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, 1997
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, 1997
Common Stock, $2.50 par value 324,901,439
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions)
Third Quarter Three Quarters
1997 1996 1997 1996
REVENUES
Sales $3,773 $4,149 $10,759 $11,654
Earnings from equity
interests and other revenues 14 30 120 173
------ ------ ------- -------
TOTAL REVENUES 3,787 4,179 10,879 11,827
------ ------ ------- -------
COSTS
Cost of goods sold 2,045 2,152 5,703 6,028
Selling, general and
administrative expenses 1,035 1,119 2,905 3,227
Research and development costs 259 252 782 740
Purchased research and
development - - 186 -
Interest expense 26 20 69 59
Other costs 70 14 99 70
------ ------ ------- -------
TOTAL COSTS 3,435 3,557 9,744 10,124
------ ------ ------- -------
Earnings before income taxes 352 622 1,135 1,703
Provision for income taxes 120 212 386 579
------ ------ ------- -------
NET EARNINGS $ 232 $ 410 $ 749 $ 1,124
====== ====== ======= =======
Earnings per share $ .71 $ 1.22 $ 2.28 $ 3.32
CONSOLIDATED STATEMENT OF
RETAINED EARNINGS
Retained earnings at beginning
of period $6,153 $5,633 $5,931 $ 5,184
Net earnings 232 410 749 1,124
Cash dividends declared (143) (134) (434) (406)
Other changes 5 (2) 1 5
------ ------ ------ -------
RETAINED EARNINGS
at end of period $6,247 $5,907 $6,247 $ 5,907
====== ====== ====== =======
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See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
Sept. 30, Dec. 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 310 $ 1,777
Marketable securities 28 19
Receivables 2,703 2,738
Inventories 1,679 1,575
Deferred income tax charges 662 644
Other 242 212
------- -------
Total current assets 5,624 6,965
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,954 12,585
Less: Accumulated depreciation 7,218 7,163
------- -------
Net properties 5,736 5,422
------- -------
OTHER ASSETS
Goodwill (net of accumulated amortization
of $410 and $366) 620 581
Long-term receivables and other
noncurrent assets 1,337 1,238
Deferred income tax charges 267 232
------- -------
TOTAL ASSETS $13,584 $14,438
======= =======
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,286 $ 4,116
Short-term borrowings 689 541
Taxes - income and other 640 603
Dividends payable 143 133
Deferred income tax credits 34 24
------- -------
Total current liabilities 4,792 5,417
OTHER LIABILITIES
Long-term borrowings 627 559
Postemployment liabilities 2,992 2,967
Other long-term liabilities 840 659
Deferred income tax credits 66 102
------- -------
Total liabilities 9,317 9,704
SHAREHOLDERS' EQUITY
Common stock at par* 978 978
Additional capital paid in or
transferred from retained earnings 913 910
Retained earnings 6,247 5,931
Accumulated translation adjustment (106) 75
------- -------
8,032 7,894
Less: Treasury stock at cost* 3,765 3,160
------- -------
Total shareholders' equity 4,267 4,734
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $13,584 $14,438
======= =======
* Common stock: $2.50 par value, 950 million shares authorized,
391 million shares issued as of September 30, 1997 and December
31, 1996. Treasury stock at cost consists of approximately 66
million shares at September 30, 1997 and 59 million shares at
December 31, 1996.
- -----------------------------------------------------------------
See Notes to Financial Statements
4
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Quarters
1997 1996
Cash flows from operating activities:
Net earnings $ 749 $1,124
Adjustments to reconcile above earnings to
net cash provided by operating activities,
excluding the effect of initial consolidation
of acquired companies:
Depreciation and amortization 600 661
Purchased research and development 186 -
Benefit for deferred taxes (76) (26)
Loss on sale and retirement of properties 1 34
Increase in receivables (57) (61)
Increase in inventories (156) (307)
(Decrease) increase in liabilities excluding
borrowings (285) 39
Other items, net (97) (15)
------ ------
Total adjustments 116 325
------ ------
Net cash provided by operating activities 865 1,449
------ ------
Cash flows from investing activities:
Additions to properties (1,024) (831)
Proceeds from sale of properties 64 66
Acquisitions, net of cash acquired (318) -
Marketable securities - sales 11 40
Marketable securities - purchases - (20)
Cash flows related to sales of non-imaging
health businesses (65) (8)
Cash flows related to sale of Office Imaging
business (129) -
------ ------
Net cash used in investing activities (1,461) (753)
------ ------
Cash flows from financing activities:
Net increase (decrease) in borrowings
with original maturity of
90 days or less 384 (219)
Proceeds from other borrowings 1,038 1,224
Repayment of other borrowings (1,200) (1,091)
Dividends to shareholders (424) (409)
Exercise of employee stock options 89 84
Stock repurchases (732) (1,131)
------ ------
Net cash used in financing activities (845) (1,542)
------ ------
Effect of exchange rate changes on cash (26) (2)
------ ------
Net decrease in cash and cash equivalents (1,467) (848)
Cash and cash equivalents, beginning of year 1,777 1,764
------ ------
Cash and cash equivalents, end of quarter $ 310 $ 916
====== ======
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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 1996 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 position or results of
operations. Refer to Item 1, Legal Proceedings, on page 14.
NOTE 3: ACQUISITIONS AND JOINT VENTURES
On March 17, 1997, the Company acquired Wang Laboratories' software
business unit for approximately $260 million in cash. The unit is engaged
in the development of workflow, imaging, document management and network
storage management software. The transaction was accounted for by the
purchase method and, accordingly, the operating results of the business
have been included in the accompanying consolidated financial statements
from the date of acquisition.
In connection with the acquisition, the Company recorded a pre-tax charge
of $186 million in purchased research and development expense in the first
quarter. The amount attributed to purchased research and development was
determined by a nationally recognized independent valuation firm through
established valuation techniques in the high technology document imaging
industry. The amount was expensed upon acquisition as the technology has
not reached technological feasiblity and has no alternative future use.
On September 2, 1997, the Company announced the completion of a program to
increase its stake in Chinon Industries, Inc. from 12% to 50.1%. The
Company's consolidated financial statements include the accounts of Chinon
beginning September 2. Kodak and Chinon closely collaborate on the
development and production of digital cameras; Chinon also produces Kodak's
IL-500 scanner. Kodak and Chinon will continue to collaborate on
engineering and development of digital cameras and scanners.
6
NOTE 4: SUBSEQUENT EVENTS
On October 2, 1997, the Company purchased CPI's 49% minority stake in the
Fox Photo, Inc. joint venture, thereby increasing Kodak's equity interest
in Fox to 100%. The Company paid $10 million cash at closing and gave a
$43.9 million note due on January 4, 1999.
On October 15, 1997, the Company and Sun Chemical Corporation announced an
agreement in principle to form a new joint venture company, Kodak
Polychrome Graphics, that will supply film, paper, conventional and
computer-to-plate solutions, processing chemistry and digital color
proofing products to the global graphic arts market. The transaction will
combine Kodak's Graphics Systems Markets business, currently part of the
Kodak Professional Division, with Sun Chemical's Polychrome Division to
form Kodak Polychrome Graphics.
The parties plan to complete the transaction by year end, subject to
regulatory approval as required, and the satisfaction of other customary
closing conditions. Approximately 800 employees from Kodak's Graphics
Systems Markets unit will join approximately 1,800 employees from
Polychrome to form Kodak Polychrome Graphics. Several sites are being
considered for the location of the new headquarters and details will be
announced once a decision
has been reached.
On November 11, 1997, the Company disclosed a variety of actions to bring
about cost reductions. The Company reported the following:
Actions are under way which are expected to result in a reduction of
at least $1 billion from the Company's total cost structure over the next
two years, with half of the reduction realized by year-end 1998 and the
balance by year-end 1999;
Management will recommend to the Board of Directors a restructuring
charge of at least $1 billion pre-tax (about $2.00 per share after tax)
during the fourth quarter of 1997, in connection with this cost reduction
program;
Current analysis indicates that about one-half of the charge is
related to employment reductions and one-half is related to write-downs of
assets;
Current analysis indicates that about 10,000 positions will be
eliminated across all areas of the Company worldwide;
The Company will cut its sales, general and administrative expense; re-
focus its research and development portfolio; and reduce its cost of goods
sold through manufacturing productivity gains and quality improvements.
David J. FitzPatrick,
Controller and Vice President
November 14, 1997
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
(in millions, except earnings per share)
Third Quarter Three Quarters
1997 1996 Change 1997 1996 Change
Sales $3,773 $4,149 - 9% $10,759 $11,654 - 8%
Net earnings 232 410 -43 749 1,124 -33
Earnings per share .71 1.22 -42 2.28 3.32 -31
1997
Net earnings for the first three quarters include a pre-tax charge of $186
million ($.37 per share after tax) for in-process research and development
(R&D) associated with the acquisition of Wang Laboratories' software unit
on March 17, 1997. They also include a pre-tax charge of $46 million ($.09
per share after tax) taken in the third quarter as a reserve for payments
that may be required in connection with the Image Technical Service, Inc.
litigation relating to the sale of micrographics and copier parts (the "ITS
charge"). Excluding these charges, net earnings per share for the first
three quarters would have been $2.74.
1996
During the 1996 second quarter, the Company initiated a $2 billion share
repurchase program. Completion of the program will depend on available
cash.
- ------------------------------------------------------------------------
Sales by Industry Segment
(in millions)
Third Quarter Three Quarters
1997 1996 Change 1997 1996 Change
Consumer Imaging
Inside the U.S. $ 945 $ 898 + 5% $ 2,556 $ 2,359 + 8%
Outside the U.S. 1,130 1,184 - 5 3,142 3,205 - 2
------ ------ --- ------- ------- ---
Total Consumer Imaging 2,075 2,082 0 5,698 5,564 + 2
------ ------ --- ------- ------- ---
Commercial Imaging
Inside the U.S. 870 1,030 -16 2,462 2,994 -18
Outside the U.S. 837 1,046 -20 2,622 3,120 -16
------ ------ --- ------- ------- ---
Total Commercial Imaging 1,707 2,076 -18 5,084 6,114 -17
------ ------ --- ------- ------- ---
Deduct Intersegment Sales (9) (9) (23) (24)
------ ------ --- ------- ------- ---
Total Sales $3,773 $4,149 - 9% $10,759 $11,654 - 8%
====== ====== === ======= ======= ===
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8
Earnings from Operations by Industry Segment
(in millions)
Third Quarter Three Quarters
1997 1996 Change 1997 1996 Change
Consumer Imaging $325 $411 -21% $ 823 $ 994 -17%
Percent of Sales 15.7% 19.7% 14.4% 17.9%
Commercial Imaging $109 $216 -50% $ 361 $ 664 -46%
Percent of Sales 6.4% 10.4% 7.1% 10.9%
---- ---- --- ------ ------ ---
Total Earnings from Operations $434 $627 -31% $1,184 $1,658 -29%
==== ==== === ====== ====== ===
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COSTS AND EXPENSES
(in millions)
Third Quarter Three Quarters
1997 1996 Change 1997 1996 Change
Gross profit $1,728 $1,997 -13% $5,056 $5,626 -10%
Percent of Sales 45.8% 48.1% 47.0% 48.3%
Selling, general and
administrative expenses $1,035 $1,119 - 8% $2,905 $3,227 -10%
Percent of Sales 27.4% 27.0% 27.0% 27.7%
Research and development costs $ 259 $ 252 + 3% $ 782* $ 740 + 6%
Percent of Sales 6.9% 6.1% 7.3% 6.3%
* Excludes $186 million R&D charge associated with the purchase of Wang
Laboratories' software unit.
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1997 COMPARED WITH 1996
Third quarter
For the third quarter of 1997, sales decreased 9% compared with the third
quarter of 1996, largely due to the sale of the Office Imaging business on
December 31, 1996. With Office Imaging sales excluded from both years,
sales were down 2% on a year-over-year basis, or up 3% excluding the
effects of the stronger dollar.
Sales in the Consumer Imaging segment were level, as higher unit volumes
were offset by the unfavorable effects of foreign currency rate changes and
lower effective selling prices. Excluding the impact of the stronger
dollar, sales would have increased 5%. Sales inside the U.S. increased 5%,
or $47 million, of which $42 million are a result of the Company's
acquisition of Fox Photo, Inc. in October, 1996. Sales outside the U.S.
decreased 5%, due to higher unit volumes offset by the unfavorable effects
of foreign currency rate changes and lower effective selling prices.
Worldwide film sales decreased 1%, as a 5% volume increase was more than
offset by the unfavorable effects of foreign currency rate changes and
lower effective selling prices. U.S. film sales decreased 3%, due to lower
effective selling prices and lower unit volumes. Outside the U.S., film
sales were level, with 11% volume growth offset by the unfavorable effects
of foreign currency rate changes and lower effective selling prices.
9
Worldwide color paper sales decreased 4%, as 8% volume gains were more than
offset by the unfavorable effects of foreign currency rate changes and
lower effective selling prices. U.S. sales decreased 15%, driven by a 9%
decline in unit volumes and lower effective selling prices caused by recent
consolidation of the U.S. photofinishing industry. The Company expects the
unfavorable year-over-year comparisons to continue at a diminishing rate
through the first half of 1998. Paper sales outside the U.S. increased 2%,
driven by an 18% volume increase partially offset by the unfavorable
effects of foreign currency rate changes and lower effective selling
prices. Sales increases reflect the impact of continuing growth in
emerging markets and new customers gained in Europe.
Sales in the Commercial Imaging segment decreased 18%, largely due to the
sale of the Office Imaging business. Excluding the sales of Office Imaging
from both years, sales decreased 4% (or were level excluding the effects of
the stronger dollar), as higher unit volumes were more than offset by the
unfavorable effects of foreign currency rate changes and lower effective
selling prices.
Earnings from operations for the Company decreased 31%, as the benefits of
higher unit volumes and manufacturing productivity were more than offset by
lower effective selling prices, the unfavorable effects of foreign currency
rate changes, higher advertising and selling expenses and write-offs of
some digital products. Losses on the Company's digital products portfolio
(in both the Commercial and Consumer segments) were approximately $150
million for the quarter and greater than in the comparable 1996 period.
Earnings from operations in the Consumer Imaging segment decreased 21%, as
the benefits of higher unit volumes and manufacturing productivity were
more than offset by lower effective selling prices, the unfavorable effects
of foreign currency rate changes and higher advertising expenses, primarily
for the Advantix program.
Earnings from operations in the Commercial Imaging segment decreased 50% as
the benefits of higher unit volumes and manufacturing productivity were
more than offset by lower effective selling prices, the unfavorable effects
of foreign currency rate changes, write-offs of some digital products and
increased research and development expenses (primarily due to the
acquisition of Wang Laboratories' software unit). Improvements in
Entertainment Imaging were insufficient to offset reduced earnings in
Digital & Applied Imaging, Business Imaging Systems, Health Imaging and
Kodak Professional.
10
For the third quarter of 1997, earnings from equity interests and other
revenues decreased $16 million primarily due to a reduction in interest
income attributable to lower average cash balances. Other costs increased
$56 million due primarily to the ITS charge of $46 million pre-tax and
higher reportable foreign exchange costs.
Year to date
For the first three quarters of 1997, sales decreased 8% compared with the
first three quarters of 1996, due to the sale of the Office Imaging
business on December 31, 1996. With Office Imaging sales excluded from
both years, sales were level on a year-over-year basis, or up 4% excluding
the effects of the stronger dollar.
Sales in the Consumer Imaging segment increased 2%, as higher unit volumes
were partially offset by lower effective selling prices and the unfavorable
effects of foreign currency rate changes. Excluding the impact of the
stronger dollar, sales increased 6%. Sales inside the U.S. increased 8%,
or $197 million, of which $115 million are a result of the Company's
acquisition of Fox Photo, Inc. in October, 1996. Sales outside the U.S.
decreased 2%, as higher unit volumes were more than offset by the
unfavorable effects of foreign currency rate changes and lower effective
selling prices.
Worldwide film sales increased 1%, as a 9% volume increase was largely
offset by lower effective selling prices and the unfavorable effects of
foreign currency rate changes. U.S. film sales increased 3%, with 6%
volume growth partially offset by lower effective selling prices. Outside
the U.S., film sales decreased 1%, with 11% volume growth more than offset
by the unfavorable effects of foreign currency rate changes and lower
effective selling prices.
Worldwide color paper sales decreased 3%, as 8% volume gains were more than
offset by lower effective selling prices and the unfavorable effects of
foreign currency rate changes. U.S. sales decreased 15%, due to an 8%
decline in unit volumes caused by recent consolidation of the U.S.
photofinishing industry, as well as lower effective selling prices. Paper
sales outside the U.S. increased 3%, driven by a 17% volume increase
partially offset by lower effective selling prices and the unfavorable
effects of foreign currency rate changes. Sales increases reflect the
impact of continuing growth in emerging markets and new customers gained in
Europe.
Sales in the Commercial Imaging segment decreased 17%, largely due to the
sale of the Office Imaging business. Excluding the sales of Office Imaging
from both years, sales decreased 2% (or increased 2% excluding the effects
of the stronger dollar), as higher unit volumes were more than offset by
the unfavorable effects of foreign currency rate changes and lower
effective selling prices.
11
Earnings from operations for the Company decreased 29%, as the benefits of
higher unit volumes and manufacturing productivity were more than offset by
lower effective selling prices, the R&D charge associated with the purchase
of Wang Laboratories' software unit in the first quarter 1997, the
unfavorable effects of foreign currency rate changes, higher selling and
distribution expenses, write-offs of first generation Advantix camera
tooling and parts and some digital products, higher research and
development expenses (including R&D due to the acquisition of Wang
Laboratories' software unit) and higher start-up costs for digital
products. Excluding the R&D charge associated with the purchase of Wang
Laboratories' software unit, earnings from operations decreased 17%.
Losses on the Company's digital products portfolio (in both the Commercial
and Consumer segments) were approximately $300 million for the first nine
months and greater than in the comparable 1996 period.
Earnings from operations in the Consumer Imaging segment decreased 17%, as
the benefits of higher unit volumes and manufacturing productivity were
more than offset by lower effective selling prices, the unfavorable effects
of foreign currency rate changes, higher selling and distribution expenses
and write-offs of tooling and parts for some first generation Advantix
cameras. Losses attributable to Advantix exceeded those of 1996.
Earnings from operations in the Commercial Imaging segment decreased 46%,
as the benefits of higher unit volumes and manufacturing productivity were
more than offset by the R&D charge associated with the purchase of Wang
Laboratories' software unit in the first quarter 1997, lower effective
selling prices, the unfavorable effects of foreign currency rate changes,
higher research and development expenses (including R&D due to the
acquisition of Wang Laboratories' software unit), write-offs of some
digital products and higher start-up costs for some digital products.
Excluding the R&D charge associated with the purchase of Wang Laboratories'
software unit, earnings from operations decreased 18%. Improvements in
Entertainment Imaging and Kodak Professional were insufficient to offset
reduced earnings in Business Imaging Systems, Digital & Applied Imaging and
Health Imaging.
For the first three quarters of 1997, earnings from equity interests and
other revenues decreased $53 million primarily due to a reduction in
interest income attributable to lower average cash balances. Other costs
increased $29 million due primarily to the ITS charge of $46 million pre-
tax and higher reportable foreign exchange costs.
With the Company facing continuing pressure from the effect of the stronger
dollar compared with 1996, encountering price pressures, making investments
to support the Advantix system and experiencing widening losses as well as
increasing investments in digital products, the Company reported on
September 15, 1997, that full-year 1997 operating earnings per share could
be as much as 25% below $4.50 (the 1996 earnings per share, adjusted to
exclude: $358 million ($256 million after tax) of restructuring costs, a
$387 million loss ($252 million after tax) related to the sale of the
Office Imaging business, and a gain on the sale of discontinued operations
of $277 million).
The Company recently accelerated actions to reduce costs. These actions
include the reduction of the number of middle and senior managers by 20%
and the reduction of employment in the general and administrative area by
at least 10%. Refer to Note 4, Subsequent Events, on page 6 for more
details about planned actions to reduce costs.
12
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first three quarters of
1997 was $865 million, as net earnings of $749 million, which included non-
cash expenses for depreciation and amortization of $600 million and a $186
million R&D charge associated with the purchase of Wang Laboratories'
software unit, were offset by decreases in liabilities (excluding
borrowings) of $285 million, a $156 million increase in inventories and a
$57 million increase in receivables. Net cash used in investing activities
of $1,461 million for the first three quarters of 1997 was due primarily to
additions to properties of $1,024 million and acquisitions, net of cash
acquired, of $318 million. Net cash used in financing activities of $845
million for the first three quarters of 1997 was primarily due to $732
million of stock repurchases and $424 million of dividend payments.
During the third quarter of 1997, a cash dividend of $143 million (44 cents
per share) was declared on the Company's common stock, versus $134 million
(40 cents per share) a year ago. Total cash dividends declared for the
year-to-date periods of 1997 and 1996 amounted to $434 million ($1.32 per
share) and $406 million ($1.20 per share), respectively.
Cash, cash equivalents and marketable securities were $338 million at the
end of the third quarter, compared with $1,796 million at year-end 1996.
Net working capital at the end of the quarter was $832 million, compared
with $1,548 million at year-end 1996. Both decreases are primarily
attributable to the stock repurchase program and the acquisition of Wang
Laboratories' software unit.
Completion of the $2 billion stock repurchase program will be funded by
available cash reserves and cash from operations.
Capital additions for the third quarter of 1997 were $346 million compared
with $299 million for the third quarter of 1996. For the first three
quarters of 1997, capital additions were $1,024 million versus $831 million
a year ago.
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OTHER
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
This standard replaces primary earnings per share with basic earnings per
share and requires presentation of diluted EPS as well as a reconciliation
of basic earnings per share to diluted earnings per share. The Company
plans to adopt SFAS No. 128 in the fourth quarter of 1997 and at that time
all historical earnings per share data presented will be restated to
conform to the provisions of SFAS No. 128. The Company does not expect
this statement to have a material impact on its earnings per share.
13
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income. This standard requires enterprises to
display comprehensive income and its components in financial statements, to
classify items of comprehensive income by their nature in financial
statements, and to display the accumulated balances of other comprehensive
income in stockholders' equity separately from retained earnings and
additional paid-in capital. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997, and Kodak intends to adopt the standard
for its fiscal year beginning January 1, 1998. The Company has not yet
determined the manner in which it will display comprehensive income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
replacing SFAS No. 14 and its amendments. This standard requires
enterprises to report certain information about their operating segments in
a complete set of financial statements to shareholders; to report certain
enterprise-wide information about products and services, activities in
different geographic areas, and reliance on major customers; and to
disclose certain segment information in their interim financial statements.
The basis for determining an enterprise's operating segments is the manner
in which financial information is used internally by the enterprise's chief
operating decision maker. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997, and Kodak intends to adopt the standard
for its fiscal year beginning January 1, 1998. The Company has not yet
determined how the "management approach" will impact existing segment
disclosures.
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CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report may be forward looking in nature, or
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are identified
by such words and phrases as "expects" and "could be." For example, the
sentence in this report that reads, in part, "...full-year 1997 operating
earnings per share could be as much as 25% below $4.50 ..." is a forward-
looking statement. Also, references to the Company's $1 billion cost-
reduction initiative and to expected savings resulting from quality
improvements are forward-looking statements.
Actual results may differ from those expressed or implied in forward-
looking statements. With respect to any forward-looking statements
contained in this report, the Company believes that it is subject to a
number of risk factors, including: the Company's ability to implement its
product strategies (including strategies for digital products and Advantix
products), to develop its business in emerging markets, and to identify and
successfully implement cost-reduction opportunities; competitive actions
including, but not limited to, pricing; the nature and pace of
technological development; fluctuations in foreign currency; and general
economic and business conditions.
Any forward-looking statements in this report should be evaluated in light
of these important risk factors.
14
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. et al v. Eastman
Kodak Company, "ITS"). 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 ($71,844,900
after trebling). The Company appealed the jury's verdict, and on August
26, 1997 the 9th Circuit Court of Appeals rendered its decision affirming
in part and reversing in part. The court affirmed the jury's liability
rulings, but reduced damages (after trebling) from $71,844,900 to
$35,818,200, and narrowed the scope of the injunction under which the
Company is required to make parts available. Although the Company intends
to continue its vigorous defense of ITS, and in this connection will
petition for Supreme Court review, the Company took a third quarter pre-tax
charge of $46,000,000 in recognition of the fact that further appellate
review is discretionary and not a matter of right.
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. The
Company is defending these matters vigorously.
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 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 position 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 16.
(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, 1997.
15
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 14, 1997
David J. FitzPatrick
Controller and Vice President
16
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Exhibit Page No.
(11) Computation of Earnings Per Common Share. 17
(27) Financial Data Schedule - Submitted with the EDGAR filing
as a second document to this Form 10-Q.
17
Eastman Kodak Company and Subsidiary Companies
Exhibit (11)
Computation of Earnings Per Common Share
(in millions, except per share amounts)
Third Quarter Three Quarters
1997 1996 1997 1996
Earnings before income taxes $ 352 $ 622 $1,135 $1,703
Provision for income taxes 120 212 386 579
------ ------ ------ ------
Net earnings $ 232 $ 410 $ 749 $1,124
====== ====== ====== ======
Average number of common shares
outstanding 325.2 335.4 328.3 339.0
------ ------ ------ ------
Earnings per share $ .71 $ 1.22 $ 2.28 $ 3.32
====== ====== ====== ======
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1.0
310
28
2703
91
1679
5624
12954
7218
13584
4792
627
0
0
978
3289
13584
10759
10879
5703
5703
3972
0
69
1135
386
749
0
0
0
749
2.28
0
