1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the year ended December 31, 1994 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $2.50 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
At December 31, 1994, 339,756,692 shares of Common Stock of the registrant
were outstanding. The aggregate market value (based upon the closing price of
these shares on the New York Stock Exchange at January 31, 1995) of the voting
stock held by nonaffiliates was approximately $16.6 billion.
2
ITEM 1. BUSINESS
Eastman Kodak Company (the Company) is engaged primarily in developing,
manufacturing, and marketing consumer and commercial imaging products.
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 46.
- - ------------------------------------------------------------------------------
CONSUMER IMAGING SEGMENT
Sales of the consumer imaging segment, including intersegment sales, for the
past three years were:
(in millions) 1994 1993 1992
$5,919 $5,292 $5,414
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 worldwide through a variety of channels. Individual products are
often used in substantial quantities in more than one market. Most sales of
the consumer imaging segment are made through 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 product offerings.
- - ------------------------------------------------------------------------------
3
COMMERCIAL IMAGING SEGMENT
Sales of the commercial imaging segment for the past three years were:
(in millions) 1994 1993 1992
$7,646 $7,382 $7,592
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.
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 healthcare
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. 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.
- - ------------------------------------------------------------------------------
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 reported as discontinued operations with
results for prior periods restated. At December 31, 1994, the Company had
completed the sales of all of these businesses for aggregate gross proceeds of
$7,858 million. 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 completing
these transactions in 1995.
Sales of products of these discontinued health businesses for the past three
years were (1994 sales are through sales dates):
(in millions) 1994 1993 1992
$3,175 $3,694 $3,553
- - ------------------------------------------------------------------------------
4
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 represented
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 were used by the Company to retire other
borrowings. 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 two
years ended December 31, 1993 and 1992 were:
(in millions) 1993 1992
$3,976 $3,927
- - ------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Through the years, Kodak has engaged in extensive and productive efforts in
research and development. In 1994, $859 million (1993 - $864 million; 1992 -
$988 million) was expended for research and development in continuing
operations. Research and development groups for continuing operations are
located principally in the United States 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.
- - ------------------------------------------------------------------------------
5
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 1994, expenditures for pollution prevention and waste
treatment for continuing operations at various manufacturing facilities
totaled $122 million. These costs included $83 million of recurring costs
associated with managing hazardous substances and pollution in on-going
operations, $36 million of capital expenditures to limit or monitor hazardous
substances or pollutants, and $3 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 an impact materially different from 1994's
environmental expenditures on the Company's financial position, results of
operations, cash flows or competitive position.
In October 1994, the Company, the Environmental Protection Agency (EPA), and
the U.S. Department of Justice announced the settlement of a civil complaint
alleging noncompliance by the Company with federal environmental regulations
at the Company's Kodak Park manufacturing site in Rochester, New York. The
Company paid a penalty of $5 million. A Consent Decree was signed under which
the Company is subject to a Compliance Schedule by which the Company will
improve its waste characterization procedures, upgrade one of its incinerators
and evaluate and upgrade its industrial sewer system over a 12-year period.
The expenditures that may be required to complete this program cannot
currently be reasonably estimated since upgrade plans have not been finalized
and must be developed on an ongoing basis. Further, most costs associated
with the program will be for capital expenditures.
The Company has reviewed a RCRA Facility Assessment (RFA) pertaining to the
Company's Kodak Park site in Rochester, New York and 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 remedial
investigation and feasibility 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 $108 million in its financial statements at December 31,
1994, compared with $84 million at December 31, 1993.
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.
- - ------------------------------------------------------------------------------
EMPLOYMENT
At the end of 1994, the Company employed 96,300 people, of whom 54,300 were
employed in the U.S. The acquisition of Qualex during 1994 added
approximately 7,600 people to the Company's U.S. employment. Acquisitions
outside the U.S. during 1994 added approximately 1,200 people to the Company's
employment levels. Approximately 5,100 personnel left the Company during 1994
under restructuring programs.
- - ------------------------------------------------------------------------------
Financial information by geographic areas for the past three years is shown in
Segment Information on page 45.
- - ------------------------------------------------------------------------------
6
ITEM 2. PROPERTIES
The consumer imaging segment of Kodak's business in the United States is
centered in and near Rochester, New York, where photographic goods are
manufactured. Another manufacturing facility near Windsor, Colorado, also
produces sensitized photographic goods. Regional distribution centers are
located in various places within the United States.
Consumer imaging manufacturing facilities outside the United States are
located in Australia, Brazil, Canada, France, Mexico and the United Kingdom.
Kodak maintains marketing and distribution facilities in many parts of the
world. The Company also owns processing laboratories in numerous locations
worldwide.
Products in the commercial imaging segment are manufactured primarily in
Rochester, New York and Windsor, Colorado. Manufacturing facilities outside
the United States are located in Germany, Mexico and the United Kingdom.
The Company owns or leases administrative, manufacturing, marketing, and
processing facilities in various parts of the world. The leases are for
various periods and are generally renewable.
The manufacturing and marketing facilities are adequate and suitable, in
relation to prevailing conditions, to serve the needs of their marketing
areas.
- - ------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
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 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 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.
- - ------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
- - ------------------------------------------------------------------------------
7
Executive Officers of the Registrant
(as of December 31, 1994)
Date First Elected
an to
Executive Present
Name Age Positions Held Officer Office
George M. C. Fisher 54 Chairman of the Board,
President and Chief
Executive Officer 1993 1993
Michael P. Benard 47 Vice President 1994 1994
Richard T. Bourns 60 Senior Vice President 1988 1990
Harry L. Kavetas 57 Executive Vice President 1994 1994
James W. Meyer 51 Senior Vice President 1994 1994
Michael P. Morley 51 Senior Vice President 1994 1994
Wilbur J. Prezzano 54 Executive Vice President,
Director 1980 1994
Leo J. Thomas 58 Executive Vice President,
Director 1977 1994
Gary P. Van Graafeiland 48 Senior Vice President
and Secretary 1992 1992
Executive officers are elected annually in February.
All of the executive officers have been employed by Kodak in various executive
and managerial positions for more than five years, except for Mr. Fisher, who
joined the Company on December 1, 1993, and Mr. Kavetas, who joined the
Company on February 11, 1994. Prior to joining Kodak, Mr. Fisher held
executive positions with Motorola, Inc., most recently as Chairman and Chief
Executive Officer. Prior to joining Kodak, Mr. Kavetas held executive
positions with International Business Machines (IBM) Corporation, most
recently as President, Chief Executive Officer and a director of IBM Credit
Corporation.
There have been no events under any bankruptcy act, no criminal proceedings,
and no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
- - ------------------------------------------------------------------------------
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Eastman Kodak Company common stock is principally traded on the New York Stock
Exchange. There were 151,349 shareholders of record of common stock as of
December 31, 1994. See Cash Dividends and Market Price Data on pages 16 and 17,
respectively.
- - ------------------------------------------------------------------------------
8
SELECTED FINANCIAL DATA
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
(amounts in millions, 1994 (1) 1993 (2) 1992 (3) 1991 (4) 1990 (5)
except per share data)
Sales from continuing
operations $13,557 $12,670 $12,992 $12,427 $12,526
Earnings from
continuing operations
before extraordinary
item and cumulative
effect of changes in
accounting principle 554 644 845 12 548
Earnings from discontinued
operations before
cumulative effect of
changes in accounting
principle 269 23 149 5 155
------- ------- ------- ------- -------
Earnings before
extraordinary item
and cumulative effect
of changes in
accounting principle 823 667 994 17 703
Extraordinary item (266) (14) - - -
------- ------- ------- ------- -------
Earnings before cumulative
effect of changes in
accounting principle 557 653 994 17 703
------- ------- ------- ------- -------
Cumulative effect of
changes in accounting
principle:
Continuing operations - (1,649) 100 - -
Discontinued operations - (519) 52 - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle - (2,168) 152 - -
- - ------- ------- ------- ------- -------
Net earnings (loss) $ 557 $(1,515) $ 1,146 $ 17 $ 703
======= ======= ======= ======= =======
9
SELECTED FINANCIAL DATA (continued)
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
1994 (1) 1993 (2) 1992 (3) 1991 (4) 1990 (5)
Primary earnings per
share from continuing
operations before
extraordinary item and
cumulative effect of
changes in accounting
principle $ 1.65 $ 1.95 $ 2.60 $ .04 $ 1.69
Primary earnings per
share from discontinued
operations before
cumulative effect of
changes in accounting
principle .80 .07 .46 .01 .48
------- ------- ------- ------- -------
Primary earnings per share
before extraordinary item
and cumulative effect
of changes in accounting
principle 2.45 2.02 3.06 .05 2.17
Extraordinary item (.79) (.04) - - -
------- ------- ------- ------- -------
Primary earnings per share
before cumulative effect
of changes in accounting
principle 1.66 1.98 3.06 .05 2.17
------- ------- ------- ------- -------
Cumulative effect of
changes in accounting
principle:
Continuing operations - (5.02) .31 - -
Discontinued operations - (1.58) .16 - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle - (6.60) .47 - -
------- ------- ------- ------- -------
Primary earnings (loss)
per share $ 1.66 $ (4.62) $ 3.53 $ .05 $ 2.17
======= ======= ======= ======= =======
10
SELECTED FINANCIAL DATA (continued)
Eastman Kodak Company and Subsidiary Companies
Selected Consolidated Financial Data
For the Year Ended in December
1994 (1) 1993 (2) 1992 (3) 1991 (4) 1990 (5)
Fully diluted earnings
per share from continuing
operations before extra-
ordinary item and cumu-
lative effect of changes
in accounting principle $ 1.63 $ 1.95 $ 2.56 $ .04 $ 1.69
Fully diluted earnings per
share from discontinued
operations before
cumulative effect of
changes in accounting
principle .79 .07 .42 .01 .47
------- ------- ------- ------- -------
Fully diluted earnings
per share before extra-
ordinary item and cumu-
lative effect of changes
in accounting principle 2.42 2.02 2.98 .05 2.16
Extraordinary item (.79) (.04) - - -
------- ------- ------- ------- -------
Fully diluted earnings
per share before cumu-
lative effect of changes
in accounting principle 1.63 1.98 2.98 .05 2.16
------- ------- ------- ------- -------
Cumulative effect of
changes in accounting
principle:
Continuing operations - (5.02) .28 - -
Discontinued operations - (1.58) .15 - -
------- ------- ------- ------- -------
Total cumulative effect of
changes in accounting
principle - (6.60) .43 - -
------- ------- ------- ------- -------
Fully diluted earnings
(loss) per share $ 1.63 $ (4.62) $ 3.41 $ .05 $ 2.16
======= ======= ======= ======= =======
Cash dividends declared
per common share (6) $ 1.60 $ 2.00 $ 2.00 $ 2.00 $ 2.00
Total assets 14,968 18,810 19,038 19,952 20,085
Long-term borrowings 660 6,727 5,259 5,648 5,036
(1) After deducting $340 million of restructuring costs from continuing operations which
reduced net earnings by $254 million and $110 million loss on the extinguishment of certain
financial instruments, which reduced net earnings by $80 million.
(2) 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. The net loss for
1993 was due to an after-tax charge of $2.17 billion from the cumulative effect of adopting
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.
(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. Net
earnings for 1992 benefited by $152 million from the cumulative effect of adopting SFAS No.
109, Accounting for Income Taxes.
(4) 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.
(5) After deducting $888 million for the litigation judgment, including post-judgment interest,
which reduced net earnings by $564 million.
(6) The lower dividends in 1994 were due to the spin-off of the Eastman Chemical Company
operations at year-end 1993. As a result of the spin-off, the Company's shareowners
received one share of Eastman Chemical Company stock for every four shares of Kodak common
stock.
- - ----------------------------------------------------------------------------------------------
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
(in millions, except earnings per share) 1994 Change 1993 Change 1992
Sales from continuing operations $13,557 +7% $12,670 -2% $12,992
Earnings (loss) from operations before
extraordinary item and
cumulative effect of changes in
accounting principle:
Continuing 554 644 845
Discontinued - Health 269 (169) (118)
Discontinued - Chemicals - 192 267
Net earnings (loss) 557 (1,515) 1,146
Primary earnings (loss) per share 1.66 (4.62) 3.53
Fully diluted earnings (loss) per share 1.63 (4.62) 3.41
The Company's net earnings of $557 million for 1994 were significantly
impacted by the divestiture of its non-imaging health businesses, a program to
pay down a substantial portion of its debt and financial instruments, and
restructuring costs.
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. Earnings from discontinued operations
include allocations of interest and taxes to the health businesses. At
December 31, 1994, the Company had completed the sales of all of these
businesses for aggregate gross proceeds of $7,858 million. 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 completing these transactions in 1995. The
net gain on the sales of these businesses was $350 million or $1.03 per share.
The Company used $8,142 million from the divestiture, short-term borrowings and
operations to extinguish $6,598 million (net carrying amount) of borrowings,
$7,800 million (notional amount) of financial instruments, a $292 million
master lease program and $200 million sale of receivables programs. As a
result of these actions, the Company incurred an extraordinary loss of $266
million after-tax ($.79 per share). In addition, a $110 million pre-tax loss
($80 million or $.24 per share after-tax) was recorded in "other costs" for
these actions.
On August 12, 1994, the Company acquired the remaining shares of Qualex, a
photofinisher operating primarily in the U.S. Prior to that date, the Company
had an investment in Qualex of approximately fifty percent of its outstanding
common shares, which was accounted for under the equity method. The Company
purchased the remaining shares for $150 million with a combination of $50
million cash paid at acquisition and a note. At December 31, 1994, $100
million remains to be paid in two equal installments in February and August
1995.
Sales from continuing operations in 1994 were $13,557 million, an increase of
seven percent over sales for 1993. Excluding the sales of Qualex, sales from
continuing operations increased five percent over a year ago.
Earnings from continuing operations of $554 million ($1.65 per share) for 1994
were adversely impacted by restructuring costs of $340 million pre-tax ($254
million or $.75 per share after-tax) in addition to the $110 million pre-tax
loss ($80 million or $.24 per share after-tax) described above for the
extinguishment of certain financial instruments. Earnings from continuing
operations of $644 million ($1.95 per share) in 1993 were significantly
reduced by restructuring costs of $495 million pre-tax ($353 million or $1.08
per share after-tax). Earnings from continuing operations, before deducting
the restructuring costs in both years and the charge for extinguishment of
certain financial instruments in 1994, were down approximately $109 million in
1994 when compared with 1993. Earnings for 1994 were adversely impacted by
premium costs associated with currency hedges, while earnings for 1993
benefited from gains on currency hedges. The benefits to 1994 earnings from
continuing operations from higher volumes and manufacturing productivity were
more than offset by the adverse effects of cost escalation, lower effective
selling prices, incremental charges associated with the review of the carrying
value of all assets, increased levels of marketing and administrative
activity, smaller gains from the sales of investments and a higher effective
tax rate.
12
On December 31, 1993, the Company distributed to its shareowners 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 transaction costs associated with the
spin-off.
The Company posted sales from continuing operations of $12,670 million in
1993. Earnings from continuing operations for 1993 were $644 million ($1.95
per share) compared with earnings of $845 million ($2.60 per share) in 1992.
Earnings from continuing operations 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 and lower interest expense; but were adversely
affected by cost escalation, lower effective selling prices, higher retiree
healthcare 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. Earnings for 1993
benefited from gains on currency hedges while earnings for 1992 were adversely
impacted by premium costs associated with currency hedges. 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, while net earnings for
1992 benefited by approximately $75 million after-tax ($.23 per share) from
gains on the sales of investments, including the sale of Eastman Kodak Credit
Corporation (EKCC).
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 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 healthcare 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 pre-tax ($34 million or $.10 per share
after-tax).
The 1993 net loss was due to an after-tax charge of $2.17 billion ($6.60 per
share) associated with the adoption of 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.
- - ------------------------------------------------------------------------------
13
Sales by Industry Segment
(in millions) 1994 Change 1993 Change 1992
Sales from Continuing Operations:
Consumer Imaging
Inside the U.S. $ 2,428 +15% $ 2,114 +1% $ 2,084
Outside the U.S. 3,491 +10 3,178 -5 3,330
------- --- ------- --- -------
Total Consumer Imaging 5,919 +12 5,292 -2 5,414
------- --- ------- --- -------
Commercial Imaging
Inside the U.S. 3,948 +1 3,892 -3 4,016
Outside the U.S. 3,698 +6 3,490 -2 3,576
------- --- ------- --- -------
Total Commercial Imaging 7,646 +4 7,382 -3 7,592
------- --- ------- --- -------
Deduct: Intersegment Sales (8) (4) (14)
------- --- ------- --- -------
Total Sales from Continuing
Operations $13,557 +7% $12,670 -2% $12,992
======= === ======= === =======
SALES
Worldwide sales from continuing operations in 1994 were up seven percent when
compared with a year ago primarily due to higher unit volumes. Sales for the
Consumer Imaging segment increased significantly, while Commercial Imaging
segment sales were up slightly.
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 1992.
In the Consumer Imaging segment, 1994 sales to customers inside the U.S. were
up significantly over a year ago due to volume gains and the inclusion of
revenues from Qualex, which was acquired in August of 1994. Excluding sales
of Qualex, sales to customers in the U.S. posted a moderate increase. Sales
to customers outside the U.S. in 1994 recorded good increases over 1993 as
significant volume gains and the favorable effects of foreign currency rate
changes were partially offset by lower effective selling prices. Worldwide
volume increases were led by Ektacolor papers, Kodacolor 35mm films and
single-use cameras.
In the Consumer Imaging segment, sales to customers inside the U.S. in 1993
were up one percent over sales for 1992, as slight increases in unit volumes
were 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.
In the Commercial Imaging segment, 1994 sales to customers in the U.S. were up
one percent over a year ago as volume increases were partially offset by lower
effective selling prices. Sales to customers outside the U.S. in 1994
increased moderately over a year ago as moderate volume gains and the
favorable effects of foreign currency rate changes were partially offset by
lower effective selling prices. Worldwide sales increases were led by
printing and professional imaging, motion picture and television imaging, and
health sciences products.
In the Commercial Imaging segment, 1993 sales comparisons with 1992 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.
14
Earnings from Operations by Industry Segment
(in millions)
1994 Change 1993 Change 1992
Earnings from Operations
from Continuing Operations:
Consumer Imaging $ 878 -6% $ 931 -13% $1,065
Percent of segment sales 14.8% 17.6% 19.7%
Commercial Imaging $ 431 +36% $ 317 -5% $ 334
Percent of segment sales 5.6% 4.3% 4.4%
------ --- ------ --- ------
Total Earnings from Operations
from Continuing Operations $1,309 +5% $1,248 -11% $1,399
====== === ====== === ======
Earnings from operations for 1994 are shown after deducting restructuring
costs of $190 million for Consumer Imaging and $150 million for Commercial
Imaging. 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.
Segment information is reported on pages 44 through 46, 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
$340 million in 1994, $495 million in 1993 and $219 million in 1992. The 1994
restructuring costs represent severance and other termination benefits for
approximately 4,350 personnel and exit costs related to the realignment of
Kodak's worldwide manufacturing, marketing, administrative and photofinishing
operations. The 1993 restructuring costs represent the cost of separation
benefits for a cost reduction program expected to reduce worldwide employment
by approximately 9,000 personnel and the cost of closing a facility in Germany
that manufactured a component for the Company's ink jet printing business.
The restructuring costs in 1992 included costs of an early retirement plan,
the restructuring of non-U.S. sensitized manufacturing and photofinishing
operations, and the Company's exit from non-strategic businesses.
Operating earnings from continuing operations for the Consumer Imaging and
Commercial Imaging segments for 1994 and 1993 were adversely impacted, when
compared with 1992 earnings, by higher retiree healthcare costs associated
with the change in accounting for certain postretirement benefits effective
January 1, 1993.
Consumer Imaging segment operating earnings were adversely affected by
restructuring costs in 1994, 1993 and 1992 of $190 million, $141 million and
$58 million, respectively. Operating earnings for 1994 were essentially level
with 1993, before deducting restructuring costs in both years. Earnings for
1994 benefited from higher volumes and manufacturing productivity, but were
adversely affected by higher levels of marketing and administrative activity,
cost escalation and lower effective selling prices. In addition, 1994
earnings were reduced by premium costs associated with strategic currency
hedges, while 1993 earnings benefited from gains on strategic currency hedges.
Operating earnings decreased in 1993 when compared with 1992, before deducting
restructuring costs in both years, as the benefits from increased unit
volumes, lower marketing and administrative activity and manufacturing
productivity were more than offset by lower effective selling prices, cost
escalation and the unfavorable effects of foreign currency rate changes.
Earnings for 1993 benefited from gains on strategic currency hedges while
earnings for 1992 were adversely impacted by premium costs associated with
strategic currency hedges.
15
The Commercial Imaging segment operating earnings were adversely affected by
restructuring costs in 1994, 1993 and 1992 of $150 million, $354 million and
$161 million, respectively. Operating earnings for 1994 were lower when
compared to 1993, before deducting restructuring costs in both years, as the
benefits from manufacturing productivity, higher volumes and lower research
and development activity were more than offset by cost escalation and lower
effective selling prices. In addition, earnings for 1994 were reduced by
premium costs associated with strategic currency hedges, while 1993 earnings
included gains from strategic currency hedges. Operating earnings improved
sharply in 1993 when compared with 1992, before deducting restructuring costs
in both years, as the benefits from manufacturing productivity, 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.
Earnings for 1993 benefited from gains on strategic currency hedges, while
earnings for 1992 were adversely affected by premium costs associated with
strategic currency hedges.
Research and development expenditures for continuing operations amounted to
$859 million in 1994, compared with $864 million in 1993 and $988 million in
1992. Research and development expenditures in 1994 were essentially level
with 1993 as cost escalation offset the benefits of lower activity levels.
Research and development expenditures in 1993 were significantly below 1992 as
the benefits from lower activity levels were only partially offset by cost
escalation. Amortization of goodwill for continuing operations amounted to
$47 million in 1994, $29 million in 1993 and $23 million in 1992. The increase
in amortization in 1994 was primarily due to the acquisition of Qualex.
Advertising and sales promotion expenses for continuing operations were
$744 million in 1994, $646 million in 1993 and $725 million in 1992. Other
marketing and administrative expenses for continuing operations totaled
$2,967 million in 1994, $2,774 million in 1993 and $3,000 million in 1992.
Increases in advertising and sales promotion, and other marketing and
administrative expenses in 1994 resulted from cost escalation, higher activity
levels, the unfavorable effects of foreign currency rate changes and the
acquisition of Qualex. Decreases in advertising and sales promotion, and
other marketing and administrative expenses in 1993 when compared with 1992
resulted from the benefit of lower activity levels and the favorable effects
of foreign currency rate changes, partially offset by cost escalation.
Earnings from equity interests and other revenues were $130 million in 1994,
$203 million in 1993 and $342 million in 1992. The amounts for 1993 were
higher than 1994 due to larger gains from the sales of investments and other
items in 1993. The results for 1992 were higher than 1994 and 1993 due to
larger gains from the sales of investments in 1992, including the sale of
EKCC.
Interest expense of $142 million in 1994 was lower than the $175 million
incurred in 1993 primarily due to lower levels of borrowings. Interest
expense in 1993 was lower than the $247 million incurred in 1992 as a result
of lower effective interest rates. Interest expense of approximately
$390 million in 1994 and $586 million in 1993 and 1992, and capitalized
interest of approximately $7 million in 1994 and $51 million in 1993 and 1992
were allocated to discontinued operations.
The increase in other costs in 1994 when compared with 1993 is primarily due
to the inclusion in 1994 of $110 million of charges associated with the
extinguishment of certain financial instruments. The increase in other costs
in 1993 when compared with 1992 is primarily due to higher net losses in 1993
from foreign exchange transactions and the translation of net monetary items
in highly inflationary economies.
The Company has a program in place to manage foreign currency risk. The
Company currently uses foreign currency option contracts to hedge its exposure
to changes in foreign currency exchange rates for anticipated sales and
purchases for certain foreign affiliates and probable anticipated export
sales. Currency changes against the U.S. dollar favorably affected 1994 sales
from continuing operations by $135 million and unfavorably affected 1993 sales
from continuing operations by $490 million. These effects were partially
offset by premium costs of $86 million and gains of $73 million from strategic
currency hedges in 1994 and 1993, respectively. The Company has also entered
into foreign currency contracts to hedge a portion of its transactions in
foreign currency denominated receivables and payables. The effect of these
hedges and the gains and losses on transaction exposures was a loss of $46
million in 1994, a loss of $44 million in 1993 and a gain of $40 million in
1992.
The effective tax rates for continuing operations were 44.7% in 1994, 40.2% in
1993 and 38.7% in 1992. The higher rates in 1994 and 1993 are primarily due
to higher operating losses and restructuring costs in jurisdictions outside
the U.S. for which tax benefits cannot be taken.
- - ------------------------------------------------------------------------------
16
- - ------------------------------------------------------------------------------
CASH DIVIDENDS
Total cash dividends of approximately $537 million ($.40 per share each
quarter), $657 million ($.50 per share each quarter) and $650 million ($.50 per
share each quarter) were declared in 1994, 1993 and 1992, respectively.
The lower dividends in 1994 were due to the spin-off of the Eastman Chemical
Company operations at year-end 1993. As a result of the spin-off, the
Company's shareowners received one share of Eastman Chemical Company stock for
every four shares of Kodak common stock.
- - ------------------------------------------------------------------------------
FINANCIAL POSITION
Cash and cash equivalents increased to $2,020 million at year-end 1994 from
$1,635 million at year-end 1993. In connection with the spin-off of the
worldwide chemical business at year-end 1993, the Company borrowed
$1,800 million 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, were used to retire other borrowings
in 1994.
Cash and cash equivalents at year-end 1994 included a $1,550 million note
received on December 31, 1994 when the Company completed the sale of its
household products business of L&F Products. The note was paid in cash to the
Company on January 3, 1995. The cash and cash equivalents at year-end 1994 is
expected to be used in 1995 by the Company to pay taxes associated with the
divestiture of the non-imaging health businesses and for normal operations.
The Company used $8,142 million from the divestiture, short-term borrowings and
operations to extinguish $6,598 million (net carrying amount) of borrowings,
$7,800 million (notional amount) of financial instruments, a $292 million
master lease program and $200 million sale of receivables programs.
Approximately one-third of the restructuring costs recorded by the Company in
1994 is for separation benefits for approximately 4,350 personnel leaving the
Company. Most of these benefits will be paid during 1995 from operating cash
flows. Approximately $40 million represents future cash payments to be made
over several years for noncancelable leases. The remainder of the 1994
restructuring costs represents the non-cash write-offs of assets for facility
closures and business exits, most of which will be completed during 1995.
After-tax savings from the 1994 restructuring program are expected to be
approximately $100 million in 1995 and $125 million annually beginning in 1996
as a result of lower costs for salaries, benefits, depreciation and leasing.
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 were paid during
1993 and 1994 from operating cash flows. The remainder of the 1993
restructuring costs were associated with the closure of a facility in Germany,
which was completed in 1994. Approximately $40 million of these costs is for
separation benefits to be paid to former employees over several years. The
remainder of the costs represents the non-cash write-offs of assets associated
with the facility closure. An analysis of restructuring costs for the last
three years is provided in the Restructuring Costs note on pages 38 and 39.
The Company has access to a $2.5 billion revolving credit facility expiring in
May, 1999. The Company also has a shelf registration statement on Form S-3
for debt securities with an available balance of $2.2 billion.
Projected operating cash flows are expected to be adequate to support normal
business operations, planned capital expenditures and dividend payments in
1995.
- - ------------------------------------------------------------------------------
17
ENVIRONMENTAL PROTECTION
During 1994, expenditures for pollution prevention and waste treatment for
continuing operations at various manufacturing facilities totaled $122 million.
These costs included $83 million of recurring costs associated with managing
hazardous substances and pollution in ongoing operations, $36 million of capital
expenditures to limit or monitor hazardous substances or pollutants, and
$3 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 an impact materially different from 1994's
environmental expenditures on the Company's financial position, results of
operations or cash flows.
In October 1994, the Company, the Environmental Protection Agency (EPA), and
the U.S. Department of Justice announced the settlement of a civil complaint
alleging noncompliance by the Company with federal environmental regulations
at the Company's Kodak Park manufacturing site in Rochester, New York. The
Company paid a penalty of $5 million. A Consent Decree was signed under which
the Company is subject to a Compliance Schedule by which the Company will
improve its waste characterization procedures, upgrade one of its incinerators
and evaluate and upgrade its industrial sewer system over a 12-year period.
The expenditures that may be required to complete this program cannot
currently be reasonably estimated since upgrade plans have not been finalized
and must be developed on an ongoing basis. Further, most costs associated
with the program will be for capital expenditures.
The Company has reviewed a Resource Conservation and Recovery Act (RCRA)
Facility Assessment (RFA) pertaining to the Company's Kodak Park site in
Rochester, New York and 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 remedial investigation and feasibility
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)
1994 1993 1992
Capital Additions for Continuing Operations:
Consumer Imaging $ 303 $ 282 $ 367
Commercial Imaging 850 535 869
------ ------ ------
Total Capital Additions for Continuing Operations $1,153 $ 817 $1,236
====== ====== ======
The Company was a party to a master lease agreement whereby it leased
equipment with a right to buy the equipment at anytime at fair market value.
This agreement was terminated by the Company in 1994 and cash was paid in the
amount of approximately $292 million to purchase the equipment previously
leased.
- - ------------------------------------------------------------------------------
MARKET PRICE DATA
1994 1993
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Price per share:
High $52-1/4 $54 $49 $46-7/8 $64-3/4 $62-3/4 $56-3/8 $56-3/4
Low 44-3/8 47-1/8 40-3/4 41 54 49-7/8 45-7/8 40-3/8
Market Price Data for 1993 is shown prior to the spin-off of Eastman Chemical
Company operations at year-end 1993. As a result of the spin-off, the
Company's shareowners received one share of Eastman Chemical Company stock for
every four shares of Kodak common stock.
- - ------------------------------------------------------------------------------
SUMMARY OF OPERATING DATA
A summary of operating data for 1994 and for the 4 years prior is shown on
page 49.
- - ------------------------------------------------------------------------------
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
consolidated financial statements and related notes which appear on pages 19
through 48. These financial statements have been prepared in accordance with
generally accepted accounting principles and of necessity include some amounts
that are based on management's best estimates and judgments.
The Company's accounting systems include extensive internal controls
designed to provide reasonable assurance of the reliability of its financial
records and the proper safeguarding and use of its assets. Such controls are
based on established policies and procedures, are implemented by trained,
skilled personnel with an appropriate segregation of duties, and are monitored
through a comprehensive internal audit program. The Company's policies and
procedures prescribe that the Company and all employees are to maintain the
highest ethical standards and that its business practices throughout the world
are to be conducted in a manner which is above reproach.
The consolidated financial statements have been audited by Price Waterhouse
LLP, independent accountants, who were responsible for conducting their audits
in accordance with generally accepted auditing standards. Their resulting
report is shown below.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of
non-management Board members. The independent accountants and internal
auditors have full and free access to the Audit Committee. The Audit
Committee meets periodically with the independent accountants and the Director
of Corporate Auditing of the Company, both privately and with management
present, to discuss accounting, auditing and financial reporting matters.
George M. C. Fisher Harry L. Kavetas
Chairman of the Board, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
January 30, 1995 January 30, 1995
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 14(a)(1) and (2) on page 63 of this Annual
Report on Form 10-K present fairly, in all material respects, the financial
position of Eastman Kodak Company and subsidiary companies at December 31,
1994 and 1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, 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 Nonpension Postretirement and Postemployment Benefits
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 30, 1995
19
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31,
1994 1993 1992
(in millions)
REVENUES
Sales $13,557 $12,670 $12,992
Earnings from equity interests and
other revenues 130 203 342
------- ------- -------
TOTAL REVENUES 13,687 12,873 13,334
------- ------- -------
COSTS
Cost of goods sold 7,325 6,654 6,702
Marketing and administrative expenses 3,711 3,420 3,725
Research and development costs 859 864 988
Interest expense 142 175 247
Restructuring costs 340 495 219
Other costs 308 188 74
------- ------- -------
TOTAL COSTS 12,685 11,796 11,955
------- ------- -------
Earnings from continuing operations
before income taxes 1,002 1,077 1,379
Provision for income taxes from
continuing operations 448 433 534
------- ------- -------
Earnings from continuing operations
before extraordinary item and cumulative
effect of changes in accounting principle 554 644 845
Earnings from discontinued operations
before cumulative effect of changes in
accounting principle 269 23 149
------- ------- -------
Earnings before extraordinary item and
cumulative effect of changes in
accounting principle 823 667 994
Extraordinary item (266) (14) -
------- ------- -------
Earnings before cumulative effect of changes
in accounting principle 557 653 994
------- ------- -------
Cumulative effect of changes in accounting
principle:
Continuing operations - (1,649) 100
Discontinued operations - (519) 52
------- ------- -------
Total cumulative effect of changes in
accounting principle - (2,168) 152
------- ------- -------
NET EARNINGS (LOSS) $ 557 $(1,515) $ 1,146
======= ======= =======
20
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS (continued)
For the Year Ended December 31,
1994 1993 1992
Primary earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes
in accounting principle $ 1.65 $ 1.95 $ 2.60
Primary earnings per share from discontinued
operations before cumulative effect of changes
in accounting principle .80 .07 .46
------- ------- -------
Primary earnings per share before extraordinary
item and cumulative effect of changes in
accounting principle 2.45 2.02 3.06
Extraordinary item (.79) (.04) -
------- ------- -------
Primary earnings per share before cumulative
effect of changes in accounting principle 1.66 1.98 3.06
------- ------- -------
Cumulative effect of changes in accounting
principle:
Continuing operations - (5.02) .31
Discontinued operations - (1.58) .16
------- ------- -------
Total cumulative effect of changes in
accounting principle - (6.60) .47
------- ------- -------
Primary earnings (loss) per share $ 1.66 $ (4.62) $ 3.53
======= ======= =======
Fully diluted earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle $ 1.63 $ 1.95 $ 2.56
Fully diluted earnings per share from
discontinued operations before cumulative effect
of changes in accounting principle .79 .07 .42
- - ------- ------- -------
Fully diluted earnings per share before
extraordinary item and cumulative effect
of changes in accounting principle 2.42 2.02 2.98
Extraordinary item (.79) (.04) -
------- ------- -------
Fully diluted earnings per share before
cumulative effect of changes in accounting
principle 1.63 1.98 2.98
------- ------- -------
Cumulative effect of changes in accounting
principle:
Continuing operations - (5.02) .28
Discontinued operations - (1.58) .15
------- ------- -------
Total cumulative effect of changes in
accounting principle - (6.60) .43
------- ------- -------
Fully diluted earnings (loss) per share $ 1.63 $ (4.62) $ 3.41
======= ======= =======
The number of common shares used to compute
earnings per share amounts was as follows:
(in millions)
Primary 335.7 328.3 325.1
Fully diluted 340.2 331.2 352.2
The notes on pages 24 through 48 are an integral part of these financial
statements.
21
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions) At December 31,
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,020 $ 1,635
Marketable securities 48 223
Receivables 3,064 2,817
Inventories 1,480 1,532
Deferred income tax charges 711 339
Other 360 203
------- -------
Total current assets 7,683 6,749
------- -------
PROPERTIES
Land, buildings and equipment 12,299 11,601
Accumulated depreciation 7,007 6,574
------- -------
Net properties 5,292 5,027
OTHER ASSETS
Goodwill (net of accumulated
amortization of $226 and $179) 616 272
Long-term receivables and other noncurrent assets 872 1,020
Deferred income tax charges 505 393
Net assets of discontinued operations - 5,349
------- -------
TOTAL ASSETS $14,968 $18,810
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,398 $ 2,877
Short-term borrowings 371 611
Taxes-income and other 1,701 384
Dividends payable 136 165
Deferred income tax credits 129 16
------- -------
Total current liabilities 5,735 4,053
OTHER LIABILITIES
Long-term borrowings 660 6,727
Postemployment liabilities 3,671 3,491
Other long-term liabilities 790 1,183
Deferred income tax credits 95 -
------- -------
Total liabilities 10,951 15,454
------- -------
SHAREOWNERS' EQUITY
Common stock, par value $2.50 per share
950,000,000 shares authorized; issued
386,343,903 in 1994 and 379,079,777 in 1993 966 948
Additional capital paid in or transferred
from retained earnings 515 213
Retained earnings 4,485 4,469
Accumulated translation adjustment 8 (235)
------- -------
5,974 5,395
Treasury stock, at cost
46,587,211 shares in 1994 and 48,571,513
shares in 1993 1,957 2,039
------- -------
Total shareowners' equity 4,017 3,356
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $14,968 $18,810
======= =======
The notes on pages 24 through 48 are an integral part of these financial
statements.
22
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in millions, except for number of shares)
Trans-
Additional lation
Common Capital Retained Adjust- Treasury
Stock* Paid In Earnings ments Stock Total
Shareowners' Equity,
December 31, 1991 $934 $ 9 $ 7,225 $ (12) $(2,052) $ 6,104
Net earnings - - 1,146 - - 1,146
Cash dividends declared - - (650) - - (650)
Common stock issued under
employee plans (692,000 shares) 2 16 - - - 18
Treasury stock issued for
donations (289,000 shares) - - - - 11 11
Tax reductions - employee plans - 1 - - - 1
Translation adjustments - - - (73) - (73)
---- ------- ------- ----- ------- -------
Shareowners' Equity,
December 31, 1992 936 26 7,721 (85) (2,041) 6,557
Net loss - - (1,515) - - (1,515)
Cash dividends declared - - (657) - - (657)
Eastman Chemical Company spin-off - - (1,080) - - (1,080)
Common stock issued under employee
plans (4,170,000 shares) 11 163 - - - 174
Common stock issued for debt
conversions (430,000 shares) 1 21 - - - 22
Treasury stock issued for debt
conversions (50,000 shares) - - - - 2 2
Tax reductions - employee plans - 3 - - - 3
Translation adjustments - - - (150) - (150)
---- ------- ------- ----- ------- -------
Shareowners' Equity
December 31, 1993 948 213 4,469 (235) (2,039) 3,356
Net earnings - - 557 - - 557
Cash dividends declared - - (537) - - (537)
Retained earnings - other changes - - (4) - - (4)
Common stock issued under
employee plans (954,000 shares) 2 32 - - - 34
Treasury stock issued under
employee plans (30,000 shares) - - - - 1 1
Common stock issued for debt
conversions (6,310,000 shares) 16 252 - - - 268
Treasury stock issued for debt
conversions (1,954,000 shares) - 4 - - 81 85
Tax reductions - employee plans - 14 - - - 14
Translation adjustments:
Continuing operations - - - 186 - 186
Discontinued health businesses - - - 57 - 57
---- ------- ------- ----- ------- -------
Shareowners' Equity
December 31, 1994 $966 $ 515 $ 4,485 $ 8 $(1,957) $ 4,017
==== ======= ======= ===== ======= =======
* There are 100 million shares of $10 par value preferred stock authorized,
none of which have been issued.
The notes on pages 24 through 48 are an integral part of these financial
statements.
23
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,
1994 1993 1992
(in millions)
Cash flows from operating activities
Earnings from continuing operations
before extraordinary item and cumulative
effect of changes in accounting principle $ 554 $ 644 $ 845
Adjustments to reconcile to net cash provided
by operating activities, net of effects of
initial consolidation of Qualex
Depreciation and amortization 883 846 959
Deferred income taxes (126) (143) (21)
Loss on sale/retirement of properties 145 195 157
Decrease (increase) in receivables 169 (75) 303
Decrease (increase) in inventories 151 257 (103)
(Decrease) increase in liabilities
excluding borrowings (66) 304 315
Repurchase of receivables program (200) - -
Other items, net 132 326 216
------- ------- -------
Total adjustments 1,088 1,710 1,826
------- ------- -------
Net cash provided by operating activities 1,642 2,354 2,671
------- ------- -------
Cash flows from investing activities
Additions to properties (1,153) (817) (1,236)
Proceeds from sale of investments - 48 189
Proceeds from sale of properties 93 8 8
Cash flows related to sales of non-imaging
health businesses 7,644 - -
Sales of marketable securities 249 245 114
Purchases of marketable securities (43) (391) (159)
Purchases of shares of Qualex,
net of cash acquired (48) - -
------- ------- -------
Net cash provided by (used in)
investing activities 6,742 (907) (1,084)
------- ------- -------
Cash flows from financing activities
Net increase (decrease) in borrowings with
original maturity of 90 days or less 124 (1,436) (652)
Proceeds of borrowings assumed by
discontinued operations - 1,800 -
Proceeds from other borrowings 52 522 464
Repayment of other borrowings and certain
financial instruments (7,650) (573) (1,170)
Dividends (566) (657) (650)
Exercise of employee stock options 34 174 18
Other - 2 2
------- ------- -------
Net cash used in financing activities (8,006) (168) (1,988)
------- ------- -------
Effect of exchange rate changes on cash 7 (5) (12)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 385 1,274 (413)
Cash and cash equivalents, beginning
of year 1,635 361 774
------- ------- -------
Cash and cash equivalents, end of year $ 2,020 $ 1,635 $ 361
======= ======= =======
The notes on pages 24 through 48 are an integral part of these financial
statements.
24
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 (the Company).
Intercompany transactions are eliminated and net earnings are reduced by the
portion of the earnings of subsidiaries applicable to minority interests.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency is the
functional currency and translation adjustments are accumulated in a separate
component of shareowners' equity.
For subsidiaries and branches that operate in U.S. dollars or whose economic
environment is highly inflationary, the U.S. dollar is the functional currency
and gains and losses that result from translation are included in earnings.
The losses from translation were $7 million in 1994, $10 million in 1993 and
$31 million in 1992.
The Company hedges certain foreign currency transactions, firm foreign
currency commitments, anticipated sales and purchases for certain foreign
affiliates and probable anticipated export sales by entering into forward
exchange contracts and currency options. Gains and losses associated with
currency rate changes on forward contracts hedging foreign currency
transactions are recorded currently in earnings. The effect from foreign
currency transactions, including related hedging activities, was a loss of
$46 million in 1994, a loss of $44 million in 1993 and a gain of $40 million in
1992. Gains and losses related to hedges of firm commitments or probable
anticipated transactions are deferred and recognized in earnings or as
adjustments of carrying amounts when the transaction occurs.
CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less at date of purchase are considered to be cash equivalents. At December
31, 1994, included in "cash and cash equivalents" is a $1,550 million note
received in connection with the sale of the household products business which
had a maturity of four days.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The cost of
most inventories in the U.S. is determined by the "last-in, first-out" (LIFO)
method. The cost of other inventories is determined by the "first-in,
first-out" (FIFO), or average cost method.
PROPERTIES
Properties are recorded at 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 Company's accounts and
any profit or loss is reflected in earnings. Depreciation expense is provided
based on historical cost and estimated useful lives. The Company generally
uses the straight-line method for calculating the provision for depreciation.
GOODWILL
Goodwill is charged to earnings on a straight-line basis over the period
estimated to be benefited, not exceeding fifteen years for continuing
operations. The Company regularly assesses the recoverability of unamortized
amounts of goodwill utilizing relevant cash flow and profitability
information.
25
INVESTMENTS IN DEBT AND EQUITY SECURITIES AND JOINT VENTURES
In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting For Certain Investments in Debt and Equity Securities, which was
adopted on January 1, 1994, the Company has classified applicable investments
into the categories of "available-for-sale" and "held-to-maturity". The
adoption of this standard did not have a material effect on the Company's
results of operations or financial position. Investments classified as
"available-for-sale" or as "held-to-maturity" are included in either
"marketable securities" or "long-term receivables and other noncurrent assets"
based on the maturity date of the investment.
Included in "long-term receivables and other noncurrent assets" are
investments 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 consolidated revenues and
in earnings from operations for the related segments.
REVENUE
Revenue is recognized from film and equipment sales (including sales-type
leases for equipment) when the product is shipped; from maintenance and
service contracts over the contractual period, or as the services are
performed; from rentals under operating leases in the month in which they are
realized; and from financing transactions at level rates of return over the
term of the lease or receivable.
ADVERTISING
Advertising costs are expensed as incurred and included in "marketing and
administrative expenses". Advertising expenses amounted to $744 million,
$646 million and $725 million for 1994, 1993 and 1992, respectively.
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.
NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postemployment benefits for former or inactive employees, excluding retirement
benefits, are accounted for under the provisions of SFAS No. 112, Employers'
Accounting for Postemployment Benefits, effective January 1, 1993.
Thereafter, the cost of benefits (principally long-term disability coverage
and certain severance benefits) are accrued over an employee's service life.
Postretirement benefits other than pensions (principally healthcare and life
insurance) are accounted for under the provisions of SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, effective January
1, 1993. Thereafter, the estimated cost of retiree benefit payments is
accrued during an employee's active service life. Prior to January 1, 1993,
the Company expensed the cost of these benefits on a "pay-as-you-go" basis.
Prior service costs resulting from amendments to postretirement healthcare
plans are amortized over the average remaining service period to full
eligibility of the active employees.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred taxes are measured by
applying currently enacted tax laws.
EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the weighted average
number of common shares outstanding. Fully diluted earnings per share assume
the conversion of convertible debentures (with an increase in net income for
the after-tax interest savings) and the issuance of common stock related to
stock options.
RECLASSIFICATIONS
Certain reclassifications of 1993 and 1992 financial statement and related
footnote amounts have been made to conform with the 1994 presentation.
- - ------------------------------------------------------------------------------
26
DISCONTINUED OPERATIONS
In May 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.
Accordingly, the financial statement information for 1993 and 1992 related to
these businesses has been presented in the Consolidated Statement of Financial
Position as "net assets of discontinued operations", and in the "discontinued
operations" line of the Consolidated Statement of Earnings. The noncurrent
asset classification is consistent with the Company's use of most of the
proceeds to reduce long-term borrowings. Prior periods also include the
allocation of interest expense to discontinued operations by reference to the
interest expense on indebtedness repaid from the net sales proceeds.
On various dates during the fourth quarter of 1994, the Company consummated
transactions divesting these businesses. The total cash or cash equivalent
proceeds from the sales amounted to $7,858 million as follows: pharmaceutical
business of Sterling Winthrop Inc. $1,675 million in cash; consumer health
business of Sterling Winthrop Inc. $2,925 million in cash; household products
business of L&F Products, a $1,550 million note received on December 31, 1994,
and paid in cash on January 3, 1995; do-it-yourself products business of L&F
Products $700 million in cash; Clinical Diagnostics Division $1,008 million in
cash. In addition, the Company is actively negotiating with potential buyers
for its pharmaceutical research and development facility and its NanoSystems
unit and anticipates completing these transactions in 1995.
Amounts related to the remaining assets held for sale at December 31, 1994,
are recorded at their net realizable value, and included in "other" current
assets. Liabilities retained and related to the businesses sold amounted to
approximately $2,137 million at December 31, 1994. These liabilities include
"payables" of $296 million and "taxes-income and other" of $1,530 million in
current liabilities and $311 million of "other long-term liabilities".
In the first half of 1994, the discontinued health businesses recorded sales
of $1,800 million, loss before income taxes of $84 million (including
approximately $230 million of allocated interest expense), benefit for income
taxes of $3 million, and an after-tax loss of $81 million.
In the second half of 1994, the "phase-out period", the following financial
data was recorded:
(in millions)
Sales $1,375
======
Gross proceeds from sales of businesses $7,858
Loss before income taxes* (86)
Net assets of businesses sold 5,531
Income and other taxes 1,509
Other costs and expenses 382
------
Net gain on sales of businesses 350
Less: After-tax loss prior to measurement date (81)
------
Earnings from discontinued operations $ 269
======
*Including approximately $163 million of allocated interest expense.
The 1994 effective tax rate for discontinued health businesses was 85%. The
rate differs from the U.S. federal statutory tax rate of 35% due to the
required form of the consumer health business divestiture. The stock sale of
this business resulted in a significant tax loss for which no benefit was
allowed in accordance with IRS regulations.
Summarized results of the discontinued health businesses for 1993 and 1992 are
as follows:
(in millions) 1993 1992
Sales $3,694 $3,553
====== ======
Loss before income taxes* $ (221) $ (161)
Benefit for income taxes (52) (43)
------ ------
Loss before cumulative effect
of changes in accounting principle $ (169) $ (118)
====== ======
*Including approximately $460 million of allocated interest expense for 1993
and 1992.
27
The effective tax rates for discontinued health businesses were 24% and 27%
for 1993 and 1992, respectively. The rates differ from the applicable U.S.
federal statutory income tax rates primarily due to the allocation of tax
effects of non-deductible goodwill to discontinued operations.
Net assets of the discontinued health businesses at December 31, 1993 are
comprised of the following:
Dec. 31,
(in millions) 1993
Current assets $1,164
Land, buildings and equipment, net 1,339
Goodwill 3,900
Other assets 382
------
Total assets 6,785
------
Current liabilities 857
Long-term borrowings 126
Other liabilities 453
------
Total liabilities 1,436
------
Net assets $5,349
======
In June 1993, the Company announced a plan to spin-off its Eastman Chemical
Company operations, which was completed in December 1993. Summarized results
of the chemicals segment for 1993 and 1992 including allocations of interest
expense, taxes and transaction costs associated with the spin-off are as
follows:
(in millions) 1993 1992
Sales $3,695 $3,638
====== ======
Earnings before income taxes $ 267 $ 383
Provision for income taxes 75 116
------ ------
Earnings before cumulative
effect of changes in
accounting principle $ 192 $ 267
====== ======
The effective tax rates for discontinued chemicals operations were 28% and 30%
in 1993 and 1992, respectively. The rates differ from the applicable U.S.
federal statutory income tax rates primarily due to the allocation of foreign
and state tax benefits to discontinued chemicals operations.
- - ------------------------------------------------------------------------------
CASH FLOW INFORMATION
Cash paid for interest and income taxes for continuing operations was:
(in millions) 1994 1993 1992
Interest, net of portion capitalized of $28,
$35 and $43 $342 $217 $191
Income taxes 309 435 301
The following transactions are not reflected in the Consolidated Statement of
Cash Flows: certain assets acquired and liabilities assumed as a result of
the Qualex acquisition and the debentures and notes called by the Company
resulting in the Company's common stock being issued. Except for $157 million
of cash transferred with the Eastman Chemical Company spin-off in 1993, the
spin-off was a non-cash transaction and is also not reflected in the
Consolidated Statement of Cash Flows.
- - ------------------------------------------------------------------------------
28
MARKETABLE SECURITIES AND NONCURRENT INVESTMENTS
The following table summarizes the balances of investments at December 31,
1994 and activity during 1994 in accordance with SFAS No. 115. Comparable
data is not presented for 1993 because SFAS No. 115 was adopted on a
prospective basis, beginning January 1, 1994.
(in millions)
Held-to-Maturity
Description Maturity Amortized Cost
Certificates of deposit 1995-1999 $ 66
Collateralized mortgage obligations 1996 20
Commercial paper 1995 3
Government agency 1999-2006 1
Municipal bonds 2002-2003 22
Bank notes 1998-1999 12
----
$124
Available-for-Sale ====
Description Cost
Equity Securities $ 27
====
The fair value of held-to-maturity and available-for-sale securities
approximates cost. Held-to-maturity securities consist of $21 million
"marketable securities" and $103 million "long-term receivables and other
noncurrent assets". Available-for-sale securities consist of $27 million of
"marketable securities".
During 1994, proceeds from the sale of available-for-sale securities were $249
million. An
$8 million loss was realized from the sale of these securities, using specific
identification to determine the cost of securities sold.
Marketable securities (principally U.S. government securities and time
deposits with commercial financial institutions) presented at December 31,
1993, are shown at cost which approximates market value.
- - ------------------------------------------------------------------------------
RECEIVABLES
(in millions)
1994 1993
Trade receivables $2,644 $2,374
Miscellaneous receivables 420 443
------ ------
Total (net of allowances of
$120 and $92) $3,064 $2,817
====== ======
The Company sells to customers in a variety of industries, markets and
geographies around the world. Receivables arising from these sales are
generally not collateralized. Adequate provisions have been recorded for
uncollectible receivables. There are no significant concentrations of credit
risk for receivables.
The Company terminated two agreements to sell undivided interests in trade
accounts receivable during 1994 for approximately $200 million.
- - ------------------------------------------------------------------------------
INVENTORIES
(in millions) 1994 1993
At FIFO or average cost (approximates current cost)
Finished goods $1,071 $1,123
Work in process 539 620
Raw materials and supplies 528 489
------ ------
2,138 2,232
Reduction to LIFO value (658) (700)
------ ------
$1,480 $1,532
====== ======
Inventories valued on the LIFO method are about 60 percent of total inventories
in each of the years.
- - ------------------------------------------------------------------------------
29
PROPERTIES AND ACCUMULATED DEPRECIATION
(in millions) 1994 1993 1992
PROPERTIES
Balance at beginning of year $11,601 $12,082 $11,758
Additions 1,153 817 1,236
Qualex properties at acquisition 186 - -
Deductions (641) (1,298) (912)
------- ------- -------
Balance at end of year $12,299 $11,601 $12,082
======= ======= =======
Made up of:
Land $ 225 $ 209 $ 220
Buildings and building equipment 2,712 2,608 2,608
Machinery and equipment 9,053 8,608 8,890
Construction in progress 309 176 364
------- ------- -------
Total as above $12,299 $11,601 $12,082
======= ======= =======
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 6,574 $ 6,562 $ 6,243
Provision for depreciation 836 817 936
Deductions (403) (805) (617)
------- ------- -------
Balance at end of year $ 7,007 $ 6,574 $ 6,562
======= ======= =======
At December 31, 1993 and 1992, the Company was a party to a master lease
agreement whereby it leased equipment with a right to buy the equipment at any
time at fair market value. This agreement was terminated by the Company in
1994 and cash was paid in the amount of approximately $292 million to purchase
equipment previously leased, which is reflected in additions.
- - ------------------------------------------------------------------------------
LONG-TERM RECEIVABLES AND OTHER NONCURRENT ASSETS
(in millions) 1994 1993
Long-term receivables $235 $ 180
Marketable securities 103 108
Other noncurrent assets 534 732
---- ------
Total (net of allowances of $18 and $20) $872 $1,020
==== ======
- - ------------------------------------------------------------------------------
30
PAYABLES
(in millions) 1994 1993
Trade creditors $ 703 $ 614
Accrued payrolls 203 136
Accrued vacation 269 264
Wage dividend and Company payments under
Employees' Savings and Investment Plan 144 165
Restructuring programs 397 365
Interest rate swap and option agreements - 210
Liabilities related to sale of non-imaging
health businesses 296 -
Other 1,386 1,123
------ ------
Total $3,398 $2,877
====== ======
- - ------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
(in millions) 1994 1993
Short-term bank borrowings by subsidiaries
outside the U.S. $ 371 $ 261
Current maturities of long-term borrowings - 350
------ ------
Total $ 371 $ 611
====== ======
The weighted average interest rate on short-term bank borrowings by
subsidiaries outside the U.S. was 4.6% in 1994 and 4.8% in 1993.
- - ------------------------------------------------------------------------------
31
LONG-TERM BORROWINGS
(in millions)
Maturity At December 31,
Description Dates 1994 1993
Notes:
7.25% - 8.9% 1997 - 2003 $ 433 $ 820
9.38% - 9.5% 2003 - 2008 178 3,825
10.0% - 10.05% - 650
Debentures:
6 3/8% convertible subordinated - 278
Zero coupon convertible
subordinated - 1,127
9.2% - 9.95% 2018 - 2021 13 325
10 3/8% Eurobonds - 111
Other Various 36 67
------ ------
660 7,203
Current maturities - (350)
------ ------
660 6,853
Amounts assumed by
discontinued operations - (126)
------ ------
Total $ 660 $6,727
====== ======
Annual maturities (in millions) of long-term borrowings outstanding at
December 31, 1994, are as follows: 1995: $0; 1996: $0; 1997: $245; 1998: $0;
1999: $78; 2000 and beyond: $337.
Over the past several years, the Company had a program in place to manage
interest rates related to its long-term borrowings portfolio. In connection
with this program, the Company utilized various interest rate derivatives in
order to achieve an acceptable overall interest rate on its portfolio of
long-term borrowings. During 1994, and in connection with the Company's debt
paydown program described below, all interest rate derivatives held in the
Company's portfolio were extinguished.
In 1994, the Company tendered, defeased and called a total of $6,043 million
(net carrying amount) of long-term borrowings and extinguished approximately
$7,800 million (notional amount) of derivatives. The cash paid to the holders
of long-term borrowings and derivatives over the respective net carrying
amounts of such instruments was recorded as an extraordinary loss of $266
million after-tax ($367 million pre-tax) on the early extinguishment of debt.
The effective tax rate for the extraordinary loss of 27% was unfavorably
affected by the allocation of foreign tax credit impacts. In addition to the
extraordinary loss, a $110 million pre-tax loss was recorded in "other costs"
for certain financial instruments related to other programs.
32
The following table includes the long-term borrowings and related net carrying
amounts extinguished through these actions:
(in millions)
Maturity Net Carrying
Tendered Dates Amount
7.25% - 8.9% 1997 - 1999 $ 293
9.2% - 9.95% 1995 - 2018 2,214
10.0% - 10.375% 1995 - 2001 207
Defeased
9.2% notes 1995 500
10 3/8% Eurobonds 1995 81
9 1/8% notes 1998 525
9 1/2% notes 2000 232
10.0% notes 2001 122
9 3/4% notes 2004 91
9 7/8% notes 2004 104
Called
9 5/8% notes 1999 274
6 3/8% convertible subordinated
debentures 2001 275
Zero coupon convertible subordinated
debentures 2011 1,125
------
Total $6,043
======
The total net carrying amount of all derivatives and long-term borrowings
extinguished in 1994 amounted to approximately $6,725 million; certain amounts
were previously recorded as "long-term borrowings" and "other long-term
liabilities".
The cash paid to counterparties to extinguish the Company's derivative
obligations and for related transaction costs amounted to $921 million. The
tender offer resulted in $2,901 million of cash being paid to debt holders and
for related transaction costs.
The in-substance defeasance was achieved by purchasing investment instruments
under an arrangement consistent with the provisions of SFAS No. 76,
Extinguishment of Debt. The Company believes that the investments placed in
the defeasance trust will be sufficient to satisfy all future debt service
requirements for the defeased debt instruments. The total cash paid for the
investments placed in the defeasance trust, including transaction costs,
amounted to $1,692 million.
The debentures and notes that were called by the Company resulted in a
combination of approximately 8.3 million shares (6.3 million common shares and
2 million treasury shares) of the Company's common stock being issued (an
increase of $353 million in common stock and additional capital paid in) and
$1,349 million in cash being paid to debenture holders.
The extraordinary loss recorded in 1993 was the result of the early
extinguishment of the 8 5/8% debentures due 2016 and zero coupon exchangeable
senior debentures due 2006.
The Company has a $2,500 million unused revolving credit facility established
in 1994 and expiring in May, 1999 which is available to support the Company's
commercial paper borrowings. If unused, it has a commitment fee of
$2.5 million per year. Interest on amounts borrowed under this facility is at
rates based on spreads above certain reference rates. The Company also has a
shelf registration statement on Form S-3 for debt securities with an available
balance of $2.2 billion.
- - ------------------------------------------------------------------------------
33
OTHER LONG-TERM LIABILITIES
(in millions)
1994 1993
Interest rate swap and option
agreements $ - $ 654
Deferred compensation 93 77
Liabilities related to sale
of non-imaging health businesses 311 -
Other 386 452
------ ------
Total $ 790 $1,183
====== ======
- - ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Expenditures for pollution prevention and waste treatment for continuing
operations at various manufacturing facilities totaled $122 million,
$134 million and $137 million in 1994, 1993 and 1992, respectively. These
expenditures included the following elements:
1994 1993 1992
(in millions)
Recurring costs for managing
hazardous substances and
pollution $ 83 $100 $ 92
Capital expenditures to limit
or monitor hazardous substances
and pollutants 36 32 45
Site remediation costs 3 2 -
---- ---- ----
Total $122 $134 $137
==== ==== ====
At December 31, 1994 and 1993, the Company's accrual for environmental
remediation costs amounted to $108 million and $84 million, respectively.
In October 1994, the Company, the Environmental Protection Agency (EPA), and
the U.S. Department of Justice announced the settlement of a civil complaint
alleging noncompliance by the Company with federal environmental regulations
at the Company's Kodak Park manufacturing site in Rochester, New York. The
Company paid a penalty of $5 million. A Consent Decree was signed under which
the Company is subject to a Compliance Schedule by which the Company will
improve its waste characterization procedures, upgrade one of its incinerators
and evaluate and upgrade its industrial sewer system over a 12-year period.
The expenditures that may be required to complete this program cannot
currently be reasonably estimated since upgrade plans have not been finalized
and must be developed on an ongoing basis. Further, most costs associated
with the program will be for capital expenditures.
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 also not expected to be material to the Company's financial
condition or results of operations.
In addition to the foregoing environmental actions, the Company has reviewed a
Resource Conservation and Recovery Act (RCRA) Facility Assessment (RFA)
pertaining to the Kodak Park site in Rochester, N.Y. and 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 remedial
investigation and feasibility studies are performed.
34
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.
The Company has retained certain obligations for environmental remediation
matters related to non-imaging health businesses sold in 1994. Actions to
fulfill these obligations are not expected to be completed in the near term
and costs related to the obligations are included in remediation accruals
recorded at December 31, 1994.
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 $131 million in 1995,
$120 million in 1996, $121 million in 1997, $113 million in 1998, $169 million
in 1999 and $14 million in 2000 and thereafter.
The Company has also guaranteed debt and other obligations under agreements
with certain affiliated companies and customers. At December 31, 1994, these
guarantees totaled approximately $252 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 issued letters of credit in lieu of making security deposits
to insure the payment of possible Workers' Compensation claims.
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.
- - ------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and the estimated fair
values of financial instruments at December 31, 1994 and 1993; ( ) denotes
liabilities:
1994 1993
(in millions)
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities:
Current $ 48 $ 48 $ 223 $ 223
Long-term 103 99 108 104
Other investments 67 68 93 93
Long-term borrowings (660) (672) (6,727) (7,378)
Interest rate swaps
and options - - (864) (1,288)
Foreign currency swaps held (74) (74) (31) (43)
Foreign currency forwards
held 6 6 19 19
Foreign currency options
held 25 (25) 50 (19)
The fair values of long-term borrowings were determined by reference to quoted
market prices or by obtaining quotes from dealers. Marketable securities and
other investments are valued at quoted market prices, except for $66 million
and $81 million of equity investments included in other investments at December
31, 1994 and 1993, respectively, which are reflected at their carrying value
because it is not practical to estimate fair value as quoted market prices do
not exist. The fair values for the remaining financial instuments in the
above table are based on dealer quotes and reflect the estimated amounts the
Company would pay or receive to terminate the contracts. The carrying value
of cash and cash equivalents, receivables, short-term borrowings, and payables
approximate their fair values.
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial condition. In
seeking to minimize the risks and/or costs associated with such activities,
the Company manages exposure to changes in interest rates and foreign currency
exchange rates through its regular operating and financing activities and,
when deemed appropriate, through the use of financial instruments. The
instruments utilized include forward, option and swap agreements. The Company
does not utilize financial instruments for trading or other speculative
purposes, nor does it utilize leveraged financial instruments.
35
Furthermore, during 1994 and in connection with the Company's debt paydown
program, all interest rate financial instruments were extinguished.
The Company's exposure to changes in foreign currency exchange rates arises
from intercompany loans utilized to finance foreign subsidiaries, receivables,
payables and firm commitments arising from international transactions. The
Company attempts to hedge all such transaction exposures with internal natural
offsets to the fullest extent possible and, once these opportunities have been
exhausted, through forward and swap agreements with third parties. The
Company currently also uses foreign currency option contracts to hedge its
exposure to changes in foreign currency exchange rates for anticipated sales
and purchases for certain foreign affiliates and probable anticipated export
sales. All of the Company's foreign currency forward and option agreements
outstanding at December 31, 1994, will mature throughout 1995. In connection
with a long-term intercompany loan to a Japanese affiliate, the Company has
entered into a currency swap contract to purchase Japanese yen with a contract
value of $135 million to be settled in 1997.
Gains and losses related to effective hedges, including hedges of anticipated
transactions, are recognized in income as part of, and concurrent with, the
hedged transaction. The net unrealized loss deferred on such options as of
December 31, 1994 totaled $50 million compared with a net unrealized loss of
$69 million in 1993. 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 table below summarizes by major currency the notional amounts of foreign
currency forward and option contracts in U.S. dollars. Foreign currency
amounts are translated at rates current at the reporting date. The "buy"
amounts represent the U.S. dollar equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies.
1994 1993
(in millions)
Buy Sell Buy Sell
German marks $117 $133 $ 816 $171
French francs 112 - 218 -
British pounds - 99 - -
Japanese yen 411 228 871 239
Others 39 240 104 173
---- ---- ------ ----
$679 $700 $2,009 $583
==== ==== ====== ====
The Company's financial instrument counterparties are substantial investment
or commercial banks with significant experience with such instruments. The
Company manages exposure to counterparty credit risk through specific minimum
credit standards and diversification of counterparties. The Company has
procedures to monitor the credit exposure amounts. While the maximum credit
exposure at December 31, 1994 is approximately $100 million, the Company
believes that its actual credit risk, in part because of the above practices
and procedures, is significantly less.
- - ------------------------------------------------------------------------------
36
INCOME TAXES
Effective January 1, 1992, the Company adopted 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 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 from continuing operations before income taxes and
the related provision (benefit) for U.S. and other income taxes were as
follows:
(in millions) 1994 1993 1992
Earnings before income taxes
U.S. $ 740 $ 894 $ 974
Outside the U.S. 262 183 405
------ -------- ------
Total $1,002 $ 1,077 $1,379
====== ======== ======
U.S. income taxes
Current provision $ 339 $ 338 $ 367
Deferred benefit (116) (85) (12)
Income taxes outside the U.S.
Current provision 170 194 103
Deferred benefit (2) (52) -
State and other income taxes
Current provision 65 44 85
Deferred benefit (8) (6) (9)
------ -------- ------
Total $ 448 $ 433 $ 534
====== ======== ======
The components of earnings (loss) from consolidated operations before income
taxes and the related provision (benefit) for U.S. and other income taxes were
as follows:
(in millions) 1994 1993 1992
Earnings (loss) before income taxes
U.S. $1,787 $(2,762) $ 999
Outside the U.S. 623 389 602
------ ------- ------
Total $2,410 $(2,373) $1,601
====== ======= ======
U.S. income taxes
Current provision $1,430 $ 288 $ 323
Deferred benefit (293) (1,190) (189)
Income taxes outside the U.S.
Current provision 369 237 182
Deferred benefit (3) (51) (30)
State and other income taxes
Current provision 358 53 101
Deferred provision (benefit) (8) (195) 68
------ ------- ------
Total $1,853 $ (858) $ 455
====== ======= ======
The components of consolidated income
taxes are as follows:
Continuing operations $ 448 $ 433 $ 534
Discontinued operations 1,506 23 73
Extraordinary item (101) (8) -
Cumulative effect of changes
in accounting principle - (1,306) (152)
------ ------- ------
Total income taxes (benefit) $1,853 $ (858) $ 455
====== ======= ======
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) 1994 1993 1992
Amount computed using the statutory rate $351 $377 $469
Increase (reduction) in taxes resulting from
State and other income taxes 37 25 50
Goodwill amortization 17 10 8
Export sales and manufacturing credits (22) (17) (20)
Operations outside the U.S. 43 75 33
Other, net 22 (37) (6)
---- ---- ----
Provision for income taxes $448 $433 $534
==== ==== ====
The significant components of deferred tax assets and liabilities were as
follows:
(in millions) 1994 1993
Deferred tax assets
Postemployment obligations $1,182 $1,178
Restructuring costs and
separation programs 556 618
Inventories 88 68
Tax loss carryforwards 222 196
Other 669 384
------ ------
2,717 2,444
Valuation allowance (222) (196)
------ ------
Total $2,495 $2,248
====== ======
Deferred tax liabilities
Depreciation $ 538 $ 525
U.S. pension income 214 220
Leasing 406 443
Other 345 344
------ ------
Total $1,503 $1,532
====== ======
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.
Retained earnings of subsidiary companies outside the U.S. were approximately
$1,810 million and $2,402 million at December 31, 1994 and 1993, respectively.
Retained earnings at December 31, 1994 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.
- - ------------------------------------------------------------------------------
38
- - ------------------------------------------------------------------------------
RESTRUCTURING COSTS
In December 1994, the Company committed to implement a restructuring program
and recorded a fourth quarter provision of $340 million pre-tax ($254 million
after-tax) for severance and other termination benefits and exit costs related
to the realignment of the Company's worldwide manufacturing, marketing,
administrative and photofinishing operations.
Severance actions included in the restructuring provision represent capacity
reductions in manufacturing facilities and the consolidation of photofinishing
operations and marketing and administrative functions in various locations of
the Company's worldwide operations. This program will result in a worldwide
headcount reduction of approximately 4,350 employees. The following table
summarizes, by function, the number of terminations involved in the headcount
reduction program:
Outside
U.S. the U.S. Total
Manufacturing 500 350 850
Marketing 100 800 900
Administrative - 300 300
Photofinishing 1,400 900 2,300
------ ------ ------
Total 2,000 2,350 4,350
====== ====== ======
While most terminations will be completed by the end of 1995, the remaining
terminations are expected to be completed by June 30, 1996. In 1994, 115
people were terminated in conjunction with this restructuring program at a
cost of approximately $7 million.
The activities expected to be discontinued in conjunction with the realignment
strategy include manufacturing and product assembly operations in certain
locations, marketing presence in various parts of the world and photofinishing
operations in certain locations. Exit costs of $23 million were incurred in
1994 related to this restructuring program.
The Company recorded restructuring costs in 1993 for continuing operations of
$495 million. Approximately $350 million was provided for severance and
termination benefit costs related to a cost reduction program to reduce
worldwide employment by approximately 9,000 personnel. By the end of 1994,
approximately 7,500 personnel had been terminated with $120 million and
$100 million being paid in 1994 and 1993, respectively. The remaining 1,500
personnel are expected to be terminated by June 30, 1995. The remainder of
the 1993 restructuring provision related to exit and severance costs
associated with the closure of a German manufacturing facility. The costs
charged to the reserve in 1994 amounted to approximately $47 million. The
remaining accrual balance at December 31, 1994 will provide for severance and
pension payments to be paid over several years to former employees of the
facility.
39
The Company recorded restructuring costs in 1992 for continuing operations of
$219 million. Approximately $150 million was provided for an early retirement
program. Most of the costs associated with this program are being funded from
the Company's pension plan assets. Accordingly, the remaining liability for
these payments is reflected in the pension plan's benefit obligation.
Consequently, the Company's cash flow has not been impacted by this liability,
except to the extent of contributions made to the pension plan trust fund by
the Company, of which there were no contributions in the past three years.
The remainder of the costs provided in 1992 related primarily to a program to
exit several non-strategic businesses and the restructuring of the Company's
non-U.S. sensitized manufacturing and photofinishing businesses.
The following table summarizes the Company's restructuring activities for the
last three years:
(in millions) Amounts
1993 and 1992 Utilized Balance at 1994 Amounts Balance at
Restructuring Through December 31, Restructuring Utilized December 31,
Provision 1993 1993 Provision (1) in 1994 1994
Severance and
related costs $500 $146 $354 $110 $173 $291
Plant closure and
related costs 36 10 26 101 23 104
Business exits and
asset writedowns 171 113 58 89 37 110
Noncancelable
leases 7 7 - 40 2 38
---- ---- ---- ---- ---- ----
Total $714 $276 $438 $340 $235 $543(2)
==== ==== ==== ==== ==== ====
(1) The 1994 provision includes a charge of $93 million for costs related to the 1992 program
which exceeded management's original estimates and relates primarily to properties associated
with business exits and plant closures. The 1994 provision for severance and related costs
has been reduced by $50 million of 1993 severance reserves determined to be excess.
(2) The following amounts are included in the Consolidated Statement of Financial Position at
December 31, 1994: "payables" ($397 million), "postemployment liabilities" ($36 million),
"other long-term liabilities" ($10 million), and "land, buildings and equipment"
($100 million).
- - ------------------------------------------------------------------------------
RENTAL EXPENSE AND LEASE COMMITMENTS
(in millions) 1994 1993 1992
Gross rentals $197 $185 $185
Sublease income 8 11 5
---- ---- ----
Total $189 $174 $180
==== ==== ====
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 1995, $60 million in 1996, $54 million in
1997, $31 million in 1998, $29 million in 1999 and $62 million in 2000 and
thereafter.
- - ------------------------------------------------------------------------------
40
RETIREMENT PLANS
Substantially all U.S. employees are covered by a noncontributory plan, the
Kodak Retirement Income Plan (KRIP), which is funded by Company contributions
to an irrevocable trust fund. Assets in the fund are held for the sole
benefit of retired employees. Periodically, the Company makes contributions
to the KRIP trust fund as permitted by law. Retirement benefits earned by
employees prior to January 1, 1996, are based on a point system (age plus
years of service). Full, unreduced benefits are provided to individuals with
85 points. Participants with 75 or more points (or age 55 with 10 years of
service) can retire with a reduced benefit. Retirement benefits earned by
employees subsequent to December 31, 1995, will no longer be based on the
75/85 point system. Full, unreduced benefits will be provided to individuals
who are age 60 and have 30 years of service. The minimum retirement age under
the new plan is 55 years. The benefit formula used to calculate the actual
benefit dollars paid to an individual once retired will not change as a result
of these new plan provisions. This amendment to the pension plan was
instituted by the Company July 1, 1994. Retirement benefits generally become
vested upon the completion of five years of service. The assets of the trust
fund are comprised of corporate equity and debt securities, U.S. government
securities, partnership and joint venture investments, interests in pooled
funds, and various types of interest rate and foreign currency financial
instruments.
Continuing operations total pension expense for all plans included the
following:
(in millions) 1994 1993 1992
KRIP
Service cost - benefits earned during the year $ 120 $ 105 $ 95
Interest cost on projected benefit obligation 470 475 460
Actual return on plan assets 50 (944) (432)
Net amortization (590) 364 (158)
------ ------ ------
Net KRIP pension expense (income) 50 0 (35)
Other U.S. and non-U.S. plans 83 66 62
------ ------ ------
Total pension expense $ 133 $ 66 $ 27
====== ====== ======
The funded status of KRIP for continuing operations was as follows:
At December 31,
(in millions) 1994 1993
Actuarial present value of benefit obligations
Vested benefits $4,861 $5,320
====== ======
Accumulated benefits $5,077 $5,520
====== ======
Projected benefits $5,879 $6,320
Market value of assets 5,263 5,910
------ ------
Projected benefits in excess of plan assets 616 410
Unrecognized net loss (524) (344)
Unrecognized net transition asset 531 600
Unrecognized prior service cost (178) (286)
------ ------
Accrued pension expense $ 445 $ 380
====== ======
The benefit obligations for KRIP include amounts for employees who retired
from Eastman Chemical Company (ECC) on or before December 31, 1993, the date
ECC was spun-off from the Company. Benefit obligations of all other ECC
employees were transferred to ECC as part of the spin-off agreement. The
benefit obligation of KRIP excludes amounts for all employees (both retired
and active) of the non-imaging health businesses sold in 1994 because those
obligations were transferred to the buyers of the non-imaging health
businesses. The market value of assets of KRIP reflect the Company's
estimates of the assets held for employees in continuing operations only. The
transfer of assets from the KRIP trust fund to ECC and the buyers of the
non-imaging health businesses was not completed as of December 31, 1994. The
Company anticipates the transfer of assets will not be completed for several
years to ensure compliance with agreements and applicable government
regulations.
41
The assumptions used to compute pension amounts for KRIP were as follows:
December 31,
1994 1993
Discount rate 8.5% 7.25%
Salary increase rate 5% 4%
Long-term rate of return on plan assets 9.5% 9.5%
The Company also sponsors another plan for certain U.S. employees (primarily
executives). The benefits of this plan are obtained by applying KRIP
provisions to all compensation, including compensation currently being
deferred, and without regard to the legislated qualified plan maximums,
reduced by benefits under KRIP. At December 31, 1994 and 1993, the projected
benefit obligation of this plan amounted to $140 million and $131 million,
respectively. The Company had recorded long-term liabilities at those dates
of $124 million and $126 million, respectively. Pension expense for continuing
operations recorded in 1994, 1993 and 1992 related to this plan was
$17 million, $15 million and $13 million, respectively.
Most subsidiaries and branches operating outside the U.S. have retirement
plans covering substantially all employees. Contributions by the Company for
these plans are typically deposited under government or other fiduciary-type
arrangements. Retirement benefits are generally based on contractual
agreements that provide for benefit formulas using years of service and/or
compensation prior to retirement. The actuarial assumptions used for these
plans reflect the diverse economic environments within the various countries
in which the Company operates. The financial impact of these plans is
insignificant to the Company.
- - ------------------------------------------------------------------------------
42
NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Nonpension postretirement expense for continuing operations for 1994 and 1993
was $183 million and $255 million, respectively. Prior to 1993, these costs
were accounted for on a "pay-as-you-go" basis and were $100 million in 1992.
The Company provides healthcare, dental and life insurance benefits to
eligible retirees and eligible survivors of retirees. In general, these
benefits are provided to U.S. retirees that are covered by the provisions of
the Company's principal pension plan. The Company has amended healthcare,
dental, and life insurance benefits provided to eligible retirees and eligible
survivors of retirees. The Company announced in 1992 a cap for people
retiring after January 1, 1993 that would freeze the Company's contribution to
healthcare and dental costs in the year when costs were twice the average
amount paid in 1992.
In 1994, the Company announced that it will set a cap on the amount the
Company pays for healthcare and dental costs in the future for many people who
retired prior to January 1, 1993. This new cap will become effective in the
year 2000 or the year in which the previously announced cap becomes effective,
whichever is later. In addition, the basis of the Company's contribution to
healthcare for eligible retirees and eligible survivors of retirees will be a
managed care program. The reduction of SFAS No. 106 costs generated by the
above changes as well as economic assumption changes in 1994 was $90 million
($57 million after-tax).
A few of the Company's subsidiaries and branches operating outside the U.S.
offer healthcare benefits; however, the cost of such benefits is insignificant
to the Company.
The Company adopted SFAS No. 106 on January 1, 1993. The obligation for
continuing operations owed to current and retired employees, as of January 1,
1993, was recognized on that date as a cumulative effect of a change in
accounting principle of $1,557 million after-tax. The Company plans to
continue to fund these benefit costs on a "pay-as-you-go" basis and,
consequently, the adoption of SFAS No. 106 will not significantly affect the
Company's cash flows.
The net postretirement benefit cost for continuing operations includes the
following components:
(in millions)
1994 1993
Service cost $ 26 $ 25
Interest cost 192 230
Net amortization (35) -
----- -----
Net postretirement
benefit cost $ 183 $ 255
===== =====
The total obligation and amount recognized for continuing operations in the
Consolidated Statement of Financial Position at December 31, 1994 and 1993,
were as follows:
(in millions)
1994 1993
Accumulated postretirement
benefit obligation
Retirees $1,765 $2,576
Fully eligible active plan
participants 23 94
Other active plan participants 366 524
------ ------
Total obligation 2,154 3,194
Unrecognized net loss (90) (344)
Unrecognized negative plan
amendment 839 -
------ ------
Accrued postretirement
benefit cost $2,903 $2,850
====== ======
43
To estimate this obligation, healthcare costs were assumed to increase 10% in
1995 with the rate of increase declining ratably to 5% by 2002 and thereafter.
The discount rate utilized to measure the obligation at December 31, 1994 and
1993, was 8.5% and 7.25%, respectively. If the healthcare cost trend rates
were increased by one percentage point, the accumulated postretirement benefit
obligation for continuing operations, as of December 31, 1994, would increase
by approximately $129 million while the net postretirement benefit cost for the
year then ended would increase by approximately $17 million.
Effective January 1, 1993, the Company adopted SFAS No. 112. The obligation
for continuing operations as of January 1, 1993 was recognized as a cumulative
effect of a change in accounting principle of $150 million ($92 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.
- - ------------------------------------------------------------------------------
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 the Company's 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 1994, 1993 and 1992
under the 1990 Omnibus Long-Term Compensation Plan. Provisions under this
plan amounted to $6 million in 1994, $5 million in 1993 and $5 million in 1992.
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 the Company's 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, 1994, there
were 198,912 tandem SARs and 558,712 freestanding SARs outstanding at option
prices ranging from $30.25 to $44.50.
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 the Company's 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, 1994, there
were 661,457 tandem SARs and 68,205 freestanding SARs outstanding at option
prices ranging from $33.79 to $39.53.
Summarized option data as of December 31, 1994 are as follows:
Shares Range of Price
Under Option Per Share
------------ ---------------
Options Outstanding December 31, 1993 20,231,934 $25.92 - $50.47
Options Granted 3,397,049 $42.94 - $49.44
Options Exercised 927,113 $25.92 - $44.50
Options Cancelled 145,627 $25.92 - $44.50
Options Surrendered 757,869 $25.92 - $43.18
---------- ---------------
Options Outstanding December 31, 1994 21,798,374 $30.25 - $50.47
========== ===============
At December 31, 1994, 16,689,314 of the options outstanding were exercisable.
Approximately 725,000 options were surrendered in 1994 as a result of the
spin-off of the Company's worldwide chemical business on December 31, 1993.
- - ------------------------------------------------------------------------------
44
ACQUISITION OF REMAINING SHARES OF QUALEX
In August 1994, the Company acquired the remaining shares of Qualex, a
photofinisher operating primarily in the U.S. Prior to August 12, 1994, the
Company had an investment in Qualex of approximately fifty percent of its
outstanding common shares, which was accounted for under the equity method.
The Company purchased the remaining shares of Qualex for $150 million with a
combination of cash and a note. At December 31, 1994, $100 million remains to
be paid in two equal installments in February and August 1995 and is included
in "payables". The tangible and identifiable intangible assets acquired,
principally receivables and properties, amounted to approximately $375
million. The liabilities assumed, principally debt, amounted to approximately
$410 million. After recognizing the amount of the Company's investment which
had been recorded by the Company prior to the acquisition date, approximately
$160 million, the amount of goodwill resulting from this acquisition
approximated $345 million. The Company's investment in Qualex was previously
included in "long-term receivables and other noncurrent assets". The results
of operations of Qualex are included in the Company's Consolidated Statement
of Earnings for the period following the transaction date as a component of
the Consumer Imaging segment. Net sales and costs of sales amounts
consolidated for this period were $279 million and $200 million, respectively.
Current and prior year pro forma information for the acquisition is not
presented due to its relative insignificance.
- - ------------------------------------------------------------------------------
SEGMENT INFORMATION
In conjunction with the Company's intention to focus its attention on its
consumer and commercial imaging businesses, the Company has changed its
segments for financial reporting purposes. The Consumer Imaging business
unit, which was previously included in the former Imaging segment, is now
reported as a separate segment. The 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. Financial data for prior periods have been restated to conform with
the 1994 segment presentation.
The products of each segment are manufactured and marketed both 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 and photofinishing operations. 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) 1994 1993 1992
Net assets $3,057 $2,912 $2,729
====== ====== ======
45
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
1994
Sales to customers $ 6,434 $1,266 $3,670 $2,187 $13,557
Transfers among geographic areas 2,547 456 340 58 $(3,401) -
------- ------ ------ ------ ------- -------
Total sales $ 8,981 $1,722 $4,010 $2,245 $(3,401) $13,557
======= ====== ====== ====== ======= =======
Earnings (loss) from operations
from continuing operations $ 884 $ 130 $ 315 $ (17) $ (3) $ 1,309
======= ====== ====== ====== ======= =======
Assets by geographic areas $10,131 $1,342 $2,853 $1,692 $(1,050) $14,968
======= ====== ====== ====== ======= =======
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 $ 8,952 $1,320 $2,615 $1,446 $ 4,477(1) $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 $ 8,803 $1,092 $3,028 $1,383 $ 4,732(1) $19,038
======= ====== ====== ====== ======= =======
(1) Includes net assets of discontinued operations.
- - ------------------------------------------------------------------------------
46
SEGMENT INFORMATION (continued)
(in millions) 1994 1993 1992
Sales from continuing operations,
including intersegment sales
Consumer Imaging $ 5,919 $ 5,292 $ 5,414
Commercial Imaging 7,646 7,382 7,592
Intersegment sales (8) (4) (14)
------- ------- -------
Total sales from continuing operations $13,557 $12,670 $12,992
======= ======= =======
Earnings from operations from
continuing operations (1)
Consumer Imaging $ 878 $ 931 $ 1,065
Commercial Imaging 431 317 334
------- ------- -------
Total earnings from operations
from continuing operations 1,309 1,248 1,399
Other revenues and charges
Consumer Imaging (31) 2 (7)
Commercial Imaging (7) 9 (31)
Corporate (127) (7) 265
Interest expense 142 175 247
------- ------- -------
Earnings before income taxes $ 1,002 $ 1,077 $ 1,379
======= ======= =======
Assets
Consumer Imaging $ 4,805 $ 4,154 $ 4,191
Commercial Imaging 7,950 7,334 7,228
Net assets of discontinued operations - 5,349 6,904
Corporate 2,213 1,973 715
------- ------- -------
Total assets at year end $14,968 $18,810 $19,038
======= ======= =======
Depreciation expense
Consumer Imaging $ 217 $ 286 $ 281
Commercial Imaging 619 531 655
------- ------- -------
Total depreciation expense $ 836 $ 817 $ 936
======= ======= =======
Amortization of goodwill
Consumer Imaging $ 25 $ 6 $ 4
Commercial Imaging 22 23 19
------- ------- -------
Total amortization of goodwill $ 47 $ 29 $ 23
======= ======= =======
Capital additions
Consumer Imaging $ 303 $ 282 $ 367
Commercial Imaging 850 535 869
------- ------- -------
Total capital additions $ 1,153 $ 817 $ 1,236
======= ======= =======
(1) Earnings from operations are shown after deducting restructuring costs of:
1994 1993 1992
Consumer Imaging $190 $141 $ 58
Commercial Imaging 150 354 161
- - ------------------------------------------------------------------------------
47
QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(in millions, except per share data)
1994
Sales from continuing operations $3,848 $3,529 $3,425 $2,755
Gross profit from continuing
operations 1,742 1,562 1,643 1,285
Earnings (loss) from continuing
operations before extraordinary
item (79)(1) 193 295 145
Earnings (loss) from discontinued
operations 350 - (30) (51)
Extraordinary item (253) - (1) (12)
Net earnings 18(1) 193 264 82
Primary earnings (loss) per share from
continuing operations before
extraordinary item (2) (.23) .57 .88 .44
Primary earnings (loss) per share
from discontinued operations (2) 1.03 - (.09) (.15)
Extraordinary item (.75) - - (.04)
Primary earnings per share .05 .57 .79 .25
Fully diluted earnings per share (2) .04 .56 .78 .24
(1) After deducting $340 million of restructuring costs, which reduced net earnings
by $254 million, and $110 million loss on the extinguishment of certain financial
instruments, which reduced net earnings by $80 million.
(2) Each quarter is calculated as a discrete period and the sum of the four quarters
does not equal the full year amount.
48
QUARTERLY SALES AND EARNINGS DATA - UNAUDITED (continued)
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:
Continuing operations - - - (1,649)(3)
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:
Continuing operations - - - (5.05)
Discontinued operations - - - (1.59)
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.
- - ------------------------------------------------------------------------------
49
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(Dollar amounts and shares in millions, except per share data)
1994 1993 1992 1991 1990
Sales $13,557 $12,670 $12,992 $12,427 $12,526
Earnings from operations before
extraordinary item and cumulative effect
of changes in accounting principle:
Continuing 554(1) 644 (2) 845(4) 12(6) 548(7)
Discontinued 269 23 (2) 149(4) 5(6) 155
Net earnings (loss) 557(1) (1,515)(2) 1,146(4) 17(6) 703(7)
(3) (5)
EARNINGS AND DIVIDENDS
Net earnings - percent of sales 4.1% (12.0%) 8.8% 0.1% 5.6%
- percent return on average
shareowners' equity 15.1% (30.6%) 18.1% 0.3% 10.5%
Primary earnings (loss) per share (8) 1.66 (4.62) 3.53 .05 2.17
Cash dividends declared
- on common shares (9) 537 657 650 649 649
- per common share (9) 1.60 2.00 2.00 2.00 2.00
Common shares outstanding at close of year 339.8 330.6 325.9 324.9 324.6
Shareowners at close of year 151,349 157,797 166,532 169,164 168,935
STATEMENT OF FINANCIAL POSITION DATA
Working capital $ 1,948 $ 2,696 $ 545 $ 681 $ 628
Properties - net 5,292 5,027 5,520 5,515 5,338
Total assets 14,968 18,810 19,038 19,952 20,085
Long-term borrowings 660 6,727 5,259 5,648 5,036
Total net assets (shareowners' equity) 4,017 3,356 6,557 6,104 6,748
SUPPLEMENTAL INFORMATION
Sales - Consumer Imaging (10) $ 5,919 $ 5,292 $ 5,414 $ 5,135 $
- Commercial Imaging (10) 7,646 7,382 7,592 7,301
Research and development costs 859 864 988 971 872
Depreciation 836 817 936 874 798
Taxes (excludes payroll, sales, and excise
taxes) 567 545 584 (183) 377
Wages, salaries, and employee benefits 4,690 4,679 4,653 4,533 4,427
Employees at close of year
- in the U.S.(11) 54,300 49,100 50,900 51,600 55,500
- worldwide (11) 96,300 91,800 95,200 96,700 99,300
(1) After deducting $340 million of restructuring costs from continuing operations, which
reduced net earnings by $254 million, and $110 million loss on the extinguishment of
certain financial instruments, which reduced net earnings by $80 million. Net earnings
were also reduced by $266 million of extraordinary losses related to the early
extinguishment of debt.
(2) 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.
(3) 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.
(4) 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.
(5) Net earnings for 1992 benefited by $152 million from the cumulative effect of adopting
SFAS No. 109, Accounting for Income Taxes.
(6) 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.
(7) After deducting $888 million for the litigation judgment, including post-judgment
interest, which reduced net earnings by $564 million.
(8) Based on average number of shares outstanding.
(9) The lower dividends in 1994 were due to the spin-off of the Eastman Chemical Company
operations at year-end 1993. As a result of the spin-off, the Company's shareowners
received one share of Eastman Chemical Company stock for every four shares of Kodak common
stock.
(10) Data for 1993, 1992 and 1991 have been restated to reflect the new basis of two reporting
segments.
(11) The acquisition of Qualex during 1994 added approximately 7,600 people to the Company's
U.S. employment. Acquisitions outside the U.S. during 1994 added approximately 1,200
people to the Company's employment levels. Approximately 5,100 personnel left the Company
during 1994 under restructuring programs.
50
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
- - ------------------------------------------------------------------------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Nominees to Serve as Directors for a Three-Year Term Expiring at the 1998
Annual Meeting (Class II Directors)
ALICE F. EMERSON
Dr. Emerson, 63, is Senior Fellow of The Andrew W. Mellon Foundation, a
position she assumed in 1991 after having served as President of Wheaton
College in Massachusetts since 1975. Prior to 1975, Dr. Emerson served the
University of Pennsylvania, first as Dean of Women from 1966 to 1969 and
subsequently as Dean of Students. Elected to the Kodak Board of Directors in
May 1992, Dr. Emerson received her bachelor's degree from Vassar College and
her Ph.D. degree from Bryn Mawr College. She is a member of the boards of
directors of AES Corporation, Bank of Boston Corporation and Champion
International Corp.
ROBERTO C. GOIZUETA
Mr. Goizueta, 63, is Chairman and Chief Executive Officer of The Coca-Cola
Company. He was elected to this position in March 1981, having served as
President from May 1980 to March 1981. Prior to becoming President, he was a
Vice Chairman and Executive Vice President. Mr. Goizueta, who was elected to
the Kodak Board of Directors in May 1989, received a B.S. degree in chemical
engineering from Yale University. He is a member of the boards of directors
of Ford Motor Company, SONAT Inc. and SunTrust Banks, Inc.
WILBUR J. PREZZANO
Mr. Prezzano, 54, who joined the Kodak Board of Directors in May 1992, is an
Executive Vice President of Eastman Kodak Company. Mr. Prezzano joined the
Company in 1965 in the statistical department and has held positions in
Treasurer's, Business Systems Markets, Customer Equipment Services Division,
Copy Products, Marketing Division, International Photographic Operations and
Photographic Products. He served as Group Vice President and General Manager,
International, from January 1990 to September 1991, when he became President
of Kodak's Health Group. In August, 1994, he was elected an Executive Vice
President and was named chairman and president of the Greater China Region.
Mr. Prezzano received B.S. and M.B.A. degrees from the University of
Pennsylvania's Wharton School.
LEO J. THOMAS
Dr. Thomas, 58, who joined the Kodak Board of Directors in May 1992, is an
Executive Vice President of Eastman Kodak Company. Dr. Thomas began his Kodak
career in 1961, and held various positions in the Research Laboratories before
being named Director of Research and elected a Vice President in 1977. In
December 1978, he was elected a Senior Vice President and in 1984, he was
appointed General Manager, Life Sciences. Following the acquisition of
Sterling Drug Inc. in 1988, Dr. Thomas was named Sterling Vice Chairman, and
was elected the subsidiary's Chairman in September 1988. He became General
Manager of the Health Group in 1989 and was elected a Group Vice President in
November 1989. In September 1991, Dr. Thomas became President of the Imaging
Group, which was formed to consolidate Kodak's photographic and commercial
imaging businesses. In August, 1994, he was elected an Executive Vice
President. Dr. Thomas holds a B.S. degree from the University of Minnesota
and M.S. and Ph.D. degrees from the University of Illinois. He is a member of
the boards of directors of Frontier Corporation and John Wiley & Sons, Inc.
51
Directors Serving a Term Expiring at the 1996 Annual Meeting
(Class III Directors)
RICHARD S. BRADDOCK
Mr. Braddock, 53, who was elected to the Kodak Board of Directors in May 1987,
is a principal of Clayton, Dubilier & Rice, a position he has held since
June 1994. From January 1993 until October 1993, he was Chief Executive Officer
of Medco Containment Services, Inc. From January 1990 through October 1992, he
served as President and Chief Operating Officer of Citicorp and its principal
subsidiary, Citibank, N.A. Prior to that, he served for approximately five
years as Sector Executive in charge of Citicorp's Individual Bank, one of the
financial services company's three core businesses. Mr. Braddock was
graduated from Dartmouth College in 1963 with a degree in history, and
received his M.B.A. from the Harvard School of Business Administration in
1965. He is a director of Lotus Development, True North Communications Inc.,
DFS Group Limited, and Van Kampen American Capital, Inc.
KARLHEINZ KASKE
Dr. Kaske, 66, served as President and Chief Executive Officer of Siemens AG
from 1981 until his retirement in September 1992. Dr. Kaske joined Siemens in
1960 and held a variety of positions with Siemens AG, including head of
Process Engineering and head of the Power Engineering Group. Dr. Kaske is a
professor at the Technical University of Munich. He holds a diploma in
physics from the Technical University of Aachen and a Doctorate of Engineering
from the Technical University of Brunswick. Dr. Kaske is Chairman of the
supervisory board of MAN Aktiengesellschaft and a member of the supervisory
boards of Philipp Holzmann AG and Linde AG.
RICHARD A. ZIMMERMAN
Mr. Zimmerman, 63, who joined the Kodak Board of Directors in July 1989, is
the retired Chairman and Chief Executive Officer of Hershey Foods Corporation.
Mr. Zimmerman joined Hershey in 1958 and was named Vice President in 1971.
Appointed a Group Vice President later in 1971, he became President and Chief
Operating Officer in 1976. He was named Chief Executive Officer in January
1984 and Chairman of the Board in March 1985. Mr. Zimmerman was graduated
from Pennsylvania State University. He is a member of the boards of directors
of Lance, Inc. and Westvaco Corporation.
Directors Serving a Term Expiring at the 1997 Annual Meeting
(Class I Directors)
MARTHA LAYNE COLLINS
Governor Collins, 58, was elected to the Board of Directors in May 1988. She
is President of Martha Layne Collins and Associates, a consulting firm, and is
also President of St. Catharine College in Springfield, Kentucky, a position
she assumed in July 1990. Following her receipt of a B.S. from the University
of Kentucky, Governor Collins taught from 1959 to 1970. After acting as
Coordinator of Women's Activities in a number of political campaigns, she
served as Clerk of the Supreme Court of the Commonwealth of Kentucky from 1975
to 1979. She was elected to a four-year term as Governor of the Commonwealth
of Kentucky in 1983 after having served as Lieutenant Governor from 1979 to
1983. Governor Collins, who has served as a Fellow at the Institute of
Politics, Harvard University, is a director of R. R. Donnelley & Sons Company
and Bank of Louisville.
52
GEORGE M. C. FISHER
Mr. Fisher, 54, who joined the Kodak Board of Directors on December 1, 1993,
is Chairman, President and Chief Executive Officer of Eastman Kodak Company.
Mr. Fisher most recently served as Chairman and Chief Executive Officer of
Motorola, Inc., after having served as President and Chief Executive Officer
between 1988 and 1990 and Senior Executive Vice President and Deputy to the
Chief Executive Officer between 1986 and 1988. Mr. Fisher holds a bachelor's
degree in engineering from the University of Illinois and a masters in
engineering and doctorate in applied mathematics from Brown University.
PAUL E. GRAY
Dr. Gray, 63, was elected to the Board of Directors in September 1990.
Chairman of the Corporation of the Massachusetts Institute of Technology
(M.I.T.) since October 1990, Dr. Gray served for the ten preceding years as
President of M.I.T. He has also served on the M.I.T. faculty and in the
academic administration, including responsibilities as Associate Provost, Dean
of Engineering, and Chancellor. Dr. Gray earned his bachelor's, master's, and
doctorate degrees in electrical engineering from M.I.T. He is a director of
Arthur D. Little, Inc., The Boeing Co., and The New England.
JOHN J. PHELAN, JR.
Mr. Phelan, 63, who joined the Kodak Board of Directors in December 1987, is
the retired Chairman and Chief Executive Officer of the New York Stock
Exchange, a position which he held from 1984 until 1990. He was President of
the International Federation of Stock Exchanges from 1991 through 1993. He is
a member of the Council on Foreign Relations and is a senior advisor to the
Boston Consulting Group. Mr. Phelan, a graduate of Adelphi University, is
active in educational and philanthropic organizations and is also a director
of Avon Products, Inc., Merrill Lynch & Co., Inc., Metropolitan Life Insurance
Company and SONAT Inc.
53
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS Directors who are compensated as employees of the
Company receive no additional compensation as directors. Each director who is
not an employee of the Company receives an annual retainer of $38,000, payable
$20,000 in common stock of the Company and $18,000 in cash. In addition, each
such director receives a fee of $1,000 for each Board meeting attended and
$900 for each Board committee and special meeting attended, and $1,000 for
each Board committee and special meeting which he or she chairs. There is a
deferred compensation plan available to all such directors for the cash
portion of their compensation, in which two directors participated in 1994.
Directors participating in this plan may choose between an interest-bearing
account and a phantom Kodak stock fund. Each director who is not an employee
of the Company is eligible to participate in a retirement plan for directors
which provides an annual retirement benefit equal to the then-current annual
retainer, if the director has served at least five years. Directors who have
served fewer than five years are entitled to a pro rata retirement benefit.
Each director who is not an employee of the Company is covered by group term
life insurance in the amount of $100,000, which decreases to $50,000 at the
later of retirement from the Board under the retirement plan described above
or age 65. In the event of a change in control (as defined in the applicable
plans) each account under the deferred compensation plan will be paid in a
single lump sum cash payment and all retirement benefit payments will be paid
in a single lump sum cash payment equal to the present value of the remaining
retirement benefits.
Each non-employee director is eligible to participate in the Company's
Directors' Charitable Award Program, which provides for a contribution by the
Company of $1,000,000 following the director's death to up to four charitable
institutions recommended by the director. The individual directors derive no
financial benefits from this Program, which is funded by joint life insurance
policies purchased by the Company and self insurance. The purposes of the
Program are to further the Company's philanthropic endeavors, with particular
emphasis on education, acknowledge the service of the Company's directors,
recognize the interest of the Company and the directors in supporting worthy
charitable and educational institutions and enable the Company to attract and
retain directors of the highest caliber. Directors who are participating in
the Program are Messrs. Braddock, Duncan, Phelan, and Zimmerman,
Drs. Emerson, Gray, and Kaske, and Gov. Collins.
COMPENSATION OF EXECUTIVE OFFICERS The individuals named in the following
table were the Company's Chief Executive Officer and the four highest paid
executive officers during 1994.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------- -------------------------------------------------
Awards Payouts
------------------------ -------
Other
Annual Restricted Securities All other
Name and Compen- Stock Underlying LTIP Compensa-
Principal Position Year Salary (a) Bonus (b) sation Award(s) Options/SARs Payouts tion
- - ------------------ ---- ---------- ---------- ---------- ---------- ------------ ------- -------------
G. M. C. Fisher 1994 $2,000,000 $1,816,400 $ 84,901(c) $ 0 $ 0 $2,103,524(d)
Chairman, President, 1993 330,769 154,000 (e) 1,270,000(g) 1,323,539 0 5,000,000(h)
and Chief Executive
Officer
R. T. Bourns 1994 440,000 270,238 (e) 0 10,000 0 0
Senior Vice 1993 400,000 227,563 (e) 0 10,017 0 0
President 1992 343,462 127,873 (e) 0 17,530 0 0
H. L. Kavetas 1994 478,077 457,605 56,044(f) 550,830(i) 200,000 0 55,000(j)
Executive Vice
President
(eff. 9/9/94), Senior
Vice President
(2/11/94-9/8/94)
W. J. Prezzano 1994 552,615 501,328 113,686(k) 0 65,000 0 1,351,200(l)
Executive Vice 1993 536,000 259,752 306,298(k) 0 15,026 0 0
President 1992 536,000 291,146 391,865(k) 0 25,795 0 0
(eff. 9/9/94),
Group Vice President
(1/1/94-9/8/94)
L. J. Thomas 1994 618,462 488,547 (e) 0 119,200 0 0
Executive Vice 1993 592,308 301,008 (e) 0 19,158 0 0
President 1992 580,000 267,306 (e) 0 33,182 0 0
(eff. 9/9/94),
Group Vice President
(1/1/94-9/8/94)
(a) Includes amounts paid and deferred
(b) Includes both Wage Dividend (WD) and Management Annual Performance Plan (MAPP) paid in the year following for
services rendered in the year indicated, in the following amounts for 1994: G. M. C. Fisher - $136,400 WD,
$1,680,000 MAPP; R. T. Bourns - $40,238 WD, $230,000 MAPP; H. L. Kavetas - $32,605 WD, $425,000 MAPP; W. J.
Prezzano - $51,328 WD, $450,000 MAPP; L. J. Thomas - $58,547 WD, $430,000 MAPP.
(c) This amount includes $43,973 for club memberships.
(d) This amount includes $2,064,394 of principal and interest forgiven by the Company with respect to two loans
described under the heading "Employment Contracts" on page 57 and $39,130 for term life insurance premiums.
(e) The value of personal benefits provided to the executive officer is less than the minimum amount required to be
reported.
(f) This amount includes $35,615 as a temporary living allowance.
(g) This amount represents 20,000 shares of restricted stock valued at $63.50 per share, on the date of grant, November
11, 1993. The value of these shares as of December 31, 1994 was $955,000. These shares are restricted until
October 26, 1998 and receipt of these shares is conditioned upon continued employment with the Company until such
date. Dividends are paid on these shares as and when dividends are paid on Kodak common stock.
(h) This represents a hiring bonus, including amounts paid to reimburse Mr. Fisher for compensation and benefits he
forfeited upon termination of employment with his previous employer.
(i) This amount represents 12,810 shares of restricted stock valued at $43.00 per share, on the date of grant, February
15, 1994. The value of these shares as of December 31, 1994 was $611,678. These shares are restricted until
February 14, 1999 and receipt of these shares is conditioned upon continued employment with the Company until such
date. Dividends are paid on these shares as and when dividends are paid on Kodak common stock.
(j) This amount represents a hiring bonus.
(k) This amount represents expatriate payments and tax reimbursement for overseas assignments in 1990 and 1991. The
value of personal benefits provided to the executive officer is less than the minimum amount required to be
reported.
(l) This amount represents a special recognition award paid in 1995 in connection with the divestiture in 1994 of the
non-imaging health businesses.
55
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- - ------------------------------------------------------------------------------
Number of Percentage Potential Realizable Value at Assumed
Securities of Total Annual Rate of Stock Price Appreciation
Underlying Options/SARs for Option Term (a)
Options/ Granted to Exercise or ------------------------------------------
SARs Employees in Base Price Expiration
Name Granted Fiscal Year Per Share Date 0% (b) 5% (c) 10% (d)
- - ---------------- -------- ------------ ------------- ----------- ---------- ------------ -----------
G. M. C. Fisher 0 0% N/A N/A $ 0 $ 0 $ 0
R. T. Bourns 10,000(e) .28 $42.94 2/14/04 0 270,000 684,400
H. L. Kavetas 200,000(f) 5.61 42.94 2/14/04 0 5,400,000 13,688,000
W. J. Prezzano 15,000(e) .42 42.94 2/14/04 0 405,000 1,026,600
50,000(g) 1.40 44.50 3/09/04 0 1,399,500 3,546,000
L. J. Thomas 19,200(e) .54 42.94 2/14/04 0 518,400 1,314,048
100,000(g) 2.81 44.50 3/09/04 0 2,799,000 7,092,000
All Shareholders
at $42.94 N/A N/A N/A N/A 0 9 Billion 23 Billion
at $44.50 0 9 Billion 24 Billion
Gain of named N/A N/A N/A N/A N/A .001 .001
officers as .001 .001
portion of all
shareholder gain
(a) The dollar amounts under these columns are the result of calculations at 0% and at the 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended to forecast possible future appreciation, if any, of the
Company's stock price.
(b) No gain to the optionees is possible without an increase in stock price, which will benefit all shareholders
commensurately. A zero percent increase in stock price will result in zero dollars for the optionee.
(c) A 5% per year appreciation in stock price from $42.94 per share and $44.50 per share yields $69.94 and $72.49,
respectively.
(d) A 10% per year appreciation in stock price from $42.94 per share and $44.50 per share yields $111.38 and $115.42,
respectively.
(e) 50% of these options vest on the first anniversary of the grant date and 50% vest on the second anniversary of the grant
date. Vesting accelerates upon retirement, death, disability or termination of employment for an approved reason.
(f) These options vest on February 15, 1999. Vesting accelerates upon death, disability or termination of employment without
cause.
(g) These options vest on March 10, 1996, the second anniversary of the date of grant. Vesting accelerates upon death,
disability or termination of employment for an approved reason.
56
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
and FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised in-the-money
Options/SARs at Options/SARs at
Number Fiscal Year-End Fiscal Year-End(a)
of Shares -------------------------- --------------------------
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ------------- ---------- --------- ----------- ------------- ----------- -------------
G.M.C. Fisher 0 $ 0 264,708 1,058,831 $ 0 $ 0
R. T. Bourns 0 0 64,737 22,521 887,808 146,260
H. L. Kavetas 0 0 0 200,000 0 962,000
W. J. Prezzano 0 0 146,931 83,282 2,166,022 376,882
L. J. Thomas 0 0 126,944 142,803 1,767,947 601,636
(a) Based on the closing price on the New York Stock Exchange - Composite Transactions of the
Company's Common Stock on December 31, 1994 of $47.75 per share.
57
Long-Term Incentive Plan
In March 1993, the 1993-1995 Restricted Stock Program, a performance share
unit arrangement under the 1990 Omnibus Long-Term Compensation Plan, was
approved by the Executive Compensation and Development Committee. Payouts of
Awards, if any, are tied to achieving specified levels of stock price, return
on assets, and total shareholder return relative to the Standard & Poor's 500
Index, over the period 1993-1995. The target amount will be earned if the
target level for each of these three criteria is achieved. The target stock
price must be achieved to trigger a payment of 100% of target. The threshold
stock price must be achieved to trigger a payment of 50% of target. If the
threshold stock price is not achieved, no payment is made. The Committee will
determine the payout based upon its review of Company performance at the end
of the performance period. Awards, if any, will be paid in the form of
restricted stock, which restrictions will lapse upon the participant's
attainment of age 60. Participants who terminate employment for reasons of
death, disability, retirement or an approved reason, prior to the completion
of the performance cycle, will receive their award, if any, at the conclusion
of the performance period in the form of shares of Kodak common stock with no
restrictions. Participation in this Program commenced in 1993 for the CEO and
the other named executive officers, except H. L. Kavetas, whose participation
commenced in 1994. Shown in the table below is the threshold and target
number of shares for H. L. Kavetas under this Program offset by the 12,810
shares of restricted stock awarded to H. L. Kavetas under his employment
contract.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under Non-Stock
Number of Performance Price-Based Plans
Shares, Units or Other Period ----------------------------------------------
or Other Until Maturation Threshold Target Maximum
Name Rights or Payout # of shares # of shares # of shares(a)
- - -------------- ------------- ---------------- -------------- -------------- --------------
H. L. Kavetas 10,826(b) 2/11/94-12/31/95 0(b) 10,826(b)
(a) Under the terms of the Restricted Stock Program, should performance exceed the targeted
performance, a greater number of shares than the target could be paid and there is no
maximum stated in the program.
(b) Individuals who participate for less than the full performance period will receive a
prorated amount of the award, if any, determined at the end of the performance period based
upon the duration of their participation during the performance period. The amounts shown
are the prorated amounts.
EMPLOYMENT CONTRACTS
On October 27, 1993, the Company entered into an agreement covering a period
of five years, for the employment of George M. C. Fisher as Chairman,
President and Chief Executive Officer of the Company. Upon execution of the
agreement, Mr. Fisher received $5,000,000 as an inducement for entering into
the agreement and as reimbursement for compensation and benefits that he would
forfeit upon termination of his employment with his previous employer. Mr.
Fisher's base salary is $2,000,000, subject to review on an annual basis. Mr.
Fisher participates in MAPP and has an annual target award opportunity of at
least $1,000,000, with that amount guaranteed for services rendered in each of
1994 and 1995. Mr. Fisher was granted 20,000 shares of restricted stock with
the restrictions lapsing at the end of five years. Pursuant to the agreement,
Mr. Fisher was granted 1,323,539 stock options in 1993. The agreement provided
for the Company to make two loans to Mr. Fisher in the total amount of
$8,284,400 for five years with interest at the rate of 4.86% (which is the
most recently announced rate under Section 1274(d) of the Internal Revenue
Code, prior to the date of the loan). $4,284,400 of this amount was loaned to
Mr. Fisher due to his forfeiture of 80,000 stock options from his prior
employer resulting from his accepting employment with the Company. Mr. Fisher
was required to use all of the loan proceeds except $1,500,000 to purchase
Kodak stock. The shares he purchased are reflected in the security ownership
table. Twenty percent of the principal and all of the accrued interest on
each of these loans are to be forgiven on each of the first five anniversaries
of such loans. Forgiveness of the $4,000,000 loan is conditioned upon Mr.
Fisher's not having voluntarily terminated his employment with the Company and
forgiveness of the $4,284,400 loan is conditioned upon Mr. Fisher's not
entering into competition with the Company. The amount of the forgiveness for
1994 is shown in the column of the Summary Compensation Table entitled "All
Other Compensation", on page 54.
58
In addition, where necessary, Mr. Fisher has been given credit for a period of
service sufficient to allow him to obtain the maximum benefit available under
the Company's benefit plans. In particular, Mr. Fisher was credited with five
years of service for purposes of the Wage Dividend and seventeen years of
service for purposes of calculating a retirement benefit. Any pension benefit
payable to Mr. Fisher by the Company will be offset by any pension benefit
paid to Mr. Fisher by his prior employer. The Company provided Mr. Fisher
with an apartment until he purchased a permanent residence in the Rochester
area. The Company purchased Mr. Fisher's residence in Barrington Hills,
Illinois. In addition, the Company reimbursed Mr. Fisher for all closing
costs associated with a previous residence, which was sold after he accepted
employment with the Company. The Company is providing Mr. Fisher with term
life insurance equal to 3.5 times his base salary and a disability benefit
equal to 60% of base salary. In the event of Mr. Fisher's death prior to the
termination of this agreement, the agreement provides for salary continuation
for ninety days, the payment of the annual incentive for the year of his death
and annual and long-term incentives earned but not yet paid, and vesting of
all stock options and awards and the forgiveness of the loans. In the event of
Mr. Fisher's disability prior to termination of the agreement, the agreement
provides for a disability benefit payable to age 65, the payment of the annual
incentive for the year in which his disability occurs and annual and long-term
incentives earned but not yet paid, and vesting of all stock options and
awards. If Mr. Fisher's employment is terminated by the Company without
cause, including following a change in control, Mr. Fisher is entitled to the
greater of the remaining term of his employment contract or 36 months of
salary continuation, immediate vesting of stock options, the lapsing of any
restrictions on any restricted stock award and the payment of any incentive
awards earned but not yet paid. Mr. Fisher is entitled to reimbursement for
taxes paid on certain of the foregoing payments, including any amounts
constituting "parachute payments" under the Internal Revenue Code. If Mr.
Fisher dies prior to retirement, his spouse is entitled to a 50% survivor
annuity.
On February 11, 1994, the Company entered into an agreement covering a period
of five years, for the employment of Harry L. Kavetas as Chief Financial
Officer of the Company. Mr. Kavetas's base salary is $550,000, subject to
review on an annual basis. Mr. Kavetas participates in MAPP and has an annual
target award opportunity of at least $330,000, with that amount guaranteed for
services rendered in 1994. Mr. Kavetas was granted 12,810 shares of
restricted stock with the restrictions lapsing at the end of five years.
Pursuant to the agreement, Mr. Kavetas was granted 200,000 stock options that
become exercisable at the end of five years.
In addition, where necessary, Mr. Kavetas has been given credit for a period
of service sufficient to allow him to obtain the maximum benefits available
under Kodak's benefit plans. In particular, Mr. Kavetas was credited with
five years of service for purposes of the Wage Dividend and will be credited
with six years of service for each of the first five years of employment for
purposes of calculating a retirement benefit. Any pension benefit payable to
Mr. Kavetas by the Company will be offset by any pension benefit paid to Mr.
Kavetas by his prior employer. The Company provided Mr. Kavetas with
temporary housing until he purchased a permanent residence in the Rochester
area. In the event of Mr. Kavetas's death prior to the termination of the
agreement, the agreement provides for salary continuation for 90 days, the pro
rata payment of all annual and long terms incentives and pro rata vesting of
stock options and restricted stock awards. In the event of Mr. Kavetas's
disability prior to termination of the agreement, the agreement provides for
the pro rata payment of all annual and long term incentives, and pro rata
vesting of stock options and restricted stock awards. If Mr. Kavetas's
employment is terminated by the Company without cause, Mr. Kavetas is entitled
to 18 months of salary continuation, immediate pro rata vesting of stock
options and restricted stock awards and the payment of any incentive awards
earned but not yet paid.
59
TERMINATION OF EMPLOYMENT
The Company has a general severance arrangement available to substantially all
employees. This Termination Allowance Plan provides two weeks of compensation
for every year of service with a maximum of fifty-two weeks of salary.
The Company has entered into a retention arrangement with Mr. Prezzano. The
agreement provides that if Mr. Prezzano's employment is terminated prior to
September 30, 1995 by the Company other than for cause, or by Mr. Prezzano as
a result of a diminution in duties or base salary, he shall be entitled to an
unreduced retirement annuity and a termination allowance equal to two weeks of
pay for each year of service up to a maximum of 52 weeks of pay. The
agreement also prohibits Mr. Prezzano from working for a competitor for a
period of three years following termination of employment.
CHANGE IN CONTROL ARRANGEMENTS
In the event of a change in control, the following would occur: (i) each
participant in the Executive Deferred Compensation Plan would receive the
balance in his or her account in a single lump sum cash payment; (ii) each
participant in the Management Annual Performance Plan would be paid his or her
target award for such year and any other year for which payment of awards had
not been made as of such date; and (iii) all outstanding stock options and
stock appreciation rights would become fully vested and each holder would be
paid in a lump sum cash payment the difference between the exercise price and
market price of Kodak common stock on the date of such event; each of the
foregoing payments would be made in a single lump sum cash payment as soon as
possible but no later than the 90th day following such event.
RETIREMENT PLAN
The Company funds a tax-qualified, defined benefit pension plan for virtually
all U.S. employees. Retirement income benefits are based upon the
individual's "average participating compensation," which is the average of
three years of those earnings described in the Plan as "participating
compensation." "Participating compensation", in the case of the executive
officers included in the Summary Compensation Table, is annual compensation
(salary and Management Annual Performance Plan payments), including allowances
in lieu of salary for authorized periods of absence, such as illness, vacation
or holidays.
For an employee with up to 35 years of accrued service, the annual normal
retirement income benefit is computed by multiplying the number of years of
accrued service by the sum of (a) 1.3% of "average participating compensation"
("APC") for the employee's final three years, plus (b) .3% of APC in excess of
the average Social Security wage base for the employee's final three years.
For an employee with more than 35 years of accrued service, the amount
computed above is increased by 1% for each year in excess of 35 years.
The retirement income benefit is not subject to any deductions for Social
Security benefits or other offsets. Officers are entitled to benefits on the
same basis as other employees. The normal form of benefit is an annuity, but
a lump sum payment is available as an option.
60
Pension Plan Table
Annual Retirement Income Benefits
Straight Life Annuity Beginning at Age 65
Years of Service
------------------------------------------------------------------------------------
Renumeration 5 10 15 20 25 30 35 40
- - ------------- -------- -------- -------- -------- -------- ---------- ---------- ----------
$ 400,000 $ 32,000 $ 64,000 $ 96,000 $128,000 $160,000 $ 192,000 $ 224,000 $ 235,200
600,000 48,000 96,000 144,000 192,000 240,000 288,000 336,000 352,800
800,000 64,000 128,000 192,000 256,000 320,000 384,000 448,000 470,400
1,000,000 80,000 160,000 240,000 320,000 400,000 480,000 560,000 588,000
1,200,000 96,000 192,000 288,000 384,000 480,000 576,000 672,000 705,600
1,400,000 112,000 224,000 336,000 448,000 560,000 672,000 784,000 823,200
1,600,000 128,000 256,000 384,000 512,000 640,000 768,000 896,000 940,800
1,800,000 144,000 288,000 432,000 576,000 720,000 864,000 1,008,000 1,058,400
2,000,000 160,000 320,000 480,000 640,000 800,000 960,000 1,120,000 1,176,000
2,200,000 176,000 352,000 528,000 704,000 880,000 1,056,000 1,232,000 1,293,600
2,400,000 192,000 384,000 576,000 768,000 960,000 1,152,000 1,344,000 1,411,200
NOTE: For purposes of this table Renumeration means Average Participating Compensation. To the extent that any
individual's annual retirement income benefit exceeds the amount payable from the Company's funded Plan, it is
paid from one or more unfunded supplementary plans.
61
The following table shows the years of accrued service credited to each of the
five individuals named in the Summary Compensation Table. This table also
shows for each named individual the amount of his "average participating
compensation" at the end of 1994.
"Average
Years of Participating
Service Compensation"
-------- -------------
G. M. C. Fisher 18* $1,999,998
R. T. Bourns 36 516,087
H. L. Kavetas 6** 550,004
W. J. Prezzano 29 714,017
L. J. Thomas 33 819,589
*Under the terms of his employment contract, Mr. Fisher has been credited with
seventeen years of service for purposes of calculating his retirement benefit.
Any pension benefit payable to Mr. Fisher by the Company will be offset by any
pension benefit paid to Mr. Fisher by his prior employer.
**Under the terms of his employment contract, Mr. Kavetas is credited with six
years of service for purposes of calculating his retirement benefit for each
year of his first five years of employment with the Company. Any pension
benefit payable to Mr. Kavetas by the Company will be offset by any pension
benefit paid to Mr. Kavetas by his prior employer.
In the event of a change in control (as defined in the Retirement Plan), a
participant whose employment is terminated, for a reason other than death,
disability, cause or voluntary resignation, within 5 years of the date of such
event would be credited with up to 5 additional years of service and, where
the participant is age 50 or over on the date of such event, up to 5
additional years of age, for the following plan purposes: (i) to determine
eligibility for early and normal retirement; (ii) to determine eligibility for
a vested right; and (iii) to calculate the amount of retirement benefit. The
actual number of years of service and years of age that would be granted to
such a participant would decrease proportionately depending upon the number of
years that elapse between the date of a change in control and the date of the
participant's termination of employment. Further, if the Plan is terminated
within 5 years after a change in control, the benefit for each plan
participant will be calculated as indicated above.
62
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Directors, Nominees
and Executive Number of Common Shares
Officers Owned on Jan. 3, 1995
- - ------------------- -----------------------
Richard T. Bourns 82,041*+
Richard S. Braddock 2,535
Martha Layne Collins 2,340
Charles T. Duncan 2,592
Alice F. Emerson 1,392
George M. C. Fisher 392,108*=
Roberto C. Goizueta 4,499
Paul E. Gray 1,859
Karlheinz Kaske 1,353
Harry L. Kavetas 12,810-
John J. Phelan, Jr. 2,698
Wilbur J. Prezzano 176,445*
Leo J. Thomas 161,801*
Richard A. Zimmerman 2,919
All Directors, Nominees and 965,015*#+
Executive Officers as a
Group (18), including the above
NOTES:
* Includes shares which may be acquired in the following amounts by exercise
of stock options: R. T. Bourns - 77,250; G. M. C. Fisher - 264,708; W. J.
Prezzano - 165,200; L. J. Thomas - 150,568; and all directors, nominees and
executive officers as a group - 770,606.
= Includes 20,000 shares of restricted stock.
- - - The transfer of these shares is restricted.
+ The shares shown do not include the following Eastman Kodak Company common
stock equivalents which are held in the Eastman Kodak Company 1982 Executive
Deferred Compensation Plan: R. T. Bourns - 5,008 and all executive officers
as a group - 9,541.
# The total number of shares beneficially owned by all directors, nominees and
executive officers as a group is less than one percent of the Company's
outstanding shares.
Beneficial security ownership as reported in the above table has been
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934. Accordingly, except as noted below, all Company securities over which
the directors, nominees and executive officers directly or indirectly have or
share voting or investment power have been deemed beneficially owned. The
figures above include shares held for the account of the above persons in the
Automatic Dividend Reinvestment Plan for Shareholders of Eastman Kodak
Company, in the Kodak Employee Stock Ownership Plan, and the interests, if
any, of those of the above persons in the Kodak Stock Fund of the Eastman
Kodak Employees' Savings and Investment Plan, stated in terms of Kodak shares.
The table does not include approximately 8,124,116 shares of the Company's
stock (less than 3 percent of the outstanding shares) held in the Kodak Stock
Fund of the Eastman Kodak Employees' Savings and Investment Plan for the
benefit of some 25,250 employees and former employees, over which a committee
consisting of five individuals, including four Company officers, has
discretionary voting power.
63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page No.
(a) 1. Consolidated financial statements:
Report of independent accountants 18
Consolidated statement of earnings 19-20
Consolidated statement of financial position 21
Consolidated statement of shareowners' equity 22
Consolidated statement of cash flows 23
Notes to financial statements 24-48
2. Financial statement schedules:
II - Valuation and qualifying accounts 66
All other schedules have been omitted because they are not applicable
or the information required is shown in the financial statements or
notes thereto.
3. Additional data required to be furnished:
Exhibits required as part of this report are listed in the index
appearing on pages 67 through 69. The management contracts and
compensatory plans and arrangements required to be filed as exhibits
to this form pursuant to Item 14(c) of this report are listed on pages
67 through 68, Exhibit Numbers (10)A - (10)R.
(b) Report on Form 8-K.
Eastman Kodak Company filed the following Current Reports on Form 8-K
during the fourth quarter of 1994:
1. Current Report on Form 8-K dated June 30, 1994 (filed October 17,
1994), as amended by Amendment No. 1 (filed October 21, 1994). The
8-K reported Items 2, 5, and 7.
2. Current Report on Form 8-K dated November 30, 1994 (filed December 5,
1994). The 8-K reported Items 2, 5, and 7 and included under Item 5
financial data, consolidated financial statements, financial statement
schedules, and additional data to provide historical financial
information excluding the results of the non-imaging health businesses
which the Company divested in 1994.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EASTMAN KODAK COMPANY
(Registrant)
By: By:
George M. C. Fisher, Chairman of Harry L. Kavetas,
Executive Vice
the Board, President and Chief President, Chief Financial
Executive Officer Officer and Acting General
Comptroller
Date: March 10, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Richard S. Braddock, Director Paul E. Gray, Director
Martha Layne Collins, Director Karlheinz Kaske, Director
Charles T. Duncan, Director John J. Phelan, Jr., Director
Alice F. Emerson, Director Wilber J. Prezzano, Director
George M. C. Fisher, Director Leo J. Thomas, Director
Roberto C. Goizueta, Director Richard A. Zimmerman,
Director
Date: March 10, 1995
65
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 and
No. 33-49285), Form S-4 (No. 33-48891) and Form S-8 (No. 2-77145, No. 33-5803,
No. 33-36731, No. 33-35214 and No. 33-56499), of Eastman Kodak Company of our
report dated January 30, 1995, appearing on page 18 of this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
March 10, 1995
66
Schedule II
Eastman Kodak Company and Subsidiary Companies
Valuation and Qualifying Accounts
(in millions)
Balance at Additions Deductions Balance
Beginning Charged to Amounts at End of
of Period Earnings Written Off Period
Year ended December 31, 1994
Deducted in the Statement of
Financial Position:
From Current Receivables
Reserve for doubtful accounts $ 82 $80 $57 $105
Reserve for loss on returns
and allowances 10 5 - 15
---- --- --- ----
TOTAL $ 92 $85 $57 $120
==== === === ====
From Long-Term Receivables and
Other Noncurrent Assets;
Reserve for doubtful accounts $ 20 $ 8 $10 $ 18
==== === === ====
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
==== === === ====
67
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Exhibit
Number
(3) A. Certificate of Incorporation.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 3.)
B. By-laws, as amended through September 11, 1992.
(Incorporated by reference to the Eastman Kodak Company Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, Exhibit 3.)
(4) A. Indenture dated as of June 15, 1986 between Eastman Kodak Company as
issuer of 8.55% Notes due 1997 and The Bank of New York as Trustee.
(Incorporated by reference to the Eastman Kodak Company Annual Report
on Form 10-K for the fiscal year ended December 28, 1986, Exhibit 4.)
B. Indenture dated as of January 1, 1988 between Eastman Kodak Company as
issuer of (i) 9 3/8% Notes Due 2003, (ii) 9.95% Debentures Due 2018,
(iii) 9 1/2% Notes Due 2008, (iv) 9.20% Debentures Due 2021, and (v) 7
1/4% Notes Due 1999, and The Bank of New York as Trustee.
(Incorporated by reference to the Eastman Kodak Company Annual Report
on Form 10-K for the fiscal year ended December 25, 1988, Exhibit 4.)
C. First Supplemental Indenture dated as of September 6, 1991 and Second
Supplemental Indenture dated as of September 20, 1991, each between
Eastman Kodak Company and The Bank of New York as Trustee,
supplementing the Indenture described in B. (Incorporated by
reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, Exhibit 4.)
D. Third Supplemental Indenture dated as of January 26, 1993, between
Eastman Kodak Company and The Bank of New York as Trustee,
supplementing the Indenture described in B. (Incorporated by
reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, Exhibit 4.)
E. Fourth Supplemental Indenture dated as of March 1, 1993, between
Eastman Kodak Company and The Bank of New York as
Trustee,supplementing the Indenture described in B. (Incorporated by
reference to the Eastman Kodak Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
Eastman Kodak Company and certain subsidiaries are parties to instruments
defining the rights of holders of long-term debt that was not registered
under the Securities Act of 1933. Eastman Kodak Company has undertaken
to furnish a copy of these instruments to the Securities and Exchange
Commission upon request.
(10) A. Eastman Kodak Company Retirement Plan for Directors, as amended
effective March 1, 1990.
B. Eastman Kodak Company 1985 Long Term Performance Award Plan, as
amended effective December 31, 1993.
C. 1982 Eastman Kodak Company Executive Deferred Compensation Plan, as
amended effective December 31, 1993.
D. Kodak Unfunded Retirement Income Plan, amended effective January 1,
1992.
68
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
E. Eastman Kodak Company Management Annual Performance Plan,
as amended effective February 1994. 70
F. Eastman Kodak Company 1956 Deferred Compensation Plan, as
amended effective January 1, 1990.
G. Eastman Kodak Company 1981 Incentive Stock Option Plan, as
amended effective December 31, 1993.
H. Eastman Kodak Company Insurance Plan for Directors.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 29, 1988, Exhibit 10.)
I. Eastman Kodak Company Deferred Compensation Plan for
Directors, as amended effective January 1, 1995. 76
J. Eastman Kodak Company 1985 Stock Option Plan, as amended
effective December 31, 1993.
K. Kodak Supplementary Group Life Insurance Plan, as amended
effective March 1, 1994. 87
L. Eastman Kodak Company 1990 Omnibus Long-Term Compensation
Plan, as amended effective March 10, 1994. 101
M. Kodak Excess Retirement Income Plan, as amended effective
December 1, 1991.
N. Kodak Executive Financial Counseling Program.
O. Umbrella Insurance Coverage.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 10.)
P. Kodak Executive Health Management Plan, as amended
effective December 7, 1990.
Q. Wilbur J. Prezzano Retention Agreement dated
September 3, 1993.
R. Wilbur J. Prezzano Amendment to Retention Agreement dated
January 3, 1995. 116
S. George M. C. Fisher Employment Agreement dated
October 27, 1993.
$4,000,000 Promissory Note dated November 2, 1993
$4,284,400 Promissory Note dated November 2, 1993
Notice of Award of Restricted Stock dated November 11, 1993
Notice of Award of Incentive Stock Options dated
November 11, 1993
Notice of Award of Non-Qualified Stock Options dated
November 11, 1993
First Amendment to Notice of Award of Non-Qualified Stock
Options dated November 11, 1993.
Amendment No. 1 to Employment Agreement dated as of
April 4, 1994.
69
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
T. Harry L. Kavetas Employment Agreement dated as of
February 11, 1994, Notice of Award of Non-Qualified Stock
Options dated February 15, 1994, Notice of Award of Incentive
Stock Options dated February 15, 1994, and Notice of Award of
Restricted Stock dated February 15, 1994. 117
Exhibits (10) A and F are incorporated by reference to the Eastman
Kodak Company Annual Report on Form 10-K for the fiscal year ended December 31,
1990, Exhibit 10.
Exhibits (10) D, M, N, and P are incorporated by reference to the
Eastman Kodak Company Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Exhibit 10.
Exhibits (10) B, C, G, J, Q and S are incorporated by reference to
the Eastman Kodak Company Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, Exhibit 10.
(11) Statement Re Computation of Earnings Per Common Share. 147
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges. 150
(22) Subsidiaries of Eastman Kodak Company. 151
(24) Consent of Independent Accountants. 65
(27) Financial Data Schedule, Exhibit (27) - Submitted with the
EDGAR filing as a second document to this Form 10-K.
(28) A. Eastman Kodak Employees' Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended December 30, 1994
(to be filed by amendment).
B. L & F Products Employees' Savings Plan I Annual Report on
Form 11-K for the fiscal year ended December 30, 1994 (to be
filed by amendment).
C. L & F Products Employees' Savings Plan II Annual Report on
Form 11-K for the fiscal year ended December 30, 1994 (to be
filed by amendment).
70
Exhibit (10) E
1994 Management Annual Performance Plan
SUMMARY
The Management Annual Performance Plan (MAPP) is a Kodak management-
level compensation plan. The compensation of each participant
consists of a base salary and an annual award based on business
performance. Expected financial performance is considered the target
level of performance and yields the participant's target award. MAPP
awards vary from zero, if goals are not met, to a maximum of two
times the target award. Target awards range from 18% of base salary
for the lowest level of participants to 75% of base salary for the
CEO. Payments are made to plan participants in April of
the year following the year for which performance was measured.
PLAN ADMINISTRATION
The Executive Compensation and Development Committee of the Board of
Directors is responsible for: policy setting and interpretation,
approving performance goals at the Company and Group levels,
evaluating Company and Group performance against the goals, and
determining Company and Group level performance awards. The Chief
Executive Officer provides advice and counsel to the Committee.
Management is responsible for administering the Plan.
PARTICIPATION
The Plan is intended for management-level individuals in key roles
which impact the financial performance of the organization.
Participation is determined by Group Presidents and Senior Vice
Presidents. The Chief Executive Officer is the final approval level
for participation.
Individuals who become participants as a result of a job change begin
participation on the first day of the month of their appointment to
the new job, or on the following January 1 if the job change occurs
late in the year.
Participants who retire, become disabled under the Kodak Long-Term
Disability Plan, or leave the Company as part of an approved early
separation program, receive a pro rata award at the normal time of
payout based on base salary at the time of separation and financial
performance at the end of the performance cycle (year-end).
The estates of participants who die receive a pro rata award based on
base salary at the time of death and financial performance at the end
of the performance cycle (year-end).
Participants who resign or are terminated for cause receive an award
only if they worked until the end of a performance cycle (complete
calendar year).
71
Participants who change jobs during a performance cycle receive a pro rata
award for the interval of time spent in each job. Pro rata awards are
calculated using the base salary at year-end and are based on the financial
performance of the full performance cycle (complete calendar year).
GOAL SETTING
The Executive Compensation and Development Committee, in consultation with the
Chief Executive Officer, establishes in December of each year the next year's
financial goals for each performance level for: total Company, Imaging Group,
and the Health Group. Each goal is weighed for importance in determining
final awards. Three performance levels are established: Threshold, Target
and Maximum. On occasion, two of the levels may be set at the same
performance level in order to reinforce business goals.
Within each Group, goals may be established at organizational levels below the
Group. If established, they are to be the same financial goals,
aligned with Group goals, and approved by the Group President. There
are no individual or personal goals.
GOAL WEIGHTING
Goals are weighted not only by specific financial performance measure
but also by organizational position as follows:
Position Corporate Group
Chief Executive Officer 100% 0%
Corporate Staffs 100% 0%
Group Presidents 50% 50%
Corporate Officers in The Groups 35% *65%
Other 25% *75%
*Group President determines the weighting of these goals
within the Group.
AWARDS
Award Pools
72
MAPP award pools are determined at the Group and Corporate Staffs levels. An
award pool is the amount of money required to pay all participants in a Group
in relation to meeting specific performance levels (Threshold through Maximum)
of financial performance in that Group. For example, Imaging, Health and
Corporate Staffs have a target level of financial performance set by the
Executive Compensation and Development Committee of the Board for each MAPP
performance level. A corresponding award pool is determined for each
performance level. The award pools are calculated based on: 1) the number of
MAPP participants in the Group; 2) their grade and salary levels at year-end;
and 3) their target MAPP award (18% to 75%). Following the conclusion of the
performance cycle, the Committee conducts its evaluation of performance
against goals in its February meeting. At that time, award levels are
determined and award pools established.
Award Determination
The Executive Compensation and Development Committee, in consultation with the
CEO, evaluates financial performance against agreed upon goals for the
Corporation and for each Group. In making its evaluation, the Committee takes
into consideration unanticipated influences (e.g., economic downturn)
impacting the difficulty of achieving the results, as well as performance
relative to peer companies. Peer company comparisons may be made at the Group
level and for the Corporation. The Committee decides, based on the
recommendation of the CEO, the appropriate peer company comparisons for each
Group and the Corporation. In addition, the Committee judges results in
relation to its expectations for improving overall shareowner return.
Extraordinary gains and losses are included in financial performance
evaluation both at Corporate and, where appropriate, at Group levels. Major
adjustments may be considered separately at the request of the CEO. Taking
into account these various considerations, the Committee determines the
performance award level for the Corporation and each Group.
The Threshold performance level established for each goal is the minimum
hurdle for payment of award monies for performance against that goal. The
Threshold level must be attained before any award is earned for that goal.
This applies at all organizational levels at which goals may be established.
If goals are established below the Group level, the Group must earn some award
monies for its performance before any sub-Group awards are paid.
After the award pools have been established, the CEO and the Group Presidents
have the discretion to determine how a portion of the monies will be
distributed. Within each Group, the Group President has the latitude to
redistribute up to 30 percent of the award funds resulting from non-corporate
performance. The CEO has the same latitude to redistribute up to 30 percent
of the award funds within the Corporate Staffs units. No additional award
monies are created, solely a redistribution. The potential redistribution
will be based upon performance achievements -- tangible, quantifiable results
- - -- of individuals or units. It is intended to provide the ability to
recognize special contributions and provide a greater level of accountability.
The Executive Compensation and Development Committee approves actual MAPP
award amounts for the following: Chief Executive Officer, Group Presidents,
Chief Financial Officer, Senior Vice President - Legal, Senior Vice President
- - - Human Resources and the five highest paid officers listed in the proxy, if
they are different from individuals in the positions identified above.
73
Unacceptable individual performance, as determined by management, may
result in no performance award, regardless of Company, Group or unit
performance. Management has discretion to override the established
guidelines to avoid inappropriate or inequitable results. Final
approval for such an override resides at the Group President or
equivalent level. The Chief Executive Officer may recommend to the
Executive Compensation and Development Committee that no awards be
paid through this plan should the Company's overall financial
performance warrant such action.
Award Calculation
Achievement Level Award Factor
Maximum 2X
Target (Expected Performance) 1X
Threshold .25X
X = Target Award %
Awards are paid in April, for performance in the previous year, based
on goal achievement. In the example below, the participant has three
goals, one with a weighting of 20% and each of the other two weighted
40%. The weighted performance is calculated on a scale of zero (0) to 200,
with Target equal to 100. In this way, regardless of their target award
percentage (18% to 75%), the performance for all participants can be
calculated using the same scale. In the example, the performance for goal 1
was 125, resulting in a weighted performance (20% times 125) of 25. Goal 2
performance was 75 on the 200 scale (weighted performance was 30 [75 times
40%]). Goal 3 performance was 150 (weighted performance was 60 [150 times
40%]). This resulted in a total weighted performance of 115%.
Performance Levels
Maximum Target Threshold
200 100 25
Goals Weight % Weighted Performance
1 20 125 25%
2 40 75 30%
3 40 150 60%
Total = 115%
In this example, consider that the participant had a year-end base
salary of $90,000 and a target award of 18% of base salary. To
calculate this participant's award, determine the Target Award and
multiply it by the Total Weighted Performance.
74
Target Award = Base Salary times Target Award Percent
Target Award = $90,000 X 18% = $16,200
Performance Award = Target Award times Total Weighted Performance
Performance Award = $16,200 X 115.0% = $18,630
This Performance Award might then be increased or decreased based upon the
potential redistribution of a portion of the available award
monies by the CEO or Group President.
RELATIONSHIP BETWEEN
MAPP AND PERFORMANCE APPRAISALS
MAPP is intended to reward participants for the achievement of a few focused
financial goals. Performance appraisals and rate reviews determine an
individual's base salary with consideration for overall performance relative
to the expectations for the job. MAPP is financially and organizationally
oriented while performance appraisals are more individually oriented.
SALARY ADJUSTMENT UPON ENTRY INTO MAPP
MAPP is a variable compensation, or pay at risk, program.
Participants have their base salary administered on reduced rate
ranges. New participants to MAPP are immediately administered on the
reduced rate range for their assigned grade. This may reduce or
eliminate promotional increases, depending upon the person's pay
position in the rate range for their new grade. Subsequent salary
treatment will depend upon pay/performance relationships in the
reduced rate range for their assigned grade.
RELATIONSHIP TO BENEFITS
Benefits are calculated as follows:
Base Salary
and Actual Base Salary & Base
Benefit Plan MAPP Received Targeted MAPP Salary Rate
Wage Dividend X
Retirement X
Life Insurance X
Long-Term Disability X
Termination Allowance X
Short-Term Disability X
Vacation X
Holidays X
Personal Absence X
75
PLAN AUDIT
The Director of Executive Compensation and Corporate Compensation
Planning has responsibility for monitoring and reporting on the
administration and effectiveness of MAPP. The role of that position
is to provide independent objective appraisal and guidance to both
the Executive Compensation and Development Committee of the Board and
the CEO in the administration of MAPP. Each year, the Director will
provide a formal review to the Committee and the CEO on the overall
effectiveness of MAPP.
February, 1994
76
Exhibit (10) I
EASTMAN KODAK COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Amended and Restated
Effective as of January 1, 1995
77
Eastman Kodak Company
Deferred Compensation Plan For Directors
Table of Contents
Section Page
Preamble 79
Section 1. Definitions 79
Section 2. Term 80
Section 3. Participation 80
Section 4. Deferral of Compensation 80
Section 5. Time of Election of Deferral 81
Section 6. Hypothetical Investments 81
Section 6.1 Deferred Compensation Account 81
Section 6.2 Stock Account 81
Section 7. Manner of Electing Deferral 81
Section 8. Investment in Stock Account 81
Section 8.1 Elections 81
Section 8.2 Election into the Stock Account 82
Section 8.3 Election out of the Stock Account 82
Section 8.4 Dividend Equivalents 82
Section 8.5 Stock Dividends 82
Section 8.6 Recapitalization 83
Section 8.7 Distributions 83
Section 9. Payment of Deferred Compensation 83
Section 9.1 Background 83
Section 9.2 Manner of Payment 83
Section 9.3 Timing of Payments 83
Section 9.4 Valuation 83
Section 10. Payment of Deferred Compensation
After Death 83
Section 10.1 Stock Account 84
Section 10.2 Distribution 84
Section 10.3 Beneficiary Designation 84
78
Eastman Kodak Company
Deferred Compensation Plan For Directors
Table of Contents Continued
Section Page
Section 11. Participant's Rights Unsecured 84
Section 12. Non-Assignability 85
Section 13. Statement of Account 85
Section 14. Administration 85
Section 14.1 Responsibility 85
Section 14.2 Authority of Administrator 85
Section 14.3 Discretionary Authority 85
Section 14.4 Delegation of Authority 85
Section 15. Amendment 85
Section 16. Governing Law 85
Section 17. Change in Control 86
Section 17.1 Background 86
Section 17.2 Payment of Deferred Compensation 86
Section 17.3 Amendment On or After Change
In Control 86
Section 18. No Guarantee of Tax Consequences 86
Section 19. Compliance with Securities Laws 86
79
EASTMAN KODAK COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Preamble.
The name of this Plan is the Eastman Kodak Company Deferred Compensation Plan
for Directors. Its purpose is to provide certain members of the Board of
Directors of Eastman Kodak Company with an opportunity to defer compensation
earned as a Director.
Section 1.
Definitions.
Section 1.1. "Account" means the Deferred Compensation Account or the
Stock Account.
Section 1.2. "Beneficiary" means the person or persons (including, but
not limited to, a trust) designated as such in accordance with Section
10.3.
Section 1.3. "Board" means Board of Directors of Kodak.
Section 1.4. "Change in Control" means a change in control of Kodak of
a nature that would be required to be reported (assuming such event has
not been "previously reported") in response to Item 1(a) of the Current
Report of Form 8-K, as in effect on August 1, 1989, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided that, without limitation, a Change in Control
shall be deemed to have occurred at such time as (i) any "person" within
the meaning of Section 14(d) of the Exchange Act is or has become the
"beneficial owner" as defined in Rule 13d-3 under the Exchange Act,
directly or indirectly, of 25% or more of the combined voting power of
the outstanding securities of Kodak ordinarily having the right to vote
at the election of directors ("Voting Securities"), or (ii) individuals
who constitute the Board of Directors of Kodak on March 1, 1990 (the
"Incumbent Board") have ceased for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to March 1, 1990 whose election, or nomination for election
by Kodak's stockholders, was approved by a vote of at least
three-quarters (3/4) of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of
Kodak in which such person is named as a nominee for director without
objection to such nomination) shall be, for purposes of this clause
(ii), considered as though such person were a member of the Incumbent
Board.
Section 1.5. "Common Stock" means the common stock of Kodak.
Section 1.6. "Deferrable Amount" means the amount of cash compensation
otherwise payable to a Participant (exclusive of expense reimbursements)
for serving on the Board and attending meetings or committee meetings
thereof.
80
Section 1.7. "Deferred Compensation Account" means the account
established by Kodak for each Participant for compensation deferred
pursuant to this Plan. The maintenance of individual Deferred
Compensation Accounts is for bookkeeping purposes only.
Section 1.8. "Enrollment Period" means the period designated by the
Administrator each year; provided however, that the Enrollment Period
for a given calendar year shall always commence and end in the year
immediately prior to such calendar year.
Section 1.9. "Interest Rate" means the base rate, as reported in the
"Money Rates" section of The Wall Street Journal, on corporate loans
posted by at least 75% of the nation's 30 largest banks (known as the
"Prime Rate").
Section 1.10. "Kodak" means Eastman Kodak Company.
Section 1.11. "Market Value" means the mean between the high and low at
which the Common Stock trades on the New York Stock Exchange as quoted
in the New York Stock Exchange Composite Transactions as published in
The Wall Street Journal on the day for which the determination is to be
made or, if such day is not a trading day, the immediately preceding
trading day.
Section 1.12. "Plan" means the Eastman Kodak Company Deferred
Compensation Plan For Directors as adopted by the Board and amended.
Section 1.13. "Participant" means (i) any member of the Board who is
not an employee of Kodak; or (ii) any former member of the Board who has
a balance in an Account under the Plan.
Section 1.14. "Stock Account" means the account established by Kodak
for each Participant, the performance of which shall be measured by
reference to the Market Value of Common Stock. The maintenance of
individual Stock Accounts is for bookkeeping purposes only.
Section 1.15. "Valuation Date" means, with regards to a Participant's
Deferred Compensation Account, the last day of each calendar month and,
with regards to the Participant's Stock Account, the last business day
of each calendar month.
Section 2. Term. The Plan shall become effective January 1, 1979.
Section 3. Participation. Only Participants shall be eligible to
participate in the Plan.
Section 4. Deferral of Compensation. For any given calendar year, a
Participant may elect to defer receipt of all or any portion of his or her
Deferrable Amount to be earned during such year. Any Deferrable Amount which
is so deferred shall be credited to the Participant's Deferred Compensation
Account. A Participant may not defer the receipt of any Deferrable Amounts
directly to his or her Stock Account, but can only transfer amounts to such
Account pursuant to Section 8.
81
Section 5. Time of Election of Deferral. A Participant who wishes to defer
compensation must irrevocably elect to do so during an Enrollment Period.
An election made in accordance with Section 7 below shall be effective for
the calendar year immediately following the Enrollment Period during which
such election was made and for all succeeding calendar years, unless the
Participant revokes his or her election or files a new election during the
Enrollment Period for such a succeeding calendar year. In which case, such
revocation or election, as the case may be, shall be effective on the first
day of such succeeding calendar year.
Section 6. Hypothetical Investments.
Section 6.1. Deferred Compensation Account. Amounts in a Participant's
Deferred Compensation Account are hypothetically invested in an interest
bearing account which bears interest computed at the Interest Rate,
compounded monthly.
Section 6.2. Stock Account. Amounts in a Participant's Stock Account
are hypothetically invested in units of Common Stock. Amounts
transferred to a Stock Account are recorded as units of Common Stock,
and fractions thereof, with one unit equating to a single share of
Common Stock. Thus, the value of one unit shall be the Market Value of
a single share of Common Stock. The use of units is merely a
bookkeeping convenience; the units are not actual shares of Common
Stock. Kodak will not reserve or otherwise set aside any Common Stock
for or to any Stock Account.
Section 7. Manner of Electing Deferral. A Participant may elect to defer
compensation by executing and returning to the Administrator during the
Enrollment Period a deferred compensation form provided by Kodak upon which
the Participant shall indicate the amount of
the Deferrable Amount to be deferred.
Amounts to be deferred shall be credited to the Participant's Deferred
Compensation Account on the date such amounts would otherwise be payable.
Section 8. Investment in the Stock Account.
Section 8.1. Elections. A Participant may direct that all or any
portion, designated as a whole dollar amount, of the existing balance of
one of his or her Accounts be transferred to his or her other Account,
effective as of the close of business on the last day of any calendar
month (hereinafter the election's "Effective Date"), by filing a written
election with the Administrator on or prior to such date.
82
Section 8.2. Election into the Stock Account. If a Participant elects
pursuant to Section 8.1 to transfer an amount from his or her Deferred
Compensation Account to his or her Stock Account, effective as of the
election's Effective Date, (i) his or her Stock Account shall be
credited with that number of units of Common Stock, and fractions
thereof, obtained by dividing the dollar amount elected to be
transferred by the Market Value of the Common Stock on the Valuation
Date immediately preceding or coincident with the election's Effective
Date; and (ii) his or her Deferred Compensation Account shall be reduced
by the amount elected to be transferred.
Section 8.3. Election out of the Stock Account. If a Participant
elects pursuant to Section 8.1 to transfer an amount from his or her
Stock Account to his or her Deferred Compensation Account, effective as
of the election's Effective Date, (i) his or her Deferred Compensation
Account shall be credited with a dollar amount equal to the amount
obtained by multiplying the number of units to be transferred by the
Market Value of the Common Stock on the Valuation Date immediately
preceding or coincident with the election's Effective Date; and (ii) his
or her Stock Account shall be reduced by the number of units elected to
be transferred.
Section 8.4. Dividend Equivalents. Effective as of the payment date
for each cash dividend on the Common Stock, additional units of Common
Stock shall be credited to the Stock Account of each Participant who has
a balance in his or her Stock Account on the record date for such
dividend. The number of units that shall be credited to the Stock
Account of such a Participant shall be computed by multiplying the
dollar value of the dividend paid upon a single share of Common Stock by
the number of units of Common Stock held in the Participant's Stock
Account on the record date for such dividend and dividing the product
thereof by the Market Value of the Common Stock on the payment date for
such dividend.
Section 8.5. Stock Dividends. Effective as of the payment date for
each stock dividend (as defined in Section 305 of the Internal Revenue
Code of 1986) on the Common Stock, additional units of Common Stock
shall be credited to the Stock Account of each Participant who has a
balance in his or her Stock Account on the record date for such
dividend. The number of units that shall be credited to the Stock
Account of such a Participant shall equal the number of shares of Common
Stock which the Participant would have received as stock dividends had
he or she been the owner on the record date for such stock dividend of
the number of shares of Common Stock equal to the number of units
credited to his or her Stock Account on such record date. To the extent
the Participant would have also received cash, in lieu of fractional
shares of Common Stock, had he or she been the record owner of such
shares for such stock dividend, then his or her Stock Account shall also
be credited with that number of units, or fractions thereof, equal to
such cash amount divided by the Market Value of the Common Stock on the
payment date for such dividend.
83
Section 8.6. Recapitalization. If Kodak undergoes a reorganization as
defined in Section 368 (a) of the Internal Revenue Code of 1986, the
Administrator may, in his or her sole and absolute discretion, take
whatever action he or she deems necessary, advisable or appropriate with
respect to the Stock Accounts in order to reflect such transaction,
including, but not limited to, adjusting the number of units credited to
a Participant's Stock Account.
Section 8.7. Distributions. Amounts in respect of units of Common
Stock shall be distributed in cash in accordance with Sections 9, 10 and
17. For purposes of a distribution pursuant to Section 9, 10 or 17, the
number of units to be distributed from a Participant's Stock Account
shall be valued by multiplying the number of such units by the Market
Value of the Common Stock as of the Valuation Date immediately preceding
the date such distribution is to occur. Pending the complete
distribution under Section 9.2 of the Stock Account of a Participant who
is no longer a member of the Board, the Participant shall continue to be
able to make elections pursuant to Sections 8.2 and 8.3 and his or her
Stock Account shall continue to be credited with additional units of
Common Stock pursuant to Sections 8.4, 8.5, and 8.6.
Section 9. Payment of Deferred Compensation.
Section 9.1. Background. No withdrawal may be made from a
Participant's Accounts except as provided in this Section 9 and Sections
10 and 17.
Section 9.2. Manner of Payment. Payment of a Participant's Accounts
shall be made at the sole discretion of the Administrator in a single
sum or in annual installments. The maximum number of annual
installments is ten. All payments from the Plan shall be made in cash.
Section 9.3. Timing of Payments. Payments shall be made on the fifth
business day in March and shall commence in any year designated by the
Administrator up through the tenth year following the year in which the
Participant for any reason ceases to be a member of the Board.
Section 9.4. Valuation. The amount of each payment shall be equal to
the value, as of the immediately preceding Valuation Date, of the
Participant's Accounts, divided by the number of installments remaining
to be paid. If payment of a Participant's Accounts is determined by the
Administrator to be paid in installments and the Participant has a
balance in his or her Stock Account at the time of the payment of an
installment, the amount that shall be distributed from his or her Stock
Account shall be the amount obtained by multiplying the total amount of
the installment determined in accordance with the immediately preceding
sentence by the percentage obtained by dividing the balance in the Stock
Account as of the immediately preceding Valuation Date by the total
value of the Participant's Accounts as of such Valuation Date.
Similarly, in such case, the amount that shall be distributed from the
Participant's Deferred Compensation Account shall be the amount obtained
by multiplying the total amount of the installment determined in
accordance with the first sentence of this Section 9.4 by the percentage
obtained by dividing the balance in the Deferred Compensation Account as
of the immediately preceding Valuation Date by the total value of the
Participant's Accounts as of such Valuation Date.
Section 10. Payment of Deferred Compensation After Death. If a Participant
dies prior to complete payment of his or her Accounts, the provisions of this
Section 10 shall become operative.
84
Section 10.1. Stock Account. Effective as of the date of a
Participant's death, the entire balance of his or her Stock Account
shall be transferred to his or her Deferred Compensation Account. For
purposes of valuing the units of Common Stock subject to such a
transfer, the deceased Participant's Deferred Compensation Account shall
be credited with a dollar amount equal to the amount obtained by
multiplying the number of units in the deceased Participant's Stock
Account at the time of his or her death by the Market Value of the
Common Stock on the date of his or her death. Thereafter, no amounts in
the deceased Participant's Deferred Compensation Account shall be
eligible for transfer to the deceased Participant's Stock Account by any
person, including, but not by way of limitation, the deceased
Participant's beneficiary or legal representative.
Section 10.2. Distribution. The balance of the Participant's Accounts,
valued as of the Valuation Date immediately preceding the date payment
is made, shall be paid in a single, lump-sum payment to: (1) the
beneficiary or contingent beneficiary designated by the Participant in
accordance with Section 10.3; or, in the absence of a valid designation
of a beneficiary or contingent beneficiary, (2) the Participant's estate
within 30 days after appointment of a legal representative of the
deceased Participant.
Section 10.3. Beneficiary Designation. Each Participant shall have the
right, at any time, to designate any person or persons as his or her
Beneficiary or Beneficiaries (both primary and contingent) to whom
payment under this Plan shall be paid in the event of his or her death
prior to complete distribution to the Participant of the benefits due
him or her under the Plan. Each Beneficiary designation shall become
effective only when filed in writing with the Administrator during the
Participant's lifetime on a form provided by the Administrator. The
filing of a new Beneficiary designation form with the Administrator will
cancel all Beneficiary designation(s) previously filed.
Section 11. Participant's Rights Unsecured. The amounts payable under the
Plan shall be unfunded, and the right of any Participant or his or her estate
to receive any payment under the Plan shall be an unsecured claim against the
general assets of Kodak. No Participant shall have the right to exercise any
of the rights or privileges of a shareholder with respect to the units
credited to his or her Stock Account.
85
Section 12. Non-Assignability. The right of a Participant to the payment of
deferred compensation as provided in this Plan shall not be subject in any
manner to alienation, anticipation, sale, transfer (except by will or the laws
of descent and distribution), assignment, pledge, or encumbrance.
Section 13. Statement of Account. Statements will be sent no less
frequently than annually to each Participant or his or her beneficiary or
estate showing the value of the Participant's Accounts.
Section 14. Administration.
Section 14.1. Responsibility. The Administrator of the Plan shall be
the Comptroller of Kodak. The Administrator shall have total and
exclusive responsibility to control, operate, manage and administer the
Plan in accordance with its terms.
Section 14.2. Authority of the Administrator. The Administrator shall
have all the authority that may be necessary or helpful to enable him or
her to discharge his or her responsibilities with respect to the Plan.
Without limiting the generality of the preceding sentence, the
Administrator shall have the exclusive right: to interpret the Plan, to
determine eligibility for participation in the Plan, to decide all
questions concerning eligibility for and the amount of benefits payable
under the Plan, to construe any ambiguous provision of the Plan, to
correct any default, to supply any omission, to reconcile any
inconsistency, and to decide any and all questions arising in the
administration, interpretation, and application of the Plan.
Section 14.3. Discretionary Authority. The Administrator shall have
full discretionary authority in all matters related to the discharge of
his or her responsibilities and the exercise of his or her authority
under the Plan including, without limitation, the construction of the
terms of the Plan and the determination of eligibility for participation
and benefits under the Plan. It is the intent of the Plan that the
decisions of the Administrator and his or her actions with respect to
the Plan shall be final and binding upon all persons having or claiming
to have any right or interest in or under the Plan and that no such
decision or action shall be modified upon judicial review unless such
decision or action is proven to be arbitary or capricious.
Section 14.4. Delegation of Authority. The Administrator may delegate
some or all of his or her authority under the Plan to any person or
persons provided that any such delegation be in writing.
Section 15. Amendment. The Plan may at any time or from time to time be
amended, modified, suspended or terminated by resolution of the Board.
However, no amendment, modification, or termination shall, without the consent
of a Participant, adversely affect such Participant's accruals in his or her
Accounts.
Section 16. Governing Law. The Plan shall be construed, governed and
enforced in accordance with the law of New York State, except as such laws
are preempted by applicable federal law.
86
Section 17. Change in Control.
Section 17.1. Background. Upon a Change In Control: (i) the terms of
this Section 17 shall immediately become operative, without further
action or consent by any person or entity, (ii) all terms, conditions,
restrictions, and limitations in effect on any deferred compensation
shall immediately lapse as of the date of such event; and (iii) no other
terms, conditions, restrictions, and/or limitations shall be imposed
upon any deferred compensation on or after such date, and in no
circumstance shall any Account be forfeited on or after such date.
Section 17.2. Payment of Deferred Compensation. Upon a Change in
Control, each Participant, whether or not he or she is still a member of
the Board, shall be paid in a single, lump-sum cash payment the balance
of his or her Accounts as of the Valuation Date immediately preceding
the date payment is made. Such payment shall be made as soon as
practicable, but in no event later than 90 days after the date of the
Change in Control.
Section 17.3. Amendment On or After Change In Control. Upon a Change
in Control, no action, including, but not by way of limitation, the
amendment, modification, suspension or termination of the Plan, shall be
taken which would affect the rights of any Participant or the operation
of this Plan with respect to the balance in the Participant's Accounts.
Section 18. No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, Kodak and its directors,
officers, agents and employees makes any representation, commitment, or
guarantee that any tax treatment, including, but not limited to, federal,
state and local income, estate and gift tax treatment, will be applicable with
respect to amounts deferred under the Plan, or paid to or for the benefit of a
Participant or Beneficiary under the Plan, or that such tax treatment will
apply to or be available to a Participant or Beneficiary on account of
participation in the Plan.
Section 19. Compliance with Securities Laws. The Board may, from time to
time, impose additional, or modify or eliminate existing, Plan terms,
provisions, restrictions or requirements, including, but not by way of
limitation, the provisions regarding a Participant's ability to elect into and
out of his or her Stock Account under Sections 8.2 and 8.3 or the requirement
of an automatic transfer pursuant to Section 10.1, as it deems necessary,
advisable or appropriate in order to comply with applicable federal or state
securities laws.
87
Exhibit (10) K
BENEFIT PLAN 1I.03
Effective Date: March 1, 1994
No. of Pages: 16
Supplementary Group Life Insurance Plan
Article Page
1. Introduction ................................................... 87
2. Definitions .................................................... 87
3. Eligibility .................................................... 93
4. Amount of Coverage and Cost .................................... 93
5. Beneficiaries .................................................. 95
6. Irrevocable Assignment ......................................... 95
7. Contributions .................................................. 96
8. Payment of Benefits ............................................ 96
9. Maximum Benefits ............................................... 96
10. Coverage--Continuation, Termination, Conversion, On Return to Work 96
11. Administration and General Provisions ........................... 100
ARTICLE 1. INTRODUCTION
The SGLI Plan is designed to help Kodak men and women meet burial and other
last expenses (including bills unpaid at time of death) and to help provide
for the financial security of their surviving dependents.
ARTICLE 2. DEFINITIONS
2.01 Average Weekly Hours
"Average Weekly Hours" means a weekly average obtained by dividing all hours
worked plus all paid absence hours in the previous 52 weeks by weeks out of
the last 52 weeks where work was performed or a paid absence occurred.
2.02 College Cooperative Intern
"College Cooperative Intern" is a college student pursuing studies of interest
to Kodak and who generally works a full-time schedule on an alternate
work/school block basis.
88
2.03 Company
"Company" is Eastman Kodak Company and the following subsidiaries: Eastman
Chemical International Ltd.; Eastman Chemical Products, Inc.; Eastman Gelatine
Corporation; Eastman Kodak International Capital Company, Inc.; Eastman Kodak
International Sales Corporation; Holston Defense Corporation; Kodak Caribbean,
Limited; and Kodak Processing Laboratory, Inc.
2.04 Disabled Person
"Disabled Person" is any person who is approved for benefits under the Kodak
Long Term Disability Plan or the predecessor Total and Permanent Disability
Plan.
2.05 Employee
"Employee" is any person (other than a Limited Service Employee) who is
employed by the Company in the U.S. and is compensated for services in the
form of a salary or an hourly wage. "Employee" also means certain persons
employed abroad by the Company as determined by the Plan Administrator.
2.06 Family Protection Program (FPP)
"Family Protection Program" (FPP) is the program consisting of: Basic Life
Insurance, Contributory Optional Life Insurance, Non-Contributory Optional
Life Insurance, Dependents Life Insurance, Basic Survivor Income Benefit,
Optional Survivor Income Benefit, Occupational Accidental Death Insurance, and
Supplementary Group Life Insurance.
2.07 Insurance Annual Salary Rate
"IASR" or "Insurance Annual Salary Rate" means:
(a) An Employee's individual (hourly) rate in effect on a particular day,
plus the average shift allowance in effect on the same day,
multiplied by:
(1) 2,080 hours for:
(A) Regular Full-Time Employees
(B) Full-Time Provisional Employees
(C) Full-Time Supplementary Employees
(D) Full-Time Special Program Employees
(E) Full-Time Buffer Workers at Eastman Chemical Company
(2) Moving average weekly hours in effect on that day (or normal
scheduled weekly hours up to 40 if the Employee had not been
employed for the full year immediately preceding that day)
multiplied by 52 for:
(A) Nonexempt Regular Part-Time Employees
(B) Nonexempt Part-Time Provisional Employees
(C) Nonexempt Part-Time Supplementary Employees
(D) Nonexempt Part-Time Special Program Employees
(E) Nonexempt Part-Time Employees at Eastman Chemical
Company (for the purpose of calculating Benefits)
89
(3) Normal scheduled weekly hours in effect on that day multiplied
by 52 for:
(A) Exempt Regular Part-Time Employees
(B) Exempt Part-Time Provisional Employees
(C) Exempt Part-Time Supplementary Employees
(D) Exempt Part-Time Special Program Employees
(E) Nonexempt Part-Time Employees at Eastman Chemical
Company (for the purpose of calculating Price Tags)
(4) 1,040 hours for:
(A) College Cooperative Interns
(B) All Employees, other than regular part-time
physicians, whose moving average weekly hours or
normal scheduled hours is less than 20.
(b) An Employee's IASR is rounded to the nearest $100.
(c) When an Employee's employment classification changes from a
part-time class to a full-time class described above, or from a
full-time class to a part-time class described above, the hours
component of IASR is adjusted as of the date of such
reclassification for determining Benefits and Price Tags.
(d) Because the individual rate for certain commission-eligible
employees is reduced below the normal rate for their applicable
salary grade, IASR is adjusted by multiplying the individual rate
times the commission calculating factor for the appropriate
commission plan specified in Compensation Plan 2C1.
(e) Because the base salary rate for each Employee eligible for certain
management performance incentives is reduced below the normal rate
for his applicable salary grade, IASR is adjusted to reflect what
the normal rate would be in the absence of the reduction under the
management performance incentive arrangement.
(f) Because the base salary rate for each Employee of the Eastman
Chemical Company participating in the Success Sharing Program is
reduced below the normal rate for his applicable salary rate, IASR
is adjusted to reflect what the normal rate would be in the absence
of the reduction under the Success Sharing Program.
2.08 Insurance Company
"Insurance Company" is Metropolitan Life Insurance Company, One Madison Avenue,
New York, New York 10010, and any other Insurance Company which may issue one
or more group policies to Eastman Kodak Company for coverage under the
SGLI Plan.
2.09 Key Employee
"Key Employee" is any Employee who meets the criteria of Key Employee as
defined in Section 416(i)(1)(A) of the Internal Revenue Code.
90
2.10 Limited Service Employee
"Limited Service Employee" is a person who is hired by the Company for the
specified purpose of meeting short-term needs of 900 hours or less in any
consecutive 12-month period and who is designated as a Limited Service
Employee when hired.
2.11 Long Term Disability (LTD)
The terms "Long Term Disability" and "LTD" are, for purposes of the SGLI Plan,
restricted to their meanings under the Long Term Disability Plan or any
predecessor thereto.
2.12 Normal Retirement Age
"Normal Retirement Age" is 65 (60, in the case of Employees employed as
aircraft pilots on their 60th birthdays).
2.13 Normal Retirement Date
"Normal Retirement Date" is the first day of the calendar month immediately
following an Employee's or Disabled Person's 65th birthday (60th birthday, in
the case of an Employee employed as an aircraft pilot).
2.14 Plan Administrator
"Plan Administrator" is the person authorized to control and manage the
operation and administration of the SGLI Plan. The current Plan
Administrator, who is also the "named fiduciary" as defined in the Employee
Retirement Income Security Act (ERISA), is the Director, Employee Benefits,
Eastman Kodak Company.
2.15 Regular Full-Time Employee
"Regular Full-Time Employee" is an Employee who does not fall into another
employment classification and who works a schedule of:
40 or more hours per week (shorter time periods where required by law,
by Company needs, or by the Employee's health); or
Alternative work schedules such as alternating 36 and 48 hour workweeks
comprised of 12-hour days.
2.16 Regular Part-Time Employee
"Regular Part-Time Employee" is an Employee who does not fall into another
employment classification and who works a regular schedule of less than 40
hours per week.
91
2.17 Retiree
"Retiree," as used in this Plan, is either:
a) any former Employee or Disabled Person who is eligible to commence a
benefit under the early or normal retirement provisions of the Kodak
Retirement Income Plan or under the provisions of any of the
Company's special early retirement supplement plans (other than
persons retired from Ridge Construction Corporation, Bays Mountain
Construction Company, or Caddo Construction Company); or
b) any former Employee who separated from employment under a special
separation program of the Company with a total of age and service
equal to at least 75 years.
2.18 Special Program Employee
"Special Program Employee" includes the following:
1) Temporary Employee. A "Temporary Employee" is an Employee in the
Eastman Chemical Company who is expected to work a full-time or a
part-time schedule for a specified length of time, which is
normally less than 6 months. Other forms of Temporary
Employee are as follows:
i) Drafting Trainee/Assistant. "Drafting Trainee/Assistant" is a
technical school drafting student working a full-time schedule
for 10 to 12 weeks during the final year of school.
ii) Summer Technical Employee. "Summer Technical Employee" is a
business/technical degree student on a summer work schedule
(including, but not limited to, Kodak Scholars and other
Company-sponsored educational aid program students). A Summer
Technical Employee is similar to an "EK Scholar" or a "Summer
Intern" at other divisions of Eastman Kodak Company.
iii) Study-Work Student. "Study-Work Student" is a high school
vocational student working a part-time schedule in areas
related to his/her curriculum. A Study-Work Student is
similar to a "High School Co-op" or a "High School Intern"
at other divisions of Eastman Kodak Company.
iv) Clerical Assistant Trainee. "Clerical Assistant Trainee" is a
technical school office administrative student who is employed
to work a full-time schedule for one quarter or semester during
the final year of school.
2) High School Co-op. A "High School Co-op" is a high school senior
working a part-time schedule (normally 20 hours per week, but more
hours may be worked during vacation or school breaks, following
graduation, or where school conditions permit). A High School
Co-op is limited to 9 months of employment (a school year) except
where 12 months is needed in special situations.
3) High School Intern. A "High School Intern" is a high school student
working a full-time schedule during summer vacations (including the
summer immediately following graduation), and is generally limited to
8 weeks of employment.
92
4) General Summer Employee. A "General Summer Employee" is a person
hired on a full-time or part-time basis for the summer following the
completion of at least one year of college. Employment of any
individual as a General Summer Employee is limited to two summers.
5) EK Scholar. An "EK Scholar" is a two-year or four-year college
student employed on a full-time basis during the summer or a school
break whose tuition, housing, and miscellaneous expenses may be paid
for by Kodak.
6) PRIS2M. A "PRIS2M" is a third- or fourth-year high school student
with a mathematics and science major, who generally works a part-time
schedule (usually for 8 weeks).
7) Summer (College) Intern. A "Summer (College) Intern" is a college
student pursuing studies of interest to Kodak, who generally works a
full-time schedule during the summer.
8) Teacher Intern. A "Teacher Intern" is a high school or college
teacher hired on a full-time basis, generally for a minimum of 10
weeks up to the length of the summer break.
9) DP2 Intern. A "DP 2 Intern" is a disabled person working full time in
a 10-week training program.
2.19 Spouse
"Spouse" is a Subscriber's husband or wife, including a husband or wife
through common-law marriage.
2.20 Subscriber
"Subscriber" is an Employee or former Employee who is covered under the SGLI
Plan.
2.21 Supplementary Employee
"Supplementary Employee" is an Employee who is classified as a Supplementary
Employee by an agreement and works a full-time or part-time schedule. The
duration of employment with the Company is expected to last no more than 2
years, at which time the individual may be reclassified as a regular employee
or terminated. The termination date originally specified in the agreement may
be extended by the Company for a short duration for business reasons.
2.22 Supplementary Group Life Insurance (SGLI)
Supplementary Group Life Insurance (SGLI) is group term life insurance
designed to provide death benefits for active Employees, Retirees, and
Disabled Persons, based on length of service and annual earnings.
93
ARTICLE 3. ELIGIBILITY
The groups indicated below are eligible to participate in the SGLI Plan:
a) Employees. Employees who:
- were employed by the Company on December 31, 1983;
- were age 55 or older on January 1, 1984;
- enrolled in SGLI before January 1, 1987; and
- had an annual salary at the time of enrollment which equaled or
exceeded the minimum amount identified on the SGLI Eligibility
Schedule issued by the Plan Administrator.
b) Disabled Persons. Disabled persons who were covered under the SGLI
Plan on the effective date of their disability and have been covered on
a continuous basis since that date.
c) Retirees. Retirees who were covered under the SGLI Plan on a
continuous basis since the date which they first became eligible for
coverage through their effective date of retirement. However, anyone
who was a Key Employee on or after January 1, 1984, and who was not age
55 or older on that date may not participate in the SGLI Plan after
December 31, 1986.
ARTICLE 4. AMOUNT OF COVERAGE AND COST
4.01 Coverage for Employees and Disabled Persons
The amount of SGLI for a covered Employee is 2.0 times his IASR. The amount
of coverage for any covered Employee will never be reduced except in the case
of a decrease in IASR because of a general wage decrease.
If a covered Employee becomes disabled under the LTD Plan, the amount of
coverage in force immediately before the effective date of disability will be
continued for the duration of the disability.
4.02 Coverage for Retirees
If retirement occurs prior to age 65 following the completion of 10 or more
years of service, the coverage will be continued in full through age 65. The
coverage in effect at age 65 will be reduced in five equal decrements on the
first of the month following each of the Retiree's 66th through 70th
birthdays.
94
The amount of the reduction varies according to the Retiree's years of
service. The level of coverage at age 70 and later is expressed as a
percentage of the coverage in effect at age 65 as shown in the following
table:
Coverage at Age 70
as a Percentage of
Years of Service Coverage at Age 65*
10 25
11 27 1/2
12 30
13 32 1/2
14 35
15 37 1/2
16 40
17 42 1/2
18 45
19 47 1/2
20 or more 50
*Coverage in retirement will be based on one of two factors, whichever
is more beneficial to the Subscriber:
(1) the amount of coverage at age 65, or
(2) the amount of coverage at retirement.
The higher of these two amounts will be multiplied by the appropriate
percentage from this column (the percentage used is that corresponding to
the Subscriber's years of service, prorated for partial years).
If retirement occurs at age 65 following the completion of 10 or more years of
service, the SGLI coverage will be reduced in five equal decrements so that
coverage at age 70 will be as described in the above table.
If retirement occurs after age 65 following the completion of at least 10 but
less than 20 years of service, the SGLI coverage will be reduced to the level
which would have been in effect had retirement occurred at age 65.
For a retirement occurring after age 65 with the completion of 20 or more
years of service, the coverage in effect at retirement will be reduced on the
first of the month following each of the retiree's birthdays through age 70 in
accordance with the following table:
Ages Level Available
66 1.80 Times IASR
67 1.60 " "
68 1.40 " "
69 1.20 " "
70 & Over 1.00 " "
If a covered Employee completed at least 5 but fewer than 10 years of service
as of the date of retirement, the coverage will be reduced to $1,000 upon
retirement; for those with fewer than 5 years of service, the coverage will be
reduced to $500 upon retirement.
Coverage will be canceled upon retirement if it has not been maintained
continuously since the date on which the Subscriber first became eligible for
coverage.
4.03 Cost
SGLI is non-contributory for Retirees, Disabled Persons while they remain
disabled, and, in some cases, for eligible Employees as specified in Section
10.01.
95
4.04 Contribution Rate for Employees
For covered Employees who are age 60 or older and for covered Key Employees,
regardless of age, the monthly cost of SGLI is 60 cents per $1,000 of
coverage. For covered Employees younger than age 60, the monthly cost of SGLI
is 38 cents per $1,000 of coverage.
Contributions for a year are based on the Employee's IASR as of January 1 of
that year.
ARTICLE 5. BENEFICIARIES
5.01 Beneficiaries
The Subscriber can name one or more primary beneficiaries plus one or more
contingent beneficiaries. If a beneficiary dies before the Subscriber dies,
the rights and interest of that beneficiary automatically terminate.
All beneficiary designations must be made on forms approved by the Plan
Administrator.
5.02 Changing a Beneficiary
A Subscriber can change his SGLI beneficiaries at any time without the consent
of those beneficiaries. All notices of beneficiary change must be made on
forms approved by the Plan Administrator. When the notice of change is
received by the Company, it will take effect on the date the notice was
signed, whether or not the Subscriber is living at the time such notice is
received. However, both the Company and the Insurance Company are discharged
from any further liability if a previously named beneficiary is paid before
the Company receives a change-of-beneficiary form.
5.03 If No Beneficiary is Named
The proceeds of any SGLI in force when the Subscriber dies will be paid to the
beneficiaries. If there is no named beneficiary, if no named beneficiary is
living, or if the beneficiary designation is invalid, payment will be made to
the Subscriber's surviving Spouse; if none, to the Subscriber's surviving
children in equal shares; if none, to the Subscriber's surviving parents in
equal shares; if none, to the Subscriber's estate.
ARTICLE 6. IRREVOCABLE ASSIGNMENT
The Subscriber's rights of ownership in the SGLI coverage may be assigned to
another person or a trust for any purpose except as security for a loan.
Assignments are irrevocable and, to be effective, must be approved by the
Company and the Insurance Company. The rights of ownership include the right
to any future additional amounts of insurance provided by the coverage, the
right
to designate beneficiaries and elect settlement options, and the right to
reduce coverage.
The Company and the Insurance Company assume no responsibility for the
validity, effect, or sufficiency of any assignment for any purpose whatsoever.
96
ARTICLE 7. CONTRIBUTIONS
7.01 First and Last Contribution
Subscriber contributions required for SGLI are taken from the first full week
of coverage through the end of the month in which coverage terminates or,
where coverage changes from contributory to non-contributory, through the end
of the final month of contributory coverage.
ARTICLE 8. PAYMENT OF BENEFITS
Payment of SGLI proceeds may be made under a number of options, including a
lump-sum settlement, periodic installments, a life-income arrangement, an
interest option, or a combination of these. The Subscriber may leave the
election to his beneficiary or he may make his election (revocably or
irrevocably) in advance.
The number and form of the payment options, as well as the applicable interest
rates, can change from time to time as determined by the Insurance Company.
Up-to-date information and election forms are available from a Personnel
Relations representative.
ARTICLE 9. MAXIMUM BENEFITS
For subscribers to the Group Life Insurance/Survivor Benefit Insurance Plans,
the combined maximum allowed under the Group Life Insurance Plan, the Survivor
Benefit Insurance Plan, and SGLI Plan is $1,000,000 with SGLI being limited to
$500,000. If this combined maximum is reached, coverage is reduced in the
following sequence:
a) Survivor Benefit Insurance
b) SGLI
c) Group Life Insurance
For subscribers to the Family Protection Program, the combined maximum amount
payable for Basic Life Insurance, Optional Life Insurance and SGLI is
$3,000,000. If this combined maximum is reached, coverage is reduced in the
following sequence:
a) Optional Life Insurance
b) SGLI
c) Basic Life Insurance
ARTICLE 10. COVERAGE -- CONTINUATION, TERMINATION, CONVERSION,
ON RETURN TO WORK
97
10.01 Coverage Continuation
a) Leave of Absence. If an Employee was a Subscriber immediately before
the leave, SGLI coverage may be continued during the leave if, before
the leave, the Subscriber makes arrangements to pay his contributions
during the leave. Contributions will change if SGLI contribution
rates change during the leave.
If a Subscriber who carried SGLI coverage during a leave fails to
return to work when the leave expires, coverage ends on the last day
of the month in which the leave expires. If, before the leave
expires, the Company receives notification that the Subscriber does
not intend to return to work, coverage ends on the last day of the
month in which such notification is received.
b) Layoff. SGLI coverage continues on a non-contributory basis for four
months after the end of the month in which the layoff commenced.
c) Short-Term Disability. Where the employment of a Subscriber
terminates upon the exhaustion of benefits payable under the
Short-Term Disability Plan and the Subscriber does not qualify for
benefits under the Long-Term Disability Plan, SGLI coverage continues
on a noncontributory basis for two months following the month in which
employment terminates.
d) Retirement or Long Term Disability. If a person was a Subscriber
immediately before his effective date of retirement under the Kodak
Retirement Income Plan or immediately before the date on which he
became a Disabled person, coverage continues as provided in Sections
4.01 and 4.02.
e) Termination Under Special Separation Plans. The Company may, at its
option, extend coverage on a non-contributory basis for eligible
Employees whose employment terminates under any special separation
plan, special early retirement plan, or special early retirement
supplement plan.
f) Divestiture. Where the employment of a Subscriber is terminated by
his or her Company due to a "divestiture," as defined in Section
10.05, by such Company and the Subscriber is not offered an
"equivalent job," as hereafter defined, in the same geographic area by
the acquirer, purchaser or other transferee of the division, business,
function, facility, unit or group of assets sold or otherwise disposed
of by way of the "divestiture," the SGLI coverage continues on a
noncontributory basis for the two (2) months following the month in
which employment terminates. For purposes of this Article 10, an
"equivalent job" means any job whose base rate is within ten percent
(10%) of current base rate; except that in the Eastman Chemicals
Division, "equivalent job" means any job whose base rate is within ten
percent (10%) of the highest base rate held during the preceding
twelve (12) months.
g) Completion of Supplementary, Provisional or Special Program
Employment. Supplementary Group Life Insurance coverage continues, on
a non-contributory basis, until the end of the month in which
supplementary or special program employment terminates. However, if a
Subscriber accepts a transfer to a position as a Supplementary,
Provisional or Special Program Employee in lieu of layoff or
termination under a special separation plan, he will have SGLI
coverage on a non-contributory basis at the end of the supplementary,
provisional or special program employment for the period of time that
such coverage would have been available had he been laid off or
terminated under a special separation plan.
98
10.02 When Coverage Ends
SGLI coverage ends at midnight on the last day of the month in which the
earliest of the following dates occurs:
a) The coverage termination date communicated by the Subscriber to the
Company in a written notice.
b) The date on which employment is terminated except as specified in
Section 10.01.
c) The date on which the group policy is discontinued.
SGLI coverage also ends at midnight on the last day of the month in which the
earlier of the following events occurs:
a) The Subscriber fails to make a required monthly contribution for
contributory coverages.
b) The Employee-Subscriber who has not maintained continuous coverage
under SGLI retires.
10.03 Conversion Privilege
A conversion privilege is available for Supplementary Group Life Insurance
when coverage ceases or is reduced under the circumstances described below:
a) Employment is Terminated. If employment terminates for any reason,
coverage may be continued under an individual life insurance policy,
without disability or accidental death benefits. The policy may be in
any form customarily issued by the Insurance Company, except term
insurance. A Subscriber may, however, elect a term insurance policy
for a period of up to one year. The amount of such individual policy
will be equal to (or at the Subscriber's option, less than) the amount
of his coverage in effect on his employment termination date.
b) The Group Policy is Terminated. If the group policy is terminated,
then a Subscriber may obtain an individual policy of life insurance,
subject to the same terms and conditions as upon cessation of such
coverage due to termination of employment. However, the amount of
such individual policy will not exceed the amount of the coverage
under the group policy on the date of cessation of such coverage,
reduced by any amount of coverage for which he may be or may become
eligible under any group policy issued or reinstated by the Insurance
Company or any other insurer within 45 days after such cessation.
99
c) Attainment of Certain Ages. If the amount of a Subscriber's coverage
is reduced, for any reason upon attainment of age 65 or later, by at
least twenty percent (20%), the life insurance conversion privilege
described above will be available to him on the date of the reduction.
The twenty percent (20%) may be the result of one reduction or a
series of smaller reductions. For any subsequent reduction in the
amount of his coverage which is at least twenty percent (20%), the
conversion privilege will again be available. The amount of any
individual policy issued, as a result of any reduction, will not be
more than the amount of the reduction. However, in the event that the
Subscriber does not apply for that amount during the conversion period
described below, he will not be able to apply for that amount during a
later conversion period which may be available to him.
Conversion periods begin on the first day following the day on which coverage
terminates or is reduced by at least twenty percent (20%) and end 31 days
thereafter. If the Subscriber should die during a conversion period, the
amount of his coverage will be payable to his beneficiary whether or not he
applied for an individual policy.
If a Subscriber is not given written notice at least 15 days before or after
the first day of the conversion period of the right to obtain an individual
life insurance policy, he will have additional time in which to apply for such
a policy. If such notice is given more than 15 days but less than 90 days
after the first day of the conversion period, he will then have 45 days from
the date notice is given in which to apply for an individual policy. In no
event may a Subscriber apply later than the 90th day after the first day of
the conversion period.
In any of the cases described above, to obtain an individual policy, a
Subscriber must apply to the Insurance Company in writing and must pay the
applicable premium no later than the last day of the conversion period. The
individual policy will become effective when the group coverage terminates.
10.04 Coverage on Return to Work After Termination or Leave of Absence
Continued participation in SGLI on reemployment, reinstatement (including
return from retirement or Long-Term Disability), or return from leave of
absence is based on the following provisions:
a) If a person was covered under the SGLI Plan continuously from the date
of leaving to the date of return and meets the requirements of Article
3 at the time of returning, such coverage is continued upon return.
b) In all other cases, this coverage is not available upon return to
work.
10.05 Divestiture
Except to the extent expressly provided in Section 10.01(f), a Subscriber
whose employment by his or her Company is terminated due to a "divestiture,"
as defined below, by such Company is no longer eligible for SGLI coverage and,
therefore, his or her coverage(s) shall end as specified in Section 10.02.
For purposes of this Article 10, the term "divestiture" shall mean the sale or
other disposition, other than a sale or disposition of a subsidiary company or
venture, by a Company of a division, business, function, facility or unit or
other group of assets.
100
ARTICLE 11. ADMINISTRATION AND GENERAL PROVISIONS
Whenever a covered Employee or covered Disabled Person retires, insurance
certificates are provided describing the provisions that apply specifically to
him.
11.01 Plan Amendment, Suspension, or Termination
Eastman Kodak Company may amend, suspend, or terminate the Plan in whole or in
part at any time, for any reason. For purposes of ERISA Section 402(b)(3),
the procedure for amending, suspending and terminating the Plan is the
adoption of a resolution by the Board or Benefit Plans Committee to such
effect. A resolution is considered adopted when a majority of the members of
the Board or Benefit Plans Committee approve of the resolution by voice or
written vote at a Board or Committee meeting, whichever is applicable, or if
no meeting is held, the resolution is in writing and signed by all of the
members of the Board or
Benefit Plans Committee.
11.02 Claims and Appeal Procedures
The claims and appeal procedures are described in the General Administration
section of You and Kodak.
11.03 Governing Law
This document shall be construed in accordance with the laws of New York
State, except where the law of some other jurisdiction must be applied in
respect of individual Subscribers or those claiming under or through them, and
except as such laws are preempted by ERISA.
11.04 Gender and Number
Throughout this document, the masculine includes the feminine and the singular
includes the plural unless the context indicates otherwise.
EMPLOYEE BENEFITS
EASTMAN KODAK COMPANY
101
Exhibit (10) L
1990 OMNIBUS LONG-TERM COMPENSATION PLAN
EASTMAN KODAK COMPANY
Effective March 10, 1994
102
1990 OMNIBUS LONG-TERM COMPENSATION PLAN March 10, 1994
TABLE OF CONTENTS
Paragraph Title Page
1 Purpose 103
2 Definitions 103
3 Administration 105
4 Eligibility 105
5 Shares Available 106
6 Term 106
7 Participation 106
8 Stock Options 106
9 Stock Appreciation Rights 107
10 Stock Awards 108
11 Performance Units 108
12 Performance Shares 109
13 Payment of Awards 109
14 Dividends and Dividend Equivalents 110
15 Deferral of Awards 110
16 Termination of Employment 110
17 Nonassignability 110
18 Adjustment of Shares Available 111
19 Withholding Taxes 111
20 Noncompetition Provision 111
21 Amendments to Awards 111
22 Regulatory Approvals and Listings 112
23 No Right to Continued Employment
or Grants 112
24 Amendment 112
25 Governing Law 112
26 Change in Ownership 112
27 Change in Control 114
28 No Right, Title, or Interest in
Company Assets 115
29 Gender 115
103
EASTMAN KODAK COMPANY
1990 OMNIBUS LONG-TERM COMPENSATION PLAN
1. Purpose
The purpose of the Plan is to provide motivation to Key Employees of the
Company and its subsidiaries to put forth maximum efforts toward the continued
growth, profitability, and success of the Company and its Subsidiaries by
providing incentives to such Key Employees through the ownership and
performance of the Common Stock of the Company. Toward this objective, the
Committee may grant stock options, stock appreciation rights, Stock Awards,
performance units, performance shares, and/or other incentive awards to Key
Employees of the Company and its Subsidiaries on the terms and subject to the
conditions set forth in the Plan.
2. Definitions
2.1 "Award" means any form of stock option, stock appreciation right,
Stock Award, performance unit, performance shares, or other incentive
award granted under the Plan, whether singly, in combination, or in
tandem, to a Participant by the Committee pursuant to such terms,
conditions, restrictions and/or limitations, if any, as the Committee
may establish by the Award Notice or otherwise.
2.2 "Award Notice" means a written notice from the Company to a
Participant that establishes the terms, conditions, restrictions,
and/or limitations applicable to an Award in addition to those
established by this Plan and by the Committee's exercise of its
administrative powers.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means (a) the willful and continued failure by a Key Employee
to substantially perform his duties with his employer after written
warnings identifying the lack of substantial performance are delivered
to the Key Employee by his employer to specifically identify the
manner in which the employer believes that the Key Employee has not
substantially performed his duties, or (b) the willful engaging by a
Key Employee in illegal conduct which is materially and demonstrably
injurious to the Company or a Subsidiary.
2.5 "Change In Control" means a change in control of the Company of a
nature that would be required to be reported (assuming such event has
not been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on August 1, 1989, pursuant
to Section 13 or 15(d) of the Exchange Act; provided that, without
limitation, a Change In Control shall be deemed to have occurred at
such time as (i) any "person" within the meaning of Section 14(d) of
the Exchange Act, other than the Company, a subsidiary of the Company,
or any employee benefit plan(s) sponsored by the Company or any
subsidiary of the Company, is or has become the "beneficial owner", as
defined in Rule 13d-3 under the Exchange Act, directly or indirectly,
of 25% or more of the combined voting power of the outstanding
securities of the Company ordinarily having the right to vote at the
election of directors, or (ii) individuals who constitute the Board on
February 1, 1990 (the "Incumbent Board") have ceased for any reason to
constitute at least a majority thereof, provided that any person
becoming a director subsequent to February 1, 1990 whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a
nominee for director without objection to such nomination) shall be,
for purposes of this Plan, considered as though such person were a
member of the Incumbent Board.
104
2.6 "Change In Control Price" means the highest closing price per share
paid for the purchase of Common Stock on the New York Stock Exchange
during the ninety (90) day period ending on the date the Change In
Control occurs.
2.7 "Change In Ownership" means a Change In Control which results directly
or indirectly in the Company's Common Stock ceasing to be actively
traded on the New York Stock Exchange.
2.8 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.9 "Committee" means the Compensation Committee of the Board or such
other committee designated by the Board, authorized to administer the
Plan under paragraph 3 hereof. The Committee shall consist of not
less than three members. A member of the Committee shall not be, and
shall not within one year prior to appointment to the Committee have
been, eligible to be selected to participate in the Plan or any other
plan of the Company or any of its affiliates entitling participants to
acquire stock, stock options, or stock appreciation rights of the
Company or its affiliates.
2.10 "Common Stock" means common stock of the Company.
2.11 "Company" means Eastman Kodak Company.
2.12 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
2.13 "Key Employee" means an employee of the Company or a Subsidiary who
holds a position of responsibility in a managerial, administrative, or
professional capacity, and whose performance, as determined by the
Committee in the exercise of its sole and absolute discretion, can
have a significant effect on the growth, profitability, and success of
the Company.
2.14 "Participant" means any individual to whom an Award has been granted
by the Committee under this Plan.
2.15 "Plan" means the Eastman Kodak Company 1990 Omnibus Long-Term
Compensation Plan.
2.16 "Stock Award" means an award granted pursuant to paragraph 10 hereof
in the form of shares of Common Stock, restricted shares of Common
Stock, and/or Units of Common Stock.
2.17 "Subsidiary" means a corporation or other business entity in which the
Company directly or indirectly has an ownership interest of 80 percent
or more.
2.18 "Unit" means a bookkeeping entry used by the Company to record and
account for the grant of the following Awards until such time as the
Award is paid, cancelled, forfeited or terminated, as the case may be;
Units of Common Stock, performance units, and performance shares which
are expressed in terms of Units of Common Stock.
105
3. Administration
The Plan shall be administered by the Committee. The Committee shall have the
authority to: (a) interpret the Plan; (b) establish such rules and
regulations as it deems necessary for the proper operation and administration
of the Plan; (c) select Key Employees to receive Awards under the Plan; (d)
determine the form of an Award, whether a stock option, stock appreciation
right, Stock Award, performance unit, performance share, or other incentive
award established by the Committee in accordance with (h) below, the number of
shares or Units subject to the Award, all the terms, conditions, restrictions
and/or limitations, if any, of an Award, including the time and conditions of
exercise or vesting, and the terms of any Award Notice; (e) determine whether
Awards should be granted singly, in combination or in tandem; (f) grant
waivers of Plan terms, conditions, restrictions, and limitations; (g)
accelerate the vesting, exercise, or payment of an Award or the performance
period of an Award when such action or actions would be in the best interest
of the Company; (h) establish such other types of Awards, besides those
specifically enumerated in paragraph 2.1 hereof, which the Committee
determines are consistent with the Plan's purpose; and (i) take any and all
other action it deems necessary or advisable for the proper operation or
administration of the Plan. In addition, in order to enable Key Employees who
are foreign nationals or are employed outside the United States or both to
receive Awards under the Plan, the Committee may adopt such amendments,
procedures, regulations, subplans and the like as are necessary or advisable,
in the opinion of the Committee, to effectuate the purposes of the Plan. The
Committee shall also have the authority to grant Awards in replacement of
Awards previously granted under this Plan or any other executive compensation
plan of the Company or a Subsidiary. All determinations of the Committee
shall be made by a majority of its members, and its determinations shall be
final, binding and conclusive.
The Committee, in its discretion, may delegate its authority and duties under
the Plan to the Chief Executive Officer and/or to other senior officers of the
Company under such conditions and/or limitations as the Committee may
establish; provided, however, that only the Committee may select and grant
Awards to Participants who are subject to Section 16 of the Exchange Act.
4. Eligibility
Any Key Employee is eligible to become a Participant of the Plan.
In addition, any individual who on the effective date of the Plan is both (i)
a former Key Employee of the Company or a Subsidiary, and (ii) a participant
under the Eastman Kodak Company 1985 Long-Term Performance Award Plan (the
"1985 Plan"), shall be eligible to become a Participant of the Plan. However,
the participation of any such individual under the Plan shall be limited
solely to receiving Awards granted by the Committee under this Plan in
replacement of any unpaid or unearned award under the 1985 Plan on the
effective date of the Plan.
106
5. Shares Available
The maximum number of shares of Common Stock, $2.50 par value per share, of
the Company which shall be available for grant of Awards under the Plan
(including incentive stock options) during its term shall not exceed
Twenty-Two Million Thirty-Three Thousand and Six Hundred (22,033,600). (Such
amount shall be subject to adjustment as provided in paragraph 18.) Any
shares of Common Stock related to Awards which terminate by expiration,
forfeiture, cancellation or otherwise without the issuance of such shares, are
settled in cash in lieu of Common Stock, or are exchanged with the Committee's
permission for Awards not involving Common Stock, shall be available again for
grant under the Plan. Further, any shares of Common Stock which are used by a
Participant for the full or partial payment to the Company of the purchase
price of shares of Common Stock upon exercise of a stock option, or for any
withholding taxes due as a result of such exercise, shall again be available
for Awards under the Plan. Similarly, shares of Common Stock with respect to
which an SAR has been exercised and paid in cash shall again be eligible for
grant under the Plan. The shares of Common Stock available for issuance under
the Plan may be authorized and unissued shares or treasury shares.
6. Term
The Plan shall become effective as of February 1, 1990, subject to its
approval by the Company's shareholders at the 1990 annual meeting. No awards
shall be exercisable or payable before approval of the Plan has been obtained
from the Company's shareholders. Awards shall not be granted pursuant to the
Plan after January 31, 1995.
7. Participation
The Committee shall select, from time to time, Participants from those Key
Employees who, in the opinion of the Committee, can further the Plan's
purposes. Once a Participant is so selected, the Committee shall determine
the type or types of Awards to be made to the Participant and shall establish
in the related Award Notices the terms, conditions, restrictions and/or
limitations, if any, applicable to the Awards in addition to those set forth
in this Plan and the administrative rules and regulations issued by the
Committee.
8. Stock Options
(a) Grants. Awards may be granted in the form of stock options. These
stock options may be incentive stock options within the meaning of
Section 422A of the Code or non-qualified stock options (i.e., stock
options which are not incentive stock options), or a combination of
both.
(b) Terms and Conditions of Options. An option shall be exercisable in
whole or in such installments and at such times as may be determined
by the Committee. The price at which Common Stock may be purchased
upon exercise of a stock option shall be established by the Committee,
but such price shall not be less than 50 percent of the fair market
value of the Common Stock, as determined by the Committee, on the date
of the stock option's grant.
107
(c) Restrictions Relating to Incentive Stock Options. Stock options
issued in the form of incentive stock options shall, in addition to
being subject to all applicable terms, conditions, restrictions and/or
limitations established by the Committee, comply with Section 422A of
the Code. Accordingly, the aggregate fair market value (determined at
the time the option was granted) of the Common Stock with respect to
which incentive stock options are exercisable for the first time by a
Participant during any calendar year (under this Plan or any other
plan of the Company or any of its Subsidiaries) shall not exceed
$100,000 (or such other limit as may be required by the Code).
Further, the per-share option price of an incentive stock option shall
not be less than 100 percent of the fair market value of the Common
Stock, as determined by the Committee, on the date of grant. Also,
each option shall expire not later than ten years from its date of
grant. The number of shares of Common Stock that shall be available
for incentive stock options granted under the Plan is 16,000,000.
(d) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any stock option Award,
provided they are not inconsistent with the Plan.
(e) Exercise. Upon exercise, the option price of a stock option may be
paid in cash, shares of Common Stock, shares of restricted Common
Stock, a combination of the foregoing, or such other consideration as
the Committee may deem appropriate. The Committee shall establish
appropriate methods for accepting Common Stock, whether restricted or
unrestricted, and may impose such conditions as it deems appropriate
on the use of such Common Stock to exercise a stock option.
9. Stock Appreciation Rights
(a) Grants. Awards may be granted in the form of stock appreciation
rights ("SARs"). An SAR may be granted in tandem with all or a
portion of a related stock option under the Plan ("Tandem SARs"), or
may be granted separately ("Freestanding SARs"). A Tandem SAR may be
granted either at the time of the grant of the related stock option or
at any time thereafter during the term of the stock option. SARs
shall entitle the recipient to receive a payment equal to the
appreciation in market value of a stated number of shares of Common
Stock from the exercise price to the market value on the date of
exercise. In the case of SARs granted in tandem with stock options
granted prior to the grant of such SARs, the appreciation in value is
from the option price of such related stock option to the market value
on the date of exercise.
(b) Terms and Conditions of Tandem SARs. A Tandem SAR shall be
exercisable to the extent, and only to the extent, that the related
stock option is exercisable, and the "exercise price" of such an SAR
(the base from which the value of the SAR is measured at its exercise)
shall be the option price under the related stock option. However, at
no time shall a Tandem SAR be issued if the option price of its
related stock option is less than 50 percent of the fair market value
of the Common Stock, as determined by the Committee, on the date of
the Tandem SAR's grant. If a related stock option is exercised as to
some or all of the shares covered by the Award, the related Tandem
SAR, if any, shall be cancelled automatically to the extent of the
number of shares covered by the stock option exercise. Upon exercise
of a Tandem SAR as to some or all of the shares covered by the Award,
the related stock option shall be cancelled automatically to the
extent of the number of shares covered by such exercise, and such
shares shall again be eligible for grant in accordance with paragraph
5 hereof, except to the extent any shares of Common Stock are issued
to settle the SAR.
108
(c) Terms and Conditions of Freestanding SARs. Freestanding SARs shall be
exercisable in whole or in such installments and at such times as may
be determined by the Committee. The exercise price of a Freestanding
SAR shall also be determined by the Committee; provided, however, that
such price shall not be less than 50 percent of the fair market value
of the Common Stock, as determined by the Committee, on the date of
the Freestanding SAR's grant.
(d) Deemed Exercise. The Committee may provide that an SAR shall be
deemed to be exercised at the close of business on the scheduled
expiration date of such SAR if at such time the SAR by its terms
remains exercisable and, if so exercised, would result in a payment to
the holder of such SAR.
(e) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, determine such other terms, conditions,
restrictions and/or limitations, if any, of any SAR Award, provided
they are not inconsistent with the Plan.
10. Stock Awards
(a) Grants. Awards may be granted in the form of Stock Awards. Stock
Awards shall be awarded in such numbers and at such times during the
term of the Plan as the Committee shall determine.
(b) Award Restrictions. Stock Awards shall be subject to such terms,
conditions, restrictions, and/or limitations, if any, as the Committee
deems appropriate including, but not by way of limitation,
restrictions on transferability and continued employment. The
Committee may modify or accelerate the delivery of a Stock Award under
such circumstances as it deems appropriate.
(c) Rights as Shareholders. During the period in which any restricted
shares of Common Stock are subject to the restrictions imposed under
paragraph 10(b), the Committee may, in its discretion, grant to the
Participant to whom such restricted shares have been awarded all or
any of the rights of a shareholder with respect to such shares,
including, but not by way of limitation, the right to vote such shares
and to receive dividends.
(d) Evidence of Award. Any stock award granted under the Plan may be
evidenced in such manner as the Committee deems appropriate,
including, without limitation, book-entry registration or issuance of
a stock certificate or certificates.
11. Performance Units
109
(a) Grants. Awards may be granted in the form of performance units.
Performance units, as that term is used in this Plan, shall refer to
Units valued by reference to designated criteria established by the
Committee, other than Common Stock.
(b) Performance Criteria. Performance units shall be contingent on the
attainment during a performance period of certain performance
objectives. The length of the performance period, the performance
objectives to be achieved during the performance period, and the
measure of whether and to what degree such objectives have been
attained shall be conclusively determined by the Committee in the
exercise of its absolute discretion. Performance objectives may be
revised by the Committee, at such times as it deems appropriate during
the performance period, in order to take into consideration any
unforeseen events or changes in circumstances.
(c) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, determine such other terms, conditions,
restrictions, and/or limitations, if any, of any Award of performance
units, provided they are not inconsistent with the Plan.
12. Performance Shares
(a) Grants. Awards may be granted in the form of performance shares.
Performance shares, as that term is used in this Plan, shall refer to
shares of Common Stock or Units which are expressed in terms of Common
Stock.
(b) Performance Criteria. Performance shares shall be contingent upon the
attainment during a performance period of certain performance
objectives. The length of the performance period, the performance
objectives to be achieved during the performance period, and the
measure of whether and to what degree such objectives have been
attained shall be conclusively determined by the Committee in the
exercise of its absolute discretion. Performance objectives may be
revised by the Committee, at such times as it deems appropriate during
the performance period, in order to take into consideration any
unforeseen events or changes in circumstances.
(c) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, determine such other terms, conditions,
restrictions and/or limitations, if any, of any Award of performance
shares, provided they are not inconsistent with the Plan.
13. Payment of Awards
At the discretion of the Committee, payment of Awards may be made in cash,
Common Stock, a combination of cash and Common Stock, or any other form of
property as the Committee shall determine. In addition, payment of Awards may
include such terms, conditions, restrictions and/or limitations, if any, as
the Committee deems appropriate, including, in the case of Awards paid in the
form of Common Stock, restrictions on transfer and forfeiture provisions.
Further, payment of Awards may be made in the form of a lump sum or
installments, as determined by the Committee.
110
14. Dividends and Dividend Equivalents
If an Award is granted in the form of a Stock Award, stock option, or
performance share, or in the form of any other stock-based grant, the
Committee may choose, at the time of the grant of the Award or any time
thereafter up to the time of the Award's payment, to include as part of such
Award an entitlement to receive dividends or dividend equivalents, subject to
such terms, conditions, restrictions and/or limitations, if any, as the
Committee may establish. Dividends and dividend equivalents shall be paid in
such form and manner (i.e., lump sum or installments), and at such time as the
Committee shall determine. All dividends or dividend equivalents which are
not paid currently may, at the Committee's discretion, accrue interest, be
reinvested into additional shares of Common Stock or, in the case of dividends
or dividend equivalents credited in connection with performance shares, be
credited as additional performance shares and paid to the Participant if and
when, and to the extent that, payment is made pursuant to such Award.
15. Deferral of Awards
At the discretion of the Committee, payment of a Stock Award, performance
share, performance unit, dividend, dividend equivalent, or any portion thereof
may be deferred by a Participant until such time as the Committee may
establish. All such deferrals shall be accomplished by the delivery of a
written, irrevocable election by the Participant prior to the time such
payment would otherwise be made, on a form provided by the Company. Further,
all deferrals shall be made in accordance with administrative guidelines
established by the Committee to ensure that such deferrals comply with all
applicable requirements of the Code and its regulations. Deferred payments
shall be paid in a lump sum or installments, as determined by the Committee.
The Committee may also credit interest, at such rates to be determined by the
Committee, on cash payments that are deferred and credit dividends or dividend
equivalents on deferred payments denominated in the form of Common Stock.
16. Termination of Employment
If a Participant's employment with the Company or a Subsidiary terminates for
a reason other than death, disability, retirement, or any approved reason, all
unexercised, unearned, and/or unpaid Awards, including, but not by way of
limitation, Awards earned but not yet paid, all unpaid dividends and dividend
equivalents, and all interest accrued on the foregoing shall be cancelled or
forfeited, as the case may be, unless the Participant's Award Notice provides
otherwise. The Committee shall have the authority to promulgate rules and
regulations to
(i) determine what events constitute disability, retirement, or termination
for an approved reason for purposes of the Plan, and (ii) determine the
treatment of a Participant under the Plan in the event of his death,
disability, retirement or termination for an approved reason. Anything herein
to the contrary notwithstanding, Participants who cease to be employed by the
Company or a Subsidiary and are employed by Eastman Chemical Company or one of
its subsidiaries in connection with the distribution of the common stock of
Eastman Chemical Company to the shareholders of the Company, shall not be
deemed to have terminated employment for purposes of this Plan and all Awards
outstanding on the date of such distribution.
17. Nonassignability
No Awards or any other payment under the Plan shall be subject in any manner
to alienation, anticipation, sale, transfer (except by will or the laws of
descent and distribution), assignment, pledge, or encumbrance, nor shall any
Award be payable to or exercisable by anyone other than the Participant to
whom it was granted.
111
18. Adjustment of Shares Available
If there is any change in the number of outstanding shares of Common Stock
through the declaration of stock dividends, stock splits or the like, the
number of shares available for Awards, the shares subject to any Award and the
option prices or exercise prices of Awards shall be automatically adjusted.
If there is any change in the number of outstanding shares of Common Stock
through any change in the capital account of the Company, or through any other
transaction referred to in Section 425(a) of the Code, the Committee shall
make appropriate adjustments in the maximum number of shares of Common Stock
which may be issued under the Plan and any adjustments and/or modifications to
outstanding Awards as it deems appropriate. In the event of any other change
in the capital structure or in the Common Stock of the Company, the Committee
shall also be authorized to make such appropriate adjustments in the maximum
number of shares of Common Stock available for issuance under the Plan and any
adjustments and/or modifications to outstanding Awards as it deems
appropriate.
19. Withholding Taxes
The Company shall be entitled to deduct from any payment under the Plan,
regardless of the form of such payment, the amount of all applicable income
and employment taxes required by law to be withheld with respect to such
payment or may require the Participant to pay to it such tax prior to and as a
condition of the making of such payment. In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a
Participant to pay the amount of taxes required by law to be withheld from an
Award by withholding from any payment of Common Stock due as a result of such
Award, or by permitting the Participant to deliver to the Company, shares of
Common Stock having a fair market value, as determined by the Committee, equal
to the amount of such required withholding taxes.
20. Noncompetition Provision
Unless the Award Notice specifies otherwise, a Participant shall forfeit all
unexercised, unearned, and/or unpaid Awards, including, but not by way of
limitation, Awards earned but not yet paid, all unpaid dividends and dividend
equivalents, and all interest, if any, accrued on the foregoing if, (i) in the
opinion of the Committee, the Participant, without the written consent of the
Company, engages directly or indirectly in any manner or capacity as
principal, agent, partner, officer, director, employee, or otherwise, in any
business or activity competitive with the business conducted by the Company or
any Subsidiary; or (ii) the Participant performs any act or engages in any
activity which in the opinion of the Chief Executive Officer of the Company is
inimical to the best interests of the Company. In addition, the Committee
may, in its discretion, condition the deferral of any Award, dividend, or
dividend equivalent under paragraph 15 hereof on a Participant's compliance
with the terms of this paragraph 20, and cause such a Participant to forfeit
any payment which is so deferred if the Participant fails to comply with the
terms hereof.
21. Amendments to Awards
The Committee may at any time unilaterally amend any unexercised, unearned, or
unpaid Award, including, but not by way of limitation, Awards earned but not
yet paid, to the extent it deems appropriate; provided, however, that any such
amendment which, in the opinion of the Committee, is adverse to the
Participant shall require the Participant's consent.
112
22. Regulatory Approvals and Listings
Notwithstanding anything contained in this Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates of Common Stock
evidencing Stock Awards or any other Award resulting in the payment of Common
Stock prior to (a) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable, (b) the admission of such shares to listing on the stock exchange
on which the Common Stock may be listed, and (c) the completion of any
registration or other qualification of said shares under any state or federal
law or ruling of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
23. No Right to Continued Employment or Grants
Participation in the Plan shall not give any Key Employee any right to remain
in the employ of the Company or any Subsidiary. The Company or, in the case
of employment with a Subsidiary, the Subsidiary, reserves the right to
terminate any Key Employee at any time. Further, the adoption of this Plan
shall not be deemed to give any Key Employee or any other individual any right
to be selected as a Participant or to be granted an Award.
24. Amendment
The Benefit Plans Committee of the Company may suspend or terminate the Plan
at any time. In addition, the Benefit Plans Committee of the Company may,
from time to time, amend the Plan in any manner, but may not without
shareholder approval adopt any amendment which would (a) materially increase
the benefits accruing to Participants under the Plan, (b) materially increase
the number of shares of Common Stock which may be issued under the Plan
(except as specified in paragraph 18), or (c) materially modify the
requirements as to eligibility for participation in the Plan.
25. Governing Law
The Plan shall be governed by and construed in accordance with the laws of the
State of New York, except as superseded by applicable Federal Law.
26. Change In Ownership
(a) Background. Upon a Change In Ownership: (i) the terms of this
paragraph 26 shall immediately become operative, without further
action or consent by any person or entity; (ii) all terms, conditions,
restrictions, and limitations in effect on any unexercised, unearned,
unpaid, and/or deferred Award, or any other outstanding Award, shall
immediately lapse as of the date of such event; (iii) no other terms,
conditions, restrictions and/or limitations shall be imposed upon any
Awards on or after such date, and in no circumstance shall an Award be
forfeited on or after such date; (iv) all unexercised, unvested,
unearned, and/or unpaid Awards or any other outstanding Awards shall
automatically become one hundred percent (100%) vested immediately.
(b) Dividends and Dividend Equivalents. Upon a Change In Ownership, all
unpaid dividends and dividend equivalents and all interest accrued
thereon, if any, shall be treated and paid under this paragraph 26 in
the identical manner and time as the Award under which such dividends
or dividend equivalents have been credited. For example, if upon a
Change In Ownership, an Award under this paragraph 26 is to be paid in
a prorated fashion, all unpaid dividends and dividend equivalents with
respect to such Award shall be paid according to the same formula used
to determine the amount of such prorated Award.
113
(c) Treatment of Performance Units and Performance Shares. If a Change In
Ownership occurs during the term of one or more performance periods
for which the Committee has granted performance units and/or
performance shares (hereinafter a "current performance period"), the
term of each such performance period shall immediately terminate upon
the occurrence of such event. Upon a Change In Ownership, for each
"current performance period" and each completed performance period for
which the Committee has not on or before such date made a
determination as to whether and to what degree the performance
objectives for such period have been attained (hereinafter a
"completed performance period"), it shall be assumed that the
performance objectives have been attained at a level of one hundred
percent (100%) or the equivalent thereof.
A Participant in one or more "current performance periods" shall be
considered to have earned and, therefore, be entitled to receive, a
prorated portion of the Awards previously granted to him for each such
performance period. Such prorated portion shall be determined by
multiplying the number of performance shares or performance units, as
the case may be, granted to the Participant by a fraction, the
numerator of which is the total number of whole and partial years
(with each partial year being treated as a whole year) that have
elapsed since the beginning of the performance period, and the
denominator of which is the total number of years in such performance
period.
A Participant in one or more "completed performance periods" shall be
considered to have earned and, therefore, be entitled to receive all
the performance shares or performance units, as the case may be,
previously granted to him during each such performance period.
(d) Valuation of Awards. Upon a Change In Ownership, all outstanding
Units of Common Stock, Freestanding SARs, stock options (including
incentive stock options), and performance shares (including those
earned as a result of the application of paragraph 26(c) above) and
all other outstanding stock-based Awards, including those granted by
the Committee pursuant to its authority under paragraph 3(h) hereof,
shall be valued and cashed out on the basis of the Change In Control
Price.
(e) Payment of Awards. Upon a Change In Ownership, any Participant,
whether or not he is still employed by the Company or a Subsidiary,
shall be paid, in a single lump-sum cash payment, as soon as
practicable but in no event later than 90 days after the Change In
Ownership, all of his outstanding Units of Common Stock, Freestanding
SARs, stock options (including incentive stock options), performance
units (including those earned as a result of the application of
paragraph 26(c) above), and performance shares (including those earned
as a result of paragraph 26(c) above), and all other outstanding
Awards, including those granted by the Committee pursuant to its
authority under paragraph 3(h) hereof.
(f) Deferred Awards. Upon a Change In Ownership, all Awards deferred by a
Participant under paragraph 15 hereof, but for which he has not
received payment as of such date, shall be paid to him in a single
lump-sum cash payment as soon as practicable, but in no event later
than 90 days after the Change In Ownership. For purposes of making
such payment, the value of all Awards which are stock based shall be
determined by the Change In Control Price.
(g) Section 16 of Exchange Act. Notwithstanding anything contained in
this paragraph 26 to the contrary, any Participant who, on the date of
the Change In Ownership, holds any stock options or Freestanding SARs
that have not been outstanding for a period of at least six months
from their date of grant and who on such date is required to report
under Section 16 of the Exchange Act shall not be paid such Award
until the first day next following the end of such six-month period.
114
(h) Miscellaneous. Upon a Change In Ownership, (i) the provisions of
paragraphs 16, 20 and 21 hereof shall become null and void and of no
further force and effect; and (ii) no action, including, but not by
way of limitation, the amendment, suspension, or termination of the
Plan, shall be taken which would affect the rights of any Participant
or the operation of the Plan with respect to any Award to which the
Participant may have become entitled hereunder on or prior to the date
of such action or as a result of such Change In Ownership.
27. Change In Control.
(a) Background. All Participants shall be eligible for the treatment
afforded by this Paragraph 27 if their employment terminates within
two years following a Change In Control, unless the termination is due
to (i) death, (ii) disability entitling the Participant to benefits
under his employer's long-term disability plan, (iii) Cause, (iv)
resignation other than (A) resignation from a declined reassignment to
a job that is not reasonably equivalent in responsibility or
compensation (as defined in the Company's Termination Allowance Plan),
or that is not in the same geographic area (as defined in the
Company's Termination Allowance Plan), or (B) resignation within
thirty days following a reduction in base pay, or (v) retirement
entitling the Participant to benefits under his employer's retirement
plan.
(b) Vesting and Lapse of Restrictions. If a Participant is eligible for
treatment under this paragraph 27, (i) all of the terms, conditions,
restrictions, and limitations in effect on any of his unexercised,
unearned, unpaid and/or deferred Awards shall immediately lapse as of
the date of his termination of employment; (ii) no other terms,
conditions, restrictions and/or limitations shall be imposed upon any
of his Awards on or after such date, and in no event shall any of his
Awards be forfeited on or after such date; and (iii) all of his
unexercised, unvested, unearned and/or unpaid Awards shall
automatically become one hundred percent (100%) vested immediately
upon his termination of employment.
(c) Dividends and Dividend Equivalents. If a Participant is eligible for
treatment under this paragraph 27, all of his unpaid dividends and
dividend equivalents and all interest accrued thereon, if any, shall
be treated and paid under this Paragraph 27 in the identical manner
and time as the Award under which such dividends or dividend
equivalents have been credited.
(d) Treatment of Performance Units and Performance Shares. If a
Participant holding either performance units or performance shares is
terminated under the conditions described in (a) above, the provisions
of this paragraph (d) shall determine the manner in which such
performance units and/or performance shares shall be paid to him. For
purposes of making such payment, each "current performance period," as
that term is defined in paragraph 26(c) hereof, shall be treated as
terminating upon the date of the Participant's termination of
employment, and for each such "current performance period" and each
"completed performance period," as that term is defined in paragraph
26(c) hereof, it shall be assumed that the performance objectives have
been attained at a level of one hundred percent (100%) or the
equivalent thereof. If the Participant is participating in one or
more "current performance periods," he shall be considered to have
earned and, therefore, be entitled to receive that prorated portion of
the Awards previously granted to him for each such performance period,
as determined in accordance with the formula established in paragraph
26(c) hereof. A Participant in one or more "completed performance
periods" shall be considered to have earned and, therefore, be
entitled to receive all the performance shares and performance units
previously granted to him during each performance period.
115
(e) Valuation of Awards. If a Participant is eligible for treatment under
this paragraph 27, his Awards shall be valued and cashed out in
accordance with the provisions of paragraph 26(d) hereof.
(f) Payment of Awards. If a Participant is eligible for treatment under
this paragraph 27, he shall be paid, in a single lump-sum cash
payment, as soon as practicable but in no event later than 90 days
after the date of his termination of employment, all of his
outstanding Units of Common Stock, Freestanding SARs, stock options
(including incentive stock options), performance units (including
those earned as a result of the application of paragraph 27(d) above),
and performance shares (including those earned as a result of
paragraph 27(d) above), and all of his other outstanding Awards,
including those granted by the Committee pursuant to its authority
under paragraph 3(h) hereof.
(g) Deferred Awards. If a Participant is eligible for treatment under
this paragraph 27, all of his deferred Awards for which he has not
received payment as of the date of his termination of employment shall
be paid to him in a single lump-sum cash payment as soon as
practicable, but in no event later than 90 days after the date of his
termination. For purposes of making such payment, the value of all
Awards which are stock based shall be determined by the Change In
Control Price.
(h) Section 16 of Exchange Act. Notwithstanding anything contained in
this paragraph 27 to the contrary, any Participant who, on the date of
his termination of employment under the conditions described in
subparagraph (a) above, holds any stock options or Freestanding SARs
that have not been outstanding for a period of at least six months
from their date of grant and who on the date of such termination is
required to report under Section 16 of the Exchange Act shall not be
paid such Award until the first day next following the end of such
six-month period.
(i) Miscellaneous. Upon a Change In Control, (i) the provisions of
paragraphs 16, 20 and 21 hereof shall become null and void and of no
force and effect insofar as they apply to a Participant who has been
terminated under the conditions described in (a) above; and (ii) no
action, including, but not by way of limitation, the amendment,
suspension or termination of the Plan, shall be taken which would
affect the rights of any Participant or the operation of the Plan with
respect to any Award to which the Participant may have become entitled
hereunder on or prior to the date of the Change In Control or to which
he may become entitled as a result of such Change In Control.
(j) Legal Fees. The Company shall pay all legal fees and related expenses
incurred by a Participant in seeking to obtain or enforce any payment,
benefit or right he may be entitled to under the Plan after a Change
In Control; provided, however, the Participant shall be required to
repay any such amounts to the Company to the extent a court of
competent jurisdiction issues a final and non-appealable order setting
forth the determination that the position taken by the Participant was
frivolous or advanced in bad faith.
28. No Right, Title, or Interest in Company Assets
No Participant shall have any rights as a shareholder as a result of
participation in the Plan until the date of issuance of a stock certificate in
his name, and, in the case of restricted shares of Common Stock, such rights
are granted to the Participant under paragraph 10(c) hereof. To the extent
any person acquires a right to receive payments from the Company under this
Plan, such rights shall be no greater than the rights of an unsecured creditor
of the Company.
29. Gender
Throughout this Plan, the masculine gender shall include the feminine.
116
Exhibit (10) R
January 3, 1995
TO: Wilbur J. Prezzano
Dear Bill:
This letter is intended to confirm the following:
1. As of the date set forth above, the letter agreement between you and Kodak
dated September 3, 1993 remains in effect.
2. Any Kodak retirement benefits for which you would qualify if you had
retired in 1994 will be provided to you if and when you retire from Kodak.
However, with respect to your retiree health and dental benefits, specific
provision must be made to protect such benefits in the event the coverage
you would have received had you retired in 1994 is not being provided by
the Company at the time of or during your retirement. In such event, you
will receive that health and dental coverage that is then being provided by
the Company which, in terms of both its benefits and required participant
contributions, is most comparable to the company provided coverage you
would have received had you retired in 1994.
3. With regards to your expenses while traveling for Kodak, you are authorized
to incur reasonable travel and lodging expenses for yourself and, in those
situations you deem appropriate, your wife for purposes of carrying out
your duties and responsibilities for the Company. Kodak will reimburse you
for such expenses, subject to documentation in accordance with Kodak
policy.
Please indicate your acceptance of the terms set forth in this letter by
signing the attached duplicate original and returning the same to my
attention.
Eastman Kodak Company
Date 1/5/95 Michael P. Morley
Date 1/16/95 Wilbur J. Prezzano
117
Exhibit (10) T
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 11th day of February, 1994 by
and between Eastman Kodak Company, a New Jersey corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Mr.
Harry L. Kavetas (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the salary provided for in Section 4
below or any increased salary granted to the Executive pursuant to Section 4.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean:
(i) the Executive is convicted of a felony involving moral
turpitude; or
(ii) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under
this Agreement, resulting, in either case, in material economic harm to the
Company, unless the Executive believed in good faith that such act or nonact
was in the best interests of the Company; or
(iii) the Executive's unlawful possession, use or
sale of narcotics or other controlled substances, or performing job duties
while illegally used controlled substances are present in his system; or
(iv) a material violation by the Executive of any provision of
Sections 12 (a) or (b); or
118
(vi) a violation by the Executive of the provisions of Section
12 (c).
(d) "Constructive Termination Without Cause" shall mean a termination
of the Executive's employment at his initiative as provided in this Section
11(d) following the occurrence, without the Executive's written consent, of
one or more of the following events (except in consequence of a prior
termination):
(i) a reduction in the Executive's then current Base Salary or
target award opportunity under the Company's Management Annual Performance
Plan;
(ii) the removal of the Executive from any of the positions
described in Section 3 below;
(iii) a material diminution in the Executive's
duties;
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Company within 15 days after a merger,
consolidation, sale or similar transaction.
(e) "Disability" shall have the same meaning as under the Company's
Long-Term Disability Plan, as such plan is amended from time to time.
(f) "Stock" shall mean the Common Stock of the Company.
(g) "Term of Employment" shall mean the period specified in Section 2
below.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing February 11, 1994 and
ending at the close of business on February 10, 1999, subject to earlier
termination of the Term of Employment in accordance with
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Commencing February 11, 1994 and continuing for the remainder of
the Term of Employment, the Executive shall be employed as Senior Vice
President and Chief Financial Officer of the Company. Executive shall be
responsible for the duties and responsibilities normally associated with the
position of Chief Financial Officer, together with such additional duties and
responsibilities not inconsistent therewith as may be assigned by the Chief
Executive Officer. The Executive, in carrying out his duties under this
Agreement, shall report to the Chief Executive Officer.
119
(b) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from (i) serving on the boards of directors of a
reasonable number of other corporations or the boards of a reasonable number
of trade associations and/or charitable organizations, (ii) engaging in
charitable activities and community affairs, and (iii) managing his personal
investments and affairs, provided that such activities do not materially
interfere with the proper performance of his duties and responsibilities as
the Company's Chief Financial Officer or violate any other terms of this
Agreement.
4. Base Salary.
The Executive shall be paid an annualized Base Salary, payable in
accordance with the regular payroll practices of the Company, of $550,000.
The Base Salary shall be reviewed no less frequently than annually for
increase in the discretion of the Board and its Executive Compensation and
Development Committee (the "Committee").
5. Annual Incentive Awards.
The Executive shall participate in all annual incentive award programs
maintained by the Company for its senior level executives or its employees
generally, including, without limitation, the following:
(a) The Company's Management Annual Performance Plan. The Executive
shall have an annual target award opportunity under such plan of at least
$330,000. With regard to the Award for 1994 performance, payable in April of
1995 (the "1994 Performance Award"), the Executive shall receive a minimum
guaranteed payment of $330,000.
In the event, however, that the 1994 Performance Award that the Executive is
awarded exceeds $330,000, the Performance Award that will be paid to him shall
be an amount equal to the sum of $330,000 plus an amount determined by
multiplying the amount by which the Performance Award exceeds $330,000 by a
fraction the numerator of which shall be the total number of days that the
Executive is employed by the Company during 1994 and the denominator of which
is 365.
(b) The Company's Wage Dividend. For the purposes of the Wage
Dividend, he shall be deemed to have at least five years of service. However,
for purposes of the 1994 Wage Dividend payable in March of 1995, the
Executive's Wage Dividend Base shall not include his entire Base Salary, but
only that portion of the Base Salary which is actually paid to him during
1994, regardless of whether he elects to receive or defer such amount or parts
thereof.
Payment of annual incentive awards shall be made at the same time that
other senior-level executives receive their annual incentive awards.
120
6. Long-Term Incentive Programs.
(a) General. Except as otherwise stated in this Section 6, the
Executive shall be eligible to participate in the long-term incentive programs
of the Company on the same basis as other senior-level executives of the
Company.
(b) Restricted Stock Award. As soon as practicable after commencement
of the Executive's employment, the Company shall grant the Executive
restricted shares of Stock substantially in the form attached to the Agreement
as Exhibit A, such shares of Stock to be subject to forfeiture in their
entirety if the Executive's employment terminates pursuant to Section 11(c) or
11(e) below prior to the end of the Term of Employment. The number of shares
of restricted Stock to be granted to the Executive shall be determined by
dividing $550,000 by the fair market value of a share of Stock on the date the
restricted stock is granted. Fair market value shall be determined by taking
the mean between the high and low at which the Stock trades on the New York
Stock Exchange on the date the restricted stock is granted.
(c) Stock Option Award. As soon as practicable after commencement of
the Executive's employment, the Company shall grant the Executive a 10-year
option, substantially in the form attached to this Agreement as Exhibit B, to
purchase 200,000 shares of Stock (the "Option"), such option to become
exercisable on February 10, 1999 and to be subject to forfeiture in its
entirety if the Executive's employment terminates pursuant to Section 11(c) or
11(e) below prior to such date. The exercise price (per share) of the option
shall be the fair market value of a share of Stock on the date of the option's
grant. Fair market value shall be determined by taking the mean between the
high and low at which the Stock trades on the New York Stock Exchange on the
date of the option's grant.
(d) 1993-1995 Restricted Stock Subplan. As soon as practicable after
the commencement of the Executive's employment, the Executive shall become a
Participant of the Company's 1993-1995 Restricted Stock Subplan (the
"Subplan"). The Award that the Executive shall be eligible to receive under
the Subplan shall be calculated by multiplying the amount of the Award that
the Executive would have been eligible to receive had he been a Participant in
the Subplan since its establishment by a fraction the numerator of which shall
be the number of days that the Executive is employed by the Company during the
Subplan's Award Period and the denominator of which is the total number of
days in the Award Period. To the extent the Committee elects to grant Awards
under the Subplan, the Award that the Executive would otherwise receive under
the Subplan shall be reduced by the number of shares of Stock granted to the
Executive under Section 6(b) above.
(e) Spring, 1994 Stock Option Grant. The Executive will not receive
an award under the Company's Spring 1994 grant of stock options under the
Eastman Kodak Company 1990 Omnibus Long-Term Compensation Plan.
121
7. Employee Benefit Programs.
(a) In General. During the Term of Employment, the Executive shall be
entitled to participate in all employee pension and welfare benefit plans and
programs made available to the Company's senior level executives or to its
employees generally, as such plans or programs may be in effect from time to
time, including, without limitation, pension, profit sharing, savings and
other retirement plans or programs, medical, dental, hospitalization,
short-term and long-term disability and life insurance plans, accidental death
and dismemberment protection, travel accident insurance, and any other pension
or retirement plans or programs and any other employee welfare benefit plans
or programs that may be sponsored by the Company from time to time, including
any plans that supplement the above-listed types of plans or programs, whether
funded or unfunded.
(b) Vacation. The Executive will be entitled to six weeks paid
vacation per year. However, for purposes of calendar 1994, the six weeks of
paid vacation will be prorated based on the number of days the Executive is
employed by the Company during such year.
(c) Service. To the extent there is a period of employment required
as a condition for full benefit coverage under any employee benefit program,
the Executive shall be deemed to have met such requirement. For purposes of
the Company's Short-Term Disability Plan, the Executive shall be deemed to
have 15 years of service immediately upon his employment with the Company.
For purposes of any retiree welfare benefits of the Company for which the
Executive may become eligible, the Executive's actual years of service with
the Company will be used to determine his entitlement to any such benefit and
he shall not be deemed to have completed any years of service with the Company
in addition to his actual years of service for this purpose.
8. Supplemental Pension.
(a) The Executive shall be eligible to receive a pension benefit to be
determined in accordance with the terms of the Kodak Retirement Income Plan
("KRIP")and supplements thereto as in effect on the date of this Agreement,
subject to the terms of this Section 8 and adjustment for any future
enhancements to KRIP and supplements thereto. For purposes of this Section 8,
"supplements thereto" shall include the Kodak Excess Retirement Income Plan.
(b) For purposes of establishing (i) the total amount of "Accrued
Service" used to calculate the Executive's retirement and pre-retirement
survivor income benefits under KRIP, (ii) the Executive's "Total Service" for
purposes of determining the applicability of the early retirement reduction
factor contained in Section 5.02(b)(2) of KRIP (i.e., the 75/85 rule), and
(iii) the Executive's "Vesting Service" for purposes of Section 7.02 of KRIP,
Executive shall be credited with six years of service (one year of actual
service and five years of additional, deemed service) for each year of service
earned under the terms of KRIP. (In the event of a sixth year of employment,
the Executive should be credited with two more years of additional, deemed
service, bringing the Executive's total years of service to 32.)
(c) The retirement and pre-retirement survivor income benefits
provided under this Section 8 shall be reduced by any benefit for which the
Executive or his survivors are eligible under any other Company pension plan
or pension plan of a prior employer, whether or not qualified, providing
deferred compensation or survivor benefits. For purposes of determining such
deduction, the amount of any benefit payable under any plan shall be
calculated using, to the extent applicable, the same assumptions used to
calculate benefits for the Executive or his survivors under KRIP and
supplements thereto (e.g., frequency of payment, form of benefit, commencement
date of payment, and, in the event the form of distribution is a lump sum,
discount rate).
122
(d) The amount of the benefit, if any, payable to the Executive under
the terms of this Section 8 shall be: (i) paid in the same form and at the
same time as the Executive's benefit under KRIP or, in the event the Executive
is not entitled to any benefit under the terms of KRIP, as if the amount of
the benefit under this Section 8 was payable under KRIP; and (ii) unless
otherwise paid under KRIP, paid out of the Company's general assets and not
funded in any manner, included in the Executive's gross income as ordinary
income, subject to all income and payroll tax withholdings required to be made
under applicable federal, state and local law or regulation, and not grossed
up in order to keep the Executive whole.
9. Reimbursement of Business and Other Expenses.
(a) Business Expenses. The Executive is authorized to incur
reasonable expenses in carrying out his duties and responsibilities under this
Agreement and the Company shall promptly reimburse him for all business
expenses incurred in connection with carrying out the business of the Company,
subject to documentation in accordance with the Company's policy.
(b) Relocation Expenses. The Executive shall be eligible for the
Company's relocation policy. In accordance with the terms of such policy, the
following expenses shall be reimbursed, regardless of whether he elects to
sell his present residence in New Canaan, Connecticut:
(i) the cost of temporary living expenses in the Rochester, New
York area for a period of time ending (i) when the Executive moves into a
permanent residence in the Rochester, New York area or (ii) September 30,
1994, whichever occurs first. The Executive shall make a good faith effort to
find a satisfactory permanent residence in the Rochester, New York area as
soon as he reasonably can after the commencement of his employment with the
Company.
(ii) the expenses the Executive incurs in connection with the
purchase of a permanent residence in the Rochester, New York area and any
moving expenses he incurs in moving his household goods from his present
residence to such residence in Rochester.
(c) It is the intention of the Company that the Executive shall, after
taking into account any taxes on a reimbursement or other benefit under
Section 9(b), be kept whole with respect to such reimbursement or other
benefit. Accordingly, to the extent the Executive is taxable on any such
reimbursement or benefit, the Company shall pay the Executive in connection
therewith an amount which after all taxes incurred by the Executive on such
amount shall equal the amount of the reimbursement or benefit being provided.
10. Perquisites.
(a) Fringe Benefits. During the Term of Employment, the Executive
shall be entitled to participate in any of the Company's executive fringe
benefits in accordance with the terms and conditions of such arrangements as
are in effect from time to time for the Company's senior-level executives. In
all events, the Executive shall be entitled to the following:
(i) The Executive shall participate in the transportation pool
made available to senior executives in Rochester;
(ii) The Company shall provide the Executive with personal
financial (including tax) counseling by a firm to be chosen by the Executive
from one of three providers available through the Company; and
(iii) During the first year of the Executive's employment, the
Company shall, at Company expense, make available to the Executive Company
aircraft to travel, from time to time, between Westchester County Airport and
Monroe County Airport, such use to be subject to income imputation rules
pursuant to applicable Internal Revenue Service regulations.
123
(b) Initiation Fees. The Company shall promptly reimburse the
Executive for the initiation fees he incurs in order to obtain membership in
one country club and one luncheon club in the Rochester, New York area. It is
the intention of the Company that the Executive shall, after taking into
account any taxes on a reimbursement under this Section 10(b), be kept whole
with respect to such reimbursement. Accordingly, to the extent the Executive
is taxable on any such reimbursement, the Company shall pay the Executive in
connection therewith an amount which after all taxes incurred by the Executive
on such amount shall equal the amount of the reimbursement being
provided.
11. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment
is terminated due to his death, his estate or his beneficiaries as the case
may be, shall be entitled to:
(i) Base Salary for a period of 90 days following the date of
death;
(ii) pro rata annual incentive award under the Management
Annual Performance Plan or successor thereto for the year in which the
Executive's death occurs based on 100% of his target award opportunity for
such year, payable in a single installment promptly after his death;
(iii) pro rata long-term performance incentive for the
performance period or periods in which the Executive was participating at the
time of his death based on the target award opportunity for such period or
periods, payable in accordance with the terms of the plan or program under
which such long-term performance incentive is provided;
(iv) the right in the Executive's estate to exercise any stock
option outstanding at the time of the Executive's death in accordance with its
terms;
(v) vesting of any restricted stock award outstanding at the
time of the Executive's death in accordance with its terms;
(vi) the expenses associated with the relocation of the
Executive's family back to New Canaan, Connecticut;
(vii) the balance of any incentive awards earned (but not yet
paid);
(viii) the amounts that become due pursuant to
Section 8;
(ix) any amounts earned, accrued or owing (but not yet paid)
under Sections 7, 9 and 10; and
(x) other benefits in accordance with applicable plans and
programs of the Company.
(b) Termination Due to Disability. In the event the Executive's
employment is terminated due to his disability, he shall
be entitled in such case to the following:
(i) disability benefits provided in accordance with the
long-term disability program as applicable to senior executives of the
Company;
124
(ii) pro rata annual incentive award under the Management Annual
Performance Plan or successor thereto for the year in which termination due to
disability occurs based on 100% of his target award opportunity for such year,
payable in a single installment promptly following termination;
(iii) pro rata long-term performance incentive for the
performance period or periods in which Executive was participating at the time
of his death based on the target award opportunity for such period or periods,
payable in accordance with the terms of the plan or program under which such
long-term performance incentive is provided;
(iv) the continued right to exercise any stock option
outstanding at the time of termination in accordance with its terms;
(v) vesting of any restricted stock award outstanding at the
time of termination in accordance with its terms;
(vi) the expenses associated with relocation of the Executive
and his family back to New Canaan, Connecticut;
(vii) continued participation, at the Company's expense, for 36
months in medical, dental, hospitalization and life insurance coverage and in
all other employee plans and programs in which he was participating on the
date of termination;
(viii) the balance of any incentive awards earned
(but not yet paid);
(ix) the amounts that become due pursuant to Section 8;
(x) any amounts earned, accrued or owing (but not yet paid)
under Sections 7, 9 and 10; and
(xi) other benefits in accordance with applicable plans and
programs of the Company.
(c) Termination by the Company for Cause.
(i) A termination for Cause shall not take effect unless the
Executive is given written notice by the Chief Executive Officer
of the intention to terminate him for Cause.
(ii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to:
(A) the Base Salary through the date of termination;
(B) the amounts that become due pursuant to Section 8;
(C) any amounts earned, accrued or owing (but not yet paid)
under Sections 7, 9 and 10; and
(D) other benefits in accordance with applicable
plans and programs of the Company.
125
(d) Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment is terminated without Cause,
other than due to Disability or death, or in the event there is a Constructive
Termination Without Cause, the Executive shall be entitled to:
(i) the Base Salary through the date of termination;
(ii) the Base Salary, at the annualized rate in effect on the
date of termination of the Executive's employment (or in the event a reduction
in Base Salary is the basis for a Constructive Termination Without Cause, then
the Base Salary in effect immediately prior to such reduction), for a period
of 18 months following such termination provided that the salary continuation
payment under this Section 11(d)(ii) shall be in lieu of any salary
continuation arrangements under any other severance program of the Company;
(iii) the right to exercise any stock option outstanding at the
time of termination in accordance with its terms;
(iv) vesting of any restricted stock award outstanding
at the time of termination in accordance with its terms;
(v) the expenses associated with relocation of the Executive
and his family back to New Canaan, Connecticut;
(vi) continued participation, at the same rate of contribution
that the Executive was paying immediately prior to his termination of
employment, in all medical, dental, hospitalization and life insurance
coverage and in other employee benefit plans or programs in which he was
participating on the date of the termination of his employment until the
earlier of:
(A) 18 months following termination of employment; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer;
(vii) the balance of any incentive awards earned (but not yet
paid);
(viii) the amounts that become due pursuant to Section 8 except
that for purposes of Section 8 the Executive shall be deemed to continue in
employment for the 18 months during which he receives salary continuation
payments pursuant to Section 11(d)(ii) and he shall receive service credits
for such period on the same basis as if he had, in fact, continued in
employment;
(ix) any amounts earned, accrued or owing (but not yet paid)
under Sections 7, 9 and 10; and
(x) other benefits in accordance with applicable plans and
programs of the Company.
(e) Voluntary Termination. In the event of a termination of employment
by the Executive on his own initiative other than a termination due to death
or Disability or a Constructive Termination without Cause, the Executive shall
have the same entitlements as provided in Section 11(c)(ii) above for a
termination for Cause. A voluntary termination under this Section 11(e) shall
be effective upon 30 days prior written notice to the Company and shall not be
deemed a breach of this Agreement.
126
(f) No Mitigation; No Offset. In the event of any termination of
employment under this Section 11, the Executive shall be under no obligation
to seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided
in this Section 11.
(g) Nature of Payments. Any amounts due under this Section 11 are in
the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
12. Confidentiality: Assignment of Rights and Non-Competition.
(a) Confidentiality. During the Term of Employment and thereafter,
the Executive shall not disclose to anyone or make use of any trade secret or
proprietary or confidential information of the Company, including such trade
secret or proprietary or confidential information of any customer or other
entity to which the Company owes an obligation not to disclose such
information, which he acquires during the Term of Employment, including but
not limited to records kept in the ordinary course of business, except (i) as
such disclosure or use may be required or appropriate in connection with his
work as an employee of the Company or (ii) when required to do so by a court
of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information.
(b) Assignment of Rights. The Executive hereby sells, assigns and
transfers to the Company all of his right, title and interest in and to all
inventions, discoveries, improvements and copyrightable subject matter (the
"rights") which during the Term of Employment are made or conceived by him,
alone or with others and which are within or arise out of any general field of
the Company's business or arise out of any work he performs or information he
receives regarding the business of the Company while employed by the Company.
The Executive shall fully disclose to the Company as promptly as available all
information known or possessed by him concerning the rights referred to in the
preceding sentence, and upon request by the Company and without any further
remuneration in any form to him by the Company, but at the expense of the
Company, execute all applications for patents and for copyright registration,
assignments thereof and other instruments and do all things which the Company
may deem necessary to vest and maintain in it the entire right, title and
interest in and to all such rights.
(c) Non-Competition. The Executive understands and agrees
that by virtue of his employment by the Company as its Chief Financial Officer
he must and will have complete and intimate knowledge of confidential and
proprietary information about the Company's, including its subsidiaries and
affiliated companies, current and future business policies, accounts,
suppliers, customers, technology, procedures and methods of operation all of
which the Executive agrees are confidential and the sole and exclusive
property of the Company.
The Parties agree that the Company would suffer great loss and damage if
either during the Term of Employment or the two year period immediately
following the termination of the Executive's employment for whatever reason,
the Executive were to become employed by, provide services to, serve a
director, consultant, advisor or in any other capacity render advice or
services to a competitor of the Company, including a competitor of a
wholly-owned subsidiary of the Company or a competitor of any entity in which
the Company holds a fifty percent or greater interest.
