1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class June 30, 2001
Common Stock, $2.50 par value 290,768,764
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2001 2000 2001 2000
Sales $3,592 $3,749 $6,567 $6,844
Cost of goods sold 2,254 2,123 4,162 3,957
------ ------ ------ ------
Gross profit 1,338 1,626 2,405 2,887
Selling, general and
administrative expenses 629 633 1,203 1,201
Research and development costs 186 208 375 409
Goodwill amortization 37 39 79 75
Restructuring costs and other 336 - 336 -
------ ------ ------ ------
Earnings from operations 150 746 412 1,202
Interest expense 58 42 119 79
Other (expense) income (7) 62 16 81
------ ------ ------ ------
Earnings before income taxes 85 766 309 1,204
Provision for income taxes 49 260 123 409
------ ------ ------ ------
NET EARNINGS $ 36 $ 506 $ 186 $ 795
====== ====== ====== ======
Basic earnings per share $ .12 $ 1.63 $ .64 $ 2.56
====== ====== ====== ======
Diluted earnings per share $ .12 $ 1.62 $ .64 $ 2.55
====== ====== ====== ======
Earnings used in basic and
diluted earnings per share $ 36 $ 506 $ 186 $ 795
Number of common shares used in
basic earnings per share 290.5 309.7 290.3 310.0
Incremental shares from
assumed conversion of options 0.8 2.1 0.6 2.1
------ ------ ------ ------
Number of common shares used in
diluted earnings per share 291.3 311.8 290.9 312.1
====== ====== ====== ======
CONSOLIDATED STATEMENT OF
RETAINED EARNINGS
Retained earnings at beginning
of period $7,891 $7,148 $7,869 $6,995
Net earnings 36 506 186 795
Cash dividends declared (128) (137) (256) (273)
------ ------ ------ ------
Retained earnings
at end of period $7,799 $7,517 $7,799 $7,517
====== ====== ====== ======
- ------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
June 30, Dec. 31,
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 292 $ 246
Receivables 2,818 2,653
Inventories 1,566 1,718
Deferred income taxes 541 575
Other 290 299
------- -------
Total current assets 5,507 5,491
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,973 12,963
Less: Accumulated depreciation 7,195 7,044
------- -------
Net properties 5,778 5,919
------- -------
OTHER ASSETS
Goodwill (net of accumulated amortization
of $873 and $778) 984 947
Long-term receivables and other
noncurrent assets 1,921 1,767
Deferred income taxes 78 88
------- -------
TOTAL ASSETS $14,268 $14,212
======= =======
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,073 $ 3,275
Short-term borrowings 2,026 2,206
Taxes - income and other 533 572
Dividends payable 128 128
Deferred income taxes 37 34
------- -------
Total current liabilities 5,797 6,215
OTHER LIABILITIES
Long-term borrowings 1,823 1,166
Postemployment liabilities 2,590 2,610
Other long-term liabilities 725 732
Deferred income taxes 72 61
------- -------
Total liabilities 11,007 10,784
SHAREHOLDERS' EQUITY
Common stock at par 978 978
Additional paid in capital 845 871
Retained earnings 7,799 7,869
Accumulated other comprehensive loss (589) (482)
------- -------
9,033 9,236
Less: Treasury stock at cost 5,772 5,808
------- -------
Total shareholders' equity 3,261 3,428
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,268 $14,212
======= =======
- ------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
4
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
June 30
----------------
2001 2000
Cash flows relating to operating activities:
Net earnings $ 186 $ 795
Adjustments to reconcile to
net cash provided by (used in) operating activities:
Depreciation and amortization 462 434
Restructuring costs and other charges 393 16
Provision for deferred taxes 58 34
Gain on sales of assets (3) (70)
Increase in receivables (254) (514)
Decrease (increase) in inventories 73 (263)
Decrease in liabilities excluding borrowings (449) (458)
Other items, net (11) (203)
------ ------
Total adjustments 269 (1,024)
------ ------
Net cash provided by (used in) operating
activities 455 (229)
------ ------
Cash flows relating to investing activities:
Additions to properties (375) (365)
Proceeds from sales of assets 15 122
Cash flows related to sales of businesses (6) -
Acquisitions, net of cash acquired (244) (66)
Sales of marketable securities 28 55
Purchases of marketable securities (29) (53)
------ ------
Net cash used in investing activities (611) (307)
------ ------
Cash flows relating to financing activities:
Net (decrease) increase in borrowings
with original maturity of
90 days or less (287) 543
Proceeds from other borrowings 1,489 1,008
Repayment of other borrowings (707) (679)
Dividends to shareholders (256) (275)
Exercise of employee stock options 15 23
Stock repurchase programs (44) (193)
------ ------
Net cash provided by financing activities 210 427
------ ------
Effect of exchange rate changes on cash (8) (6)
------ ------
Net increase (decrease) in cash and cash
equivalents 46 (115)
Cash and cash equivalents, beginning of year 246 373
------ ------
Cash and cash equivalents, end of quarter $ 292 $ 258
====== ======
- -------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
5
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The consolidated interim financial statements are unaudited, and certain
information and footnote disclosure related thereto normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted in
accordance with Rule 10-01 of Regulation S-X. In the opinion of
management, the accompanying unaudited consolidated financial statements
were prepared following the same policies and procedures used in the
preparation of the audited financial statements and reflect all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position of Eastman Kodak Company (the
Company). The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year. These
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31,
2000.
- ------------------------------------------------------------------------
NOTE 2: COMMITMENTS AND CONTINGENCIES
The Company and its subsidiary companies are involved in lawsuits,
claims, investigations and proceedings, including product liability,
commercial, environmental, and health and safety matters, which are
being handled and defended in the ordinary course of business. There
are no such matters pending that the Company and its General Counsel
expect to be material in relation to the Company's business, financial
position or results of operations. Refer to Item 1, Legal Proceedings,
on page 21.
- ------------------------------------------------------------------------
NOTE 3: RESTRUCTURING PROGRAMS AND COST REDUCTION
During the second quarter of 2001, the Company recorded a pre-tax
restructuring charge of $316 million primarily for the rationalization
of the U.S. photofinishing business, the elimination of excess
manufacturing capacity, the exit of certain businesses and reductions in
selling, general, and administrative positions worldwide. The Company
recorded $57 million of the $316 million provision as costs of goods
sold related to inventory write-downs. The remaining $259 million was
recorded for employee severance payments, business exit costs and write-
offs of capital, goodwill and investments and is included in
restructuring costs and other in the accompanying Consolidated Statement
of Earnings.
In the second quarter, approximately $127 million of the restructuring
charge of $316 million was for employee severance covering 2,400
worldwide positions. The geographic breakdown includes approximately
1,100 employees in the U.S. and Canada and 1,300 throughout the rest of
the world. The 2,400 personnel were associated with the realignment of
manufacturing (600), and service and photofinishing operations (700);
R&D (150) and administrative (950) functions in various locations of the
Company's worldwide operations. The remaining $189 million of the $316
million charge covers capital write-offs, business exit costs and other
asset impairments.
Additional restructuring charges will be recorded in the third quarter.
Included in the third quarter restructuring charge will be severance
costs for approximately an additional 1,100 people. The actions
included in the second quarter restructuring charge will result in
anticipated pre-tax savings of approximately $40 million in 2001 and
$150 million annually beginning in 2002. The Company anticipates
recovering the net cash cost of this program in two years.
- ------------------------------------------------------------------------
6
NOTE 4: OTHER CHARGES
In the second quarter, the Company recorded a $77 million pre-tax ($52
million after tax) charge associated with the Wolf Camera Inc. consumer
retail business bankruptcy. This amount is reflected in restructuring
costs and other in the accompanying Consolidated Statement of Earnings.
- ------------------------------------------------------------------------
NOTE 5: COMMON STOCK
$2.50 par value, 950 million shares authorized, 391 million shares
issued at June 30, 2001 and December 31, 2000. Treasury stock at cost
consists of approximately 101 million shares at June 30, 2001 and
December 31, 2000.
- ------------------------------------------------------------------------
NOTE 6: COMPREHENSIVE INCOME
(in millions)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -----------------
2001 2000 2001 2000
Net income $ 36 $ 506 $ 186 $ 795
Unrealized holding losses
on marketable securities (3) (42) (12) (44)
Unrealized gains (losses)
from hedging activity 13 (2) 26 (5)
Currency translation
adjustments (28) (35) (122) (117)
---- ----- ----- -----
Total comprehensive income $ 18 $ 427 $ 78 $ 629
==== ===== ===== =====
- ------------------------------------------------------------------------
NOTE 7: DEBT ISSUANCE
During the second quarter, the Company issued Medium-Term Notes
consisting of floating-rate notes in the amount of $150 million maturing
on September 16, 2002 and 6.375% fixed-rate notes in the amount of $500
million maturing on June 15, 2006.
- ------------------------------------------------------------------------
NOTE 8: ACQUISITIONS
On June 4, 2001, the Company completed its acquisition of Ofoto, Inc.
The purchase price of this stock acquisition was approximately $58
million in cash. The acquisition was accounted for as a purchase with
$10 million allocated to tangible net assets, $37 million allocated to
goodwill and $11 million allocated to other intangible assets. The
acquisition of Ofoto will accelerate Kodak's growth in the online
photography market and help drive more rapid adoption of digital and
online services. Ofoto offers digital processing of digital images and
traditional film, top-quality prints, private online image storage,
sharing, editing and creative tools, frames, cards and other
merchandise.
- ------------------------------------------------------------------------
7
NOTE 9: NEW ACCOUNTING PRONOUNCEMENT
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that all business combinations be accounted for
under the purchase method only and that certain acquired intangible
assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill
be replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful
lives. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition
is after June 30, 2001. The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001, and will
thus be adopted by the Company, as required, in fiscal year 2002. The
impact of SFAS No. 141 and SFAS No. 142 on the Company's financial
statements has not yet been determined.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
(in millions, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- -------------------
2001 2000 Change 2001 2000 Change
Sales $3,592 $3,749 - 4% $6,567 $6,844 - 4%
Earnings from operations 150 746 -80 412 1,202 -66
Net earnings 36 506 -93 186 795 -77
Basic earnings per share .12 1.63 -93 .64 2.56 -75
Diluted earnings per share .12 1.62 -93 .64 2.55 -75
2001
The Company's results for the six months ended June 30, 2001 included
the following:
As announced on April 17, 2001, Kodak has begun to implement a series of
cost reduction actions, resulting in pre-tax charges totaling $316
million ($233 million after tax) or $.80 per share in the second
quarter. Additional charges will be recorded during the third quarter.
The components of restructuring in the second quarter include $127
million for employee severance covering approximately 2,400 worldwide
positions and $189 million for asset impairments, capital write-offs,
and business exits. The geographic breakdown includes approximately
1,100 employees in the U.S. and Canada and 1,300 throughout the rest of
the world. (See Note 3.)
Pre-tax charges of approximately $77 million ($52 million after tax) for
write-offs associated with the Wolf Camera Inc. bankruptcy filing were
recorded in the second quarter.
Pre-tax charges of approximately $9 million ($6 million after tax),
associated with the exit of one of the Company's equipment manufacturing
facilities located in Rochester, New York, were recorded in each of the
first two quarters. The costs for this effort, which began in 1999,
related to relocation of certain manufacturing operations. This program
is now complete.
Excluding the above, year-to-date net earnings would have been $482
million, while basic and diluted earnings per share would have been
$1.66.
- ------------------------------------------------------------------------
9
Sales by Operating Segment
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
Consumer Imaging
Inside the U.S. $1,022 $1,122 - 9% $1,667 $1,812 - 8%
Outside the U.S. 911 993 - 8 1,663 1,810 - 8
------ ------ --- ------ ------ ---
Total Consumer Imaging 1,933 2,115 - 9 3,330 3,622 - 8
------ ------ --- ------ ------ ---
Health Imaging
Inside the U.S. 283 264 + 7 551 509 + 8
Outside the U.S. 303 289 + 5 596 578 + 3
------ ------ --- ------ ------ ---
Total Health Imaging 586 553 + 6 1,147 1,087 + 6
------ ------ --- ------ ------ ---
Kodak Professional
Inside the U.S. 162 180 -10 311 335 - 7
Outside the U.S. 230 256 -10 448 513 -13
------ ------ --- ------ ------ ---
Total Kodak Professional 392 436 -10 759 848 -10
------ ------ --- ------ ------ ---
Other Imaging
Inside the U.S. 352 321 +10 699 627 +11
Outside the U.S. 329 324 + 2 632 660 - 4
------ ------ --- ------ ------ ---
Total Other Imaging 681 645 + 6 1,331 1,287 + 3
------ ------ --- ------ ------ ---
Total Sales $3,592 $3,749 - 4% $6,567 $6,844 - 4%
====== ====== === ====== ====== ===
- -------------------------------------------------------------------------
Earnings from Operations by Operating Segment
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ----------------------
2001 2000 Change 2001 2000 Change
Consumer Imaging $352 $457 -23% $ 413 $ 641 -36%
Percent of Sales 18.2% 21.6% 12.4% 17.7%
Health Imaging $ 98 $129 -24% $ 206 $ 247 -17%
Percent of Sales 16.7% 23.3% 18.0% 22.7%
Kodak Professional $ 57 $ 63 -10% $ 106 $ 131 -19%
Percent of Sales 14.5% 14.4% 14.0% 15.4%
Other Imaging $ 36 $ 53 -32% $ 80 $ 139 -42%
Percent of Sales 5.3% 8.2% 6.0% 10.8%
---- ---- --- ------ ------ ---
Total of segments $543 $702 -23% $ 805 $1,158 -30%
Percent of Sales 15.1% 18.7% 12.3% 16.9%
Restructuring (costs and
asset impairments) and
credits (316) 44 (316) 44
Wolf charge (77) - (77) -
---- ---- --- ------ ------ ---
Total Earnings from Operations $150 $746 -80% $ 412 $1,202 -66%
==== ==== === ====== ====== ===
Percent of Sales 4.2% 19.9% 6.3% 17.6%
- -------------------------------------------------------------------------
10
Net Earnings by Operating Segment
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
2001 2000 Change 2001 2000 Change
Consumer Imaging $231 $332 -30% $282 $472 -40%
Percent of Sales 12.0% 15.7% 8.5% 13.0%
Health Imaging $ 68 $ 92 -26% $141 $172 -18%
Percent of Sales 11.6% 16.6% 12.3% 15.8%
Kodak Professional $ 29 $ 28 + 4% $ 60 $ 62 - 3%
Percent of Sales 7.4% 6.4% 7.9% 7.3%
Other Imaging $ 30 $ 44 -32% $ 65 $100 -35%
Percent of Sales 4.4% 6.8% 4.9% 7.8%
---- ---- --- ---- ---- ---
Total of segments $358 $496 -28% $548 $806 -32%
Percent of Sales 10.0% 13.2% 8.3% 11.8%
Restructuring (costs and
asset impairments) and
credits (316) 44 (316) 44
Wolf charge (77) - (77) -
Interest expense (58) (42) (119) (79)
Other corporate items 2 13 4 18
Income tax effects on
above items and taxes
not allocated to
segments 127 (5) 146 6
---- ---- --- ---- ---- ---
Total Net Earnings $ 36 $506 -93% $186 $795 -77%
==== ==== === ==== ==== ===
Percent of Sales 1.0% 13.5% 2.8% 11.6%
- -------------------------------------------------------------------------
COSTS AND EXPENSES
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
Gross profit $1,338 $1,626 -18% $2,405 $2,887 -17%
Percent of Sales 37.2% 43.4% 36.6% 42.2%
Selling, general and
administrative expenses $ 629 $ 633 - 1% $1,203 $1,201 0%
Percent of Sales 17.5% 16.9% 18.3% 17.5%
Research and development
costs $ 186 $ 208 -11% $ 375 $ 409 - 8%
Percent of Sales 5.2% 5.5% 5.7% 6.0%
Goodwill amortization $ 37 $ 39 - 5% $ 79 $ 75 + 5%
Percent of Sales 1.0% 1.0% 1.2% 1.1%
- ---------------------------------------------------------------------------
11
2001 COMPARED WITH 2000
Second Quarter
Consolidated
Reported second quarter revenues were $3.592 billion, down 4% from the
previous year. When adjusted for the impact of exchange, revenues were
down 1%. Exchange had a $116 million negative revenue impact (-3%) in
the quarter due to unfavorable effects primarily from Europe, Asia,
Australia, Japan and Canada.
Adjusting for portfolio changes, revenues decreased 5%. The principal
portfolio adjustments relate to the August 2000 divestiture of Eastman
Software, the February 2001 acquisition of substantially all of Bell
and Howell's Imaging business and contributions from the Kodak Diamic
Ltd. joint venture with Mitsubishi, which was formed January 1, 2001.
Combined, portfolio changes contributed $54 million of revenues in the
year-over-year comparison of the second quarter. Adjusting for
portfolio changes and exchange, revenues were down 2% on a year-over-
year basis.
Emerging markets sales were down 3% from prior year second quarter,
reflecting a slower rate of decline versus first quarter this year.
The emerging market portfolio accounted for approximately 17% of
Kodak's worldwide sales in the quarter. The portfolio showed sales
growth in Greater Russia (+20%), but declines in Greater China (-7%),
Asia Area (-6%), Latin America (-2%), and Eastern Europe, Africa and
the Middle East (-5%). The declines are reflective of general economic
weakening in many emerging market countries.
Second quarter gross profit declined by 4.6 percentage points, from
43.7% to 39.1%, year over year, while improving 2.9 percentage points
from first quarter levels. The elements responsible for the year-over-
year margin decline include productivity, price/mix, and exchange.
Year-over-year productivity was down approximately 1 percentage point
due to a combination of lower sales and inventory reduction
initiatives. Year-over-year price/mix declines reduced gross profit
margins by approximately 3 percentage points. Exchange subtracted
approximately half a percentage point from the gross profit margin
rate.
SG&A decreased approximately 1% from $633 million in the second quarter
of 2000 to $629 million in the second quarter of 2001 but increased as
a percent of sales from 16.9% to 17.5%. SG&A excluding advertising
increased from $446 million to $463 million and increased from 11.9% to
12.9% as a percentage of sales, principally due to lower sales and the
impact of portfolio changes.
R&D decreased from $208 million in the second quarter of 2000 to $186
million in the second quarter of 2001, and decreased as a percent of
sales from 5.5% to 5.2%. Rather than reflecting an actual decline in
R&D activity, the year-over-year decrease reflects unusual comparisons
and changes in where the R&D activity is recorded. Specifically, both
the NexPress and Phogenix joint ventures had increased R&D spending in
the quarter, which were recorded in other income. In addition, the
year-over-year comparison was affected by the $10 million pre-tax in-
process R&D charge in the second quarter of 2000 related to Kodak's
purchase of the remaining interest in the PictureVision subsidiary.
Earnings from operations were $150 million, compared with $746 million
in the comparable 2000 quarter. This decline primarily reflects
charges associated with the restructuring program and Wolf Camera Inc.
as well as the lower gross profit margin discussed previously.
12
Net earnings were $36 million, or $.12 per share, compared with $506
million, or $1.62 per share in the second quarter of 2000. Excluding
charges of $.80 per share related to restructuring, $.18 per share
associated with the Wolf Camera charge and $.02 per share related to
the exit of an equipment manufacturing facility, net earnings for the
second quarter of 2001 were $1.12 per share. Excluding charges of $.03
per share related to the exit of an equipment manufacturing facility,
net earnings in the second quarter of 2000 were $1.65 per share.
Earnings were further reduced by lower gross profit margins and the
adverse effects of foreign exchange.
The effective tax rates for continuing operations, excluding
restructuring costs, were 33% for the second quarter of 2001 and 34%
for the second quarter of 2000. The 1% decline in the Company's
effective tax rate is primarily attributable to the Company's
operations in lower-tax jurisdictions outside the U.S. The reduced tax
benefit rate attributable to restructuring costs is due to certain
costs which do not provide a tax benefit to the Company.
Consumer Imaging
Worldwide Consumer Imaging sales in the second quarter declined 9% as
reported, down 6% when adjusted for unfavorable exchange. U.S. sales
declined 9% and sales outside the U.S. declined 8% as reported, down 2%
excluding exchange.
From a geographic perspective, the segment experienced weak sales
performance in most areas of the world, including the U.S. (-9%),
Western Europe (-4% excluding exchange), and Emerging Markets (-5%
excluding exchange). Brazil was -28% and Greater China was -11%, while
Greater Russia continued to show strong growth of +21%, India was +13%
(excluding exchange) and Mexico was +3%.
Worldwide film sales to dealers (including 35mm film, Advantix film,
one- time-use cameras) in the second quarter declined by 4%, reflecting
1% volume decline, 1% price/mix decline and 3% unfavorable exchange.
U.S. film sales to dealers increased by 1%, reflecting a 1% volume
increase and flat price/mix. Outside the U.S., film sales to dealers
declined by 10%, reflecting a 1% volume decline, negative 2% price/mix
and 6% unfavorable exchange.
During the second quarter, Kodak's differentiated higher value MAX and
Advantix films continued to capture over 65% of Kodak's total consumer
roll film revenues. This value mix is equal to the first quarter, and
is up 6 percentage points versus the second quarter 2000. The Company
expects that the new U.S. film packaging, supported by advertising,
will continue to increase the share of MAX and Advantix in the total
film mix during the second half of 2001.
Worldwide paper volume in the second quarter declined slightly versus
second quarter 2000, with both U.S. and international volumes and price
generally trending lower.
In the quarter, SG&A expenses for the segment decreased 3%, from $361
million to $349 million, but increased as a percent of sales, from
17.1% to 18.1%. While the broad category of advertising declined in
the quarter, direct media spend increased in the period. R&D declined
5%, from $77 million to $73 million year over year.
In the second quarter, Consumer Imaging earnings from operations
decreased by $105 million year over year, reflecting the combined
effects of sales declines and reduced gross profit margin. Net
earnings decreased 30% or $101 million, from $332 million in 2000 to
$231 million in 2001.
13
Health Imaging
Worldwide sales in the Health Imaging segment increased 6% year over
year, or 10% when adjusted for the impact of exchange. U.S. sales
increased 7%, while sales outside the U.S. increased 5% as reported, up
12% excluding exchange. Sales in emerging markets were up 10%, or 12%
adjusted for exchange.
Sales of digital products (including laser printers, digital media,
digital capture equipment and Picture Archiving and Communications
Systems (PACS)) increased 18% year over year. Placements of DryView
laser imagers increased 19% over last year. DryView media sales
increased 37% year over year, while sales of digital capture and PACS
products increased over 100%. Wet laser imaging sales continued their
expected declines from last year.
Sales of traditional products, including analog film, equipment,
chemistry and services declined 4% year over year, but decreased 1%
when adjusted for the impact of exchange. For traditional analog
products (excluding specialty films), year-over-year sales declined
10%, reflecting modest volume increases, expected negative price and
unfavorable exchange. Medical analog film volumes increased 7%.
Dental sales grew modestly while sales of Mammography and Oncology
specialty products grew 9%.
In the quarter, SG&A expenses for the segment were up 4% from $89
million to $93 million, but decreased as a percent of sales from 16.1%
last year to 15.9% this year. R&D expenses amounted to 6.3% of sales,
up from 6.1% last year. The increase in R&D spending is focused on
accelerating digital products development.
Earnings from operations declined, from $129 million to $98 million,
reflecting the impact of lower gross profit margin. Foreign exchange
reduced earnings by $13 million. Net earnings decreased 26% or $24
million, from $92 million in 2000 to $68 million in 2001.
Kodak Professional
Kodak Professional worldwide second quarter revenues declined 10% from
the previous year, 8% when adjusted for unfavorable exchange. Overall
sales declines were seen in several product categories, including color
negative film, color reversal film and graphics films, which were
impacted both by ongoing digital substitution and continued economic
weakness in certain markets worldwide. However, worldwide sales
increases were recorded for scanners and inkjet printers, media and
inks during the quarter.
In the quarter, SG&A expenses for the Kodak Professional segment
decreased 18% year over year, from $80 million to $66 million,
resulting from effective expense management. R&D spending declined
from $34 million to $26 million.
Kodak Professional earnings from operations decreased from $63 million
to $57 million year over year, reflecting the combined effects of sales
declines and reduced gross profit margins partially offset by lower R&D
and SG&A spending. Net earnings increased 4% or $1 million, from $28
million in 2000 to $29 million in 2001.
The Kodak Polychrome Graphics (KPG) joint venture continued successful
implementation of its operational improvement program, resulting in
positive earnings contribution to Kodak's other income during the
second quarter.
14
During the third quarter, the Company's Themed Entertainment business,
currently part of Entertainment Imaging, will transition to Kodak
Professional. This integration will complement Kodak Professional's
growth initiatives in related product and service areas.
Other Imaging
Second quarter Other Imaging segment sales increased 6% year over year,
or 9% when adjusted for unfavorable exchange. Excluding the impact of
portfolio and foreign exchange, sales increased 7%.
Segment sales growth in the quarter was led by strong sales performance
in Document Imaging, which benefited from the Bell and Howell
acquisition, and Commercial & Government Systems. The Entertainment
Imaging business continued to report low single digit revenue growth.
The potential strikes that threatened the entertainment industry have
been resolved but may create modest distortions in the origination film
market as the industry inventoried motion picture films earlier in the
year in anticipation of the strikes.
During the second quarter, consumer digital camera revenue growth
increased slightly year over year. Although digital camera unit
volumes increased significantly, pricing declines impacted total
revenue growth. Consumer digital camera market share for the second
quarter in the U.S. continued its increase from first quarter levels.
In the second quarter, Kodak's total inkjet photo paper market share
decreased somewhat from the first quarter due to increased competition
in this category. However, the inkjet photo paper market continued to
grow rapidly with Kodak posting strong double-digit growth year over
year.
In the quarter, the Company closed on the acquisition of Ofoto for a
purchase price of approximately $58 million. The integration of Ofoto
is proceeding on plan and will solidify Kodak's leading position in
online imaging products and services.
In the quarter, SG&A expenses for the Other Imaging segment increased
17%, from 16.1% of sales to 17.9%.
Earnings from operations for the Other Imaging segment were down $17
million, as a result of modest decreases in each of the business units,
primarily related to lower margins. Net earnings decreased 32% or $14
million, from $44 million in 2000 to $30 million in 2001.
Year to date
Consolidated
Sales for the six months ended June 30, 2001 were $6.567 billion,
representing a 4% decrease from the comparable 2000 period. Adjusting
for portfolio changes, revenues decreased 5%. Exchange had a $216
million negative impact on the year-to-date period. When adjusted for
both portfolio changes and currency movement, sales decreased 2% from
the comparable 2000 period. Reported U.S. sales were approximately
$3.228 billion, 2% lower than 2000. Sales outside the U.S. were
approximately $3.339 billion, representing a 6% decline year over year,
as reported. Excluding the unfavorable impact of foreign exchange,
sales outside the U.S. were flat.
15
Sales in Emerging Markets, which accounted for 18% of the Company's six-
month sales, decreased 4% from the comparable 2000 period. The Emerging
Market portfolio showed growth in Greater Russia (+17%), but declines in
Greater China (-9%), Asia Area (-7%), Latin America (-2%), and Eastern
Europe, Africa, and the Middle East (-3%). The declines are reflective
of general economic weakening in many Emerging Market countries.
Gross profit decreased 17% in the year-to-date period, from 42.2% of
sales to 36.6% of sales. These margins reflect a decline in
productivity due to a combination of lower sales and inventory reduction
initiatives and the negative impact of price, mix, and exchange. 2001
gross profit includes inventory write-downs of $57 million related to
the Company's restructuring program and accelerated depreciation and
relocation costs of approximately $18 million. 2000 gross profit
included accelerated depreciation and relocation costs of approximately
$23 million. Excluding these charges, gross profit declined 15%.
SG&A expenses increased as a percent of sales from 17.5% to 18.3%. SG&A
excluding advertising expenses also increased as a percent of sales,
from 13.0% to 14.1%, principally due to lower sales and the impact of
portfolio changes.
R&D expenditures decreased in dollar terms from $409 million to $375
million and as a percentage of sales from 6.0% to 5.7%. Included in R&D
expense for 2000 were in-process R&D charges of approximately $10
million.
Earnings from operations decreased 66%. Included in earnings from
operations in 2001 are charges related to restructuring, Wolf Camera,
and the exit of a manufacturing facility. Earnings from operations in
2000 included charges of approximately $23 million for accelerated
depreciation and relocation expenses partially offset by other charges
and credits which increased earnings from operations by approximately
$13 million. Year-over-year currency movements had a $61 million
negative impact on earnings from operations.
Interest expense increased 51% from the prior period due to higher
average borrowing rates. Other income (charges) decreased $65 million
primarily due to an increased investment related to the Phogenix joint
venture, lower gains on the sale of stock investments and property
sales, and lower foreign exchange losses.
Net earnings decreased 77%, from $795 million to $186 million, for the
six months ended June 30, 2000 and June 30, 2001, respectively.
Earnings per share decreased 75% from the first half of 2000. Earnings
per share decreased 36% when adjusted for special charges in 2001
discussed above and accelerated depreciation and relocation expenses
associated with an equipment manufacturing facility in 2000. The
effective tax rate was 34% in 2000 and 33% in 2001.
Consumer Imaging
Year-to-date sales in the Consumer Imaging segment decreased 8% year
over year and decreased 5% excluding unfavorable foreign exchange
movement. U.S. sales decreased 8% while sales outside the U.S. also
decreased by 8%, or 2% excluding the effect of exchange movements.
Worldwide film sales (including 35mm film, Advantix film, and one-time-
use cameras) decreased 4% from the first half of 2000. This was due to
a 1% volume decrease and negative foreign exchange movement of 3%. U.S.
film sales increased 2% on increased volume partially offset by negative
price movement of 3%. Outside the U.S., film sales to dealers decreased
10% reflecting 2% lower volumes and negative price and exchange
movements of 2% and 6%, respectively.
16
Worldwide paper sales decreased 11% for the six months ended June 30,
2001 over the comparable year-ago period. This decrease reflects 3%
volume declines, 5% lower prices, and a negative impact on currency of
3%. U.S. paper sales decreased by 12% reflecting volume declines of 5%
and price declines of 7%. Outside the U.S., paper sales declined 11%,
with slight volume declines and negative price and exchange movements of
5% each.
SG&A expenses for the segment decreased 4%, from $679 million to $655
million, reflecting the benefits of the Company's cost reduction
efforts, but increased as a percent of sales from 18.7% to 19.7%.
Excluding advertising expenses, SG&A expenses increased 5%, from 12.0%
of sales to 13.6%. R&D expenses decreased 12%, from 4.5% of sales to
4.4%.
Earnings from operations decreased 36%, as the benefits of favorable
manufacturing productivity and cost reductions were more than offset by
unfavorable exchange and lower effective selling prices. Net earnings
were $282 million, which reflects a 40% decline from the prior-year
period.
Health Imaging
Sales in the Health Imaging segment increased 6% from the prior year-to-
date period, and 9% excluding the adverse effect of currency movements.
Increased sales of DryView media more than offset an expected decrease
in wet laser imaging sales. Sales inside the U.S. increased 8%, while
sales outside the U.S. increased 3%. Excluding the adverse effect of
foreign currency movement, sales outside the U.S. increased 10%.
SG&A expenses for the segment increased 6%, from $175 million to $185
million, but remained flat as a percent of sales at 16.1%. Excluding
advertising expenses, SG&A expenses increased 6%, from 15.0% of sales to
15.1%. R&D expenses increased 9%, from 6.2% of sales to 6.4%.
Earnings from operations decreased 17%, primarily due to price declines
and the impact of changes in product mix, a decline in productivity and
the negative impact of exchange. Segment net earnings decreased 18%,
from $172 million to $141 million, for the six months ended June 30,
2000 and June 30, 2001, respectively.
Kodak Professional
Sales in the Kodak Professional segment decreased 10% from the first
half of 2000. Sales declines in both color reversal film and graphics
films more than offset an increase in sales for scanners and inkjet
printers and media. Sales were impacted by ongoing digital substitution
and continued economic weakness. U.S. revenues decreased 7% and
revenues outside the U.S. decreased 13%, or 8% excluding the unfavorable
impact of foreign exchange.
SG&A expenses for the segment decreased 14%, from 17.9% of sales to
17.3%. Excluding advertising expenses, SG&A expenses decreased 11%,
from 15.6% of sales to 15.4%. R&D expenses decreased 24%, from 8.0% of
sales to 6.9%.
Earnings from operations decreased 19%, from $131 million to $106
million, primarily due to lower gross profit margins driven by adverse
pricing, lower sales volume, and unfavorable exchange. Net earnings
declined 3%, from $62 million to $60 million for the six months ended
June 30, 2000 and June 30,2001, respectively .
17
Other Imaging
Sales in the Other Imaging segment increased 3% from the prior year-to-
date period. Adjusting for the impact of portfolio changes, segment
sales increased 2%. Sales growth in the first half was led by strong
digital camera unit volume increases of 39% and growth in Entertainment
Imaging, which benefited from the increasing rate of new releases in the
motion picture industry.
SG&A expenses for the segment increased 19%, from 15.2% of sales to
17.5% of sales. Excluding advertising expenses, SG&A expenses increased
18%, from 12.4% of sales to 14.1%. First half 2000 SG&A expenses
included other charges of approximately $23 million, primarily related
to Eastman Software and PictureVision. R&D expenses decreased 5%, from
8.5% of sales to 7.9%.
Earnings from operations were $80 million, $59 million lower than the
prior-year period. 2001 earnings from operations include charges of
approximately $4 million for accelerated depreciation and relocation
expenses. 2000 earnings from operations included charges of
approximately $4 million for accelerated depreciation and relocation
expenses, and other charges of approximately $40 million, primarily
related to Eastman Software and PictureVision. Aside from these
charges, earnings from operations reflect higher SG&A costs in 2001.
Net earnings for the segment were $65 million, a decrease of $35 million
over the prior year.
- ------------------------------------------------------------------------
RESTRUCTURING PROGRAMS AND COST REDUCTION
During the second quarter of 2001, the Company recorded a pre-tax
restructuring charge of $316 million primarily for the rationalization
of the U.S. photofinishing business, the elimination of excess
manufacturing capacity, the exit of certain businesses and reductions in
selling, general, and administrative positions worldwide. The Company
recorded $57 million of the $316 million provision as costs of goods
sold related to inventory write-downs. The remaining $259 million was
recorded for employee severance payments, business exit costs and write-
offs of capital, goodwill and investments and is included in
restructuring costs and other in the accompanying Consolidated Statement
of Earnings.
In the second quarter, approximately $127 million of the restructuring
charge of $316 million was for employee severance covering 2,400
worldwide positions. The geographic breakdown includes approximately
1,100 employees in the U.S. and Canada and 1,300 throughout the rest of
the world. The 2,400 personnel were associated with the realignment of
manufacturing (600), and service and photofinishing operations (700);
R&D (150) and administrative (950) functions in various locations of the
Company's worldwide operations. The remaining $189 million of the $316
million charge covers capital write-offs, business exit costs and other
asset impairments.
Additional restructuring charges will be recorded in the third quarter.
Included in the third quarter restructuring charge will be severance
costs for approximately an additional 1,100 people. The actions
included in the second quarter restructuring charge will result in
anticipated pre-tax savings of approximately $40 million in 2001 and
$150 million annually beginning in 2002. The Company anticipates
recovering the net cash cost of this program in two years.
- ------------------------------------------------------------------------
18
THE EURO
The Treaty on European Union provided that an economic and monetary
union (EMU) be established in Europe whereby a single European currency,
the Euro, replaces the currencies of participating member states. The
Euro was introduced on January 1, 1999, at which time the value of
participating member state currencies was irrevocably fixed against the
Euro and the European Currency Unit (ECU) was replaced at the rate of
one Euro to one ECU. For the three-year transitional period ending
December 31, 2001, the national currencies of member states will
continue to circulate, but as sub-units of the Euro. New public debt
will be issued in Euros and existing debt may be redenominated into
Euros. At the end of the transitional period, Euro banknotes and coins
will be issued, and the national currencies of the member states will
cease to be legal tender no later than June 30, 2002. The countries
that adopted the Euro on January 1, 1999 are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal,
and Spain. Greece will now be part of the transition. The Company has
operations in all of these countries.
As a result of the Euro conversion, it is possible that selling prices
of the Company's products and services will experience downward
pressure, as current price variations among countries are reduced due to
easy comparability of Euro prices across countries. Prices will tend to
harmonize, although value added taxes and transportation costs will
still justify price differentials. Adoption of the Euro will probably
accelerate existing market and pricing trends including pan-European
buying and general price erosion.
On the other hand, currency exchange and hedging costs will be reduced;
lower prices and pan-European buying will benefit the Company in its
purchasing endeavors; the number of banks and suppliers needed will be
reduced; there will be less variation in payment terms; and it will be
easier for the Company to expand into new marketing channels such as
mail order and Internet marketing.
The Company is in the process of making changes in areas such as
marketing and pricing, purchasing, contracts, payroll, taxes, cash
management and treasury operations. Under the 'no compulsion no
prohibition' rules, billing systems have been modified so that the
Company is now able to show total gross, value added tax, and net in
Euros on national currency invoices. This enables customers to pay in
the new Euro currency if they wish to do so. Countries that have
installed ERP/SAP software in connection with the Company's enterprise
resource planning project are able to invoice and receive payments in
Euros as well as in other currencies. Systems for pricing, payroll and
expense reimbursements will continue to use national currencies until
year-end 2001. The functional currencies in the affected countries were
the national currencies until May 2001 (except Germany and Austria
(October 2001)), when they changed to the Euro. Systems changes for
countries not on SAP (Finland and Greece) are also being implemented in
2001.
- ------------------------------------------------------------------------
19
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first half of 2001 was
$455 million. Net earnings, adjusted for depreciation and amortization
and asset impairment and other charges, provided $1,041 million of
operating cash. This was offset by decreases in liabilities (excluding
borrowings) of $449 million. Also offsetting was an increase in
receivables of $254 million, reflecting normal seasonal changes. Net
cash used in investing activities of $611 million for the first half of
2001 was primarily to support capital expenditures and acquisitions.
The Company anticipates total capital spending of approximately $800
million in 2001, a 15% decrease from full year 2000 levels. Net cash
provided by financing activities of $210 million for the first half of
2001 was primarily due to net increases in total borrowings of $495
million, reduced by $256 million of dividend payments and $44 million
for stock repurchases.
Cash dividends per share of $.44, payable quarterly, were declared in
the second quarter of 2001 and 2000. Total cash dividends of $256
million and $273 million were declared in the first half of 2001 and
2000, respectively.
During the first quarter, the Company repurchased about 0.9 million
shares for approximately $41 million as part of the $2 billion share
repurchase program approved by the Board of Directors on April 16, 1999.
The cumulative program total to date is approximately 32 million shares
or $1.8 billion. As of March 2, 2001, the Company suspended the stock
repurchase program in a move designed to accelerate debt reduction and
increase financial flexibility to take advantage of acquisition
opportunities.
During the second quarter, the Company issued Medium-Term Notes
consisting of floating-rate notes in the amount of $150 million maturing
on September 16, 2002 and 6.375% fixed-rate notes in the amount of $500
million maturing on June 15, 2006. The Company anticipates that its
operating cash flow, along with borrowings under its credit facility,
will be sufficient to meet anticipated future operating expenses,
capital expenditures and debt service obligations as they become due.
- ------------------------------------------------------------------------
20
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company, as a result of its global operating and financing
activities, is exposed to changes in foreign currency exchange rates,
commodity prices, and interest rates, which may adversely affect its
results of operations and financial position. In seeking to minimize
the risks and/or costs associated with such activities, the Company may
enter into derivative contracts. The fair value of these contracts is
reported in other current assets and/or current liabilities in the
Company's Statement of Financial Position.
The Company has entered into foreign currency forward contracts that are
designated as cash flow hedges of exchange rate risk related to
forecasted foreign currency denominated intercompany sales. At June 30,
2001, the Company had cash flow hedges for the Euro, the Canadian
dollar, and the Australian dollar, with maturity dates ranging from July
2001 to February 2002.
At June 30, 2001, the fair value of all open foreign currency forward
contracts was a pre-tax unrealized gain of $5 million, recorded in other
comprehensive income. Additionally, realized pre-tax losses of less
than $1 million, related to closed foreign currency contracts, have been
deferred in other comprehensive income. If all amounts deferred to
other comprehensive income related to these contracts were to be
realized, $5 million of pre-tax gains would be reclassified into cost of
goods sold over the next twelve months, based on sales to third parties.
During the second quarter of 2001, a pre-tax loss of $6 million was
reclassified from other comprehensive income to cost of goods sold ($11
million pre-tax loss year to date). Hedge ineffectiveness was
insignificant.
The Company does not apply hedge accounting to the foreign currency
forward contracts used to offset currency-related changes in the fair
value of foreign currency denominated assets and liabilities. These
contracts are marked to market through earnings at the same time that
the exposed assets and liabilities are remeasured through earnings (both
in other income). The majority of the contracts held by the Company are
denominated in Euros, Australian dollars, Chinese renminbi, and Canadian
dollars.
A sensitivity analysis indicates that if foreign currency exchange rates
at June 30, 2001 and 2000 increased 10%, the Company would incur losses
of $64 million and $54 million on foreign currency forward contracts
outstanding at June 30, 2001 and 2000, respectively. Such losses would
be substantially offset by gains from the revaluation or settlement of
the underlying positions hedged.
The Company has entered into silver forward contracts that are
designated as cash flow hedges of price risk related to forecasted
worldwide silver purchases. The Company used silver forward contracts
to minimize virtually all of its exposure to increases in silver prices
in 2000 and 2001. At June 30, 2001, the Company had open forward
contracts, with maturity dates ranging from July 2001 to May 2002,
hedging virtually all of its planned silver requirements through May
2002.
At June 30, 2001, the fair value of open silver forward contracts was a
pre-tax unrealized loss of $17 million, recorded in other comprehensive
income. If this amount were to be realized, all of this loss would be
reclassified into cost of goods sold within the next twelve months.
During the second quarter of 2001, a realized pre-tax loss of $8 million
was recorded in cost of goods sold ($14 million pre-tax loss year to
date). At June 30, 2001, realized pre-tax losses of $8 million, related
to closed silver contracts, were recorded in other comprehensive income.
These losses will be reclassified into cost of goods sold as silver-
containing products are sold (all within the next twelve months). Hedge
ineffectiveness was insignificant.
21
A sensitivity analysis indicates that, based on broker-quoted termination
values, if the price of silver decreased 10% from spot rates at June 30,
2001 and 2000, the fair value of silver forward contracts would be
reduced by $21 million and $21 million, respectively. Such losses in
fair value, if realized, would be offset by lower costs of manufacturing
silver-containing products.
The Company is exposed to interest rate risk primarily through its
borrowing activities and, to a lesser extent, through investments in
marketable securities. The Company utilizes U.S. dollar denominated as
well as foreign currency denominated borrowings to fund its working
capital and investment needs. The majority of short-term and long-term
borrowings are in fixed-rate instruments. There is inherent roll-over
risk for borrowings and marketable securities as they mature and are
renewed at current market rates. The extent of this risk is not
predictable because of the variability of future interest rates and
business financing requirements.
Using a yield-to-maturity analysis, if June 30, 2001 interest rates
increased 10% (about 49 basis points) with the current period's level of
debt, there would be decreases in fair value of short-term and long-term
borrowings of $1 million and $31 million, respectively. If June 30, 2000
interest rates increased 10% (about 63 basis points) with the June 30,
2000 level of debt, there would be decreases in fair value of short-term
and long-term borrowings of $1 million and $23 million, respectively.
The Company's financial instrument counterparties are high-quality
investment or commercial banks with significant experience with such
instruments. The Company manages exposure to counterparty credit risk
by requiring specific minimum credit standards and diversification of
counterparties. The Company has procedures to monitor the credit
exposure amounts. The maximum credit exposure at June 30, 2001 was not
significant to the Company.
- ------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 29, 2001, the Company and the U.S. Environmental Protection Agency,
Region 2, reached a settlement of an administrative enforcement action
initiated by the EPA on October 6, 2000, alleging violations of air
monitoring requirements under the Resource Conservation and Recovery Act
(RCRA), the law that regulates the management of hazardous waste. These
issues arose as the result of an inspection conducted by EPA at the
Company's Kodak Park manufacturing facility in Rochester, New York in May
1999. The complaint, alleging six counts of failing to test and monitor
certain valves, containers, and pumps at Kodak Park, sought a penalty of
$303,064 and an Order requiring the Company to come into compliance.
Although the Company did not dispute the allegations with respect to some
equipment, many of the Agency's allegations were based on a more expansive
interpretation of the applicability of the hazardous waste program to
equipment that the Company believed to be process equipment (and therefore
exempt). The settlement redefines the boundary of equipment to which the
hazardous waste regulations apply in a manner that preserves the Company's
manufacturing flexibility and addresses EPA's regulatory issues, requires
the Company to come into compliance for the additional equipment, and
imposes a penalty of $175,000.
- ------------------------------------------------------------------------
22
Item 4. Submission of Matters to a Vote of Security Holders
The 2001 Annual Meeting of Shareholders of Eastman Kodak Company was
held on May 9.
A total of 231,418,295 of the Company's shares were present or
represented by proxy at the meeting. This represented more than 79% of
the Company's shares outstanding.
The individuals named below were elected or re-elected to a three-year
term as Class II Directors:
Name Votes Received Votes Withheld
William W. Bradley 216,191,233 15,227,062
Alice F. Emerson 192,698,244 38,720,051
Hector de J. Ruiz 218,090,625 13,327,670
Laura D'Andrea Tyson 191,439,440 39,978,855
Richard S. Braddock, Daniel A. Carp, Martha Layne Collins, Paul E. Gray,
Durk I. Jager, Debra L. Lee, and Richard A. Zimmerman all continue as
directors of the Company.
The election of PricewaterhouseCoopers LLP as independent accountants
was ratified, with 225,775,969 shares voting for, 2,035,413 shares
voting against, and 3,606,913 shares abstaining.
The management proposal requesting amendment of the 2000 Management
Variable Compensation Plan was approved, with 218,489,232 shares voting
for, 9,324,937 shares voting against, 3,604,120 shares abstaining, and
six non-votes.
- ------------------------------------------------------------------------
Item 5. Other Information
On July 16, 2001, Eastman Kodak Company announced that its Board of
Directors re-elected Delano E. Lewis to the Company's board, effective
on that date. Lewis previously served on the Kodak board from May 1998
to December 1999, when he left to assume the position as ambassador to
South Africa for the U.S. State Department.
On July 25, 2001, the Eastman Kodak Company Board of Directors elected
Patricia F. Russo to the Company's board.
- ------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and financial statement schedules required as part of this
report are listed in the index appearing on page 24.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed or required to be filed for the
quarter ended June 30, 2001.
- ------------------------------------------------------------------------
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned.
EASTMAN KODAK COMPANY
(Registrant)
Date August 7, 2001
Robert P. Rozek
Controller
24
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Exhibit
Number Page
None