1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $2.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
At December 31, 1997 323,066,940 shares of Common Stock of the registrant
were outstanding. The aggregate market value (based upon the closing price
of these shares on the New York Stock Exchange at January 28, 1998) of the
voting stock held by nonaffiliates was approximately $21.3 billion.
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PART I
ITEM 1. BUSINESS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing and marketing consumer and commercial imaging
products. Kodak's sales, earnings and identifiable assets by industry
segment for the past three years are shown in Segment Information on page
48.
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CONSUMER IMAGING SEGMENT
Sales of the Consumer Imaging segment, including intersegment sales, for
1997, 1996 and 1995 were (in millions) $7,681, $7,659 and $6,830,
respectively.
The products of the Consumer Imaging segment are used for capturing,
recording or displaying a consumer originated image. For example,
traditional amateur photography requires, at a minimum, a camera, film and
photofinishing. Photofinishing requires equipment and supplies, including
chemicals and paper for prints.
Kodak manufactures and markets various components of imaging systems. For
traditional amateur photography, Kodak supplies films, photographic papers,
processing services, photographic chemicals, cameras (including single-use)
and projectors. The Advanced Photo System is an amateur system of cameras,
films and photofinishing which delivers a variety of consumer features such
as drop-in loading, multiple print size options, index prints, and
negatives returned in the cartridge. Kodak has also developed digital
camera systems which do not use silver halide film technology.
Marketing and Competition. Kodak's consumer imaging products and services
are distributed worldwide through a variety of channels. Individual
products are often used in substantial quantities in more than one market.
Most sales of the Consumer Imaging segment are made through retailers.
Independent retail outlets selling Kodak amateur products total many
thousands. In a few areas abroad, Kodak products are marketed by
independent national distributors. Certain products may be purchased
through the Internet.
Kodak's advertising programs actively promote its products and services in
its various markets, and its principal trademarks, trade dress and
corporate symbol are widely used and recognized.
Kodak's consumer imaging products and services compete with similar
products and services of others. Competition in traditional imaging
markets is strong throughout the world. Many large and small companies
offer similar products and services that compete with Kodak's business.
Kodak's products are continually improved to meet the changing needs and
preferences of its customers.
Raw Materials. The raw materials used by the Consumer Imaging segment are
many and varied and generally available. Silver is one of the essential
materials in traditional photographic film and paper manufacturing.
Digital electronics are becoming more prevalent in product offerings.
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COMMERCIAL IMAGING SEGMENT
Sales of the Commercial Imaging segment, including intersegment sales, for
1997, 1996 and 1995 were (in millions) $6,888, $8,340 and $8,184,
respectively.
The Commercial Imaging segment consists of businesses that serve the
imaging and information needs of commercial customers. Products in this
segment are used to capture, store, process and display images and
information in a variety of forms.
Kodak products for the Commercial Imaging segment include films,
photographic papers, photographic plates, chemicals, processing equipment
and audiovisual equipment, as well as copiers, graphic arts films,
microfilm products, applications software, printers and other business
equipment, supplies and service agreements to support these products.
These products serve professional photofinishers, professional
photographers, customers in the health care industry, and customers in
motion picture, television, commercial printing and publishing, office
automation, banking, insurance and government markets. Recently introduced
commercial imaging products include digital and applied imaging products
which capture, store and print images in an electronic format.
Kodak Polychrome Graphics, a 50/50 joint venture with Sun Chemical
Corporation, was formed on December 31, 1997. The joint venture will
assume responsibility for the photographic plate business, as well as for
the marketing of Kodak graphic arts films.
Marketing and Competition. Kodak's commercial imaging products and
services are distributed through a variety of channels. The Company also
sells and leases business equipment directly to users, and has a presence
on the Internet. The Company manufactures copiers, which are sold and
serviced by Danka Business Systems PLC (Danka).
Kodak's commercial imaging products and services compete with similar
products and services of other small and large companies. Strong
competition exists throughout the world in these markets. Kodak's products
are continually improved to meet the changing needs and preferences of its
customers.
Raw Materials. The raw materials used by the Commercial Imaging segment
are many and varied and generally available. Silver is one of the
essential materials in photographic film and paper manufacturing.
Electronic components represent a significant portion of the cost of the
materials used in the manufacture of business equipment.
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DISCONTINUED OPERATIONS - HEALTH BUSINESSES
In 1994, the Company divested its non-imaging health businesses and the
results of these businesses were reported as discontinued operations in
that year. In 1996, the Company substantially completed negotiations with
buyers and filed tax returns associated with the sale of the non-imaging
health businesses. As a result of these actions and a further assessment
of the liabilities recorded at the time of the sale, the Company recognized
a $277 million after-tax benefit in discontinued operations in 1996.
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RESEARCH AND DEVELOPMENT
Through the years, Kodak has engaged in extensive and productive efforts in
research and development. Research and development expenditures for
continuing operations for 1997, 1996 and 1995 were (in millions) $1,230,
$1,028 and $935, respectively. The 1997 figure includes a $186 million
charge for the write-off of in-process research and development associated
with the acquisition of Wang Laboratories' software unit on March 17, 1997.
Research and development groups are located principally in the United
States in Rochester, New York. Outside the U.S., research and development
groups are located principally in Australia, England, France, Japan and
Germany. These groups, in close cooperation with manufacturing units and
marketing organizations, are constantly developing new products and
applications to serve both existing and new markets.
It has been Kodak's general practice to protect its investment in research
and development and its freedom to use its inventions by obtaining patents
where feasible. The ownership of these patents contributes to Kodak's
ability to use its inventions but at the same time is accompanied by patent
licensing. While in the aggregate Kodak's patents are considered to be of
material importance in the operation of its business, the Company does not
consider that the patents relating to any single product or process are of
material significance when judged from the standpoint of its total
business.
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ENVIRONMENTAL PROTECTION
Kodak is subject to various laws and governmental regulations concerning
environmental matters. Some of the U.S. federal environmental legislation
having an impact on Kodak includes the Toxic Substances Control Act, the
Resource Conservation and Recovery Act (RCRA), the Clean Air Act, and the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (the Superfund law).
It is the policy of Eastman Kodak Company to carry out its business
activities in a manner consistent with sound health, safety and
environmental management practices, and to comply with applicable health,
safety and environmental laws and regulations. Kodak continues to engage
in a program for environmental protection and control.
Environmental protection is further discussed in Item 3, Legal Proceedings,
on page 6, and in the Notes to Financial Statements. Refer to Note 1,
Significant Accounting Policies, Environmental Costs, on page 28, and Note
10, Commitments and Contingencies, on page 32.
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EMPLOYMENT
At the end of 1997, the Company employed 97,500 people, of whom 54,800 were
employed in the U.S.
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Financial information by geographic areas for the past three years is shown
in Segment Information on page 47.
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ITEM 2. PROPERTIES
The Consumer Imaging segment of Kodak's business in the United States is
centered in Rochester, New York, where photographic goods are manufactured.
Another manufacturing facility near Windsor, Colorado, also produces
sensitized photographic goods.
Consumer imaging manufacturing facilities outside the United States are
located in Australia, Brazil, Canada, China, England, France, India,
Indonesia, Mexico and Russia. Kodak maintains marketing and distribution
facilities in many parts of the world. The Company also owns processing
laboratories in numerous locations worldwide.
Products in the Commercial Imaging segment are manufactured in the United
States primarily in Rochester, New York and Windsor, Colorado.
Manufacturing facilities outside the United States are located in Brazil,
Canada, England, France, Germany, India, Ireland, Japan and Mexico.
Regional distribution centers are located in various places within and
outside of the United States. The Company owns or leases administrative,
manufacturing, marketing and processing facilities in various parts of the
world. The leases are for various periods and are generally renewable.
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ITEM 3. 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 has
petitioned for Supreme Court review, the Company took a third quarter pre-
tax charge of $46,000,000.
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.
7
The Company has been designated as a potentially responsible party (PRP)
under 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 position or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instructions G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders.
(as of December 31, 1997)
Date First Elected
an to
Executive Present
Name Age Positions Held Officer Office
George M. C. Fisher 57 Chairman of the Board,
Chief Executive Officer 1993 1995
Joerg D. Agin 55 Senior Vice President 1996 1996
Michael P. Benard 50 Vice President 1994 1994
David P. Biehn * 54 Senior Vice President 1995 1995
Richard T. Bourns 63 Senior Vice President 1988 1990
Daniel A. Carp 49 President and Chief
Operating Officer 1995 1997
Martin M. Coyne, II 48 Vice President 1997 1995
David J. FitzPatrick 43 Controller and Vice
President 1995 1996
Carl E. Gustin, Jr. 46 Senior Vice President 1995 1995
Harry L. Kavetas 60 Chief Financial Officer
and Executive Vice
President 1994 1994
Robert J.Keegan 50 Senior Vice President 1997 1997
Carl F. Kohrt 54 Executive Vice President
and Assistant Chief
Operating Officer 1995 1995
James W. Meyer 54 Senior Vice President 1994 1994
Michael P. Morley 54 Senior Vice President 1994 1994
Candy M. Obourn 47 Vice President 1997 1991
Willy C. Shih 46 Vice President 1997 1997
Patrick T. Siewert 42 Vice President 1997 1995
Gary P. Van Graafeiland 51 General Counsel and
Senior Vice President 1992 1992
* Retired March 1, 1998
8
Executive officers are elected annually in February.
All of the executive officers have been employed by Kodak in various
executive and managerial positions for more than five years, except Mr.
Fisher, who joined the Company on December 1, 1993; Mr. Kavetas, who joined
the Company on February 11, 1994; Mr. Gustin, who joined the Company on
August 15, 1994; Mr. FitzPatrick, who joined the Company on March 27, 1995;
Mr. Agin, who joined the Company on September 1, 1995; Mr. Coyne, who
joined the Company on September 5, 1995; Mr. Keegan, who joined the Company
on July 1, 1997; and Mr. Shih, who joined the Company on July 7, 1997.
Prior to joining Kodak, Mr. Fisher held executive positions with Motorola,
Inc., most recently as Chairman and Chief Executive Officer. Prior to
joining Kodak, Mr. Kavetas held executive positions with International
Business Machines (IBM) Corporation, most recently as President, Chief
Executive Officer and a director of IBM Credit Corporation. Prior to
joining Kodak, Mr. Gustin held executive positions with Digital Equipment
Corporation (DEC), which he joined in 1994, and Apple Computer. Prior to
joining Kodak, Mr. FitzPatrick held executive positions with General Motors
Corporation, most recently as finance director of the Cadillac/Luxury Car
Division. Prior to joining Kodak in 1995, Mr. Agin held executive
positions with Universal Studios, most recently as Senior Vice President,
New Technology and Business Development. Prior to joining Kodak late in
1995, Mr. Coyne was president of his own consulting firm, "M. M. Coyne &
Associates." Mr. Coyne was previously employed by Kodak, leaving early in
1995 from the position of Executive Director, Health Group Marketing.
Prior to joining Kodak in 1997, Mr. Keegan held the position of Executive
Vice President of Avery Dennison Corporation since 1995. Mr. Keegan was
previously employed by Kodak, leaving in 1995 from the position of General
Manager of Consumer Imaging for Kodak's European, Middle Eastern and
African Region. Prior to joining Kodak, Mr. Shih was Vice President of
Marketing for Technical Computing at Silicon Graphics Computer Systems,
which he joined in 1995. Prior to joining that company, Mr. Shih held
executive positions with DEC, which he joined in 1994, and IBM Corporation.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of
the ability and integrity of any executive officer during the past five
years.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Eastman Kodak Company common stock is principally traded on the New York
Stock Exchange. There are 135,132 shareholders of record of common stock
as of December 31, 1997. See Liquidity and Capital Resources, and Market
Price Data on pages 14 and 17.
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ITEM 6. SELECTED FINANCIAL DATA
Refer to Summary of Operating Data on page 50.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
(in millions, except per share data)
1997 Change 1996 Change 1995
Sales $14,538 - 9% $15,968 + 7% $14,980
Earnings from operations:
Continuing 5 1,011 -19 1,252
Discontinued - 277 -
Net earnings 5 1,288 + 3 1,252
Basic earnings per share .01 3.82 + 4 3.67
Diluted earnings per share .01 3.76 + 4 3.62
1997
The Company results for the year included the following:
A pre-tax charge of $1,455 million ($990 million after-tax) for
restructuring, asset impairments and other charges. Refer to Note 13 on
page 38.
A pre-tax charge of $186 million ($123 million after-tax) for a write-off
of in-process research and development (R&D) associated with the
acquisition of Wang Laboratories' software unit on March 17, 1997 (the
"Wang charge"). Refer to Note 17 on page 45.
A pre-tax charge of $46 million ($30 million after-tax) taken 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 would have been $1,148 million.
Basic earnings per share would have been $3.52 and diluted earnings per
share would have been $3.46.
1996
The Company results for the year included the following:
A pre-tax charge of $358 million ($256 million after-tax) for
restructuring. Refer to Note 13 on page 38.
A pre-tax charge of $387 million ($252 million after-tax) related to the
sale of the Office Imaging business. Refer to Note 2 on page 29.
10
After-tax income of $277 million from discontinued operations associated
with the sale of the non-imaging health businesses in 1994. Refer to Note
3 on page 29.
Excluding these items, net earnings would have been $1,519 million. Basic
earnings per share would have been $4.50 and diluted earnings per share
would have been $4.43.
1995
Earnings included a pre-tax charge of $54 million ($51 million after-tax)
for write-offs of intangible assets principally associated with the Health
Imaging business.
DETAILED RESULTS OF OPERATIONS
Sales by Industry Segment
(in millions)
1997 Change 1996 Change 1995
Consumer Imaging
Inside the U.S. $ 3,477 + 5% $ 3,319 +16% $ 2,854
Outside the U.S. 4,204 - 3 4,340 + 9 3,976
------- --- ------- --- -------
Total Consumer Imaging 7,681 0 7,659 +12 6,830
------- --- ------- --- -------
Commercial Imaging
Inside the U.S. 3,301 -19 4,065 0 4,066
Outside the U.S. 3,587 -16 4,275 + 4 4,118
------- --- ------- --- -------
Total Commercial Imaging 6,888 -17 8,340 + 2 8,184
------- --- ------- --- -------
Deduct Intersegment Sales (31) (31) (34)
------- --- ------- --- -------
Total Sales $14,538 - 9% $15,968 + 7% $14,980
======= === ======= === =======
Earnings (Loss) from Operations by Industry Segment
(in millions)
1997 Change 1996 Change 1995
Consumer Imaging $ 581 -49% $1,141 - 9% $1,254
Percent of segment sales 7.6% 14.9% 18.4%
Commercial Imaging $(451) $ 704 + 2% $ 687
Percent of segment sales (6.5%) 8.4% 8.4%
----- --- ------ --- ------
Total Earnings from Operations $ 130 -93% $1,845 - 5% $1,941
===== === ====== === ======
Earnings (loss) from operations for 1997 are shown after deducting
restructuring costs, asset impairments and other charges of $516 million
for Consumer Imaging and $939 million for Commercial Imaging.
Earnings from operations for 1996 are shown after deducting restructuring
costs of $183 million for Consumer Imaging and $175 million for Commercial
Imaging.
Segment information is reported on pages 46 through 48, Notes to Financial
Statements.
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1997 COMPARED WITH 1996
Worldwide sales for 1997 were 9% lower than in 1996, largely due to the
impact of the divestiture of the Company's Office Imaging business in
December 1996 and the significant adverse effects of the stronger U.S.
dollar. Currency changes against the dollar unfavorably affected sales by
$558 million in 1997 compared with 1996. Excluding the effects of currency
rate changes and the Office Imaging divestiture, sales increased 3%.
Consumer Imaging segment sales for the year were level, as higher unit
volumes were offset by the unfavorable effects of foreign currency rate
changes and lower effective selling prices. Without the effect of currency
rate changes, sales increased 4%. Sales increased 5% in the U.S. but
decreased 3% outside the U.S. Of the $158 million increase in the U.S.,
$117 million is a result of the inclusion of a full year's revenue in 1997
for Fox Photo, Inc., which was acquired in October 1996.
Worldwide film sales were level, as a 7% volume increase was offset by the
unfavorable effects of foreign currency rate changes and lower effective
selling prices. U.S. film sales increased 3%, with 5% volume growth
partially offset by lower effective selling prices. Outside the U.S., film
sales decreased 2%, with 9% volume growth more than offset by the
unfavorable effects of foreign currency rate changes and lower effective
selling prices.
Worldwide color paper sales decreased 4%, 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 13%, due to a 7%
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 2%, 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.
Commercial Imaging segment sales for the year decreased 17%. Excluding the
sales of Office Imaging from both years, sales decreased 2% (or increased
1% 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. Sales of Digital & Applied
Imaging products and Entertainment Imaging films grew, while sales declined
in all other businesses.
Earnings from operations declined 93%. Excluding restructuring costs,
asset impairments and other charges totaling $1,455 million ($165 million
included in cost of goods sold) in 1997 and $358 million in 1996, earnings
from operations declined 28% as the benefits of higher unit volumes and
manufacturing productivity were more than offset by lower effective selling
prices, the Wang charge and the unfavorable effects of foreign currency
rate changes. Approximately $221 million of the decline in earnings from
operations was due to currency rate changes.
12
Earnings from operations in the Consumer Imaging segment decreased 49%.
Excluding restructuring costs, asset impairments and other charges totaling
$516 million in 1997 and $183 million in 1996, earnings from operations
declined 17% as the benefits of higher unit volumes were more than offset
by lower effective selling prices and the unfavorable effects of foreign
currency rate changes.
In the Commercial Imaging segment, the Company reported an operating loss
of $451 million in 1997, compared with operating earnings of $704 million
in 1996. Excluding restructuring costs, asset impairments and other
charges totaling $939 million in 1997 and $175 million in 1996, earnings
from operations declined 44% as the benefits of higher unit volumes and
manufacturing productivity were more than offset by lower effective selling
prices, the Wang charge and the unfavorable effects of foreign currency
rate changes. Losses on the Company's digital products portfolio (in both
the Commercial and Consumer segments) were approximately $440 million in
1997, including about $130 million in the fourth quarter, due to continuing
declines in the writable compact disc business, investments in the network
services program, an operating loss in the Eastman Software subsidiary and
losses in the digital camera business.
Research and development expenditures were $1,044 million (excluding the
Wang charge of $186 million) in 1997 and $1,028 million in 1996. Goodwill
charges were $80 million in 1997 and $66 million in 1996. Advertising
expenses were $988 million in 1997 and $1,026 million in 1996. Other
marketing and administrative expenses decreased from $3,384 million in 1996
to $2,924 million in 1997, primarily due to the sale of the Office Imaging
business in December 1996.
Earnings from equity interests and other revenues decreased 37%, reflecting
lower interest income (due to lower cash balances) and fewer gains on the
sale of capital assets. Excluding the $387 million pre-tax loss on the
sale of Office Imaging in 1996, other costs increased 57%, primarily due to
the ITS charge and $32 million of increased losses on foreign exchange.
The effective tax rates were 34% in both 1997 and 1996, excluding
restructuring, asset impairments and other charges from both 1997 and 1996,
and the sale of the Office Imaging business from 1996.
On December 18, 1997, the Company announced that its Board of Directors
approved a fourth-quarter $1.5 billion charge for restructuring the
Company's operations, as well as revaluing certain assets. About half of
the charge represents separation payments to be made to approximately
16,100 employees whose positions will be eliminated. The other half of the
charge will cover the cost of asset write-downs and other costs associated
with plans to reposition certain non-strategic businesses. The employment
reductions will be from an August 31 base of approximately 100,500
employees worldwide, and will be in addition to approximately 2,000
positions that remain to be eliminated during 1998 under a restructuring
reserve taken in the fourth quarter of 1996, and another 800 positions to
be terminated in 1998 under a reserve taken in the second quarter of 1997.
Refer to Note 13 on page 38.
13
As a result of the actions covered by this charge, and other cost-reduction
initiatives, the Company expects to reduce its total cost structure by $500
million in 1998 and an additional $500 million in 1999, resulting in annual
cost savings of $1 billion. Some of these savings will be reflected in
earnings, which not only allows the Company to improve its results of
operations, but also enhances its competitiveness. In addition, the
Company will continue to invest in growth opportunities.
Although the Company's cost-reduction efforts will position it for an
improved 1998, the growing strength of the U.S. dollar, continuing
competitive pressures and the phased implementation of the cost-reduction
program will make it likely that results during the first quarter of 1998
will be below those of 1997.
1996 COMPARED WITH 1995
Worldwide sales in 1996 were 7% higher than in 1995, primarily due to
higher unit volumes. Currency changes against the dollar unfavorably
affected sales by $243 million in 1996 compared with 1995.
Consumer Imaging segment sales for the year were up 12%, primarily due to
higher unit volumes partially offset by lower effective selling prices and
unfavorable effects of foreign currency rate changes. Sales increased both
inside and outside the U.S. Strong color film and paper volumes,
photofinishing increases in Qualex and sales of Advantix products led the
gains.
Commercial Imaging segment sales for the year were up 2%, primarily due to
higher unit volumes partially offset by unfavorable effects of foreign
currency rate changes and lower effective selling prices. Sales increased
outside the U.S., but were level in the U.S. Declines in Office Imaging
partially offset strong sales gains by Entertainment Imaging and continued
growth in Business Imaging Systems and Digital & Applied Imaging.
Earnings from operations decreased 5%; however, excluding 1996
restructuring costs of $358 million, earnings from operations increased
13%, as the benefits of higher unit volumes and manufacturing productivity
were somewhat offset by lower effective selling prices and higher
advertising expenditures.
Earnings from operations in the Consumer Imaging segment decreased 9%;
however, excluding 1996 restructuring costs of $183 million, earnings from
operations increased 6%, as the benefits of higher unit volumes and
manufacturing productivity were partially offset by lower effective selling
prices and higher advertising expenditures.
Earnings from operations in the Commercial Imaging segment increased 2%;
however, excluding 1996 restructuring costs of $175 million, earnings from
operations increased 28%, as the benefits of manufacturing productivity and
higher unit volumes were somewhat offset by lower effective selling prices,
higher research and development expenditures, and unfavorable effects of
foreign currency rate changes.
14
Research and development expenditures were $1,028 million in 1996 and $935
million in 1995. Goodwill charges were $66 million in 1996 and $109
million in 1995. The 1995 figure includes write-offs of intangible assets
of $54 million, principally associated with the Health Imaging business.
Advertising expenses totaled $1,026 million in 1996 and $840 million in
1995. Other marketing and administrative expenses totaled $3,384 million
in 1996 and $3,318 million in 1995.
Earnings from equity interests and other revenues decreased 5%, primarily
due to lower income from equity interests. Excluding the $387 million pre-
tax loss on the sale of the Office Imaging business from 1996, other costs
decreased 54%, mostly due to lower foreign exchange losses.
The effective tax rates were 34% in 1996, excluding restructuring costs and
the sale of the Office Imaging business, and 35% in 1995. The lower
effective tax rate in 1996 principally results from the utilization of
certain foreign tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in 1997 was $2,080 million, as
net earnings of $5 million, which included non-cash expenses for
restructuring, asset impairments and other charges of $1,415 million (less
related deferred income tax benefits), depreciation and amortization of
$828 million and a $186 million R&D charge associated with the purchase of
Wang Laboratories' software unit, were partially offset by decreases in
liabilities (excluding borrowings) of $349 million. Net cash used in
investing activities of $1,896 million in 1997 was due primarily to
additions to properties of $1,485 million and acquisitions, net of cash
acquired, of $341 million. Net cash used in financing activities of $1,198
million in 1997 was primarily due to $850 million of stock repurchases and
$567 million of dividend payments.
Cash dividends per share of $1.76, $1.60 and $1.60, payable quartely, were
declared in 1997, 1996 and 1995, respectively. Total cash dividends of
approximately $567 million, $539 million and $547 million were paid in
1997, 1996 and 1995, respectively.
Cash, cash equivalents and marketable securities at year-end 1997 were $752
million, a $1,044 million decrease from the year-end 1996 total of $1,796
million. Net working capital at year-end 1997 decreased to $298 million
from $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.
The Company repurchased $850 million and $623 million of treasury shares in
1997 and 1996, respectively, under the $2 billion repurchase program
initiated in 1996. In 1996, the Company also repurchased $700 million of
treasury shares under a previous repurchase program. Completion of the $2
billion stock repurchase program will be funded by available cash reserves
and cash from operations.
15
Total short-term and long-term borrowings were $1,196 million at year-end
1997 and $1,100 million at year-end 1996. The Company has access to a $3.5
billion revolving credit facility expiring in November 2001. The Company
also has a shelf registration statement for debt securities with an
available balance of $2.2 billion.
Capital additions were $796 million and $599 million for the Consumer
Imaging segment in 1997 and 1996, respectively, and $689 million and $742
million for the Commercial Imaging segment.
OTHER
During 1997, the Company used the U.S. dollar as the functional currency
for its Brazilian operations as they operated in a highly inflationary
economy. At June 30, 1997 the cumulative three year inflation rate in
Brazil dropped to 53%. Although the Company maintained the U.S. dollar as
the functional currency for Brazil, the Company continues to monitor the
economic situation in Brazil. Changing the functional currency for Brazil
to the Brazilian real would shift translation gains and losses, currently
included in earnings, to the Consolidated Statement of Financial Position.
The impact of such a change would not be significant to the Company.
In 1996, the Company established a formal global program office to assess
the impact of the Year 2000 issue on the software and hardware utilized in
its internal operations and included in its product offerings to customers.
The Company has plans such that all changes to this software and hardware
necessitated by the Year 2000 issue will be completed in a timely manner.
The currently estimated costs associated with these changes are not
material in any year and are not material to the Company's financial
position. However, the Company could be adversely impacted if its
suppliers and customers do not make necessary changes to their own systems
and products successfully and in a timely manner.
In February 1997, the Financial Accounting Standards Board (FASB) 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 earnings per share
as well as a reconciliation of basic earnings per share to diluted earnings
per share. The Company adopted SFAS No. 128 in the fourth quarter of 1997
and all historical earnings per share data presented have been restated to
conform to the provisions of SFAS No. 128.
In June 1997, the FASB 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 determined that it will
display comprehensive income in the Consolidated Statement of Shareholders'
Equity at December 31, 1998.
16
In June 1997, the FASB 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.
Kodak is subject to various laws and governmental regulations concerning
environmental matters. Refer to Note 10, Commitments and Contingencies, on
page 32.
- - ------------------------------------------------------------------------
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, "...the growing strength of
the U.S. dollar, continuing competitive pressures and the phased
implementation of the cost-reduction program will make it likely that
results during the first quarter of 1998 will be below those of 1997..." 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 inherent unpredictablility of
currency fluctuations; competitive actions, including pricing; the ability
to realize cost reductions and operating efficiencies, including the
ability to implement headcount reduction programs timely and in a manner
that does not unduly disrupt business operations, and the ability to
identify and to realize other cost-reduction opportunities; and general
economic and business conditions.
Any forward-looking statements in this report should be evaluated in light
of these important risk factors.
- - ------------------------------------------------------------------------
17
MARKET PRICE DATA
1997 1996
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr. 1st Qtr
Price per
share:
High $67 $81-1/4 $85-1/8 $94-3/4 $85 $79-1/8 $80-1/8 $77-7/8
Low 53-5/16 55-3/4 73-1/8 75-7/8 75 67 68-5/8 65-1/8
- - ------------------------------------------------------------------------------
SUMMARY OF OPERATING DATA
A summary of operating data for 1997 and for the four years prior is shown
on page 50.
- - ------------------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financial activities,
is exposed to changes in commodity prices, interest rates and foreign
currency exchange rates which may adversely affect its results of
operations and financial position. In seeking to minimize the risks and/or
costs associated with such activities, the Company manages exposures to
changes in commodity prices, interest rates and foreign currency exchange
rates through its regular operating and financing activities. Pursuant to
Company policy, foreign currency forward contracts are used to hedge
certain firm commitments and the currency risk inherent in the deposit
taking and lending activities of the Company's International Treasury
Center. Option and futures contracts are used to mitigate the Company's
risk to fluctuating commodity prices. The Company's exposure to changes in
interest rates results from its investing and borrowing activities used to
meet its liquidity needs. Long-term debt is generally used to finance long-
term investments, while short-term debt is used to meet working capital
requirements. Derivative instruments are not presently used to adjust the
Company's interest rate risk profile. The Company does not utilize
financial instruments for trading or other speculative purposes, nor does
it utilize leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
borrowing activities and less so through investments in marketable
securities. The Company utilizes U.S. dollar denominated commercial paper
and borrowings as well as foreign currency denominated borrowings to fund
its working capital and investment needs. The majority of short- and long-
term borrowings and marketable securities are in fixed rate instruments.
There is inherent roll-over risk for borrowings and marketable securities
as they mature and are renewed at current market rates. The extent of this
risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. Using a yield
to maturity analysis and assuming an increase in interest rates of 60 basis
points (about 10% movement in interest rates) with the December 31, 1997
level of debt and marketable securities, the potential decrease in fair
value of marketable securities, short-term and long-term borrowings would
be $1 million, $3 million and $25 million, respectively.
18
The majority of foreign currency forward contracts are denominated in
Australian, French, German, Irish, Spanish and British currencies. The
magnitude and nature of such hedging activities are explained further in
Note 11, Financial Instruments, on page 34. Assuming a 10% increase in
foreign currency exchange rates of currencies sold, the Company could incur
a $72 million loss on foreign currency forward contracts outstanding at
December 31, 1997. Such losses would be substantially offset by gains from
the revaluation or settlement of the underlying positions hedged.
The Company has entered into silver option and futures contracts to
minimize its exposure to increases in silver price in 1998. Silver price
risk for 1997 was not hedged. As of December 31, 1997, the Company had
hedged approximately 50% of its planned silver requirements for 1998.
Using broker quoted termination values and assuming a 10% decrease in
silver price from $5.99 per troy ounce at December 31, 1997, the decrease
in fair value of silver options and futures would be $17 million. Such
losses in fair value, if realized, would be offset by lower costs of silver-
containing products manufactured during 1998.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
consolidated financial statements and related notes which appear on pages
21 through 49. These financial statements have been prepared in accordance
with generally accepted accounting principles and include certain amounts
that are based on management's best estimates and judgments.
The Company's accounting systems include extensive internal controls
designed to provide reasonable assurance of the reliability of its
financial records and the proper safeguarding and use of its assets. Such
controls are based on established policies and procedures, are implemented
by trained, skilled personnel with an appropriate segregation of duties,
and are monitored through a comprehensive internal audit program. The
Company's policies and procedures prescribe that the Company and all
employees are to maintain the highest ethical standards and that its
business practices throughout the world are to be conducted in a manner
which is above reproach.
The consolidated financial statements have been audited by Price
Waterhouse LLP, independent accountants, who were responsible for
conducting their audits in accordance with generally accepted auditing
standards. Their resulting report is shown below.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of non-
management Board members. The independent accountants and internal
auditors have full and free access to the Audit Committee. The Audit
Committee meets periodically with the independent accountants and the
Director of Corporate Auditing, both privately and with management present,
to discuss accounting, auditing and financial reporting matters.
George M. C. Fisher Harry L. Kavetas
Chairman and Chief Financial Officer,
Chief Executive Officer Executive Vice President and
Director
January 14, 1998 January 14, 1998
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Eastman Kodak Company
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2) on page 52 of this
Annual Report on Form 10-K present fairly, in all material respects, the
financial position of Eastman Kodak Company and subsidiary companies at
December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Rochester, New York
January 14, 1998
21
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31,
(in millions, except per share data)
1997 1996 1995
REVENUES
Sales $14,538 $15,968 $14,980
Earnings from equity
interests and other revenues 175 276 289
------ ------- -------
TOTAL REVENUES 14,713 16,244 15,269
------ ------- -------
COSTS
Cost of goods sold 7,979 8,326 7,962
Selling, general and
administrative expenses 3,912 4,410 4,158
Research and development costs 1,044 1,028 935
Purchased research and
development 186 - -
Interest expense 98 83 78
Restructuring costs and asset
impairments 1,290 358 -
Other costs 151 483 210
------ ------- -------
TOTAL COSTS 14,660 14,688 13,343
------ ------- -------
Earnings before income taxes 53 1,556 1,926
Provision for income taxes 48 545 674
------ ------- -------
Earnings from continuing operations 5 1,011 1,252
Gain on sale of discontinued
operations - 277 -
------ ------- -------
NET EARNINGS $ 5 $ 1,288 $ 1,252
====== ======= =======
Basic earnings per share:
From continuing operations $ .01 $ 3.00 $ 3.67
From sale of discontinued operations - .82 -
------ ------- -------
Basic earnings per share $ .01 $ 3.82 $ 3.67
====== ======= =======
Diluted earnings per share:
From continuing operations $ .01 $ 2.95 $ 3.62
From sale of discontinued operations - .81 -
------ ------- -------
Diluted earnings per share $ .01 $ 3.76 $ 3.62
====== ======= =======
Earnings from continuing operations
used in basic and diluted
earnings per share $ 5 $ 1,011 $ 1,252
Number of common shares used in
basic earnings per share 327.4 337.4 341.5
Incremental shares from
assumed conversion of options 4.5 5.3 4.1
------ ------- -------
Number of common shares used in
diluted earnings per share 331.9 342.7 345.6
====== ======= =======
The notes on pages 26 through 49 are an integral part of these financial
statements.
22
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except number of shares
and per share data) At December 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 728 $ 1,777
Marketable securities 24 19
Receivables 2,271 2,738
Inventories 1,252 1,575
Deferred income tax charges 958 644
Other 242 212
------- -------
Total current assets 5,475 6,965
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,824 12,585
Less: Accumulated depreciation 7,315 7,163
------- -------
Net properties 5,509 5,422
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $473 and $366) 548 581
Long-term receivables and other
noncurrent assets 1,231 1,238
Deferred income tax charges 382 232
------- -------
TOTAL ASSETS $13,145 $14,438
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,832 $ 4,116
Short-term borrowings 611 541
Taxes - income and other 567 603
Dividends payable 143 133
Deferred income tax credits 24 24
------- -------
Total current liabilities 5,177 5,417
OTHER LIABILITIES
Long-term borrowings 585 559
Postemployment liabilities 3,075 2,967
Other long-term liabilities 1,083 659
Deferred income tax credits 64 102
------- -------
Total liabilities 9,984 9,704
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 per share
950,000,000 shares authorized; issued
391,292,760 shares in 1997 and
391,292,760 shares in 1996 978 978
Additional capital paid in or
transferred from retained earnings 914 910
Retained earnings 5,350 5,931
Accumulated translation adjustment (172) 75
Minimum pension liability adjustment (37) -
------- -------
7,033 7,894
Treasury stock, at cost
68,225,820 shares in 1997 and
59,450,888 shares in 1996 3,872 3,160
------- -------
Total shareholders' equity 3,161 4,734
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $13,145 $14,438
======= =======
The notes on pages 26 through 49 are an integral part of these
financial statements.
23
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in millions, except number of shares)
Minimum
Trans- Pension
Additional lation Liability
Common Capital Retained Adjust- Adjust- Treasury
Stock* Paid In Earnings ments ment Stock Total
Shareholders' Equity December 31, 1994 $966 $ 515 $ 4,485 $ 8 $ - $(1,957) $4,017
Net earnings - - 1,252 - - - 1,252
Cash dividends declared - - (547) - - - (547)
Retained earnings - other changes - - (6) - - - (6)
Common stock issued under employee plans
(3,231,000 shares) 8 110 - - - - 118
Treasury stock contribution to U.S. pension
plan (7,354,000 shares) - 178 - - - 322 500
Treasury stock repurchase (4,503,000 shares) - - - - - (300) (300)
Treasury stock issued under employee plans
(12,000 shares) - - - - - 1 1
Charitable contribution (23,000 shares) - - - - - 1 1
Translation adjustments - - - 85 - - 85
---- ----- ------- ----- ----- ------- ------
Shareholders' Equity December 31, 1995 974 803 5,184 93 - (1,933) 5,121
Net earnings - - 1,288 - - - 1,288
Cash dividends declared - - (539) - - - (539)
Retained earnings - other changes - - (2) - - - (2)
Common stock issued under employee plans
(1,718,141 shares) 4 64 - - - - 68
Treasury stock repurchase (17,625,850 shares) - - - - - (1,323) (1,323)
Treasury stock issued under employee plans
(1,851,710 shares) - (25) - - - 96 71
Tax reductions - employee plans - 68 - - - - 68
Translation adjustments - - - (18) - - (18)
---- ----- ------- ----- ----- ------- ------
Shareholders' Equity December 31, 1996 978 910 5,931 75 - (3,160) 4,734
Net earnings - - 5 - - - 5
Cash dividends declared - - (577) - - - (577)
Retained earnings - other changes - - (9) - - - (9)
Treasury stock repurchase (11,315,800 shares) - - - - - (850) (850)
Treasury stock issued under employee plans
(2,540,868 shares) - (31) - - - 138 107
Tax reductions - employee plans - 35 - - - - 35
Translation adjustments - - - (247) - - (247)
Minimum pension liability adjustment - - - - (37) - (37)
---- ----- ------- ----- ----- ------- ------
Shareholders' Equity December 31, 1997 $978 $ 914 $ 5,350 $(172) $ (37) $(3,872) $3,161
==== ===== ======= ===== ===== ======= ======
* There are 100 million shares of $10 par value preferred stock authorized, none of which have been issued.
The notes on pages 26 through 49 are an integral part of these financial statements.
24
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,
(in millions) 1997 1996 1995
Cash flows from operating activities:
Earnings from continuing operations $ 5 $1,011 $1,252
Adjustments to reconcile to net cash
provided by operating activities,
excluding the effects of
dispositions and initial
consolidation of acquired companies
Depreciation and amortization 828 903 916
Purchased research and development 186 - -
Loss on sale of Office Imaging
business - 387 -
Restructuring costs, asset impairments
and other charges, net of cash spent 1,415 358 -
(Benefit) provision for deferred
income taxes (502) (17) 283
Loss on sale/retirement of
properties 25 65 82
Decrease (increase) in receivables 165 15 (42)
Decrease (increase) in inventories 77 (130) (148)
(Decrease) increase in liabilities
excluding borrowings (349) 18 450
Other items, net 230 (126) (163)
------ ------ -----
Total adjustments 2,075 1,473 1,378
------ ------ ------
Net cash provided by operating
activities 2,080 2,484 2,630
------ ------ ------
Cash flows from investing activities:
Additions to properties (1,485) (1,341) (1,034)
Proceeds from sale of properties 109 124 121
Cash flows related to sale of Office
Imaging business (129) 688 -
Acquisitions, net of cash acquired (341) (128) -
Purchases of shares of Qualex, net
of cash acquired - - (100)
Marketable securities - sales 15 59 48
Marketable securities - purchases - (31) (4)
Cash flows related to sales of non-
imaging health businesses (65) (7) (1,411)
------ ------ ------
Net cash used in investing
activities (1,896) (636) (2,380)
------ ------ ------
Cash flows from financing activities:
Net increase (decrease) in
borrowings with original maturities
of 90 days or less 177 (206) (106)
Proceeds from other borrowings 1,472 1,529 766
Repayment of other borrowings and
certain financial instruments (1,526) (1,420) (440)
Dividends to shareholders (567) (539) (547)
Exercise of employee stock options 96 126 115
Stock repurchase programs (850) (1,323) (300)
------ ------ ------
Net cash used in financing
activities (1,198) (1,833) (512)
------ ------ ------
Effect of exchange rate changes on cash (35) (2) 6
------ ------ ------
Net (decrease) increase in cash and
cash equivalents (1,049) 13 (256)
Cash and cash equivalents, beginning
of year 1,777 1,764 2,020
------ ------ ------
Cash and cash equivalents, end of year $ 728 $1,777 $1,764
====== ====== ======
25
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for continuing operations was:
(in millions) 1997 1996 1995
Interest, net of portion capitalized
of $33, $29 and $30 $ 81 $ 78 $ 97
Income taxes 517 275 343
The following transactions are not reflected in the Consolidated
Statement of Cash Flows:
(in millions) 1997 1996 1995
Contribution of assets to
Kodak Polychrome Graphics
joint venture $216 $ - $ -
Liabilities assumed in acquisitions 144 128 -
Minimum pension liability 37 - -
Liabilities assumed by purchaser
in sale of properties 23 - -
Stock contribution to the Company's
U.S. pension plan - - 500
The notes on pages 26 through 49 are an integral part of these financial
statements.
26
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing, and marketing consumer and commercial imaging
products. The Company's products are manufactured in a number of
countries in North and South America, Europe, Australia and Asia. The
Company's products are marketed and sold in many countries throughout the
world.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Eastman
Kodak Company and its majority owned subsidiary companies. Intercompany
transactions are eliminated and net earnings are reduced by the portion
of the earnings of subsidiaries applicable to minority interests.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at year end and the
reported amounts of revenues and expenses during the reporting period.
Certain significant estimates are disclosed throughout this report.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency
is the functional currency and translation adjustments are accumulated in
a separate component of shareholders' equity.
For subsidiaries and branches that operate in U.S. dollars or whose
economic environment is highly inflationary, the U.S. dollar is the
functional currency and gains and losses that result from translation are
included in earnings. The effect from foreign currency translation was a
loss of $7 million in 1997, a loss of $4 million in 1996 and a gain of
$14 million in 1995.
The Company hedges certain foreign currency transactions and firm foreign
currency commitments by entering into forward exchange contracts. Gains
and losses associated with currency rate changes on forward contracts
hedging foreign currency transactions are recorded currently in earnings.
The effects from foreign currency transactions, including related hedging
activities, were losses of $66 million in 1997, $37 million in 1996 and
$76 million in 1995. Gains and losses related to hedges of firm
commitments are deferred and recognized in earnings or as adjustments of
carrying amounts when the transaction occurs.
CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less at date of purchase are considered to be cash equivalents.
27
MARKETABLE SECURITIES AND NONCURRENT INVESTMENTS
Investments included in marketable securities of $23 million and $18
million, and in long-term receivables and other noncurrent assets of $26
million and $46 million, at December 31, 1997 and 1996, respectively, are
considered held to maturity. Investments included in marketable
securities of $1 million and $1 million, and in long-term receivables and
other noncurrent assets of $49 million and $59 million, at December 31,
1997 and 1996, respectively, are considered available for sale. The
maturities of long-term receivables range from 1999 to 2017.
Proceeds from the sale of securities were $15 million, $59 million and
$48 million in 1997, 1996 and 1995, respectively. No gain or loss was
realized from the sale of these securities in 1997, 1996 or 1995.
Specific identification was used to determine the cost of securities
sold.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The
cost of most inventories in the U.S. is determined by the "last-in, first-
out" (LIFO) method. The cost of other inventories is determined by the
"first-in, first-out" (FIFO) or average cost method.
PROPERTIES
Properties are recorded at cost reduced by accumulated depreciation.
Depreciation expense is provided based on historical cost and estimated
useful lives ranging from approximately five years to fifty years for
buildings and building equipment and three years to twenty years for
machinery and equipment. The Company generally uses the straight-line
method for calculating the provision for depreciation. The Company
regularly assesses all of its long-lived assets for impairment, in
accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of."
GOODWILL
Goodwill is charged to earnings on a straight-line basis over the period
estimated to be benefited, not exceeding fifteen years. The carrying
value of goodwill is assessed periodically based on the expected future
cash flows of the asset grouping associated with the goodwill.
REVENUE
Revenue is recognized from the sale of film, paper, supplies and
equipment (including sales-type leases for equipment) when the product is
shipped; from maintenance and service contracts over the contractual
period, or as the services are performed; from rentals under operating
leases in the month in which they are earned; and from financing
transactions at level rates of return over the term of the lease or
receivable.
28
ADVERTISING
Advertising costs are expensed as incurred and included in "selling,
general and administrative expenses." Advertising expenses amounted to
$988 million, $1,026 million and $840 million in 1997, 1996 and 1995,
respectively.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
or capitalized, as appropriate. Remediation costs that relate to an
existing condition caused by past operations are accrued when it is
probable that these costs will be incurred and can be reasonably
estimated.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings Per Share," for all periods presented. Basic earnings per
share computations are based on the weighted-average number of shares of
common stock outstanding during the year. Diluted earnings per share
calculations reflect the assumed exercise and conversion of employee
stock options.
RECLASSIFICATIONS
Certain reclassifications of 1996 and 1995 financial statement and
related footnote amounts have been made to conform with the 1997
presentation.
- - ------------------------------------------------------------------------------
29
NOTE 2: SALE OF ASSETS
On December 31, 1996, Danka Business Systems PLC (Danka) and Kodak
entered into an agreement for Danka to acquire the sales, marketing and
equipment service operations of Kodak's Office Imaging business, as well
as Kodak's facilities management business known as Kodak Imaging
Services. In connection with this agreement, Kodak will supply high-
volume copiers and printers to Danka. Danka paid Kodak $559 million in
cash, net of final adjustments, in exchange for certain assets and the
assumption of certain operating liabilities. The book value of net
assets sold was $716 million. The Company recorded amounts for employee
separation payments, contract termination payments, transaction costs and
other significant items. As a result of this transaction, the Company
recognized a pre-tax loss of $387 million in other costs. The after-tax
loss was $252 million.
- - ------------------------------------------------------------------------------
NOTE 3: DISCONTINUED OPERATIONS
In 1994, the Company sold the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., the household products and do-it-
yourself products businesses of L&F Products and the Clinical Diagnostics
Division. In computing the net gain from discontinued operations, the
Company recorded amounts for environmental exposures, product
liabilities, buyer indemnifications, purchase price adjustments, taxes
and other significant items based on the best estimates available at the
time the transactions occurred. The Company has substantially completed
negotiations with buyers and filed tax returns associated with the sale
of the non-imaging health businesses. As a result of these actions and a
further assessment of the liabilities recorded at the time of the sale,
the Company recognized a $277 million after-tax benefit in discontinued
operations in 1996, the primary component of which was income and other
taxes. While the remaining balances included in these reserves are
believed to be appropriate based on management's current judgments,
changes could occur as audits and other activities related to these
transactions are completed.
- - ------------------------------------------------------------------------------
NOTE 4: RECEIVABLES
(in millions)
1997 1996
Trade receivables $1,930 $2,340
Miscellaneous receivables 341 398
------ ------
Total (net of allowances of $112 and $90) $2,271 $2,738
====== ======
The Company sells to customers in a variety of industries, markets and
geographies around the world. Receivables arising from these sales are
generally not collateralized. Adequate provisions have been recorded for
uncollectible receivables. There are no significant concentrations of
credit risk.
- - ------------------------------------------------------------------------------
30
NOTE 5: INVENTORIES
(in millions) 1997 1996
At FIFO or average cost (approximates
current cost)
Finished goods $ 788 $1,072
Work in process 538 587
Raw materials and supplies 460 505
------ ------
1,786 2,164
LIFO reserve (534) (589)
------ ------
Total $1,252 $1,575
====== ======
Inventories valued on the LIFO method are approximately 56% and 50% of
total inventories in 1997 and 1996, respectively.
- - ------------------------------------------------------------------------------
NOTE 6: PROPERTIES
(in millions) 1997 1996
Land $ 185 $ 193
Buildings and building equipment 2,693 2,788
Machinery and equipment 9,062 8,996
Construction in progress 884 608
------- -------
12,824 12,585
Accumulated depreciation (7,315) (7,163)
------- -------
Net properties $ 5,509 $ 5,422
======= =======
- - ------------------------------------------------------------------------------
NOTE 7: PAYABLES AND SHORT-TERM BORROWINGS
(in millions) 1997 1996
Trade creditors $ 943 $ 966
Accrued advertising and promotional
expenses 322 279
Accrued vacation 261 271
Wage dividend and Company payments under
Employees' Savings and Investment Plan 49 134
Other employment-related liabilities 448 476
Restructuring programs 813 379
Liabilities related to sale of Office
Imaging business 168 384
Liabilities related to sales of non-imaging
health businesses 48 152
Other 780 1,075
------ ------
Total payables $3,832 $4,116
====== ======
Short-term bank borrowings totaled $611 million at year-end 1997 and $296
million at year-end 1996. Year-end 1997 borrowings included $227 million
of commercial paper. Year-end 1996 borrowings were primarily by
subsidiaries outside the U.S. The weighted-average interest rate was
6.0% in 1997 and 7.0% in 1996.
The Company has a $3.5 billion unused revolving credit facility
established in 1996 and expiring in November 2001 which is available to
support the Company's commercial paper program and for general corporate
purposes. If unused, it has a commitment fee of $1.9 million per year.
Interest on amounts borrowed under this facility is calculated at rates
based on spreads above certain reference rates.
- - ------------------------------------------------------------------------------
31
NOTE 8: LONG-TERM BORROWINGS
(in millions)
Maturity
Description Dates 1997 1996
Notes:
6.13% - 8.55% 1999 - 2003 $198 $433
9.20% - 9.95% 2003 - 2021 191 178
Debentures:
1.6% - 13.75% 1999 - 2021 171 142
Other:
6.0% - 15.8% 1998 - 2015 28 51
---- ----
588 804
Current maturities (3) (245)
---- ----
Total $585 $559
==== ====
Annual maturities (in millions) of long-term borrowings outstanding at
December 31, 1997 are as follows: 1998: $3; 1999: $153; 2000: $33; 2001:
$32; 2002: $27; and 2003 and beyond: $340.
The Company has a shelf registration statement for debt securities with
an available balance of $2.2 billion.
- - ------------------------------------------------------------------------------
NOTE 9: OTHER LONG-TERM LIABILITIES
(in millions) 1997 1996
Deferred compensation $ 152 $179
Restructuring programs 333 83
Liabilities related to sales of non-
imaging health businesses 172 245
Other 426 152
------ ----
Total $1,083 $659
====== ====
- - ------------------------------------------------------------------------------
32
NOTE 10: COMMITMENTS AND CONTINGENCIES
Expenditures for pollution prevention and waste treatment for continuing
operations at various manufacturing facilities were as follows:
1997 1996 1995
(in millions)
Recurring costs for managing
hazardous substances and
pollution prevention $ 88 $ 76 $ 72
Capital expenditures to limit or
monitor hazardous substances and
pollutants 25 37 31
Site remediation costs 2 3 3
---- ---- ----
Total $115 $116 $106
==== ==== ====
At December 31, 1997 and 1996, the Company's undiscounted accrued
liabilities for environmental remediation costs amounted to $118 million
and $106 million, respectively.
The Company expects these recurring and remediation costs and capital
expenditures to increase in the future. It is not expected that these
costs will have an impact materially different from 1997's environmental
expenditures on the Company's financial position, results of operations,
cash flows or competitive position.
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 96-1, Environmental Remediation Liabilities, became
effective for the Company on January 1, 1997. The SOP defines the stages
of an environmental remediation when liabilities related to the
remediation should be recognized in the Consolidated Statement of
Financial Position, as well as the costs included in the liability. The
impact of the SOP on the Company's results of operations and financial
position was not significant.
In October 1994, the Company, the Environmental Protection Agency (EPA),
and the U.S. Department of Justice announced the settlement of a civil
complaint alleging noncompliance by the Company with federal
environmental regulations at the Company's Kodak Park manufacturing site
in Rochester, New York. The Company paid a penalty of $5 million. A
Consent Decree was signed under which the Company is subject to a
Compliance Schedule by which the Company improved its waste
characterization procedures, upgraded one of its incinerators, and is
evaluating and upgrading its industrial sewer system. The total
expenditures required to complete this program are currently estimated to
be approximately $55 million over the next eight years. These
expenditures are primarily capital in nature.
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 position or results of
operations.
33
In addition to the foregoing environmental actions, the Resource
Conservation and Recovery Act (RCRA) Facility Assessment (RFA) pertaining
to the Kodak Park site in Rochester, N.Y. is nearly complete and the
Company has completed a broad-based assessment of the site in response to
the RFA. While future expenditures associated with any remediation
activities could be significant, the Company is currently in the process
of completing the RCRA Facility Investigation (RFI). Upon completion of
the RFI, the Company expects to have developed estimates of the required
remediation costs.
The Clean Air Act Amendments were enacted in 1990. Expenditures to
comply with the Clean Air Act implementing regulations issued to date
have not been material and have been primarily capital in nature. Future
capital expenditures cannot be reasonably estimated at the present time,
as certain of the regulations to be promulgated pursuant to this Act have
not been issued.
The Company has retained certain obligations for environmental
remediation matters related to the non-imaging health businesses sold in
1994. Actions to fulfill these obligations are not expected to be
completed in the near term and costs related to the obligations are
included in remediation accruals recorded at December 31, 1997.
The Company has entered into agreements with several companies to provide
the Company with products and services to be used in its normal
operations. The minimum payments for these agreements are approximately
$116 million in 1998, $116 million in 1999, $76 million in 2000, $14
million in 2001 and $13 million in 2002.
The Company has also guaranteed debt and other obligations under
agreements with certain affiliated companies and customers. At December
31, 1997, these guarantees totaled approximately $154 million. The
Company does not expect that these guarantees will have a material impact
on the Company's future financial position or results of operations.
The Company has issued letters of credit totaling $93 million to ensure
the completion of environmental remediations and payment of possible
casualty and Workers' Compensation claims.
Rental expense, net of minor sublease income, amounted to $182 million in
1997, $207 million in 1996 and $189 million in 1995. The approximate
amounts of noncancelable lease commitments with terms of more than one
year, principally for the rental of real property, reduced by minor
sublease income, are $135 million in 1998, $102 million in 1999, $75
million in 2000, $52 million in 2001, $34 million in 2002 and $59 million
in 2003 and thereafter.
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.
- - ------------------------------------------------------------------------------
34
NOTE 11: FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and the estimated fair
values of financial instruments at December 31, 1997 and 1996; ( )
denotes liabilities:
1997 1996
(in millions)
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities:
Current $ 24 $24 $ 19 $ 19
Long-term 26 26 46 46
Other investments 49 48 59 78
Long-term borrowings (585) (627) (559) (598)
Foreign currency forwards 12 (1) - -
Silver options 1 17 - -
Silver futures - 15 - -
The fair values of long-term borrowings were determined by reference to
quoted market prices or by obtaining quotes from dealers. Marketable
securities and other investments are valued at quoted market prices,
except for $25 million and $31 million of equity investments included in
other investments at December 31, 1997 and 1996, respectively, which are
reflected at their carrying value because it is not practical to estimate
fair value as quoted market prices do not exist. The fair values for the
remaining financial instruments in the above table are based on dealer
quotes and reflect the estimated amounts the Company would pay or receive
to terminate the contracts. The carrying values of cash and cash
equivalents, receivables, short-term borrowings and payables approximate
their fair values.
The Company, as a result of its global operating and financing
activities, is exposed to changes in commodity prices, interest rates and
foreign currency exchange rates which may adversely affect its results of
operations and financial position. In seeking to minimize the risks
and/or costs associated with such activities, the Company manages
exposures to changes in commodity prices, interest rates and foreign
currency exchange rates through its regular operating and financing
activities. Pursuant to Company policy, foreign currency forward
contracts are used to hedge certain firm commitments and the currency
risk inherent in the deposit taking and lending activities of the
Company's International Treasury Center. Option and futures contracts
are used to mitigate the Company's risk to fluctuating commodity prices.
The Company's exposure to changes in interest rates results from its
investing and borrowing activities used to meet its liquidity needs.
Long-term debt is generally used to finance long-term investments, while
short-term debt is used to meet working capital requirements. Derivative
instruments are not presently used to adjust the Company's interest rate
risk profile. The Company does not utilize financial instruments for
trading or other speculative purposes, nor does it utilize leveraged
financial instruments.
35
The table below summarizes by major currency the notional amounts of
foreign currency forward contracts in U.S. dollars. The counter-currency
for the majority of the contracts is the U.S. dollar, while some
contracts are cross-currency with one foreign currency traded for
another. Foreign currency amounts are translated at rates current at the
reporting date. The "buy" amounts represent the U.S. dollar equivalent
of commitments to purchase foreign currencies, and the "sell" amounts
represent the U.S. dollar equivalent of commitments to sell foreign
currencies. Substantially all of the Company's foreign currency forward
agreements will mature during 1998. The market risk related to foreign
currency forward contracts is substantially offset by changes in the
valuation and cash flows of the underlying positions hedged.
1997 1996
(in millions)
Buy Sell Buy Sell
Australian dollar $ - $ 69 $ - $ 68
British pound - 477 - 131
French franc 105 - 82 -
German mark 54 - - -
Irish punt - 84 - -
Spanish peseta - 36 - 61
Swiss franc 8 - 55 -
Others 67 121 91 201
---- ---- ---- ----
Total $234 $787 $228 $461
==== ==== ==== ====
During 1997, the Company entered into option and futures contracts to
minimize its exposure to increases in silver price for 1998. Silver
options and futures entered into have notional amounts of $73 million and
$74 million, respectively, which expire in the first and second quarters
of 1998. All silver hedging contracts are settled in cash. Gains and
losses related to silver hedges are recorded as adjustments to the
carrying amount of silver inventory when purchased, and recognized in
results of operations as silver-containing products are sold. The market
risk related to silver options and futures is substantially offset by
changes in the cost of silver purchased.
The Company's financial instrument counterparties are high quality
investment or commercial banks with significant experience with such
instruments. The Company manages exposure to counterparty credit risk
through specific minimum
credit standards and diversification of counterparties. The Company has
procedures to monitor the credit exposure amounts. The maximum credit
exposure at December 31, 1997 was not significant to the Company.
- - ------------------------------------------------------------------------------
36
NOTE 12: INCOME TAXES
The components of earnings (loss) from continuing operations before
income taxes and the related provision (benefit) for U.S. and other
income taxes were as follows:
(in millions) 1997 1996 1995
Earnings (loss) before income taxes
U.S. $ 328 $1,125 $1,262
Outside the U.S. (275) 431 664
----- ------ ------
Total $ 53 $1,556 $1,926
===== ====== ======
U.S. income taxes
Current provision $ 388 $ 286 $ 167
Deferred (benefit) provision (366) 7 224
Income taxes outside the U.S.
Current provision 130 231 200
Deferred (benefit) provision (115) (36) 30
State and other income taxes
Current provision 32 45 24
Deferred (benefit) provision (21) 12 29
----- ------ ------
Total $ 48 $ 545 $ 674
===== ====== ======
The components of earnings (loss) from consolidated operations before
income taxes and the related provision (benefit) for U.S. and other
income taxes were as follows:
(in millions) 1997 1996 1995
Earnings (loss) before income taxes
U.S. $ 328 $1,190 $1,262
Outside the U.S. (275) 431 664
----- ------ ------
Total $ 53 $1,621 $1,926
===== ====== ======
U.S. income taxes
Current provision $ 388 $ 206 $ 167
Deferred (benefit) provision (366) 15 224
Income taxes outside the U.S.
Current provision 130 231 200
Deferred (benefit) provision (115) (36) 30
State and other income taxes
Current provision (benefit) 32 (95) 24
Deferred (benefit) provision (21) 12 29
----- ------ ------
Total $ 48 $ 333 $ 674
===== ====== ======
The components of consolidated
income taxes were as follows:
Continuing operations $ 48 $ 545 $ 674
Discontinued operations - (212) -
----- ------ ------
Total $ 48 $ 333 $ 674
===== ====== ======
37
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate for continuing operations
were as follows:
(in millions) 1997 1996 1995
Amount computed using the statutory
rate $ 19 $545 $674
Increase (reduction) in taxes
resulting from:
State and other income taxes 7 37 34
Goodwill amortization 18 21 38
Export sales and manufacturing
credits (39) (41) (37)
Operations outside the U.S. 36 6 (34)
Other, net 7 (23) (1)
---- ---- ----
Provision for income taxes $ 48 $545 $674
==== ==== ====
The significant components of deferred tax assets and liabilities were as
follows:
(in millions) 1997 1996
Deferred tax assets
Postemployment obligations $1,141 $1,190
Restructuring programs 496 178
Inventories 66 109
Tax loss carryforwards 150 128
Other 845 744
------ ------
2,698 2,349
Valuation allowance (150) (128)
------ ------
Total $2,548 $2,221
====== ======
Deferred tax liabilities
Depreciation $ 611 $ 678
U.S. pension income - 77
Leasing 308 349
Other 377 367
------ ------
Total $1,296 $1,471
====== ======
The valuation allowance is primarily attributable to certain net
operating loss carryforwards outside the U.S. A majority of the net
operating loss carryforwards are subject to a five-year expiration
period.
Retained earnings of subsidiary companies outside the U.S. were
approximately $792 million and $1,466 million at December 31, 1997 and
1996, respectively. Retained earnings at December 31, 1997 are
considered to be reinvested indefinitely. If remitted, they would be
substantially free of additional tax. It is not practicable to determine
the deferred tax liability for temporary differences related to these
retained earnings.
- - ------------------------------------------------------------------------------
38
NOTE 13: RESTRUCTURING PROGRAMS
1997 Program
In December 1997, the Company committed to implement a restructuring
program and recorded a pre-tax provision of $1,455 million for severance
and other termination benefits and exit costs related to the realignment
of the Company's worldwide manufacturing, sales and marketing, research
and development (R&D), and administrative operations. The Company
recorded $165 million of the $1,455 million provision as cost of goods
sold. The remaining $1,290 million includes $862 million of
restructuring costs and $428 million of asset impairments. Severance
costs for 16,100 personnel included in the restructuring provision
resulted from capacity reductions in manufacturing facilities (7,950
personnel), and service and photofinishing operations (2,675 personnel);
and the consolidation of sales and marketing (1,425 personnel), R&D
(1,000 personnel) and administrative (3,050 personnel) functions in
various locations of the Company's worldwide operations. Approximately
1,350 personnel had been terminated by the end of 1997. Most of the
remaining terminations are expected to be completed by December 31, 1998.
The following table summarizes the costs associated with the 1997
program:
(in millions) Lease
Cancel-
Severance lation & Asset Inventory
& Related Shutdown Penalty Write- Write-downs
Costs Costs Costs downs & Other Total
Initial Reserve $735 $65 $62 $428 $165 $1,455
Utilized in 1997 37 3 - 428 104 572
---- --- --- ---- ---- ----
Balance 12/31/97 $698 $62 $62 $ - $ 61 $ 883
==== === === ==== ==== ======
1996 Program
The Company recorded a pre-tax provision of $358 million in 1996 for
severance and other termination benefits for approximately 3,900
personnel and exit costs related to the realignment of the Company
worldwide. The $358 million provision included $299 million of
restructuring costs. The principal purpose of this program is to
eliminate infrastructure and operational inefficiencies and redundancies
throughout the Company by taking actions to separate personnel, close
facilities and exit non-strategic businesses. A portion of the program
includes the restructuring of retail and wholesale photofinishing
operations, primarily outside the U.S. Additionally, the plan addressed
certain infrastructure activities which supported the Office Imaging
business, which was sold to Danka Business Systems PLC. Approximately
1,900 personnel had been terminated by the end of 1997. The remaining
terminations are expected to be completed during 1998.
39
The following table summarizes the costs associated with the 1996
program:
(in millions) Lease
Cancel-
Severance lation & Asset Inventory
& Related Shutdown Penalty Write- Write-downs
Costs Costs Costs downs & Other Total
Initial Reserve $260 (a) $38 $21 $51 $8 $378 (a)
Utilized through
12/31/97 79 8 7 51 5 150
---- --- --- --- -- ----
Balance 12/31/97 $181 $30 $14 $ - $3 $228
==== === === === == ====
(a) Includes $20 million of 1994 restructuring reserves determined to be
excess.
- - ------------------------------------------------------------------------------
40
NOTE 14: RETIREMENT PLANS
Substantially all U.S. employees are covered by a noncontributory plan,
the Kodak Retirement Income Plan (KRIP), which is funded by Company
contributions to an irrevocable trust fund. Generally, benefits are
based on a formula recognizing length of service and final average
earnings. Assets in the fund are held for the sole benefit of
participating employees and retirees. The assets of the trust fund are
comprised of corporate equity and debt securities, U.S. government
securities, partnership and joint venture investments, interests in
pooled funds, and various types of interest rate and foreign currency
financial instruments. Kodak common stock represents approximately 6.5%
of trust assets.
The benefit obligations for KRIP include amounts for employees who
retired from Eastman Chemical Company (ECC) on or before December 31,
1993, the date ECC was spun off from the Company. Benefit obligations of
all other ECC employees were transferred to ECC as part of the spin-off
agreement. The benefit obligation of KRIP excludes amounts for all
employees (both retired and active) of the non-imaging health businesses
sold in 1994 because those obligations were transferred to the buyers of
the non-imaging health businesses. The market value of KRIP assets as
shown below reflects the Company's share of KRIP assets held for
employees and retirees. The transfer of assets from the KRIP trust fund
to ECC was completed as of July 30, 1997. The transfer of assets from
the KRIP trust fund to the buyers of the non-imaging health businesses
was not completed as of December 31, 1997.
The Company retained the obligation for employees of the Office Imaging
sales, marketing and equipment service functions and recorded a $12
million curtailment loss in 1996 as a result of the sale of this
business, which is included in the loss on the sale.
Funding policy for KRIP is to contribute amounts sufficient to meet
minimum funding requirements as determined by employee benefit and tax
laws plus additional amounts the Company determines to be appropriate.
Most subsidiaries and branches operating outside the U.S. have retirement
plans covering substantially all employees. Contributions by the Company
for these plans are typically deposited under government or other
fiduciary-type arrangements. Retirement benefits are generally based on
contractual agreements that provide for benefit formulas using years of
service and/or compensation prior to retirement. The actuarial
assumptions used for these plans reflect the diverse economic
environments within the various countries in which the Company operates.
41
Total pension expense for all plans included the following:
(in millions) 1997 1996 1995
Non- Non- Non-
U.S. U.S. U.S. U.S. U.S. U.S.
Major Plans:
Service cost $ 122 $ 36 $ 131 $ 42 $ 110 $ 21
Interest cost 480 118 476 112 480 81
Actual return on plan
assets (943) (221) (1,069) (141) (834) (153)
Net deferral and
amortization 328 88 519 22 288 76
----- ----- ------- ----- ----- -----
Net pension expense (13) 21 57 35 44 25
Other U.S. and non-U.S.
plans 6 76 7 65 6 71
----- ----- ------- ----- ----- -----
Total pension expense $ (7) $ 97 $ 64 $ 100 $ 50 $ 96
===== ===== ======= ===== ===== =====
The funded status of Major Plans was as follows:
(in millions)
At December 31,
1997 1996
Non- Non-
U.S. U.S. U.S. U.S.
Actuarial present value of benefit
obligations
Vested benefits $5,357 $1,617 $5,159 $1,353
====== ====== ====== ======
Accumulated benefits $5,623 $1,644 $5,477 $1,385
====== ====== ====== ======
Projected benefits $6,810 $1,814 $6,425 $1,515
Market value of assets 6,950 1,762 6,709 1,618
------ ------ ------ ------
Projected benefits (less than) in excess
of plan assets (140) 52 (284) (103)
Unrecognized net (loss) gain (193) (106) (90) 21
Unrecognized net transition asset 331 53 398 64
Unrecognized prior service cost (121) (39) (134) (49)
------ ------ ------ ------
Prepaid pension expense $ (123)$ (40) $ (110) $ (67)
====== ====== ====== ======
The weighted assumptions used to compute pension amounts for Major Plans
were as follows:
At December 31,
1997 1996
Non- Non-
U.S. U.S. U.S. U.S.
Discount rate 7.0% 6.7% 7.5% 7.9%
Salary increase rate 4.5% 3.7% 4.5% 4.4%
Long-term rate of return on plan assets 9.5% 8.5% 9.5% 9.0%
42
The Company also sponsors an unfunded plan for certain U.S. employees
(primarily executives). The benefits of this plan are obtained by
applying KRIP provisions to all compensation, including compensation
currently being deferred, and without regard to the legislated qualified
plan maximums, reduced by benefits under KRIP. At December 31, 1997 and
1996, the projected benefit obligations of this plan amounted to $222
million and $197 million, respectively. The Company had recorded long-
term liabilities at those dates of $195 million and $179 million,
respectively. Pension expense recorded in 1997, 1996 and 1995 related to
this plan was $25 million, $24 million and $17 million, respectively.
- - ------------------------------------------------------------------------------
NOTE 15: NONPENSION POSTRETIREMENT BENEFITS
The Company provides health care, dental and life insurance benefits to
U.S. eligible retirees and eligible survivors of retirees. In general,
these benefits are provided to U.S. retirees that are covered by the
Company's principal pension plan (KRIP). These benefits are funded from
the general assets of the Company as they are incurred. Certain non-U.S.
subsidiaries offer health care benefits; however, the cost of such
benefits is insignificant to the Company.
Net nonpension postretirement benefit cost includes the following:
(in millions) 1997 1996 1995
Service cost $ 21 $ 25 $ 23
Interest cost 159 166 183
Net deferral and amortization (67) (62) (58)
---- ---- ----
Net postretirement benefit cost $113 $129 $148
==== ==== ====
The total obligation and amount recognized in the Consolidated Statement
of Financial Position at December 31, 1997 and 1996, were as follows:
(in millions) 1997 1996
Accumulated postretirement
benefit obligation
Retirees $1,738 $1,801
Fully eligible active plan
participants 75 31
Other active plan participants 553 449
------ ------
Total obligation 2,366 2,281
Unrecognized net loss (410) (278)
Unrecognized plan amendments 788 779
------ ------
Accrued postretirement benefit
obligation $2,744 $2,782
====== ======
The principal actuarial assumptions used were as follows:
1997 1996
Discount rate 7.0% 7.5%
Salary increase rate 4.5% 4.5%
Health care cost trend (a) 8.0% 9.0%
(a) declining to 5% by 2002
43
The Company recorded a $97 million curtailment gain in 1996 as a result
of the sale of the Office Imaging business, which is included in the loss
on the sale.
Increasing the health care cost trend rates by one percentage point would
increase the accumulated postretirement benefit obligation by
approximately $112 million as of December 31, 1997 and increase the net
postretirement benefit cost for 1997 by approximately $9 million.
- - ------------------------------------------------------------------------------
NOTE 16: STOCK OPTION AND COMPENSATION PLANS
The Company's stock incentive plans consist of the 1995 Omnibus Long-Term
Compensation Plan (the 1995 Plan), the 1990 Omnibus Long-Term
Compensation Plan (the 1990 Plan) and the 1985 Stock Option Plan (the
1985 Plan). The Plans are administered by the Executive Compensation and
Development Committee of the Board of Directors.
Under the 1995 Plan, 16 million shares of the Company's common stock may
be granted to a variety of employees between February 1, 1995 and
December 31, 1999. Option prices are not less than 100% of the per share
fair market value on the date of grant, and the options generally expire
ten years from the dates of grant, but may expire sooner if the
optionee's employment terminates. The 1995 Plan also provides for Stock
Appreciation Rights (SARs) to be granted, either in tandem with options
or freestanding. SARs allow optionees to receive payment equal to the
difference between the Company's stock market price on grant date and
exercise date. At December 31, 1997, 536,490 freestanding SARs were
outstanding at option prices ranging from $54.38 to $90.63.
Under the 1990 Plan, 16 million shares of the Company's common stock
could be granted to key employees between February 1, 1990 and January
31, 1995. Option prices could not be less than 50% of the per share fair
market value on the date of grant; however, no options below fair market
value were granted. The options generally expire ten years from the
dates of grant, but may expire sooner if the optionee's employment
terminates. The 1990 Plan also provided that options with dividend
equivalents, tandem SARs and freestanding SARs could be granted. At
December 31, 1997, 100,561 tandem SARs and 221,711 freestanding SARs were
outstanding at option prices ranging from $31.45 to $44.50.
Under the 1985 Plan, approximately 1 million options, 119,583 tandem SARs
and 22,359 freestanding SARs were outstanding at December 31, 1997, at
option prices ranging from $33.79 to $36.64. The 1985 Plan terms are
similar to the 1995 Plan terms.
44
Further information relating to options is as follows:
(Amounts in thousands, except per share amounts)
Shares Range of Price
Under Option Per Share
Outstanding on December 31, 1994 21,798 $30.25 - $50.47
Granted 2,711 $49.31 - $69.50
Exercised 3,212 $30.25 - $49.44
Terminated, Canceled or Surrendered 98 $31.45 - $56.31
------
Outstanding on December 31, 1995 21,199 $30.25 - $69.50
Granted 3,359 $68.00 - $83.44
Exercised 3,411 $30.25 - $71.81
Terminated, Canceled or Surrendered 293 $31.45 - $75.69
------
Outstanding on December 31, 1996 20,854 $30.25 - $83.44
Granted 6,077 $54.38 - $92.31
Exercised 2,422 $30.25 - $71.81
Terminated, Canceled or Surrendered 305 $31.45 - $90.75
------
Outstanding on December 31, 1997 24,204 $30.25 - $92.31
Exercisable on December 31, 1997 14,977 $30.25 - $90.44
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for employee
stock options. Accordingly, no compensation expense has been recognized
for stock option plans.
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123, "Accounting for Stock-Based Compensation," has been
determined as if the Company had accounted for employee stock options
under SFAS No. 123's fair value method. The fair value of these options
was estimated at grant date using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1997, 1996 and 1995:
1997 1996 1995
Risk free interest rates 6.7% 6.3% 6.9%
Expected option lives 7 years 7 years 7 years
Expected volatilities 25% 25% 25%
Expected dividend yields 2.32% 2.25% 3.00%
The weighted-average fair values of options granted were $25.76, $22.84
and $17.43 for 1997, 1996 and 1995, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period (3
years). The Company's pro forma information follows:
Year Ended December 31,
(in millions, except per share data) 1997 1996 1995
Net earnings (loss)
As reported $ 5 $1,288 $1,252
Pro forma (52) 1,262 1,242
Basic earnings (loss) per share
As reported $ .01 $ 3.82 $ 3.67
Pro forma (.16) 3.74 3.64
Diluted earnings (loss) per share
As reported $ .01 $ 3.76 $ 3.62
Pro forma (.16) 3.68 3.59
This disclosure is not likely to be representative of the effects on
reported net earnings for future years, because options vest over three
years and additional awards generally are made each year.
45
The following table summarizes information about stock options at
December 31, 1997:
(Number of options in thousands)
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted-
Range Average Weighted- Weighted-
of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Options Life Price Options Price
$30 - $45 11,529 4.3 $37.89 11,329 $37.80
$45 - $60 3,595 6.9 $54.35 2,418 $54.09
$60 - $75 6,371 8.9 $72.63 1,112 $71.62
$75 - $90 586 9.0 $82.46 57 $77.80
>$90 2,123 9.2 $90.19 61 $90.44
------ ------
24,204 14,977
====== ======
The Company recognized a credit to compensation expense of $25 million in
1997, and compensation expense of $31 million and $70 million in 1996 and
1995, respectively, related to stock-based employee compensation awards.
- - ------------------------------------------------------------------------------
NOTE 17: 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 feasibility
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.
On October 2, 1997, the Company purchased CPI's 49% interest in the Fox
Photo, Inc. joint venture for $10 million in cash and a $43.9 million
note due on January 4, 1999. The two companies formed the photospecialty
retailing venture in October 1996 with Kodak purchasing 51% of the stock
in the venture for $56.1 million and CPI contributing its retail
operations. The transaction was accounted for by the purchase method
and, accordingly, the operating results of the venture have been included
in the accompanying consolidated financial statements from the date of
formation.
46
On December 31, 1997, the Company and Sun Chemical Corporation formed a
joint venture, Kodak Polychrome Graphics, that will supply film, paper,
conventional and computer-to-plate solutions, processing chemistry and
digital color proofing products to the global graphics arts market. Each
company owns 50% of the venture and will share profits equally. Assets
contributed to the joint venture were reclassified to other noncurrent
assets on the Consolidated Statement of Financial Position. The
Company's investment in the venture will be accounted for using the
equity method.
- - ------------------------------------------------------------------------------
NOTE 18: SEGMENT INFORMATION
The Company's business consists of two segments: Consumer Imaging and
Commercial Imaging. The Consumer Imaging segment includes amateur films,
photographic papers, chemicals and equipment for photographic imaging and
photofinishing operations. The Commercial Imaging segment includes x-
ray, motion picture, professional and graphic arts films, microfilms,
copiers, printers and other equipment for information management. Sales
between segments are made on a basis intended to reflect the market value
of the products.
Sales are reported in the geographic area where they originate.
Transfers among geographic areas are made on a basis intended to reflect
the market value of the products, recognizing prevailing market prices
and distributor discounts.
The parent company's equity in the net assets of subsidiaries outside the
U.S. was as follows:
(in millions) 1997 1996 1995
Net assets $2,393 $2,927 $2,980
====== ====== ======
47
SEGMENT INFORMATION (continued)
Financial information by geographic areas is as follows:
Europe, Canada
Middle &
United East Asia Latin Elimi- Consol-
(in millions) States & Africa Pacific America nations idated
1997
Sales to customers $ 6,890 $4,036 $2,333 $1,279 $14,538
Transfers among
geographic areas 2,923 210 164 683 $(3,980) -
------- ------ ------ ------ ------- -------
Total Sales $ 9,813 $4,246 $2,497 $1,962 $(3,980) $14,538
======= ====== ====== ====== ======= =======
Earnings (loss)
from operations $ 206 $ (183) $ 67 $ 40 $ - $ 130
======= ====== ====== ====== ======= =======
Assets by geo-
graphic areas $ 8,285 $2,804 $1,446 $1,083 $ (473) $13,145
======= ====== ====== ====== ======= =======
1996
Sales to customers $ 7,453 $4,664 $2,453 $1,398 $15,968
Transfers among
geographic areas 3,065 228 79 632 $(4,004) -
------- ------ ------ ------ ------- -------
Total Sales $10,518 $4,892 $2,532 $2,030 $(4,004) $15,968
======= ====== ====== ====== ======= =======
Earnings from
operations $ 1,173 $ 497 $ 96 $ 79 $ - $1,845
======= ====== ====== ====== ======= =======
Assets by geo-
graphic areas $ 9,162 $3,036 $1,543 $1,161 $ (464) $14,438
======= ====== ====== ====== ======= =======
1995
Sales to customers $ 6,978 $4,391 $2,286 $1,325 $14,980
Transfers among
geographic areas 2,725 229 74 555 $(3,583) -
------- ------ ------ ------ ------- -------
Total Sales $ 9,703 $4,620 $2,360 $1,880 $(3,583) $14,980
======= ====== ====== ====== ======= =======
Earnings from
operations $ 1,153 $ 499 $ 152 $ 137 $ - $1,941
======= ====== ====== ====== ======= =======
Assets by geo-
graphic areas $ 9,266 $3,036 $1,624 $1,354 $ (803) $14,477
======= ====== ====== ====== ======= =======
48
SEGMENT INFORMATION (continued)
(in millions) 1997 1996 1995
Sales, including intersegment sales
Consumer Imaging $ 7,681 $ 7,659 $ 6,830
Commercial Imaging 6,888 8,340 8,184
Intersegment sales (31) (31) (34)
------- ------- -------
Total sales $14,538 $15,968 $14,980
======= ======= =======
Earnings (loss) from operations (1)
Consumer Imaging $ 581 $ 1,141 $ 1,254
Commercial Imaging (451) 704 687
------- ------- -------
Total earnings from operations 130 1,845 1,941
Other revenues and charges
Consumer Imaging 25 51 35
Commercial Imaging (29) (316) (36)
Corporate 25 59 64
Interest expense 98 83 78
------- ------- -------
Earnings before income taxes $ 53 $ 1,556 $ 1,926
======= ======= =======
Assets
Consumer Imaging $ 5,889 $ 5,846 $ 4,913
Commercial Imaging 5,163 5,921 6,889
Corporate 2,093 2,671 2,675
------- ------- -------
Total assets at year end $13,145 $14,438 $14,477
======= ======= =======
Depreciation expense
Consumer Imaging $ 387 $ 344 $ 311
Commercial Imaging 361 493 496
------- ------- -------
Total depreciation expense $ 748 $ 837 $ 807
======= ======= =======
Amortization of goodwill
Consumer Imaging $ 52 $ 43 $ 43
Commercial Imaging 28 23 66
------- ------- -------
Total amortization of goodwill $ 80 $ 66 $ 109
======= ======= =======
Capital additions
Consumer Imaging $ 796 $ 599 $ 436
Commercial Imaging 689 742 598
------- ------- -------
Total capital additions $ 1,485 $ 1,341 $ 1,034
======= ======= =======
(1) Earnings (loss) from operations are shown after deducting restructuring
costs, asset impairments and other charges of:
1997 1996 1995
Consumer Imaging $ 516 $ 183 $ -
Commercial Imaging 939 175 -
- - ------------------------------------------------------------------------------
49
NOTE 19: QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
(in millions, except per share data)
1997
Sales $3,779 $3,773 $3,853 $3,133
Gross profit 1,503 1,728 1,838 1,490
Net (loss) earnings (744)(1) 232(3) 368 149(4)
Basic (loss) earnings per share (6) (2.29) .71 1.12 .45
Diluted (loss) earnings per
share (6) (2.29) .71 1.11 .44
(Loss) earnings used in basic and
diluted earnings (loss) per share (744)(1) 232(3) 368 149(4)
Number of common shares used in
basic earnings (loss) per share 324.5 325.2 327.4 332.4
Incremental shares from
assumed conversion of options - (2) 3.9 5.2 5.8
------ ------ ------ ------
Number of common shares used in
diluted earnings (loss) per share 324.5 329.1 332.6 338.2
1996
Sales $4,314 $4,149 $4,117 $3,388
Gross profit 2,016 1,997 2,017 1,612
(Loss) earnings from continuing
operations (113)(5) 410 440 274
Earnings from discontinued
operations 277 - - -
Net earnings 164 (5) 410 440 274
Basic (loss) earnings per share
from continuing operations (6) (.34) 1.22 1.30 .80
Basic earnings per share from
discontinued operations (6) .83 - - -
Basic earnings per share (6) .49 1.22 1.30 .80
Diluted (loss) earnings per share
from continuing operations (6) (.34) 1.20 1.28 .78
Diluted earnings per share from
discontinued operations (6) .83 - - -
Diluted earnings per share (6) .49 1.20 1.28 .78
(Loss) earnings from continuing
operations used in basic and
diluted earnings (loss) per share (113)(5) 410 440 274
Number of common shares used in
basic earnings (loss) per share 332.9 335.4 338.2 343.4
Incremental shares from
assumed conversion of options - (2) 5.5 5.8 5.6
------ ------ ------ ------
Number of common shares used in
diluted earnings (loss) per share 332.9 340.9 344.0 349.0
(1) After deducting $1,455 million of restructuring costs, asset
impairments and other charges, which reduced net earnings by $990
million.
(2) Potential common shares were not included because they would have
had an antidilutive effect.
(3) After deducting a $46 million 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, which reduced net
earnings by $30 million.
(4) After deducting $186 million for a write-off of in-process research
and development associated with the acquisition of Wang Laboratories'
software unit on March 17, 1997, which reduced net earnings by $123
million.
(5) After deducting $358 million of restructuring costs, which reduced
net earnings by $256 million, and a $387 million loss related to the sale
of the Office Imaging business, which reduced net earnings by $252
million.
(6) Each quarter is calculated as a discrete period and the sum of the
four quarters does not equal the full year amount.
50
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(Dollar amounts and shares in millions, except per share data)
1997 1996 1995 1994 1993
Sales from continuing
operations $14,538 $15,968 $14,980 $13,557 $12,670
Earnings from operations
before extraordinary items
and cumulative effect of
changes in accounting
principle:
Continuing 5(1) 1,011(3) 1,252 554(5) 644 (6)
Discontinued - 277 - 269 23 (6)
Net earnings (loss) 5(1) 1,288(3) 1,252 557(5) (1,515)(6)
(7)
EARNINGS AND DIVIDENDS
Net earnings (loss)
- % of sales 0.0% 8.1% 8.4% 4.1% (12.0%)
- % return on average
shareholders' equity 0.1% 26.1% 27.4% 15.1% (30.6%)
Basic earnings from continuing
operations per share (8) .01 3.00 3.67 1.65 1.95
Basic earnings (loss) per share (8) .01 3.82 3.67 1.66 (4.61)
Diluted earnings from continuing
operations per share .01 2.95 3.62 1.64 1.95
Diluted earnings (loss) per share .01 3.76 3.62 1.65 (4.59)
Cash dividends declared
- on common shares 577 539 547 537 657
- per common share 1.76 1.60 1.60 1.60 2.00
Common shares outstanding at
year end 323.1 331.8 345.9 339.8 330.6
Shareholders at year end 135,132 137,092 143,574 151,349 157,797
STATEMENT OF FINANCIAL
POSITION DATA
Working capital $ 298 $ 1,548 $ 2,666 $ 1,948 $ 2,696
Properties - net 5,509 5,422 5,377 5,292 5,027
Total assets 13,145 14,438 14,477 14,968 18,810
Long-term borrowings 585 559 665 660 6,727
Total shareholders' equity 3,161 4,734 5,121 4,017 3,356
SUPPLEMENTAL INFORMATION
Sales - Consumer Imaging $ 7,681 $ 7,659 $ 6,830 $ 5,919 $ 5,292
- Commercial Imaging 6,888 8,340 8,184 7,646 7,382
Research and development costs 1,044(2) 1,028 935 859 864
Depreciation 748 837 807 836 817
Taxes (excludes payroll, sales
and excise taxes) 164 663 796 567 545
Wages, salaries and employee
benefits 4,985 5,110 5,025 4,690 4,679
Employees at year end
- in the U.S. 54,800 53,400(4) 54,400 54,300 49,100
- worldwide 97,500 94,800(4) 96,600 96,300 91,800
(see footnotes on next page)
51
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(footnotes for previous page)
(1) After deducting $1,455 million of restructuring costs, asset impairments
and other charges, which reduced net earnings by $990 million,
$186 million as a write-off of in-process research and development
associated with the acquisition of Wang Laboratories' software unit,
which reduced net earnings by $123 million, and a $46 million 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, which reduced net earnings by $30 million.
(2) Excludes a $186 million charge for the write-off of in-process
research and development associated with the acquisition of Wang
Laboratories' software unit.
(3) After deducting $358 million of restructuring costs, which reduced net
earnings by $256 million, and a $387 million loss related to the sale
of the Office Imaging business, which reduced net earnings by $252
million.
(4) Excludes approximately 10,000 employees worldwide and 5,800 employees
in the U.S. who were transferred to Danka Business Systems PLC.
(5) After deducting $340 million of restructuring costs from continuing
operations, which reduced net earnings by $254 million, and a $110
million loss on the extinguishment of certain financial instruments,
which reduced net earnings by $80 million. Net earnings were also
reduced by $266 million of extraordinary losses related to the early
extinguishment of debt.
(6) After deducting $495 million of restructuring costs from continuing
operations, which reduced net earnings by $353 million, and $55
million of restructuring costs from discontinued operations, which
reduced net earnings by $34 million.
(7) The net loss for 1993 was due to an after-tax charge of $2.17 billion
from the cumulative effect of adopting SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS
No. 112, "Employers' Accounting for Postemployment Benefits."
(8) Based on weighted-average number of shares outstanding.
52
PART III
ITEMS 10(a), 11 AND 12. DIRECTORS OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
Responses to the above items, as contained in the Notice of 1998 Annual
Meeting and Proxy Statement, which will be filed within 120 days of the
Company's fiscal year end, are hereby incorporated by reference in this
Annual Report on Form 10-K.
ITEM 10(b). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers list is contained in PART I under the caption
"Executive Officers of the Registrant" on page 7.
- - ------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None to report.
- - ------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page No.
(a) 1. Consolidated financial statements:
Report of independent accountants 20
Consolidated statement of earnings 21
Consolidated statement of financial position 22
Consolidated statement of shareholders' equity 23
Consolidated statement of cash flows 24-25
Notes to financial statements 26-49
2. Financial statement schedules:
II - Valuation and qualifying accounts 54
All other schedules have been omitted because they are not applicable
or the information required is shown in the financial statements or
notes thereto.
3. Additional data required to be furnished:
Exhibits required as part of this report are listed in the index
appearing on pages 55 through 58. The management contracts and
compensatory plans and arrangements required to be filed as exhibits
to this form pursuant to Item 14(c) of this report are listed on
pages 56 through 58, Exhibit Numbers (10)A - (10)O.
(b) Report on Form 8-K.
No reports on Form 8-K were filed or required to be filed during
the quarter ended December 31, 1997.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: By:
George M. C. Fisher, Chairman Harry L. Kavetas, Chief Financial
and Chief Executive Officer Officer and Executive Vice
President
David J. FitzPatrick
Controller and Vice President
Date: March 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
Richard S. Braddock, Director Karlheinz Kaske, Director
Daniel A. Carp, Director Harry L. Kavetas, Director
Martha Layne Collins, Director Paul H. O'Neill, Director
Alice F. Emerson, Director John J. Phelan, Jr., Director
George M. C. Fisher, Director Laura D'Andrea Tyson, Director
Paul E. Gray, Director Richard A. Zimmerman, Director
Durk I. Jager, Director
Date: March 11, 1998
54
Schedule II
Eastman Kodak Company and Subsidiary Companies
Valuation and Qualifying Accounts
(in millions)
Balance at Additions Deductions Balance
Beginning Charged to Amounts at End of
of Period Earnings Written Off Period
Year ended December 31, 1997
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $ 70 $50 $35 $ 85
Reserve for loss on
returns and allowances 20 18 11 27
---- --- --- ----
TOTAL $ 90 $68 $46 $112
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 6 $ 5 $ 1 $ 10
==== === === ====
Year ended December 31, 1996
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $ 85 $53 $68 $ 70
Reserve for loss on
returns and allowances 19 10 9 20
---- --- --- ----
TOTAL $104 $63 $77 $ 90
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 14 $ 3 $11 $ 6
==== === === ====
Year ended December 31, 1995
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $105 $57 $77 $ 85
Reserve for loss on
returns and allowances 15 13 9 19
---- --- --- ----
TOTAL $120 $70 $86 $104
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 18 $10 $14 $ 14
==== === === ====
55
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Exhibit
Number Page
(3) A. Certificate of Incorporation.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 3.)
B. By-laws, as amended through February 12, 1998. 59
(4) A. Indenture dated as of January 1, 1988 between Eastman
Kodak Company as issuer of (i) 9 3/8% Notes Due 2003,
(ii) 9.95% Debentures Due 2018, (iii) 9 1/2% Notes Due 2008,
(iv) 9.20% Debentures Due 2021, and (v) 7 1/4% Notes Due 1999,
and The Bank of New York as Trustee.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 4.)
B. First Supplemental Indenture dated as of September 6, 1991
and Second Supplemental Indenture dated as of September 20,
1991, each between Eastman Kodak Company and The Bank of New
York as Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 4.)
C. Third Supplemental Indenture dated as of January 26, 1993,
between Eastman Kodak Company and The Bank of New York as
Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 4.)
D. Fourth Supplemental Indenture dated as of March 1, 1993,
between Eastman Kodak Company and The Bank of New York as
Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit 4.)
Eastman Kodak Company and certain subsidiaries are parties to
instruments defining the rights of holders of long-term debt
that was not registered under the Securities Act of 1933.
Eastman Kodak Company has undertaken to furnish a copy of these
instruments to the Securities and Exchange Commission upon
request.
56
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number
(10) A. Eastman Kodak Company Retirement Plan for Directors, as
amended effective January 1, 1996.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, Exhibit 10.)
B. Eastman Kodak Company Insurance Plan for Directors.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 29, 1985, Exhibit 10.)
C. Eastman Kodak Company Deferred Compensation Plan for
Directors, as amended and restated effective July 10, 1997.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, Exhibit 10.)
D. Eastman Kodak Company 1985 Long-Term Performance Award Plan,
as amended effective December 31, 1993.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit 10.)
E. 1982 Eastman Kodak Company Executive Deferred Compensation
Plan, as amended effective November 1, 1996.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Exhibit 10.)
F. Eastman Kodak Company 1985 Stock Option Plan, as amended
effective February 13, 1997.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, Exhibit 10.)
G. Eastman Kodak Company 1990 Omnibus Long-term Compensation
Plan, as amended effective February 13, 1997.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, Exhibit 10.)
H. Eastman Kodak Company Management Variable Compensation
Plan, as amended effective December 12, 1996.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997, Exhibit 10.)
57
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number
I. Eastman Kodak Company 1995 Omnibus Long-Term Compensation
Plan, as amended effective February 13, 1997.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, Exhibit 10.)
J. Kodak Executive Financial Counseling Program.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 10.)
K. Personal Umbrella Liability Insurance Coverage.
Eastman Kodak Company provides $5,000,000 personal umbrella
liability insurance coverage to its directors and approximately
160 key executives. The coverage, which is insured through The
Mayflower Insurance Company, Ltd., supplements participants'
personal coverage. The Company pays the cost of this insurance.
Income is imputed to participants.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
L. Kodak Executive Health Management Plan, as amended effective
January 1, 1995.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
M. George M. C. Fisher Employment Agreement dated October 27, 1993.
$4,000,000 Promissory Note dated November 2, 1993. $4,284,400
Promissory Note dated November 2, 1993. Notice of Award of
Restricted Stock dated November 11, 1993, as amended. Notice of
Award of Incentive Stock Options dated November 11, 1993.
Notice of Award of Non-Qualified Stock Options dated November
11, 1993.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.)
Amendment No. 1 to Employment Agreement dated as of April 4, 1994.
(Incorporated by reference to the Eastman Kodak Company Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1994,
Exhibit 10.)
Amendment No. 2 to Employment Agreement dated as of February
25, 1997. Notice of Award of Restricted Stock dated February
25, 1997. Notice of Award of Incentive Stock Options dated
February 25, 1997. Notice of Award of Non-Qualified Stock
Options dated February 25, 1997.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
58
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
N. Harry L. Kavetas Employment Agreement dated as of February 11,
1994, Notice of Award of Non-Qualified Stock Options, Notice
of Award of Incentive Stock Options, and Notice of Award of
Restricted Stock, each dated February 15, 1994.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.)
Amendment No. 1 to Employment Agreement dated as of January
21, 1997.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
Amendment No. 2 to Employment Agreement dated as of March 3,
1997. Notice of Award of Restricted Stock dated March 4, 1997.
Notice of Award of Incentive Stock Options dated March 4, 1997.
Notice of Award of Non-Qualified Stock Options dated March 4,
1997 under the Eastman Kodak Company 1995 Omnibus Long-Term
Compensation Plan. Notice of Award of Non-Qualified Stock
Options dated March 4, 1997 under the Eastman Kodak Company
1997 Stock Option Plan.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
O. Eastman Kodak Company 1997 Stock Option Plan, as adopted
effective February 13, 1997.
(Incorporated by reference to the Eastman Kodak Company Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1997,
Exhibit 10.)
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges. 72
(21) Subsidiaries of Eastman Kodak Company. 73
(23) Consent of Independent Accountants. 75
(27) Financial Data Schedule - Submitted with the EDGAR filing as a
second document to this Form 10-K.
(99) Eastman Kodak Employees' Savings and Investment Plan Annual Report on
Form 11-K for the fiscal year ended December 30, 1997 (to be filed by
amendment).
59
Exhibit (3) B.
EASTMAN KODAK COMPANY
A New Jersey Corporation
BY-LAWS
AS AMENDED THROUGH FEBRUARY 12, 1998
60
EASTMAN KODAK COMPANY
A New Jersey Corporation
BY-LAWS
Article 1
SHAREHOLDERS
Section 1. Annual Meeting.
The annual meeting of the shareholders of the corporation, for the
election of directors and for the transaction of such other business as
may properly come before the meeting, shall be held on such date in May
in each year at such hour and place as shall be fixed by the Board of
Directors.
Section 2. Notice of Annual Meeting.
Notice of the annual meeting of shareholders shall be given in the
manner required by law and by mailing, not less than ten (10) nor more
than sixty (60) days before the meeting, a copy of the notice of such
meeting to each shareholder of record of the corporation entitled to vote
at such meeting, directed to him at his address as it appears on the
stock books of the corporation.
Section 3. Special Meetings.
Special meetings of the shareholders, except where otherwise
provided by law or these by-laws, may be called to be held at such place
and time as shall be fixed by the Board of Directors or by the Chairman
of the Board of Directors or by the President and shall be called by the
Chairman of the Board of Directors or by the President or by the
Secretary at the request in writing of a majority of the members of the
Board of Directors or at the request in writing of shareholders owning
and holding, in the aggregate, shares entitled to at least one-tenth of
the total number of votes represented by the entire amount of capital
stock of the corporation issued and outstanding and entitled to vote at
such meeting. Such request shall state the purpose or purposes of the
proposed meeting.
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Section 4. Notice of Special Meetings.
Notice of each special meeting of the shareholders shall be given in
the manner required by law and by mailing, not less than ten (10) nor
more than sixty (60) days before the meeting, a copy of the notice of
such meeting, stating the purpose or purposes for which the same is
called, to each shareholder of record of the corporation entitled to vote
at such meeting, directed to him at his address as it appears on the
stock books of the corporation.
Section 5. Quorum.
Unless otherwise provided by law or in the Certificate of
Incorporation, the holders of shares entitled to cast a majority of the
votes at a meeting of shareholders shall constitute a quorum at such
meeting. Any action, other than the election of directors, shall be
authorized by a majority of the votes cast at the meeting by the holders
of shares entitled to vote thereon, unless a greater plurality is
required by law or the Certificate of Incorporation. Less than a quorum
may adjourn the meeting. No notice of an adjournment of the meeting
shall be necessary if the Board of Directors does not fix a new record
date for the adjourned meeting and if the time and place to which the
meeting is adjourned are announced at the meeting at which the
adjournment is taken and at the adjourned meeting only such business is
transacted as might have been transacted at the original meeting.
Section 6. Qualifications of Voters.
At each meeting of the shareholders, each holder of record of each
outstanding share of common stock of the corporation shall be entitled to
one vote on each matter submitted to a vote.
The Board of Directors of the corporation may fix in advance a date
not less than ten (10) nor more than sixty (60) days preceding the date
of any meeting of shareholders and not exceeding sixty (60) days
preceding the date for the payment of any dividend, or for the allotment
of any rights, or for the purpose of any other action, as a record date
for the determination of shareholders entitled to notice of and to vote
at any such meeting or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any such dividend or allotment of any
right, or for the purpose of any other action, and in each case only
shareholders of record at the close of business on the date so fixed
shall be entitled to such notice of and vote at such meeting or to
consent to or dissent from any proposal without a meeting, or to receive
payment of such dividend or allotment of rights or take any other action,
as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after any such record date fixed as aforesaid.
Section 7. Voting.
The vote for the election of directors may be taken by ballot and
shall be taken by ballot if requested by a shareholder and the vote upon
any question before the meeting may be taken by ballot, each of which
shall state the name of the shareholder voting, if the shareholder is
voting in person, or if voting by proxy, then the name of such proxy, the
number of shares of each class voted by him, and the number of his votes.
A shareholder may vote either in person or by proxy.
62
Section 8. Selection of Inspectors.
The Board of Directors may, in advance of any shareholders' meeting,
appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, or if so appointed and any
inspector fails to qualify or fails to appear or act and the vacancy is
not filled by the Board of Directors in advance of the meeting, the
person presiding at the meeting may, and on the request of any
shareholder entitled to vote thereat shall, make such appointment. No
person shall be elected a director at a meeting at which he has served as
an inspector.
Section 9. Duties of Inspectors.
The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall
receive votes or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes or consents, determine the result, and do such acts as
are proper to conduct the election or vote with fairness to all
shareholders.
Article 2
DIRECTORS
Section 1. Directors and Their Term of Office.
The Board of Directors of the corporation shall consist of as many
members, not less than nine (9) nor more than eighteen (18), as may from
time to time be fixed by the Board of Directors. They shall,
respectively, be at all times bona fide shareholders of the corporation.
The directors shall be divided into three classes: Class I, Class II and
Class III, each such class, as nearly as possible, to have the same
number of directors. The term of office of the initial Class I directors
shall expire at the annual meeting of the shareholders in 1988, the term
of office of the initial Class II directors shall expire at the annual
meeting of the shareholders in 1989, and the term of office of the
initial Class III directors shall expire at the annual meeting of the
shareholders in 1990.
Section 2. Election of Directors.
A class of directors of the corporation whose term is expiring,
shall be elected at the annual meeting of the shareholders or at any
meeting of the shareholders held in lieu of such annual meeting, which
meeting, for the purposes of these by-laws, shall be deemed the annual
meeting. At each annual meeting of the shareholders held after 1987, the
directors chosen to succeed those whose terms have then expired shall be
identified as being of the same class as the directors they succeed and
shall be elected by the shareholders for a term expiring at the third
succeeding annual meeting of the shareholders.
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Section 3. Vacancies.
In the event of a vacancy occurring in the Board of Directors, the
remaining directors, by affirmative vote of a majority thereof, expressed
at a duly called meeting of the directors, may fill such vacancy until
the next succeeding annual meeting of shareholders including one
resulting from an increase in the number of directors as provided in
Section 5 of the Certificate of Incorporation.
Section 4. Compensation.
Directors may receive from the corporation such reasonable
compensation for their services as such or for their services to the
corporation in any other capacity, including a fixed sum and expenses for
attendance at meetings of the Board and at meetings of committees of the
Board as shall be determined from time to time by the Board of Directors.
Section 5. Regular Meetings of Directors.
The Board of Directors shall by resolution provide for the
scheduling of regular meetings of the Board.
Section 6. Notice of Regular Meetings of Directors.
No notice shall be required to be given of any regular meeting of
the Board of Directors except as the Board may require.
Section 7. Special Meetings of Directors.
Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board, the President or any two members of the
Board and may be held at any time and place within or without the State
of New Jersey.
Section 8. Notice of Special Meetings of Directors.
Notice of each special meeting of the Board of Directors, stating
the time, place, and purpose or purposes thereof, shall be given by the
Chairman of the Board, the President, the Secretary or any two members of
the Board to each member of the Board not less than two (2) days by mail
or one (1) day by telegraph or telephone prior to the date specified for
such meeting. Special meetings of the Board of Directors may also be
held at any place and time, without notice, by unanimous consent of all
the members or provided all the members are present at such meeting.
Section 9. Quorum.
At any meeting of the Board of Directors a quorum shall consist of
one-third of the total number thereof and, except as otherwise provided
by law or these by-laws, a majority of such quorum shall decide any
question that may come before the meeting. A majority of the members
present at any regular or special meeting, although less than a quorum,
may adjourn the same from time to time, without notice other than
announcement at the meeting, until a quorum is present. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
called.
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Section 10. Action of Directors or Committees Without a Meeting or When
Members are in Separate Places.
Any action required or permitted to be taken pursuant to
authorization voted at a meeting of the Board of Directors or any
committee of the Board may be taken without a meeting if, prior or
subsequent to such action, all members of the Board or of such committee,
as the case may be, consent thereto in writing and such written consents
are filed with the minutes of the proceedings of the Board or committee.
Any or all directors may participate in a meeting of the Board or in
a meeting of a committee of the Board by means of a conference telephone
or any means of communication by which all persons participating in the
meeting are able to hear each other as though he or they were present in
person at such meeting.
Section 11. Common Directorship and Directors' Personal Interest.
No contract or other transaction between the corporation and one or
more of its directors, or between the corporation and any other
corporation, firm or association of any type or kind in which one or more
of this corporation's directors are directors or are otherwise
interested, shall be void or voidable solely by reason of such common
directorship or interest, or solely because such director or directors
are present at the meeting of the Board or a committee thereof which
authorizes or approves the contract or transaction, or solely because his
or their votes are counted for such purpose, (1) if the contract or other
transaction is fair and reasonable as to the corporation at the time it
is authorized, approved or ratified; (2) or the fact of the common
directorship or interest is disclosed or known to the Board or committee
and the Board or committee authorizes, approves or ratifies the contract
or transaction by a vote sufficient for the purpose without counting the
vote or votes of such common or interested director or directors; (3) or
the fact of the common directorship or interest is disclosed or known to
the shareholders and they authorize, approve, or ratify the contract or
transaction.
Common or interested directors may be counted in determining the
presence of a quorum at a Board or committee meeting at which a contract
or transaction described in this by-law is authorized, approved or
ratified.
Section 12. Standard of Care and Reliance upon Opinions of Counsel, Reports,
etc.
Directors and members of any committee of the Board of Directors
shall discharge their duties to the corporation when they act in good
faith and with that degree of diligence, care and skill which ordinarily
prudent men would exercise under similar circumstances in like positions.
In discharging their duties, directors and members of any such committee
shall not be liable if, acting in good faith, they rely (a) upon the
opinion of counsel for the corporation, or (b) upon written reports
setting forth financial data concerning the corporation and prepared by
an independent public accountant or certified public accountant or firm
of such accountants, or (c) upon financial statements, books of account
or reports of the corporation represented to them to be correct by the
President, the officer of the corporation having charge of its books of
account, or the person presiding at a meeting of the Board.
65
Article 3
EXECUTIVE COMMITTEE
Section 1. Members of Executive Committee and Their Term of Office.
There may be an Executive Committee, consisting of three (3) or more
directors, one of whom shall be the President of the Corporation,
appointed by the Board of Directors. They shall be appointed for the
term of one (1) year but shall hold office until their successors are
elected and have qualified. Any member of the Executive Committee,
however, may be removed by the affirmative vote of a majority of the
members of the Board of Directors.
Section 2. Vacancies.
In the event of a vacancy occurring in the Executive Committee, the
Board of Directors, by resolution adopted by a majority of the entire
board, shall fill such vacancy for the unexpired term.
Section 3. Powers of Executive Committee.
Subject to such limitations and regulations as may be prescribed by
law, including any pertinent section of the New Jersey Business
Corporation Act, or these by-laws or by the Board of Directors, the
Executive Committee shall have and may exercise all the authority of the
Board of Directors in the intervals between the meetings of the Board.
Section 4. Regular Meetings.
Regular meetings of the Executive Committee shall be held on such
days and at such hours as the Committee may by resolution fix and
determine.
Section 5. Notice of Regular Meetings.
No notice shall be required to be given of any regular meeting of
the Executive Committee.
Section 6. Special Meetings.
Special meetings of the Executive Committee may be called at any
time by the Chairman of the Committee, the President or by any two
members of the Committee and may be held at any place within or without
the State of New Jersey and at any time.
Section 7. Notice of Special Meetings.
Notice of each special meeting of the Executive Committee, stating
the time, place, and purpose or purposes thereof, shall be given by the
Chairman of the Committee, the President or by the Secretary or by any
two members of the Committee to each member of the Committee not less
than two (2) days by mail or one (1) day by telegraph or telephone prior
to the date specified for such meeting. Special meetings of the
Executive Committee may also be held at any place and time, without
notice, by unanimous consent of all the members or provided all the
members are present at such meeting.
66
Section 8. Quorum.
At any meeting of the Executive Committee a majority of the entire
Committee shall constitute a quorum and, except where otherwise provided
by law or these by-laws, a majority of such quorum shall decide any
question that may come before the meeting. A majority of the members
present at any regular or special meeting, although less than a quorum,
may adjourn the same from time to time, without notice other than
announcement at the meeting, until a quorum is present. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
called.
Article 4
OFFICERS
Section 1. Officers Enumerated.
The officers of the corporation shall be a Chairman of the Board of
Directors, a President, one or more Vice-Presidents, a Secretary, a
Treasurer, a General Comptroller, and one or more Assistant Vice-
Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant
Comptrollers, all of whom shall be elected annually by the Board of
Directors. The Chairman of the Board and the President shall be
directors of the corporation.
Section 2. Other Officers and Committees.
The Board may by resolution appoint such other officers, managers,
agents, employees, or committees as it shall deem necessary, who shall
hold their offices for such terms and shall have such powers and perform
such duties in the management of the property and affairs of the
corporation as shall be prescribed from time to time by the Board of
Directors or in the by-laws. Any person may hold more than one office.
The Board may also designate the officer who shall be the chief executive
officer of the corporation.
Section 3. Term of Office.
The enumerated officers of the corporation shall be elected for the
term of one (1) year but shall hold office until their successors are
elected and have qualified. Any officer, however, may be removed at any
time by the affirmative vote of a majority of the whole Board of
Directors expressed at any duly called regular or special meeting of the
Board of Directors.
Section 4. Vacancies.
If any vacancy shall occur among the officers of the corporation,
the Board of Directors may fill such vacancy for the unexpired term.
67
Section 5. The Chairman of the Board of Directors.
The Chairman of the Board of Directors shall preside at all meetings
of the Board of Directors and at all meetings of the shareholders and
shall perform such other duties as the Board of Directors may properly
direct.
Section 6. The President.
The President shall have the general powers and duties of
supervision and management of the property and affairs of the corporation
which usually pertain to his office, and shall perform all such other
duties as the Board of Directors may properly direct. In the absence of
the Chairman of the Board, he shall preside at all meetings of the Board
of Directors and at all meetings of the shareholders.
Section 7. The Vice-Presidents.
The Vice-President, and each Vice-President if there be more than
one, shall have such powers and perform such duties as usually pertain to
such office or as the Board of Directors may properly direct. In the
absence or disability of the President, the Vice-President designated by
the Board of Directors shall perform the duties and exercise the powers
of the President.
Section 8. The Secretary.
The Secretary shall issue notices of all meetings of shareholders
and of the directors and of the Executive Committee where notices of such
meetings are required by law or these by-laws. He shall keep the minutes
of meetings of shareholders and of the Board of Directors and of the
Executive Committee. He shall sign such instruments as require his
signature and shall perform such other duties as usually pertain to his
office and as the Board of Directors may properly direct.
Section 9. The Treasurer.
The Treasurer shall have the care and custody of all the moneys and
securities of the corporation. He shall cause to be entered in books of
the corporation to be kept for that purpose, full and accurate accounts
of all moneys received and paid on account of the corporation. He shall
sign such instruments as require his signature and shall perform such
other duties as usually pertain to his office and as the Board of
Directors shall properly direct.
Section 10. The General Comptroller.
The General Comptroller shall have the custody and operation of the
accounting books and records of the corporation and shall establish and
maintain adequate systems of internal control and audit to safeguard the
assets of the corporation and shall perform such other duties as usually
pertain to his office and as the Board of Directors may properly direct.
68
Section 11. Assistant Vice-Presidents, Assistant Secretaries, Assistant
Treasurers and Assistant Comptrollers.
The duties of the Assistant Vice-Presidents, Assistant Secretaries,
Assistant Treasurers and Assistant Comptrollers shall be such as usually
pertain to their respective offices and as may be properly required of
them by the Board of Directors from time to time.
Section 12. Salaries.
The Board of Directors shall have the authority to fix the salaries
of all officers of the corporation.
Article 5
INDEPENDENT ACCOUNTANTS
The Board of Directors shall annually elect independent accountants,
and such independent accountants shall serve for one year or until
removed by the Board of Directors, whichever occurs first. The annual
election of independent accountants shall be subject to ratification by
the shareholders. If the shareholders fail to ratify the independent
accountants elected by the Board of Directors, the Board of Directors
shall elect other independent accountants, who shall serve the remainder
of the one-year term for which the independent accountants not ratified
by the shareholders had been elected or until removed by the Board of
Directors, whichever occurs first. No representative of the
corporation's independent accountants shall be a director or officer of
the corporation. The independent accountants shall perform such work,
render such reports, and make such certificates in connection with the
books and accounts and financial affairs of the corporation as the Board
of Directors may from time to time direct, and, for that purpose, shall
have access at all reasonable times to the records, books, accounts, and
vouchers of the corporation, and shall be entitled to require such
information and explanations as may be reasonably necessary in the
performance of their duties.
69
Article 6
CAPITAL STOCK
Section 1. Stock Certificates.
Certificates of stock shall be issued only in numerical order. They
shall be signed by or bear the facsimile signatures of the Chairman of
the Board, the President, or one of the Vice-Presidents and the
Secretary, the Treasurer, Assistant Secretary or Assistant Treasurer.
They shall also be signed by or bear the facsimile signature of one of
the Transfer Agents and of one of the Registrars of the corporation as
permitted or required by law. In case any officer, Transfer Agent or
Registrar who has signed or whose facsimile signature has been placed
upon any such certificate shall have ceased to be such officer, Transfer
Agent or Registrar before such certificate is issued, it may be issued by
the corporation with the same effect as if such signatory had not ceased
to be such at the date of its issue.
Section 2. Transfer of Shares.
Transfers of shares, except where otherwise provided by law or these
by-laws, shall be made on the books of the corporation pursuant to
authority granted by power of attorney duly executed and filed by the
holder thereof with one of the Transfer Agents, upon surrender of the
certificate or certificates of such shares and in accordance with the
provisions of the Uniform Commercial Code as adopted in New Jersey as
amended from time to time.
Section 3. Transfer Agents and Registrars.
The Board of Directors may at any time appoint one or more Transfer
Agents and/or Registrars for the transfer and/or registration of shares
of stock, and may from time to time by resolution fix and determine the
manner in which shares of stock of the corporation shall be transferred
and/or registered by such Transfer Agent or Agents and Registrar or
Registrars, respectively.
Section 4. Lost, Stolen or Destroyed Certificates.
Where a certificate for shares has been lost, apparently destroyed,
or wrongfully taken and the owner thereof fails to so notify the
corporation or the Transfer Agent within a reasonable time after he has
notice of the fact and the Transfer Agent or the corporation registers a
transfer of the shares before receiving such a notification, the owner
shall be precluded from asserting against the corporation any claim for
registering the transfer of such shares or any claim to a new
certificate.
70
Subject to the foregoing, where the owner of shares claims that the
certificate representing such shares has been lost, destroyed, or
wrongfully taken, the corporation shall issue a new certificate in place
of the original certificate if the registered owner thereof, or his legal
representative, (a) requests the issue of a new certificate before the
corporation has notice that the certificate has been acquired by a bona
fide purchaser; (b) makes proof in such form as the corporation may
prescribe of his ownership of the shares represented by the certificate
and that the certificate has been lost, destroyed or wrongfully taken;
(c) files either (i) an assumption of liability by a surety approved by
the corporation under a blanket lost instrument indemnity bond,
substantially in the form approved by the corporation, or (ii) an
indemnity bond in such form and with such surety and in such amount (open
or specified) as may be approved by the corporation, indemnifying the
corporation and its transfer agents and registrars against all loss, cost
and damage which may arise from issuance of a new certificate in place of
the original certificate; and (d) satisfies any other reasonable
requirements imposed by the corporation. Approvals or any requirements
pursuant to this section by the corporation may be granted or imposed by
the President, and Vice-President, the Secretary, any Assistant
Secretary, or any other officer as authorized by the Board of Directors.
Article 7
DIVIDENDS AND FINANCES
Section 1. Dividends.
Dividends may be declared by the Board of Directors and paid by the
corporation at such times as the Board of Directors may determine, all
pursuant to the provisions of the New Jersey Business Corporation Act.
Before payment of any dividend or making of any distribution of net
profits there may be set aside out of the net profits of the corporation
such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper and for such purposes as the Board
shall think conducive to the interests of the corporation.
Section 2. Finances.
All funds of the corporation not otherwise employed shall be
deposited in its name in, and shall be subject to application or
withdrawal from, banks, trust companies or other depositories to be
selected in accordance with and in such manner and under such conditions
as may be authorized by, or pursuant to the authority of, resolution of
the Board of Directors. All checks, notes, drafts and other negotiable
instruments of the corporation shall be signed by such officer or
officers, agent or agents, employee or employees as may be authorized by,
or pursuant to the authority of, resolution of the Board of Directors.
No officers, agents, or employees of the corporation, either singly or
together, shall have power to make any check, note, draft, or other
negotiable instrument in the name of the corporation or to bind the
corporation thereby, except as may be authorized in accordance with the
provisions of this section.
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Article 8
GENERAL
Section 1. Form of Seal.
The seal of the corporation shall be circular in form, with the
words and figures "Eastman Kodak Company, Incorporated, 1901" in the
outer circle, and a monogram of the letters EKC in the inner circle.
Section 2. Indemnification of Directors, Officers and Employees.
To the full extent authorized or permitted by law, the corporation
shall indemnify against his expenses and liabilities any person who is or
was a director, officer, employee or agent of this corporation, or who is
or was serving at the request of this corporation as a director, officer,
trustee, employee or agent of any other enterprise, or the legal
representative of any such person, and who is or was a party to or
threatened to be made a party to any proceeding, civil, criminal or
otherwise in respect of any past, present or future matter, by reason of
the fact that such person is or was serving in any of the foregoing
capacities. The determination as to whether an applicant has met the
standards to entitle him to indemnification shall be made by a Committee
of Directors, not less than three, appointed by the Board of Directors
for the purpose, none of whom shall be parties to the proceedings, or if
there are not at least three directors who are not parties to the
proceedings, or if there are three such directors and the Board so
directs, the determination shall be made in a written opinion by
independent legal counsel designated by the Board of Directors. The
question of indemnification shall not be submitted to shareholders unless
so directed by the Board of Directors.
Article 9
AMENDMENTS
Except as may otherwise be required by law or by the Certificate of
Incorporation, these by-laws may be amended, altered, or repealed, in
whole or in part, by a vote of a majority of the members of the Board of
Directors at the time in office at any regular or special meeting of the
Board of Directors. The shareholders, by a majority of the votes cast at
a meeting of the shareholders, may adopt, alter, amend or repeal the by-
laws whether made by the Board of Directors or otherwise.
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Exhibit (12)
Eastman Kodak Company and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(in millions, except for ratios)
Year Ended December 31
1997 1996 1995 1994 1993
Earnings from
continuing operations
before provision for
income taxes $ 53 $1,556 $1,926 $1,002 $1,077
Add:
Interest expense 98 83 78 535 753
Share of interest expense
of 50% owned companies 5 2 1 - -
Interest component of
rental expense (1) 61 81 63 66 80
Amortization of
capitalized interest 23 22 22 25 40
------ ------ ------ ------ ------
Earnings as adjusted $ 240 $1,744 $2,081 $1,628 $1,950
====== ====== ====== ====== ======
Fixed charges
Interest expense 98 83 78 535 753
Share of interest expense
of 50% owned companies 5 2 1 - -
Interest component of
rental expense (1) 61 81 63 66 80
Capitalized interest 33 29 30 35 87
------ ------ ------ ------ ------
Total fixed charges $ 197 $ 195 $ 172 $ 636 $ 920
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 1.2x (2) 8.9x (3) 12.1x 2.6x (4) 2.1x (5)
(1) Interest component of rental expense is estimated to equal 1/3 of
such expense, which is considered a reasonable approximation of the
interest factor.
(2) The ratio is 8.6x before deducting restructuring costs, asset
impairments and other charges of $1,455 million.
(3) The ratio is 12.8x before deducting restructuring costs of $358
million and the loss on the sale of the Office Imaging business of
$387 million.
(4) The ratio is 3.1x before deducting restructuring costs of $340 million.
(5) The ratio is 2.7x before deducting restructuring costs of $495 million.
73
Exhibit (21)
Subsidiaries of Eastman Kodak Company
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company New Jersey
Eastman Kodak International
Finance B.V. Netherlands
Eastman Kodak International
Sales Corporation Barbados
Torrey Pines Realty Company, Inc. Delaware
The Image Bank, Inc. New York
Cinesite, Inc. Delaware
FPC Inc. California
Qualex Inc. Delaware
Qualex Canada Photofinishing Inc. Canada
Eastman Software Inc. Delaware
Fox Photo, Inc. Delaware
Jamieson Film Company Delaware
Eastman Gelatine Corporation Massachusetts
Eastman Canada Inc. Canada
Kodak Canada Inc. Canada
Kodak (Export Sales) Ltd. Hong Kong
Kodak Argentina S.A.I.C. Argentina
Kodak Brasileira C.I.L. Brazil
Kodak Chilena S.A.F. Chile
Kodak Caceo Ltd. Delaware
Kodak Panama, Ltd. New York
Kodak Americas, Ltd. New York
Kodak Venezuela, S.A. Venezuela
Kodak (Near East), Inc. New York
Kodak (Singapore) Pte. Limited Singapore
Kodak Philippines, Ltd. New York
Kodak Limited England
Cinesite (Europe) Limited England
Kodak India Limited India
Kodak Polska Sp.zo.o Poland
Kodak International Finance Ltd. England
Kodak AO Russia
Kodak (Ireland) Manufacturing Limited Ireland
Kodak Ireland Limited Ireland
Kodak-Pathe SA France
Kodak A.G. Germany
Kodak Korea Limited South Korea
Kodak Far East Purchasing, Inc. New York
Kodak New Zealand Limited New Zealand
Kodak (Australasia) Pty. Ltd. Australia
Kodak (Kenya) Limited Kenya
Kodak (Egypt) S.A.E. Egypt
Kodak (Malaysia) S.B. Malaysia
Kodak Taiwan Limited Taiwan
74
Exhibit (21)
(Continued)
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company
Eastman Kodak International Capital
Company, Inc. Delaware
Kodak de Mexico S.A. de C.V. Mexico
Kodak Mexicana S.A. de C.V. Mexico
Industria Mexicana de Fotocopiadoras,
S.A. de C.V. Mexico
N.V. Kodak S.A. Belgium
Kodak a.s. Denmark
Kodak Norge A/S Norway
Kodak SA Switzerland
Kodak (Far East) Limited Hong Kong
Kodak (Thailand) Limited Thailand
Kodak G.m.b.H. Austria
Kodak Kft. Hungary
Kodak Oy Finland
Kodak Nederland B.V. Netherlands
Kodak S.p.A. Italy
Kodak Portuguesa Limited New York
Kodak S.A. Spain
Kodak AB Sweden
Eastman Kodak (Japan) Ltd. Japan
K.K. Kodak Information Systems Japan
Kodak Japan Ltd. Japan
Kodak Imagex K.K. Japan
Kodak Japan Industries Ltd. Japan
Kodak (China) Limited Hong Kong
Kodak Electronic Products (Shanghai) Co., Ltd. China
BASO Precision Optics, Ltd. Taiwan
K.H. Optical Company Limited Hong Kong
Kodak Photographic Equipment (Shanghai) Co., Ltd. China
Note: Subsidiary Company names are indented under the name of the parent
company.
75
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-
48258, No. 33-49285 and No. 33-64453), Form S-4 (No. 33-48891), and S-8
(No. 33-5803, No. 33-35214, No. 33-56499, No. 33-65033 and No. 33-65035)
of Eastman Kodak Company of our report dated January 14, 1998, appearing
on page 20 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Rochester, New York
March 11, 1998
5
0000031235
EASTMAN KODAK COMPANY
1,000,000
U.S. DOLLARS
12-MOS
DEC-31-1997
JAN-01-1997
DEC-31-1997
1.0
728
24
2271
112
1252
5475
12824
7315
13145
5177
585
0
0
978
2183
13145
14538
14713
7979
7979
6583
73
98
53
48
5
0
0
0
5
.01
.01
