th Qtr. 48.50 35.31 77.50 56.63
- --------------------------------------------------------------------------
27
SUMMARY OF OPERATING DATA
A summary of operating data for 2000 and for the four years prior is shown
on page 67.
- --------------------------------------------------------------------------
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
and/or costs associated with such activities, the Company may enter into
derivative contracts. See also Note 9, Financial Instruments.
On January 1, 2000, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
Statement requires that an entity recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be designated as a hedge.
The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation.
The transition adjustment was a pre-tax loss of $1 million ($1 million
after tax) recorded in other income (charges) for marking foreign exchange
forward contracts to fair value, and a pre-tax gain of $3 million ($2
million after tax) recorded in other comprehensive income for marking
silver forward contracts to fair value. These items were not displayed in
separate captions as cumulative effects of a change in accounting
principle, due to their immateriality. The fair value of the contracts is
reported in other current assets or in current payables.
The Company has entered into foreign currency forward contracts that are
designated as cash flow hedges of exchange rate risk related to forecasted
foreign currency denominated intercompany sales. At December 31, 2000,
the Company had cash flow hedges for the Euro, the Canadian dollar, and
the Australian dollar, with maturity dates ranging from January 2001 to
December 2001.
At December 31, 2000, the fair value of all open foreign currency forward
contracts was a pre-tax unrealized loss of $44 million. Of this pre-tax
loss, $42 million has been deferred as a part of other comprehensive
income while $2 million has been charged to other income (charges) on the
Company's Consolidated Statement of Earnings. Additionally, realized
gains of approximately $2 million (pre-tax), related to closed foreign
currency contracts, have been deferred in other comprehensive income. If
all amounts deferred to other comprehensive income were to be realized,
approximately $39 million would be reclassified into cost of goods sold
over the next twelve months, based on sales to third parties. During the
year, a realized gain of $9 million (pre-tax) was reclassified from other
comprehensive income to cost of goods sold. Hedge ineffectiveness was
insignificant.
28
The Company does not apply hedge accounting to the foreign currency
forward contracts used to offset currency-related changes in the fair
value of foreign currency denominated assets and liabilities. These
contracts are marked to market through earnings at the same time that the
exposed assets and liabilities are remeasured through earnings (both in
other income). The majority of the contracts held by the Company are
denominated in Euros, Australian dollars, Chinese renminbi, Canadian
dollars, and British pounds.
A sensitivity analysis indicates that if foreign currency exchange rates
at December 31, 2000 and 1999 increased 10%, the Company would incur
losses of $88 million and $87 million on foreign currency forward
contracts outstanding at December 31, 2000 and 1999, respectively. Such
losses would be substantially offset by gains from the revaluation or
settlement of the underlying positions hedged.
The Company has entered into silver forward contracts that are designated
as cash flow hedges of price risk related to forecasted worldwide silver
purchases. The Company used silver forward contracts to minimize
virtually all of its exposure to increases in silver prices in 2000. At
December 31, 2000, the Company had open forward contracts, with maturity
dates ranging from January 2001 to December 2001, hedging virtually all of
its planned silver requirements through the fourth quarter of 2001.
At December 31, 2000, the fair value of open contracts was a pre-tax
unrealized loss of $17 million, recorded in other comprehensive income.
If this amount were to be realized, $16 million (pre-tax) of this loss
would be reclassified into cost of goods sold within the next twelve
months. During the year, a realized loss of $3 million (pre-tax) was
recorded in cost of goods sold. At December 31, 2000, realized losses of
$4 million (pre-tax), related to closed silver contracts, were recorded in
other comprehensive income. These losses will be reclassified into cost
of goods sold as silver-containing products are sold (all within the next
twelve months). Hedge ineffectiveness was insignificant.
A sensitivity analysis indicates that, based on broker-quoted termination
values, if the price of silver decreased 10% from spot rates at December
31, 2000 and 1999, the fair value of silver forward contracts would be
reduced by $27 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 utilizes U.S. dollar denominated as
well as foreign currency denominated 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.
29
Using a yield-to-maturity analysis, if December 31, 2000 interest rates
increased 10% (about 62 basis points) with the current period's level of
debt, the fair value of short-term and long-term borrowings would decrease
$2 million and $20 million, respectively. If December 31, 1999 interest
rates increased 10% (about 55 basis points) with the December 31, 1999
level of debt, the fair value of short-term and long-term borrowings would
decrease $1 million and $18 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, 2000 was not
significant to the Company.
- --------------------------------------------------------------------------
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
consolidated financial statements and related notes which appear on pages
32 through 66. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America, and include certain amounts that are based on
management's best estimates and judgments.
The Company's accounting systems include extensive internal controls
designed to provide reasonable assurance of the reliability of its
financial records and the proper safeguarding and use of its assets. Such
controls are based on established policies and procedures, are implemented
by trained, skilled personnel with an appropriate segregation of duties,
and are monitored through a comprehensive internal audit program. The
Company's policies and procedures prescribe that the Company and all
employees are to maintain the highest ethical standards and that its
business practices throughout the world are to be conducted in a manner
which is above reproach.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who were responsible
for conducting their audits in accordance with auditing standards
generally accepted in the United States of America. Their resulting
report is shown below.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of non-
management Board members. The independent accountants and internal
auditors have full and free access to the Audit Committee. The Audit
Committee meets periodically with the independent accountants and the
Director of Corporate Auditing, both privately and with management
present, to discuss accounting, auditing and financial reporting matters.
Daniel A. Carp Robert H. Brust
Chairman, President and Chief Financial Officer, and
Chief Executive Officer Executive Vice President
January 15, 2001 January 15, 2001
31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Eastman Kodak Company
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2) on page 70 of this
Annual Report on Form 10-K present fairly, in all material respects, the
financial position of Eastman Kodak Company and subsidiary companies
(Kodak) at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes 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. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Rochester, New York
January 15, 2001
32
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31,
(in millions, except per share
data)
2000 1999 1998
Sales $13 994 $14,089 $13,406
Cost of goods sold 8,019 7,987 7,293
------- ------- -------
Gross profit 5,975 6,102 6,113
Selling, general and
administrative expenses 2,977 3,295 3,303
Research and development costs 784 817 922
------- ------- -------
Earnings from operations 2,214 1,990 1,888
Interest expense 178 142 110
Other income (charges) 96 261 328
------- ------- -------
Earnings before income taxes 2,132 2,109 2,106
Provision for income taxes 725 717 716
------ ------- -------
NET EARNINGS $1,407 $ 1,392 $ 1,390
====== ======= =======
Basic earnings per share $ 4.62 $ 4.38 $ 4.30
====== ======= =======
Diluted earnings per share $ 4.59 $ 4.33 $ 4.24
====== ======= =======
Earnings used in basic and diluted
earnings per share $1,407 $ 1,392 $ 1,390
Number of common shares used in
basic earnings per share 304.9 318.0 323.3
Incremental shares from
assumed conversion of options 1.7 3.5 4.5
------ ------- -------
Number of common shares used in
diluted earnings per share 306.6 321.5 327.8
====== ======= =======
The accompanying notes are an integral part of these financial statements.
33
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except share and per
share data) At December 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 246 $ 373
Marketable securities 5 20
Receivables 2,653 2,537
Inventories 1,718 1,519
Deferred income tax charges 575 689
Other 294 306
------- -------
Total current assets 5,491 5,444
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,963 13,289
Less: Accumulated depreciation 7,044 7,342
------- -------
Net properties 5,919 5,947
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $778 and $671) 947 982
Long-term receivables and other
noncurrent assets 1,767 1,801
Deferred income tax charges 88 196
------- -------
TOTAL ASSETS $14,212 $14,370
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,275 $ 3,832
Short-term borrowings 2,206 1,163
Taxes - income and other 572 612
Dividends payable 128 139
Deferred income tax credits 34 23
------- -------
Total current liabilities 6,215 5,769
OTHER LIABILITIES
Long-term borrowings 1 166 936
Postemployment liabilities 2,610 2,776
Other long-term liabilities 732 918
Deferred income tax credits 61 59
------- -------
Total liabilities 10,784 10,458
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 per share
950,000,000 shares authorized; issued
391,292,760 shares in 2000 and 1999 978 978
Additional paid in capital 871 889
Retained earnings 7,869 6,995
Accumulated other comprehensive loss (482) (145)
------- -------
9,236 8,717
Treasury stock, at cost
100,808,494 shares in 2000 and
80,871,830 shares in 1999 5,808 4,805
------- -------
Total shareholders' equity 3,428 3,912
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,212 $14,370
======= =======
<FN>
The accompanying notes are an integral part of these financial
statements.
34
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in millions, except number of shares)
Accumulated
Additional Other
Common Paid In Retained Comprehensive Treasury
Stock* Capital Earnings Income (Loss) Stock Total
Shareholders' Equity December 31, 1997 $978 $ 914 $ 5,343 $(202) $(3,872) $3,161
Net earnings - - 1,390 - - 1,390
------
Other comprehensive income (loss):
Unrealized holding gains arising
during the period ($122 million pre-tax) - - - - - 80
Reclassification adjustment for gains
included in net earnings ($66 million
pre-tax) - - - - - (44)
Currency translation adjustments - - - - - 59
Minimum pension liability adjustment
($7 million pre-tax) - - - - - (4)
------
Other comprehensive income - - - 91 - 91
------
Comprehensive income - - - - - 1,481
Cash dividends declared - - (570) - - (570)
Treasury stock repurchased (3,541,295 shares) - - - - (258) (258)
Treasury stock issued under employee plans
(3,272,713 shares) - (58) - - 186 128
Tax reductions - employee plans - 46 - - - 46
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 1998 978 902 6,163 (111) (3,944) 3,988
Net earnings - - 1,392 - - 1,392
------
Other comprehensive income (loss):
Unrealized holding gains arising
during the period ($115 million pre-tax) - - - - - 83
Reclassification adjustment for gains
included in net earnings ($20 million
pre-tax) - - - - - (13)
Currency translation adjustments - - - - - (118)
Minimum pension liability adjustment
($26 million pre-tax) - - - - - 14
------
Other comprehensive loss - - - (34) - (34)
------
Comprehensive income - - - - - 1,358
Cash dividends declared - - (560) - - (560)
Treasury stock repurchased (13,482,648 shares) - - - - (925) (925)
Treasury stock issued under employee plans
(1,105,220 shares) - (24) - - 64 40
Tax reductions - employee plans - 11 - - - 11
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 1999 978 889 6,995 (145) (4,805) 3,912
</TABLE
35
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Cont'd.
(in millions, except number of shares)
Accumulated
Additional Other
Common Paid In Retained Comprehensive Treasury
Stock* Capital Earnings Income (Loss) Stock Total
Shareholders' Equity December 31, 1999 $978 $ 889 $ 6,995 $(145) $(4,805) $3,912
Net earnings - - 1,407 - - 1,407
------
Other comprehensive income (loss):
Unrealized holding loss arising
during the period ($77 million pre-tax) - - - - - (48)
Reclassification adjustment for gains
included in net earnings ($94 million
pre-tax) - - - - - (58)
Unrealized loss arising from
hedging activity ($55 million pre-tax) - - - - - (34)
Reclassification adjustment for hedging
related gains included in net earnings
($6 million pre-tax) - - - - - (4)
Currency translation adjustments - - - - - (194)
Minimum pension liability adjustment
($2 million pre-tax) - - - - - 1
------
Other comprehensive loss - - - (337) - (337)
------
Comprehensive income - - - - - 1,070
Cash dividends declared - - (533) - - (533)
Treasury stock repurchased (21,575,536 shares) - - - - (1,099) (1,099)
Treasury stock issued under employee plans
(1,638,872 shares) - (33) - - 96 63
Tax reductions - employee plans - 15 - - - 15
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 2000 $978 $ 871 $ 7,869 $(482) $(5,808) $3,428
==== ===== ======= ===== ======= ======
<FN>
* There are 100 million shares of $10 par value preferred stock authorized, none of which have been issued.
Accumulated unrealized holding gains, related to available for sale securities, as of December 31,
2000, 1999 and 1998 were $7 million, $113 million, and $43 million, respectively. Accumulated unrealized losses related
to hedging activity as of December 31, 2000 were $(38). Accumulated translation adjustments as of December 31, 2000, 1999
and 1998 were $(425) million, $(231) million and $(113) million, respectively. Accumulated minimum pension liability
adjustments as of December 31, 2000, 1999 and 1998 were $(26) million, $(27) million and $(41) million, respectively.
The accompanying notes are an integral part of these financial statements.
36
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,
(in millions) 2000 1999 1998
Cash flows from operating activities:
Net earnings $1,407 $1,392 $1,390
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 889 918 853
Gain on sales of businesses/assets (117) (162) (166)
Restructuring costs, asset impairments
and other charges - 453 42
Provision for deferred income taxes 235 247 202
Increase in receivables (247) (121) (1)
Increase in inventories (282) (201) (43)
Decrease in liabilities
excluding borrowings (755) (478) (516)
Other items, net (148) (115) (278)
------ ------ -----
Total adjustments (425) 541 93
------ ------ ------
Net cash provided by operating
activities 982 1,933 1,483
------ ------ ------
Cash flows from investing activities:
Additions to properties (945) (1,127) (1,108)
Proceeds from sales of businesses/
assets 276 468 297
Cash flows related to sales of
businesses 1 (46) (59)
Acquisitions, net of cash acquired (130) (3) (949)
Marketable securities - sales 84 127 162
Marketable securities - purchases (69) (104) (182)
------ ------ ------
Net cash used in investing
activities (783) (685) (1,839)
------ ------ ------
Cash flows from financing activities:
Net increase (decrease) in
borrowings with original maturities
of 90 days or less 939 (136) 894
Proceeds from other borrowings 1,310 1,343 1,133
Repayment of other borrowings (936) (1,118) (1,251)
Dividends to shareholders (545) (563) (569)
Exercise of employee stock options 43 44 128
Stock repurchase programs (1,125) (897) (258)
------ ------ ------
Net cash (used in) provided by
financing activities (314) (1,327) 77
------ ------ ------
Effect of exchange rate changes on cash (12) (5) 8
------ ------ ------
Net decrease in cash and
cash equivalents (127) (84) (271)
Cash and cash equivalents, beginning
of year 373 457 728
------ ------ ------
Cash and cash equivalents, end of year $ 246 $ 373 $ 457
====== ====== ======
37
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
(in millions)
Cash paid for interest and income taxes was:
2000 1999 1998
Interest, net of portion capitalized
of $40, $36 and $41 $166 $120 $ 90
Income taxes 486 445 498
The following transactions are not reflected in the Consolidated Statement
of Cash Flows:
2000 1999 1998
Contribution of assets to Kodak
Polychrome Graphics joint venture $ - $ 13 $ -
Minimum pension liability adjustment (1) (14) 4
Liabilities assumed in acquisitions 31 - 473
The accompanying notes are an integral part of these financial statements.
38
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing, and marketing consumer, professional, health
and other imaging products and services. The Company's products are
manufactured in a number of countries in North and South America, Europe,
Australia and Asia. The Company's products are marketed and sold in many
countries throughout the world.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Eastman
Kodak Company and its majority owned subsidiary companies. Intercompany
transactions are eliminated and net earnings are reduced by the portion of
the earnings of subsidiaries applicable to minority interests. The equity
method of accounting is used for investments in associated companies over
which Kodak does not have effective control.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency is
the functional currency and translation adjustments are accumulated in a
separate component of shareholders' equity. Translation adjustments are
not tax-effected since they relate to investments which are permanent in
nature.
For subsidiaries and branches that operate in U.S. dollars or whose
economic environment is highly inflationary, the U.S. dollar is the
functional currency.
The effects of foreign currency transactions, including related hedging
activities, were losses of $13 million, $2 million, and $20 million in the
years 2000, 1999, and 1998, respectively.
39
CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less at date of purchase are considered to be cash equivalents.
MARKETABLE SECURITIES AND NONCURRENT INVESTMENTS
At December 31, 2000, investments of $5 million, which were included in
marketable securities, were considered held to maturity. Long-term
marketable securities and other investments of $44 million, which were
included in other noncurrent assets, were considered available for sale.
At December 31, 1999, investments of $10 million, which were included in
marketable securities, were considered held to maturity. Investments of
$10 million included in marketable securities, and $117 million of long-
term marketable securities and other investments which were included in
other noncurrent assets, were considered available for sale.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The
cost of most inventories in the U.S. is determined by the "last-in, first-
out" (LIFO) method. The cost of other inventories is determined by 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.
Depreciation expense is provided based on historical cost and estimated
useful lives ranging from approximately three years to fifty years for
buildings and building equipment and three years to twenty years for
machinery and equipment. The Company generally uses the straight-line
method for calculating the provision for depreciation.
GOODWILL
Goodwill is charged to earnings on a straight-line basis over the period
estimated to be benefited, generally ten years. The Company regularly
assesses all of its long-lived assets for impairment when events or
circumstances indicate their carrying amounts may not be recoverable, in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This is accomplished
by comparing the estimated undiscounted future cash flows of the asset
grouping with the respective carrying amount as of the date of assessment.
Should aggregate future cash flows be less than the carrying value, a
write-down would be required, measured as the difference between the
carrying value and the discounted future cash flows.
40
REVENUE
The Company recognizes revenue when it is realized or realizable and
earned. The Company considers revenue realized or realizable and earned
when it has persuasive evidence of an arrangement, the products or the
services have been provided to the customer, the sales price is fixed or
determinable, and collectibility is reasonably assured.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements." This guidance summarizes the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. This staff bulletin had no significant impact on
the Company's revenue recognition policy or results of operations.
RESEARCH AND DEVELOPMENT COSTS
Product development costs are charged to operations during the period
incurred.
ADVERTISING
Advertising costs are expensed as incurred and included in selling,
general and administrative expenses. Advertising expenses amounted to
$701 million, $717 million and $756 million in 2000, 1999 and 1998,
respectively.
SHIPPING AND HANDLING COSTS
Shipping and handling costs of $253 million, $252 million, and $269
million in 2000, 1999, and 1998, respectively, are included in selling,
general and administrative expenses on the Consolidated Statement of
Earnings.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
or capitalized, as appropriate, in accordance with the American Institute
of Certified Public Accountants (AICPA) Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities." Remediation costs that relate to
an existing condition caused by past operations are accrued when it is
probable that these costs will be incurred and can be reasonably
estimated.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
41
EARNINGS PER SHARE
Earnings per share is presented in accordance with the provisions of SFAS
No. 128, "Earnings Per Share." Basic earnings-per-share computations are
based on the weighted-average number of shares of common stock outstanding
during the year. Diluted earnings-per-share calculations reflect the
assumed exercise and conversion of employee stock options.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," which requires compensation
costs to be recognized based on the difference, if any, between the quoted
market price of the stock on the grant date and the exercise price.
In March 2000, the FASB issued FASB Interpretation (FIN) No. 44
"Accounting for Certain Transactions Involving Stock Compensation," which
clarifies the application of APB No. 25 for certain issues. The
interpretation was effective July 1, 2000, except for the provisions that
relate to modifications that directly or indirectly reduce the exercise
price of an award and the definition of an employee, which are effective
after December 15, 1998. The adoption of FIN No. 44 had no significant
impact on the Company's financial statements.
SEGMENT REPORTING
The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
The Company has four operating segments. The basis for determining the
Company's operating segments is the manner in which financial information
is used by the Company in its operations. Management operates and
organizes itself according to business units which comprise unique
products and services across geographic locations.
RECLASSIFICATIONS
Certain reclassifications of prior financial information and related
footnote amounts have been made to conform with the 2000 presentation.
- --------------------------------------------------------------------------
42
NOTE 2: RECEIVABLES
(in millions)
2000 1999
Trade receivables $2,245 $2,140
Miscellaneous receivables 408 397
------ ------
Total (net of allowances of $89 and $136) $2,653 $2,537
====== ======
The Company sells to customers in a variety of industries, markets and
geographies around the world. Receivables arising from these sales are
generally not collateralized. Adequate provisions have been recorded for
uncollectible receivables. There are no significant concentrations of
credit risk.
- --------------------------------------------------------------------------
NOTE 3: INVENTORIES
(in millions) 2000 1999
At FIFO or average cost (approximates
current cost)
Finished goods $1,155 $1,026
Work in process 423 487
Raw materials and supplies 589 471
------ ------
2,167 1,984
LIFO reserve (449) (465)
------ ------
Total $1,718 $1,519
====== ======
Inventories valued on the LIFO method are approximately 47% and 48% of
total inventories in 2000 and 1999, respectively.
- --------------------------------------------------------------------------
NOTE 4: PROPERTIES
(in millions) 2000 1999
Land $ 141 $ 166
Buildings and building equipment 2,285 2,579
Machinery and equipment 9,585 9,669
Construction in progress 952 875
------- -------
12,963 13,289
Accumulated depreciation (7,044) (7,342)
------- -------
Net properties $ 5,919 $ 5,947
======= =======
- --------------------------------------------------------------------------
43
NOTE 5: PAYABLES AND SHORT-TERM BORROWINGS
(in millions) 2000 1999
Trade creditors $ 817 $ 940
Accrued advertising and promotional
expenses 578 548
Employment-related liabilities 780 912
Restructuring programs - 362
Other 1,100 1,070
------ ------
Total payables $3,275 $3,832
====== ======
Short-term bank borrowings totaled $2,206 million at year-end 2000 and
$1,163 million at year-end 1999. Borrowings included $1,809 million and
$894 million of commercial paper at year-end 2000 and 1999, respectively.
The weighted-average interest rate of borrowings outstanding at year end
was 6.4% in 2000 and 5.8% in 1999.
The Company has a $3.5 billion unused revolving credit facility
established in 1996 and expiring in November 2001 which is available to
support the Company's commercial paper program and for general corporate
purposes. If unused, it has a commitment fee of $1.9 million per year, at
the Company's current credit rating. Interest on amounts borrowed under
this facility is calculated at rates based on spreads above certain
reference rates.
- --------------------------------------------------------------------------
NOTE 6: LONG-TERM BORROWINGS
(in millions)
Description and Interest Maturity Dates
Rates of 2000 Borrowings of 2000 Borrowings 2000 1999
Notes:
5.85% - 8.25% 2001 - 2005 $ 473 $272
9.20% - 9.95% 2003 - 2021 191 191
Debentures:
1.98% - 3.16% 2002 - 2004 61 122
Other:
2.00% - 17.00% 2001 - 2010 591 353
------ ----
1,316 938
Current maturities (150) (2)
------ ----
Total $1,166 $936
====== ====
Annual maturities (in millions) of long-term borrowings outstanding at
December 31, 2000 are as follows: 2001: $150; 2002: $73; 2003: $419; 2004:
$366; 2005: $260; and 2006 and beyond: $48.
The Company has a shelf registration statement for debt securities with an
available balance of $1.9 billion.
- --------------------------------------------------------------------------
44
NOTE 7: OTHER LONG-TERM LIABILITIES
(in millions) 2000 1999
Deferred compensation $ 146 $ 160
Minority interest in Kodak companies 93 98
Other 493 660
------ ------
Total $ 732 $ 918
====== ======
- --------------------------------------------------------------------------
NOTE 8: COMMITMENTS AND CONTINGENCIES
Environmental
Expenditures for pollution prevention and waste treatment for the
Company's current manufacturing facilities were as follows:
2000 1999 1998
(in millions)
Recurring costs for managing
hazardous substances and
pollution prevention $ 72 $ 69 $ 75
Capital expenditures to limit or
monitor hazardous substances and
pollutants 36 20 25
Site remediation costs 3 5 4
---- ---- ----
Total $111 $ 94 $104
==== ==== ====
At December 31, 2000 and 1999, the Company's undiscounted accrued
liabilities for environmental remediation costs amounted to $113 million
and $124 million, respectively.
The Company anticipates the above expenditures to increase in the future.
However, it is not expected that these costs will have an impact which is
materially different from 2000's environmental expenditures on financial
position, results of operations, cash flows or competitive position.
A Consent Decree was signed in 1994 in settlement of a civil complaint
brought by the U.S. Environmental Protection Agency and the U.S.
Department of Justice under which the Company is subject to a Compliance
Schedule by which the Company improved its waste characterization
procedures, upgraded one of its incinerators, and is evaluating and
upgrading its industrial sewer system. The total expenditures required to
complete this program are currently estimated to be approximately $33
million over the next eight years. These expenditures are primarily
capital in nature.
45
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 approximately four active Superfund sites. With respect to each of
these sites, the Company's actual or potential allocated share of
responsibility is small. Furthermore, numerous other PRPs have also been
designated at these sites and, although the law imposes joint and several
liability on PRPs, as a practical matter, 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 or results of operations.
In addition to the foregoing environmental actions, the Company is
currently implementing a Corrective Action Program required by the
Resource Conservation and Recovery Act (RCRA) at the Kodak Park site in
Rochester, NY. As part of this Program, the Company has completed the
RCRA Facility Assessment (RFA), a broad-based environmental investigation
of the site. The Company is currently in the process of completing, and
in some cases has completed, RCRA Facility Investigations (RFIs) and
Corrective Measures Studies (CMS) for areas at the site. Estimated future
remediation costs are accrued by the Company and are included in
remediation accruals recorded at December 31, 2000.
The Clean Air Act Amendments were enacted in 1990. Expenditures to comply
with the Clean Air Act implementing regulations issued to date have not
been material and have been primarily capital in nature. In addition,
future expenditures for existing regulations, which are primarily capital
in nature, are not expected to be material. Many of the regulations to be
promulgated pursuant to this Act have not been issued.
The Company has retained certain obligations for environmental remediation
and Superfund matters related to the non-imaging health businesses sold in
1994. Actions to fulfill these remedial obligations are not expected to
be completed in the near term and costs related to the obligations are
included in accruals recorded at December 31, 2000 and 1999. Also
included in these accruals are responsibilities for the liabilities
associated with the non-imaging health businesses as a PRP in
approximately four active Superfund sites.
Other Commitments and Contingencies
The Company has entered into agreements with several companies which
provide Kodak with products and services to be used in its normal
operations. The minimum payments for these agreements are approximately
$198 million in 2001, $148 million in 2002, $128 million in 2003, $113
million in 2004, $79 million in 2005, and $201 million in 2006 and
thereafter.
The Company has also guaranteed debt and other obligations under
agreements with certain affiliated companies and customers. At December
31, 2000, these guarantees totaled approximately $250 million. The
Company does not expect that these guarantees will have a material impact
on the Company's future financial position or results of operations.
46
At December 31, 2000, the Company had outstanding letters of credit
totaling $54 million to ensure the completion of environmental
remediations and payment of possible casualty and Workers' Compensation
claims.
Rental expense, net of minor sublease income, amounted to $155 million in
2000, $142 million in 1999 and $149 million in 1998. 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 $104 million in 2001, $78 million in 2002, $65
million in 2003, $33 million in 2004, $24 million in 2005, and $47 million
in 2006 and thereafter.
The Company and its subsidiary companies are involved in lawsuits, claims,
investigations and proceedings, including product liability, commercial,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. There are no such matters
pending that the Company and its General Counsel expect to be material in
relation to the Company's business, financial position or results of
operations.
- --------------------------------------------------------------------------
NOTE 9: FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and the estimated fair
values of financial instruments at December 31, 2000 and 1999; ( ) denotes
liabilities:
2000 1999
(in millions)
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities:
Current $ 5 $ 5 $ 20 $ 20
Long-term 48 53 93 93
Other investments 2 2 24 35
Long-term borrowings (1,166) (1,184) (936) (948)
Foreign currency forwards (44) (44) (6) (4)
Silver forwards (17) (17) - 3
Marketable securities and other investments are valued at quoted market
prices. The fair values of long-term borrowings were determined by
reference to quoted market prices or by obtaining quotes from dealers.
The fair values for the remaining financial instruments in the above table
are based on dealer quotes and reflect the estimated amounts the Company
would pay or receive to terminate the contracts. The carrying values of
cash and cash equivalents, receivables, short-term borrowings and payables
approximate their fair values.
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.
47
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 forcasted 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. Derivative instruments are
not presently used to adjust the Company's interest rate risk profile.
The Company does not utilize financial instruments for trading or other
speculative purposes.
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, 2000 was not
significant to the Company.
- --------------------------------------------------------------------------
48
NOTE 10: INCOME TAXES
The components of earnings before income taxes and the related provision
for U.S. and other income taxes were as follows:
(in millions) 2000 1999 1998
Earnings before income
taxes
U.S. $1,294 $1,398 $1,578
Outside the U.S. 838 711 528
------ ------ ------
Total $2,132 $2,109 $2,106
====== ====== ======
U.S. income taxes
Current provision $ 145 $ 185 $ 351
Deferred provision 225 215 136
Income taxes outside the U.S.
Current provision 268 225 113
Deferred provision 37 23 61
State and other income taxes
Current provision 35 60 50
Deferred provision 15 9 5
------ ------ ------
Total $ 725 $ 717 $ 716
====== ====== ======
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate were as follows:
(in millions) 2000 1999 1998
Amount computed using the statutory
rate $746 $738 $737
Increase (reduction) in taxes
resulting from:
State and other income taxes 33 45 38
Goodwill amortization 40 36 28
Export sales and manufacturing
credits (48) (45) (39)
Operations outside the U.S. (79) (36) (15)
Other, net 33 (21) (33)
---- ---- ----
Provision for income taxes $725 $717 $716
==== ==== ====
49
The significant components of deferred tax assets and liabilities were as
follows:
(in millions) 2000 1999
Deferred tax assets
Postemployment obligations $ 916 $ 992
Restructuring programs - 74
Inventories 139 153
Tax loss carryforwards 103 94
Other 884 905
------ ------
2,042 2,218
Valuation allowance (103) (94)
------ ------
Total $1,939 $2,124
====== ======
Deferred tax liabilities
Depreciation $ 555 $ 527
Leasing 225 260
Other 591 534
------ ------
Total $1,371 $1,321
====== ======
The valuation allowance is primarily attributable to certain net operating
loss carryforwards outside the U.S. A majority of the net operating loss
carryforwards are subject to a five-year expiration period.
Retained earnings of subsidiary companies outside the U.S. were
approximately $1,574 million and $1,439 million at December 31, 2000 and
1999, respectively. Retained earnings at December 31, 2000 are considered
to be reinvested indefinitely. If remitted, they would be substantially
free of additional tax. It is not practicable to determine the deferred
tax liability for temporary differences related to these retained
earnings.
- --------------------------------------------------------------------------
50
NOTE 11: RESTRUCTURING PROGRAMS AND COST REDUCTIONS
During the third quarter of 1999, the Company recorded a pre-tax
restructuring charge of $350 million relating to worldwide manufacturing
and photofinishing consolidation and reductions in selling, general and
administrative positions worldwide. The Company recorded $236 million of
the $350 million provision as cost of goods sold, primarily for employee
severance costs, asset write-downs, and shutdown costs related to these
actions. The remaining $114 million was recorded as SG&A for employee
severance payments.
In the second quarter of 2000, the Company reversed approximately $44
million of severance related costs originally recorded as part of this
program. The reversal was the result of two factors which occurred during
the second quarter. First, certain manufacturing operations originally
planned to be outsourced will now be retained, as cost beneficial
arrangements for the Company could not be reached. Second, severance
actions in Japan and Europe were completed at a cost less than originally
estimated. Consequently, approximately 500 (450 manufacturing and 50
administrative) fewer employees were separated. Of the $44 million
reversal, approximately $25 million was recorded in cost of goods sold and
approximately $19 million was recorded as part of SG&A, consistent with
where the original charges were recorded. Aside from the actions
described above, all other projects included in this program were
effectively completed by December 31, 2000. A total of 2,900 employees
were terminated under this program.
In addition to the charges discussed above, the Company incurred pre-tax
charges of approximately $50 million during 2000 for the accelerated
depreciation of certain assets which remained in use until the Company
sold its Elmgrove manufacturing facility in the second quarter, and
related relocation costs. The sale of this facility did not result in a
material gain or loss to the Company.
Also during 2000, the Company completed all planned actions related to a
restructuring program which began in 1997. The actual cost to complete
the 1997 program was in line with the Company's expectations.
- -----------------------------------------------------------------------
51
NOTE 12: RETIREMENT PLANS
Substantially all U.S. employees are covered by a noncontributory 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 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 fund are held for the sole benefit of participating employees and
retirees. The assets of the trust fund are comprised of corporate equity
and debt securities, U.S. government securities, partnership and joint
venture investments, interests in pooled funds, and various types of
interest rate, foreign currency and equity market financial instruments.
Kodak common stock represents approximately 4.0% of trust assets.
On March 25, 1999, the Company amended this plan 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 KRIP plan or the Cash Balance Plus plan. Written elections
were made by employees in 1999, and were effective January 1, 2000. The
Cash Balance Plus 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 this plan and the Company's
defined contribution plan, the Savings and Investment Plan (SIP), the
Company will match SIP contributions for an amount up to 3% of pay, for
employee contributions of up to 5% of pay. As a result of employee
elections to the Cash Balance Plus plan, the reductions in future pension
expense will be almost entirely offset by the cost of matching employee
contributions to SIP. The impact of the Cash Balance Plus plan is shown as
a plan amendment.
Most subsidiaries and branches operating outside the U.S. have 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.
52
Changes in the Company's benefit obligation, plan assets and funded status
for major plans are as follows:
(in millions) 2000 1999
Non- Non-
U.S. U.S. U.S. U.S.
Change in Benefit Obligation
Projected benefit obligation
at January 1 $ 5,798 $1,905 $ 6,523 $1,998
Service cost 89 33 107 33
Interest cost 408 107 426 111
Participant contributions - 11 - 12
Plan amendment (67) (3) - -
Benefit payments (578) (104) (876) (118)
Actuarial gain (115) (33) (370) (69)
Settlements - (12) - -
Curtailments (5) - (12) (16)
Currency adjustments - (143) - (46)
------- ------ ------- ------
Projected benefit obligation
at December 31 $ 5,530 $1,761 $ 5,798 $1,905
======= ====== ======= ======
Change in Plan Assets
Fair value of plan assets
at January 1 $ 7,340 $1,917 $ 6,543 $1,824
Actual return on plan assets 528 176 1,673 217
Employer contributions - 35 - 33
Participant contributions - 11 - 12
Benefit payments (578) (104) (876) (112)
Settlements - (12) - -
Currency adjustments - (143) - (49)
Other - - - (8)
------- ------ ------- ------
Fair value of plan assets
at December 31 $ 7,290 $1,880 $ 7,340 $1,917
======= ====== ======= ======
Funded Status at December 31 $ 1,760 $ 118 $ 1,542 $ 12
Unamortized:
Transition asset (115) (32) (174) (45)
Net (gain) loss (1,323) 21 (1,251) 94
Prior service cost 3 12 72 23
------- ------ ------- ------
Net amount recognized at
December 31 $ 325 $ 119 $ 189 $ 84
======= ====== ======= ======
Amounts recognized in the Statement of Financial Position for major plans
are as follows:
(in millions) 2000 1999
Non- Non-
U.S. U.S. U.S. U.S.
Prepaid pension cost $ 325 $ 139 $ 189 $ 111
Accrued benefit liability - (20) - (27)
------- ------ ------- ------
Net amount recognized at
December 31 $ 325 $ 119 $ 189 $ 84
======= ====== ======= ======
53
Pension expense (income) for all plans included:
(in millions) 2000 1999 1998
Non- Non- Non-
U.S. U.S. U.S. U.S. U.S. U.S.
Service cost $ 89 $ 33 $ 107 $ 34 $ 122 $ 33
Interest cost 408 107 426 111 444 118
Expected return on plan
assets (572) (147) (537) (137) (551) (137)
Amortization of:
Transition asset (59) (10) (59) (10) (60) (9)
Prior service cost 1 8 10 8 12 8
Actuarial loss - 3 2 10 11 5
----- ----- ----- ----- ----- -----
(133) (6) (51) 16 (22) 18
Curtailments (3) - (1) - 7 1
Settlements - 1 - - - 1
----- ----- ----- ----- ----- -----
Net pension (income) expense (136) (5) (52) 16 (15) 20
Other plans including
unfunded plans 41 69 33 51 36 46
----- ----- ----- ----- ----- -----
Total net pension (income)
expense $ (95) $ 64 $ (19) $ 67 $ 21 $ 66
===== ===== ===== ===== ===== =====
The Company recorded a $3 million curtailment gain in 2000 and a $9
million curtailment loss in 1999 as a result of the reduction in employees
from the 1997 restructuring program. Additionally, the Company recorded a
$10 million curtailment gain in 1999 as a result of the sale of the Office
Imaging business, which was included in the gain on the sale.
The weighted assumptions used to compute pension amounts for major plans
were as follows:
2000 1999
Non- Non-
U.S. U.S. U.S. U.S.
Discount rate 7.5% 6.1% 7.5% 6.1%
Salary increase rate 4.3% 3.1% 4.3% 3.2%
Long-term rate of return on
plan assets 9.5% 8.7% 9.5% 8.7%
The Company also sponsors an unfunded plan for certain U.S. employees,
primarily executives. The benefits of this plan 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. At December 31, 2000 and 1999, the projected benefit
obligations of this plan amounted to $187 million and $192 million,
respectively. The Company had recorded long-term liabilities at those
dates of $171 million and $174 million, respectively. Pension expense
recorded in 2000, 1999 and 1998 related to this plan was $34 million, $21
million and $26 million, respectively.
- --------------------------------------------------------------------------
54
NOTE 13: NONPENSION POSTRETIREMENT BENEFITS
The Company provides healthcare, dental and life insurance benefits to
U.S. eligible retirees and eligible survivors of retirees. In general,
these benefits are provided to U.S. retirees that are covered by the
Company's KRIP plan. These benefits are funded from the general assets of
the Company as they are incurred. Certain non-U.S. subsidiaries offer
healthcare benefits; however, the cost of such benefits is insignificant
to the Company.
Changes in the Company's benefit obligation and funded status are as
follows:
(in millions) 2000 1999
Net benefit obligation at beginning
of year $ 2,307 $ 2,280
Service cost 12 13
Interest cost 169 152
Plan participants' contributions 3 3
Plan amendments 62 (33)
Actuarial loss 229 70
Curtailments 1 (13)
Benefit payments (181) (165)
------- -------
Net benefit obligation at end of year $ 2,602 $ 2,307
======= =======
Funded status at end of year $(2,602) $(2,307)
Unamortized net loss 700 491
Unamortized plan amendments (510) (646)
------- -------
Net amount recognized and recorded
at end of year $(2,412) $(2,462)
======= =======
The weighted-average assumptions used to compute postretirement benefit
amounts were as follows:
2000 1999
Discount rate 7.5% 7.5%
Salary increase rate 4.3% 4.3%
Healthcare cost trend (a) 8.0% 8.5%
(a) decreasing to 5.0% by 2007
(in millions) 2000 1999 1998
Components of net postretirement
benefit cost
Service cost $ 12 $ 13 $ 19
Interest cost 169 152 161
Amortization of:
Prior service cost (67) (68) (70)
Actuarial loss 18 8 16
------ ------ ------
132 105 126
Curtailments (6) (90) (103)
------ ------ ------
Total net postretirement benefit cost $ 126 $ 15 $ 23
====== ====== ======
55
The Company recorded a $6 million and $71 million gain in 2000 and 1999,
respectively, as a result of the reduction in employees in those years
from the 1997 restructuring program. Additionally, the Company recorded a
$15 million curtailment gain in 1999 as a result of the sale of the Office
Imaging business, which was included in the gain on the sale, and a $4
million curtailment gain as part of the investment in the joint venture
with NexPress.
The Company will no longer fund healthcare and dental benefits for
employees who elected to participate in the Company's Cash Balance Plus
plan, effective January 1, 2000. This change is not expected to have a
material impact on the Company's future postretirement benefit cost.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. A one percentage point change
in assumed healthcare cost trend rates would have the following effects:
1% 1%
increase decrease
Effect on total service and interest
cost components $ 6 $ (4)
Effect on postretirement benefit
obligation 83 (52)
- --------------------------------------------------------------------------
56
NOTE 14: STOCK OPTION AND COMPENSATION PLANS
The Company's stock incentive plans consist of the 2000 Omnibus Long-Term
Compensation Plan (the 2000 Plan), the 1995 Omnibus Long-Term Compensation
Plan (the 1995 Plan), and the 1990 Omnibus Long-Term Compensation Plan
(the 1990 Plan). The Plans are administered by the Executive Compensation
and Development Committee of the Board of Directors.
Under the 2000 Plan, 22 million shares of the Company's common stock may
be granted to a variety of employees between January 1, 2000 and December
31, 2004. The 2000 Plan is substantially similar to, and is intended to
replace, the 1995 Plan, which expired on December 31, 1999.
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. Option prices are not less than 100% of the per-share
fair market value on the date of grant, and the options generally expire
ten years from the date of grant, but may expire sooner if the optionee's
employment terminates. The 1995 Plan also provides for Stock Appreciation
Rights (SARs) to be granted, either in tandem with options or
freestanding. SARs allow optionees to receive payment equal to the
difference between the Company's stock market price on grant date and
exercise date. At December 31, 2000, 229,215 freestanding SARs were
outstanding at option prices ranging from $56.31 to $71.81.
Under the 1990 Plan, 22 million shares of the Company's common stock were
eligible for grant to key employees between February 1, 1990 and January
31, 1995. Option prices could not be less than 50% of the per-share fair
market value on the date of grant; however, no options below fair market
value were granted. The options generally expire ten years from the date
of grant, but may expire sooner if the optionee's employment terminates.
The 1990 Plan also provided that options with dividend equivalents, tandem
SARs and freestanding SARs could be granted. At December 31, 2000,
106,754 freestanding SARs were outstanding at option prices ranging from
$32.50 to $44.50.
In April 1998, the Company made a grant of 100 stock options for common
stock to most employees of the Company at that date (8,468,100 shares
under options). The options were granted at fair market value on the date
of grant and expire ten years from the grant date. The options have a two-
year vesting period. The Executive Compensation and Development Committee
of the Board of Directors approved the grant. A second grant of 100 stock
options for common stock was made on March 13, 2000 to most employees of
the Company at that date (7,004,400 shares under options). The options
were granted at fair market value on the date of grant and expire ten
years from the grant date. The options have a two-year vesting period.
57
Further information relating to options is as follows:
(Amounts in thousands, except per share amounts)
Shares Range of Price
Under Option Per Share
Outstanding on December 31, 1997 24,204 $30.25 - $92.31
Granted 14,546 $59.00 - $87.59
Exercised 3,208 $30.25 - $82.00
Terminated, Canceled or Surrendered 1,211 $31.45 - $83.38
------
Outstanding on December 31, 1998 34,331 $30.25 - $92.31
Granted 4,276 $60.13 - $79.63
Exercised 1,101 $30.25 - $74.31
Terminated, Canceled or Surrendered 473 $31.45 - $92.31
------
Outstanding on December 31, 1999 37,033 $30.25 - $92.31
Granted 12,533 $37.25 - $69.53
Exercised 1,326 $30.25 - $58.63
Terminated, Canceled or Surrendered 3,394 $31.45 - $90.50
------
Outstanding on December 31, 2000 44,846 $32.50 - $92.31
Exercisable on December 31, 2000 28,783 $32.50 - $92.31
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123, "Accounting for Stock-Based Compensation," has been
determined as if the Company had accounted for employee stock options
under SFAS No. 123's fair value method. The fair value of options was
estimated at grant date using a Black-Scholes option pricing model with
the following weighted-average assumptions:
2000 1999 1998
Risk free interest rates 6.2% 5.1% 5.6%
Expected option lives 7 years 7 years 7 years
Expected volatilities 29% 28% 27%
Expected dividend yields 3.19% 2.76% 2.71%
The weighted-average fair value of options granted was $16.79, $18.77 and
$19.94 for 2000, 1999 and 1998, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period (2-3
years). The Company's pro forma information follows:
Year Ended December 31,
(in millions, except per share data) 2000 1999 1998
Net earnings
As reported $1,407 $1,392 $1,390
Pro forma 1,346 1,263 1,272
Basic earnings per share
As reported $ 4.62 $ 4.38 $ 4.30
Pro forma 4.41 3.97 3.94
Diluted earnings per share
As reported $ 4.59 $ 4.33 $ 4.24
Pro forma 4.41 3.96 3.93
58
The following table summarizes information about stock options at December
31, 2000:
(Number of options in thousands)
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Range of Weighted-
Exercise Average Weighted- Weighted-
Prices Remaining Average Average
At Less Contractual Exercise Exercise
Least Than Options Life Price Options Price
$30 - $45 6,889 2.73 $40.04 6,348 $40.02
$45 - $60 13,433 7.94 $54.49 3,230 $54.18
$60 - $75 21,406 7.07 $67.77 16,738 $68.37
$75 - $90 996 6.77 $80.43 845 $80.96
Over $90 2,122 6.15 $90.19 1,622 $90.21
------ ------
44,846 28,783
====== ======
- --------------------------------------------------------------------------
NOTE 15: ACQUISITIONS AND JOINT VENTURES
2000
During the second quarter, the Company acquired the remaining ownership
interest in PictureVision, Inc. for cash and assumed liabilities with a
total transaction value of approximately $90 million. PictureVision, the
leading provider of digital imaging network services and solutions at
retail, now operates as a wholly-owned subsidiary of the Company. Kodak
has integrated the products and activities of its Picture Network, which
provides consumers with an Internet-based digital imaging network service,
with PictureVision's digital imaging service, PhotoNet. In relation to
this acquisition, the Company's second quarter results included $10
million in charges for acquired in-process R&D and approximately $15
million for other acquisition-related charges. Goodwill related to this
acquisition is being amortized over 7 years.
1999
In connection with the sale of the Company's digital printer, copier-
duplicator, and roller assembly operations primarily associated with the
Office Imaging business (See Note 16, Sales of Assets and Divestitures),
the Company and Heidelberger Druckmaschinen AG (Heidelberg) also announced
an agreement to expand their joint venture company, NexPress, to include
the black-and-white electrophotographic business. The Company contributed
R&D resources to NexPress, as well as its toner and developer operations
in Rochester and Kirkby, England. This transaction did not have a
material effect on the Company's results of operations or financial
position in 1999. Kodak and Heidelberg established the NexPress joint
venture in September 1997 for the purpose of developing and marketing new
digital color printing solutions for the graphic arts industry. In
connection with these arrangements, the Company serves as a supplier both
to Heidelberg and NexPress for consumables such as photoconductors and raw
materials for toner/developer manufacturing.
59
1998
On March 12, 1998, the Company acquired 51% of PictureVision Inc.'s stock
for approximately $50 million. The acquisition was accounted for as a
purchase and, accordingly, the operating results of the business have been
included in the accompanying consolidated financial statements from the
date of acquisition.
In February 1998, the Company contributed $308 million to Kodak (China)
Company Limited (KCCL), a newly formed company operating in China, in
exchange for 80% of the outstanding shares of the company. On March 25
and September 1, 1998, the new company acquired certain manufacturing
assets of Shantou Era Photo Material Industry Corporation, a Chinese
domestic photographic enterprise, for $159 million in cash and $22 million
in debt payable in 2003. On March 26, 1998, KCCL acquired certain
manufacturing assets of Xiamen Fuda Photographic Materials Company, Ltd.,
another Chinese domestic photographic enterprise, for $149 million.
In February 1998, the Company contributed $32 million to Kodak (Wuxi)
Company Limited (KWCL), a newly formed company operating in China, in
exchange for 70% of the outstanding shares of the business. On April 2,
1998, KWCL acquired part of the manufacturing assets of Wuxi Aermei Film
and Chemical Corporation, a Chinese domestic photographic enterprise, for
$11 million in cash and $21 million in debt payable in 1999.
The acquisitions by KCCL and KWCL were accounted for as purchases and,
accordingly, the operating results of the acquired companies have been
included in the accompanying consolidated financial statements from the
dates of acquisition. Substantial portions of the purchase prices were
allocated to goodwill, which is being amortized over a ten-year period.
On November 30, 1998, Kodak acquired certain assets and assumed certain
liabilities of Imation's medical imaging business, including all of the
outstanding shares of Imation's Cemax-Icon subsidiary, for approximately
$530 million. At the date of acquisition, the business acquired by Kodak
generated approximately $500 million in annual revenues. The transaction
was accounted for by the purchase method and, accordingly, the operating
results of the business have been included in the accompanying
consolidated financial statements from the date of acquisition. A
substantial portion of the purchase price was allocated to tangible assets
and goodwill, which is being amortized over a ten-year period. See
discussion regarding in-process R&D charges below.
60
Purchased In-process Research and Development Charges
In connection with the 2000 PictureVision Inc. acquisition and the 1998
purchase of Imation's medical imaging business, the Company allocated $10
million and $42 million of the purchase price, respectively, to in-process
R&D.
The Company used independent professional appraisal consultants to assess
and allocate values to the in-process R&D. At the dates of the respective
business combinations, the development of these projects had not yet
reached technological feasibility and the R&D in progress had no
alternative uses. Accordingly, these costs were expensed as of the
respective acquisition dates.
The valuations were determined by the Company using the income approach.
This methodology involves estimating the contribution of the purchased in-
process technology to developing commercially viable products and
estimating the resulting cash flows from the expected product sales of
such products. The resulting cash flows were discounted to their present
value using appropriate risk adjusted rates. Cash flows attributable to
development efforts, including the completion of developments underway,
and future versions of the product that have not yet been undertaken, were
excluded in the valuation of in-process R&D. A contributory asset charge
was applied for the use of working capital, fixed assets, developed
technology and other intangibles. There were no material anticipated
changes from historical pricing, margins, and expense trends.
The Company believes that the assumptions used in the forecasts were
reasonable at the time of the respective business combinations. No
assurance can be given, however, that the underlying assumptions used to
estimate expected project sales, development costs or profitability, or
the events associated with such projects, will transpire as estimated.
For these reasons, actual results may vary from the projected results.
Management plans to continue supporting the viable remaining R&D programs
and believes the Company has a reasonable chance of successfully
completing the remaining R&D programs. However, there is a risk
associated with the completion of the R&D projects and the Company cannot
be assured that these projects will result in commercial success.
Without successful completion of the remaining R&D efforts on the acquired
in-process technologies, the end result would be to fail to fulfill
product design specifications and in turn fail to meet market
requirements. As a result, the Company would not realize the future
revenues and profits attributed to the acquired R&D. Ultimately, the
Company would fail to realize the expected return on such investments.
The failure of any particular individual in-process R&D project would not
materially impact the Company's financial position or results of
operations. Operating results are subject to uncertain market events and
risks, which are beyond the Company's control, such as trends in
technology, market size and growth, and product introduction or other
actions by competitors.
61
PictureVision
The in-process technology acquired from PictureVision primarily related
to two projects: PhotoNet2 and the PhotoRamp valued at $16 million and $4
million. These projects resulted in a total in-process R&D charge of $10
million, reflecting the Company's 49% acquisition.
PhotoNet2, or P2, is an enhanced version of PictureVision's original
PhotoNet system which will allow higher capacity and activity levels.
PhotoNet essentially allows photofinishers to scan (digitize) rolls of
film and upload the images to a branded web site that stores the images in
a database for consumer use. The PhotoRamp is designed to provide
digitization of existing photos as opposed to digitization of film and
will support a variety of film types including 35mm, Advantix, 110, and
120 films.
The PhotoRamp was completed in 2000 and P2 is expected to be completed in
2001. The remaining costs to complete P2 are not anticipated to be
material.
Imation Medical Imaging
The in-process technology acquired from Imation consists of eight R&D
projects within three broad technology groupings: Dry, Imagesetting, and
Analog.
Work on all in-process technology projects related to this acquisition was
concluded in 2000. The Imagesetting projects were discontinued while cash
inflows from the remaining acquired technology commenced in 2000. These
inflows are expected to peak in 2001 and steadily decline through 2007.
Acquired developed technology of approximately $90 million was capitalized
at acquisition date and is being amortized over seven years on a straight-
line basis.
- --------------------------------------------------------------------------
62
NOTE 16: SALES OF ASSETS AND DIVESTITURES
1999
In April 1999, the Company sold its digital printer, copier-duplicator,
and roller assembly operations primarily associated with its Office
Imaging business, which included its operations in Rochester, NY,
Muehlhausen, Germany and Tijuana, Mexico to Heidelberg for approximately
$80 million. The transaction did not have a material effect on the
Company's results of operations or financial position.
In November 1999, the Company sold The Image Bank, a wholly-owned
subsidiary which markets and licenses image reproduction rights, to Getty
Images, Inc. for $183 million in cash. As a result of this transaction,
the Company recorded a pre-tax gain of $95 million in other income
(charges).
In November 1999, the Company sold its Motion Analysis Systems Division,
which manufactures digital cameras and digital video cameras for the
automotive and industrial markets, to Roper Industries, Inc. for
approximately $50 million in cash. As a result of this transaction, the
Company recorded a pre-tax gain of $25 million in other income (charges).
1998
In June 1998, the Company sold part of its investment in Gretag Imaging
Group, a Swiss manufacturer of film processing equipment, in connection
with Gretag's initial public offering. The proceeds from the sale were
$72 million and resulted in a pre-tax gain of $66 million in other income
(charges).
On September 1, 1998, the Company sold all of its shares of Fox Photo,
Inc. to Wolf Camera for an amount approximating the current value of Fox
Photo's net assets.
On October 1, 1998, Elan Corporation, plc purchased from Kodak all the
assets and liabilities of Kodak's subsidiary NanoSystems L.L.C., a drug
delivery company, for approximately $150 million in a combination of $137
million cash and warrants to purchase ordinary shares in Elan. The
Company recorded a pre-tax gain of $87 million in other income (charges)
on the sale in the fourth quarter of 1998.
63
In the fourth quarter of 1998, financial difficulties on the part of Danka
affected its ability to fulfill the original terms of certain of its
agreements with the Company which were established in connection with the
sale of the Office Imaging business in 1996. As a result, in December
1998, the Company's supply agreement and certain other agreements with
Danka were terminated and interim arrangements for the supply by the
Company to Danka of copier equipment, parts and supplies were established
on a month-to-month basis. As a result of significant volume reductions
by Danka, the Company was required to take action in the fourth quarter of
1998 that resulted in charges for employee severance (800 personnel) and
write-downs of working capital and equipment. Such pre-tax charges
amounted to $132 million and were recorded to cost of goods sold ($68
million) and SG&A expenses ($64 million). All actions with respect to
this charge, including employee terminations, were completed by the
Company in 1998.
- ------------------------------------------------------------------------
NOTE 17: SEGMENT INFORMATION
The Consumer Imaging segment derives revenues from photographic film,
paper, chemicals, cameras, photoprocessing equipment, digitization
services, and photoprocessing services sold to consumers. The Kodak
Professional segment derives revenues from photographic film, paper,
chemicals, and digital cameras sold to professional customers and graphics
film products sold to the KPG joint venture. The Health Imaging segment
derives revenues from medical film and processing equipment sold to
healthcare organizations. The Other Imaging segment derives revenues from
motion picture film sold to movie production and distribution companies,
and microfilm equipment and media, printers, scanners, other business
equipment, document imaging software, and consumer digital cameras and
media sold to commercial and government customers.
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 net 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.
Segment financial information is shown below.
64
(in millions) 2000 1999 1998
Sales:
Consumer Imaging $ 7,406 $ 7,411 $ 7,164
Kodak Professional 1,706 1,910 1,840
Health Imaging 2,185 2,120 1,526
Other Imaging 2,697 2,648 2,876
------- ------- -------
Consolidated total $13,994 $14,089 $13,406
======= ======= =======
Earnings from operations:
Consumer Imaging $ 1,179 $ 1,299 $ 1,080
Kodak Professional 261 374 330
Health Imaging 503 470 321
Other Imaging 227 197 157
------- ------- -------
Total of segments 2,170 2,340 1,888
Restructuring (charges) credits 44 (350) -
------- ------- -------
Consolidated total $ 2,214 $ 1,990 $ 1,888
======= ======= =======
Net earnings:
Consumer Imaging $ 860 $ 900 $ 785
Kodak Professional 111 265 237
Health Imaging 346 315 205
Other Imaging 161 222 162
------- ------- -------
Total of segments 1,478 1,702 1,389
Restructuring (charges) credits 44 (350) -
Gain on sale of NanoSystems - - 87
Interest expense (178) (142) (110)
Other corporate items 26 22 27
Income tax effects on above items
and taxes not allocated to segments 37 160 (3)
------- ------- -------
Consolidated total $ 1,407 $ 1,392 $ 1,390
======= ======= =======
Operating net assets:
Consumer Imaging $ 5,188 $ 5,005 $ 4,856
Kodak Professional 1,531 1,636 1,591
Health Imaging 1,482 1,229 1,135
Other Imaging 1,343 1,074 1,173
------- ------- -------
Total of segments 9,544 8,944 8,755
LIFO inventory reserve (449) (465) (491)
Cash and marketable securities 251 393 500
Dividends payable (128) (139) (142)
Net deferred income tax
(liabilities) and assets (4) 191 457
Noncurrent other postemployment
liabilities (2,209) (2,289) (2,455)
Other corporate net assets (205) (624) (614)
------- ------- -------
Consolidated net assets (1) $ 6,800 $ 6,011 $ 6,010
======= ======= =======
65
(1) Consolidated net assets are derived from the Consolidated Statement
of Financial Position, as follows:
(in millions) 2000 1999 1998
Total assets $14,212 $14,370 $14,733
Total liabilities 10,784 10,458 10,745
Less: Short-term borrowings (2,206) (1,163) (1,518)
Less: Long-term borrowings (1,166) (936) (504)
------- ------- -------
Non-interest-bearing liabilities 7,412 8,359 8,723
------- ------- -------
Consolidated net assets $ 6,800 $ 6,011 $ 6,010
======= ======= =======
Depreciation expense:
Consumer Imaging $ 368 $ 396 $ 401
Kodak Professional 99 100 117
Health Imaging 92 82 51
Other Imaging 179 195 168
------- ------- -------
Consolidated total $ 738 $ 773 $ 737
======= ======= =======
Goodwill amortization expense:
Consumer Imaging $ 77 $ 94 $ 77
Kodak Professional 13 13 10
Health Imaging 27 24 8
Other Imaging 34 14 21
------- ------- -------
Consolidated total $ 151 $ 145 $ 116
======= ======= =======
Capital additions:
Consumer Imaging $ 507 $ 725 $ 622
Kodak Professional 123 147 143
Health Imaging 120 92 88
Other Imaging 195 163 255
------- ------- -------
Consolidated total $ 945 $ 1,127 $ 1,108
======= ======= =======
Sales to external customers attributed to (2):
The United States $ 6,800 $ 6,714 $ 6,417
Europe, Middle East and Africa 3,464 3,734 3,701
Asia Pacific 2,349 2,267 2,009
Canada and Latin America 1,381 1,374 1,279
------- ------- -------
Consolidated total $13,994 $14,089 $13,406
======= ======= =======
(2) Sales are reported in the geographic area in which they originate.
Long-lived assets located in:
The United States $ 3,913 $ 3,904 $ 4,044
Europe, Middle East and Africa 647 715 861
Asia Pacific 1,056 1,024 704
Canada and Latin America 303 304 305
------- ------- -------
Consolidated total $ 5,919 $ 5,947 $ 5,914
======= ======= =======
66
NOTE 18: SUBSEQUENT EVENTS
On February 7, 2001, the Company completed its acquisition of
substantially all of the imaging businesses of Bell & Howell Company. The
purchase price of this stock and asset acquisition was $135 million in
cash. The acquired units provide business customers worldwide with
maintenance for document imaging components, micrographic-related
equipment, supplies, parts and service.
- ------------------------------------------------------------------------
NOTE 19: QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(in millions, except per share data)
2000
Sales $3,560 $3,590 $3,749 $3,095
Gross profit 1,327 1,603 1,706 1,339
Net earnings 194(1) 418(1) 506(1) 289(1)
Basic earnings per share (5) .66 1.37 1.63 .93
Diluted earnings per share (5) .66 1.36 1.62 .93
1999
Sales $3,799 $3,580 $3,610 $3,100
Gross profit 1,654 1,493 1,724 1,231
Net earnings 475(2) 235(3) 491 191(4)
Basic earnings per share (5) 1.51 .74 1.54 .59
Diluted earnings per share (5) 1.50 .73 1.52 .59
(1) Includes charges related to the sale and exit of a manufacturing
facility of $11 million, $12 million, $18 million, and $9 million,
which reduced net earnings by $7 million, $8 million, $12 million,
and $6 million in the first, second, third and fourth quarters,
respectively.
(2) Includes a gain of $95 million on the sale of The Image Bank, which
increased net earnings by $63 million; a gain of $25 million on
the sale of the Motion Analysis Systems Division, which increased net
earnings by $16 million; and $11 million of charges related to
the sale and exit of a manufacturing facility, which reduced net
earnings by $7 million.
(3) Includes $350 million of restructuring costs, which reduced net
earnings by $231 million.
(4) Includes $103 million of charges associated with business exits,
which reduced net earnings by $68 million.
(5) Each quarter is calculated as a discrete period and the sum of the
four quarters may not equal the full year amount.
67
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(Dollar amounts and shares in millions, except per share data)
2000 1999 1998 1997 1996
<C.
Sales from continuing
operations $13,994 $14,089 $13,406 $14,538 $15,968
Earnings from operations 2,214 1,990 1,888 130 1,845
Earnings from continuing
operations after tax 1,407(1) 1,392(2) 1,390(3) 5(5) 1,011(7)
Earnings from discontinued
operations after tax - - - - 277
Net earnings 1,407(1) 1,392(2) 1,390(3) 5(5) 1,288(7)
EARNINGS AND DIVIDENDS
Net earnings
- % of sales 10.1% 9.9% 10.4% 0.0% 8.1%
- % return on average
shareholders' equity 38.3% 35.2% 38.9% 0.1% 26.1%
Basic earnings per share 4.62 4.38 4.30 .01 3.82(8)
Diluted earnings per share 4.59 4.33 4.24 .01 3.76(8)
Cash dividends declared
- on common shares 533 560 570 577 539
- per common share 1.76 1.76 1.76 1.76 1.60
Common shares outstanding at
year end 290.5 310.4 322.8 323.1 331.8
Shareholders at year end 113,308 131,719 129,495 135,132 137,092
STATEMENT OF FINANCIAL
POSITION DATA
Working capital (9) $1,482 $ 838 $ 939 $ 909 $ 2,089
Properties - net 5,919 5,947 5,914 5,509 5,422
Total assets 14,212 14,370 14,733 13,145 14,438
Short-term borrowings 2,206 1,163 1,518 611 541
Long-term borrowings 1,166 936 504 585 559
Total shareholders' equity 3,428 3,912 3,988 3,161 4,734
SUPPLEMENTAL INFORMATION
Sales - Consumer Imaging $7,406 $ 7,411 $ 7,164 $ 7,681 $ 7,659
- Kodak Professional 1,706 1,910 1,840 2,272 2,367
- Health Imaging 2,185 2,120 1,526 1,532 1,627
- Other Imaging 2,697 2,648 2,876 3,053 4,315
Research and development
costs 784 817 922(4) 1,230(6) 1,028
Depreciation 738 773 737 748 837
Taxes (excludes payroll,
sales and excise taxes) 933 806 809 164 663
Wages, salaries and employee
benefits 3,726 3,962 4,306 4,985 5,110
Employees at year end
- in the U.S. 43,200 43,300 46,300 54,800 53,400
- worldwide 78,400 80,650 86,200 97,500 94,800
(see footnotes on next page)
68
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(footnotes for previous page)
(1) Includes charges related to the sale and exit of a manufacturing
facility of $50 million, which reduced net earnings by $33 million.
(2) Includes $350 million of restructuring charges, which reduced net
earnings by $231 million, and an additional $11 million of charges
related to this restructuring program, which reduced net earnings by
$7 million; $103 million of charges associated with business exits,
which reduced net earnings by $68 million; a gain of $95 million on
the sale of The Image Bank, which increased net earnings by $63
million; and a gain of $25 million on the sale of the Motion Analysis
Systems Division, which increased net earnings by $16 million.
(3) Includes $35 million of litigation charges, which reduced net
earnings by $23 million; $132 million of Office Imaging charges,
which reduced net earnings by $87 million; $45 million primarily
for a write-off of in-process R&D associated with the Imation
acquisition, which reduced net earnings by $30 million; a gain of
$87 million on the sale of NanoSystems, which increased net earnings
by $57 million; and a gain of $66 million on the sale of part of the
Company's investment in Gretag, which increased net earnings by $44
million.
(4) Includes a $42 million charge for the write-off of in-process R&D
associated with the Imation acquisition.
(5) Includes $1,455 million of restructuring costs, asset impairments
and other charges, which reduced net earnings by $990 million;
$186 million for a write-off of in-process R&D associated with the
Wang acquisition, which reduced net earnings by $123 million; and a
$46 million litigation charge, which reduced net earnings by $30
million.
(6) Includes a $186 million charge for the write-off of in-process
R&D associated with the Wang acquisition.
(7) Includes $358 million of restructuring costs, which reduced net
earnings by $256 million, and a $387 million loss related to the sale
of the Office Imaging business, which reduced net earnings by $252
million.
(8) Basic and diluted earnings per share from continuing operations were
$3.00 and $2.95, respectively.
(9) Excludes short-term borrowings.
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- --------------------------------------------------------------------------
PART III
ITEMS 10(a), 11 AND 12. DIRECTORS OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Responses to the above items, as contained in the Notice of 2001 Annual
Meeting and Proxy Statement, which will be filed within 120 days of the
Company's fiscal year end, are hereby incorporated by reference in this
Annual Report on Form 10-K.
ITEM 10(b). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers list is contained in PART I under the caption
"Executive Officers of the Registrant" on page 8.
- --------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None to report.
- --------------------------------------------------------------------------
70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page No.
(a) 1. Consolidated financial statements:
Report of independent accountants 31
Consolidated statement of earnings 32
Consolidated statement of financial position 33
Consolidated statement of shareholders' equity 34-35
Consolidated statement of cash flows 36-37
Notes to financial statements 38-66
2. Financial statement schedules:
II - Valuation and qualifying accounts 72
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 73 through 78. The management
contracts and compensatory plans and arrangements required
to be filed as exhibits to this form pursuant to Item 14(c)
of this report are listed on pages 74 through 78, Exhibit
Numbers (10)B - (10)X.
(b) Report on Form 8-K.
No reports on Form 8-K were filed or required to be filed during
the quarter ended December 31, 2000.
71
SIGNATURES
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:
Daniel A. Carp, Chairman, Robert H. Brust, Chief Financial
President and Chief Officer and Executive Vice
Executive Officer President
E. Mark Rajkowski
Controller
Date: March 13, 2001
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.
Richard S. Braddock, Director Durk I. Jager, Director
Daniel A. Carp, Director Debra L. Lee, Director
Martha Layne Collins, Director John J. Phelan, Jr., Director
Hector de J. Ruiz, Director Laura D'Andrea Tyson, Director
Alice F. Emerson, Director Richard A. Zimmerman, Director
Paul E. Gray, Director
Date: March 13, 2001
72
Schedule II
Eastman Kodak Company and Subsidiary Companies
Valuation and Qualifying Accounts
(in millions)
Balance at Additions Deductions Balance
Beginning Charged to Amounts at End of
of Period Earnings Written Off Period
Year ended December 31, 2000
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $104 $38 $80 $ 62
Reserve for loss on
returns and allowances 32 8 13 27
---- --- --- ----
TOTAL $136 $46 $93 $ 89
==== === === ====
From Long-Term Receivables
and Other Noncurrent
Assets
Reserve for doubtful
accounts $ 7 $ 4 $ 3 $ 8
==== === === ====
Year ended December 31, 1999
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $142 $32 $70 $104
Reserve for loss on
returns and allowances 27 27 22 32
---- --- --- ----
TOTAL $169 $59 $92 $136
==== === === ====
From Long-Term Receivables
and Other Noncurrent
Assets
Reserve for doubtful
accounts $ 10 $(2) $ 1 $ 7
==== === === ====
Year ended December 31, 1998
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $ 85 $61 $ 4 $142
Reserve for loss on
returns and allowances 27 13 13 27
---- --- --- ----
TOTAL $112 $74 $17 $169
==== === === ====
From Long-Term Receivables
and Other Noncurrent
Assets
Reserve for doubtful
accounts $ 10 $ 1 $ 1 $ 10
==== === === ====
73
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Exhibit
Number
(3) A. Certificate of Incorporation.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 3.)
B. By-laws, as amended through February 12, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, Exhibit 3.)
(4) A. Indenture dated as of January 1, 1988 between Eastman
Kodak Company as issuer of (i) 9 3/8% Notes Due 2003,
(ii) 9.95% Debentures Due 2018, (iii) 9 1/2% Notes Due 2008,
(iv) 9.20% Debentures Due 2021, and (v) 7.25% Notes Due 2005,
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.)
B. 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 A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 4.)
C. 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 A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 4.)
D. 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 A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit 4.)
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.
74
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number
(10) B. Eastman Kodak Company Insurance Plan for Directors.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 29, 1985, Exhibit 10.)
C. Eastman Kodak Company Deferred Compensation Plan for
Directors, as amended February 11, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1999, and the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
E. 1982 Eastman Kodak Company Executive Deferred Compensation
Plan, as amended effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999, and the
Eastman Kodak Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, Exhibit 10.)
G. Eastman Kodak Company 1990 Omnibus Long-term Compensation
Plan, as amended effective December 9, 1999.
(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 June 30, 1998, and the Quarterly Report on Form
10-Q for the quarterly period ended September 30,
1999, and the Eastman Kodak Company Annual Report on
Form 10-K for the fiscal year ended December 31, 1999,
Exhibit 10.)
75
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number
I. Eastman Kodak Company 1995 Omnibus Long-Term Compensation
Plan, as amended effective December 9, 1999.
(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, and
the Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999, and the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1999,
Exhibit 10.)
J. 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.)
K. Personal Umbrella Liability Insurance Coverage.
Eastman Kodak Company provides $5,000,000 personal umbrella
liability insurance coverage to its directors and 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.)
L. Kodak Executive Health Management Plan, as amended effective
January 1, 1995.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
76
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
M. George M. C. Fisher Employment Agreement dated October 27,
1993. $4,000,000 Promissory Note dated November 2, 1993.
$4,284,400 Promissory Note dated November 2, 1993. Notice
of Award of Restricted Stock dated November 11, 1993, as
amended. Notice of Award of Incentive Stock Options dated
November 11, 1993. Notice of Award of Non-Qualified Stock
Options dated November 11, 1993.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
Amendment No. 1 to Employment Agreement dated as of April 4,
1994.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994, Exhibit 10.)
Amendment No. 2 to Employment Agreement dated as of February
25, 1997. Notice of Award of Restricted Stock dated February
25, 1997. Notice of Award of Incentive Stock Options dated
February 25, 1997. Notice of Award of Non-Qualified Stock
Options dated February 25, 1997.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31,
1996.)
Amendment No. 3 to Employment Agreement dated as of
February 1, 2000.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31,
1999.)
Amendment No. 4 to Employment Agreement dated October, 2000. 79
O. Eastman Kodak Company 1997 Stock Option Plan, as amended
and restated effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.)
77
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number
P. Eric Steenburgh Agreement dated March 12, 1998.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998, Exhibit 10.)
Notice of Award of Restricted Stock Units dated
February 11, 2000 under the 2000 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, 2000, Exhibit 10.)
R. Eastman Kodak Company 2000 Omnibus Long-Term Compensation
Plan, as amended effective December 9, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, and the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, and the Eastman
Kodak Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
S. Eastman Kodak Company 2000 Management Variable Compensation
Plan, effective as of January 1, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, Exhibit 10.)
T. Eastman Kodak Company Executive Protection Plan, as adopted
effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
U. 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.)
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Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
V. Robert J. Keegan Agreement dated June 19, 1997.
Amendment, dated June 24, 1999, to Agreement dated
June 19, 1997.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
Amendment, dated July 10, 2000, to Agreement dated
June 19, 1997, as amended.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000, Exhibit 10.)
Agreement dated October 18, 2000. 83
W. Daniel A. Carp Agreement dated November 22, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
$1,000,000 Promissory Note dated March 2, 2001. 92
X. Robert H. Brust Agreement dated December 20, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Exhibit 10.)
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges. 95
(21) Subsidiaries of Eastman Kodak Company. 96
(23) Consent of Independent Accountants. 98
(99) Eastman Kodak Employees' Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended December 30, 2000
(to be filed by amendment).
79
Exhibit (10) M.
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Fourth Amendment"), made as of the XX day of
October, 2000 is intended to further amend an employment agreement, dated
as of the 27th day of October, 1993 and amended on April 4, 1994, February
25, 1997 and February 1, 2000, by and between George M.C. Fisher (the
"Executive") and Eastman Kodak Company (the "Company") hereinafter the
"Employment Agreement."
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement with respect to several post-retirement matters.
NOW, THEREFORE, based upon the mutual promises and conditions
contained herein, the Company and the Executive (individually a "Party"
and together the "Parties") do hereby agree that the Employment Agreement
will be amended as follows, effective as of the day and year first above
written:
1. Position
Subsection (a) of Section 3 of the Employment Agreement is amended in its
entirety to read as follows:
It is the intention of the Parties that effective December 1, 1993 and
continuing until December 7, 2000, the Executive will be elected and serve
as Chairman of the Board. The Executive, in carrying out his duties under
this Agreement, will report to the Board.
2. Effect on Compensation and Benefits
It is the Parties' intent that the amendment authorized under Section 1 of
this Fourth Amendment not have any adverse effect upon any compensation or
benefits payable to the Executive under the terms of the Employment
Agreement. In the event this amendment does have such an adverse effect
upon the Executive, the Company agrees to take whatever action is
necessary to ensure that the Executive is kept whole and, therefore, not
disadvantaged as a result of the amendment.
3. 2000 Management Variable Compensation Plan Award
Subsection (a) of Section 5 is amended to add the following as the last
sentence of the subsection:
The Executive's award under the Management Variable Compensation Plan
for the 2000 performance period will be determined based on the
Executive Compensation and Development Committee's final approved
Corporate Management Performance Process ("MPCP") corporate results
for 2000 and the Executive's target award for the period will be 75%
of his base salary.
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4. Constructive Termination Without Cause
Notwithstanding anything contained in Subsection (g)(iii) of Section 1 of
the Employment Agreement to the contrary, the Parties agree that the
amendments authorized under Sections 1 and 3 of this Fourth Amendment will
not be events permitting the Executive to terminate his employment due to
a "Constructive Termination Without Cause" under Section 11 of the
Employment Agreement.
5. Office and Secretary
Following the Executive's termination of employment, the Company will at
its expense provide the Executive a furnished office and a full-time
secretary for as long as the Executive desires. The location of the
office will be at the Company's headquarters in Rochester, NY. To the
extent the Executive is subject to Federal, state or local income,
employment or payroll taxes as a result of these arrangements, the Company
will "gross up" the resulting income to the Executive at the applicable
supplemental tax rate.
6. Attending Association Meetings
Following the Executive's termination of employment, the Executive will,
for each of the associations named on attached Addendum A, be permitted to
use the Company's aircraft to attend the association's meetings until the
Executive's current position with the association either expires or
renews. In addition, the Company agrees to reimburse the Executive, in
accordance with the terms of the Company's travel reimbursement policy,
for the other associated travel expenses the Executive incurs to attend
these meetings. To the extent the Executive is subject to Federal, state
or local income, employment or payroll taxes as a result of his use of the
Company aircraft for these purposes or the reimbursement of his associated
travel expenses, the Company will "gross up" the resulting income to the
Executive at the applicable supplemental tax rate.
When following his termination of employment, the Executive attends a
meeting of the Advisory Board of the Tsinghua University School of
Economics & Management (Beijing, China), the Company will, in accordance
with its travel reimbursement policy, reimburse the Executive for the cost
of the commercial air travel expenses and other associated travel expenses
he incurs to attend the meeting. To the extent the Executive is subject
to Federal, state or local income, employment or payroll taxes as a result
of these expense reimbursements, the Company will "gross up" the resulting
income to the Executive at the applicable supplemental tax rate.
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7. Personal Use of Company Aircraft
During the first quarter of 2001, the Executive will be permitted to use
the Company's aircraft between Rochester, NY and Phoenix, AZ and/or
Chicago, IL for the purpose of moving his office and personal effects.
During the two year period immediately following his termination of
employment, the Executive will be permitted to use for personal purposes
the Company's aircraft in order to make up to eight round-trip domestic
flights.
When using the Company aircraft under the terms of this Section 7, the
Executive will be required to comply with the Company's air travel
policies. This use of the Company aircraft by the Executive will be
treated as ordinary income to him, be subject to all income and payroll
tax withholding required to be made under all applicable laws and not be
"grossed up" for tax purposes or be given any other special tax treatment
by the Company.
8. Funding of Supplemental Pension
The Parties agree that Subsection (f) of Section 9 of the Employment
Agreement is deleted in its entirety.
9. Remaining Terms of Employment Agreement
All of the remaining terms of the Employment Agreement, to the extent they
are not inconsistent with the terms of this Fourth Amendment, will remain
in full force and effect, without amendment or modification.
IN WITNESS WHEREOF, the Parties have executed this Fourth Amendment
as of the day and year first above written.
Eastman Kodak Company
By: (signature)
Michael P. Morley
Title: Senior Vice President and
Director, Human Resources
(signature)
George M.C. Fisher
82
ADDENDUM A
ACPTN (The President's Advisory Council for Trade Policy and Negotiation)
Allen & Company Sun Valley Conference
National Academy of Engineering Board
The Business Counsel
World Wildlife Fund National Council and/or Board
83
Exhibit (10) V.
October 18, 2000
Mr. Robert J. Keegan
RE: Termination of Employment
Dear Bob:
The purpose of this letter is to confirm certain aspects of your
termination of employment from Eastman Kodak Company ("Kodak"). Once
signed by both parties, this letter shall constitute an agreement between
Kodak and you. For purposes of this letter the term "Company" will
collectively refer to Kodak and all its affiliates.
1. Termination Date
It is hereby acknowledged that you voluntarily terminated your employment
from Kodak on September 30, 2000 (the "Termination Date").
2. Stock Options
Subject to your satisfaction of the terms of this letter agreement, your
termination of employment will, for purposes of any vested Kodak stock
options held by you on the Termination Date, be treated as an "Approved
Reason." Thus, these vested stock options will not be forfeited by virtue
of your voluntary termination of employment. All of your unvested stock
options will, however, be forfeited as of the Termination Date.
3. Management Variable Compensation Plan
Subject to your satisfaction of the terms of this letter agreement, you
will remain eligible for an award under the Management Variable
Compensation Plan ("MVCP") for the 2000 Performance Period if awards are
paid for such period. Any award earned under the Plan will be pro-rated
based on your length of service during the 2000 Performance Period and
paid in 2001 at the same time the plan's other participants receive their
awards for the 2000 Performance Period. The payment of any award to you
will be based on corporate and Consumer Imaging's performance during the
2000 Performance Period.
You hereby acknowledge and agree that the Company's determination with
regard to the amount and payment of any MVCP award for the 2000
Performance Period will be final and binding upon you, and any other
person having or claiming to have any right or interest on your behalf in
or under the plan, and that such determination will not give rise to any
claim against the Kodak or its affiliates or their respective directors,
officers or employees unless a court of competent jurisdiction determines
that Kodak acted arbitrary or capricious.
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4. Benefits Not Benefits Bearing
In no event shall any of the benefits payable under this letter agreement
be "benefits bearing." In other words, the amount of these benefits will
not be taken into account, nor considered for any reason, for purposes of
determining any Company provided benefits or compensation to which you are
or may become eligible.
5. Release
In partial consideration for the benefits provided to you under this
letter agreement, you hereby agree to execute the Agreement and Release
annexed hereto as Addendum A. In the event you either fail to sign or,
once signed, make an effective revocation of Addendum A, you will not be
entitled to any of the benefits under this letter agreement.
6. Non-Solicitation of Employees or Customers
In partial consideration for the benefits under this letter agreement, you
agree that during the two (2) year period immediately following the
Termination Date, you will not directly or indirectly recruit, solicit or
otherwise induce or attempt to induce any of Kodak's employees or
independent contractors to terminate their employment or contractual
relationship with Kodak or work for you or any other entity in any
capacity, or solicit or attempt to solicit the business or patronage or
any of Kodak's actual or prospective clients, customers, or accounts with
respect to any technologies, services, products, trade secrets, or other
matters in which the Company is active.
7. Injunctive Relief
You acknowledge by accepting the benefits under this letter agreement that
any breach or threatened breach by you of any term of Section 6 cannot be
remedied solely by the recovery of damages or the withholding of benefits
and Kodak will therefore be entitled to an injunction against such breach
or threatened breach without posting any bond or other security. Nothing
herein, however, will prohibit Kodak from pursuing, in connection with an
injunction or otherwise, any other remedies available at law or equity for
such breach or threatened breach, including the recovery of damages.
8. Miscellaneous
A. Confidentiality. You agree to keep the existence and content of
this letter confidential except that you may review it with your
attorney, financial advisor or spouse, or with me or my designee.
B. Unenforceability. If any portion of this letter agreement is
deemed to be void or unenforceable by a court of competent
jurisdiction, the remaining portions will remain in full force
and effect to the maximum extent allowed by law. The parties
intend and desire that each portion of this letter agreement be
given the maximum possible effect allowed by law.
85
C. Headings. The heading of the several sections of this letter
agreement have been prepared for convenience and reference only
and will not control, affect the meaning, or be taken as the
interpretation of any provision of this letter agreement.
D. Applicable Law. This letter agreement, and its interpretation
and application, will be governed and controlled by the laws of
the State of New York, applicable as though to a contract made in
New York by residents of New York and wholly to be performed in
New York without giving effect to principles of conflicts of
laws.
E. Amendment. This letter agreement may not be changed, modified,
or amended, except in a writing signed by both you and Kodak
which expressly acknowledges that it is changing, modifying or
amending this letter agreement.
F. Forfeiture. In the event that you violate any provision of this
letter agreement, including Addendum "A", or your Eastman Kodak
Company Employee's Agreement, in addition to, and not in lieu of,
any other remedies that Kodak may pursue against you, no further
benefits will be made to you hereunder and you agree to
immediately repay all monies previously paid to you pursuant to
this letter agreement. In such event all other provisions of
this letter agreement will remain in full force and effect as
though the breach had not occurred.
Your signature below means that:
1. You have had ample opportunity to discuss the terms and
conditions of this letter agreement with an attorney and/or
financial advisor of your choice and as a result fully understand
its terms and conditions; and
2. You accept the terms and conditions set forth in this letter
agreement; and
3. This letter agreement supersedes and replaces any and all
agreements or understandings whether written or oral that you may
have with the Company, concerning the subject matter hereof;
except, however, this letter agreement does not supersede or
replace your Eastman Kodak Company Employee's Agreement.
86
If you find the foregoing acceptable, please sign your name on the
signature line provided below and on the attached Agreement and Release.
Please note that your signature on the Agreement and Release must be
notarized in front of a notary. Once signed, please return this letter
agreement and the Agreement and Release directly to my attention.
Very truly yours,
Michael P. Morley
MPM:llh
Enclosure
Signed: (signature)
Robert J. Keegan
Dated:
87
ADDENDUM A
AGREEMENT, WAIVER AND RELEASE
NOTICE: YOU ARE ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS AGREEMENT.
This Agreement, Waiver and Release (the "Agreement") is a contract between
the undersigned employee ("you") who terminated employment on the 30th day
of September, 2000 and your employer, the Eastman Kodak Company ("Kodak").
1. Benefits
In consideration for signing this Agreement, you will receive the benefits
(the "Termination Benefits") described in the letter agreement between
yourself and Kodak dated October 18, 2000, to which this Agreement is
attached as Addendum A.
2. Release
In consideration for the Termination Benefits, you hereby release and
discharge Eastman Kodak Company (Kodak), its parent corporations,
subsidiaries, affiliates, successors and assigns and their respective
directors, officers, employees and agents (hereinafter collectively
referred to as the "Releasees"), both individually and in their official
capacity, from all claims, actions and causes of action of any kind, which
you, or your agents, executors, heirs, or assigns ever had, now have, or
may have, whether known or unknown, as a result of your employment by or
termination of employment from Kodak. This Agreement includes, but is not
limited to, the following: any action or cause of action asserted or which
could have been asserted under the Age Discrimination In Employment Act of
1967, Title VII of the Civil Rights Act of 1964, the New York Human Rights
Law, the New York Labor Law, the Employee Retirement Income Security Act,
the Americans with Disabilities Act, the Fair Labor Standards Act, the
National Labor Relations Act or the Equal Pay Act, all as amended; claims
for wrongful discharge, unjust dismissal, or constructive discharge; claims
for breach of any alleged oral, written or implied contract of employment;
claims for salary, severance payments, bonuses or other compensation of any
kind; claims for benefits; claims for libel, slander, defamation and
attorneys' fees; and any other claims under federal, state or local
statute, law, rule or regulation.
BY SIGNING THIS AGREEMENT, YOU GIVE UP ANY RIGHT YOU MAY HAVE TO BRING A
LAWSUIT OR RECEIVE A RECOVERY ON ANY CLAIM AGAINST KODAK AND THOSE
ASSOCIATED WITH KODAK BASED ON ANY ACTIONS, FAILURES TO ACT, STATEMENTS, OR
EVENTS OCCURRING PRIOR TO THE DATE OF THIS AGREEMENT, INCLUDING CLAIMS THAT
IN ANY WAY ARISE FROM OR RELATE TO YOUR EMPLOYMENT WITH KODAK OR THE
TERMINATION OF THAT EMPLOYMENT.
3. Release Exclusions
Excluded from the scope of this Release are claims for the compensation and
benefits described on Exhibit "A," a copy of which is annexed hereto and
made a part hereof.
88
4. Termination Date
You hereby acknowledge that your employment with Kodak terminated on
September 30, 2000.
5. No Future Lawsuits
In addition to any and all other obligations you may have under the terms
of this Agreement, you also separately and independently covenant and agree
that you will not sue Releasees upon any of the claims that you have
released in Section 2 of this Agreement. You further agree not to assist
any other person or entity in bringing any lawsuit against Kodak in any
state or federal court unless such restriction is prohibited by law.
6. Cooperation
You understand that following your termination of employment, Kodak may
need your continued cooperation and involvement with various pieces of
litigation and other legal matters which are pending at such time or which
may arise thereafter. In further consideration of the Termination
Benefits, you agree, at Kodak's request from time to time, to cooperate
with Kodak in its efforts to defend and/or pursue any such litigation or
other legal matters. You will provide this assistance to Kodak at no
additional remuneration beyond the Termination Benefits. When performing
these services at Kodak's request, except where prohibited by law, Kodak
will reimburse you for reasonable travel and lodging expenses that you
incur upon submission of documentation acceptable to Kodak. By way of
illustration and not by way of limitation, the types of services that may
be requested of you under this Section 6 include: attending strategy
sessions, attending preparations for trial, appearing at depositions,
executing affidavits and testifying at trials.
7. Return of Kodak Property
Whether or not you sign this Agreement, you are reminded that prior to your
termination of employment you must have returned to Kodak, (i) all
documents, and other tangible items, and any copies, that are in your
possession or control and which contain confidential information in
written, magnetic or other form and shall have not given such documents,
items, or copies to anyone other than another Kodak employee; and (ii) all
other Kodak property within your possession including, but not limited to,
office keys, identification badges or passes, Kodak credit cards,
automobiles, and computer equipment and software. You understand and
acknowledge your continuing obligation regarding the disclosure of
confidential, proprietary and trade secret information which you have
obtained during your employment with Kodak.
89
8. Eastman Kodak Company Employees' Agreement
Whether or not you sign this Agreement, you are reminded that the Eastman
Kodak Company Employees' Agreement (the "Employees' Agreement") entered
into between Kodak and yourself remains in full force and effect after
termination of your employment. Under the Employees' Agreement, you
reaffirmed your obligation not to disclose Kodak trade secrets,
confidential or proprietary information. Also, under the terms of the
Employee's Agreement, you agreed not to engage in work or activities on
behalf of a competitor of Kodak's in the field in which you were employed
by Kodak for a period following termination of your employment equal to the
total number of months you were employed by Kodak, but in no event more
than twenty four (24) months.
9. Breach
You agree that if you violate any part of this Agreement or the Employees'
Agreement described in Section 8 above, you will be responsible for all
costs incurred by Kodak that flow from that violation, including Kodak's
legal fees and other costs associated with any legal action that arises
from that violation. You also agree that if you violate any part of this
Agreement or the Employees' Agreement, you will not be entitled to the
Termination Benefits.
You further agree that any breach or threatened breach by you of this
Agreement cannot be remedied solely by the recovery of damages and Kodak
shall therefore be entitled to any injunction against such breach or
threatened breach without posting any bond or other security. Nothing
herein, however, shall be construed as prohibiting Kodak from pursuing, in
connection with an injunction or otherwise, any other remedies available at
law or equity for such breach or threatened breach, including the recovery
of damages.
10. Period of Review and Other Considerations
a. Date of Receipt. You acknowledge that you received this Agreement on
or prior to November 1, 2000.
b. Attorney Consultation. You acknowledge that you have had the
opportunity to consult with an attorney of your choice concerning this
Agreement.
c. Period of Review. You acknowledge that you have been given at least
21 days in which to consider signing this Agreement. You understand
that in the event you execute this Agreement within less than 21 days
of the date of its delivery to you, you acknowledge that such decision
was entirely voluntary and that you have had the opportunity to
consider this Agreement for the entire 21 day period.
d. Entire Agreement. This Agreement, including in particular its
reference regarding the continuing effectiveness of the Employees'
Agreement, along with the attached Exhibit "A" sets forth the entire
agreement between Kodak and yourself and supersedes and renders null
and void any and all prior or contemporaneous oral or written
understandings, statements, representations or promises regarding the
subject matter hereof. This Agreement does not, however, supersede
the Employees' Agreement which remains in full force and effect.
90
e. Governing Law. This Agreement shall be construed and governed by the
laws of the State of New York without giving effect to principles of
conflicts of laws. Disputes arising under this Agreement shall be
adjudicated within the exclusive jurisdiction of a state or federal
court located in Monroe County, New York. Neither party waives any
right it may have to remove such an action to the United States
Federal District Court located in Monroe County, New York. If any
provision of this Agreement including, but not limited to, the waiver
of claims under any particular statute, should be deemed
unenforceable, the remaining provisions shall, to the extent possible,
be carried into effect, taking into account the general purpose and
spirit of this Agreement.
f. Revocation of Agreement. You understand that you have the right to
revoke this Agreement within 7 days of your signing it, and that this
Agreement shall not become effective or enforceable until this 7 day
period has expired. To revoke this Agreement, you agree to notify in
writing: Senior Vice President and Director, Human Resources, Eastman
Kodak Company, 343 State Street, Rochester, NY 14650. Unless so
revoked, this Agreement will be effective at 5:00 p.m. on such seventh
day. You agree that if you exercise your right to revoke this
Agreement within 7 days, your termination of employment will
nevertheless remain effective, you will not be entitled to the
Termination Benefits, and you will immediately return to Kodak any
consideration you have already received.
YOU HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL THE PROVISIONS OF THIS
AGREEMENT, AND YOU ARE ENTERING INTO THIS AGREEMENT VOLUNTARILY. YOU
ACKNOWLEDGE THAT THE CONSIDERATION YOU ARE RECEIVING IN EXCHANGE FOR
EXECUTING THIS AGREEMENT IS GREATER THAN THAT WHICH YOU WOULD BE ENTITLED
TO IN THE ABSENCE OF THIS AGREEMENT. YOU HAVE NOT RELIED UPON ANY
REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS
AGREEMENT.
WITNESS MY SIGNATURE, THIS XX DAY OF XXXXX, 2000.
(signature)
Robert J. Keegan
Sworn to before me this
XX day of XXXXX, 2000.
(signature)
Notary Public
WITNESS MY SIGNATURE, THIS XX DAY OF XXXXX, 2000.
(signature)
Employer Representative Signature
Sworn to before me this
XX day of XXXXX, 2000.
(signature)
Notary Public
91
Exhibit "A"
1. Claims for benefits to which you may be eligible under the terms of
the following benefit plans, as such plans may be amended from time to
time: Kodak Retirement Income Plan or Eastman Kodak Employees' Savings
and Investment Plan.
2. Claims for expenses incurred by you or your covered family members
prior to your termination of employment under the Kodak Medical
Assistance Plan or the Kodak Dental Plan.
3. Claims for accrued, but unpaid and unused, benefits under the Vacation
Plan.
4. Any claims that may arise after the date this Agreement is executed
unrelated to your employment or the termination of your employment.
5. Claims for benefits owing to you under the letter agreement between
you and Kodak dated October 18, 2000.
6. Claims for benefits owing to you under the letter agreements between
you and Kodak dated June19, 1997, June 24, 1999 and July 10, 2000.
7. Claims for benefits under the Eastman Kodak Company 1982 Executive
Deferred Compensation Plan.
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Exhibit (10) W.
$1,000,000.00
Rochester, New York
March 2, 2001
PROMISSORY NOTE
The undersigned (hereinafter, jointly and severally, referred to as
"Maker"), for value received, hereby promises to pay to the Eastman Kodak
Company (hereinafter referred to as "Payee") the principal sum of One
Million and 00/100 Dollars ($1,000,000.00), together with interest on the
outstanding principal balance at the per annum rate of 5.07%, compounded
annually. Unless required to be repaid sooner under this Note, the entire
principal sum, all interest accrued thereon, and all other amounts due the
holder hereunder shall be repaid in a single payment on March 1, 2006.
The entire principal balance of the Note will be used by the Maker
only to acquire a personal residence (hereinafter referred to as the
"Property").
Payment of this Note shall be made to Payee at 343 State Street,
Rochester, New York, c/o Senior Vice President and Director, Human
Resources, or such other place designated in writing by the holder hereof
to the Maker, in such coin or currency of the United States of America as
at the time of payment is legal tender for the payment of public and
private debts.
The entire unpaid balance hereof, all interest accrued thereon, and
all other amounts due the holder hereunder shall become immediately due and
payable upon the occurrence of any of the following events:
(a) The Maker's termination of employment from the Payee, regardless
of the reason for such termination;
(b) The sale, transfer or other disposition of all or any part of the
Property, or any right in the Property;
(c) Failure of the Maker to make any payment hereunder when and as
the same shall become due, which failure shall have continued for a period
of 10 days, or the Maker's default in any of his other obligations under
this Note;
(d) The insolvency of, or the making of an assignment for the benefit
of creditors of, or the appointment of a receiver of all or a material
amount of the Property of, or the dissolution of, or if a natural person,
the death of, the Maker, and/or any guarantor hereof;
(e) There shall have been a default under any mortgage, indenture,
loan agreement or other instrument evidencing direct or contingent
indebtedness of the Maker, or of any guarantor, which shall have resulted
in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable (provided that
if such default shall have been cured by the Maker or the guarantor(s), as
the case may be, or waived by the holders of such indebtedness, the default
hereunder by reason thereof shall no longer exist);
93
(f) The Maker or any guarantor shall have
(i) admitted in writing the inability to pay debts generally as
they become due,
(ii) filed a petition in bankruptcy or a petition to take
advantage of any insolvency or debtor relief act,
(iii) made an assignment for the benefit of creditors,
(iv) consented to the appointment of a receiver for all or any
substantial part of the Property,
(v) had entered an order for relief under the Federal Bankruptcy
Code, or
(vi) filed a petition or answer seeking reorganization or
arrangement under the Federal Bankruptcy Laws or any other applicable law
or statute;
(g) A court of competent jurisdiction shall have entered an order,
judgment, or decree appointing a receiver of the Maker or any guarantor, or
of the whole or any substantial part of the property of any of them, or
approving a petition filed against the Maker or any guarantor seeking its
reorganization or arrangement under the Federal Bankruptcy Laws or any
other applicable law or statute of the United States of America, or any
State thereof, and such order, judgment or decree shall not be vacated or
set aside or stayed within thirty (30) days from the date of entry thereof;
and
(h) Under the provisions of any law for the relief or aid of debtors,
any court of competent jurisdiction shall have assumed custody or control
of the Maker or any guarantor, or of the whole or any substantial part of
the property of the Maker or any guarantor, and such custody or control
shall not have been terminated or stayed within thirty (30) days from the
date of assumption of such custody or control.
In the event of any such default referenced above, the Maker agrees to
pay in addition to other amounts due, all costs and expenses (including
reasonable attorneys' fees, whether incurred within or apart from any legal
action or proceeding) incident to the collection or enforcement, or
attempted collection or enforcement, of any sums outstanding under this
Note. All payments received shall be applied first to such costs and
expenses, if any, second to interest and then to principal.
Failure on the part of any holder of this Note to exercise any of its
rights hereunder shall not be deemed a waiver of such rights.
The Maker hereby waives presentment, demand, notice, protest, and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
The principal sum may be prepaid in whole or in part on any payment
date without premium or penalty.
This Note shall be governed by and construed in accordance with the
laws of the State of New York.
94
The undersigned, if more than one, agree to be jointly and severally
liable hereunder, and the term "undersigned" as used herein, shall mean any
one or more of them.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the day
and year first written above.
(signature)
Daniel A. Carp
STATE OF NEW YORK )
) ss.:
COUNTY OF MONROE )
On the XX day of XXXXX in the year 2001 before me, the undersigned, a
Notary Public in and for said State, personally appeared Daniel A. Carp,
personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his capacity
and that by his signature on the instrument, the individual, or the person
upon behalf of which the individual acted, executed the instrument.
(signature)
Notary Public
95
Exhibit (12)
Eastman Kodak Company and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(in millions, except for ratios)
Year Ended December 31
2000 1999 1998 1997 1996
Earnings from
continuing operations
before provision for
income taxes $2,132 $2,109 $2,106 $ 53 $1,556
Add:
Interest expense 178 142 110 98 83
Share of interest expense
of 50% owned companies 16 8 7 5 2
Interest component of
rental expense (1) 52 47 50 61 81
Amortization of
capitalized interest 28 24 24 23 22
------ ------ ------ ------ ------
Earnings as adjusted $2,406 $2,330 $2,297 $ 240 $1,744
====== ====== ====== ====== ======
Fixed charges
Interest expense 178 142 110 98 83
Share of interest expense
of 50% owned companies 16 8 7 5 2
Interest component of
rental expense (1) 52 47 50 61 81
Capitalized interest 40 36 41 33 29
------ ------ ------ ------ ------
Total fixed charges $ 286 $ 233 $ 208 $ 197 $ 195
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 8.4x 10.0x(2) 11.0x 1.2x(3) 8.9x(4)
<FN>
(1) Interest component of rental expense is estimated to equal 1/3 of
such expense, which is considered a reasonable approximation of the
interest factor.
(2) The ratio is 11.5x before deducting restructuring costs of $350
million.
(3) The ratio is 8.6x before deducting restructuring costs, asset
impairments and other charges of $1,455 million.
(4) The ratio is 12.8x before deducting restructuring costs of $358
million and the loss on the sale of the Office Imaging business of
$387 million.
96
Exhibit (21)
Subsidiaries of Eastman Kodak Company
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company New Jersey
Eastman Kodak International
Sales Corporation Barbados
Torrey Pines Realty Company, Inc. Delaware
Cinesite, Inc. Delaware
FPC Inc. California
Qualex Inc. Delaware
Qualex Canada Photofinishing Inc. Canada
PictureVision Inc. Delaware
Eastman Gelatine Corporation Massachusetts
Eastman Canada Inc. Canada
Kodak Canada Inc. Canada
Kodak (Export Sales) Ltd. Hong Kong
Kodak Argentina S.A.I.C. Argentina
Kodak Chilena S.A.F. Chile
Kodak Americas Miami Export Operations (KAMEO) Delaware
Kodak Panama, Ltd. New York
Kodak Americas, Ltd. New York
Kodak Venezuela, S.A. Venezuela
Kodak (Near East), Inc. New York
Kodak (Singapore) Pte. Limited Singapore
Kodak Philippines, Ltd. New York
Kodak Limited England
Cinesite (Europe) Limited England
Kodak India Limited India
Kodak International Finance Ltd. England
Kodak Polska Sp.zo.o Poland
Kodak AO Russia
Kodak Ireland Limited Ireland
Kodak-Pathe SA France
Kodak A.G. Germany
E. K. Holdings, B.V. Netherlands
Kodak Brasileira C.I.L. Brazil
Kodak Korea Limited South Korea
Kodak Far East Purchasing, Inc. New York
Kodak New Zealand Limited New Zealand
Kodak (Australasia) Pty. Ltd. Australia
Kodak (Kenya) Limited Kenya
Kodak (Egypt) S.A.E. Egypt
Kodak (Malaysia) S.B. Malaysia
Kodak Taiwan Limited Taiwan
97
Exhibit (21)
(Continued)
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company
Eastman Kodak International Capital
Company, Inc. Delaware
Kodak de Mexico S.A. de C.V. Mexico
Kodak Export de Mexico, S. de R.L. de C.V. Mexico
Kodak Mexicana S.A. de C.V. Mexico
N.V. Kodak S.A. Belgium
Kodak a.s. Denmark
Kodak Norge A/S Norway
Kodak SA Switzerland
Kodak (Far East) Limited Hong Kong
Kodak (Thailand) Limited Thailand
Kodak G.m.b.H. Austria
Kodak Kft. Hungary
Kodak Oy Finland
Kodak Nederland B.V. Netherlands
Kodak S.p.A. Italy
Kodak Portuguesa Limited New York
Kodak S.A. Spain
Kodak AB Sweden
Eastman Kodak S.A. Switzerland
Eastman Kodak (Japan) Ltd. Japan
Kodak Japan Ltd. Japan
Kodak Imagex K.K. Japan
K.K. Kodak Information Systems Japan
Kodak Japan Industries Ltd. Japan
Kodak (China) Limited Hong Kong
Kodak Electronic Products (Shanghai) Co., Ltd. China
BASO Precision Optics, Ltd. Taiwan
K.H. Optical Company Limited Hong Kong
Kodak Photographic Equipment (Shanghai) Co., Ltd. China
Kodak (China) Co. Ltd. China
Kodak (WUXI) Co. Ltd. China
Kodak Xiamen Ltd. China
Note: Subsidiary Company names are indented under the name of the parent
company.
98
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-
48258, No. 33-49285, No. 33-64453, No. 333-31759, No. 333-43526, and No.
333-43524), Form S-4 (No. 33-48891), and S-8 (No. 33-5803, No. 33-35214,
No. 33-56499, No. 33-65033, No. 33-65035, No. 333-57729, No. 333-57659,
No. 333-57663, No. 333-57665, and No. 333-23371) of Eastman Kodak Company
of our report dated January 15, 2001, appearing on page 31 of this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Rochester, New York
March 13, 2001