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 March 31, 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 March 31, 1996
Common Stock, $2.50 par value 339,586,051
2
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
First Quarter
1996 1995
(in millions)
REVENUES
Sales $3,388 $3,137
Earnings from equity interests and other revenues 58 72
------ ------
TOTAL REVENUES 3,446 3,209
------ ------
COSTS
Cost of goods sold 1,776 1,613
Selling, general and administrative expenses 971 895
Research and development costs 241 219
Interest expense 18 19
Other costs 19 48
------ ------
TOTAL COSTS 3,025 2,794
------ ------
Earnings before income taxes 421 415
Provision for income taxes 147 153
------ ------
NET EARNINGS $ 274 $ 262
====== ======
Earnings per share $ .80 $ .77
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
First Quarter
1996 1995
(in millions)
Retained earnings at beginning of year $5,184 $4,485
Net earnings 274 262
Cash dividends declared (137) (136)
Other changes 2 (6)
------ ------
RETAINED EARNINGS at end of quarter $5,323 $4,605
====== ======
- --------------------------------------------------------------------------------------
See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
March 31, Dec. 31,
1996 1995
(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,139 $ 1,764
Marketable securities 28 47
Receivables 2,838 3,145
Inventories 1,898 1,660
Deferred income tax charges 515 520
Other 247 173
------- -------
Total current assets 6,665 7,309
PROPERTIES
Land, buildings and equipment at cost 12,716 12,652
Less: Accumulated depreciation 7,343 7,275
------- -------
Net properties 5,373 5,377
OTHER ASSETS
Goodwill (net of accumulated amortization
of $353 and $346) 534 536
Deferred income tax charges 330 344
Long-term receivables and other noncurrent assets 966 911
------- -------
TOTAL ASSETS $13,868 $14,477
======= =======
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,024 $ 3,327
Short-term borrowings 557 586
Taxes-income and other 787 567
Dividends payable 137 137
Deferred income tax credits 32 26
------- -------
Total current liabilities 4,537 4,643
OTHER LIABILITIES
Long-term borrowings 507 665
Postemployment liabilities 3,273 3,247
Other long-term liabilities 701 704
Deferred income tax credits 97 97
------- -------
Total liabilities 9,115 9,356
SHAREHOLDERS' EQUITY
Common stock at par* 978 974
Additional capital paid in or
transferred from retained earnings 881 803
Retained earnings 5,323 5,184
Accumulated translation adjustment 75 93
------- -------
7,257 7,054
Less: Treasury stock shares at cost* 2,504 1,933
------- -------
Total shareholders' equity 4,753 5,121
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,868 $14,477
======= =======
*Common stock: $2.50 par value, 950 million shares authorized, 391.0 million shares issued
as of March 31, 1996. Treasury stock shares at cost consists of approximately 51 million
shares at March 31, 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 Quarter
1996 1995
(in millions)
Cash flows from operating activities:
Net earnings $ 274 $ 262
Adjustments to reconcile above earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 213 219
Provision (benefit) for deferred income taxes 1 (1)
Loss on sale and retirement of properties 13 19
Decrease in receivables 286 301
Increase in inventories (247) (296)
Decrease in liabilities excluding borrowings (24) (113)
Other items, net (92) (187)
------- -------
Total adjustments 150 (58)
------- -------
Net cash provided by
operating activities 424 204
------- -------
Cash flows from investing activities:
Additions to properties (250) (238)
Proceeds from sale of properties 15 13
Marketable securities - purchases (8) -
Marketable securities - sales 27 19
Cash flows related to sales of non-imaging
health businesses (7) (1,328)
------- -------
Net cash used in investing activities (223) (1,534)
------- -------
Cash flows from financing activities:
Net decrease in borrowings
with original maturity of
90 days or less (185) (215)
Proceeds from other borrowings 213 217
Repayment of other borrowings (217) (8)
Dividends to shareholders (137) (136)
Exercise of employee stock options 70 20
Stock repurchases (571) -
------- -------
Net cash used in financing activities (827) (122)
------- -------
Effect of exchange rate changes on cash 1 5
------- -------
Net decrease in cash and cash equivalents (625) (1,447)
Cash and cash equivalents, beginning of year 1,764 2,020
------- -------
Cash and cash equivalents, end of quarter $ 1,139 $ 573
======= =======
- ----------------------------------------------------------------------------------------
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 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 independent accountants.
- ----------------------------------------------------------------------------
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.
David J. FitzPatrick, Vice President
and Controller
May 6, 1996
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
(in millions, except earnings per share) First Quarter
1996 1995 Change
Sales $3,388 $3,137 +8%
Net earnings 274 262
Earnings per share .80 .77
1996
Sales for the first quarter of 1996 were $3,388 million and net earnings were
$274 million ($.80 per share). Net earnings increased over the comparable
period a year ago as the benefits of volume increases were only partially
offset by lower effective selling prices, higher selling, general and
administrative activity and increased research and development expenditures.
On April 16, 1996, the Company announced a program, expected to extend over
the next two to three years, to repurchase up to an additional $2 billion of
its outstanding common stock. This follows a $1 billion stock repurchase
program the Company commenced during the fourth quarter of 1995. At March
31, 1996, approximately $870 million of the original $1 billion has been
repurchased, with the remaining $130 million expected to be repurchased in
the near future.
On January 18, 1996, the Company announced its intention 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 for the first quarter of 1995 were $3,137 million and net earnings were
$262 million ($.77 per share).
- ------------------------------------------------------------------------
Sales by Industry Segment
First Quarter
1996 1995 Change
(in millions)
Consumer Imaging
Inside the U.S. $ 558 $ 486 +15%
Outside the U.S. 897 781 +15
------ ------ ---
Total Consumer Imaging 1,455 1,267 +15
------ ------ ---
Commercial Imaging
Inside the U.S. 933 925 + 1
Outside the U.S. 1,008 952 + 6
------ ------ ---
Total Commercial Imaging 1,941 1,877 + 3
------ ------ ---
Deduct: Intersegment Sales (8) (7)
------ ------ ---
Total Sales $3,388 $3,137 + 8%
====== ====== ===
- -----------------------------------------------------------------------------
Earnings from Operations by Industry Segment
(in millions)
First Quarter
1996 1995* Change
Consumer Imaging $ 161 $ 147 +10%
Percent of Segment Sales 11.1% 11.6%
Commercial Imaging $ 239 $ 269 -11%
Percent of Segment Sales 12.3% 14.3%
------ ------ ---
Total Earnings from Operations $ 400 $ 416 - 4%
====== ====== ===
* Certain amounts have been reclassified to conform to the 1996 presentation.
7
- ---------------------------------------------------------------------------
COSTS AND EXPENSES First Quarter
(in millions) 1996 1995 Change
Gross profit $1,612 $1,524 + 6%
Percent of Sales 47.6% 48.6%
Selling, general and administrative expenses $ 971 $ 895 + 8%
Percent of Sales 28.7% 28.5%
Research and development costs $ 241 $ 219 +10%
Percent of Sales 7.1% 7.0%
- -------------------------------------------------------------------------
1996 COMPARED WITH 1995
First quarter 1996 sales increased 8% compared with the first quarter of
1995, primarily due to higher unit volumes. Currency changes against the
U.S. dollar negatively affected sales by $15 million in 1996. Sales for the
Consumer Imaging segment increased significantly, while Commercial Imaging
segment sales increased slightly. Consumer Imaging sales increased
significantly both to customers in the U.S. and outside the U.S., due to
worldwide volume increases of Kodacolor 35mm films, Ektacolor papers,
photofinishing services and cameras. Commercial Imaging sales to customers
in the U.S. were essentially level with the first quarter of 1995. Sales to
customers outside the U.S. showed a moderate increase from the prior year, as
good volume gains were partially offset by lower effective selling prices.
Sales of motion picture films and many of the newer digital products led the
worldwide sales increase.
Earnings from operations decreased 4% from the first quarter of 1995, as the
benefits of increased unit volumes were more than offset by lower gross
profit, higher levels of selling, general and administrative activity, and
higher research and development activity. The primary factors contributing
to the decrease of one percentage point in the gross profit rate were price
declines in certain product categories and a slightly different product mix
with proportionately less sales coming from higher margin sensitized
products. Additionally, advertising and other costs for the Company's new
Advantix system products contributed to the increase in selling, general and
administrative expenses.
Consumer Imaging operating earnings increased 10%, as the benefits of
increased unit volumes were partially offset by higher levels of advertising
associated with the new Advantix system products and lower effective selling
prices. Commercial Imaging operating earnings decreased 11% from the first
quarter of 1995, as the adverse effects of lower effective selling prices,
higher research and development activity and increased selling, general and
administrative activity more than offset the benefits of increased unit
volumes.
Earnings from equity interests and other revenues decreased for the first
quarter of 1996 compared with 1995, due primarily to lower earnings from
equity interests. Interest expense for the first quarter of 1996 was
essentially level with 1995, as total borrowings were generally consistent
year over year. The decrease in other costs in 1996 compared with 1995 is
due primarily to lower net losses in 1996 from foreign exchange transactions
and the translation of net monetary items in highly inflationary economies.
The lower effective tax rate in 1996 principally results from 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 quarter of 1996 was $424 million,
primarily due to net earnings of $274 million, which included non-cash
expenses for depreciation and amortization of $213 million, and a $286 million
decrease in receivables. Net cash outflow from investing activities was
$223 million for the first quarter of 1996, due primarily to capital
expenditures of $250 million. Net cash outflow from financing activities of
$827 million for the first quarter of 1996 was primarily due to the $571
million stock repurchase and $137 million of dividend payments.
Total cash dividends of approximately $137 million ($.40 per share) and $136
million ($.40 per share) were declared in the first quarters of 1996 and
1995, respectively.
Cash, cash equivalents and marketable securities decreased from $1,811
million at December 31, 1995 to $1,167 million at March 31, 1996. Net
working capital also decreased from $2,666 million at year-end 1995 to $2,128
million at March 31, 1996. Both decreases are primarily attributable to the
stock repurchase program.
Capital additions for the first quarter of 1996 were $250 million compared
with $238 million for the first quarter of 1995.
- ----------------------------------------------------------------------
8
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.
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. Stays in both these cases were lifted effective March
1, 1996, and trials are possible within the next two years. 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.
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 10.
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the quarter ended March 31, 1996.
9
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)
David J. FitzPatrick, Vice President
and Controller
Date May 6, 1996
10
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Exhibit Number Page No.
(11) Statement Re Computation of Earnings Per Common Share 11
(27) Financial Data Schedule, Exhibit (27) - Submitted with the
Edgar filing as a second document to this Form 10-Q
11
Eastman Kodak Company and Subsidiary Companies
Exhibit (11)
Computation of Earnings Per Common Share
First Quarter
1996 1995
(in millions, except
per share amounts)
Earnings before income taxes $ 421 $ 415
Provision for income taxes 147 153
------ ------
Net Earnings $ 274 $ 262
====== ======
Average number of common shares outstanding 343.4 340.0
------ ------
Earnings per share $ .80 $ .77
====== ======
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
1.0
1139
28
2838
102
1898
6665
12716
7343
13868
4537
507
0
0
978
3775
13868
3388
3446
1776
1776
1231
0
18
421
147
274
0
0
0
274
.80
0
