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, 1996
or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class June 30, 1996
Common Stock, $2.50 par value 336,913,291
2
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions) Second Quarter First Half-Year
1996 1995 1996 1995
REVENUES
Sales $4,117 $3,938 $7,505 $7,075
Earnings from equity interests and other
revenues 85 54 143 126
------ ------ ------ ------
TOTAL REVENUES 4,202 3,992 7,648 7,201
------ ------ ------ ------
COSTS
Cost of goods sold 2,100 2,030 3,876 3,643
Selling, general and administrative expenses 1,137 1,098 2,108 1,993
Research and development costs 247 233 488 452
Interest expense 21 19 39 38
Other costs 37 13 56 61
------ ------ ------ ------
TOTAL COSTS 3,542 3,393 6,567 6,187
------ ------ ------ ------
Earnings before income taxes 660 599 1,081 1,014
Provision for income taxes 220 222 367 375
------ ------ ------ ------
NET EARNINGS $ 440 $ 377 $ 714 $ 639
====== ====== ====== ======
Earnings per share $ 1.30 $ 1.11 $ 2.09 $ 1.88
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Retained earnings at beginning of period $5,323 $4,605 $5,184 $4,485
Net earnings 440 377 714 639
Cash dividends declared (135) (137) (272) (273)
Other changes 5 (7) 7 (13)
------ ------ ------ ------
RETAINED EARNINGS at end of period $5,633 $4,838 $5,633 $4,838
====== ====== ====== ======
- ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
June 30, Dec. 31,
1996 1995
(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 940 $ 1,764
Marketable securities 28 47
Receivables 3,275 3,145
Inventories 1,951 1,660
Deferred income tax charges 535 520
Other 231 173
------- -------
Total current assets 6,960 7,309
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,811 12,652
Less: Accumulated depreciation 7,433 7,275
------- -------
Net properties 5,378 5,377
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $345 and $326) 515 536
Deferred income tax charges 334 344
Long-term receivables and other
noncurrent assets 996 911
------- -------
TOTAL ASSETS $14,183 $14,477
======= =======
- -------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,048 $ 3,327
Short-term borrowings 636 586
Taxes-income and other 860 567
Dividends payable 135 137
Deferred income tax credits 32 26
------- -------
Total current liabilities 4,711 4,643
OTHER LIABILITIES
Long-term borrowings 571 665
Postemployment liabilities 3,284 3,247
Other long-term liabilities 666 704
Deferred income tax credits 99 97
------- -------
Total liabilities 9,331 9,356
------- -------
SHAREHOLDERS' EQUITY
Common stock at par* 981 974
Additional capital paid in or
transferred from retained earnings 916 803
Retained earnings 5,633 5,184
Accumulated translation adjustment 62 93
------- -------
7,592 7,054
Less: Treasury stock at cost* 2,740 1,933
------- -------
Total shareholders' equity 4,852 5,121
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,183 $14,477
======= =======
* Common stock: $2.50 par value, 950 million shares authorized, 391 million shares issued as
of June 30, 1996 and 390 million shares issued as of December 31, 1995. Treasury stock at cost
consists of approximately 54 million shares at June 30, 1996 and 44 million shares at
December 31, 1995.
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
4
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
First Half-Year
1996 1995
(in millions)
Cash flows from operating activities:
Net earnings $ 714 $ 639
Adjustments to reconcile above earnings to net cash
provided by operating activities:
Depreciation and amortization 442 429
(Benefit) provision for deferred taxes (22) 82
Loss on sale and retirement of properties 40 48
Increase in receivables (166) (89)
Increase in inventories (310) (331)
Increase in liabilities excluding borrowings 73 197
Other items, net (138) (464)
------- -------
Total adjustments (81) (128)
------- -------
Net cash provided by operating activities 633 511
------- -------
Cash flows from investing activities:
Additions to properties (532) (459)
Proceeds from sale of properties and investments 44 27
Marketable securities - sales 35 23
Marketable securities - purchases (16) -
Cash flows related to sales of non-imaging
health businesses (1) (1,241)
------- -------
Net cash used in investing activities (470) (1,650)
------- -------
Cash flows from financing activities:
Net decrease in commercial paper borrowings
of 90 days or less (206) (175)
Proceeds from other borrowings 853 310
Repayment of other borrowings (659) (5)
Dividends to shareholders (274) (273)
Exercise of employee stock options 124 71
Stock repurchases (827) -
------- -------
Net cash used in financing activities (989) (72)
------- -------
Effect of exchange rate changes on cash 2 14
------- -------
Net decrease in cash and cash equivalents (824) (1,197)
Cash and cash equivalents, beginning of year 1,764 2,020
------- -------
Cash and cash equivalents, end of quarter $ 940 $ 823
======= =======
- ---------------------------------------------------------------------------------------
See Notes to Financial Statements
5
NOTES TO FINANCIAL STATEMENTS
NOTE 1
BASIS OF PRESENTATION
The financial statements have been prepared by the Company in accordance
with the accounting policies stated in the 1995 Annual Report and should
be read in conjunction with the Notes to Financial Statements appearing
therein. In the opinion of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation have
been included in the financial statements. The statements are based in
part on estimates and have not been audited by independent accountants.
The annual statements will be audited by Price Waterhouse LLP.
NOTE 2
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiary companies are involved in lawsuits, claims,
investigations and proceedings, including product liability, commercial,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. There are no such matters
pending that the Company and its General Counsel expect to be material in
relation to the Company's business, financial condition or results of
operations.
NOTE 3
RECLASSIFICATIONS
Certain 1995 financial statement amounts have been reclassified to conform
with the 1996 presentation.
David J. FitzPatrick, Controller
July 31, 1996
6
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SUMMARY
(in millions, except Second Quarter First Half-Year
earnings per share) 1996 1995 Change 1996 1995 Change
Sales $4,117 $3,938 + 5% $7,505 $7,075 + 6%
Net earnings 440 377 714 639
Earnings per share 1.30 1.11 2.09 1.88
1996
Sales were $4,117 million for the 1996 second quarter and $7,505 million
for the first half-year. Net earnings were $440 million for the 1996
second quarter ($1.30 per share) and $714 million for the first half-year
($2.09 per share).
During the 1996 second quarter, Kodak concluded a $1 billion share
repurchase program, announced last October, and initiated an additional $2
billion repurchase program which is expected to extend over the next two
to three years.
On January 18, 1996, the Company announced it is developing alternatives
to strengthen and reposition its Office Imaging business. The Office
Imaging business is involved primarily with the development, production,
sale, and service of office reprographics, document processing, and
reproduction equipment. The Company continues to explore a variety of
strategic options and structural alternatives, which include expanding its
use of strategic alliances, the formation of joint ventures, and potential
divestiture.
1995
Sales were $3,938 million for the 1995 second quarter and $7,075 million
for the first half-year. Net earnings were $377 million for the 1995
second quarter ($1.11 per share) and $639 million for the first half-year
($1.88 per share).
- -------------------------------------------------------------------------
Sales by Industry Segment
Second Quarter First Half-Year
(in millions) 1996 1995 Change 1996 1995 Change
Consumer Imaging
Inside the U.S. $ 903 $ 817 +11% $1,461 $1,303 +12%
Outside the U.S. 1,124 1,061 + 6 2,021 1,842 +10
------ ------ --- ------ ------ ---
Total Consumer Imaging 2,027 1,878 + 8 3,482 3,145 +11
------ ------ --- ------ ------ ---
Commercial Imaging
Inside the U.S. 1,031 1,007 + 2 1,964 1,932 + 2
Outside the U.S. 1,066 1,062 0 2,074 2,014 + 3
------ ------ --- ------ ------ ---
Total Commercial Imaging 2,097 2,069 + 1 4,038 3,946 + 2
------ ------ --- ------ ------ ---
Deduct Intersegment Sales (7) (9) (15) (16)
------ ------ --- ------ ------ ---
Total Sales $4,117 $3,938 + 5% $7,505 $7,075 + 6%
====== ====== === ====== ====== ===
- -------------------------------------------------------------------------
Earnings from Operations
by Industry Segment
(in millions)
Second Quarter First Half-Year
1996 1995* Change 1996 1995* Change
Consumer Imaging $ 422 $ 399 + 6% $ 583 $ 546 + 7%
Percent of Sales 20.8% 21.2% 16.7% 17.4%
Commercial Imaging $ 209 $ 181 +15% $ 448 $ 450 0%
Percent of Sales 10.0% 8.7% 11.1% 11.4%
----- ----- --- ------ ----- ---
Total Earnings from Operations $ 631 $ 580 + 9% $1,031 $ 996 + 4%
===== ===== === ====== ===== ===
* Certain amounts have been reclassified to conform with the 1996 presentation.
- -------------------------------------------------------------------------------------------
7
COSTS AND EXPENSES Second Quarter First Half-Year
(in millions) 1996 1995 Change 1996 1995 Change
Gross profit $2,017 $1,908 + 6% $3,629 $3,432 + 6%
Percent of Sales 49.0% 48.5% 48.4% 48.5%
Selling, general and
administrative expenses $1,137 $1,098 + 4% $2,108 $1,993 + 6%
Percent of Sales 27.6% 27.9% 28.1% 28.2%
Research and development costs $ 247 $ 233 + 6% $ 488 $ 452 + 8%
Percent of Sales 6.0% 5.9% 6.5% 6.4%
- -------------------------------------------------------------------------------------------
1996 COMPARED WITH 1995
Second quarter
For the second quarter of 1996, sales increased 5% compared with the
second quarter of 1995, primarily due to higher unit volumes, partially
offset by the unfavorable effects of foreign currency rate changes and
lower effective selling prices.
Sales in the Consumer Imaging segment increased 8%, due to higher unit
volumes slightly offset by the unfavorable effects of foreign currency
rate changes and lower effective selling prices. Sales inside the U.S.
increased 11%, primarily due to higher unit volumes slightly offset by
lower effective selling prices. Sales outside the U.S. increased 6%, due
to higher unit volumes partially offset by the unfavorable effects of
foreign currency rate changes and lower effective selling prices.
Worldwide growth was led by sales gains of the Company's Qualex
photofinishing subsidiary and increased sales of Advantix products,
Ektacolor papers and one-time-use cameras.
Sales in the Commercial Imaging segment increased 1%, due to higher unit
volumes partially offset by the unfavorable effects of foreign currency
rate changes and lower effective selling prices. Sales inside the U.S.
increased 2%, due to higher unit volumes. Sales outside the U.S. were
level, with higher unit volumes offset by the unfavorable effects of
foreign currency rate changes and lower effective selling prices.
Worldwide increases were led by digital and professional motion imaging
products.
Earnings from operations increased 9%, as the benefits of higher unit
volumes and manufacturing productivity were partially offset by lower
effective selling prices and higher advertising expenses.
Earnings from operations in the Consumer Imaging segment increased 6%, as
the benefits of higher unit volumes and manufacturing productivity were
somewhat offset by increased advertising expenses and lower effective
selling prices.
Earnings from operations in the Commercial Imaging segment increased 15%
as the benefits of manufacturing productivity and higher unit volumes were
only partially offset by lower effective selling prices and the
unfavorable effects of foreign currency rate changes.
For the second quarter of 1996, earnings from equity interests and other
revenues increased $31 million primarily due to higher investment
earnings. The increase in other costs in 1996 when compared with 1995 is
due primarily to higher net losses in 1996 from foreign exchange
transactions and the translation of net monetary items in highly
inflationary economies. The decrease in the effective tax rate from 37%
in the second quarter of 1995 to 33% in the second quarter of 1996 was
primarily due to the utilization of certain foreign tax loss
carryforwards.
Year to date
For the first half of 1996, sales increased 6% compared with the first
half of 1995, primarily due to higher unit volumes, partially offset by
lower effective selling prices and the unfavorable effects of foreign
currency rate changes.
Sales in the Consumer Imaging segment increased 11%, as higher unit
volumes were slightly offset by lower effective selling prices and the
unfavorable effects of foreign currency rate changes. Sales inside the
U.S. increased 12%, primarily due to higher unit volumes slightly offset
by lower effective selling prices. Sales outside the U.S. increased 10%,
due to higher unit volumes partially offset by the unfavorable effects of
foreign currency rate changes and lower effective selling prices.
Worldwide growth was led by sales gains of the Company's Qualex
photofinishing subsidiary along with increased sales of Ektacolor papers,
Kodacolor 35mm films, Advantix products and one-time-use cameras.
8
Sales in the Commercial Imaging segment increased 2%, due to higher unit
volumes slightly offset by the unfavorable effects of foreign currency
rate changes and lower effective selling prices. Sales inside the U.S.
increased 2%, due to higher unit volumes. Sales outside the U.S.
increased 3%, due to higher unit volumes slightly offset by the
unfavorable effects of foreign currency rate changes and lower effective
selling prices. Worldwide growth was led by digital and professional
motion imaging products.
Earnings from operations increased 4%, as the benefits of higher unit
volumes and manufacturing productivity were partially offset by higher
selling, general and administrative activity and lower effective selling
prices.
Earnings from operations in the Consumer Imaging segment increased 7%, as
the benefits of higher unit volumes and manufacturing productivity were
somewhat offset by higher selling, general and administrative expenses and
lower effective selling prices. Approximately two-thirds of the increased
selling, general and administrative expenses were due to higher
advertising expenditures.
Earnings from operations in the Commercial Imaging segment were level, as
increases due to higher unit volumes and manufacturing productivity were
offset by lower effective selling prices, increased research and
development expenditures and the unfavorable effects of foreign currency
rate changes.
For the first half of 1996, earnings from equity interests and other
revenues increased $17 million primarily due to higher investment
earnings. The decrease in the effective tax rate from 37% during the
first half of 1995 to the 34% rate during the first half of 1996 was
driven by the utilization of certain foreign tax loss carryforwards.
- -------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Available cash reserves and cash from operations have been and will be
used to complete the $1 billion and $2 billion stock repurchase programs.
Cash flow from operations for the first half of 1996 was $633 million,
primarily due to $714 million of net earnings, which included $442 million
of non-cash depreciation and amortization expenses; a $310 million
increase in inventories and a $166 million increase in receivables. Net
cash outflow from investing activities was $470 million for the first half
of 1996, due primarily to capital expenditures of $532 million. Net cash
outflow from financing activities of $989 million for the first half of
1996 was primarily due to $827 million of stock repurchases and $274
million of dividend payments.
During the second quarter of 1996, a cash dividend of $135 million (40
cents per share) was declared on the Company's common stock, versus $137
million (40 cents per share) a year ago. Total cash dividends declared
for the year-to-date periods of 1996 and 1995 amounted to $272 million (80
cents per share) and $273 million (80 cents per share), respectively.
Cash, cash equivalents and marketable securities were $968 million at the
end of the second quarter, compared with $1,811 million at year-end 1995.
Net working capital at the end of the quarter was $2,249 million, compared
with $2,666 million at year-end 1995. Both decreases are primarily
attributable to the stock repurchase program.
Projected operating cash flows are expected to be adequate to support
normal business operations, planned capital expenditures, the stock
repurchase program, and dividend payments in 1996.
Capital additions for the second quarter of 1996 were $282 million
compared with $221 million for the second quarter of 1995. For the first
half of 1996, capital additions were $532 million versus $459 million a
year ago.
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9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1987, the Company was sued in federal district court in San
Francisco by a number of independent service organizations who alleged
violations of Sections 1 and 2 of the Sherman Act and of various state
statutes in the sale by the Company of repair parts for its copier and
micrographics equipment (Image Technical Service, Inc. (ITS), et al v.
Eastman Kodak Company). The complaint sought unspecified compensatory and
punitive damages. Trial began on June 19, 1995 and concluded on September
18, 1995 with a jury verdict for plaintiffs of $23,948,300, before
trebling. The Company has appealed the jury's verdict and intends to
continue to defend this action vigorously.
Three cases that raise essentially the same antitrust issues as ITS are
pending (Nationwide, et al v. Eastman Kodak Company, filed March 10,
1995, A-1 Copy Center, et al v. Eastman Kodak Company, filed December 13,
1993, and Broward Microfilm, Inc. v. Eastman Kodak Company, filed February
27, 1996). The Nationwide and A-1 cases are pending in federal district
court in San Francisco, while Broward Microfilm is pending in federal
district court in Miami. A-1 is a consolidated class action, while
Broward Microfilm purports to be a national class action. The complaints
in all three cases seek unspecified compensatory and punitive damages. As
is the case in ITS, the Company is defending these matters vigorously.
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 not expected to be material to the Company's
financial condition or results of operations.
10
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders of Eastman Kodak
Company was held on
May 8.
A total of 284,546,636 of the Company's shares were present or
represented by proxy at the meeting. This represented more
than 83% of the Company's shares outstanding.
The individuals named below were elected to three-year terms as
Class III Directors:
Name Votes Received Votes Withheld
Richard S. Braddock 281,370,768 3,175,868
Karlheinz Kaske 280,492,531 4,054,105
Richard A. Zimmerman 281,404,128 3,142,508
Martha Layne Collins, George M. C. Fisher, Paul E. Gray, John
J. Phelan, Jr., Alice F. Emerson, Roberto C. Goizueta and
Wilbur J. Prezzano all continue as Directors of the Company.
The election of Price Waterhouse LLP as independent accountants
was ratified, with 283,068,737 shares voting for, 613,668
shares voting against, and
864,231 shares abstaining.
The shareholder proposal that would require disclosure of environmental
liabilities to shareholders was defeated, with 15,242,230 shares voting
for, 207,055,657 shares voting against, 20,272,792 shares abstaining, and
39,975,957 non-votes.
The shareholder proposal that would adopt a system of cumulative voting
for the purposes of director elections was defeated, with 64,860,051
shares voting for, 173,118,302 shares voting against, 6,592,326 shares
abstaining, and 39,975,957 non-votes.
The shareholder proposal that would eliminate certain executive
compensation was defeated, with 12,498,200 shares voting for, 225,685,402
shares voting against, 6,387,077 shares abstaining, and 39,975,957
non-votes.
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 12.
(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, 1996.
11
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 July 31, 1996
David J. FitzPatrick
Vice President and Controller
12
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Page No.
Exhibit
(11) Computation of Earnings Per Common Share 13
(27) Financial Data Schedule - Submitted with the
Edgar filing as a second document to this Form 10-Q
13
Eastman Kodak Company and Subsidiary Companies
Exhibit (11)
Computation of Earnings Per Common Share
Second Quarter First Half-Year
1996 1995 1996 1995
(in millions, except per share amounts)
Earnings before income taxes $ 660 $ 599 $1,081 $1,014
Provision for income taxes 220 222 367 375
------ ------ ------ ------
Net Earnings $ 440 $ 377 $ 714 $ 639
====== ====== ====== ======
Average number of common shares outstanding 338.2 341.2 340.8 340.6
------ ------ ------ ------
Earnings per share $ 1.30 $ 1.11 $ 2.09 $ 1.88
====== ====== ====== ======
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
1.0
940
28
3275
100
1951
6960
12811
7433
14183
4711
571
0
0
981
3871
14183
7505
7648
3876
3876
2652
0
39
1081
367
714
0
0
0
714
2.09
0
