Kodak 2002 Annual Report Download - page 56

Financials
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estimates, as well as to identify other potential remediation sites
that are presently unknown.
Estimates of the amount and timing of future costs of
environmental remediation requirements are necessarily imprecise
because of the continuing evolution of environmental laws and
regulatory requirements, the availability and application of
technology, the identification of presently unknown remediation sites
and the allocation of costs among the potentially responsible parties.
Based upon information presently available, such future costs are
not expected to have a material effect on the Company’s competitive
or financial position. However, such costs could be material to
results of operations in a particular future quarter or year.
Other Commitments and Contingencies The Company has
entered into agreements with several companies, which provide
Kodak with products and services to be used in its normal
operations. The minimum payments for these agreements are
approximately $265 million in 2003, $239 million in 2004, $205
million in 2005, $116 million in 2006, $77 million in 2007 and
$257 million in 2008 and thereafter.
The Company guarantees debt and other obligations under
agreements with certain affiliated companies and customers. At
December 31, 2002, these guarantees totaled a maximum of $345
million, with outstanding guaranteed amounts of $159 million. The
maximum guarantee amount includes: guarantees of up to $160
million of debt for Kodak Polychrome Graphics, an unconsolidated
affiliate in which the Company has a 50% ownership interest
($74 million outstanding) and up to $19 million for other
unconsolidated affiliates and third parties ($17 million
outstanding) and guarantees of up to $166 million of customer
amounts due to banks in connection with various banks’ financing
of customers’ purchase of product and equipment from Kodak
($68 million outstanding). The KPG debt facility and the related
guarantee mature on December 31, 2005, but may be renewed at
the bank’s discretion. The guarantees for the other consolidated
affiliates and third party debt mature between May 1, 2003 and
May 31, 2005 and are not expected to be renewed. The customer
financing agreements and related guarantees typically have a
term of 90 days for product and short-term equipment financing
arrangements, and up to 3 years for long-term equipment
financing arrangements.
These guarantees would require payment from Kodak only in
the event of default on payment by the respective debtor. In some
cases, particularly with guarantees related to equipment
financing, the Company has collateral or recourse provisions to
recover and sell the equipment to reduce any losses that might
be incurred in connection with the guarantee. This activity is not
material. Management believes the likelihood is remote that
material payments will be required under these guarantees.
The Company also guarantees debt owed to banks for some
of its consolidated subsidiaries. The maximum amount guaranteed
is $857 million, and the outstanding debt under those guarantees,
which is recorded within the short-term borrowings and long-term
debt, net of current portion components in the Consolidated
Statement of Financial Position, is $628 million. These guarantees
expire in 2003 through 2005 with the majority expiring in 2003.
The Company may provide up to $100 million in loan
guarantees to support funding needs for SK Display Corporation,
an unconsolidated affiliate in which the Company has a 34%
ownership interest. As of December 31, 2002, the Company has
not been required to guarantee any of SK Display Corporation’s
outstanding debt.
In certain instances when Kodak sells businesses either
through asset or stock sales, the Company may retain certain
liabilities for known exposures and provide indemnification to the
buyer with respect to future claims for certain unknown liabilities
existing, or arising from events occurring, prior to the sale date,
including liabilities for taxes, legal matters, environmental
exposures, labor contingencies, product liability, and other
obligations. The terms of the indemnifications vary in duration,
from one to two years for certain types of indemnities, to terms
for tax indemnifications that are generally aligned to the
applicable statute of limitations for the jurisdiction in which the
divestiture occurred, and terms for environmental liabilities that
typically do not expire. The maximum potential future payments
that the Company could be required to make under these
indemnifications are either contractually limited to a specified
amount or unlimited. The Company believes that the maximum
potential future payments that the Company could be required to
make under these indemnifications are not determinable at this
time, as any future payments would be dependent on the type
and extent of the related claims, and all available defenses, which
are not estimable. However, costs incurred to settle claims
related to these indemnifications have not been material to the
Company’s financial position, results of operations or cash flows.
In certain instances when Kodak sells real estate, the
Company will retain the liabilities for known environmental
exposures and provide indemnification to the other party with
respect to future claims for certain unknown environmental
liabilities existing prior to the sale date. The terms of the
indemnifications vary in duration, from a range of three to ten
years for certain indemnities, to terms for other indemnities that
do not expire. The maximum potential future payments that the
Company could be required to make under these indemnifications
are either contractually limited to a specified amount or
unlimited. The Company believes that the maximum potential
future payments that the Company could be required to make
under these indemnifications are not determinable at this time, as
any future payments would be dependent on the type and extent
of the related claims, and all relevant defenses to the claims,
which are not estimable. However, costs incurred to settle claims
related to these indemnifications have not been material to the
Company’s financial position, results of operations or cash flows.
The Company may enter into standard indemnification
agreements in the ordinary course of business with its customers,
suppliers, service providers and business partners. In such
instances, the Company usually indemnifies, holds harmless and
agrees to reimburse the indemnified party for all claims, actions,