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Mail Stop 6010
June 8, 2005
By U.S. Mail and Facsimile to (585) 724-1606
Mr. Robert H. Brust
Chief Financial Officer
Eastman Kodak Company
343 State Street
Rochester, New York 14650
RE: Eastman Kodak Company
Form 10-K for the fiscal year ended December 31, 2004
Form 10-Q for the quarterly period ended March 31, 2005
Form 8-K filed April 22, 2005
File No. 001-00087
Dear Mr. Brust,
We have reviewed your filings and have the following
comments.
We have limited our review to matters related to the issues raised
in
our comments. Where indicated, we think you should revise your
documents in response to these comments. If you disagree, we will
consider your explanation as to why our comment is inapplicable or
a
revision is unnecessary. Please be as detailed as necessary in
your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the year ended December 31, 2004
Note 1: Significant Accounting Policies and Restatement, page 87
Restatement of Previously Issued Financial Statements
1. The information presented in this Note does not provide
investors
with a clear path between the originally filed and restated
numbers.
To assist us in understanding the reasons for the restatements and
with a view towards revised clearer disclosure for investors,
please
address the following:
* Provide us with a revised discussion of each of the accounting
errors you discovered during your 2004 year-end closing process.
In
addition to the errors relating to your accounting for income
taxes
and pensions and other post retirement benefits, please address in
detail and individually quantify the other miscellaneous errors
you
discovered.
* For each error, describe how you had previously accounted for
each
item, if at all, and contrast that with the accounting required
under
US GAAP.
* Identify each of the last five fiscal years during which your
accounting was not in compliance with US GAAP because of these
errors
and quantify the impact of the errors, on a gross basis, on each
fiscal period.
* Quantify, on a gross basis, the adjustment that is required
under US
GAAP to correct each error. For those areas involving multiple
errors, such as income taxes, please quantify the adjustment
relating
to each component.
* Describe clearly any assumptions you make in allocating amounts
to
the different periods and explain why these allocations are
appropriate.
* For each required adjustment in each period, please provide us
with
sample journal entries showing the accounts impacted and a
schedule
showing us the originally reported balance in that period, the
effect
of each individual adjustment and the revised balance.
2. To assist us in understanding your reasons for recording all
the
adjustments in fiscal 2003, and with a view towards revised
clearer
disclosure for investors, please address the following:
* Using the schedule requested in the last bullet point of comment
1
above, please provide your analysis explaining why the corrections
of
the omissions or misstatements in each of the relevant periods
would
not change or influence the judgment of a reasonable investor.
* If your analysis continues to conclude that the amounts are
immaterial to warrant restatement of the periods prior to fiscal
2003,
please explain why you believe that correction of the errors in
the
first quarter of fiscal 2003 is appropriate. Explain how you
considered the staff`s guidance provided in SAB Topic 5-F and the
remarks of Russell P. Hodge before the December 6, 2004 AICPA
National
Conference on Current SEC and PCAOB Developments found at
http://www.sec.gov/news/speech/spch120604rph.htm.
* Explain clearly why you believe the prior period corrections
made in
fiscal 2003 should be presented in Selling, General and
Administrative
expenses and not in the related statement of operations caption.
3. In regards to the materiality analysis requested in the first
bullet point of comment 2 above, we would expect that analysis to
be
more comprehensive than your Restatement Memo of April 2005. As
appropriate, you should address the following:
* Your materiality assessment relating to 2004 and 2003 should
include
an analysis of qualitative factors, since SAB 99 requires
quantitative
and qualitative considerations in materiality judgments.
* Your materiality assessment should include restructuring charges
in
your assessment of the aggregate impact on the results from
continuing
operations.
* The analysis should be based on GAAP financial measures and on
your
GAAP results.
* In assessing the materiality of these adjustments, please
consider
each misstatement separately, then the aggregate effect of all
misstatements. You should consider whether each misstatement is
material, irrespective of its effect when combined with other
misstatements.
* You should clearly document how you assessed the impact of
individual line items on the balance sheet and income statement
that
were affected by the errors.
* Include a schedule showing the impact of the errors on EPS by
fiscal
year and on a quarterly basis.
* Document the consideration you gave to the fact that these
restatements could materially impact gross margins.
* Discuss whether you or your auditors are aware of any waived
adjustments for any of the years in which the errors occurred and
explain how they impacted your materiality assessment.
* Address whether the errors have a material effect on any of the
segment data included in your filings.
4. Please address the following relating to the $18 million
exclusivity payment write-off:
* Describe to us the material terms of the exclusivity agreement,
including the date you signed the agreement, the parties, the
consideration exchanged, the termination provisions or expiration
date, and discuss any side agreements or mutual understandings not
documented in the agreement.
* Tell us how you accounted for the transaction and describe the
provisions of the agreement which you believe resulted in an asset
being recorded at that time.
* Explain to us how you considered the guidance in EITF 01-09 in
accounting for the transaction and say how it applied.
* Tell us the useful life you assigned to the asset and where you
recorded the related amortization.
* Describe to us how, and the intervals at which, you tested the
asset
for impairment pursuant to SFAS 144 and discuss any significant
changes in methods or assumptions from period to period.
* Discuss in detail your reasons for reversing the charge-off of
the
exclusivity agreement asset previously recorded in the third
quarter
of fiscal 2003 and applying the charge-off to a prior period.
Specifically identify the period in which the assets should have
been
recorded and explain how that treatment is consistent with your
impairment methodology.
5. We note on page 17 of your Restatement Memo of April 2005 that
the
agreement was amended to remove the exclusivity rights in November
2002. Tell us the material terms of the amendment and the amount
of
any consideration you received for giving up those rights.
Explain
why this event did not result in a write-off of the exclusivity
asset.
6. We note references to other exclusivity agreement assets being
recorded in your financial statements.
* Tell us the amounts of these assets, the provisions which result
in
an assets being recorded and where they are presented on your
balance
sheet.
* Discuss how your accounting for these assets differs, if any,
from
the asset charged-off in fiscal 2003, especially as it relates to
impairment.
Note 5: Goodwill and Other Intangible Assets, page 103
7. Describe to us the errors you corrected in fiscal 2003 relating
to
purchase accounting. Tell us whether the amounts are included in
the
restatement described in Note 1.
Form 10-Q for the quarterly period ended March 31, 2005
Note 1: Basis of Presentation and Restatement, page 6
8. We note that during the first quarter of 2005, you determined
that
the property, plant and equipment balance was overstated by
approximately $9 million, which would have resulted in an
additional
expense for the years 2000-2004. Confirm that your materially
assessment takes into consideration the waived adjustments for any
of
the years in which the errors occurred. Include the required
adjustments on a gross basis in the schedule requested in the last
bullet of comment 1 above.
Note 16: Subsequent Events, page 28
9. Please provide us with your calculation of the income
significance
test as outlined in Rule 1-02(w) of Regulation S-X for your
acquisition of the remaining interest in Kodak Polychrome
Graphics.
Refer, also, to Rule 3-05 of Regulation S-X.
Management Discussion and Analysis of Financial Condition, page 29
Results of Operations - Continuing Operations, page 32
10. We note that you present and discuss several non-GAAP measures
in
your results of operations, including net worldwide sales
excluding
the favorable impact of exchange, net sales outside the US
excluding
the favorable impact of exchange, product sales excluding new
technologies product sales, etc. In addition, we note that you do
not
quantify for investors the impact of the items that you exclude.
* Please revise MD&A in future filings to clearly disclose and
quantify the impact of these transactions on your US GAAP results.
For example, you could indicate that the increase in net sales for
the
period reflected the impact of foreign currency fluctuations of
$xx
million or that product sales for the period included sales from
new
technology products of $xx million.
* If you continue to provide these non-GAAP measures, please
revise
future filings to fully comply with Item 10(e) of Regulation S-K,
including a reconciliation to the directly comparable GAAP measure
for
each non-GAAP measure presented, an explanation of why you believe
the
measures provide useful information to investors, and a statement
disclosing the additional purposes for which the non-GAAP
measures.
Form 8-K filed April 22, 2005
11. We note that you present the non-GAAP measures in the form of
Operational statements of operations. That format may be confusing
to
investors as it also reflects several non-GAAP measures, including
operational sales, operational cost of goods sold, operational
gross
profit, operational SG&A, operational EFO, operational earnings
(loss)
before income taxes and operational net earnings (loss), which
have
not been identified or described to investors. In addition, you
have
not explained your purpose for presenting non-GAAP operational
measures that are the same as the GAAP amounts. Please note that
Instruction 2 to Item 2.02 of Form 8-K requires that when
furnishing
information under this item you must provide all the disclosures
required by paragraph (e)(1)(i) of Item 10 of Regulation S-K and
Question 8 of the FAQ Regarding the Use of Non-GAAP Financial
Measures
dated June 13, 2003, including a reconciliation to the directly
comparable GAAP measure for each non-GAAP measure presented.
* To eliminate investor confusion, please remove the non-GAAP
statements of operation format from future filings and instead
only
disclose those non-GAAP measures used by management with the
appropriate reconciliations.
* Otherwise, confirm that you will revise your Forms 8-K in future
periods to provide all the disclosures required by Item
10(e)(1)(i) of
Regulation S-K for each non-GAAP measure presented in the
statement,
and provide us with a sample of your proposed disclosure. We may
have
further comment.
12. We note your disclosure that management uses these measures to
"provide the same financial data that management uses." Please
confirm that the adjustments reflected in your non-GAAP measures
are
also reflected in, and are consistent with, the measurement
principles
you use to assess segment performance pursuant to SFAS 131.
Otherwise, discuss the reasons for any differences in the two
approaches. We may have further comment after reviewing your
response.
13. We note that you present and discuss your non-GAAP measures
more
prominently than your GAAP financial measures. For instance, we
note
that you present in depth discussions of operational gross profit,
operational R&D, operational earnings from operations, etc., but
merely refer the investor to tables with footnotes for the
comparable
GAAP measures. Please confirm that you will revise future filings
to
present GAAP information with equal or greater prominence as
required
by Item 10 of Regulation S-K. Please provide a sample of your
proposed disclosure. We may have further comment.
* * * *
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter that keys your responses to our
comments
and provides any requested supplemental information. Please file
your
cover letter on EDGAR. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide, in
writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal
securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has
access to all information you provide to the staff of the Division
of
Corporation Finance in our review of your filing or in response to
our
comments on your filing.
You may contact Eric Atallah, Staff Accountant at (202) 551-
3663,
Angela Crane, Branch Chief, at (202) 551-3554 or me at (202) 551-
3671
regarding comments on the financial statements and related
matters.
Sincerely,
Martin F. James
Senior Assistant Chief
Accountant
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Mr. Robert H. Brust
Eastman Kodak
June 8, 2005
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