Kodak 2003 Annual Report Download - page 29

Financials
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subsidiaries, which include term loans, overdraft coverage, letters of credit
and revolving credit lines. Interest rates and other terms of borrowing
under these lines of credit vary from country to country, depending on
local market conditions. Total outstanding borrowings against these other
committed and uncommitted lines of credit at December 31, 2003 were
$138 million and $316 million, respectively. These outstanding borrowings
are reflected in the short-term borrowings and long-term debt, net of cur-
rent portion balances in the accompanying Consolidated Statement of
Financial Position at December 31, 2003.
At December 31, 2003, the Company had $304 million in commer-
cial paper outstanding, with a weighted-average interest rate of 2.95%. To
provide additional financing flexibility, the Company has an accounts
receivable securitization program, which provides for borrowings up to a
maximum of $250 million. At December 31, 2003, the Company had no
outstanding borrowings under this program.
On October 10, 2003, the Company completed the offering and sale
of $500 million aggregate principal amount of Senior Notes due 2013 (the
Notes), which was made pursuant to the Company’s new debt shelf regis-
tration. Interest on the Notes will accrue at the rate of 7.25% per annum
and is payable semiannually. The Notes are not redeemable at the
Company’s option or repayable at the option of any holder prior to maturi-
ty. The Notes are unsecured and unsubordinated obligations and rank
equally with all of the Company’s other unsecured and unsubordinated
indebtedness. After issuance of the above debt, the Company has $2,150
million of availability remaining under the new debt shelf registration.
Concurrent with the offering and sale of the Notes, on October 10,
2003, the Company completed the private placement of $575 million
aggregate principal amount of Convertible Senior Notes due 2033 (the
Convertible Securities) to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933. Interest on the Convertible
Securities will accrue at the rate of 3.375% per annum and is payable
semiannually. The Convertible Securities are unsecured and rank equally
with all of the Company’s other unsecured and unsubordinated indebted-
ness.
As a condition of the private placement, the Company agreed to ini-
tially file within 90 days and make effective within 180 days after the ear-
liest date of original issuance of the Convertible Securities, a shelf regis-
tration statement under the Securities Act of 1933 relating to the resale of
the Convertible Securities and the common stock to be issued upon con-
version of the Convertible Securities pursuant to a registration rights
agreement. The Company filed this shelf registration statement on January
6, 2004, and made it effective on February 6, 2004.
The Convertible Securities contain a number of conversion features
that include substantive contingencies. The Convertible Securities are con-
vertible by the holders at an initial conversion rate of 32.2373 shares of
the Company’s common stock for each $1,000 principal amount of the
Convertible Securities, which is equal to an initial conversion price of
$31.02 per share. The holders may convert their Convertible Securities, in
whole or in part, into shares of the Company’s common stock under any of
the following circumstances: (1) during any calendar quarter, if the price of
the Company’s common stock is greater than or equal to 120% of the
applicable conversion price for at least 20 trading days during a 30 con-
secutive trading day period ending on the last trading day of the previous
calendar quarter; (2) during any five consecutive trading day period fol-
lowing any 10 consecutive trading day period in which the trading price of
the Convertible Securities for each day of such period is less than 105%
of the conversion value, and the conversion value for each day of such
period was less than 95% of the principal amount of the Convertible
Securities (the Parity Clause); (3) if the Company has called the
Convertible Securities for redemption; (4) upon the occurrence of specified
corporate transactions such as a consolidation, merger or binding share
exchange pursuant to which the Company’s common stock would be con-
verted into cash, property or securities; and (5) if the credit rating
assigned to the Convertible Securities by either Moody’s or S&P is lower
than Ba2 or BB, respectively, which represents a three notch downgrade
from the Company’s current standing, or if the Convertible Securities are
no longer rated by at least one of these services or their successors (the
Credit Rating Clause).
The Company may redeem some or all of the Convertible Securities
at any time on or after October 15, 2010 at a purchase price equal to
100% of the principal amount of the Convertible Securities plus any
accrued and unpaid interest. Upon a call for redemption by the Company,
a conversion trigger is met whereby the holder of each $1,000 Convertible
Senior Note may convert such note to shares of the Company’s common
stock.
The holders have the right to require the Company to purchase their
Convertible Securities for cash at a purchase price equal to 100% of the
principal amount of the Convertible Securities plus any accrued and
unpaid interest on October 15, 2010, October 15, 2013, October 15, 2018,
October 15, 2023 and October 15, 2028, or upon a fundamental change
as described in the offering memorandum filed under Rule 144A in con-
junction with the private placement of the Convertible Securities. As of
December 31, 2003, the Company reserved 18,536,447 shares in treasury
stock to cover potential future conversions of these Convertible Securities
into common stock.
Certain of the conversion features contained in the Convertible
Securities are deemed to be embedded derivatives as defined under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
These embedded derivatives include the Parity Clause, the Credit Rating
Clause, and any specified corporate transaction outside of the Company’s
control such as a hostile takeover. Based on an external valuation, these
embedded derivatives were not material to the Company’s financial posi-
tion, results of operations or cash flows. In addition, as the contingencies
surrounding the conversion features are substantive, the shares to be
potentially issued upon triggering a conversion event will be excluded
from the earnings per share calculation until such time as a contingency
lapses and the effect of issuing such shares is dilutive. If and when a con-
tingency lapses and the effect of issuing such shares is dilutive, then the
shares issued would be included in the denominator of the earnings per
share calculation, and the interest expense incurred on the Convertible
Securities would be excluded from the numerator of the earnings per
share calculation for the respective period.
Long-term debt and related maturities and interest rates were as fol-
lows at December 31, 2003 and 2002 (in millions):