1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class September 30, 1996
Common Stock, $2.50 par value 333,246,654
2
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions) Third Quarter Three Quarters
1996 1995 1996 1995
REVENUES
Sales $4,149 $3,813 $11,654 $10,888
Earnings from equity interests and other
revenues 30 64 173 190
------ ------ ------- -------
TOTAL REVENUES 4,179 3,877 11,827 11,078
------ ------ ------- -------
COSTS
Cost of goods sold 2,152 1,987 6,028 5,630
Selling, general and administrative expenses 1,119 1,037 3,227 3,030
Research and development costs 252 244 740 696
Interest expense 20 20 59 58
Other costs 14 77 70 138
------ ------ ------- -------
TOTAL COSTS 3,557 3,365 10,124 9,552
------ ------ ------- -------
Earnings before income taxes 622 512 1,703 1,526
Provision for income taxes 212 174 579 549
------ ------ ------- -------
NET EARNINGS $ 410 $ 338 $ 1,124 $ 977
====== ====== ======= =======
Earnings per share $ 1.22 $ .99 $ 3.32 $ 2.86
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Retained earnings at beginning of period $5,633 $4,838 $ 5,184 $ 4,485
Net earnings 410 338 1,124 977
Cash dividends declared (134) (136) (406) (409)
Other changes (2) 5 5 (8)
------ ------ ------- -------
RETAINED EARNINGS at end of period $5,907 $5,045 $ 5,907 $ 5,045
====== ====== ======= =======
- ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Sept. 30, Dec. 31,
1996 1995
(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 916 $ 1,764
Marketable securities 27 47
Receivables 3,171 3,145
Inventories 1,947 1,660
Deferred income tax charges 541 520
Other 217 173
------- -------
Total current assets 6,819 7,309
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,937 12,652
Less: Accumulated depreciation 7,520 7,275
------- -------
Net properties 5,417 5,377
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $356 and $326) 504 536
Deferred income tax charges 337 344
Long-term receivables and other
noncurrent assets 961 911
------- -------
TOTAL ASSETS $14,038 $14,477
======= =======
- -------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,098 $ 3,327
Short-term borrowings 601 586
Taxes-income and other 857 567
Dividends payable 134 137
Deferred income tax credits 37 26
------- -------
Total current liabilities 4,727 4,643
OTHER LIABILITIES
Long-term borrowings 564 665
Postemployment liabilities 3,134 3,247
Other long-term liabilities 673 704
Deferred income tax credits 101 97
------- -------
Total liabilities 9,199 9,356
------- -------
SHAREHOLDERS' EQUITY
Common stock at par* 978 974
Additional capital paid in or
transferred from retained earnings 907 803
Retained earnings 5,907 5,184
Accumulated translation adjustment 67 93
------- -------
7,859 7,054
Less: Treasury stock at cost* 3,020 1,933
------- -------
Total shareholders' equity 4,839 5,121
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,038 $14,477
======= =======
* Common stock: $2.50 par value, 950 million shares authorized, 391 million shares issued as
of September 30, 1996 and 390 million shares issued as of December 31, 1995. Treasury stock at
cost consists of approximately 58 million shares at September 30, 1996 and 44 million shares at
December 31, 1995.
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
4
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Quarters
1996 1995
(in millions)
Cash flows from operating activities:
Net earnings $ 1,124 $ 977
Adjustments to reconcile above earnings to net cash
provided by operating activities:
Depreciation and amortization 661 641
(Benefit) provision for deferred taxes (26) 97
Loss on sale and retirement of properties 34 39
(Increase) decrease in receivables (61) 50
Increase in inventories (307) (424)
Increase in liabilities excluding borrowings 39 394
Other items, net (15) (335)
------- -------
Total adjustments 325 462
------- -------
Net cash provided by operating activities 1,449 1,439
------- -------
Cash flows from investing activities:
Additions to properties (831) (695)
Proceeds from sale of properties and investments 66 78
Marketable securities - sales 40 23
Marketable securities - purchases (20) -
Payment for purchase of Qualex - (100)
Cash flows related to sales of non-imaging
health businesses (8) (1,212)
------- -------
Net cash used in investing activities (753) (1,906)
------- -------
Cash flows from financing activities:
Net decrease in commercial paper borrowings
of 90 days or less (219) (259)
Proceeds from other borrowings 1,224 2,529
Repayment of other borrowings (1,091) (2,236)
Dividends to shareholders (409) (409)
Exercise of employee stock options 84 82
Stock repurchases (1,131) -
------- -------
Net cash used in financing activities (1,542) (293)
------- -------
Effect of exchange rate changes on cash (2) 8
------- -------
Net decrease in cash and cash equivalents (848) (752)
Cash and cash equivalents, beginning of year 1,764 2,020
------- -------
Cash and cash equivalents, end of quarter $ 916 $ 1,268
======= =======
- ------------------------------------------------------------------------------------------
See Notes to Financial Statements
5
NOTES TO FINANCIAL STATEMENTS
NOTE 1
BASIS OF PRESENTATION
The financial statements have been prepared by the Company in accordance with
the accounting policies stated in the 1995 Annual Report and should be read
in conjunction with the Notes to Financial Statements appearing therein. In
the opinion of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation have been included
in the financial statements. The statements are based in part on estimates
and have not been audited by independent accountants. The annual statements
will be audited by Price Waterhouse LLP.
NOTE 2
COMMITMENTS AND CONTINGENCIES
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.
NOTE 3
RECLASSIFICATIONS
Certain 1995 financial statement amounts have been reclassified to conform
with the 1996 presentation.
David J. FitzPatrick
Vice President and Controller
October 28, 1996
6
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SUMMARY
(in millions, except Third Quarter Three Quarters
earnings per share) 1996 1995 Change 1996 1995 Change
Sales $4,149 $3,813 + 9% $11,654 $10,888 + 7%
Net earnings 410 338 +21% 1,124 977 +15%
Earnings per share 1.22 .99 +23% 3.32 2.86 +16%
1996
Sales were $4,149 million for the 1996 third quarter and $11,654 million for
the first three quarters. Net earnings were $410 million for the 1996 third
quarter ($1.22 per share) and $1,124 million for the first three quarters
($3.32 per share).
During the 1996 second quarter, Kodak concluded a $1 billion share repurchase
program and initiated an additional $2 billion repurchase program which is
expected to extend over the next two to three years.
On September 9, 1996, Danka Business Systems PLC and Kodak announced that
they have signed an agreement for Danka to acquire the sales, marketing, and
equipment service operations of Kodak's Office Imaging business, as well as
Kodak's facilities management business known as Kodak Imaging Services. In
connection with this agreement, Kodak will supply high-volume copiers and
printers to Danka. Danka will pay Kodak $684 million in cash and assume
certain assets and operating liabilities. Completion of the agreement is
subject to approval by Danka shareholders as well as regulatory consents.
The parties plan to close the transaction by December 31, 1996. As of
December 31, 1995, the unaudited book value of the net assets to be acquired
was approximately $800 million. The transaction will result in an estimated
book loss of approximately $250 million after tax, which will be recorded at
the time of closing, assuming receipt of shareholder approval and regulatory
consents.
1995
Sales were $3,813 million for the 1995 third quarter and $10,888 million for
the first three quarters. Net earnings were $338 million for the 1995 third
quarter ($.99 per share) and $977 million for the first three quarters ($2.86
per share).
- ------------------------------------------------------------------------------
Sales by Industry Segment
Third Quarter Three Quarters
(in millions) 1996 1995 Change 1996 1995 Change
Consumer Imaging
Inside the U.S. $ 898 $ 761 +18% $ 2,359 $ 2,064 +14%
Outside the U.S. 1,184 1,078 +10 3,205 2,920 +10
------ ------ --- ------- ------- ---
Total Consumer Imaging 2,082 1,839 +13 5,564 4,984 +12
------ ------ --- ------- ------ ---
Commercial Imaging
Inside the U.S. 1,030 988 + 4 2,994 2,920 + 3
Outside the U.S. 1,046 995 + 5 3,120 3,009 + 4
------ ------ --- ------ ------- ---
Total Commercial Imaging 2,076 1,983 + 5 6,114 5,929 + 3
------ ------ --- ------- ------- ---
Deduct Intersegment Sales (9) (9) (24) (25)
------ ------ --- ------- ------- ---
Total Sales $4,149 $3,813 + 9% $11,654 $10,888 + 7%
====== ====== === ======= ======= ===
- -----------------------------------------------------------------------------
Earnings from Operations
by Industry Segment
(in millions)
Third Quarter Three Quarters
1996 1995* Change 1996 1995* Change
Consumer Imaging $ 411 $ 399 + 3% $ 994 $ 945 + 5%
Percent of Sales 19.7% 21.7% 17.9% 19.0%
Commercial Imaging $ 216 $ 152 +42% $ 664 $ 602 +10%
Percent of Sales 10.4% 7.7% 10.9% 10.2%
----- ----- --- ------ ------ ---
Total Earnings from Operations $ 627 $ 551 +14% $1,658 $1,547 + 7%
===== ===== === ====== ====== ===
* Certain amounts have been reclassified to conform with the 1996 presentation.
- -------------------------------------------------------------------------------------------
7
COSTS AND EXPENSES
Third Quarter Three Quarters
(in millions) 1996 1995 Change 1996 1995 Change
Gross profit $1,997 $1,826 +9% $5,626 $5,258 +7%
Percent of Sales 48.1% 47.9% 48.3% 48.3%
Selling, general and
administrative expenses $1,119 $1,037 +8% $3,227 $3,030 +7%
Percent of Sales 27.0% 27.2% 27.7% 27.8%
Research and development costs $ 252 $ 244 +3% $ 740 $ 696 +6%
Percent of Sales 6.1% 6.4% 6.3% 6.4%
- -------------------------------------------------------------------------------------------
1996 COMPARED WITH 1995
Third quarter
For the third quarter of 1996, sales increased 9% compared with the third
quarter of 1995, primarily due to higher unit volumes, partially offset by
lower effective selling prices and the unfavorable effects of foreign
currency rate changes.
Sales in the Consumer Imaging segment increased 13%, due to higher unit
volumes partially offset by lower effective selling prices and the
unfavorable effects of foreign currency rate changes. Sales inside the U.S.
increased 18%, primarily due to higher unit volumes partially offset by lower
effective selling prices. Sales outside the U.S. increased 10%, due to
higher unit volumes partially offset by lower effective selling prices and
the unfavorable effects of foreign currency rate changes. All major product
lines achieved solid sales growth, led by the Company's Qualex photofinishing
subsidiary, Advantix products, color photographic papers and Kodacolor 35mm
films.
Sales in the Commercial Imaging segment increased 5%, due to higher unit
volumes partially offset by the unfavorable effects of foreign currency rate
changes and lower effective selling prices. Sales inside the U.S. increased
4%, due to higher unit volumes slightly offset by lower effective selling
prices. Sales outside the U.S. increased 5%, with higher unit volumes
partially offset by the unfavorable effects of foreign currency rate changes
and lower effective selling prices. Worldwide increases were led by digital
and professional motion imaging products.
Earnings from operations increased 14%, as the benefits of higher unit
volumes were partially offset by lower effective selling prices and higher
selling, general and administrative expenses.
Earnings from operations in the Consumer Imaging segment increased 3%, well
below the 13% rate of sales growth. The benefits of higher unit volumes were
partially offset by lower effective selling prices and increased selling,
general and administrative expenses. The higher selling, general and
administrative expenses were primarily attributable to increased advertising
and promotional expenditures associated with the summer Olympics. Lower
earnings in photofinishing operations outside the U.S. also contributed to
the lower rate of earnings growth.
Earnings from operations in the Commercial Imaging segment increased 42%
compared with the 5% rate of sales growth. The benefits of higher unit
volumes and manufacturing productivity were slightly offset by lower
effective selling prices and higher selling, general and administrative
expenses. Earnings increases were led by motion picture films, copiers and
health imaging products.
For the third quarter of 1996, earnings from equity interests and other
revenues decreased due to lower earnings from equity interests and lower
gains on sales of capital assets. Other costs decreased due to lower net
losses from foreign exchange transactions and the translation of net monetary
items in highly inflationary economies. There was no change in the effective
tax rate compared with the third quarter of 1995.
Year to date
For the first three quarters of 1996, sales increased 7% compared with the
first three quarters of 1995, primarily due to higher unit volumes, partially
offset by lower effective selling prices and the unfavorable effects of
foreign currency rate changes.
Sales in the Consumer Imaging segment increased 12%, as higher unit volumes
were slightly offset by lower effective selling prices and the unfavorable
effects of foreign currency rate changes. Sales inside the U.S. increased
14%, due to higher unit volumes slightly offset by lower effective selling
prices. Sales outside the U.S. increased 10%, due to higher unit volumes
partially offset by the unfavorable effects of foreign currency rate changes
and lower effective selling prices. Worldwide growth was led by sales gains
of the Company's Qualex photofinishing subsidiary along with increased sales
of color photographic papers, Advantix products, Kodacolor 35mm films and
one-time-use cameras.
8
Sales in the Commercial Imaging segment increased 3%, due to higher unit
volumes somewhat offset by the unfavorable effects of foreign currency rate
changes and lower effective selling prices. Sales inside the U.S. increased
3% due to higher unit volumes. Sales outside the U.S. increased 4%, due to
higher unit volumes somewhat offset by the unfavorable effects of foreign
currency rate changes and lower effective selling prices. Worldwide growth
was led by digital and professional motion imaging products.
Earnings from operations increased 7%, as the benefits of higher unit volumes
and manufacturing productivity were partially offset by higher advertising
and other expenses associated with the introduction of Advantix products and
the summer Olympics, lower effective selling prices, unfavorable effects of
foreign currency rate changes and increased research and development
expenditures.
Earnings from operations in the Consumer Imaging segment increased 5%, as the
benefits of higher unit volumes and manufacturing productivity were somewhat
offset by higher selling, general and administrative expenses and lower
effective selling prices. Approximately sixty percent of the increased
selling, general and administrative expenses were due to higher advertising
expenditures primarily related to the introduction of Advantix products and
the summer Olympics.
Earnings from operations in the Commercial Imaging segment increased 10%, as
the benefits of higher unit volumes and manufacturing productivity were
partially offset by lower effective selling prices, higher selling, general
and administrative expenses, increased research and development expenditures
and the unfavorable effects of foreign currency rate changes.
Other costs decreased due to lower net losses from foreign exchange
transactions and the translation of net monetary items in highly inflationary
economies. The decrease in the effective tax rate from 36% during the first
three quarters of 1995 to 34% during the first three quarters of 1996
principally results from the utilization of certain foreign tax loss
carryforwards.
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Available cash reserves and cash from operations have been and will be used
to complete the $2 billion stock repurchase program.
Cash flow from operations for the first three quarters of 1996 was $1,449
million, primarily due to $1,124 million of net earnings, which included $661
million of non-cash depreciation and amortization expenses, a $307 million
increase in inventories and a $61 million increase in receivables. Net cash
outflow from investing activities was $753 million for the first three
quarters of 1996, due primarily to capital expenditures of $831 million. Net
cash outflow from financing activities of $1,542 million for the first three
quarters of 1996 was primarily due to $1,131 million of stock repurchases and
$409 million of dividend payments.
During the third quarter of 1996, a cash dividend of $134 million (40 cents
per share) was declared on the Company's common stock, versus $136 million
(40 cents per share) a year ago. Total cash dividends declared for the
year-to-date periods of 1996 and 1995 amounted to $406 million ($1.20 per
share) and $409 million ($1.20 per share), respectively.
Cash, cash equivalents and marketable securities were $943 million at the end
of the third quarter, compared with $1,811 million at year-end 1995. Net
working capital at the end of the quarter was $2,092 million, compared with
$2,666 million at year-end 1995. Both decreases are primarily attributable
to the stock repurchase program.
Projected operating cash flows are expected to be adequate to support normal
business operations, planned capital expenditures, the stock repurchase
program, and dividend payments in 1996.
Capital additions for the third quarter of 1996 were $299 million compared
with $236 million for the third quarter of 1995. For the first three quarters
of 1996, capital additions were $831 million versus $695 million a year ago.
- ------------------------------------------------------------------------------
9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1987, the Company was sued in federal district court in San
Francisco by a number of independent service organizations who alleged
violations of Sections 1 and 2 of the Sherman Act and of various state
statutes in the sale by the Company of repair parts for its copier and
micrographics equipment (Image Technical Service, Inc. (ITS), et al v.
Eastman Kodak Company). The complaint sought unspecified compensatory and
punitive damages. Trial began on June 19, 1995 and concluded on September
18, 1995 with a jury verdict for plaintiffs of $23,948,300, before trebling.
The Company has appealed the jury's verdict (the appeal was argued in the 9th
Circuit on September 19, 1996) and intends to continue to defend this action
vigorously.
Three cases that raise essentially the same antitrust issues as ITS are
pending (Nationwide, et al v. Eastman Kodak Company, filed March 10, 1995,
A-1 Copy Center, et al v. Eastman Kodak Company, filed December 13, 1993, and
Broward Microfilm, Inc. v. Eastman Kodak Company, filed February 27, 1996).
The Nationwide and A-1 cases are pending in federal district court in San
Francisco, while Broward Microfilm is pending in federal district court in
Miami. A-1 is a consolidated class action, while Broward Microfilm purports
to be a national class action. The complaints in all three cases seek
unspecified compensatory and punitive damages. As is the case in ITS, the
Company is defending these matters vigorously.
As a participant in the Environmental Protection Agency's (EPA) Toxic
Substances Control Act (TSCA) Section 8 (e) Compliance Audit Program, the
Company 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's participation in the Program will conclude in the fourth
quarter, with a payment by the Company of a civil penalty of $750,000.
In addition to the foregoing environmental action, 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 approximately
twenty-five 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 not expected to be material to the Company's financial
condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and financial statement schedules required as part of
this report are listed in the index appearing on page 11.
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the quarter ended September 30, 1996.
10
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 October 28, 1996
David J. FitzPatrick
Vice President and Controller
11
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Page No.
Exhibit
(11) Computation of Earnings Per Common Share 12
(27) Financial Data Schedule, Exhibit (27) - Submitted
with the EDGAR filing as a second document to this
Form 10-Q
12
Exhibit (11)
Eastman Kodak Company and Subsidiary Companies
Computation of Earnings Per Common Share
Third Quarter Three Quarters
1996 1995 1996 1995
(in millions, except per share amounts)
Earnings before income taxes $ 622 $ 512 $1,703 $1,526
Provision for income taxes 212 174 579 549
------ ------ ------ ------
Net Earnings $ 410 $ 338 $1,124 $ 977
====== ====== ====== ======
Average number of common shares outstanding 335.4 342.0 339.0 341.1
------ ------ ------ ------
Earnings per share $ 1.22 $ .99 $ 3.32 $ 2.86
====== ====== ====== ======
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
1.0
916
27
3171
107
1947
6819
12937
7520
14038
4727
564
0
0
978
3861
14038
11654
11827
6028
6028
4037
0
59
1703
579
1124
0
0
0
1124
3.32
0
