1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 30, 1994
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 1-87 16-0417150
(State of incorporation) (Commission File Number) (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
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective November 30, 1994, the Company completed the divestiture of its
Clinical Diagnostics Division to Johnson & Johnson for $1.008 billion in cash
and the divestiture of the do-it-yourself products business of L&F Products to
Forstmann Little & Co. for $700 million in cash. Details of the divestitures
are contained in a press release issued by the Company on December 1, 1994 and
set forth herein on page 63.
ITEM 5. OTHER EVENTS
The Company is filing the financial data, consolidated financial statements,
financial statement schedules and additional data detailed below to provide
historical financial information excluding the results of the following
non-imaging health businesses which the Company announced on May 3, 1994 its
intent to divest: the pharmaceutical and consumer health businesses of
Sterling Winthrop Inc., the household products and do-it-yourself products
businesses of L&F Products and the Clinical Diagnostics Division. The
pharmaceutical business of Sterling Winthrop Inc. was divested effective
October 1, 1994, the consumer health business of Sterling Winthrop Inc. was
divested effective October 31, 1994, the do-it-yourself products business of L&F
Products was divested effective November 30, 1994 and the Clinical Diagnostics
Division was divested effective November 30, 1994.
The information on pages 4-8 and 21-62 constitutes restatement of financial
information previously filed to exclude the results of the non-imaging health
businesses. To facilitate comparisons for the remainder of 1994, restated
Sales and Earnings data for the fourth quarter and total year 1993 to reflect
the new basis of two reporting segments are set forth on pages 19-20.
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Page No.
1. Financial Data of Eastman Kodak Company for year ended
December 31, 1993:
Business 4- 8
Selected Financial Data 8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
2. Consolidated financial statements of Eastman Kodak Company
for year ended December 31, 1993:
Report of independent accountants 21
Consolidated statement of earnings 22-24
Consolidated statement of retained earnings 24
Consolidated statement of financial position 25
Consolidated statement of cash flows 26
Notes to financial statements 27-47
Consent of independent accountants 49
3. Financial statement schedules of Eastman Kodak Company for
year ended December 31, 1993:
I - Marketable securities 50
II - Amounts receivable from employees 51
V - Properties 52
VI - Accumulated depreciation of properties 53
VIII - Valuation and qualifying accounts 54
IX - Short-term borrowings 55
X - Supplementary consolidated statement of earnings
information 56
All other schedules have been omitted because they are not applicable
or the information required is shown in the financial statements or
notes thereto.
4. Additional data required to be furnished for Eastman Kodak
Company for year ended December 31, 1993:
- Computation of Earnings Per Common Share,
Exhibit (11) 57-59
- Computation of Ratio of Earnings to Fixed Charges,
Exhibit (12) 60
- Subsidiaries of Eastman Kodak Company, Exhibit (22) 61-62
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma consolidated financial statements of the Company for the year
ended December 31, 1993, excluding the results of the non-imaging health
businesses (including Sterling Winthrop Inc.) that the Company is
divesting, are set forth at Item 7 of Current Report on Form 8-K dated
June 30, 1994 and filed October 17, 1994, as amended by Amendment No. 1
to Current Report on Form 8-K dated June 30, 1994 and filed
October 21, 1994.
(c) Filed herewith as Exhibit 10(A), pages 65 to 73, is Amendment No. 1 to
Asset Purchase Agreement among the Company and L&F Products Inc. and
Sterling Winthrop Inc. and MTF Acquisition Corp. dated as of November 30,
1994, and as Exhibit 10(B), pages 74 to 84, is the Amendement to Asset
Purchase Agreement between the Company and Johnson & Johnson dated
November 30, 1994.
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EXHIBIT 1 - FINANCIAL DATA
BUSINESS
Eastman Kodak Company (Kodak or the Company) is engaged primarily in
developing, manufacturing, and marketing imaging and information systems.
In conjunction with the Company's announced intention to refocus its attention
on its consumer and commercial imaging businesses, the Company has changed its
segments for financial reporting purposes, effective with the second quarter
of 1994. The Consumer Imaging business unit, which was previously reported in
the former Imaging segment, is now reported as a separate segment. The new
Commercial Imaging segment includes the other business units from the former
Imaging segment, the business units from the former Information segment,
digital and applied imaging operations and the Health Sciences business unit,
which was previously included in the Health segment. Data for prior periods
have been restated to conform with the 1994 presentation.
Kodak's sales, earnings and identifiable assets by industry segment for the
past three years are shown in Segment Information on page 42.
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CONSUMER IMAGING SEGMENT
Sales of consumer imaging segment products, including intersegment sales, for
the past three years were:
(in millions) 1993 1992 1991
$5,292 $5,414 $5,135
The products of the consumer imaging segment are used for capturing, recording
or displaying a consumer originated image. For example, traditional amateur
photography requires, at a minimum, a camera, film, and photofinishing.
Photofinishing requires equipment and supplies, including chemicals and paper
for prints.
Kodak manufactures and markets various components of imaging systems. For
amateur photography, Kodak supplies films, photographic papers, processing
services, photographic chemicals, cameras and projectors. Recent imaging
products developed by Kodak include new generations of films, cameras,
photographic papers and single-use cameras.
Marketing and Competition. Kodak's consumer imaging products and services are
distributed 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 dealers. Independent retail outlets handling
Kodak amateur products total many thousands. In a few areas abroad, Kodak
products are marketed by independent national distributors.
Kodak's advertising programs actively promote its 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 imaging markets is strong
throughout the world. Many large and small companies offer similar 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.
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 photographic film and paper manufacturing. Digital electronics
are becoming more integral in all products' offerings.
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COMMERCIAL IMAGING SEGMENT
Sales of commercial imaging segment products for the past three years were:
(in millions) 1993 1992 1991
$7,382 $7,592 $7,301
The commercial imaging segment consists of businesses that serve the imaging
and information needs of commercial customers. Products in this segment are
used to capture, store, process and display images and information in a
variety of forms.
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Kodak products for the commercial imaging segment include films, photographic
papers, photographic plates, chemicals, processing equipment and audiovisual
equipment, as well as copiers, graphic arts films, microfilm products,
applications software, printers and other business equipment and service
agreements to support these products. These products serve professional
photofinishers, professional photographers, customers in the health care
industry, customers in motion picture, television, commercial printing and
publishing, office automation and government markets. Recent commercial
imaging products developed by Kodak include commercial imaging applications
for the recently introduced photo CD system.
Marketing and Competition. Kodak's commercial imaging products and services
are distributed through a variety of channels. The Company also sells and
leases business equipment directly to users. Most sales of the commercial
imaging segment, however, are made through dealers.
Kodak's commercial imaging products and services compete with similar products
and services of other small and large companies. Strong competition exists
throughout the world. Many large and small companies offer similar 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.
Raw Materials. The raw materials used by the commercial imaging segment are
many and varied and generally available. Silver is one of the essential
materials in photographic film and paper manufacturing. Electronic components
represent a significant portion of the cost of the materials used in the
manufacture of business equipment.
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DISCONTINUED OPERATIONS - HEALTH BUSINESSES
On May 3, 1994, the Company announced its intent to divest the following
non-imaging health businesses: the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., the household products and
do-it-yourself products businesses of L&F Products and the Clinical Diagnostics
Division. These businesses are being reported as discontinued operations with
results for prior periods restated. On June 23, 1994, the Company announced
Sanofi agreed to acquire the pharmaceutical business of Sterling Winthrop Inc.
for $1.675 billion in cash and its interest in the "Over-the-Counter" alliance
with Sterling Winthrop Inc. On October 1, 1994, the Company completed this
sale. On August 29, 1994, the Company announced SmithKline Beecham plc agreed
to acquire the consumer health business of Sterling Winthrop Inc. for $2.925
billion in cash. On November 2, 1994, the Company completed this sale. On
September 6, 1994, the Company announced Johnson & Johnson agreed to acquire
the Clinical Diagnostics Division for $1.008 billion in cash. On November 30,
1994, the Company completed this sale. On September 26, 1994, the Company
announced Reckitt & Colman plc agreed to acquire the worldwide household
business of L&F Products for $1.55 billion in cash. On October 14, 1994, the
Company announced Forstmann Little & Co. agreed to acquire the do-it-yourself
products business of L&F Products for $700 million in cash. On November 30,
1994, the Company completed this sale. In addition, as part of the divestiture,
the Company is actively negotiating with potential buyers for its pharmaceutical
research and development facility and its NanoSystems unit, and anticipates
closing dates for these transactions in 1995.
Sales of health businesses products for the past three years were:
(in millions) 1993 1992 1991
$3,694 $3,553 $3,524
Kodak manufactures and markets various health products. Pharmaceutical
products include medicines prescribed by physicians or made specifically for
use in hospitals. Pharmaceutical products also include bulk pharmaceuticals,
intermediates and other life-science chemicals sold primarily to other
manufacturers. Sterling Winthrop Inc., a subsidiary of Kodak, and Elf Sanofi,
a company within the Elf Aquitaine Group, have formed an alliance of joint
ventures for the development and marketing of pharmaceutical and
over-the-counter medicines. Consumer health products include medicines sold
without prescription and promoted directly to the consumer. Kodak supplies
clinical diagnostics equipment and consumables. The health businesses also
include household, do-it-yourself and personal care products such as
disinfectants, all purpose cleaners, floor-care products, rodenticides,
septicides, wood stains, concrete and wood protectors, deodorants and
hair-care products.
Marketing and Competition. Products of the health businesses are distributed
through a variety of channels including dealers, independent distributors,
wholesalers, jobbers, hospitals, retail drug stores, mass merchandisers,
variety outlets, department stores, and food stores. The health care markets
in the U.S. and in some countries outside the U.S. are experiencing changes
resulting from concerns for escalating costs for health care, leading to
competitor and customer consolidation. The businesses products are subject to
competition from both large and small companies, many of which are highly
regarded and well established, with substantial resources for research,
product development and promotional activities.
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Competition in the health businesses particularly with respect to
pharmaceutical, consumer health and household products, is characterized by
the effort to develop and introduce new or improved products. Many of Kodak's
competitors are engaged in research activities which may lead to the
development of new products constituting additional competition for Kodak's
products.
Raw materials. Raw materials essential to the health businesses are purchased
for the most part in the open market and are generally available.
The health businesses engage in research and development, located principally
in United States locations in Montvale, New Jersey and Upper Providence
Township, Pennsylvania. In 1993, $437 million (1992 - $431 million; 1991 -
$366 million) was expended for research and development.
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DISCONTINUED OPERATIONS - CHEMICALS SEGMENT
On December 31, 1993, the Company distributed all of the outstanding shares of
common stock of Eastman Chemical Company (Eastman), which represents
substantially all of the Company's worldwide chemical business, as a dividend
to the Company's shareowners (the spin-off) in a ratio of one share of Eastman
common stock for every four shares of Kodak common stock. As a result of the
spin-off, Eastman became an independent publicly held company listed on the
New York Stock Exchange and its operation ceased to be owned by the Company.
In connection with the spin-off, Eastman assumed $1.8 billion of new
borrowings, the proceeds from which will be used by the Company as part of a
plan to retire certain of its indebtedness. The chemicals segment has been
reported as discontinued operations and results for prior periods have been
restated.
Sales of chemicals segment products, including intersegment sales, for the
past three years were:
(in millions) 1993 1992 1991
$3,976 $3,927 $3,740
The products of the chemicals segment include a wide variety of chemicals,
plastics, and fibers. The manufacturing processes are diverse and highly
integrated with intermediate products being sold to the trade, as well as
being used in further internal manufacturing. The segment is also a major
supplier of chemicals and plastics used in the manufacture of Kodak
photographic products. Subsequent to the spin-off, it is expected that the
Company will continue to purchase products from Eastman. The prices, terms
and conditions of future sales have been negotiated between the Company and
Eastman and are intended to reflect current market conditions.
The major sales products of the chemicals segment include:
- - - acids, alcohols, solvents, and plasticizers used by paint, chemical, and
plastic manufacturers,
- - - polyethylene and polypropylene plastics used in applications such as plastic
film and automotive parts,
- - - cellulose-based plastics used by molders of plastic tool handles, brushes,
eyeglass frames, and toys,
- - - cellulose-based fibers, such as acetate yarn and filter materials,
- - - polyester plastics used in food and beverage packaging, and
- - - specialty and fine chemicals used in health, nutrition, pharmaceutical, and
photographic applications.
Marketing and Competition. The chemicals segment markets products through a
worldwide sales organization. The majority of the sales are direct, however,
some are through other channels. Products are shipped to customers directly
from the chemicals segment plants as well as from distribution centers.
The chemicals segment products are marketed and categorized as industrial or
performance. The performance products include chemicals and plastics sold to
customers in growth markets, as well as products sold on the basis of unique
performance attributes. The industrial products are chemical, plastic and
fiber products sold to industrial customers, usually in large volumes,
primarily on the basis of price, product quality and consistency, and
reliability of supply.
In the chemicals segment, competition is present from a number of large
chemical manufacturers with similar products; however, the competitive
environment varies among the various product markets.
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Raw Materials. The raw materials used by the chemicals segment are many and
varied and generally available. The major raw materials are propane, ethane,
chemical wood pulp, paraxylene and coal. Many are derived from petroleum
products, the prices of which have fluctuated in recent years.
The chemicals segment engages in research and development, located principally
in United States locations in Kingsport, Tennessee and Longview, Texas. In
1993, $180 million (1992 - $168 million; 1991 - $157 million) was expended for
research and development.
- - ------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Through the years, Kodak has engaged in extensive and productive efforts in
research and development. In 1993, $864 million (1992 - $988 million; 1991 -
$971 million) was expended for research and development in continuing
operations. Research and development groups for continuing operations are
located principally in United States locations in Rochester, New York; outside
the U.S., research and development groups are located in England, France,
Japan and Germany. These groups, in close cooperation with manufacturing
units and marketing organizations, are constantly developing new products and
applications to serve both existing and new markets.
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 where
feasible. The ownership of these patents contributes to Kodak's ability to
use its inventions but at the same time is accompanied by a liberal
patent-licensing policy. While in the aggregate Kodak's patents are
considered to be of material importance in the operation of its business, it
does not consider that the patents relating to any single product or process
are of material significance when judged from the standpoint of its total
business.
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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 (the
Superfund law).
Kodak continues to engage in a program for environmental protection and
control. During 1993, expenditures for pollution prevention and waste
treatment for continuing operations at various manufacturing facilities
totaled $134 million. These costs included $100 million of recurring costs
associated with managing hazardous substances and pollution in on-going
operations, $32 million of capital expenditures to limit or monitor hazardous
substances or pollutants, and $2 million of mandated expenditures to remediate
previously contaminated sites. These expenditures have been accounted for in
accordance with the Company's accounting policy for environmental costs. The
Company expects these recurring and remediation costs to increase slightly and
capital to increase significantly in the near future. While these costs will
continue to be significant cash outflows for the Company, it is not expected
that these costs will have a materially different impact on the Company's
financial position, results of operations or competitive position.
The Company has reviewed a draft RCRA Facility Assessment (RFA) pertaining to
the Company's Kodak Park site in Rochester, New York. The Company has
completed a broad-based assessment of the site in response to the RFA. While
future expenditures associated with any remediation activities could be
significant, it is not possible to reasonably estimate those expenditures
until additional studies are performed.
The Company accrues for remediation costs that relate to an existing condition
caused by past operations when it is probable that these costs will be
incurred and can be reasonably estimated. The Company has accrued for
remediation costs of $84 million in its financial statements at December 31,
1993, compared with $90 million at December 31, 1992.
The Clean Air Act Amendments were enacted in 1990. The Company may be
required to incur significant costs, primarily capital in nature, over a
period of several years to comply with the provisions of this Act. The
expenditures that may be required cannot be currently reasonably estimated
since either implementing regulations have not been issued or compliance plans
have not been finalized.
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EMPLOYMENT
At the end of 1993, Kodak's continuing operations employed 91,800 people, of
whom 49,100 were employed in the United States.
- - ------------------------------------------------------------------------------
Financial information by geographic areas for the past three years is shown in
Segment Information on page 43.
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SELECTED FINANCIAL DATA
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
(amounts in millions, 1993 (1) 1992 (2) 1991 (3) 1990 (4) 1989 (5)
except per share data)
Sales from continuing
operations $12,670 $12,992 $12,427 $12,526 $12,325
Earnings from
continuing operations
before extraordinary item
and cumulative effect
of changes in
accounting principle 644 845 12 548 312
Earnings from discontinued
operations before cumulative
effect of changes in
accounting principle 23 149 5 155 217
------- ------- ------- ------- -------
Earnings before
extraordinary item
and cumulative effect
of changes in
accounting principle 667 994 17 703 529
Extraordinary item (14) - - - -
------- ------- ------- ------- -------
Earnings before cumulative
effect of changes in
accounting principle 653 994 17 703 529
------- ------- ------- ------- -------
Cumulative effect of changes
in accounting principle
from continuing
operations (1,649) 100 - - -
Cumulative effect of changes
in accounting principle
from discontinued
operations (519) 52 - - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle (2,168) 152 - - -
- - ------- ------- ------- ------- -------
Net earnings (loss) $(1,515) $ 1,146 $ 17 $ 703 $ 529
======= ======= ======= ======= =======
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SELECTED FINANCIAL DATA (continued)
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
1993 (1) 1992 (2) 1991 (3) 1990 (4) 1989 (5)
Primary earnings per
share from continuing
operations before
extraordinary item and
cumulative effect of
changes in accounting
principle $ 1.95 $ 2.60 $ .04 $ 1.69 $ .96
Primary earnings per
share from discontinued
operations before
cumulative effect of
changes in accounting
principle .07 .46 .01 .48 .67
------- ------- ------- ------- -------
Primary earnings per share
before extraordinary item
and cumulative effect
of changes in accounting
principle 2.02 3.06 .05 2.17 1.63
Extraordinary item (.04) - - - -
------- ------- ------- ------- -------
Primary earnings per share
before cumulative effect of
changes in accounting
principle 1.98 3.06 .05 2.17 1.63
------- ------- ------- ------- -------
Cumulative effect of changes
in accounting principle
from continuing
operations (5.02) .31 - - -
Cumulative effect of changes
in accounting principle
from discontinued
operations (1.58) .16 - - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle (6.60) .47 - - -
------- ------- ------- ------- -------
Primary earnings (loss)
per share $ (4.62) $ 3.53 $ .05 $ 2.17 $ 1.63
======= ======= ======= ======= =======
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SELECTED FINANCIAL DATA (continued)
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
1993 (1) 1992 (2) 1991 (3) 1990 (4) 1989 (5)
Fully diluted earnings
per share from
continuing operations
before extraordinary item
and cumulative effect of
changes in accounting
principle $ 1.95 $ 2.56 $ .04 $ 1.69 $ .96
Fully diluted earnings per
share from discontinued
operations before
cumulative effect of
changes in accounting
principle .07 .42 .01 .47 .67
------- ------- ------- ------- -------
Fully diluted earnings
per share before
extraordinary item and
cumulative effect of
changes in accounting
principle 2.02 2.98 .05 2.16 1.63
Extraordinary item (.04) - - - -
------- ------- ------- ------- -------
Fully diluted earnings
per share before
cumulative effect of
changes in accounting
principle 1.98 2.98 .05 2.16 1.63
------- ------- ------- ------- -------
Cumulative effect of changes
in accounting principle
from continuing
operations (5.03) .28 - - -
Cumulative effect of changes
in accounting principle
from discontinued
operations (1.57) .15 - - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle (6.60) .43 - - -
------- ------- ------- ------- -------
Fully diluted earnings
(loss) per share $ (4.62) $ 3.41 $ .05 $ 2.16 $ 1.63
======= ======= ======= ======= =======
Cash dividends declared
per common share $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00
Total assets 18,810 19,038 19,952 20,085 19,777
Long-term borrowings 6,727 5,259 5,648 5,036 5,405
(1) Net earnings were reduced by the $387 million after-tax effect of restructuring
costs and also by $2,168 million from the cumulative effect of the changes in
accounting principle.
(2) Net earnings were reduced by the $141 million after-tax effect of restructuring
costs and benefited by $152 million from the cumulative effect of the change in
accounting for income taxes.
(3) Net earnings were reduced by the $1,032 million after-tax effect of restructuring
costs.
(4) Net earnings were reduced by the $564 million after-tax effect of the litigation
judgment including post-judgment interest.
(5) Net earnings were reduced by the $549 million after-tax effect of restructuring
costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
(in millions, except earnings per share) 1993 Change 1992 Change 1991
Sales from continuing operations $12,670 - 2% $12,992 + 5% $12,427
Earnings (loss) from operations before
extraordinary item and
cumulative effect of changes in
accounting principle:
Continuing 644 845 12
Discontinued - Health (169) (118) (314)
Discontinued - Chemicals 192 267 319
Net earnings (loss) (1,515) 1,146 17
Primary earnings (loss) per share (4.62) 3.53 .05
Fully diluted earnings (loss) per share (4.62) 3.41 .05
The Company posted sales from continuing operations of $12,670 million in
1993. Earnings from continuing operations before extraordinary item and
cumulative effect of changes in accounting principle for the year were
$644 million ($1.95 per share) compared with earnings of $845 million ($2.60
per share) in 1992. Earnings from continuing operations before extraordinary
item and the cumulative effect of changes in accounting principle were
significantly reduced by restructuring costs in both years. The restructuring
costs for continuing operations were $495 million ($353 million or $1.08 per
share after-tax) in 1993 compared with $219 million ($140 million or $.43 per
share after-tax) in 1992. Earnings from continuing operations, before
deducting restructuring costs in both years, increased one percent in 1993
when compared with 1992. Earnings benefited from increased unit volumes,
lower marketing and administrative activity, lower research and development
activity, manufacturing productivity gains and lower interest expense; but
were adversely affected by cost escalation, lower effective selling prices,
higher retiree health care costs associated with the change in accounting for
certain postretirement benefits, smaller gains from the sales of investments,
and the unfavorable effects of foreign currency rate changes. Net earnings
for 1993 were reduced by an extraordinary charge of $14 million after-tax ($.04
per share) related to the early extinguishment of debt.
Net earnings for 1993 benefited by $23 million ($.07 per share) from
discontinued operations compared with a benefit of $149 million ($.46 per
share) in 1992. Earnings from continuing operations for the fourth quarter of
1993 were $220 million compared with earnings of $292 million in the fourth
quarter of 1992, which benefited by approximately $75 million ($.23 per share)
from gains on the sales of investments including the sale of Eastman Kodak
Credit Corporation (EKCC). Earnings from discontinued operations for 1993
were lower when compared with 1992, as the benefits from higher unit volumes
and higher effective selling prices were more than offset by cost escalation,
higher retiree health care costs associated with the change in accounting for
certain postretirement benefits, a provision for environmental costs,
transaction costs associated with the spin-off of the Company's worldwide
chemical business, the unfavorable effects of foreign currency rate changes,
and restructuring costs of $55 million ($34 million or $.10 per share
after-tax). The loss from discontinued operations of $18 million in the fourth
quarter of 1993 compared with earnings of $7 million in the fourth quarter of
1992 was primarily attributable to the provision for environmental costs and
the transaction costs associated with the spin-off.
The 1993 net loss was due to an after-tax charge of $2.17 billion ($6.60 per
share) associated with the adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, and SFAS No. 112, Employers' Accounting for
Postemployment Benefits effective as of January 1, 1993. Net earnings for
1992 benefited by $152 million ($.47 per share) from the adoption of SFAS No.
109, Accounting for Income Taxes, effective as of January 1, 1992.
12
On May 3, 1994, the Company announced its intent to divest the following
non-imaging health businesses: the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., the household products and
do-it-yourself products businesses of L&F Products and the Clinical Diagnostics
Division. These businesses are reported as discontinued operations with
results for prior periods restated. On June 23, 1994, the Company announced
Sanofi agreed to acquire the pharmaceutical business of Sterling Winthrop Inc.
for $1.675 billion in cash and its interest in the "Over-the-Counter" alliance
with Sterling Winthrop Inc. On October 1, 1994, the Company completed this
sale. On August 29, 1994, the Company announced SmithKline Beecham plc agreed
to acquire the consumer health business of Sterling Winthrop Inc. for $2.925
billion in cash. On November 2, 1994, the Company completed this sale. On
September 6, 1994, the Company announced Johnson & Johnson agreed to acquire
the Clinical Diagnostics Division for $1.008 billion in cash. On November 30,
1994, the Company completed this sale. On September 26, 1994, the Company
announced Reckitt & Colman plc agreed to acquire the worldwide household
products business of L&F Products for $1.55 billion in cash. On October 14,
1994, the Company announced Forstmann Little & Co. agreed to acquire the
do-it-yourself products business of L&F Products for $700 million in cash.
On November 30, 1994, the Company completed this sale. In addition, as part of
the divestiture, the Company is actively negotiating with potential buyers for
its pharmaceutical research and development facility and its NanoSystems unit,
and anticipates closing dates for these transactions in 1995.
13
On December 31, 1993, the Company spun-off its worldwide chemical business,
which consisted of Eastman Chemical Company operations. Results for Eastman
Chemical Company operations are being reported as discontinued operations and
results for prior periods have been restated.
Earnings from discontinued operations include allocations of interest and
taxes to the Chemicals segment and Health businesses and transaction costs
associated with the spin-off.
The Company posted sales from continuing operations of $12,992 million in
1992. Earnings from continuing operations for the year were $845 million
($2.60 per share) compared with $12 million ($.04 per share) in 1991. Net
earnings for 1992 included $149 million ($.46 per share) from discontinued
operations compared with $5 million ($.01 per share) in 1991. Net earnings for
1992 also benefited by $152 million ($.47 per share) from the cumulative
effect of adopting SFAS No. 109, Accounting for Income Taxes, and were
adversely affected by the effects of restructuring costs for continuing
operations of $219 million ($140 million or $.43 per share after-tax). Net
earnings for 1991 were significantly reduced by the effects of restructuring
costs for continuing operations of $1,448 million ($934 million or $2.88 per
share after-tax). Excluding the effects of restructuring costs from both 1992
and 1991, earnings from continuing operations for 1992 increased from the
prior year as the favorable effects of manufacturing productivity, higher
volumes, gains from the sales of investments including the sale of EKCC, and
the favorable effects of foreign currency rate changes more than offset cost
escalation and higher marketing and administrative costs. Earnings from
continuing operations for the fourth quarter of 1992 were $292 million compared
with a net loss of $326 million in the fourth quarter of 1991. Earnings for
the fourth quarter of 1992 benefited by approximately $75 million ($.23 per
share) from gains on the sales of investments including the sale of EKCC. The
net loss in the fourth quarter of 1991 was due to the effects of restructuring
costs of $911 million ($596 million or $1.84 per share after-tax). Earnings
from discontinued operations were higher in 1992, when compared with 1991, as
the benefits of higher unit volumes and higher effective selling prices were
only partially offset by higher manufacturing costs, higher administrative
costs and increased research and development expenditures.
- - ------------------------------------------------------------------------------
Sales by Industry Segment
(in millions)
1993 Change 1992 Change 1991
Sales from Continuing Operations:
Consumer Imaging
Inside the U.S. $ 2,114 +1% $ 2,084 + 7% $ 1,945
Outside the U.S. 3,178 -5 3,330 + 4 3,190
------- --- ------- --- -------
Total Consumer Imaging 5,292 -2 5,414 + 5 5,135
------- --- ------- --- -------
Commercial Imaging
Inside the U.S. 3,892 -3 4,016 + 1 3,972
Outside the U.S. 3,490 -2 3,576 + 7 3,329
------- --- ------- --- -------
Total Commercial Imaging 7,382 -3 7,592 + 4 7,301
------- --- ------- --- -------
Deduct: Intersegment Sales (4) (14) (9)
------- --- ------- --- -------
Total Sales from Continuing
Operations 12,670 -2 12,992 + 5 12,427
------- --- ------- --- -------
Sales from Discontinued Operations:
Chemicals
Inside the U.S. 2,693 +3 2,602 + 6 2,449
Outside the U.S. 1,283 -3 1,325 + 3 1,291
------- --- ------- --- -------
Total Chemicals 3,976 +1 3,927 + 5 3,740
------- --- ------- --- -------
Health
Inside the U.S. 2,281 0 2,273 +10 2,070
Outside the U.S. 1,413 +10 1,280 -12 1,454
------- --- ------- --- -------
Total Health 3,694 +4 3,553 + 1 3,524
------- --- ------- --- -------
Deduct: Intersegment Sales (281) (289) (272)
------- --- ------- --- -------
Total Sales from Discontinued
Operations 7,389 +3 7,191 + 3 6,992
------- --- ------- --- -------
Total Worldwide Sales Including
Discontinued Operations $20,059 -1% $20,183 + 4% $19,419
======= === ======= === =======
14
SALES
Worldwide sales from continuing operations for 1993 were down two percent when
compared with 1992, as slight increases in unit volumes were more than offset
by the unfavorable effects of foreign currency rate changes and lower
effective selling prices. The Consumer Imaging and Commercial Imaging
segments both recorded a slight decline when compared with last year.
Currency changes against the U.S. dollar unfavorably affected 1993 sales from
continuing operations by approximately $490 million before reflecting the
impact of the Company's hedging program.
Sales from continuing operations for 1992 increased moderately compared with
1991 as both segments posted sales increases primarily as the result of higher
unit volumes. Consumer Imaging achieved moderate gains while slight increases
were reported for Commercial Imaging. Currency changes against the U.S.
dollar favorably affected 1992 sales by approximately $150 million before
reflecting the impact of the Company's hedging program.
In the Consumer Imaging segment, sales to customers inside the U.S. in 1993
were essentially level when compared with sales for 1992, as slight increases
in unit volumes were only partially offset by lower effective selling prices.
Outside the U.S., sales decreased in 1993, as moderate increases in unit
volumes were more than offset by the unfavorable effects of foreign currency
rate changes and lower effective selling prices. Worldwide volume gains were
led by Kodacolor 35mm films, single-use cameras and Ektacolor papers.
For the Consumer Imaging segment, 1992 sales to customers inside the U.S.
increased moderately when compared with sales for 1991 primarily due to higher
unit volumes. Outside the U.S., sales registered a slight increase in 1992,
as slight increases in unit volumes and the favorable effects of foreign
currency rate changes were only partially offset by lower effective selling
prices. Worldwide sales increases in 1992 were led by Kodacolor films and
Ektacolor papers.
In the Commercial Imaging segment, 1993 sales comparisons for customers in the
U.S. and outside the U.S. were adversely affected by lower effective selling
prices and the inclusion in 1992 of revenues from divested units. In
addition, outside the U.S., volume increases for continuing businesses were
more than offset by the unfavorable effects of foreign currency rate changes.
Commercial Imaging segment sales in 1992 to customers in the U.S. were
essentially level with 1991. Outside the U.S., sales recorded a moderate
increase when compared with 1991, primarily due to higher unit volumes.
In the Chemicals segment, whose results are reported as discontinued
operations, slight increases in 1993 sales to customers in the U.S. when
compared with 1992 were due to higher unit volumes. Outside the U.S., a
slight decline in 1993 sales when compared with 1992 resulted from the
unfavorable effects of foreign currency rate changes and lower effective
selling prices, partially offset by higher unit volumes. Worldwide sales of
specialty chemicals recorded a moderate increase while industrial chemicals
declined slightly when compared with 1992.
For the Chemicals segment, moderate increases in 1992 sales to customers in
the U.S. and slight increases in sales outside the U.S. when compared with
1991 were due to higher unit volumes. Worldwide sales of specialty chemicals
recorded a solid increase in 1992, while industrial chemicals were level.
In the Health businesses, whose results are reported as discontinued
operations, 1993 sales to customers inside the U.S. were level when compared
with 1992. Outside the U.S., good increases for the year resulted from
significant increases in unit volumes and higher effective selling prices,
which were partially offset by the effects of unfavorable foreign currency
rate changes. All business units posted worldwide volume gains for the year.
Health businesses sales in 1992 to customers inside the U.S. recorded good
increases when compared with 1991, primarily due to volume gains. Sales
comparisons between 1992 and 1991 for customers outside the U.S. were
adversely affected by the inclusion of two additional months of Sterling
Winthrop Inc. sales in 1991 to align company reporting periods. In addition,
certain sales by former Sterling Winthrop Inc. units are no longer
consolidated because of the alliance with Elf Sanofi. On a comparable basis,
sales outside the U.S. in 1992 would have registered solid gains when compared
with 1991 results. Worldwide sales increases in 1992 were led by consumer
health and pharmaceutical products.
15
Earnings (Loss) from Operations by Industry Segment
(in millions)
1993 Change 1992 Change 1991
Earnings (Loss) from Operations
from Continuing Operations:
Consumer Imaging $ 931 -13% $1,065 + 83% $ 582
Percent of segment sales 17.6% 19.7% 11.3%
Commercial Imaging $ 317 - 5% $ 334 $(492)
Percent of segment sales 4.3% 4.4% (6.7%)
------ --- ------ ----- -----
Total Earnings from Operations
from Continuing Operations $1,248 -11% $1,399 >+200% $ 90
------ --- ------ ----- -----
Earnings from Operations from
Discontinued Operations:
Chemicals $ 392 -21% $ 494 - 8% $ 538
Percent of segment sales 9.9% 12.6% 14.4%
Health $ 284 +12% $ 254 + 76% $ 144
Percent of segment sales 7.7% 7.1% 4.1%
------ --- ------ ----- -----
Total Earnings from Operations
from Discontinued Operations $ 676 -10% $ 748 + 10% $ 682
------ --- ------ ----- -----
Total Earnings from Operations
including Discontinued Operations $1,924 -10% $2,147 + 178% $ 772
====== === ====== ===== =====
Earnings from operations for 1993 are shown after deducting restructuring
costs of $141 million for Consumer Imaging, $354 million for Commercial
Imaging, $12 million for Chemicals and $43 million for Health. Earnings from
operations for 1992 are shown after deducting restructuring costs of $58
million for Consumer Imaging, $161 million for Commercial Imaging and $1
million for Health. Earnings (loss) from operations for 1991 are shown after
deducting restructuring costs of $555 million for Consumer Imaging, $893
million for Commercial Imaging and $157 million for Health.
Segment information is reported on pages 41 through 43 Notes to Financial
Statements.
- - ------------------------------------------------------------------------------
EARNINGS
Operating earnings from continuing operations for the Consumer Imaging and
Commercial Imaging segments were adversely affected by restructuring costs of
$495 million in 1993, $219 million in 1992 and $1,448 million in 1991. The
operating earnings for the Health businesses and Chemicals segment, whose
results are reported as discontinued operations, were adversely affected by
Health restructuring costs of $43 million in 1993, $1 million in 1992 and $157
million in 1991 and Chemicals restructuring costs of $12 million in 1993. In
addition, operating earnings in 1993 for all segments were adversely affected
by higher retiree health care costs associated with the change in accounting
for certain postretirement benefits. The 1993 restructuring costs represent
the cost of separation benefits for a cost reduction program expected to
reduce worldwide employment by 10,000 and the cost of closing a facility in
Germany that manufactures a component for the Company's ink jet printing
business. The restructuring costs in 1992 and 1991 included costs of an early
retirement plan, the restructuring of non-U.S. sensitized manufacturing and
photofinishing operations and worldwide pharmaceutical businesses, and the
Company's exit from non-strategic businesses.
Consumer Imaging segment operating earnings were adversely affected by
restructuring costs in 1993 and 1992 of $141 million and $58 million,
respectively. Consumer Imaging segment operating earnings, before deducting
restructuring costs in both years, decreased in 1993 when compared with 1992,
as the benefits from increased unit volumes, lower marketing and
administrative activity and manufacturing productivity gains were more than
offset by lower effective selling prices, cost escalation and the unfavorable
effects of foreign currency rate changes.
Consumer Imaging segment operating earnings were adversely affected by
restructuring costs in 1992 and 1991 of $58 million and $555 million,
respectively. Consumer Imaging segment operating earnings, before deducting
restructuring costs in both years, were essentially level in 1992 when
compared with 1991, as the favorable effects of manufacturing productivity
gains and increased unit volumes were offset by cost escalation and increased
marketing and administrative costs.
16
The Commercial Imaging segment operating earnings were adversely affected by
restructuring costs in 1993 and 1992 of $354 million and $161 million,
respectively. Commercial Imaging segment operating earnings, before deducting
restructuring costs in both years, improved sharply in 1993 when compared with
1992, as the benefits from manufacturing productivity gains, lower marketing
and administrative activity and lower research and development activity were
only partially offset by cost escalation, the unfavorable effects of foreign
currency rate changes and lower effective selling prices.
The Commercial Imaging segment operating earnings in 1992 and loss in 1991
were adversely affected by restructuring costs in 1992 and 1991 of $161
million and $893 million, respectively. Commercial Imaging segment operating
earnings increased substantially in 1992 when compared with 1991, before
deducting restructuring costs in both years, as the benefits from
manufacturing productivity gains and lower research and development activity
more than offset cost escalation.
Chemicals segment operating earnings, which are reported as discontinued
operations, were adversely affected by restructuring costs in 1993 of $12
million. Chemicals segment operating earnings, before deducting the 1993
restructuring costs, decreased when compared with 1992, as the benefits from
increased unit volumes were more than offset by cost escalation, provision for
the estimated cost of environmental remediation and plant closure costs, lower
effective selling prices, charges for the planned exit from the Kodel
polyester staple fiber business and the unfavorable effects of foreign
currency rate changes.
Chemicals segment operating earnings decreased in 1992 when compared with
1991, as higher manufacturing costs and increased administrative costs were
only partially offset by increased unit volumes and higher effective selling
prices.
Health businesses operating earnings, which are reported as discontinued
operations, were adversely affected by restructuring costs in 1993 and 1992 of
$43 million and $1 million, respectively. Health businesses operating
earnings, before deducting restructuring costs in both years, were excellent
in 1993 when compared with 1992, as the benefits of increased unit volumes,
higher effective selling prices, lower marketing and administrative activity
and lower research and development activity more than offset cost escalation
and the unfavorable effects of foreign currency rate changes.
Health businesses operating earnings were adversely affected by restructuring
costs in 1992 and 1991 of $1 million and $157 million, respectively. On a
fully comparable basis and before deducting restructuring costs in both years,
Health businesses operating earnings decreased significantly in 1992 when
compared with 1991, as the favorable effects of higher effective selling
prices and increased unit volumes were more than offset by cost escalation,
higher marketing costs and increased research and development expenditures.
Research and development expenditures for continuing operations amounted to
$864 million in 1993, compared with $988 million in 1992 and $971 million in
1991. Research and development expenditures in 1993 were significantly below
1992 as the benefits from lower activity levels were only partially offset by
cost escalation. Research and development expenditures were higher in 1992
when compared with 1991 as cost escalation was only partially offset by lower
activity levels. Amortization of goodwill for continuing operations amounted
to $29 million in 1993, $23 million in 1992 and $22 million in 1991.
Advertising and sales promotion expenses for continuing operations were
$646 million in 1993, $725 million in 1992 and $604 million in 1991. Other
marketing and administrative expenses for continuing operations totaled
$2,774 million in 1993, $3,000 million in 1992 and $2,917 million in 1991.
Decreases in advertising and sales promotion, and other marketing and
administrative expenses in 1993 resulted from the benefit of lower activity
levels and the favorable effects of foreign currency rate changes on locally
incurred international costs, partially offset by cost escalation. Increases
in advertising and sales promotion, and other marketing and administrative
expenses for 1992 when compared with 1991 resulted from cost escalation,
increased activity and the unfavorable effects of foreign currency rate
changes. The comparison with 1991 benefited from divestitures in 1992.
Earnings from equity interests and other revenues were $203 million in 1993,
$342 million in 1992 and $229 million in 1991. The results for 1992 were
higher than 1993 and 1991 due to gains from the sales of investments in 1992,
including the sale of EKCC.
Interest expense of $175 million in 1993 was lower than the $247 million
incurred in 1992 and $291 million incurred in 1991 as a result of lower
effective interest rates. The Company has a program in place to manage
interest rate risk associated with its current and anticipated borrowings. In
connection with this program, the Company has entered into various
combinations of interest rate swaps, options, currency swaps and similar
arrangements. The effect of this program has been to reduce the aggregate
average interest rate on the Company's borrowings.
17
The Company has a program in place to manage foreign currency risk. The
Company has entered into foreign currency contracts to hedge transactions in
non-U.S. dollar denominated receivables and payables. The Company has also
entered into foreign currency contracts to hedge sales from foreign units
denominated in currencies other than local currencies and probable anticipated
export sales. The net effect of this program was a gain of $65 million in
1993, a loss of $66 million in 1992 and a loss of $7 million in 1991.
Other charges increased in 1993 when compared with 1992, as the net loss in
1993 from foreign exchange transactions and the translation of net monetary
items in highly inflationary economies was greater than in 1992. Other
charges decreased in 1992 when compared with 1991 as the net loss in 1992 from
foreign exchange transactions and the translation of net monetary items in
highly inflationary economies was less than the net loss in 1991 from foreign
exchange transactions and the translation of net monetary assets and
liabilities.
- - ------------------------------------------------------------------------------
Net Earnings (Loss) 1993 1992 1991
(in millions)
Amount $(1,515) $1,146 $ 17
Percent of sales (12.0%) 8.8% 0.1%
- - ------------------------------------------------------------------------------
CASH DIVIDENDS
Total cash dividends of approximately $650 million ($.50 per share each
quarter) were declared in each of the past three years.
- - ------------------------------------------------------------------------------
FINANCIAL POSITION
Cash, cash equivalents and marketable securities increased to $1,966 million at
year-end 1993 from $547 million at year-end 1992. In connection with the
spin-off of the worldwide chemical business, the Company borrowed $1.8 billion
in December 1993, which subsequently was assumed by the worldwide chemical
business on December 31, 1993. The proceeds from the borrowings, which were
retained by Kodak, are invested primarily in United States Government
securities and time deposits and will eventually be used to retire other
borrowings. At December 31, 1992, $1.8 billion of the Company's long-term
borrowings were included in the net assets of discontinued operations to
reflect the debt assumed by the worldwide chemical business. Interest expense
and capitalized interest in 1993 related to such debt of $126 million and $23
million, respectively, were allocated to discontinued operations in 1993. In
addition, $126 million and $143 million of Health long-term borrowings at
December 31, 1993 and 1992, respectively, were included in net assets of
discontinued operations. Interest expense of $462 million and capitalized
interest of $28 million were allocated to the Health businesses reported as
discontinued operations in 1993.
The Company announced on March 2, 1994 that it has elected to redeem the zero
coupon convertible subordinated debentures due 2011 on April 1, 1994. The
redemption price is $312.14 per debenture. Each debenture may be converted
into the Company's common stock at a conversion rate of 6.944 shares per
debenture at any time before the close of business on April 1, 1994.
Approximately $1.15 billion would be required to redeem all of the outstanding
debentures. This redemption will not have a material impact on the Company's
results of operations for 1994.
Approximately three-fourths of the restructuring costs recorded by the Company
in 1993 represented the cost of separation benefits for personnel leaving
under a workforce reduction program. Most of these benefits will be paid
during 1994 from operating cash flows. The remainder of the 1993
restructuring costs is associated with the closure of a facility in Germany.
Most of these costs represent non-cash write-offs of assets. Most of the
costs associated with the early retirement plan announced in 1991 are being
funded from the Company's pension plan assets and, therefore, did not
significantly affect the Company's cash flows during the past three years.
The Company does not anticipate that such costs will affect its cash flows in
the near future.
The Company has access to a $2.5 billion revolving credit facility expiring in
October 1995, which it has not used.
Projected operating cash flows are expected to be adequate to support normal
business operations, planned capital expenditures and dividend payments in
1994.
- - ------------------------------------------------------------------------------
18
ENVIRONMENTAL PROTECTION
During 1993, expenditures for pollution prevention and waste treatment for
continuing operations at various manufacturing facilities totaled $134 million.
These costs included $100 million of recurring costs associated with managing
hazardous substances and pollution in on-going operations, $32 million of
capital expenditures to limit or monitor hazardous substances or pollutants,
and $2 million of mandated expenditures to remediate previously contaminated
sites. The Company expects these recurring and remediation costs to increase
slightly and capital to increase significantly in the near future. While
these costs will continue to be significant cash outflows for the Company, it
is not expected that these costs will have a materially different impact on
the Company's financial position, results of operations or cash flows.
The Company has reviewed a draft Resource Conservation and Recovery Act (RCRA)
Facility Assessment (RFA) pertaining to the Company's Kodak Park site in
Rochester, New York. The Company has completed a broad-based assessment of
the site in response to the RFA. While future expenditures associated with
any remediation activities could be significant, it is not possible to
reasonably estimate those expenditures until additional studies are performed.
The Clean Air Act Amendments were enacted in 1990. The Company may be
required to incur significant costs, primarily capital in nature, over a
period of several years to comply with the provisions of this Act. The
expenditures that may be required cannot currently be reasonably estimated
since either implementing regulations have not been issued or compliance plans
have not been finalized.
- - ------------------------------------------------------------------------------
CAPITAL ADDITIONS BY INDUSTRY SEGMENT
(in millions)
1993 1992 1991
Capital Additions for Continuing Operations:
Consumer Imaging $ 282 $ 367 $ 399
Commercial Imaging 535 869 803
------ ------ ------
Total Capital Additions for Continuing Operations $ 817 $1,236 $1,202
====== ====== ======
- - ------------------------------------------------------------------------------
MARKET PRICE DATA
1993 1992
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Price per share:
High $64-3/4 $62-3/4 $56-3/8 $56-3/4 $45-1/4 $45-3/4 $41-3/4 $50-3/4
Low 54 49-7/8 45-7/8 40-3/8 39-7/8 39-7/8 37-3/4 39-3/4
- - ------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, must be adopted in the first quarter of 1994. This standard
requires that companies classify securities that it holds as held-to-maturity
securities, trading securities or available-for-sale securities. Debt
securities classified as held-to-maturity will be reported at amortized cost.
Debt and equity securities classified as trading will be reported at fair
value, with unrealized holding gains and losses included in earnings. Debt
and equity securities classified as available-for-sale will be reported at
fair value, with unrealized holding gains and losses excluded from earnings
and reported in a separate component of shareowners' equity until realized.
The Company does not believe that this standard will have a material effect on
the Company's financial position or results of operations when adopted.
- - ------------------------------------------------------------------------------
SUMMARY OF OPERATING DATA
A summary of operating data for 1993 and for the 4 years prior is shown on
page 48.
- - ------------------------------------------------------------------------------
19
RESTATED SEGMENT INFORMATION - UNAUDITED
To facilitate comparisons for the remainder of 1994, restated Sales and
Earnings data for the fourth quarter and total year 1993 to reflect the new
basis of two reporting segments are set forth below.
Sales by Industry Segment
(in millions)
1993 1993
Fourth Total
Quarter Year
Sales from Continuing Operations:
Consumer Imaging
Inside the U.S. $ 639 $ 2,114
Outside the U.S. 832 3,178
------ -------
Total Consumer Imaging 1,471 5,292
------ -------
Commercial Imaging
Inside the U.S. 1,089 3,892
Outside the U.S. 931 3,490
------ -------
Total Commercial Imaging 2,020 7,382
------ -------
Deduct: Intersegment Sales (2) (4)
------ -------
Total Sales from Continuing
Operations $3,489 $12,670
====== =======
20
Earnings from Operations by Industry Segment
(in millions)
1993 1993
Fourth Total
Quarter Year
(1)
Earnings from Operations
from Continuing Operations:
Consumer Imaging $ 273 $ 931
Percent of segment sales 18.6% 17.6%
Commercial Imaging $ 117 $ 317
Percent of segment sales 5.8% 4.3%
----- ------
Total Earnings from Operations
from Continuing Operations $ 390 $1,248
===== ======
(1) Earnings from operations for the 1993 total year are shown after deducting
restructuring costs of $141 million for Consumer Imaging and $354 million for
Commercial Imaging.
21
EXHIBIT 2. CONSOLIDATED FINANCIAL STATEMENTS OF EASTMAN KODAK COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners of
Eastman Kodak Company
In our opinion, the accompanying consolidated financial statements listed in
the index appearing under Item 5, 2 and 3 on page 2 of this Current Report on
Form 8-K present fairly, in all material respects, the financial position of
Eastman Kodak Company and subsidiary companies at December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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.
As discussed in the Other Postemployment Costs note, the Company changed its
method of accounting for certain postretirement benefits and other
postemployment benefits in 1993. As discussed in the Income Taxes note, the
Company changed its method of accounting for income taxes in 1992.
PRICE WATERHOUSE LLP
New York, New York
January 31, 1994, except as to the Discontinued Operations and Subsequent
Events notes, which are as of December 5, 1994
22
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
1993 1992 1991
(in millions)
REVENUES
Sales $12,670 $12,992 $12,427
Earnings from equity interests and
other revenues 203 342 229
------- ------- -------
TOTAL REVENUES 12,873 13,334 12,656
------- ------- -------
COSTS
Cost of goods sold 6,654 6,702 6,406
Marketing and administrative expenses 3,420 3,725 3,521
Research and development costs 864 988 971
Interest expense 175 247 291
Restructuring costs 495 219 1,448
Other charges 188 74 170
------- ------- -------
TOTAL COSTS 11,796 11,955 12,807
------- ------- -------
Earnings (loss) from continuing operations
before income taxes 1,077 1,379 (151)
Provision (benefit) for income taxes from
continuing operations 433 534 (163)
------- ------- -------
Earnings from continuing operations
before extraordinary item and cumulative
effect of changes in accounting principle 644 845 12
Earnings from discontinued operations
before cumulative effect of changes in
accounting principle 23 149 5
------- ------- -------
Earnings before extraordinary item and
cumulative effect of changes in
accounting principle 667 994 17
Extraordinary item (14) - -
------- ------- -------
Earnings before cumulative effect of changes
in accounting principle 653 994 17
------- ------- -------
Cumulative effect of changes in accounting
principle from continuing operations (1,649) 100 -
Cumulative effect of changes in accounting
principle from discontinued operations (519) 52 -
------- ------- -------
Total cumulative effect of changes in
accounting principle (2,168) 152 -
------- ------- -------
NET EARNINGS (LOSS) $(1,515) $ 1,146 $ 17
======= ======= =======
23
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS (continued)
1993 1992 1991
Primary earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes
in accounting principle $ 1.95 $ 2.60 $ .04
Primary earnings per share from discontinued
operations before cumulative effect of changes
in accounting principle .07 .46 .01
------- ------- -------
Primary earnings per share before extraordinary
item and cumulative effect of changes in
accounting principle 2.02 3.06 .05
Extraordinary item (.04) - -
------- ------- -------
Primary earnings per share before cumulative
effect of changes in accounting principle 1.98 3.06 .05
------- ------- -------
Cumulative effect of changes in accounting
principle from continuing operations (5.02) .31 -
Cumulative effect of changes in accounting
principle from discontinued operations (1.58) .16 -
------- ------- -------
Total cumulative effect of changes in
accounting principle (6.60) .47 -
------- ------- -------
Primary earnings (loss) per share $ (4.62) $ 3.53 $ .05
======= ======= =======
24
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS (continued)
1993 1992 1991
Fully diluted earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle $ 1.95 $ 2.56 $ .04
Fully diluted earnings per share from
discontinued operations before cumulative effect
of changes in accounting principle .07 .42 .01
- - ------- ------- -------
Fully diluted earnings per share before
extraordinary item and cumulative effect
of changes in accounting principle 2.02 2.98 .05
Extraordinary item (.04) - -
------- ------- -------
Fully diluted earnings per share before
cumulative effect of changes in accounting
principle 1.98 2.98 .05
------- ------- -------
Cumulative effect of changes in accounting
principle from continuing operations (5.03) .28 -
Cumulative effect of changes in accounting
principle from discontinued operations (1.57) .15 -
------- ------- -------
Total cumulative effect of changes in
accounting principle (6.60) .43 -
------- ------- -------
Fully diluted earnings (loss) per share $ (4.62) $ 3.41 $ .05
======= ======= =======
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
1993 1992 1991
(in millions)
RETAINED EARNINGS
Retained earnings at beginning of year $ 7,721 $ 7,225 $ 7,859
Net earnings (loss) (1,515) 1,146 17
Cash dividends declared ($2.00 per share) (657) (650) (649)
Spin-off of worldwide chemical business (1,080) - -
Other changes - - (2)
------- ------- -------
Retained earnings at end of year $ 4,469 $ 7,721 $ 7,225
======= ======= =======
(See notes on pages 27 through 47)
25
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions) December 31,
1993 1992
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,635 $ 361
Marketable securities 331 186
Receivables (net of allowances of $92 and $98) 2,817 2,820
Inventories 1,532 1,592
Deferred income tax charges 339 143
Other 203 185
------- -------
Total current assets 6,857 5,287
------- -------
PROPERTIES
Land, buildings and equipment at cost 11,601 12,082
Less: Accumulated depreciation 6,574 6,562
------- -------
Net properties 5,027 5,520
OTHER ASSETS
Unamortized goodwill (net of accumulated
amortization of $179 and $145) 272 220
Long-term receivables and other noncurrent assets 912 1,107
Deferred income tax charges 393 -
Net assets of discontinued operations 5,349 6,904
------- -------
TOTAL ASSETS $18,810 $19,038
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Payables $ 2,877 $ 2,425
Short-term borrowings 611 1,683
Taxes-income and other 384 449
Dividends payable 165 163
Deferred income tax credits 16 22
------- -------
Total current liabilities 4,053 4,742
OTHER LIABILITIES
Long-term borrowings 6,727 5,259
Postemployment liabilities 3,491 760
Other long-term liabilities 1,183 1,194
Deferred income tax credits - 526
------- -------
Total liabilities 15,454 12,481
------- -------
SHAREOWNERS' EQUITY
Common stock, par value $2.50 per share 948 936
950,000,000 shares authorized; issued
379,079,777 in 1993 and 374,479,114 in 1992
Additional capital paid in or transferred
from retained earnings 213 26
Retained earnings 4,469 7,721
Accumulated translation adjustment (235) (85)
------- -------
5,395 8,598
Less: Treasury stock, at cost 2,039 2,041
48,513,344 shares in 1993 and 48,562,835
shares in 1992
------- -------
Total shareowners' equity 3,356 6,557
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $18,810 $19,038
======= =======
(See notes on pages 27 through 47)
26
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
1993 1992 1991
(in millions)
Cash flows from operating activities:
Earnings from continuing operations
before extraordinary item and cumulative
effect of changes in accounting principle $ 644 $ 845 $ 12
Adjustments to reconcile above earnings to net
cash provided by operating activities:
Depreciation and amortization 846 959 896
Benefit for deferred taxes (143) (21) (170)
Loss on sale and retirement of properties 195 157 115
(Increase) decrease in receivables (75) 303 (26)
Decrease (increase) in inventories 257 (103) 73
Increase in liabilities excluding borrowings 304 315 631
Other items, net 325 217 96
------- ------- -------
Total adjustments 1,709 1,827 1,615
------- ------- -------
Net cash provided by operating activities 2,353 2,672 1,627
------- ------- -------
Cash flows from investing activities:
Additions to properties (817) (1,236) (1,202)
Proceeds from sale of investments 48 189 33
Proceeds from sale of properties 8 8 16
Marketable securities - purchases (391) (159) (60)
Marketable securities - sales 245 114 102
------- ------- -------
Net cash used in investing activities (907) (1,084) (1,111)
------- ------- -------
Cash flows from financing activities:
Net decrease in commercial paper
borrowings of 90 days or less (1,436) (652) (114)
Proceeds from borrowings assumed by
discontinued operations 1,800 - -
Proceeds from other borrowings 522 464 1,499
Repayment of other borrowings (573) (1,170) (1,189)
Dividends to shareowners (657) (650) (649)
Exercise of employee stock options 175 17 -
Other items 2 2 2
------- ------- -------
Net cash used in financing activities (167) (1,989) (451)
------- ------- -------
Effect of exchange rate changes on cash (5) (12) (6)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 1,274 (413) 59
Cash and cash equivalents, beginning
of year 361 774 715
------- ------- -------
Cash and cash equivalents, end of year $ 1,635 $ 361 $ 774
======= ======= =======
(See notes on pages 27 through 47)
27
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
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.
TRANSLATION OF NON-U.S. CURRENCIES
Effective January 1, 1992, the local currency is the "functional currency" of
most subsidiary companies outside the U.S., however, the U.S. dollar will
continue to be used for reporting operations in highly inflationary economies.
This change did not have a material effect on the Company's statement of
financial position as of January 1, 1992.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The cost of
most U.S. inventories 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.
GOODWILL
The excess of the Company's costs of its consolidated investments over the
value ascribed to the equity in such companies at the time of acquisition is
amortized over appropriate future periods benefited not exceeding 40 years.
INVESTMENTS
Included in long-term receivables and other noncurrent assets are investments
in joint ventures which are managed as integral parts of the Company's segment
operations and are accounted for on an equity basis. The Company's share of
the earnings of these joint ventures is included in the earnings from
operations for the related segments.
SALES
Sales represent revenue from sales of products and services, equipment
rentals, and other operating fees.
DEPRECIATION
Depreciation expense is provided based on historical cost and the estimated
useful lives of the assets. The Company generally uses the straight-line
method for calculating the provision for depreciation. For assets in the
United States acquired prior to January 1, 1992, the provision for
depreciation is generally calculated using accelerated methods.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. 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.
PROPERTY RETIREMENTS
Properties are recorded at historical cost, reduced by accumulated
depreciation. When assets are retired or otherwise disposed of, the cost of
such assets and the related accumulated depreciation are removed from the
accounts. Any profit or loss on retirement, or other disposition, is
reflected in earnings.
INCOME TAXES
Effective January 1, 1992, deferred income taxes reflect the impact of
temporary differences between the assets and liabilities recognized for
financial reporting purposes and amounts recognized for tax purposes.
Deferred taxes are based on tax laws as currently enacted.
RECLASSIFICATIONS
Certain 1992 and 1991 financial statement and related footnote amounts have
been reclassified to conform to the 1993 presentation.
- - ------------------------------------------------------------------------------
28
DISCONTINUED OPERATIONS
On May 3, 1994, the Company announced its intent to divest the following
non-imaging health businesses: the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., the household products and
do-it-yourself products businesses of L&F Products and the Clinical Diagnostics
Division. These businesses are reported as discontinued operations with
results for prior periods restated. On June 23, 1994, the Company announced
Sanofi agreed to acquire the pharmaceutical business of Sterling Winthrop Inc.
for $1.675 billion in cash and its interest in the "Over-the-Counter" alliance
with Sterling Winthrop Inc. Sanofi's interest in the "Over the Counter"
alliance will be transferred to Sterling Winthrop Inc. On October 1, 1994, the
Company completed this sale. On August 29, 1994, the Company announced
SmithKline Beecham plc agreed to acquire the consumer health business of
Sterling Winthrop Inc. for $2.925 billion in cash. On November 2, 1994, the
Company completed this sale. On September 6, 1994, the Company announced
Johnson & Johnson agreed to acquire the Clinical Diagnostics Division for
$1.008 billion in cash. On November 30, 1994, the Company completed this sale.
On September 26, 1994, the Company announced Reckitt & Colman plc agreed to
acquire the worldwide household products business of L&F Products for
$1.55 billion in cash. On October 14, 1994, the Company announced Forstmann
Little & Co. agreed to acquire the do-it-yourself products business of L&F
Products for $700 million in cash. On November 30, 1994, the Company completed
this sale. In addition, as part of the divestiture, the Company is actively
negotiating with potential buyers for its pharmaceutical research and
development facility and its NanoSystems unit, and anticipates closing dates for
these transactions in 1995.
As of June 30, 1994, the Company concluded that measurement dates had occurred
for the non-imaging health businesses. Accordingly, the financial statement
information related to these businesses has been presented on one line in the
Consolidated Statement of Financial Position, "net assets of discontinued
operations", and in the "discontinued operations" line of the Consolidated
Statement of Earnings. The amounts presented for prior periods have been
restated for comparability. The "net assets of discontinued operations"
represents the assets intended to be sold offset by the liabilities
anticipated to be assumed by buyers of these businesses. The amounts
presented in the Consolidated Statement of Earnings for prior periods have
been restated to reflect the allocation of interest expense to discontinued
operations. The allocation of interest expense was performed by reference to
the interest expense on indebtedness that is anticipated to be repaid from the
net proceeds received from the sales.
The Company currently anticipates an overall gain on the sales of the health
businesses including income from operations during the phase-out period which
is estimated to end on or about December 31, 1994. Consequently, all gains
estimated at this time will be recognized by the Company as such transactions
close.
Summarized results of the Health businesses, including an allocation of
interest expense, are as follows:
(in millions) 1993 1992 1991
Sales $3,694 $3,553 $3,524
====== ====== ======
Earnings (loss) before income taxes $ (221) $ (161) $ (283)
Provision (benefit) for income taxes (52) (43) 31
------ ------ ------
Earnings (loss) before cumulative effect
of changes in accounting principle $ (169) $ (118) $ (314)
====== ====== ======
Interest expense included in earnings (loss) before income taxes was
$462 million for 1993, $460 million for 1992 and $460 million for 1991.
Net assets of the Health businesses as reported in the Consolidated Statement
of Financial Position are comprised of the following:
Dec. 31, Dec. 31,
(in millions) 1993 1992
Current assets $1,164 $1,150
Land, buildings and equipment, net 1,339 1,244
Other assets 4,282 4,407
------ ------
Total assets 6,785 6,801
------ ------
Current liabilities 857 804
Long-term borrowings 126 143
Other liabilities 453 356
------ ------
Total liabilities 1,436 1,303
------ ------
Net assets of discontinued
operations $5,349 $5,498
====== ======
29
Total net assets of the Health businesses at December 31, 1993 and December 31,
1992 reflect the expected settlement of intercompany balances.
The effective tax rates for the discontinued health operations were 24% and
27% for 1993 and 1992, respectively. The 1991 effective tax rate for these
operations is not meaningful since there is a tax charge on a pre-tax loss.
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory income tax rate of 35% in 1993 and
34% in 1992 and 1991 were primarily due to the allocation of tax effects of
non-deductible goodwill and foreign tax benefits to discontinued operations.
On June 15, 1993, the Company announced a plan to spin-off its Eastman
Chemical Company operations, which was completed on December 31, 1993.
Summarized results of the Chemicals segment, including allocations of interest
expense, income taxes and transaction costs associated with the spin-off are
as follows:
(in millions) 1993 1992 1991
Sales $3,695 $3,638 $3,468
====== ====== ======
Earnings before income taxes $ 267 $ 383 $ 445
Provision for income taxes 75 116 126
------ ------ ------
Earnings before cumulative
effect of changes in
accounting principle $ 192 $ 267 $ 319
====== ====== ======
Net assets of the Chemicals segment at December 31, 1992 are presented below.
As a result of the spin-off, these assets are not included in the Company's
1993 consolidated statement of financial position.
December 31,
1992
(in millions)
Current assets $1,002
Land, buildings and equipment, net 3,071
Other assets 164
------
Total assets 4,237
------
Current liabilities 486
Long-term borrowings 1,800
Other liabilities 545
------
Total liabilities 2,831
------
Net assets of discontinued
operations $1,406
======
Total net assets of the Chemicals segment at December 31, 1992 reflects the
expected settlement of intercompany balances and an allocation of long-term
borrowings as of the date of the spin-off.
The effective tax rates for discontinued chemicals operations were 28%, 30%
and 28% for 1993, 1992 and 1991, respectively. The differences between the
provision for income taxes and income taxes computed using the U.S. federal
statutory income tax rate of 35% in 1993 and 34% in 1992 and 1991 were
primarily due to the allocation of foreign and state tax benefits to
discontinued chemicals operations.
30
CASH FLOW INFORMATION
For purposes of the consolidated statement of cash flows, the Company
considers marketable securities with maturities of three months or less at the
time of purchase to be cash equivalents.
Cash paid for interest and income taxes, including amounts paid attributable
to discontinued operations, is as follows:
(in millions) 1993 1992 1991
Interest, net of portion capitalized
of $86, $94 and $112 $792 $766 $869
Income taxes 497 388 434
Certain assets have been acquired through non-cash acquisitions and are not
reflected in the consolidated statement of cash flows. Except for $157 million
of cash transferred with the Chemicals segment, the spin-off of the worldwide
chemical business was a non-cash transaction and is not reflected in the
consolidated statement of cash flows.
- - ------------------------------------------------------------------------------
MARKETABLE SECURITIES
Marketable securities (principally U.S. Government securities and time
deposits) are shown at cost which approximates market value.
- - ------------------------------------------------------------------------------
RECEIVABLES
The Company has entered into an agreement whereby it sells an undivided
interest in a designated pool of trade accounts receivable up to a maximum of
$100 million. As collections reduce accounts receivable balances in the pool,
the Company may sell participating interests in new receivables to bring the
amount sold up to the $100 million maximum. The uncollected balance of
receivables sold amounted to $100 million at each balance sheet date. The
Company retains collection and administrative responsibilities on the
participating interests sold as agent for the purchaser.
During 1993 the Company sold $75 million of lease receivables for
approximately $85 million.
- - ------------------------------------------------------------------------------
INVENTORIES
(in millions)
1993 1992
At FIFO or average cost (approximates current cost)
Finished goods $1,123 $1,124
Work in process 620 605
Raw materials and supplies 489 550
------ ------
2,232 2,279
Reduction to LIFO value (700) (687)
------ ------
$1,532 $1,592
====== ======
Inventories valued on the LIFO method are about 60 percent of total inventories in each of the
years.
- - ------------------------------------------------------------------------------
31
PROPERTIES AND ACCUMULATED DEPRECIATION
(in millions) 1993 1992 1991
PROPERTIES
Balance at beginning of year $12,082 $11,758 $11,096
Additions 817 1,236 1,202
Deductions (1,298) (912) (540)
------- ------- -------
Balance at end of year $11,601 $12,082 $11,758
======= ======= =======
Made up of:
Land $ 209 $ 220 $ 191
Buildings and building equipment 2,608 2,608 2,503
Machinery and equipment 8,608 8,890 8,600
Construction in progress 176 364 464
------- ------- -------
Total as above $11,601 $12,082 $11,758
======= ======= =======
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 6,562 $ 6,243 $ 5,758
Provision for depreciation 817 936 874
Deductions (805) (617) (389)
------- ------- -------
Balance at end of year $ 6,574 $ 6,562 $ 6,243
======= ======= =======
- - ------------------------------------------------------------------------------
LONG-TERM RECEIVABLES AND OTHER NONCURRENT ASSETS
(in millions) 1993 1992
Long-term receivables $180 $ 189
Other noncurrent assets 732 918
---- ------
Total (net of allowances of $20 and $24) $912 $1,107
==== ======
- - ------------------------------------------------------------------------------
PAYABLES AND SHORT-TERM BORROWINGS
(in millions) 1993 1992
Trade creditors $ 614 $ 594
Commercial paper - 596
Accrued payrolls 136 157
Accrued vacation pay 264 266
Short-term bank borrowings by subsidiaries
outside the U.S. 261 1,087
Wage dividend and Company payments under
Employees' Savings and Investment Plan 165 189
Current maturities of long-term borrowings 350 -
Restructuring reserves 356 248
Interest rate swap and option agreements 210 96
Other 1,132 875
------ ------
Total $3,488 $4,108
====== ======
- - ------------------------------------------------------------------------------
32
LONG-TERM BORROWINGS
(in millions)
1993 1992
Eastman Kodak Company
10.05% notes due 1994 $ 350 $ 350
9.20% notes due 1995 750 750
10 3/8% Eurobonds due 1995 111 111
7 7/8% notes due 1997 135 135
8.55% notes due 1997 200 200
9 1/8% notes due 1998 1,100 1,100
7 1/4% notes due 1999 275 275
9 5/8% notes due 1999 275 275
9 1/2% notes due 2000 400 400
6 3/8% convertible subordinated debentures due 2001 278 300
10% notes due 2001 300 300
9 3/8% notes due 2003 400 400
9 7/8% notes due 2004 300 300
9 3/4% notes due 2004 300 300
Zero coupon exchangeable senior debentures due 2006 - 118
9 1/2% notes due 2008 300 -
Zero coupon convertible subordinated debentures due 2011 1,127 1,056
8 5/8% debentures due 2016 - 300
9.95% debentures due 2018 125 125
9.20% debentures due 2021 200 200
Sterling Winthrop Inc.
8 7/8% notes due 1996 100 100
Industria Fotografica Interamericana S.A. de C.V.
7.36% notes due 2003 110 -
Other 67 107
------ ------
7,203 7,202
Less: Current maturities 350 -
------ ------
6,853 7,202
Less: Amounts expected to be assumed by
discontinued operations 126 1,943
------ ------
Total $6,727 $5,259
====== ======
The 6 3/8% debentures due in 2001 are convertible at the option of the holder
at any time prior to maturity for the Company's common stock at $41.52 per
share.
The zero coupon convertible subordinated debentures due in 2011 ($3,680
million face value, 6.75% yield to maturity) are convertible at the option of
the holder at any time prior to maturity for the Company's common stock at a
conversion rate of 6.944 shares per debenture. At the option of the holder,
the debentures must be purchased by the Company on October 15, 1994, 1995,
1996, 2001 and 2006, at a price equal to the issue price plus accrued original
issue discount.
The Company has an unused $2.5 billion revolving credit facility expiring in
October 1995 which is available to support the Company's commercial paper
borrowings. If unused, it has a commitment fee of $6.3 million per year.
Interest on amounts borrowed under this facility is at rates based on spreads
above certain reference rates.
The amounts of long-term borrowings maturing in the four years after 1994,
excluding amounts expected to be assumed by discontinued operations, are
$861 million in 1995, $0 million in 1996, $335 million in 1997 and
$1,100 million in 1998.
The Company has swapped $135 million of the 7 7/8% notes into yen denominated
debt and $46 million of the Sterling Winthrop Inc. 8 7/8% notes into deutsche
mark denominated debt. As a result of these agreements, the effective
interest rates on the 7 7/8% notes and 8 7/8% notes have been reduced.
The Company has a program in place to manage interest rate risk associated
with its current and anticipated borrowings. In connection with this program,
the Company has entered into various combinations of interest rate swaps,
options, currency swaps and similar arrangements. At December 31, 1993 and
1992, the Company had the following interest rate swap agreements with
aggregate notional principal amounts of $4.7 billion and $4.1 billion,
respectively.
33
LONG-TERM BORROWINGS (continued)
Notional
Amounts Maturities
at December 31, Through
1993 1992
Pay fixed rate (9.5% - 11.5%) and
receive LIBOR or commercial paper
based variable rate $ .6 $ .9 2018
Pay LIBOR or commercial paper based
variable rate and receive fixed rate (9.5%) .4 .4 2000
Zero coupon swaps 3.7 2.8 1999
In addition, the Company has entered into interest rate options linked to
$2.5 billion of its fixed rate callable debt at each balance sheet date. The
notional principal amounts associated with these options were $2.8 billion and
$3.1 billion at December 31, 1993 and 1992, respectively. The effect of these
options, which are exercisable through 1998, is to change the underlying debt
from callable to non-callable and to reduce the aggregate average effective
interest rate on this debt.
During 1988, the Company issued debt warrants that give the holders the option
between 1995 and 2004 to require the Company to issue an additional $300
million of 9.5% debt maturing in 2018. The premium received for these
warrants is being amortized as a reduction of interest expense.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to these agreements. However, the Company does not anticipate
nonperformance. Also, while these agreements are part of the Company's
overall interest rate management program, the fair value of these instruments
will vary with changes in prevailing interest rates. The fair values of these
interest rate agreements are included in the note on Fair Values of Financial
Instruments.
The Company has issued letters of credit in lieu of making security deposits
to insure the payment of possible Workers' Compensation claims.
- - ------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES
(in millions)
1993 1992
Interest rate swap and option
agreements $ 654 $ 789
Deferred compensation 77 71
Other 452 334
------ ------
Total $1,183 $1,194
====== ======
- - ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with several companies to provide the
Company with products and services to be used in its normal operations. The
minimum payments for these agreements are approximately $123 million in 1994,
$107 million in 1995, $97 million in 1996, $100 million in 1997, $98 million in
1998 and $155 million in 1999 and beyond.
The Company has also guaranteed debt and other obligations under agreements
with certain affiliated companies and customers. At December 31, 1993, these
guarantees totaled approximately $220 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.
The Company has entered into a Master Lease agreement whereby the Company
leases equipment with the right to buy the equipment anytime at fair market
value. The lease term is one year and is renewable annually. The total
amount of assets under this lease is approximately $300 million at each
balance sheet date.
- - ------------------------------------------------------------------------------
34
FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of other investments as of December 31, 1993 and 1992
shown below include $81 million and $70 million, respectively, of equity
investments in a number of entities for which it is not practicable to
estimate fair value, since quoted market prices do not exist for any of these
investments.
The fair values of long-term borrowings were estimated based on quoted market
prices or by obtaining quotes from brokers.
As discussed above, the Company is a party to various interest rate option and
swap agreements and foreign currency contracts which are included in other
instruments below. The fair values of other instruments were estimated by
obtaining quotes from brokers, where practicable, or by estimating the amounts
the Company would receive or pay to terminate the instruments at the reporting
date.
The recorded amounts of certain financial instruments, such as cash and
marketable securities and short-term borrowings, approximate their fair values
and are excluded from the amounts below. The recorded amounts and estimated
fair values of the Company's long-term borrowings and other financial
instruments as of December 31, 1993 and 1992 were as follows:
December 31, 1993 December 31, 1992
(in millions)
Recorded Fair Recorded Fair
Amount Value Amount Value
Other investments $ 93 $ 93 $ 124 $ 127
Long-term borrowings (6,727) (7,378) (7,059)* (7,509)*
Other instruments (814) (1,298) (689) (936)
*Includes borrowings expected to be assumed by discontinued chemicals
operations.
- - ------------------------------------------------------------------------------
35
SHAREOWNERS' EQUITY
(in millions)
1993 1992 1991
Common stock at par value
Balance at beginning of year $ 936 $ 934 $ 934
Additions 12 2 -
------ ------ ------
Balance at end of year 948 936 934
------ ------ ------
Additional capital paid in or transferred
from retained earnings
Balance at beginning of year 26 9 7
Additions 187 17 2
------ ------ ------
Balance at end of year 213 26 9
------ ------ ------
Retained earnings
Parent company and subsidiaries inside the U.S. 2,067 5,124 4,169
Subsidiaries outside the U.S. 2,402 2,597 3,056
------ ------ ------
Total retained earnings 4,469 7,721 7,225
------ ------ ------
Accumulated translation adjustment
Balance at beginning of year (85) (12) 7
Currency translation adjustment (150) (73)* (19)
------ ------ ------
Balance at end of year (235) (85) (12)
------ ------ ------
Total before deducting treasury stock 5,395 8,598 8,156
------ ------ ------
Less: Treasury stock, at cost
Balance at beginning of year 2,041 2,052 2,059
Reissuance of treasury shares (2) (11) (7)
------ ------ ------
Balance at end of year 2,039 2,041 2,052
------ ------ ------
Total shareowners' equity $3,356 $6,557 $6,104
====== ====== ======
* Includes the effect of the change to local currency as the functional currency for most
subsidiary companies outside the U.S. on January 1, 1992.
There are approximately 27 million shares reserved for the conversion of the
6 3/8% convertible subordinated debentures and zero coupon convertible
subordinated debentures issued by the Company. There are also 100 million
shares of $10 par value preferred stock authorized, none of which has been
issued.
Retained earnings of subsidiary companies outside the U.S. 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.
- - ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Fully diluted earnings per share is computed by dividing net earnings adjusted
for after-tax interest expense associated with convertible securities by the
average number of common shares outstanding, common stock equivalents related
to dilutive stock options, and common shares issuable upon conversion of such
convertible securities. The effects of such potentially dilutive convertible
securities were not dilutive in 1993 and 1991. The number of common shares
used to compute earnings per share amounts was as follows:
(in millions) 1993 1992 1991
Primary 328.3 325.1 324.7
Fully diluted 331.2 352.2 326.4
- - ------------------------------------------------------------------------------
OTHER REVENUES
Other revenues include $50 million of interest income for 1993, $74 million for
1992 and $102 million for 1991.
- - ------------------------------------------------------------------------------
36
INCOME TAXES
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The
adoption of this standard changed the Company's method of accounting for
income taxes from the deferred method to the liability method. The standard
was adopted on a prospective basis and amounts presented for prior years were
not restated. The cumulative effect of adopting the standard as of January 1,
1992 was a $100 million credit to earnings from continuing operations and a
$52 million credit to earnings from discontinued operations.
The components of earnings (loss) from continuing operations before income
taxes and the related provision (benefit) for United States and other income
taxes were as follows:
(in millions) 1993 1992 1991
Earnings (loss) before income taxes
United States $ 894 $ 974 $ (624)
Outside the U.S. 183 405 473
------ ------ ------
Total $1,077 $1,379 $ (151)
====== ====== ======
United States income taxes
Current provision (benefit) $ 357 $ 393 $ (163)
Deferred benefit (85) (12) (148)
Non-U.S. income taxes
Current provision 194 103 216
Deferred benefit (52) - (16)
State and other income taxes
Current provision (benefit) 25 59 (46)
Deferred benefit (6) (9) (6)
------ ------ ------
Total $ 433 $ 534 $ (163)
====== ====== ======
The components of earnings (loss) from consolidated operations before income
taxes and the related provision (benefit) for United States and other income
taxes were as follows:
(in millions) 1993 1992 1991
Earnings (loss) before income taxes
United States $(2,762) $ 999 $ (461)
Outside the U.S. 389 602 472
------- ------ ------
Total $(2,373) $1,601 $ 11
======= ====== ======
United States income taxes
Current provision (benefit) $ 307 $ 349 $ (111)
Deferred benefit (1,190) (189) (112)
Non-U.S. income taxes
Current provision 237 182 286
Deferred benefit (51) (30) (35)
State and other income taxes
Current provision (benefit) 34 75 (28)
Deferred provision (benefit) (195) 68 (6)
------- ------ ------
Total $ (858) $ 455 $ (6)
======= ====== ======
The components of consolidated income
taxes are as follows:
Continuing operations $ 433 $ 534 $ (163)
Discontinued operations 23 73 157
Extraordinary item (8) - -
Cumulative effect of changes
in accounting principle (1,306) (152) -
------- ------ ------
Total income taxes (benefit) $ (858) $ 455 $ (6)
======= ====== ======
37
The differences between the provision (benefit) for income taxes and income
taxes computed using the U.S. federal income tax rate for continuing
operations were as follows:
(in millions) 1993 1992 1991
Amount computed using the statutory rate $377 $469 $ (52)
Increase (reduction) in taxes resulting from
State and other income taxes 25 50 (8)
Goodwill amortization 15 13 14
Export sales and manufacturing credits (17) (20) (28)
Operations outside the U.S. 75 33 (39)
Other, net (42) (11) (50)
---- ---- -----
Provision (benefit) for income taxes $433 $534 $(163)
==== ==== =====
The significant components of deferred tax assets and liabilities were as
follows:
(in millions) 1993 1992
Deferred tax assets
Postemployment obligations $1,117 $ -
Restructuring costs and
separation programs 618 503
Inventories 68 55
Tax loss carryforwards 196 92
Other 371 343
------ ------
2,370 993
Valuation allowance (196) (92)
------ ------
Total $2,174 $ 901
====== ======
Deferred tax liabilities
Depreciation $ 525 $ 529
U.S. pension income 146 162
Leasing 443 426
Other 344 189
------ ------
Total $1,458 $1,306
====== ======
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 available indefinitely.
The 1991 deferred tax benefit for both continuing and consolidated operations
was primarily attributable to differences related to restructuring costs of
$526 million, which was partially offset by the settlement of a litigation
judgment of $324 million.
38
CURRENCY TRANSACTIONS AND TRANSLATION ADJUSTMENTS
The Company has entered into foreign currency forward and option contracts.
The notional amounts for these contracts were $615 million at December 31, 1993
and $783 million at December 31, 1992. Most of these contracts hedge
transactions in non-U.S. dollar denominated receivables and payables.
Exchange gains and losses on these hedge contracts are offset against losses
and gains on the underlying receivables and payables.
The Company has entered into foreign currency options and option combinations
to hedge probable anticipated export sales transactions during the next two
years. Realized and unrealized gains and losses on those options and option
combinations that are designated and effective as hedges of such probable
anticipated, but not firmly committed, foreign currency transactions are
deferred and recognized in income in the same periods as the hedged
transactions. The net unrealized loss deferred on such options as of
December 31, 1993 totaled $69 million compared with a net unrealized gain of
$20 million as of December 31, 1992. These amounts represent the gain or loss
that would have been recognized had these options been liquidated at market
value in their respective years.
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the foreign currency option contracts. However, the Company
does not anticipate nonperformance.
The net effect from foreign exchange transactions was a gain of $35 million for
1993 compared with a loss of $25 million for 1992 and a gain of $49 million for
1991.
- - ------------------------------------------------------------------------------
RESTRUCTURING COSTS
The Company recorded restructuring costs for continuing operations in 1993 of
$495 million. Approximately three-fourths of these costs represented the cost
of separation benefits for a cost reduction program expected to reduce
worldwide employment by approximately 9,000 personnel, most of whom are
expected to leave by the end of 1994. The remainder of the restructuring
costs is associated with closing a facility in Germany that manufactures a
component for the Company's ink jet printer business. This closure is
expected to be completed during 1994. The accrual balance for these programs
is $356 million at December 31, 1993.
The Company recorded restructuring costs for continuing operations of
$219 million in 1992 and $1,448 million in 1991. Approximately three-fourths
of these costs were for an early retirement program. The balance for this
program is $375 million at December 31, 1993, which will be paid out to early
retirees and their survivors over time. Most of the costs associated with
this program are being funded from the Company's pension plan assets and,
therefore, did not affect the Company's cash flows during the past three
years. The Company does not anticipate that such costs will significantly
affect the cash flows in the near future.
The remainder of the 1992 and 1991 restructuring costs is related to the
Company's exit from non-strategic businesses and the restructuring of the
Company's non-U.S. sensitized manufacturing and photofinishing businesses.
The accrual balance remaining at December 31, 1993 for these programs is
$27 million, which relates primarily to noncancelable lease commitments and
other contractual obligations associated with divested operations to be paid
out over the remaining terms of the contracts.
- - ------------------------------------------------------------------------------
RENTAL AND LEASE COMMITMENTS
Rental expense consists of: 1993 1992 1991
(in millions)
Gross rentals $185 $185 $188
Deduct: Sublease income 11 5 4
---- ---- ----
Total $174 $180 $184
==== ==== ====
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 $75 million in 1994, $62 million in 1995, $50 million in
1996, $43 million in 1997, $26 million in 1998 and $72 million in 1999 and
beyond.
- - ------------------------------------------------------------------------------
39
RETIREMENT PLANS
Total worldwide pension expense, including discontinued operations, was
$104 million in 1993. This compares with pension expense of $56 million in
1992 and pension income of $8 million in 1991. Discontinued chemicals
operations was allocated pension expense of $10 million and $6 million in 1993
and 1992, respectively, and pension income of $7 million in 1991.
The Company has defined benefit pension plans which cover substantially all of
its U.S. employees. The benefits are based on years of service and generally
on the employees' final average compensation as defined in the plans. The
Company makes contributions to the plans as permitted by government laws and
regulations. Retirement plan benefits are paid to eligible employees by
insurance companies or from trust funds. The Company has retained the
obligation for pension benefits for personnel who retired from Eastman
Chemical Company through December 31, 1993.
Pension expense for the principal U.S. plan, including discontinued
operations, includes the following components:
(in millions) 1993 1992 1991
Service cost - benefits earned during the year $ 160 $ 143 $ 135
Interest cost on projected benefit obligation 575 560 517
Return on plan assets (1,124) (514) (1,368)
Net amortization 436 (190) 650
------ ------ ------
Net pension expense (income) $ 47 $ (1) $ (66)
====== ====== ======
The funded status of the principal U.S. plan was as follows:
December 31,
(in millions) 1993* 1992**
Pension benefit obligations
Vested benefits $5,693 $5,404
====== ======
Accumulated benefits $5,900 $5,701
====== ======
Projected benefits $6,755 $6,778
Market value of assets (primarily listed stocks) 6,278 6,526
------ ------
Projected benefits in excess of plan assets 477 252
Unrecognized net loss (366) (189)
Unrecognized net transition asset 632 793
Unrecognized prior service cost (312) (364)
------ ------
Accrued pension expense $ 431 $ 492
====== ======
*The funded status at December 31, 1993 includes discontinued health operations.
**The funded status at December 31, 1992 includes discontinued operations.
The assumptions used to develop the projected benefit obligation for U.S.
plans were as follows:
December 31,
1993 1992
Discount rate 7 1/4% 8 1/2%
Salary increase rate 4 5
Long-term rate of return on plan assets 9 1/2 10 1/2
The Company also sponsors other U.S. plans. At December 31, 1993, the
projected benefit obligations for these plans totaled $217 million (1992 -
$208 million) of which $145 million (1992 - $144 million) was included as a
liability in the consolidated statement of financial position.
The obligation for the Company's unfunded plans of $126 million in 1993 and
$132 million in 1992 has been recorded as a long-term liability.
Calculations indicate that the total of the pension funds and accruals for
non-U.S. plans less pension prepayments and deferred charges exceeds the
actuarially computed value of vested benefits under such plans as of the
beginning of 1993 and 1992.
40
OTHER POSTEMPLOYMENT COSTS
The Company provides life insurance and health care benefits for eligible
retirees and health care benefits for eligible survivors of retirees. In
general, these benefits are provided to retirees eligible to retire under the
Company's principal U.S. pension plan. Prior to January 1, 1993, the Company
has recognized expense for the cost of such plans when it paid premiums,
claims and other costs. The expense for such plans, excluding discontinued
chemicals operations, was $244 million in 1993, $100 million in 1992 and
$78 million in 1991.
The Company adopted SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions on January 1, 1993. As a result, the Company now
accrues, during the years employees render service, the expected costs of
providing postretirement health and life insurance benefits to such employees.
The obligation owed to current and retired employees, including discontinued
operations, as of January 1, 1993 was recognized on that date as a cumulative
effect of a change in accounting principle of $2.1 billion after-tax. The
Company has retained the obligation for other postretirement benefits for
personnel who retired from Eastman Chemical Company through December 31, 1993.
The annual after-tax effect of the expense recognized, excluding discontinued
chemicals operations, using the accrual method required by SFAS No. 106 is
approximately $108 million ($.33 per share) higher than the annual expense that
would be recognized on a cash basis. Since the Company plans to continue to
fund these benefit costs on a pay-as-you-go-basis, the adoption of SFAS No.
106 will not affect cash flows.
The 1993 net periodic postretirement benefit cost for the principal U.S.
plans, excluding discontinued chemicals operations, includes the following
components:
(in millions)
Service cost $ 29
Interest cost 215
------
Net periodic postretirement
benefit cost $ 244
======
Presented below are the total obligation and amount recognized, excluding
discontinued chemicals operations, in the consolidated statement of financial
position for the principal U.S. plans at December 31, 1993:
(in millions)
Accumulated postretirement
benefit obligation
Retirees $2,677
Fully eligible active plan
participants 61
Other active plan participants 826
------
3,564
Unrecognized net loss (548)
------
Accrued postretirement benefit cost $3,016
======
To estimate these costs, health care costs were assumed to increase 11% in
1994 with the rate of increase declining ratably to 5% by 2002 and thereafter.
The discount rate and salary increase rate were assumed to be 8.5% and 5.0%,
respectively, as of January 1, 1993. The discount rate and salary increase
rate are assumed to be 7.25% and 4.0%, respectively, as of December 31, 1993.
If the health care cost trend rates were increased by one percentage point,
the accumulated postretirement benefit health care
obligation, excluding discontinued chemicals operations, as of December 31,
1993 would increase by approximately $265 million while the net periodic
postretirement health care benefit cost for the year then ended would increase
by approximately $20 million.
A few of the Company's non-U.S. subsidiaries have supplemental health benefit
plans for certain retirees. The cost of these programs is not significant to
the Company.
Effective January 1, 1993, the Company adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits. Adoption of SFAS No. 112 requires the
Company to recognize the obligation to provide certain benefits to former or
inactive employees before retirement. The obligation including discontinued
operations as of January 1, 1993 has been recognized as a cumulative charge of
$190 million ($117 million after-tax). The amount applicable to discontinued
chemicals operations was $47 million ($29 million after-tax). Adoption of SFAS
No. 112 did not have a material effect on the Company's earnings before
cumulative effect of changes in accounting principle.
- - ------------------------------------------------------------------------------
41
SEGMENT INFORMATION
In conjunction with the Company's announced intention to refocus its attention
on its consumer and commercial imaging businesses, the Company has changed its
segments for financial reporting purposes, effective with the second quarter
of 1994. The Consumer Imaging business unit, which was previously reported in
the former Imaging segment, is now reported as a separate segment. The new
Commercial Imaging segment includes the other business units from the former
Imaging segment, the business units from the former Information segment,
digital and applied imaging operations and the Health Sciences business unit,
which was previously included in the Health segment. Data for prior periods
have been restated to conform with the 1994 presentation.
The products of each segment are manufactured and marketed in the U.S. and in
other parts of the world. The Consumer Imaging segment includes amateur
films, photographic papers, chemicals and equipment for photographic imaging.
The Commercial Imaging segment includes motion picture, professional and
graphic arts films, microfilms, copiers, printers and other equipment for
information management. Sales between segments are made on a basis intended
to reflect the market value of the products.
Sales are reported in the geographic area where they originate. Transfers
among geographic areas are made on a basis intended to reflect the market
value of the products, recognizing prevailing market prices and distributor
discounts. The parent company's equity in the net assets of subsidiaries
outside the U.S. was as follows:
(in millions) 1993 1992 1991
Net assets $2,912 $2,729 $3,036
====== ====== ======
42
SEGMENT INFORMATION (continued)
(in millions) 1993 1992 1991
Sales from continuing operations,
including intersegment sales
Consumer Imaging $ 5,292 $ 5,414 $ 5,135
Commercial Imaging 7,382 7,592 7,301
Intersegment sales (4) (14) (9)
------- ------- -------
Total sales from continuing operations $12,670 $12,992 $12,427
======= ======= =======
Earnings (loss) from operations from
continuing operations (1)
Consumer Imaging $ 931 $ 1,065 $ 582
Commercial Imaging 317 334 (492)
------- ------- -------
Total earnings from operations
from continuing operations 1,248 1,399 90
Other revenues and charges
Consumer Imaging 2 (7) (8)
Commercial Imaging 9 (31) (33)
Corporate (7) 265 91
Interest expense 175 247 291
------- ------- -------
Earnings (loss) before income taxes $ 1,077 $ 1,379 $ (151)
======= ======= =======
Assets
Consumer Imaging $ 4,154 $ 4,191 $ 4,231
Commercial Imaging 7,334 7,228 7,519
Net assets of discontinued operations 5,349 6,904 6,463
Corporate (2) 1,973 715 1,739
------- ------- -------
Total assets at year end $18,810 $19,038 $19,952
======= ======= =======
Depreciation expense
Consumer Imaging $ 286 $ 281 $ 288
Commercial Imaging 531 655 586
------- ------- -------
Total depreciation expense $ 817 $ 936 $ 874
======= ======= =======
Amortization of goodwill
Consumer Imaging $ 6 $ 4 $ 4
Commercial Imaging 23 19 18
------- ------- -------
Total amortization of goodwill $ 29 $ 23 $ 22
======= ======= =======
Capital additions
Consumer Imaging $ 282 $ 367 $ 399
Commercial Imaging 535 869 803
------- ------- -------
Total capital additions $ 817 $ 1,236 $ 1,202
======= ======= =======
(1) Earnings from operations for 1993 are shown after deducting restructuring costs of
$141 million for Consumer Imaging and $354 million for Commercial Imaging. Earnings
from operations for 1992 are shown after deducting restructuring costs of $58 million
for Consumer Imaging and $161 million for Commercial Imaging. Earnings (loss) from
operations for 1991 are shown after deducting restructuring costs of $555 million for
Consumer Imaging and $893 million for Commercial Imaging.
(2) Includes EKCC assets in 1991. EKCC was sold to General Electric Capital on December
31, 1992.
43
SEGMENT INFORMATION (continued)
Financial information by geographic areas is as follows:
Canada
and Asia,
United Latin Africa, Elimi- Consoli-
(in millions) States America Europe Australia nations dated
1993
Sales to customers $6,038 $1,178 $3,529 $1,925 $12,670
Transfers among geographic areas 2,063 414 307 46 $(2,830) -
------ ------ ------ ------ ------- -------
Total sales $8,101 $1,592 $3,836 $1,971 $(2,830) $12,670
====== ====== ====== ====== ======= =======
Earnings (loss) from operations
from continuing operations $1,007 $ 191 $ (6) $ 63 $ (7) $ 1,248
====== ====== ====== ====== ======= =======
Assets by geographic areas (1) $8,952 $1,320 $2,615 $1,446 $ 4,477 $18,810
====== ====== ====== ====== ======= =======
1992
Sales to customers $6,167 $1,113 $4,002 $1,710 $12,992
Transfers among geographic areas 2,175 360 304 35 $(2,874) -
------ ------ ------ ------ ------- -------
Total sales $8,342 $1,473 $4,306 $1,745 $(2,874) $12,992
====== ====== ====== ====== ======= =======
Earnings from operations
from continuing operations $ 949 $ 206 $ 190 $ 64 $ (10) $ 1,399
====== ====== ====== ====== ======= =======
Assets by geographic areas (1) $8,803 $1,092 $3,028 $1,383 $ 4,732 $19,038
====== ====== ====== ====== ======= =======
1991
Sales to customers $5,981 $1,074 $3,779 $1,593 $12,427
Transfers among geographic areas 2,029 283 248 35 $(2,595) -
------ ------ ------ ------ ------- -------
Total sales $8,010 $1,357 $4,027 $1,628 $(2,595) $12,427
====== ====== ====== ====== ======= =======
Earnings (loss) from operations
from continuing operations $ (365) $ 213 $ 149 $ 101 $ (8) $ 90
====== ====== ====== ====== ======= =======
Assets by geographic areas (1) $9,366 $1,059 $3,277 $1,270 $ 4,980 $19,952
====== ====== ====== ====== ======= =======
(1) Includes net assets of discontinued operations.
- - --------------------------------------------------------------------------
44
STOCK OPTION AND COMPENSATION PLANS
The 1990 Omnibus Long-Term Compensation Plan provides for a variety of awards
to key employees. Some of these awards are based upon performance criteria
relating to the Company established by the Executive Compensation and
Development Committee of the Board of Directors.
The 1990 Omnibus Long-Term Compensation Plan provides that options can be
granted through January 31, 1995, to key employees for the purchase of up to
16,000,000 shares of Kodak common stock at an option price not less than 50
percent of the per share fair market value on the date of the stock option's
grant. No options below fair market value have been granted to date. Options
with dividend equivalents were awarded during 1993, 1992 and 1991 under the
1990 Omnibus Long-Term Compensation Plan. Accruals under this plan amounted
to $5 million in 1993, $5 million in 1992 and $4 million in 1991. The 1990
Plan also provides for the granting of Stock Appreciation Rights (SARs) either
in tandem with options or freestanding. SARs allow optionees to receive a
payment equal to the appreciation in market value of a stated number of shares
of Kodak common stock from the SARs exercise price to the market value on the
date of its exercise. Exercise of a tandem SAR requires the optionee to
surrender the related option. At December 31, 1993, there were 195,750 tandem
SARs and 344,539 freestanding SARs outstanding at option prices ranging from
$30.25 to $43.18.
The 1985 Stock Option Plan provided that options could be granted through 1989
to key employees for the purchase of up to 6,000,000 (prior to giving effect
to the 3-for-2 partial stock split in 1987) shares of Kodak common stock at an
option price not less than the per share fair market value at the time the
option was granted. Options granted have maximum durations of 7 or 10 years
from the date of grant but may expire sooner if the optionee's employment
terminates. The 1985 Plan also provided for the granting of SARs either in
tandem with options or freestanding. At December 31, 1993, there were 610,975
tandem SARs and 69,050 freestanding SARs outstanding at option prices ranging
from $33.79 to $39.53.
Summarized option data as of December 31, 1993 are as follows:
Shares Range of Price
Under Option Per Share
------------ ---------------
Options Outstanding December 31, 1992 16,516,169 $32.45 - $49.50
Options Granted 4,053,755 $40.69 - $63.19
Options Exercised 4,177,442 $32.45 - $54.06
Options Cancelled 139,658 $32.45 - $54.06
Options Surrendered 94,423 $39.38 - $49.50
Options Outstanding December 31, 1993 20,231,934 $25.92 - $50.47
As a result of the spin-off of the Company's worldwide chemical business all
outstanding stock options were adjusted as to option price and number of
shares granted.
At December 31, 1993, 13,512,298 of the options outstanding were exercisable.
- - ------------------------------------------------------------------------------
45
EASTMAN KODAK CREDIT CORPORATION
The primary business purpose of Eastman Kodak Credit Corporation (EKCC),
formerly a wholly-owned subsidiary of the Company, was to enhance the
marketing capabilities of the Company by providing long-term product financing
to Kodak customers.
Summarized financial information for EKCC is as follows:
(in millions)
1992 1991
Results of operations
Revenues $159 $154
Earnings before taxes 25 21
Net earnings 18 14
The Company sold its investment in EKCC on December 31, 1992 to General
Electric Capital. The divestiture was the primary reason for the decrease in
consolidated assets and liabilities from year-end 1991, when EKCC had total
assets of $951 million and total indebtedness of $865 million.
- - ------------------------------------------------------------------------------
LEGAL MATTERS
The Company is in discussion with the Environmental Protection Agency (EPA)
and the Environment and Natural Resources Division of the U.S. Department of
Justice concerning the EPA/NEIC (National Enforcement Investigations Center)
investigation of the Company's Kodak Park site in Rochester, New York. As a
result of the investigation, the Company expects to incur a civil fine of at
least $100,000 for violations of federal environmental laws and regulations.
The Company is participating in the EPA's Toxic Substances Control Act (TSCA)
Section 8(e) Compliance Audit Program. As a participant, the Company has
agreed to audit its files for materials which under current EPA guidelines
would be subject to notification under Section 8(e) of TSCA and to pay
stipulated penalties for each report submitted under this program. The
Company anticipates that its liability under the Program will be $1,000,000.
In addition to the foregoing environmental actions, the Company has been
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 fewer than twenty 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 similarly 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 condition or results of operations.
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 condition or results of
operations.
- - ------------------------------------------------------------------------------
SUBSEQUENT EVENTS
The Company redeemed the zero coupon convertible subordinated debentures due
2011 on April 1, 1994, and during the second quarter, redeemed the 6 3/8%
convertible subordinated debentures due 2001.
During the second quarter of 1994, the Company terminated the Master Lease
agreement by purchasing approximately $300 million of equipment it has been
leasing. Also during the second quarter of 1994, the Company terminated a
Sale of Receivables program.
On August 12, 1994, the Company purchased from Actava Group Inc. its 50%
interest in Qualex Inc. for $150 million, $50 million to Actava at the closing
and the remaining $100 million without interest in two installments over the
next twelve months.
On October 3, 1994, the Company announced a tender offer for up to $4.8
billion of its outstanding long-term borrowings. On October 20, 1994, the
Company announced that $2.7 billion of the possible $4.8 billion was tendered
during the tender offer period which ended on that date. In connection with
the debt paydown program, the Company incurred pre-tax losses related to the
tender offer of approximately $160 million which will result in an
extraordinary charge in the fourth quarter of 1994. The Company has also
unwound substantially all of the interest rate derivatives associated with its
debt issues. The Company incurred pre-tax losses related to the unwind of the
derivatives of approximately $160 million in September, which has been
deferred, and approximately $60 million in October. These losses will be
charged to extraordinary and other charges in the fourth quarter of 1994 along
with the losses on the debt.
46
- - ------------------------------------------------------------------------------
QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(in millions, except per share data)
1993
Sales from continuing operations $3,489 $3,160 $3,353 $2,668
Gross profit from continuing operations 1,523 1,535 1,709 1,249
Earnings (loss) from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principle 220 (74)(1) 350 148
Earnings (loss) from discontinued
operations before cumulative effect
of changes in accounting principle (18) 7 (2) 33 1
Extraordinary item (1) (1) (12) -
Cumulative effect of changes in
accounting principle from continuing
operations - - - (1,649)(3)
Cumulative effect of changes in
accounting principle from
discontinued operations - - - (519)(3)
Net earnings (loss) 201 (68)(1)(2) 371 (2,019)
Primary earnings (loss) per share from
continuing operations before
extraordinary item and cumulative
effect of changes in accounting
principle (4) .67 (.23) 1.07 .46
Primary earnings (loss) per share
from discontinued operations before
cumulative effect of changes in
accounting principle (4) (.06) .02 .10 -
Extraordinary item - - (.04) -
Cumulative effect of changes in
accounting principle from continuing
operations (4) - - - (5.05)(3)
Cumulative effect of changes in
accounting principle from
discontinued operations (4) - - - (1.59)(3)
Primary earnings (loss) per share (4) .61 (.21) 1.13 (6.18)
Fully diluted earnings (loss) per
share (4) .60 (.15) 1.08 (6.18)
(1) After deducting $495 million of restructuring costs which reduced net earnings
by $353 million.
(2) After deducting $55 million of restructuring costs which reduced net earnings by
$34 million.
(3) Cumulative effect of the change in accounting for certain postretirement and
other postemployment benefits, adopted in the 1st and 2nd quarter, effective
January 1, 1993.
(4) Each quarter is calculated as a discrete period and the sum of the four quarters
does not equal the full year amount.
47
QUARTERLY SALES AND EARNINGS DATA - UNAUDITED (continued)
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(in millions, except per share data)
1992
Sales from continuing operations $3,586 $3,327 $3,402 $2,677
Gross profit from continuing
operations 1,689 1,642 1,679 1,280
Earnings from continuing operations
before cumulative effect of change
in accounting principle 292 (1) 135 (2) 303 115
Earnings from discontinued
operations before cumulative effect
of change in accounting principle 7 54 (3) 58 30
Cumulative effect of change in
accounting principle from continuing
operations - - - 100 (4)
Cumulative effect of change in
accounting principle from
discontinued operations - - - 52 (4)
Net earnings 299 (1) 189 (2) 361 297
Primary earnings per share from
continuing operations before
cumulative effect of change in
accounting principle (5) .98 .40 .89 .34
Primary earnings (loss) per share
from discontinued operations before
cumulative effect of change in
accounting principle (5) (.06) .18 .22 .11
Cumulative effect of change in
accounting principle from
continuing operations - - - .31 (4)
Cumulative effect of change in
accounting principle from
discontinued operations - - - .16 (4)
Primary earnings per share .92 .58 1.11 .92
Fully diluted earnings per share .89 .58 1.06 .88
(1) Includes gains from the sale of EKCC and other investments which increased net
earnings by $75 million.
(2) After deducting $219 million of restructuring costs which reduced net earnings by
$140 million.
(3) After deducting $1 million of restructuring costs which reduced net earnings by less
than $1 million.
(4) Cumulative effect of the change in accounting for income taxes adopted in the 3rd
quarter, effective January 1, 1992.
(5) Each quarter is calculated as a discrete period and the sum of the four quarters
does not equal the full year amount.
48
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(Dollar amounts and shares in millions, except per share data)
1993 1992 1991 1990 1989
Sales from continuing operations $12,670 $12,992 $12,427 $12,526 $12,325
Earnings from operations before
extraordinary item and cumulative effect
of changes in accounting principle:
Continuing 644 (1) 845(3) 12 (5) 548(6) 312(7)
Discontinued 23 (1) 149(3) 5 (5) 155 217(7)
Net earnings (loss) (1,515)(1) 1,146(3) 17 (5) 703(6) 529(7)
(2) (4)
EARNINGS AND DIVIDENDS
Net earnings - percent of sales (12.0%) 8.8% 0.1% 5.6% 4.3%
- percent return on average
shareowners' equity (30.6%) 18.1% 0.3% 10.5% 7.9%
Primary earnings (loss) per share (8) (4.62) 3.53 .05 2.17 1.63
Cash dividends declared - on common shares 657 650 649 649 649
- per common share 2.00 2.00 2.00 2.00 2.00
Common shares outstanding at close of year 330.6 325.9 324.9 324.6 324.4
Shareowners at close of year 157,797 166,532 169,164 168,935 171,954
STATEMENT OF FINANCIAL POSITION DATA
Current assets $ 6,857 $ 5,287 $ 6,185 $ 6,479 $ 6,683
Properties at cost 11,601 12,082 11,758 11,096 10,985
Accumulated depreciation 6,574 6,562 6,243 5,758 5,580
Total assets 18,810 19,038 19,952 20,085 19,777
Current liabilities 4,053 4,742 5,504 5,851 5,461
Long-term borrowings 6,727 5,259 5,648 5,036 5,405
Total net assets (shareowners' equity) 3,356 6,557 6,104 6,748 6,642
SUPPLEMENTAL INFORMATION
Sales - Consumer Imaging (9) $ 5,292 $ 5,414 $ 5,135 $ $
- Commercial Imaging (9) 7,382 7,592 7,301
Research and development costs 864 988 971 872 856
Depreciation 817 936 874 798 845
Taxes (excludes payroll, sales, and excise
taxes) 545 584 (183) 377 240
Wages, salaries, and employee benefits 4,589 4,653 4,533 4,427 4,530
Employees at close of year - in the U.S. 49,100 50,900 51,600 55,500 58,100
- worldwide 91,800 95,200 96,700 99,300 101,900
SUBSIDIARY COMPANIES OUTSIDE THE U.S.
Sales $ 6,632 $ 6,825 $ 6,446 $ 6,539 $ 6,302
Earnings from operations 248 460 463 958 614
(1) After deducting $495 million of restructuring costs from continuing operations which
reduced net earnings by $353 million and after deducting $55 million of restructuring
costs from discontinued operations which reduced net earnings by $34 million.
(2) The net loss for 1993 was due to an after-tax charge of $2.17 billion from the cumulative
effect of adopting SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, and SFAS No. 112, Employers' Accounting for Postemployment Benefits.
(3) After deducting $219 million of restructuring costs from continuing operations which
reduced net earnings by $140 million and after deducting $1 million of restructuring costs
from discontinued operations which reduced net earnings by less than $1 million.
(4) Net earnings for 1992 benefited by $152 million from the cumulative effect of adopting
SFAS No. 109, Accounting for Income Taxes.
(5) After deducting $1,448 million of restructuring costs from continuing operations which
reduced net earnings by $934 million and after deducting $157 million of restructuring
costs from discontinued operations which reduced net earnings by $98 million.
(6) After deducting $888 million for the litigation judgment including post-judgment interest
which reduced net earnings by $564 million.
(7) After deducting $835 million of restructuring costs from continuing operations which
reduced net earnings by $524 million and after deducting $40 million of restructuring costs
from discontinued operations which reduced net earnings by $25 million.
(8) Based on average number of shares outstanding.
(9) Data for 1993, 1992 and 1991 have been restated to reflect the new basis of two reporting
segments.
49
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. 33-48955, and No. 33-49285), Form S-4 (No. 33-48891) and Form S-8
(No. 2-77145, No. 33-5803, No. 33-36731, No. 33-38631, No. 33-38632,
No. 33-38633, No. 33-38634, No. 33-35214, and No. 33-56499) of Eastman Kodak
Company of our report dated January 31, 1994, except for the Discontinued
Operations and Subsequent Events notes, which are as of December 5, 1994,
appearing on page 21 of this Current Report on Form 8-K.
PRICE WATERHOUSE LLP
New York, New York
December 5, 1994
50
Schedule I
Eastman Kodak Company and Subsidiary Companies
Marketable Securities as of December 31, 1993
(in millions)
Amount Shown in
Principal Statement of
Name of Issuer or Title of Issue Amount Cost Market Financial Position
U. S. Govt. Securities $200 $200 $200 $200
Certificates of deposit 122 122 122 122
Other securities 9 9 9 9
---- ---- ---- ----
Totals $331 $331 $331 $331
==== ==== ==== ====
51
Schedule II
Eastman Kodak Company and Subsidiary Companies
Amounts Receivable From Employees
(in millions)
Balance 1993 1993 Balance
Name of Debtor 1/1/93 Additions Collections 12/31/93
George M. C. Fisher* $ - $8.4 $ - $8.4
Other employees with loans
greater than $100,000** 2.1 0.5 0.7 1.9
* Interest rate on Mr. Fisher's loan is 4.86% compounded semi-annually.
Twenty percent of the principal and all accrued interest shall be forgiven on
each of the first five anniversaries of the date of the loan, provided that
Mr. Fisher shall not be entitled to forgiveness on any such anniversary date
if he has terminated his employment through voluntary termination, as defined
in his employment agreement, on or prior to such anniversary date.
** Amounts each year represent housing loans for approximately ten to fifteen
employees located outside the United States, primarily in Japan.
52
Schedule V
Eastman Kodak Company and Subsidiary Companies
Properties
(in millions)
Sales,
Balance at Additions Retirements Balance at
Beginning at and Other End of
of Period Cost Changes Period
Year ended December 31, 1993
Land $ 220 $ 1 $ 12 $ 209
Buildings & Building Equipment 2,608 82 82 2,608
Machinery & Equipment 8,890 854 1,136 8,608
Construction in Progress 364 (120) 68 176
------- ------ ------ -------
TOTAL $12,082 $ 817 $1,298 $11,601
======= ====== ====== =======
Year ended December 31, 1992
Land $ 191 $ 8 $ (21) $ 220
Buildings & Building Equipment 2,503 84 (21) 2,608
Machinery & Equipment 8,600 1,156 866 8,890
Construction in Progress 464 (12) 88 364
------- ------ ------ -------
TOTAL $11,758 $1,236 $ 912 $12,082
======= ====== ====== =======
Year ended December 31, 1991
Land $ 188 $ 5 $ 2 $ 191
Buildings & Building Equipment 2,431 78 6 2,503
Machinery & Equipment 7,760 1,270 430 8,600
Construction in Progress 717 (151) 102 464
------- ------ ------ -------
TOTAL $11,096 $1,202 $ 540 $11,758
======= ====== ====== =======
53
Schedule VI
Eastman Kodak Company and Subsidiary Companies
Accumulated Depreciation of Properties
(in millions)
Sales,
Balance at Additions Retirements Balance at
Beginning Charged and Other End of
of Period to Earnings Changes Period
Year ended December 31, 1993
Buildings & Building Equipment $1,441 $104 $ 50 $1,495
Machinery & Equipment 5,121 713 755 5,079
------ ---- ---- ------
TOTAL $6,562 $817 $805 $6,574
====== ==== ==== ======
Year ended December 31, 1992
Buildings & Building Equipment $1,359 $105 $ 23 $1,441
Machinery & Equipment 4,884 831 594 5,121
------ ---- ---- ------
TOTAL $6,243 $936 $617 $6,562
====== ==== ==== ======
Year ended December 31, 1991
Buildings & Building Equipment $1,279 $100 $ 20 $1,359
Machinery & Equipment 4,479 774 369 4,884
------ ---- ---- ------
TOTAL $5,758 $874 $389 $6,243
====== ==== ==== ======
54
Schedule VIII
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, 1993
Deducted in the Statement of
Financial Position:
From Current Receivables
Reserve for doubtful accounts $ 89 $49 $56 $ 82
Reserve for loss on returns
and allowances 9 1 - 10
---- --- --- ----
TOTAL $ 98 $50 $56 $ 92
==== === === ====
From Long-Term Receivables and
Other Noncurrent Assets;
Reserve for doubtful accounts $ 24 $ 6 $10 $ 20
==== === === ====
Year ended December 31, 1992
Deducted in the Statement of
Financial Position:
From Current Receivables
Reserve for doubtful accounts $104 $52 $67 $ 89
Reserve for loss on returns
and allowances 10 1 2 9
---- --- --- ----
TOTAL $114 $53 $69 $ 98
==== === === ====
From Long-Term Receivables and
Other Noncurrent Assets;
Reserve for doubtful accounts $ 21 $ 9 $ 6 $ 24
==== === === ====
Year ended December 31, 1991
Deducted in the Statement of
Financial Position:
From Current Receivables
Reserve for doubtful accounts $ 98 $77 $71 $104
Reserve for loss on returns
and allowances 7 - (3) 10
---- --- --- ----
TOTAL $105 $77 $68 $114
==== === === ====
From Long-Term Receivables and
Other Noncurrent Assets;
Reserve for doubtful accounts $ 20 $ 5 $ 4 $ 21
==== === === ====
55
Schedule IX
Eastman Kodak Company and Subsidiary Companies
Short-Term Borrowings
(in millions)
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance at Average Outstanding Outstanding Rate
End of Interest During the During the During the
Category of Borrowing Year Rate Year Year Year (3)
Year Ended December 31, 1993:
Bank Loans of Subsidiaries
Outside the U.S.(1) $ 261 4.8% $ 866 $ 649 10.6%
Commercial Paper (2) - - 1,544 998 3.5
Year Ended December 31, 1992:
Bank Loans of Subsidiaries
Outside the U.S.(1) 1,087 8.5 1,091 860 10.8
Commercial Paper (2) 596 3.9 2,506 1,795 4.2
Year Ended December 31, 1991:
Bank Loans of Subsidiaries
Outside the U.S.(1) 527 9.6 527 450 12.8
Commercial Paper (2) 1,829 5.1 3,287 2,523 6.4
(1) The average amount outstanding during the year was calculated by averaging the quarterly
balances.
(2) The average amount outstanding during the year was calculated by averaging the monthly
balances.
(3) The weighted average interest rate during the year was calculated by dividing short-term
interest expense for the year by the average amount outstanding during the year.
56
Schedule X
Eastman Kodak Company and Subsidiary Companies
Supplementary Consolidated Statement of Earnings Information
(in millions)
Charged to Earnings
1993 1992 1991
Maintenance and repairs $421 $463 $442
Advertising and sales promotion 646 725 604
57
Eastman Kodak Company and Subsidiary Companies
Exhibit (11)
Computation of Earnings Per Common Share
1993 1992 1991
(in millions, except
per share data)
PRIMARY:
Earnings (loss) from continuing operations
before income taxes $ 1,077 $1,379 $(151)
Provision (benefit) for income taxes from
continuing operations 433 534 (163)
------- ------ -----
Earnings from continuing operations
before extraordinary item and cumulative
effect of changes in accounting principle 644 845 12
Earnings from discontinued operations before
cumulative effect of changes in accounting
principle 23 149 5
------- ------ -----
Earnings before extraordinary item and
cumulative effect of changes in accounting
principle 667 994 17
Extraordinary item (14) - -
------- ------ -----
Earnings before cumulative effect of changes
in accounting principle 653 994 17
------- ------ -----
Cumulative effect of changes in accounting
principle from continuing operations (1,649) 100 -
Cumulative effect of changes in accounting
principle from discontinued operations (519) 52 -
------- ------ -----
Total cumulative effect of changes in
accounting principle (2,168) 152 -
------- ------ -----
NET EARNINGS (LOSS) $(1,515) $1,146 $ 17
======= ====== =====
Average number of common shares
outstanding 328.3 325.1 324.7
----- ----- -----
Primary earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes
in accounting principle $ 1.95 $2.60 $ .04
Primary earnings per share from discontinued
operations before cumulative effect of changes
in accounting principle .07 .46 .01
------ ----- -----
Primary earnings per share before extraordinary
item and cumulative effect of changes in
accounting principle 2.02 3.06 .05
Extraordinary item (.04) - -
------ ----- -----
Primary earnings per share before cumulative
effect of changes in accounting principle 1.98 3.06 .05
------ ----- -----
Cumulative effect of changes in accounting
principle from continuing operations (5.02) .31 -
Cumulative effect of changes in accounting
principle from discontinued operations (1.58) .16 -
------ ----- -----
Total cumulative effect of changes in
accounting principle (6.60) .47 -
------ ----- -----
Primary earnings (loss) per share $(4.62) $3.53 $ .05
====== ===== =====
58
Eastman Kodak Company and Subsidiary Companies
COMPUTATION OF EARNINGS PER COMMON SHARE (continued)
1993 1992 1991
(in millions, except
per share data)
FULLY DILUTED:
Earnings from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principle $ 644 $ 845 $ 12
Add after-tax interest expense
applicable to:
6 3/8% convertible debentures (1) - 12 -
Zero coupon convertible debentures (1) - 42 -
------- ------ -----
Adjusted earnings from
continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle 644 899 12
Earnings from discontinued operations
before cumulative effect of changes
in accounting principle 23 149 5
------- ------ -----
Adjusted earnings before extraordinary
item and cumulative effect of changes
in accounting principle 667 1,048 17
Extraordinary item (14) - -
------- ------ -----
Adjusted earnings before cumulative
effect of changes in accounting principle 653 1,048 17
------- ------ -----
Cumulative effect of changes in
accounting principle from
continuing operations (1,649) 100 -
Cumulative effect of changes in
accounting principle from
discontinued operations (519) 52 -
------- ------ -----
Total cumulative effect of changes
in accounting principle (2,168) 152 -
------- ------ -----
Adjusted Net Earnings (Loss) $(1,515) $1,200 $ 17
======= ====== =====
Average number of common shares outstanding 328.3 325.1 324.7
Add-incremental shares under option 2.9 .5 1.7
Add-incremental shares applicable to:
6 3/8% convertible debentures (1) - 5.9 -
Zero coupon convertible debentures (1) - 20.7 -
----- ----- -----
Adj'd avg. number of shares outstanding 331.2 352.2 326.4
----- ----- -----
59
Eastman Kodak Company and Subsidiary Companies
COMPUTATION OF EARNINGS PER COMMON SHARE (continued)
1993 1992 1991
(in millions, except
per share data)
Fully diluted earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle $ 1.95 $2.56 $ .04
Fully diluted earnings per share from
discontinued operations before cumulative
effect of changes in accounting principle .07 .42 .01
------ ----- -----
Fully diluted earnings per share before
extraordinary item and cumulative effect
of changes in accounting principle 2.02 2.98 .05
Extraordinary item (.04) - -
------ ----- -----
Fully diluted earnings per share
before cumulative effect of changes in
accounting principle 1.98 2.98 .05
------ ----- -----
Cumulative effect of changes in accounting
principle from continuing operations (5.03) .28 -
Cumulative effect of changes in accounting
principle from discontinued operations (1.57) .15 -
------ ----- -----
Total cumulative effect of changes in
accounting principle (6.60) .43 -
------ ----- -----
Fully diluted earnings (loss) per share $(4.62) $3.41 $ .05
====== ===== =====
(1) 6 3/8% convertible debentures and zero coupon convertible debentures were
anti-dilutive in 1993 and 1991.
60
Exhibit (12)
Eastman Kodak Company and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(in millions, except for ratios)
Year Ended in December
1993 1992 1991 1990 1989
Earnings (loss) from
continuing operations
before provision for
income taxes $1,077 $1,379 $ (151) $ 879 $ 509
Add:
Interest expense 753 825 848 859 935
Interest component of
rental expense (1) 80 76 80 71 50
Amortization of
capitalized interest 40 37 38 29 19
------ ------ ------ ------ ------
Earnings as adjusted $1,950 $2,317 $ 815 $1,838 $1,513
====== ====== ====== ====== ======
Fixed charges
Interest expense $ 753 $ 825 $ 848 $ 859 $ 935
Interest component of
rental expense (1) 80 76 80 71 50
Capitalized interest 87 95 112 113 68
------ ------ ------ ------ ------
Total fixed charges $ 920 $ 996 $1,040 $1,043 $1,053
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 2.1x (2) 2.3x (3) - (4) 1.8x (5) 1.4x (6)
(1)Interest component of rental expense is estimated to equal 1/3 of such expense.
(2)The ratio is 2.6x before deducting restructuring costs of $495 million.
(3)The ratio is 2.5x before deducting restructuring costs of $219 million.
(4)Earnings are insufficient to cover fixed charges by $225 million due to the restructuring
costs of $1,448 million. The ratio is 2.2x before deducting the restructuring
costs.
(5)The ratio is 2.6x before deducting litigation judgment of $888 million.
(6)The ratio is 2.2x before deducting restructuring costs of $835 million.
61
Exhibit (22)
Subsidiaries of Eastman Kodak Company
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company New Jersey
Eastman Kodak International
Finance B.V. Netherlands
Eastman Kodak International
Sales Corporation Barbados
Eastman Technology, Inc. New York
Torrey Pines Realty Company, Inc. Delaware
Datatape Incorporated Delaware
The Image Bank, Inc. New York
Northfield Pharmaceuticals Limited Delaware
Kodak Health Imaging Systems, Inc. Delaware
Jamieson Film Company Delaware
Eastman Gelatine Corporation Massachusetts
Eastman Canada, Inc. Canada
Kodak Canada, Inc. Canada
Kodak (Export Sales) Ltd. Hong Kong
Kodak Argentina, Ltd. New York
Kodak Brasileira C.I.L. Brazil
Kodak Chilena S.A.F. Chile
Kodak Colombiana, Ltd. New York
Kodak Panama, Ltd. New York
Foto Interamericana de Peru, Ltd. New York
Kodak Caribbean, Limited New York
Kodak Uruguaya, 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
Kodak Ireland Limited Ireland
Kodak-Pathe France
Kodak A.G. Germany
International Biotechnologies Inc. Delaware
Kodak Korea Ltd. South Korea
Kodak Far East Purchasing, Inc. New York
Kodak New Zealand Limited New Zealand
Kodak (Australasia) Proprietary Limited Australia
Kodak (Kenya) Limited Kenya
Kodak (Egypt) S.A. Egypt
Kodak (Malaysia) S.B. Malaysia
Kodak Taiwan Limited Taiwan
Eastman Kodak International Capital
Company, Inc. Delaware
Industria Fotografica Interamericana,
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
Eastman Kodak De Mexico, S.A. de C.V. Mexico
Kodak Mexicana S.A. de C.V. Mexico
Industria Mexicana de Foto Copiadoras,
S.A. de C.V. Mexico
Kodak G.m.b.H. Austria
Kodak G.m.b.H. Germany
Kodak Oy Finland
Kodak Nederland B.V. Netherlands
62
Exhibit (22)
(Continued)
Organized
Companies Consolidated Under Laws of
Kodak S.p.A. Italy
Kodak Portuguesa Limited New York
Kodak S.A. Spain
Kodak AB Sweden
Eastman Kodak (Japan) Ltd. Japan
K.K. Kodak Information Systems Japan
Kodak Japan Ltd. Japan
Kodak Imagica K.K. Japan
Kodak Japan Industries Ltd. Japan
Note: Subsidiary Company names are indented under the name of the parent
company.
63
KODAK COMPLETES DIVESTITURE OF
TWO MORE NON-IMAGING BUSINESSES
Clinical Diagnostics Div. Sold to Johnson & Johnson;
L&F Products 'DIY' Businesses to Forstmann Little
Rochester, N.Y., Dec. 1 - Eastman Kodak Company today announced the completion
of two more transactions in its divestiture program; the sale of its Clinical
Diagnostics Division to Johnson & Johnson, and the sale of the "do-it-yourself"
businesses of its L&F Products subsidiary to Forstmann Little.
The closing date for each transaction was Nov. 30.
Johnson & Johnson purchased the worldwide assets of Kodak's Clinical
Diagnostics business for $1.008 billion in cash. Forstmann Little, a New York
City-based investment partnership, paid $700 million to obtain L&F Products'
"DIY" businesses.
L&F Products household products business, which Kodak has agreed to sell to
Reckitt & Colman, is the only large transaction pending completion in Kodak's
divestiture program.
Separately, Kodak will sell its pharmaceutical research and development
center, located near Philadelphia, Pa., and its NanoSystems unit. NanoSystems
is a technology development unit established to commercialize pharmaceutical
products based on Kodak's patented small particle technology.
64
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Page No.
10(A). Amendment No. 1 to Asset Purchase Agreement Among Eastman
Kodak Company, L&F Products Inc., Sterling Winthrop Inc.
and MTF Aquisition Corp. dated as of November 30, 1994 65-73
10(B). Amendment to the Asset Purchase Agreement by and between
Eastman Kodak Company and Johnson & Johnson dated as of
November 30, 1994. 74-84
65
EXHIBIT 10(A)
Execution Copy
Amendment No. 1 to Asset Purchase Agreement
AMENDMENT NO.1 (this "Amendment"), dated as of November 30,
1994, to the Asset Purchase Agreement (the "Agreement"),
dated as of October 13, 1994, among EASTMAN KODAK COMPANY, a
New Jersey corporation, L&F PRODUCTS INC., a Delaware corporation,
STERLING WINTHROP INC., a Delaware corporation, and MTF
ACQUISITION CORP., a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the
Agreement; and
WHEREAS, Section 9.2 of the Agreement permits
amendments to the Agreement by written instrument signed by
Purchaser, Seller and Kodak;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein, the parties
hereto agree as follows:
ARTICLE I
Amendments to the Agreement
1.1 Cash. (a) The parties acknowledge and agree
that the Transferred Assets to be conveyed to Purchaser at
the Closing shall not include any cash on hand at the
Closing related to the Business in the United Kingdom or
Canada.
(b) Prior to or simultaneously with the Closing,
Seller shall cause L&F Canada Company to deposit U.S.$300,000 to
account no 02-06113 (Transit 9042) at Canadian Imperial Bank
of Canada in favor of Thompson Minwax (Canada) Ltd. Within
six days following the Closing Date, Purchaser shall
repay, or cause Thompson Minwax (Canada) Ltd. to repay,
such amount to Seller, without interest.
(c) The cash amount referred to in paragraph (b)
above shall not be reflected as an asset on the Closing
Balance Sheet.
1.2 Closing Balance Sheet. (a) Receivables and
Inventories Related to the Business in Australia and Puerto
Rico shall not be included as assets on the Closing Balance
Sheet, notwithstanding that such assets are included in the
Transferred Assets.
66
(b) Any liabilities to employees assumed by
Purchaser under the Canadian SERP or Peter Black's US SERP
(each as defined herein) shall not be reflected as
liabilities on the Closing Sheet.
1.3 Conduct of Certain Litigation. Notwith-
standing the provisions of Section 7.4 of the Agreement, the
parties hereto agree that Purchaser and Kodak shall
share the power to direct and control the defense of the
litigation referred to in Schedule 7.3 to the Agreement,
and neither Purchaser nor Kodak shall settle such litigation
without the consent of Kodak or Purchaser, respectively
(which consent shall not be unreasonably withheld or
delayed).
1.4 Certain Employee Matters. (a) Schedule
1.1(a) to the Agreement, listing as of the date of the
Agreement all employees of the Seller or any Affiliate who
were dedicated to the Business, is amended by adding thereto
the names appearing on Annex A-1 hereto under
"Additions" and deleting therefrom the names appearing on
Annex A-1 hereto under "Deletions".
(b) Without limiting the provisions of the
Agreement with respect to the assumption by Purchaser of
liabilities relating to Employees generally, with respect
to the Employees named on Annex A-1 hereto, Purchaser shall
assume all liabilities relating to such Employees under the
excess pension benefit plan maintained for certain employees
of L&F Canada Company (the "Canadian SERP") and all liabilities to
Peter Black under the L&F Products Inc. Supplemental Executive
Retirement Plan (the "U.S. SERP"). For the avoidance of
doubt, Purchaser shall not assume any liabilities to such
Employees under deferred compensation plans. In addition,
Purchaser shall not assume any United Kingdom pension
promise with respect to Peter Black.
(c) Seller agrees to permit Purchaser to include
from the Closing Date under the Agreement until the
December 31, 1994 all Employees (including Employees named
on Annex A-1 hereto) employed by Thompson Minwax (Canada)
Ltd. under the welfare plans maintained for employees of L&F Canada
Company generally. During such period, Seller shall not
cancel or modify such plans without the prior written
consent of Purchaser, which consent shall not be
unreasonably withheld or delayed, provided, however, that
nothing in this sentence shall prevent the purchaser of
Seller's Other Business pursuant to the Asset Purchase
Agreement dated as of September 26, 1994 among Kodak,
Seller, Sterling and Reckitt & Colman plc (the "R&C Agreement") from
making such modifications to such plans as
67
may be permitted under the terms of the R&C Agreement. Purchaser
shall promptly reimburse Seller, upon receipt of an invoice
therefor, for all out-of-pocket costs (including
administrative costs) with respect to such welfare plans
resulting from the inclusion of such Employees in such
welfare plans during such period.
1.5 License of Certain Intellectual Property.
The Agreement is hereby amended to add new Section 5.17 as
follows:
"Section 5.17 License-Back of Certain
Intellectual Property. (a) Purchaser hereby grants to
Kodak and its Affiliates a perpetual, irrevocable,
(except in the case of a breach of paragraph (c) below,
as provided in paragraph (e) below), worldwide,
royalty-free, nonexclusive license under the aqueous
dispersion technology patent applications listed in
Schedule 5.17 and any patents granted or issued on such
applications (including, without limitation, divisions,
continuations, continuations-in-part, reissues,
extensions, and renewal applications, the "Licensed
Technology") to make, have made, use, sell and/or
otherwise dispose of any Imaging Products as
hereinafter defined. "Imaging Products" means all
products used in, and services provided with respect
to, the Imaging Field as hereinafter defined,
including, without limitation, materials, processes,
equipment and processes for manufacturing, using or
servicing the same. Materials in Imaging Products
include, among others, energy sensitive media (e.g.,
silver and non-silver films, papers, discs, tapes,
drums, belts and plates), image-receiving media (e.g.,
transparencies, coated films, and coated papers),
chemicals used to formulate, process, develop or finish
such media (e.g., dyes, polymers, developers, toners,
and inks), and circuit boards, semiconductors, and
electronic components used in image-forming processes
and equipment (e.g., sensors, emitters and solid state
devices). "Imaging Field" means the capture, storage,
retrieval, manipulation, communication, display or
processing of an image or other information pattern in
digital or analog form.
(b) Purchaser makes no representation or
warranty, express or implied, with respect to the
Licensed Technology, including those of merchantability
or fitness for any particular purpose.
(c) This license shall be not be assignable by
Kodak without the written approval of Purchaser, except
68
that Kodak may, without such approval, assign such
license upon the sale of all or substantially all of
the assets or business pertaining to any product or
product line to which the license relates provided that
the assignee agrees in writing to be bound by the
provisions of this Section 5.17 and of Section
7.3(a)(vii).
(d) Purchaser shall have no obligations to Kodak
with respect to the filing, prosecution, or maintenance
of any of the Licensed Technology, and Purchaser, at
its sole discretion, may freely discontinue any such
filing, prosecution or maintenance."
(e) The Purchaser may terminate this license for
breach of paragraph (c) above upon written notice,
unless within a period of sixty (60) days after such
notice, the party in breach remedies the breach.
1.6 Certain Covenants and Agreements Relating to
Owned Real Property. The Agreement is hereby amended to add
new Section 5.18 as follows:
"Section 5.18. Certain Covenants and Agreements
Relating to Owned Real Property. (a) The parties
hereto agree that, notwithstanding the scope of any
promise, covenant or warranty contained in a deed
delivered at Closing pursuant to Section 2.9(c), no
breach or alleged breach of any such promise, covenant
or warranty shall give rise to any liability on the
part of the Seller or Kodak except to the extent that
the breach of such promise, covenant or warranty would
also constitute a breach of a representation or
warranty made by Seller and Kodak in Article III of the
Agreement and/or a breach of Article V of the
Agreement. Purchaser agrees that any claim in respect
of such a breach or alleged breach shall be brought as
a claim for indemnification in accordance with the
provisions of Article VII of the Agreement, and not
under such deeds.
(b) In the event that Purchaser proposes to
transfer, mortgage, pledge or otherwise hypothecate any
of its interest in any of the Owned Real Property (any
such transaction, a "Transfer"), Purchaser shall
deliver written notice to any such transferee
(including, without limitation, any mortgagee or title
insurance company issuing title insurance in connection
with any such transfer) of the provisions of this
Section 5.18 prior to any such Transfer.
69
1.7 Indemnification. Section 7.3(a) of the
Agreement is hereby amended by adding thereto a new clause
(vii) as follows:
"(vii) the use by Kodak of the license granted to
it pursuant to Section 5.17."
1.8 Amendments to Schedules. The Schedules to
the Agreement are hereby amended as follows:
(a) Part I of Schedule 3.13(a), listing Patents
and Patent Applications, is deleted in its entirety and
replaced by Annex A-2 attached hereto.
(b) Part III of Schedule 3.13(a), listing
Trademark Registrations and Trademark Applications, is
deleted in its entirety and replaced by Annex A-3 attached
hereto.
(c) (i) Numbered page 11 of Schedule 3.15(i) is
hereby deleted in its entirety and replaced by Annex A-4
hereto.
(ii) The following agreements are added to
Schedule 3.15(i):
(A) Employment agreements with Patrick Draper and
Peter Black.
(B) Shared Services Agreement between Sanofi
Winthrop Ltd. and L&F Products (U.K.) Limited.
(d) A new Schedule 5.11 is added to the
Agreement, as set forth in Annex A-5 hereto.
(e) A new Schedule 5.17 is added to the
Agreement, as set forth in Annex A-6 hereto.
ARTICLE II
Miscellaneous
2.1 Definitions. Capitalized terms used in this
Amendment and not defined herein shall have the meanings
ascribed to them in the Agreement.
2.2 Entire Agreement; Restatement. The
Agreement, as amended by this Amendment, is hereinafter
referred to as the "Agreement", and the parties hereto
hereby agree that the Agreement may be restated to reflect
the amendments provided for in this Amendment.
70
2.3 Representation of Kodak. Kodak hereby
represents and warrants to Purchaser that no Affiliate of
Kodak (other than Seller, L&F Canada Company and L&F Products Holdings)
owns, uses or holds for use any Transferred Asset.
2.4 Governing Law. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
2.5 Counterparts. This Amendment may be executed
in counterparts, each of which shall be an original and all
of which shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have
executed or caused this Amendment to be executed as of the
date first written above.
EASTMAN KODAK COMPANY
By:
Name:
Title:
L&F PRODUCTS INC.
By:
Name:
Title:
THOMPSON MINWAX COMPANY,
formerly known as MTF
ACQUISITION CORP.
By:
Name:
Title:
71
Annex A-1
Additions and Deletions
Additions Deletions
Canada U.S.
1. Patrick Draper 1. D. Cudney
2. Lesley Gouldie 2. B. Zigmond
3. Maria Evola 3. G. Thomasian
4. Sharon Dafoe
5. Wendy Dicks
6. Ray Martin
7. Kathy Ward
8. Laurette Ayres Canada
9. Russell Hyde
10. John Ingham 1. R. Plawiuk
U.S.
1. Peter Black
2. Lance Hemsarth
3. J. Bargman
4. I. Bohorquez
5. S. Caporrino
6. K. Kroll
72
Annex A-5
Schedule 5.11
Certain Applications
Customer Order Management System - COM
Accounts Receivable System - A/R
Credit Reporting System
State Tax System
Statistical Analysis of Credit Memos and Customer Deduction
System
General Ledger Interface System
Sales and Marketing Database System
Sales and Marketing Database System - SMART
Field Sales Information Management System - S.I.M.S.
Manufacturing Planning and Inventory Control System - Midas
Business Tracker
Toxicity
Estimate Management Reporting System
Retail Audit System (RIMS)
73
Annex A-6
Schedule 5.17
Aqueous Dispersion Technology Patent Applications
Country Patent Application Filing Date
Australia 94/0061866 5/4/94
Canada 0002121208 4/13/94
European 94106852.0 5/2/94
Japan 94/0093441 5/2/94
Mexico 94/0003303 5/4/94
*United States 9400191240 2/3/94
*Now U.S. Patent No. 5,338,345 issued August 16, 1994
74
EXHIBIT 10(B)
AMENDMENT TO
ASSET PURCHASE AGREEMENT
AMENDMENT, dated November 30, 1994, to the Asset
Purchase Agreement, dated as of September 2, 1994 (the
"Agreement"), by and between Eastman Kodak Company, a
corporation organized under the laws of New Jersey
("Seller"), and Johnson & Johnson, a corporation organized under
the laws of New Jersey ("Buyer"). All terms used but not
defined herein have the meanings set forth in the Agreement.
WHEREAS, Seller and Buyer wish to amend the
Agreement to provide, among other things, for the inclusion
of certain inter-company assets and liabilities previously
excluded from the sale, for Buyer to make certain previously
prohibited tax elections with respect to the Transferred
Subsidiaries, for certain distribution arrangements between
Seller and Buyer or their respective Affiliates during an
interim transition period and to clarify certain covenants
regarding intellectual property, all as more fully set forth
herein;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and undertakings contained herein
and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Schedule 1.1(a) of the Agreement shall be
amended to (a) replace the list of patents therein with the
list attached as part of Exhibit A hereto (it being
understood that such list shall deviate from the list
attached to the Agreement on September 2, 1994 only in the
following respects: (i) the addition of any patent
applications that have been filed in the interim period,
(ii) the addition of any patents that have issued in the
interim period with respect to any patent applications
previously listed, and (iii) the deletion of any patents
that have expired in the interim period), (b) replace the
list of software therein with the list of software attached
as part of Exhibit A hereto, (c) replace the list of
registered service marks, trademarks and trade names
therein with the list of registered service marks,
trademarks and trade names attached as part of Exhibit A
hereto, and
(d) add the following licenses: Hybritech, dated July 1,
1994, Zeneca Ltd., dated August 4, 1994, Immunicon
Corporation, dated as of June 15, 1994 and Trustees of the
University of Pennsylvania, dated as of August 1, 1989.
2. The definition of "Ancillary Agreements" in
Section 1.1 of the Agreement shall be amended by adding ",
the Distribution Agreements, Export Agreements" after the
phrase "Biolyzer Supply Agreement".
3. The definition of "Closing Date" in
75
Section 1.1 of the Agreement shall be amended by adding at
the end thereof, immediately prior to the period, the
following:
"except that it means: in the first sentence of
Section 5.5(f) hereof with respect to payroll
only, 12:01 a.m. on December 26, 1994; in Section
5.5(c)(ii) hereof, 12:01 a.m. on December 31, 1994
(except for the first sentence thereof, except for
the second reference in the second paragraph
thereof and except for the fifth paragraph
thereof); in the first sentence of Section
5.5(c)(i) hereof, in the first sentence of
5.5(c)(ii) hereof, in Section 5.5(d) hereof
(except for the second sentence thereof) and
Section 5.5(f) hereof (other than with respect to
payroll), 12:01 a.m. on January 1, 1995."
4. The definition of "Current Assets" in
Section 1.1 of the Agreement shall be amended in its
entirety to read as follows:
""Current Assets" means (a) for purposes of
the Preliminary Working Capital Statement, the
Final Working Capital Statement and the Final
Working Capital Amount, all current assets Related
to the Business, except to the extent included in
Excluded Assets and except for the loans
receivable of Kodak S.p.A. from Kodak Diagnostici
S.p.A., and (b) for purposes of the June 30
Working Capital Statement and the June 30 Working
Capital Amount, all current assets Related to the
Business except to the extent included in Excluded
Assets (provided that accounts receivable booked
and incurred by Seller, any of the Transferred
Subsidiaries or Kodak Germany-Sub for a sale
within the Business shall be Excluded Assets for
purposes of this clause (b)) except for cash and
cash equivalents and except for the loans
receivable of Kodak S.p.A. from Kodak Diagnostici
S.p.A.."
5. The definition of "Current Liabilities" in
Section 1.1 of the Agreement shall be amended in its
entirety to read as follows:
""Current Liabilities" means (a) for purposes
of the Preliminary Working Capital Statement, the
Final Working Capital Statement and the Final
Working Capital Amount, all current liabilities
Related to the Business, except to the extent
included in Excluded Liabilities and except for
the loan payable by Kodak Diagnostici S.p.A. to
Kodak S.p.A., and (b) for purposes of the June 30
Working Capital Statement and the June 30 Working
Capital Amount, all current liabilities Related to
the Business, except to the extent included in
Excluded Liabilities (provided that accounts
76
payable booked and incurred by Seller, any of the
Transferred Subsidiaries or Kodak Germany-Sub for
a sale within the Business shall be Excluded
Liabilities for purposes of this clause (b)) and
except for any loans payable by Kodak Diagnostici
S.p.A. to Kodak S.p.A."
Subsection (a) of the "Excluded Assets" definition
in Section 1.1 of the Agreement shall be amended to add at
the end thereof, immediately prior to the semicolon thereof,
the following:
", other than the loans receivable of Kodak S.p.A.
from Kodak Diagnostici S.p.A.."
6. Subsection (i) of the "Excluded Assets"
definition in Section 1.1 of the Agreement shall be amended
to add the following prior to the semicolon therein:
", other than accounts receivable booked and
incurred by Seller, any of the Transferred
Subsidiaries or Kodak Germany-Sub for a sale
within the Business and other than inter-company
accounts receivable booked and incurred by the
Business after October 31, 1994;"
7. The definition of "Excluded Assets" in Section
1.1 shall be amended by deleting the word "and" following
clause (j) thereof, replacing the period following
subsection (k) thereof with the word "and" and adding the
following subsection thereafter:
"(l) all Inventory (including customer
equipment service spare parts) held, and all third
party accounts receivable existing, at Closing at
the Subsidiaries operating in the countries listed
on Exhibit B hereto, all Inventory held at CDC/A
Singapore and all customer equipment service spare
parts held by Kodak A.G. at the warehouse located
in Stuttgart, Germany;"
8. Subsection (e) of the "Excluded Liabilities"
definition in Section 1.1 of the Agreement shall be amended
in its entirety to read as follows:
"(e) all inter-company liabilities of Seller
and the Subsidiaries, other than accounts payable
booked and incurred by Seller, any of the
Transferred Subsidiaries or Kodak Germany-Sub for
a sale within the Business, other than inter-
company accounts payable booked and incurred by
the Business after October 31, 1994 and other than
any loans payable by Kodak Diagnostici S.p.A. to
Kodak S.p.A.; and"
9. Subsection (f) of the "Excluded Liabilities"
definition in Section 1.1 of the Agreement shall be amended
to add at the beginning thereof, immediately after the
phrase "(f)", the following:
77
"all liabilities and obligations under any Contract
(other than The National Research Development
Corporation licenses) set forth on Schedule 4.8 hereto
as to which consent is required and has not been
obtained as of the Closing until such time as such
consent is obtained and"
10. Section 1.1 of the Agreement shall be amended
to insert the following definition after the definition of
"Intellectual Property" therein:
""inter-company" or "intercompany" means financial
transactions between or among Seller and any
Subsidiaries or between or among any Subsidiaries, but
not within the Business."
11. The definition of "Kodak Park Leased Real
Property" in Section 1.1 of the Agreement shall be amended
by adding "Building 204," after "Building 83," in the third
line thereof.
12. The definition of "Post-Closing CESD
Employee" in Section 1.1 of the Agreement shall be amended
in its entirety to read as follows:
""Post-Closing CESD Employee" means any
person designated by Buyer who is employed by the
Customer Equipment Services Division of Seller,
spends 50% or more of his time on matters relating
to the Business as of the Closing and accepts
employment with Buyer after the Closing."
13. Section 1.1 of the Agreement shall be amended
to insert the following definition after the definition of
"WARN" therein:
""within the Business" means financial
transactions (i) between or among the Business in the
United States and any Transferred Subsidiary and/or
Kodak Germany-Sub or (ii) between or among any of the
Transferred Subsidiaries or (iii) between or among any
of the Transferred Subsidiaries and Kodak Germany-Sub."
14. Section 2.4(a) of the Agreement shall be
amended by inserting the following at the end thereof,
immediately prior to the period thereof:
"; it being understood that all accounts payable within
the Business will equal all accounts receivable within
the Business."
15. Section 2.7(a) of the Agreement shall be
amended by inserting at the end thereof, immediately prior
to the semicolon, the following:
", it being understood that notwithstanding
anything to the contrary contained in this
Agreement, no Acquired Assets used by any Post-
Closing CESD Employees constituting basic tool
kits, special clinical tools, personal laptop
computers and vehicles shall be transferred to
78
Buyer until the Employee using such Acquired
Assets becomes an employee of Buyer."
16. Section 5.4(h) of the Agreement shall be
amended in its entirety to read as follows:
"(h) Section 338 Election. The Buyer may make an
election pursuant to Section 338 of the Code with
respect to the transfer by Seller (or any
Subsidiary) of any Transferred Subsidiary."
17. Section 5.4(k) of the Agreement shall be
amended in its entirety to read as follows:
"(k) Termination of Tax Allocation
Agreements. Any agreement or arrangement with
respect to the allocation or sharing of Taxes,
whether or not written, that may have been entered
into by Seller or any Subsidiary (other than a
Transferred Subsidiary), on the one hand, and any
Transferred Subsidiary, on the other hand (other
than the agreement between Kodak Limited and Kodak
Clinical Diagnostics Limited, dated 30th November
1994, shall be terminated as to Seller or any
Subsidiary (other than a Transferred Subsidiary),
on the one hand, and any Transferred Subsidiary,
on the other hand, as of the Closing Date, and no
payments which are owed by Seller or any
Subsidiary (including any Transferred Subsidiary)
pursuant thereto shall be made thereunder."
18. Section 5.5(a) of the Agreement shall be
amended by deleting the third sentence thereof in its
entirety.
19. Section 5.5(b)(iii) of the Agreement shall be
amended to add prior to the word "disability" on the second
line thereof the word "short-term" and to add at the end
thereof, immediately prior to the semicolon, the following:
"or if his or her return to work does not occur prior
to the expiration of the Employee's coverage under the
Kodak Short-Term Disability Plan."
20. Section 5.5(d) of the Agreement shall be
amended to add after the word "employment" on the twelfth
line thereof the words "on or".
21. Section 5.5(e) of the Agreement shall be
amended to add at the end of the first sentence thereof
immediately prior to the period:
"; provided, however, that Seller has retained
certain responsibilities pursuant to the Employee
Services Agreement dated as of November 30, 1994,
between Seller and Buyer."
22. Subsection 5.11(a) of the Agreement shall be
amended to add "(i)" after the word "that" in the seventh
line thereof and to add the following between the word
"Date" and the semicolon in the ninth line thereof:
"or (ii) Seller owns and has developed for use in
79
the Business as a capital improvement project or a
research and development project pursuant to
Section 5.24 or 5.25 hereof to the extent related
to Imaging Products."
23. Subsection 5.11(b) of the Agreement shall be
amended to add "(i)" after the word "and" in the eighth line
thereof and to add the following between the word "Date" and
the period in the ninth line thereof:
", or (ii) developed for use in the Business as a
capital improvement project or a research and
development project pursuant to Sections 5.24 or
5.25 hereof to the extent related to Imaging
Products."
24. Subsections 5.11(c) and (d) of the Agreement
shall be amended to add the following at the end of the
first sentence of each such subsection:
", other than the technology licensed under the
PCR Technology License Agreement, dated as of
June 3, 1993, by and between Seller and Hoffman-La
Roche Inc. and the PCR Technology License
Agreement, dated as of June 3, 1993, by and
between Seller and F. Hoffman-La Roche Ltd."
25. Section 5.18 of the Agreement shall be
amended in its entirety as follows:
"5.18 Distribution Agreements. At the
Closing, Buyer and/or a Transferred Subsidiary and
Seller and/or a Subsidiary, shall execute and
deliver the distribution agreements attached
hereto as Annexes K and L (the "Distribution
Agreements") and Annexes M and N (the "Export
Agreements") pursuant to which Seller and certain
of the Subsidiaries shall supply to Buyer the
distribution services set forth therein in
accordance with the terms thereof. In addition,
at such time as the Distribution Agreements in
Europe terminate, Buyer shall or shall cause any
of its Affiliates to purchase all customer
equipment service spare parts related to the
Business located in the warehouse at Stuttgart,
Germany."
26. Section 5.20 of the Agreement shall be
amended as follows:
(a) by adding after the word "agreements" in the
third line thereof the phrase "and the master license
agreement",
(b) by replacing the comma in line 12 thereof
with the word "and",
(c) by deleting the phrase "and the warehouse
space located at 58 McKee Road, Rochester, New York" in
lines 13 through 15 thereof,
(d) by amending clause (d) thereof in its
80
entirety to read as follows:
"(d) license from Seller the portions of the
Shared Real Property which is Related to the
Business and which is specified in Annex J-10
attached hereto."
(e) by deleting the last sentence thereof in its
entirety.
27. Section 5.24 of the Agreement shall be
amended as follows:
(a) by adding the following at the end of the
first sentence thereof, immediately prior to the period
thereof:
", and Seller shall own all rights to the patented
and unpatented technology relating thereto to the
extent related to Imaging Products and Buyer shall
own all rights to all patented and unpatented
technology relating thereto that is not related to
Imaging Products;"
(b) by replacing the figure "$6,000,000" in the
fifth line thereof with "$7,000,000"; and
(c) by replacing Schedule 5.24 with the Schedule
attached hereto as Exhibit B.
28. Section 5.25 of the Agreement shall be
amended to add the following at the end of the first
sentence thereof:
", and Seller shall own all rights to the patented
and unpatented technology related thereto to the
extent related to Imaging Products and Buyer shall
own all rights to all patented and unpatented
technology relating thereto that is not related to
Imaging Products."
29. Section 5.32 of the Agreement shall be
amended to add the following at the end thereof:
"(c) Each of Buyer and Seller will keep
confidential all secret or confidential
information, knowledge or data obtained after the
signing of the Agreement with respect to the other
party and its Affiliates, not duplicate or use
such information and instruct its employees who
have had access to such information to keep such
information confidential and not to use any such
information unless such information is now or
hereafter disclosed, through no act or omission of
the other party or its Affiliates, in a manner
making such information available to the general
public."
30. Section 5.33(b) of the Agreement shall be
amended to replace the text beginning after "division of
Seller" in the seventh line thereof and replace it with the
following:
"so long as (i) such solicitation is done within
81
180 days of the Closing, (ii) such solicitation
with respect to such employees in Belgium, the
Netherlands, Luxembourg, Norway, Sweden, Finland
and Denmark is done within one 90 day period,
(iii) such solicitation with respect to all other
such employees, are done within one 90 day period
and (iv) all such employees referred to in either
clause (ii) hereof or clause (iii) hereof shall be
hired on the same date, respectively."
31. The first sentence of Section 7.2 shall be
amended by deleting the word "and" preceding clause (c) and
replacing therewith a comma, and adding at the end of the
sentence, immediately before the period, the following:
"and (d) an election being made under Section 338 of
the Code with respect to the transfer, by Seller or any
Subsidiary, of any Transferred Subsidiary other than
Kodak Clinical Diagnostics Limited"
32. Section 9.4 of the Agreement shall be amended
to add after the word "hereto" on the second line
thereof the phrase "and agreements and letters executed
in connection herewith" and to add the following sentence
at the end thereof:
"To the extent any Annex is modified by mutual
agreement of the parties hereto at such time it is
executed or thereafter in accordance with its
terms, such executed agreement shall be deemed to
be the Annex for purposes of this Agreement and
shall supersede any previous versions thereof. In
addition, to the extent that any agreement is
entered into in any foreign jurisdiction to effect
the transactions intended to be effected by this
Agreement, and such agreement conflicts with this
Agreement or is silent with respect to any
provision of this Agreement, this Agreement shall
govern."
33. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an
82
original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to the Agreement to be duly executed as of
the date first above written.
EASTMAN KODAK COMPANY
By:
JOHNSON & JOHNSON
By:
83
EXHIBIT B
SCHEDULE 5.24
CAPITAL IMPROVEMENT PROJECTS
SER ESTIMATED
NUMBER DESCRIPTION COMPLETION DATE
CB-7779 71 Machine Emission Control 7/95
CB-7791 71 Machine Allen Bradley -
Upgrades
CXZ901 Procom Replacement 12/94
CB-5583 Provide C/R SAM #9 1Q95
CB-6685 Part of CB-5583 1Q95
CB-6851 New Cartridge Pkg Line 1Q95
CB-7784 Cargo Air Wheel Replms 1Q95
CXZ900 60 Slide Cartridges 1Q95
CXZ902 60 Slide Cartridge, Redesigned 1Q95
(Anti-Backup Platen ABP
CB-7789 Syringe Pump-Cart for J1
Machine 10/94
CCRL325R Upgrade Flica Instrumn YE94
CXZ347D Fabricate Test Equipment YE94
CXZ347E Thin Film Slide Delivery/Sample
Aspirator and Distributor YE95
CXZ347W Fab (5) PCR Instruments YE94
CXZ347Y Upgrade 5 Existing PCR
Instruments YE94
CXZ347Q Fabricate Additional Equipment YE94
to Allow Manufacture of NAD
Pouches
CXZ360G Film Wash/Incubate/Read Module YE95
TBD 71 Process Control Computer YE95
System Replacement
TBD Tank Upgrade 3Q95
84
CKB0002 Office Renovation B800 2Q95
CXZ903 Ektachem Disposable Reservoir
Filling System 2Q95
CXZ904 Automatic Simpler Manual 1Q95
Steering 102 Slitter
Seller agrees, after the closing, to complete, using
reasonable business efforts, the capital construction
projects set forth in this Schedule on a time and materials
basis. Seller shall invoice Buyer monthly for its time and
materials charges, which shall be calculated on a fully
burdened cost basis in a manner consistent with Kodak's 1994
accounting practices.
85
SIGNATURES
Pursuant to the requirements 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)
Date December 5, 1994
Harry L. Kavetas, Executive Vice President
and Chief Financial Officer
