1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class September 30, 1995
Common Stock, $2.50 par value 342,106,930
2
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions) Third Quarter Three Quarters
1995 1994 1995 1994
REVENUES
Sales $3,813 $3,529 $10,888 $9,709
Earnings from equity interests and other
revenues 64 2 190 70
------ ------ ------- ------
TOTAL REVENUES 3,877 3,531 11,078 9,779
------ ------ ------- ------
COSTS
Cost of goods sold 1,987 1,967 5,630 5,219
Selling, general and administrative expenses 1,037 972 3,030 2,644
Research and development costs 244 221 696 655
Interest expense 20 28 58 113
Other charges 77 25 138 133
------ ------ ------- ------
TOTAL COSTS 3,365 3,213 9,552 8,764
------ ------ ------- ------
Earnings from continuing operations
before income taxes 512 318 1,526 1,015
Provision for income taxes from continuing
operations 174 125 549 382
------ ------ ------- ------
Earnings from continuing operations before
extraordinary item 338 193 977 633
Loss from discontinued operations - - - (81)
------ ------ ------- ------
Earnings before extraordinary item 338 193 977 552
Extraordinary item - - - (13)
------ ------ ------- ------
NET EARNINGS $ 338 $ 193 $ 977 $ 539
====== ====== ======= ======
Earnings per share from continuing
operations before extraordinary item $ .99 $ .57 $ 2.86 $ 1.89
Loss per share from discontinued operations - - - (.24)
------ ------ ------- ------
Earnings per share before extraordinary item .99 .57 2.86 1.65
Extraordinary item - - - (.04)
------ ------ ------- ------
Earnings per share $ .99 $ .57 $ 2.86 $ 1.61
====== ====== ======= ======
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Retained earnings at beginning of period $4,838 $4,552 $ 4,485 $4,469
Net earnings 338 193 977 539
Cash dividends declared (136) (136) (409) (401)
Other changes 5 (3) (8) (1)
- ------ ------ ------- ------
RETAINED EARNINGS at end of period $5,045 $4,606 $ 5,045 $4,606
====== ====== ======= ======
- ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Sept. 30, Dec. 31,
1995 1994
(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,268 $ 2,020
Marketable securities 65 48
Receivables (net of allowances of $124 and $120) 3,076 3,064
Inventories 1,947 1,480
Deferred income tax charges 514 711
Other 199 360
------- -------
Total current assets 7,069 7,683
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,623 12,299
Less: Accumulated depreciation 7,275 7,007
------- -------
Net properties 5,348 5,292
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $275 and $226) 581 616
Long-term receivables and other
noncurrent assets 911 872
Deferred income tax charges 504 505
------- -------
TOTAL ASSETS $14,413 $14,968
======= =======
- ------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,326 $ 3,398
Short-term borrowings 412 371
Taxes-income and other 526 1,701
Dividends payable 136 136
Deferred income tax credits 22 129
------- -------
Total current liabilities 4,422 5,735
OTHER LIABILITIES
Long-term borrowings 653 660
Postemployment liabilities 3,734 3,671
Other long-term liabilities 738 790
Deferred income tax credits 106 95
------- -------
Total liabilities 9,653 10,951
------- -------
SHAREOWNERS' EQUITY
Common stock at par* 972 966
Additional capital paid in or
transferred from retained earnings 593 515
Retained earnings 5,045 4,485
Accumulated translation adjustment 105 8
------- -------
6,715 5,974
Less: Treasury stock shares at cost* 1,955 1,957
------- -------
Total shareowners' equity 4,760 4,017
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $14,413 $14,968
======= =======
* Common stock: $2.50 par value, 950 million shares authorized, 389 million shares issued as
of Sept. 30, 1995 and 386 million shares issued as of December 31, 1994. Treasury stock at cost
consists of approximately 47 million shares at each balance sheet date.
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
4
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Quarters
1995 1994
(in millions)
Cash flows from operating activities:
Earnings from continuing operations before
extraordinary item $ 977 $ 633
Adjustments to reconcile above earnings to net cash
provided by operating activities:
Depreciation and amortization 641 613
Provision (benefit) for deferred taxes 97 (8)
Loss on sale and retirement of properties 39 38
Decrease (increase) in receivables 50 (128)
Increase in inventories (424) (131)
Increase in liabilities excluding borrowings 394 77
Other items, net (335) (244)
------- -------
Total adjustments 462 217
------- -------
Net cash provided by operating activities 1,439 850
------- -------
Cash flows from investing activities:
Additions to properties (695) (814)
Proceeds from sale of properties and investments 78 41
Marketable securities - sales 23 242
Marketable securities - purchases - (27)
Payment for purchase of Qualex, net of cash acquired (100) (48)
Cash flows related to sales of non-imaging
health businesses (1,212) -
------- -------
Net cash used in investing activities (1,906) (606)
------- -------
Cash flows from financing activities:
Net (decrease) increase in commercial paper borrowings
of 90 days or less (259) 1,385
Proceeds from other borrowings 2,529 2
Repayment of other borrowings and certain financial
instruments (2,236) (2,297)
Dividends to shareowners (409) (429)
Exercise of employee stock options 82 29
------- -------
Net cash used in financing activities (293) (1,310)
------- -------
Effect of exchange rate changes on cash 8 16
------- -------
Net decrease in cash and cash equivalents (752) (1,050)
Cash and cash equivalents, beginning of year 2,020 1,635
------- -------
Cash and cash equivalents, end of quarter $ 1,268 $ 585
======= =======
- ----------------------------------------------------------------------------------------
See Notes to Financial Statements
5
NOTES TO FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The financial statements have been prepared by the Company in accordance with
the accounting policies stated in the 1994 Annual Report and should be read
in conjunction with the Notes to Financial Statements appearing therein. In
the opinion of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation have been included
in the financial statements. The statements are based in part on estimates
and have not been audited by independent accountants. The annual statements
will be audited by Price Waterhouse LLP.
- -----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiary companies are involved in lawsuits, claims,
investigations and proceedings, including product liability, commercial,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. There are no such matters
pending that the Company and its General Counsel expect to be material in
relation to the Company's business, financial condition or results of
operations.
- -----------------------------------------------------------------------------
RECLASSIFICATIONS
Certain 1994 financial statement amounts have been reclassified to conform
with the 1995 presentation.
David J. FitzPatrick, Controller
November 3, 1995
6
Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY
(in millions, except Third Quarter Three Quarters
earnings per share) 1995 1994 Change 1995 1994 Change
Sales $3,813 $3,529 +8% $10,888 $9,709 +12%
Earnings (loss) from operations
before extraordinary item:
Continuing 338 193 977 633
Discontinued - - - (81)
Net earnings 338 193 977 539
Earnings per share .99 .57 2.86 1.61
Sales of $3,813 million for the third quarter of 1995 increased 8% over the
third quarter of 1994 while year-to-date sales of $10,888 million were up 12%
over the comparable period of last year. Excluding sales of Qualex (a U.S.
photofinishing company which had been treated as an equity investment until
the remainder of its outstanding shares were acquired in August, 1994), sales
increased 6% for the quarter and 9% for the year to date over a year ago.
Sales for the quarter and year to date benefited from volume gains and the
favorable effects of foreign currency rate changes, but were adversely
affected by lower effective selling prices. Currency changes favorably
affected 1995 sales by $76 million for the quarter and $394 million for the
year to date. Net earnings for the 1995 third quarter and year to date of
$338 million ($.99 per share) and $977 million ($2.86 per share),
respectively, increased significantly over the comparable periods of 1994.
Benefits realized from higher volumes, manufacturing productivity, the
favorable effects of foreign currency rate changes, lower interest expense,
higher investment income and a lower effective tax rate were only partially
offset by cost escalation, lower effective selling prices and increased
selling, general and administrative (SG&A) activity. Net earnings for the 1994
third quarter were adversely affected by approximately $60 million ($.18 per
share) for costs related to the acquisition of Qualex and incremental charges
associated with asset valuations. These charges and other adjustments
related to repair parts inventory valuations and revenues on certain service
agreements adversely impacted 1994 year-to-date net earnings by approximately
$90 million ($.27 per share).
During 1994, the Company divested 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 Diagnostic Division. These businesses have
been reported as discontinued operations.
Net earnings for the 1994 year to date were reduced by an after-tax
extraordinary charge of $13 million ($.04 per share) related to the early
extinguishment of debt.
- ------------------------------------------------------------------------------
Sales by Segment (in millions)
Third Quarter Three Quarters
1995 1994 Change 1995 1994 Change
Consumer Imaging
Inside the U.S. $ 761 $ 645 +18% $ 2,064 $1,646 +25%
Outside the U.S. 1,078 968 +11 2,920 2,532 +15
------ ------ --- ------- ------ ---
Total Consumer Imaging 1,839 1,613 +14 4,984 4,178 +19
------ ------ --- ------- ------ ---
Commercial Imaging
Inside the U.S. 988 996 -1 2,920 2,861 +2
Outside the U.S. 995 920 +8 3,009 2,670 +13
------ ------ --- ------- ------ ---
Total Commercial Imaging 1,983 1,916 +3 5,929 5,531 +7
------ ------ --- ------- ------ ---
Deduct Intersegment Sales (9) - (25) -
------ ------ --- ------- ------ ---
Total Worldwide $3,813 $3,529 +8% $10,888 $9,709 +12%
====== ====== === ======= ====== ===
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SEGMENT SALES
In the Consumer Imaging segment, sales to customers inside the U.S. increased
for the quarter and year to date, when compared with sales for the same
periods of 1994. Excluding the sales of Qualex, sales increased 8% in the
quarter and 5% year to date as increased volumes were only partially offset
by lower effective selling prices. Outside the U.S., sales increased
significantly in the quarter and year to date compared with last year, as
good increases in unit volumes and the favorable effects of foreign currency
rate changes were only slightly offset by lower effective selling prices.
Single-use cameras, Ektacolor paper and Kodacolor 35mm film were the major
contributors to the worldwide volume gains in the third quarter and year to
date.
7
In the Commercial Imaging segment, sales to customers inside the U.S. for the
1995 third quarter were down 1% from the third quarter a year ago.
Year-to-date sales for 1995 were up 2% over the comparable period a year ago,
which reflected a reduction for revenue adjustments on certain service
agreements. Excluding these adjustments, sales were up slightly year to date
as volume increases were partially offset by lower effective selling prices.
Sales to customers outside the U.S. increased in the third quarter and were
up significantly year to date when compared with 1994. In both the quarter
and year-to-date periods, the benefits from increased unit volumes and the
favorable effects of foreign currency rate changes were only partially offset
by lower effective selling prices. Worldwide volume increases for the
quarter and year to date were led by Motion Picture and Television Imaging
and Digital and Applied Imaging products.
- ------------------------------------------------------------------------------
COSTS AND EXPENSES
Third Quarter Three Quarters
(in millions) 1995 1994 Change 1995 1994 Change
Gross profit $1,826 $1,562 +17% $5,258 $4,490 +17%
Percent of Sales 47.9% 44.3% 48.3% 46.2%
Selling, general and
administrative expenses $1,037 $ 972 +7% $3,030 $2,644 +15%
Percent of Sales 27.2% 27.5% 27.8% 27.2%
Research and development costs $ 244 $ 221 +10% $ 696 $ 655 +6%
Percent of Sales 6.4% 6.3% 6.4% 6.7%
- ------------------------------------------------------------------------------
Gross profit as a percent of sales in the 1994 third quarter was reduced by
approximately 1.3 percentage points due to purchase accounting adjustments
relating to the acquisition of Qualex and incremental charges associated with
asset valuations. The 1994 year-to-date gross profit percentage was reduced
by approximately 0.8 percentage points due to these adjustments and
adjustments related to repair part inventory valuations and revenue on
certain service agreements. Excluding these adjustments, gross profit as a
percent of sales increased 2.3 percentage points and 1.3 percentage points in
the third quarter and year to date, respectively, as the benefits from higher
volumes and manufacturing productivity gains more than offset the unfavorable
effects of cost escalation and product mix changes. SG&A expenses increased 7%
in the quarter and 15% for the year to date when compared with 1994. The
quarter and year-to-date SG&A expense increases are due primarily to the
unfavorable effects of foreign currency rate changes on locally incurred
costs and higher distribution and administrative costs.
- ------------------------------------------------------------------------------
Earnings from Operations
by Industry Segment
(in millions) Third Quarter Three Quarters
1995 1994 Change 1995 1994 Change
Consumer Imaging $ 405 $ 269 +51% $ 962 $ 756 +27%
Percent of Sales 22.0% 16.7% 19.3% 18.1%
Commercial Imaging $ 146 $ 94 +55% $ 585 $ 423 +38%
Percent of Sales 7.4% 4.9% 9.9% 7.6%
----- ----- --- ------ ------ ---
Total $ 551 $ 363 +52% $1,547 $1,179 +31%
===== ===== === ====== ====== ===
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SEGMENT EARNINGS
Consumer Imaging operating earnings increased sharply in the third quarter
and year to date when compared with the comparable periods of last year.
Benefits realized from increased unit volumes, manufacturing productivity and
the favorable effects of foreign currency rate changes were only partially
offset by increased SG&A expenses, cost escalation and lower effective selling
prices. Operating earnings for the 1994 third quarter and year to date were
adversely impacted by $55 million of incremental charges related to asset
valuations and costs associated with the acquisition of Qualex.
8
Commercial Imaging segment operating earnings for the third quarter increased
55% over 1994 as the benefits from manufacturing productivity, lower SG&A costs
and the favorable effects of foreign currency rate changes were only partially
offset by cost escalation, lower effective selling prices and higher research
and development costs. Year-to-date operating earnings were up 38% over a
year ago as the benefits from manufacturing productivity, increased unit
volumes and the favorable effects of foreign currency rate changes were only
partially offset by cost escalation, lower effective selling prices and
higher research and development costs. Third quarter 1994 operating earnings
were adversely impacted by approximately $35 million of incremental charges
for asset valuations. For the 1994 year to date, these charges plus
adjustments related to revenue on certain service agreements and repair parts
inventory valuations reduced operating earnings by approximately $83 million.
- ------------------------------------------------------------------------------
OTHER REVENUES AND COSTS
Earnings from equity interests and other revenues were higher in the quarter
and year to date, when compared with the comparable periods of 1994, due
primarily to increased interest income earned on higher average cash balances
and increased earnings from equity interests. Earnings from equity interests
in 1994 included a loss of $7 million in the third quarter and $13 million in
the year to date for the period during which the investment in Qualex was
accounted for using the equity method. Interest expense for the 1995 third
quarter and year to date decreased, when compared with 1994, due to lower
average borrowings. The net effect of foreign exchange transactions and the
translation of net monetary items in highly inflationary economies was a loss
of $31 million in the 1995 third quarter and $41 million for the year to date
compared with losses of $6 million and $50 million in the 1994 third quarter
and year to date, respectively. The 1995 year-to-date effective tax rate was
36% compared with 37% for 1994.
- ------------------------------------------------------------------------------
CASH DIVIDENDS
During the third quarter of 1995, a cash dividend of $136 million (40 cents per
share) was declared on the Company's common stock. Total cash dividends
declared for the year-to-date periods of 1995 and 1994 amounted to
$409 million and $401 million, respectively.
FINANCIAL POSITION
Cash and marketable securities were $1,333 million at the end of the third
quarter compared with $2,068 million at year-end 1994. This decrease includes
the effect of approximately $1.3 billion of tax payments related to the
divestiture of the non-imaging health businesses. Net working capital at the
end of the quarter increased to $2,647 million from $1,948 million at year-end
1994, primarily due to an increase in inventories. Projected operating cash
flows are expected to be adequate to support normal business operations,
planned capital expenditures and dividend payments in 1995.
On October 17, 1995, the Company announced it plans to repurchase up to $1
billion of its outstanding common stock. The stock repurchase will be made
from available cash reserves, cash from operations and new borrowings to the
extent necessary. The repurchase is expected to be completed over the next
nine months. The Company also announced its intention to contribute
approximately $500 million of Kodak stock to its defined benefit pension plan
in the U.S. This contribution will provide a funding level consistent with
the Company's view of what will be needed to meet future obligations of the
plan. Based on prices in effect as of October 17, 1995, the net reduction in
outstanding common shares from the stock repurchase and pension plan
contribution will be approximately 2.5%.
CAPITAL ADDITIONS
Capital additions for the third quarter of 1995 were $236 million compared
with $187 million for the third quarter of 1994. For the 1995 year to date,
capital additions were $695 million compared with $814 million a year ago.
Year-to-date 1994 capital additions include approximately $292 million of
equipment previously leased and subsequently purchased upon the termination
of a Master Lease agreement. The provision for depreciation for the first
three quarters of 1995 was $592 million compared with $582 million for the
comparable period of 1994.
9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1987, the Company was sued in federal district court in San
Francisco by a number of independent service organizations who alleged
violations of Sections 1 and 2 of the Sherman Act and of various state
statutes in the sale by the Company of repair parts for its copier and
micrographics equipment (Image Technical Service, Inc. (ITS), et al v.
Eastman Kodak Company). The complaint sought unspecified compensatory and
punitive damages. Trial began on June 19, 1995 and concluded on September
18, 1995 with a jury verdict for plaintiffs of $23,948,300, before trebling.
The Company intends to appeal the jury's verdict and otherwise to continue to
defend this action vigorously.
Two cases that raise essentially the same antitrust issues as ITS are pending
in federal district court in San Francisco (Nationwide, et al v. Eastman
Kodak Company, filed March 10, 1995, and A-1 Copy Center, et al v. Eastman
Kodak Company, filed December 13, 1993, the latter a consolidated class
action). The complaints in Nationwide and A-1 seek unspecified compensatory
and punitive damages. Discovery was stayed in both cases pending completion
of the ITS trial. The Company expects that activity in both these cases will
now accelerate, with the possibility of trials within the next two years. As
is the case in ITS, the Company is defending both of these matters
vigorously.
The Company is participating in the Environmental Protection Agency's (EPA)
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 action, the Company has been
designated as a potentially responsible party (PRP) under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
(the Superfund law), or under similar state laws, for environmental
assessment and cleanup costs as the result of the Company's alleged
arrangements for disposal of hazardous substances at approximately
twenty-five Superfund sites. With respect to each of these sites, the
Company's actual or potential allocated share of responsibility is small.
Furthermore, numerous other PRPs have similarly been designated at these
sites and, although the law imposes joint and several liability on PRPs, as a
practical matter, costs are shared with other PRPs. Settlements and costs
paid by the Company in Superfund matters to date have not been material.
Future costs are also not expected to be material to the Company's financial
condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and financial statement schedules required as part of
this report are listed in the index appearing on page 11.
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the quarter ended September 30, 1995.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTMAN KODAK COMPANY
(Registrant)
Date November 3, 1995
David J. FitzPatrick, Controller,
Principal Accounting Officer and
Duly Authorized Officer
11
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Exhibit Page No.
(11) Computation of Earnings Per Common Share 12
(27) Financial Data Schedule, Exhibit (27) - Submitted
with the EDGAR filing as a second document to this
Form 10-Q
12
Exhibit (11)
Eastman Kodak Company and Subsidiary Companies
Computation of Earnings Per Common Share
Third Quarter Three Quarters
1995 1994 1995 1994
(in millions, except per share amounts)
Earnings from continuing operations before
extraordinary item $ 338 $ 193 $ 977 $ 633
Loss from discontinued operations - - - (81)
----- ----- ----- -----
Earnings before extraordinary item 338 193 977 552
Extraordinary item - - - (13)
----- ----- ----- -----
Net Earnings $ 338 $ 193 $ 977 $ 539
===== ===== ===== =====
Average number of common shares outstanding 342.0 339.4 341.1 334.3
Earnings per share from continuing
operations before extraordinary item $ .99 $ .57 $2.86 $1.89
Loss per share from discontinued operations - - - (.24)
----- ----- ----- -----
Earnings per share before extraordinary item .99 .57 2.86 1.65
Extraordinary item - - - (.04)
----- ----- ----- -----
Earnings per share $ .99 $ .57 $2.86 $1.61
===== ===== ===== =====
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
1.0
1,268
65
3,076
124
1,947
7,069
12,623
7,275
14,413
4,422
653
972
0
0
3,788
14,413
10,888
11,078
5,630
5,630
3,864
0
58
1,526
549
977
0
0
0
977
2.86
0
