Kodak 2003 Annual Report Download - page 30

Financials
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The Company’s debt ratings were downgraded during 2003 by each
of the three major rating agencies. Moody’s, Standard & Poors (S&P) and
Fitch ratings for long-term debt (L/T) and short-term debt (S/T), including
their outlook, at the beginning and end of 2003 were as follows:
December 31, 2002 December 31, 2003
L/T S/T Outlook L/T S/T Outlook
Moody’s Baa1 P-2 Stable Baa3 P-3 Negative
S&P BBB+ A-2 Stable BBB- A-3 Negative
Fitch A- F2 Negative BBB- F3 Negative
The long-term and short-term debt rating downgrades and negative
outlooks reflect the rating agencies’ concerns about (1) the Company’s
weakened sales and profitability in the core photographic businesses due
to continuing pricing pressure from competitors, (2) continued digital sub-
stitution, including doubts about the profit potential of digital imaging rela-
tive to conventional photography, (3) unfavorable economic factors, includ-
ing reduced leisure travel, (4) potential future restructuring actions that
may restrict cash flow, slowing efforts to reduce debt, (5) the likelihood
that debt reduction will be slowed in the short to medium term due to the
Company’s rising business risk, investment strategies, and the rapid pace
at which it has made its recent acquisitions, and (6) the financial burden
of its significant unfunded postretirement benefit liabilities.
These credit rating actions have limited the Company’s access to
commercial paper borrowings. As a result and as noted before, on October
10, 2003, the Company issued $1,075 million of long-term debt through
an offering and sale of $500 million of Senior Notes due 2013 and a con-
current private placement of $575 million of Convertible Senior Notes due
2033, which were filed in a shelf registration statement on January 6,
2004 and made effective on February 6, 2004. With the proceeds received
from the $1,075 million of long-term debt issued, the Company retired
approximately $550 million of outstanding commercial paper and all of the
outstanding borrowings under the accounts receivable securitization pro-
gram, which amounted to approximately $60 million. The remaining pro-
ceeds were used to fund the PracticeWorks, Inc. acquisition. For 2004, the
Company expects interest expense to increase relative to 2003 as a result
of the replacement of outstanding commercial paper with new long-term
debt. For example, the Company’s outstanding commercial paper at
December 31, 2003 had a weighted-average annual interest rate of
2.95% as compared with an annual interest rate of 7.25% on the Senior
Notes and 3.375% on the Convertible Senior Notes, representing a
weighted-average difference of 2.34 percentage points.
The Company is in compliance with all covenants or other require-
ments set forth in its credit agreements and indentures. Further, the
Company does not have any rating downgrade triggers that would accel-
erate the maturity dates of its debt, with the exception of the following:
the outstanding borrowings, if any, under the accounts receivable securiti-
zation program if the Company’s credit ratings from S&P or Moody’s were
to fall below BBB- and Baa3, respectively, and such condition continued
for a period of 30 days. However, as previously noted, the Company had
no outstanding borrowings under this program as of December 31, 2003.
Additionally, the Company estimates that letters of credit or other financial
support could be required in support of insurance, environmental and sup-
plier obligations of up to $117 million. Further downgrades in the
Company’s credit rating or disruptions in the capital markets could impact
borrowing costs and the nature of its funding alternatives. However, the
Company has access to $2,225 million in committed revolving credit facil-
ities to meet unanticipated funding needs should it be necessary.
2003 2002
Weighted-Average Amount Weighted-Average Amount
Country Type Maturity Interest Rate Outstanding Interest Rate Outstanding
U.S. Term note 2003 — $ — 9.38% $ 144
U.S. Term note 2003 — — 7.36% 110
U.S. Term note 2004 1.72%* 200 — —
U.S. Term note 2005 1.73%* 100 ——
U.S. Medium-term 2005 7.25% 200 7.25% 200
U.S. Medium-term 2006 6.38% 500 6.38% 500
U.S. Term note 2008 3.63% 249 ——
U.S. Term note 2008 9.50% 34 9.50% 34
U.S. Term note 2013 7.25% 500 ——
U.S. Term note 2018 9.95% 3 9.95% 3
U.S. Term note 2021 9.20% 10 9.20% 10
U.S. Convertible 2033 3.38% 575 ——
China Bank loans 2003 ——5.49% 114
China Bank loans 2004 5.50% 225 5.58% 252
China Bank loans 2005 5.45% 106 5.53% 124
Qualex Term notes 2004-2008 5.53% 49 6.12% 44
Chile Bank loans 2004 ——2.61% 10
Other 8 6
$ 2,759 $ 1,551
*Represents debt with a variable interest rate.