Kodak 2004 Annual Report Download

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EASTMAN KODAK COMPANY
2004 SUMMARY ANNUAL REPORT
KODAK IS...
IMAGING TECHNOLOGY.

Table of contents

  • Page 1
    KODAK IS... IMAGING TECHNOLOGY . EASTMAN KODAK COMPANY 2004 SUMMARY ANNUAL REPORT

  • Page 2
    ...: Health Group, supplying the medical and dental industries with traditional and digital imaging information products and services, as well as healthcare IT solutions and services; Graphic Communications, offering on-demand color and black-and-white printing, wideformat inkjet printing, high-speed...

  • Page 3
    ... CONTENTS MANAGEMENT'S LETTER To Our Shareholders 2 FINANCIALS Financial Highlights Management's Discussion and Analysis Detailed Results of Operations Management's Report On Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statement of...

  • Page 4
    ...number of portfolio and Europe and Japan. However, we maintained market share in these valuable operational changes. We have successfully acquired and are integrattraditional businesses, and continue to see increased sales of consumer ing companies and technologies, notably in graphic communications...

  • Page 5
    ...). Kodak EasyShare printer docks were the best-selling line of snapshot photo printers in the U.S. in 2004, according to another research firm, NPD Group. Kodak also holds the top snapshot printer share in the U.K. and Australia. For those who prefer to print at retail, Kodak's picture maker kiosks...

  • Page 6
    ... Kodak products, and for sale to other equipment manufacturers. The Company continues to expand its offerings of high-performance sensors that are used in digital cameras and other electronic devices. In 2004, the Company acquired National Semiconductor Corporation's imaging business, which develops...

  • Page 7
    ... corrects errors in the Company's accounting for income taxes, accounting for pensions and other postretirement benefits as well as other miscellaneous adjustments. The restatement resulted in the Company adjusting its previously reported 2003 net income of $265 million ($.92 per share) to...

  • Page 8
    ... incentive programs include cash and volume discounts, price protection, promotional, cooperative and other advertising allowances, and coupons. For those incentives that require the estimation of sales volumes or redemption rates, such as for volume rebates or coupons, the Company uses historical...

  • Page 9
    ... strategic review of the business and operations, and are also performed in conjunction with the Company's periodic restructuring actions. Therefore, future changes in the Company's strategy, the ongoing digital substitution, the continuing shift from overnight photofinishing to onsite processing...

  • Page 10
    ... of return on plan asset (EROA) assumption annually for the Kodak Retirement Income Plan (KRIP). To facilitate this review, every three years, or when market conditions change materially, the Company undertakes a new asset and liability study to reaffirm the current asset allocation and the related...

  • Page 11
    ...฀of฀Kodak's฀display฀and฀components฀ Financials KODAK฀OPERATING฀MODEL฀AND฀฀฀ REPORTING฀STRUCTURE The฀Company฀has฀four฀reportable฀segments:฀Digital฀&฀Film฀Imaging฀Systems฀(D&FIS),฀Health,฀Commercial฀Imaging,฀and฀Graphic฀Communications...

  • Page 12
    ...Total฀D&FIS Health฀ ฀ Inside฀the฀U.S Outside฀the฀U.S Total฀Health Commercial฀Imaging฀ ฀ Inside฀the฀U.S Outside฀the฀U.S Total฀Commercial฀Imaging Graphic฀Communications ฀ Inside฀the฀U.S Outside฀the฀U.S Total฀Graphic฀Communications All฀Other...

  • Page 13
    ... Health฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Commercial฀Imaging฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Graphic฀Communications...

  • Page 14
    ... D&FIS฀ ฀ Health฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Commercial฀Imaging฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Graphic฀Communications...

  • Page 15
    ...฀ printer฀dock฀products,฀and฀the฀picture฀maker฀kiosk฀portion฀of฀the฀consumer฀ the฀Company's฀worldwide฀and฀foreign฀sales,฀respectively,฀in฀2004 output฀Strategic฀Product฀Group฀(SPG)฀in฀the฀Digital฀&฀Film฀Imaging฀Systems฀ Sales฀growth...

  • Page 16
    ...฀year฀2004฀digital฀camera฀study,฀Kodak฀leads฀the฀industry฀in฀the฀ U.S.฀with฀a฀21.9%฀market฀share.฀Digital฀camera฀market฀share฀has฀also฀ improved฀internationally,฀giving฀Kodak฀the฀number฀one฀market฀share฀in฀ Australia,฀Argentina...

  • Page 17
    ...฀transaction,฀Kodak฀also฀acquired฀100%฀of฀PracticeWorks'฀Paris-based฀subsidiary,฀ Trophy฀Radiologie,฀S.A.,฀a฀developer฀and฀manufacturer฀of฀dental฀digital฀radiographic฀equipment,฀which฀PracticeWorks฀purchased฀in฀December฀2002.฀ The฀acquisition...

  • Page 18
    ...฀and฀wet฀laser฀media),฀digital฀capture฀equipment฀(computed฀radiography฀capture฀equipment฀and฀digital฀radiography฀ equipment),฀services,฀dental฀practice฀management฀software฀and฀Picture฀ Archiving฀and฀Communications฀Systems฀(PACS),฀were฀$1,719...

  • Page 19
    ...฀stock฀of฀Heidelberg฀Digital฀LLC฀(Hdi),฀a฀manufacturer฀ of฀digital฀black฀&฀white฀printing฀systems 100%฀of฀the฀stock฀of฀NexPress฀GMBH-a฀R&D฀center฀located฀in฀ Kiel,฀Germany Certain฀sales฀and฀service฀employees,฀inventory฀and฀related...

  • Page 20
    ...)฀to฀acquire฀100%฀of฀its฀ outstanding฀shares.฀Creo฀is฀based฀in฀Vancouver,฀Canada฀and฀is฀the฀world's฀ number฀one฀provider฀of฀workï¬,ow฀software฀used฀by฀printers฀to฀manage฀ efficiently฀the฀movement฀of฀text,฀graphics,฀and฀images...

  • Page 21
    ...฀products฀and฀services,฀ and฀consumer฀digital฀cameras฀in฀the฀D&FIS฀segment,฀film฀and฀laser฀ imaging฀systems฀in฀the฀Health฀segment,฀and฀graphic฀arts฀products฀in฀the฀ Graphic฀Communications฀segment Net฀sales฀in฀the฀U.S.฀were...

  • Page 22
    ...products,฀photofinishing,฀consumer฀digital฀cameras,฀and฀entertainment฀print฀films฀in฀the฀D&FIS฀segment,฀analog฀medical฀ film฀and฀digital฀capture฀equipment฀in฀the฀Health฀segment,฀and฀graphic฀arts฀ products฀in฀the฀Graphic฀Communications...

  • Page 23
    ...snapshot฀printer฀ market฀and฀putting฀them฀on฀track฀to฀be฀a฀$100฀million฀business฀in฀the฀first฀ full฀year฀of฀sales.฀฀ Net฀worldwide฀sales฀from฀the฀Company's฀consumer฀digital฀products฀and฀services,฀which฀include฀picture฀maker...

  • Page 24
    ...digital฀capture฀equipment฀(computed฀radiography฀capture฀equipment฀and฀digital฀radiography฀ equipment),฀services,฀dental฀practice฀management฀software,฀and฀Healthcare฀Information฀Systems฀(HCIS)฀including฀Picture฀Archiving฀and฀Communications฀Systems...

  • Page 25
    ...฀from฀exchange.฀ Digital฀and฀Traditional฀Strategic฀Product฀Groups'฀Revenues฀฀Graphic฀ Communications฀segment฀2003฀and฀2002฀digital฀product฀sales฀are฀comprised฀of฀Encad,฀Inc.฀products฀and฀services.฀Segment฀traditional฀product฀ sales฀are...

  • Page 26
    ...฀ to฀increase฀unit฀placements฀of฀the฀NexPress฀2100฀Digital฀Production฀Color฀ Press฀despite฀a฀weak฀printing฀market,฀with฀good฀customer฀acceptance.฀ All฀Other Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀All฀Other฀were฀$93฀million...

  • Page 27
    ...under฀the฀Third฀Quarter,฀2003฀ Restructuring฀Program฀and฀2004-2006฀Restructuring฀Program.฀See฀further฀ discussion฀in฀the฀Restructuring฀Costs฀and฀Other฀section฀of฀Management's฀ Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of...

  • Page 28
    ...loss฀realized฀on฀the฀liquidation฀of฀a฀ Japanese฀photofinishing฀operations฀subsidiary฀in฀the฀third฀quarter,฀an฀$8฀ million฀benefit฀from฀a฀fourth฀quarter฀property฀donation฀and฀a฀$22฀million฀ benefit฀relating฀to฀the฀decline฀in฀the...

  • Page 29
    ...฀in฀the฀Consolidated฀Statement฀of฀Financial฀Position.฀It฀also฀includes฀foreign฀currency฀translation฀adjustments฀of฀$19฀million฀which฀are฀ reï¬,ected฀in฀the฀Consolidated฀Statement฀of฀Earnings.฀฀ 2004฀SUMM A RY฀A NNUA L฀REPORT 27

  • Page 30
    ...reduction฀actions฀ that฀the฀Company฀has฀committed฀to฀under฀the฀2004-2006฀Restructuring฀ Program฀and฀the฀remaining฀balances฀in฀the฀related฀reserves฀at฀December฀ 31,฀2004:฀฀ Financials dollars฀in฀millions)฀ ฀ ฀ Number฀of฀ Employees...

  • Page 31
    ...฀administration฀supporting฀the฀Company's฀consumer฀imaging฀and฀professional฀ products฀and฀services฀operations.฀฀ The฀Company฀implemented฀certain฀actions฀under฀this฀Program฀during฀ 2004.฀As฀a฀result฀of฀these฀actions,฀the฀Company฀recorded...

  • Page 32
    ...฀focused฀cost฀reduction฀actions฀that฀the฀Company฀has฀committed฀to฀under฀the฀Third฀Quarter,฀2003฀Restructuring฀Program฀and฀the฀remaining฀balances฀in฀the฀related฀reserves฀at฀December฀31,฀2004 Exit฀ ฀ ฀ Number฀of฀ Severance฀ Costs...

  • Page 33
    ...฀during฀ 2005.฀The฀Company's฀expected฀cost฀savings฀as฀a฀result฀of฀all฀actions฀ contemplated฀under฀the฀Third฀Quarter,฀2003฀Restructuring฀Program฀were฀ approximately฀$275฀million฀in฀2004,฀with฀annual฀savings฀of฀$325฀million฀to...

  • Page 34
    ...savings฀resulting฀from฀the฀implementation฀of฀ all฀First฀Quarter,฀2003฀Restructuring฀Program฀actions฀are฀expected฀to฀be฀ $65฀million฀to฀$85฀million฀on฀an฀annual฀basis,฀beginning฀in฀2004. LIQUIDITY฀AND฀CAPITAL฀RESOURCES 2004 The฀Company...

  • Page 35
    ...฀Statement฀ of฀Financial฀Position฀at฀December฀31,฀2004. At฀December฀31,฀2004,฀the฀Company฀had฀no฀commercial฀paper฀ outstanding.฀To฀provide฀additional฀financing฀ï¬,exibility,฀the฀Company฀has฀an฀ accounts฀receivable฀securitization฀program...

  • Page 36
    ...฀digital฀and฀graphic฀ communications฀businesses฀and฀the฀impact฀of฀the฀Company's฀unfunded฀ postretirement฀obligations.฀S&P฀met฀with฀the฀Company฀in฀March฀2005฀and฀ is฀still฀in฀the฀process฀of฀completing฀their฀credit฀review,฀which...

  • Page 37
    ...฀Consolidated฀Statement฀of฀Financial฀Position.฀See฀Note฀9,฀"฀Short-Term฀Borrowings฀and฀Long-Term฀Debt." (2)฀฀฀ Purchase฀obligations฀include฀agreements฀related฀to฀supplies,฀production฀and฀administrative฀services,฀as฀well฀as฀marketing฀and...

  • Page 38
    ...net฀cash฀used฀in฀investing฀activities฀of฀$1,267฀million฀was฀utilized฀ primarily฀for฀business฀acquisitions฀of฀$697฀million,฀of฀which฀$59฀million฀ related฀to฀the฀purchase฀of฀minority฀interests฀in฀China฀and฀India,฀capital฀ expenditures...

  • Page 39
    ...฀Statement฀of฀ Financial฀Position. ฀The฀Company฀is฀currently฀implementing฀a฀Corrective฀Action฀Program฀ required฀by฀the฀Resource฀Conservation฀and฀Recovery฀Act฀(RCRA)฀at฀the฀ Kodak฀Park฀site฀in฀Rochester,฀NY.฀As฀part฀of฀this฀program...

  • Page 40
    ...the฀$153฀million฀reported฀in฀other฀long-term฀liabilities. The฀Company฀has฀retained฀certain฀obligations฀for฀environmental฀ remediation฀and฀Superfund฀matters฀related฀to฀certain฀sites฀associated฀ with฀the฀non-imaging฀health฀businesses฀sold฀in...

  • Page 41
    ...฀balanced฀and฀diversified฀ business฀portfolio฀while฀accelerating฀the฀implementation฀of฀its฀existing฀ digital฀product฀strategies฀in฀the฀consumer฀markets.฀Kodak฀expects฀to฀incur฀ restructuring฀charges฀in฀relation฀to฀these฀initiatives.฀The...

  • Page 42
    ...฀to฀manage฀customer฀ and฀services,฀the฀Company's฀business฀could฀be฀adversely฀affected.฀The฀ risk฀while฀maintaining฀a฀competitive฀market฀share฀may฀adversely฀affect฀ availability฀of฀software฀and฀standards฀related฀to฀e-commerce฀strategies...

  • Page 43
    ...revenue,฀gross฀ margins฀and฀market฀share.฀ Competition฀remains฀intense฀in฀the฀imaging฀sector฀in฀the฀Digital฀&฀Film฀ Imaging฀Systems,฀Graphic฀Communications฀and฀Health฀segments.฀In฀the฀ D&FIS฀segment,฀price฀competition฀has฀been฀driven...

  • Page 44
    ... including฀personnel฀reductions;฀and฀the฀development฀of฀the฀Company's฀ business฀in฀emerging฀markets฀like฀China,฀India,฀Brazil,฀Mexico฀and฀Russia.฀฀ The฀forward-looking฀statements฀contained฀in฀this฀report฀are฀subject฀to฀the฀ following...

  • Page 45
    ...฀control฀over฀financial฀reporting฀because฀they฀were฀acquired฀by฀the฀Company฀in฀purchase฀business฀ combinations฀during฀2004.฀The฀NexPress-related฀entities฀and฀Kodak฀Versamark฀are฀wholly฀owned฀subsidiaries฀of฀the฀Company฀that฀represent...

  • Page 46
    ...฀assumptions฀related฀to฀pension฀and฀other฀ postretirement฀benefit฀plans฀on฀a฀global฀basis.฀This฀system฀was฀developed฀during฀2004฀and฀was฀partially฀effective฀during฀the฀fourth฀quarter฀closing฀process. •฀฀ The฀Company฀has฀completed...

  • Page 47
    ...฀Data REPORT฀OF฀INDEPENDENT฀REGISTERED฀PUBLIC฀ACCOUNTING฀FIRM To฀the฀Board฀of฀Directors฀and฀Shareholders฀of฀Eastman฀Kodak฀Company:฀ We฀have฀completed฀an฀integrated฀audit฀of฀Eastman฀Kodak฀Company's฀2004฀consolidated฀financial฀statements...

  • Page 48
    ...NexPress-related฀entities฀and฀Scitex฀ Digital฀Printing฀(renamed฀Kodak฀Versamark)฀from฀its฀assessment฀of฀internal฀control฀over฀financial฀reporting฀as฀of฀December฀31,฀2004฀because฀they฀were฀ acquired฀by฀the฀Company฀in฀purchase฀business...

  • Page 49
    ... Cash฀dividends฀per฀share฀฀฀฀฀฀฀฀฀฀฀฀฀ The฀accompanying฀notes฀are฀an฀integral฀part฀of฀these฀consolidated฀financial฀statements. Eastman฀Kodak฀Company For฀the฀Year฀Ended฀December฀31, 2004฀ ฀ $฀ 13,517...

  • Page 50
    ...discontinued฀operations Total฀current฀assets Property,฀plant฀and฀equipment,฀net Goodwill Other฀long-term฀assets Assets฀of฀discontinued฀operations Eastman฀Kodak฀Company At฀December฀31,฀ 2004฀ ฀฀ 2003฀ (Restated) $฀฀ 1,255 2,544 1,158 556 105...

  • Page 51
    ...Statement฀of฀Shareholders'฀Equity Eastman฀Kodak฀Company...sale ฀฀฀฀฀ securities... related฀gains...stock฀issued฀under฀employee฀plans฀฀ ฀฀ (2,357,794฀shares...Financials ฀ (525)฀ ฀ (260)฀ ฀ ฀ 71 1฀ ฀ $฀ 2,777 2004฀SUMM A RY฀A NNUA L฀REPORT...

  • Page 52
    n ฀Consolidated฀Statement฀of฀Shareholders'฀Equity฀Continued Eastman฀Kodak฀Company Accumulated Additional฀฀ ฀ Other฀ Unearned Common Paid฀In Retained Comprehensive Restricted Treasury in฀millions,฀except฀share฀and฀per฀share฀data)฀ Stock Capital ...

  • Page 53
    ...฀common฀share 143 Treasury฀stock฀issued฀for฀stock฀option exercises฀(105,323฀shares 5 7฀ Unearned฀restricted฀stock฀issuances 1 3 1฀ ฀฀ (10,944฀shares) Tax฀reductions฀-฀employee฀plans Shareholders'฀Equity฀December฀31,฀2004 978฀ $฀฀ 850...

  • Page 54
    ...฀to฀properties Net฀proceeds฀from฀sales฀of฀businesses/assets Acquisitions,฀net฀of฀cash฀acquired Investments฀in฀unconsolidated฀affiliates Marketable฀securities฀-฀sales Marketable฀securities฀-฀purchases Net฀cash฀used฀in฀continuing฀operations Net...

  • Page 55
    ... ฀Consolidated฀Statement฀of฀Cash฀Flows฀Continued Supplemental฀Cash฀Flow฀Information฀(in฀millions...stock฀related฀to฀an฀acquisition...฀consolidated฀financial฀statements. Eastman฀Kodak฀Company ฀ 2004฀ ฀ 2003...2004฀SUMM A RY฀A NNUA L฀REPORT 53 Financials

  • Page 56
    ...฀Financial฀Statements NOTE฀1:฀SIGNIFICANT฀ACCOUNTING฀ POLICIES฀AND฀RESTATEMENT Company฀Operations฀฀Eastman฀Kodak฀Company฀(the฀Company฀or฀ Kodak)฀is฀engaged฀primarily฀in฀developing,฀manufacturing,฀and฀marketing฀ traditional฀and฀digital฀imaging...

  • Page 57
    ...฀and฀development฀costs฀฀฀฀ annual฀period฀prior฀to฀January฀1,฀2003฀and฀determined฀that฀the฀impact฀of฀ Restructuring฀costs฀and฀other฀฀฀฀฀฀฀฀ such฀errors฀is฀immaterial฀to฀each฀prior฀period.฀In฀addition,฀the฀Company...

  • Page 58
    ...adjustments฀on฀selected฀components฀of฀the฀Company's฀2003฀consolidated฀income฀ statement: ฀ ฀ Pensions฀and฀Other฀ ฀ ฀ As฀Originally฀ Postretirement฀ ฀ Adjustments฀Relating฀฀ ฀ (in฀millions)฀ Reported฀ Benefits฀ Other฀ to฀Prior฀Periods...

  • Page 59
    ...;฀the฀sales฀price฀is฀fixed฀or฀determinable;฀and฀ collectibility฀is฀reasonably฀assured.฀At฀the฀time฀revenue฀is฀recognized,฀the฀ Company฀provides฀for฀the฀estimated฀costs฀of฀customer฀incentive฀programs,฀ warranties฀and฀estimated฀returns...

  • Page 60
    ...฀of฀payment.฀฀ Software฀maintenance฀and฀support฀revenue฀is฀recognized฀ratably฀over฀the฀ term฀of฀the฀related฀maintenance฀period.฀฀ The฀Company's฀transactions฀may฀involve฀the฀sale฀of฀equipment,฀ software,฀and฀related฀services฀under...

  • Page 61
    ...฀calculations฀reï¬,ect฀the฀assumed฀exercise฀and฀ conversion฀of฀employee฀stock฀options฀that฀have฀an฀exercise฀price฀that฀is฀ below฀the฀average฀market฀price฀of฀the฀common฀shares฀for฀the฀respective฀periods฀as฀well฀as฀shares฀related...

  • Page 62
    ...฀฀The฀Company฀accounts฀for฀its฀employee฀ stock฀incentive฀plans฀under฀Accounting฀Principles฀Board฀(APB)฀Opinion฀No.฀ 25,฀"Accounting฀for฀Stock฀Issued฀to฀Employees,"฀and฀the฀related฀interpretations฀under฀Financial฀Accounting฀Standards...

  • Page 63
    ...฀of฀FASB฀Statement฀No.฀109,฀Accounting฀for฀Income฀ Companies฀will฀initially฀measure฀the฀cost฀of฀employee฀services฀ Taxes,฀to฀the฀Tax฀Deduction฀on฀Qualified฀Production฀Activities฀Provided฀by฀ received฀in฀exchange฀for฀an฀award฀of...

  • Page 64
    ...฀31,฀2004,฀the฀Company฀has฀ not฀yet฀completed฀its฀evaluation;฀consequently,฀the฀required฀information฀is฀ disclosed฀in฀Note฀15,฀"Income฀Taxes."฀฀ obsolete,฀slow-moving฀or฀that฀had฀a฀carrying฀value฀in฀excess฀of฀market,฀ were฀$100...

  • Page 65
    ...correction฀of฀purchase฀accounting฀relates฀to฀the฀following฀correction฀of฀errors:฀deferred฀tax฀assets฀should฀have฀been฀recorded฀as฀a฀part฀of฀ the฀1998฀acquisition฀of฀the฀Imation฀Medical฀Imaging฀business,฀in฀the฀Health฀ segment,฀and...

  • Page 66
    ...฀were฀as฀follows: Kodak฀Polychrome฀Graphics฀(KPG Express฀Stop฀Financing฀(ESF SK฀Display฀Corporation Matsushita-Ultra฀Technologies฀Battery฀Corporation Lucky฀Film฀Co.฀Ltd฀฀(Lucky฀Film 50% 50% 34% 30% 13% At฀December฀31,฀2004฀and฀2003,฀the...

  • Page 67
    ...฀with฀Regulation฀S-X. Lines฀of฀Credit฀฀The฀Company฀has฀$2,225฀million฀in฀committed฀revolving฀credit฀facilities,฀which฀are฀available฀for฀general฀corporate฀purposes฀ including฀the฀support฀of฀the฀Company's฀commercial฀paper฀program.฀The...

  • Page 68
    ...debt฀securities฀ were฀included฀in฀the฀new฀debt฀shelf฀registration,฀giving฀the฀Company฀the฀ ability฀to฀issue฀up฀to฀$2,650฀million฀in฀public฀debt. On฀October฀10,฀2003,฀the฀Company฀completed฀the฀offering฀and฀sale฀ of฀$500฀million...

  • Page 69
    ...฀exchange฀offers.฀ ฀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...

  • Page 70
    ...฀Statement฀of฀ Financial฀Position. The฀Company฀is฀currently฀implementing฀a฀Corrective฀Action฀Program฀ required฀by฀the฀Resource฀Conservation฀and฀Recovery฀Act฀(RCRA)฀at฀the฀ Kodak฀Park฀site฀in฀Rochester,฀NY.฀As฀part฀of฀this฀program...

  • Page 71
    ...฀action,฀asserting฀infringement฀by฀Sony฀of฀the฀Company's฀ kiosk฀patents.฀฀The฀Company฀successfully฀moved฀to฀transfer฀Sony's฀New฀ Jersey฀digital฀camera฀patent฀infringement฀case฀to฀Rochester,฀New฀York,฀ and฀the฀two฀digital฀camera...

  • Page 72
    ...฀Consolidated฀Statement฀of฀Financial฀ Position,฀is฀$166฀million.฀These฀guarantees฀expire฀in฀2005฀through฀2006. The฀Company฀may฀provide฀up฀to฀$100฀million฀in฀loan฀guarantees฀to฀ support฀funding฀needs฀for฀SK฀Display฀Corporation,฀an...

  • Page 73
    ...฀of฀price฀risk฀related฀to฀forecasted฀worldwide฀ silver฀purchases.฀The฀Company฀used฀silver฀forward฀contracts฀to฀minimize฀ its฀exposure฀to฀increases฀in฀silver฀prices฀in฀2002,฀2003,฀and฀2004.฀At฀December฀31,฀2004,฀the฀Company฀had...

  • Page 74
    ...of฀$91฀million฀ relating฀to฀business฀closures฀and฀restructuring฀of฀certain฀subsidiaries.฀Additionally,฀the฀Company฀recorded฀a฀tax฀benefit฀of฀$8฀million฀relating฀to฀a฀land฀ donation.฀Also,฀during฀the฀fourth฀quarter฀of฀2002,฀the...

  • Page 75
    ... results, projections of taxable income, and tax planning strategies. The Company ...Company finalizes its decision, the Company will make no changes in its current intention to indefinitely reinvest accumulated earnings of its foreign subsidiaries. As a Financials 73 2004 SUMMARY ANNUAL REPORT

  • Page 76
    ... operating model in light of changing business conditions, it is probable that ongoing cost reduction activities will be required from time to time. In accordance with this, the Company periodically announces planned restructuring programs (Programs), which often consist of a number of restructuring...

  • Page 77
    ..., Pension and other postretirement liabilities and Other long-term liabilities in the Consolidated Statement of Financial Position. It also includes foreign currency translation adjustments of $19 million which are reï¬,ected in the Consolidated Statement of Earnings. 2004 SUMMARY ANNUAL REPORT 75

  • Page 78
    ... comprehensive cost reduction program throughout the 2004 to 2006 timeframe. The objective of these actions is to achieve a business model appropriate for the Company's traditional businesses, and to sharpen the Company's competitiveness in digital markets. The Program is expected to result in total...

  • Page 79
    ...of corporate administration and research and development, and the consolidation of the infrastructure and administration supporting the Company's consumer imaging and professional products and services operations. The Company implemented certain actions under this Program during 2004. As a result of...

  • Page 80
    ... to the charges recorded in connection with the focused cost reduction actions that the Company has committed to under the Third Quarter, 2003 Restructuring Program and the remaining balances in the related reserves at December 31, 2004: (dollars in millions) Q3, 2003 charges Q3, 2003 utilization...

  • Page 81
    ... to the Health segment and $10 million applicable to the Commercial Imaging segment. The balance of $190 million was applicable to manufacturing, research and development, and administrative functions, which are shared across segments. As of the end of the first quarter of 2004, the Company had...

  • Page 82
    ... as a result of the initiatives implemented under the First Quarter, 2003 Restructuring Program. NOTE 17: RETIREMENT PLANS Substantially all U.S. employees are covered by a noncontributory defined benefit plan, the Kodak Retirement Income Plan (KRIP), which is funded by Company contributions to...

  • Page 83
    The net pension amounts recognized on the Consolidated Statement of Financial Position at December 31, 2004 and 2003 for all major funded and unfunded U.S. and Non-U.S. defined benefit plans are as follows: 2004 2003 (Restated) (in millions) U.S. Non-U.S. U.S. Non-U.S. Change in Benefit ...

  • Page 84
    ...related plan assets are transferred to a government agency, thereby relieving the EPF from paying the substitutional portion of benefits. The Kodak Japan Limited EPF completed the transfer of the substitutional portion to the Japanese Government in December 2004. The effect of the transfer resulted...

  • Page 85
    ... profile or changes in the capital markets. The expected return on plan assets for the major non-U.S. pension plans range from 4.5% to 9.0% for 2004. Every three years or when market conditions have changed materially, the Company will undertake new asset and liability modeling studies for each of...

  • Page 86
    ... Cash Balance Plus portion of the KRIP plan would be required to pay the full cost of their benefits under the plan. The Company's subsidiaries in the United Kingdom and Canada offer similar healthcare benefits. During the quarter ended June 30, 2004, the Company adopted the provisions of FSP 106...

  • Page 87
    ...(the 1990 Plan). The Plans are administered by the Executive Compensation and Development Committee of the Board of Directors. Under the 2000 Plan, 22 million shares of the Company's common stock may be granted to a variety of employees between January 1, 2000 and December 31, 2004. The 2000 Plan is...

  • Page 88
    ... Stock-Based Compensation." Also, the new options had an exercise price equal to the fair market value of the Company's common stock on the new grant date, so no compensation expense was recorded as a result of the exchange program. Further information relating to options is as follows: Financials...

  • Page 89
    ... of digital black-and-white variable-data printing systems. Kodak also announced the acquisition of NexPress GmbH, a German subsidiary of Heidelberg that provides engineering and development support, and certain inventory, assets, and employees of Heidelberg's regional operations or market centers...

  • Page 90
    ... transaction costs. SDP is the leading supplier of high-speed, continuous inkjet printing systems, primarily serving the commercial and transactional printing sectors. Customers use SDP's products to print utility bills, banking and credit card statements, direct mail materials, as well as invoices...

  • Page 91
    ... 100% owner of Parisbased subsidiary, Trophy Radiologie, S.A., a developer and manufacturer of dental digital radiography equipment, which PracticeWorks acquired in December 2002. This acquisition will enable Kodak's Health business to offer its customers a full spectrum of dental imaging products...

  • Page 92
    ... the Company's position in the growing market for Healthcare Information Systems (HCIS), which enable radiology departments worldwide to digitally manage and store medical images and information. Kodak Wuxi China Limited On December 26, 2003, an unaffiliated investor in Kodak Wuxi China Limited...

  • Page 93
    ...10 million, respectively. 2003 NOTE 22: DISCONTINUED OPERATIONS 2004 On August 13, 2004, the Company completed the sale of the assets and business of the Remote Sensing Systems operation, including the stock of Kodak's wholly owned subsidiary, Research Systems, Inc. (collectively known as RSS), to...

  • Page 94
    ... 23: SEGMENT INFORMATION Current Segment Reporting Structure The Company has four reportable segments aligned based on aggregation of similar products and services: Digital & Film Imaging Systems (D&FIS); Health; Commercial Imaging; and Graphic Communications. The balance of the Company's operations...

  • Page 95
    2004 (in millions) Net sales from continuing operations: Digital & Film Imaging Systems Health Commercial Imaging Graphic Communications All Other Consolidated total 2003 (Restated) 2002 (in millions) Net earnings (losses) from continuing operations: Digital & Film Imaging Systems Health ...

  • Page 96
    ... information for four reportable segments (Digital & Film Imaging Systems, Health, Commercial Imaging, and Graphic Communications) and All Other. However, in September of 2004, the Company announced the realignment of its operations to accelerate growth in the commercial, consumer and health markets...

  • Page 97
    ... 12 28 business for image sensors and other small, miscellaneous businesses. It also includes development initiatives in consumer inkjet technologies. NOTE 24: QUARTERLY SALES AND EARNINGS DATA-UNAUDITED As discussed in Note 1, the Company has restated its consolidated financial statements as of...

  • Page 98
    ... of Kodak Polychrome Graphics (KPG) through redemption of Sun Chemical Corporation's 50 percent interest in the KPG joint venture. The transaction will further establish the Company as a leader in the graphic communications industry and will complement the Company's existing business in this market...

  • Page 99
    ... the Graphic Communications segment. The Company completed its acquisition of KPG on April 1, 2005. On January 31, 2005, the Company announced that it had entered into a definitive agreement to acquire Creo, Inc. (Creo), a premier supplier of prepress systems used by commercial printers worldwide...

  • Page 100
    ... from continuing operations -D&FIS -Health -Commercial Imaging -Graphic Communications -All Other Research and development costs Depreciation Taxes (excludes payroll, sales and excise taxes) Wages, salaries and employee benefits Employees at year end -in the U.S. -worldwide See footnotes on next...

  • Page 101
    ... other asset write-offs; and a $121 million tax benefit relating to the closure of the Company's PictureVision subsidiary, the consolidation of the Company's photofinishing operations in Japan, asset write-offs and a change in the corporate tax rate. These items improved net earnings by $7 million...

  • Page 102
    ... picture-taking, but in healthcare, document management and printing. And in many ways, Kodak is leading the way, with a digital growth strategy that covers digital and film imaging systems, health imaging products and information systems and graphic communications, including commercial printing...

  • Page 103
    ... education programs. Kodak also earned a 100% rating on the Human Rights Campaign's Corporate Equality Index. COMMUNICATION The Company's diversity and inclusion initiatives resulted in articles in The New York Times, USA Today and many professional and human resources publications. The Company...

  • Page 104
    ... interests in support of Company goals. It provides support to address strategic social issues, community involvement and commitment to diversity. As such, programs and initiatives are focused on partnerships, volunteerism and grants in diverse markets. In 2004, 27% of Kodak's corporate funding was...

  • Page 105
    ...Berman* Director, Human Resources; Senior Vice President Robert L. LaPerle General Manager, kodak.com; Vice President Essie L. Calhoun Chief Diversity Officer & Director, Community Affairs; Vice President Kim E. VanGelder Chief Information Officer; Vice President DIGITAL & FILM IMAGING SYSTEMS...

  • Page 106
    ... Info MISCELLANEOUS INFORMATION This Summary Annual Report was printed using Kodak Polychrome Graphics products. Kodak, Vision, EasyShare, EasyShare-one, Encad, NovaJet, Ofoto and DryView are trademarks of Eastman Kodak Company. SHAREHOLDER ASSISTANCE For information about stock transfers, address...

  • Page 107

  • Page 108
    Eastman Kodak Company 343 State Street R o c h e s t e r, N Y 14650 www.kodak.com w w w. k o d a k g a l l e r y. c o m

  • Page 109
    Notice฀of฀2005฀Annual฀Meeting฀ and฀Proxy฀Statement Date฀of฀Notice฀April฀19,฀2005 E A S T M A N ฀ K O D A K ฀ C O M P A N Y ฀ ฀ ฀ ฀ ฀ 3 4 3 ฀ S TA T E ฀ S T R E E T ฀ ฀ ฀ ฀ ฀ R O C H E S T E R , ฀ N E W ฀ Y O R K ฀ ฀ ฀ ฀ ฀ 14 6 5 0

  • Page 110
    ... Performance฀Graph฀-฀Shareholder฀Return฀฀ BOARD L 20฀ 20฀ 20฀ 20฀ ฀ 20฀ 20฀ 21฀ 25฀ 27฀ 28฀ 30฀ Board฀Structure฀and฀Corporate฀Governance฀฀ ฀ Introduction฀฀ ฀ Corporate฀Governance฀Guidelines Business฀Conduct฀Guide฀and฀Directors...

  • Page 111
    ...฀business฀on฀March฀15,฀2005,฀you฀are฀entitled฀to฀vote฀at฀the฀Annual฀Meeting. If฀you฀have฀any฀questions฀about฀the฀Annual฀Meeting,฀please฀contact:฀Coordinator,฀Shareholder฀Services,฀Eastman฀Kodak฀Company,฀ 343฀State฀Street,฀Rochester...

  • Page 112
    ... hareholder฀of฀Record.฀If฀your฀shares฀are฀registered฀in฀your฀name฀with฀Kodak's฀transfer฀agent,฀EquiServe฀Trust฀Company,฀N.A.,฀you฀are฀considered,฀ S with฀respect฀to฀those฀shares,฀the฀shareholder฀of฀record,฀and฀these฀proxy฀materials...

  • Page 113
    ...By฀completing฀and฀mailing฀your฀proxy฀card By฀written฀ballot฀at฀the฀Annual฀Meeting.฀ ฀ our฀shares฀will฀be฀voted฀as฀you฀indicate.฀If฀you฀return฀your฀signed฀proxy฀card฀or฀otherwise฀give฀the฀Company's฀management฀your฀proxy,฀but...

  • Page 114
    ...฀the฀Eastman฀Kodak฀Shares฀Program฀and฀ the฀Employee฀Stock฀Purchase฀Plan,฀and฀those฀credited฀to฀your฀account฀in฀the฀Eastman฀Kodak฀Employees'฀Savings฀and฀Investment฀Plan฀and฀the฀Kodak฀ Employees'฀Stock฀Ownership฀Plan.฀The฀trustees...

  • Page 115
    ...฀Kodak's฀Proxy฀Statement฀under฀Rule฀14a-8,฀the฀shareholder฀must฀deliver฀a฀proxy฀ F statement฀and฀form฀of฀proxy฀to฀holders฀of฀a฀sufficient฀number฀of฀shares฀of฀Kodak฀common฀stock฀to฀approve฀that฀proposal,฀provide฀the฀information...

  • Page 116
    ...You฀may฀request฀printed฀copies฀of฀any฀of฀these฀documents฀by฀contacting:฀ ฀ Coordinator,฀Shareholder฀Services฀ ฀ Eastman฀Kodak฀Company฀ ฀ 343฀State฀Street฀ ฀ Rochester,฀NY฀14650-0205฀ ฀ (585)฀724-5492฀ The฀address฀of฀our฀principal...

  • Page 117
    ...this฀rule฀ anytime฀it฀distributes฀annual฀reports,฀proxy฀statements,฀information฀statements฀and฀prospectuses.฀As฀a฀result,฀we฀are฀sending฀only฀one฀copy฀of฀this฀Proxy฀ Statement฀and฀Kodak's฀Annual฀Report฀to฀multiple฀shareholders฀sharing...

  • Page 118
    ...intended฀to฀replace,฀the฀Eastman฀Kodak฀Company฀2000฀Omnibus฀Long-Term฀Compensation฀Plan฀(the฀2000฀ Omnibus฀Plan),฀which฀expired฀on฀January฀18,฀2005.฀The฀table฀on฀the฀following฀page฀shows฀the฀principal฀changes฀to฀the฀2005฀Omnibus...

  • Page 119
    ...฀tax฀withholding;฀shares฀re-acquired฀on฀the฀open฀market฀using฀option฀exercise฀price฀cash฀proceeds;฀and฀awards฀that฀otherwise฀ do฀not฀result฀in฀the฀issuance฀of฀shares. •฀฀ On฀a฀Change฀in฀Control฀of฀the฀Company,฀if฀outstanding...

  • Page 120
    ...officers฀are฀"covered฀employees."฀ Available฀Shares The฀aggregate฀number฀of฀shares฀available฀under฀the฀Plan฀will฀be฀11,000,000฀shares฀of฀the฀Company's฀common฀stock,฀plus฀any฀shares฀subject฀to฀awards฀ under฀the฀1990฀Omnibus฀Long-Term...

  • Page 121
    ...฀the฀Change฀in฀Control฀Price฀(as฀defined฀in฀the฀Plan)฀and฀the฀purchase฀price฀per฀share,฀if฀any,฀under฀ the฀award,฀multiplied฀by฀the฀number฀of฀shares฀of฀common฀stock฀subject฀to฀the฀award.฀ If฀the฀surviving฀company฀does...

  • Page 122
    ...the฀Company's฀digital฀transformation.฀If฀the฀Committee฀approves฀these฀awards,฀it฀is฀expected฀that฀they฀will฀be฀made฀in฀May฀2005,฀ subject฀to฀shareholder฀approval฀of฀the฀Plan. If฀the฀2005฀Omnibus฀Plan฀had฀been฀in฀effect฀in฀2004...

  • Page 123
    ...designed฀to฀enable฀any฀award฀granted฀by฀the฀Committee฀to฀a฀"covered฀employee"฀to฀ qualify฀as฀performance-based฀compensation฀under฀Section฀162(m). Other฀Information฀ The฀closing฀price฀of฀the฀Company's฀common฀stock฀reported฀on฀the฀NYSE...

  • Page 124
    ...return฀on฀assets;฀return฀on฀capital;฀shareholder฀returns;฀total฀shareholder฀return;฀return฀on฀invested฀capital;฀profit฀margin;฀earnings฀per฀share;฀net฀earnings;฀operating฀ earnings;฀common฀stock฀price฀per฀share;฀sales฀or฀market฀share...

  • Page 125
    ...฀or฀market฀changes,฀extreme฀ currency฀exchange฀effects฀and฀management฀of฀significant฀workforce฀issues. The฀CEO฀allocates฀the฀corporate฀funding฀pool฀among฀the฀Company's฀units.฀For฀example,฀each฀business฀unit฀has฀its฀own฀targets฀for...

  • Page 126
    ...฀that฀reduce฀board฀accountability฀to฀shareholders.฀The฀Board฀recognizes฀that฀annual฀elections฀are฀in฀line฀with฀emerging฀best฀practices฀in฀the฀area฀of฀corporate฀governance. As฀a฀result฀of฀its฀most฀recent฀review฀of฀the฀classi...

  • Page 127
    ...votes-cast฀standard฀for฀mergers,฀consolidations,฀sales฀of฀ assets฀and฀share฀exchanges.฀ In฀keeping฀with฀our฀commitment฀to฀good฀corporate฀governance฀and฀to฀further฀enhance฀the฀Board's฀accountability฀to฀shareholders,฀the฀Board฀has฀adopted...

  • Page 128
    ...that฀the฀Company฀makes฀loans฀in฀the฀future฀to฀employees,฀it฀...of฀ amendment฀with฀the฀New฀Jersey฀Division฀of฀Revenue...,฀is฀attached฀to฀this฀Proxy฀Statement฀as฀Exhibit฀III฀on฀page...cast฀by฀the฀holders฀of฀shares฀entitled฀to฀vote. The...

  • Page 129
    ...฀and฀Corporate฀Governance INTRODUCTION Ethical฀business฀conduct฀and฀good฀corporate฀governance฀are฀not฀new฀practices฀at฀Kodak.฀The฀reputation฀of฀our฀Company฀and฀our฀brand฀has฀been฀built฀ by฀more฀than฀a฀century฀of฀ethical฀business...

  • Page 130
    ... Mr.฀Carp฀began฀his฀career฀with฀Kodak฀in฀1970฀and฀has฀held฀a฀number฀of฀increasingly฀responsible฀positions฀in฀market฀ research,฀business฀planning,฀marketing฀management฀and฀line฀of฀business฀management.฀In฀1986,฀Mr.฀Carp฀was฀named...

  • Page 131
    ...October฀2004 ANTONIO฀M.฀PEREZ Mr.฀Perez,฀59,฀is฀President฀and฀COO฀of฀Eastman฀Kodak฀Company.฀Mr.฀Perez฀joined฀Kodak฀after฀a฀twenty-five฀year฀career฀ at฀Hewlett-Packard฀Company฀where฀he฀was฀a฀corporate฀Vice฀President฀and฀a฀member...

  • Page 132
    ...degree฀in฀public฀administration฀from฀Indiana฀ University.฀Mr.฀O'Neill฀previously฀served฀as฀a฀director฀of฀Eastman฀Kodak฀Company฀from฀December฀1997฀to฀December฀ 2000.฀He฀is฀a฀director฀of฀Nalco฀Company,฀RAND฀Corporation,฀TRW฀Automotive...

  • Page 133
    ...฀of฀Economic฀Advisers.฀Prior฀to฀joining฀the฀Administration,฀Dr.฀Tyson฀was฀Professor฀of฀Economics฀and฀Business฀Administration,฀Director฀of฀the฀Institute฀of฀International฀Studies฀and฀Research฀Director฀of฀the฀Berkeley฀ Roundtable฀on฀the...

  • Page 134
    ...฀and฀the฀Company's฀revised฀Business฀Conduct฀Guide;฀ •฀conducted฀two฀training฀sessions reviewed฀and฀approved฀management's฀evaluation฀of฀the฀material฀weaknesses฀in฀controls฀surrounding฀accounting฀for฀income฀taxes฀and฀pension฀and฀ other...

  • Page 135
    ...; •฀reviewed฀the฀Company's฀Health,฀Safety฀and฀Environment฀strategies฀and฀management฀system; •฀reviewed฀and฀approved฀the฀Company's฀2005฀Charitable฀Contributions฀Budget; •฀monitored฀corporate฀governance฀developments,฀including฀those฀related...

  • Page 136
    ...Director฀at฀P.O.฀Box฀92818,฀Rochester,฀NY฀14650.฀Communications฀sent฀by฀email฀will฀go฀ simultaneously฀to฀Kodak's฀Presiding฀Director฀and฀Corporate฀Secretary.฀Our฀Corporate฀Secretary฀will฀review฀communications฀sent฀by฀mail฀and฀if฀they...

  • Page 137
    ...฀the฀following฀information,฀in฀writing,฀to฀the฀Governance฀Committee,฀c/o฀Corporate฀Secretary,฀Eastman฀Kodak฀Company,฀343฀State฀Street,฀Rochester,฀NY฀14650-0218:฀1)฀the฀name,฀address฀ and฀telephone฀number฀of฀the฀shareholder฀making฀the...

  • Page 138
    ...event฀of฀a฀change฀in฀control,฀the฀amounts฀in฀the฀phantom฀accounts฀will฀generally฀be฀paid฀in฀a฀single฀ cash฀payment.฀ Life฀Insurance฀ The฀Company฀provides฀$100,000฀of฀group฀term฀life฀insurance฀to฀each฀non-employee฀director.฀This...

  • Page 139
    ... 1,500฀ 1,500฀ 1,500฀ 1,500฀ 1,500฀ Restricted฀Stock 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 $฀5,834฀ $฀8,750฀ $฀5,834฀ $฀5,834 Board (1 32,500฀of฀the฀Board's฀annual฀retainer฀for฀2004฀was฀paid฀under฀the฀old฀program...

  • Page 140
    ...its฀common฀stock: ฀ Shareholder's฀Name฀and฀Address฀ ฀ Legg฀Mason฀Funds฀Management,฀Inc.฀ ฀ Legg฀Mason฀Capital฀Management,฀Inc.฀ ฀ Legg฀Mason฀Focus฀Capital,฀Inc 100฀Light฀St Baltimore,฀MD฀21202 ฀ Number฀of฀Common฀Shares฀Owned฀ 38...

  • Page 141
    ...฀the฀account฀of฀the฀above฀persons฀in฀the฀Eastman฀Kodak฀Shares฀Program฀and฀the฀Kodak฀Employees'฀Stock฀Ownership฀ Plan,฀and฀the฀interests฀of฀the฀above฀persons฀in฀the฀Kodak฀Stock฀Fund฀of฀the฀Eastman฀Kodak฀Employees'฀Savings฀and...

  • Page 142
    ...฀OF฀MANAGEMENT Robert฀H.฀Brust Under฀Mr.฀Brust's฀December฀20,฀1999฀offer฀letter,฀the฀Company฀agreed฀to฀pay฀Mr.฀Brust฀$3,000,000฀because฀he฀forfeited฀75,000฀restricted฀shares฀of฀his฀ former฀employer's฀common฀stock฀as฀a฀result฀of...

  • Page 143
    ... $37,125฀relating฀to฀his฀use฀of฀Company฀aircraft.฀For฀2003,฀the฀amount฀shown฀includes฀a฀tax฀reimbursement฀for฀relocation฀expenses฀paid฀under฀the฀Company's฀new฀hire฀ relocation฀program฀and฀A.฀M.฀Perez's฀March฀3,฀2003฀offer฀letter...

  • Page 144
    ...฀represent฀grants฀made฀in฀the฀fourth฀quarter฀of฀2004฀under฀the฀officer฀stock฀option฀program.฀On฀April฀2,฀2003,฀A.฀M.฀Perez฀received฀stock฀options฀to฀purchase฀500,000฀shares฀as฀a฀sign-on฀bonus.฀The฀remaining฀amounts฀for฀2003...

  • Page 145
    ...economic฀or฀market฀changes,฀extreme฀currency฀ exchange฀effects฀and฀management฀of฀significant฀workforce฀issues. The฀CEO฀allocates฀the฀corporate฀funding฀pool฀among฀the฀Company's฀business฀units.฀Each฀business฀unit฀has฀its฀own฀targets฀for...

  • Page 146
    ...฀a฀manner฀consistent฀with฀the฀requirements฀of฀Statement฀of฀ Financial฀Accounting฀Standards฀No.฀123,฀"Accounting฀for฀Stock-Based฀Compensation."฀The฀following฀weighted-average฀assumptions฀were฀used:฀risk-free฀interest฀rate฀ -฀3.340%;฀expected...

  • Page 147
    ...on฀the฀closing฀price฀on฀the฀NYSE฀-฀Composite฀Transactions฀of฀the฀Company's฀common฀stock฀on฀December฀31,฀2004฀of฀$32.25฀per฀share. STOCK฀OPTIONS฀AND฀SARS฀OUTSTANDING฀UNDER฀SHAREHOLDER AND฀NON-SHAREHOLDER-APPROVED฀PLANS As฀required฀by...

  • Page 148
    ...฀converting฀the฀amount฀of฀an฀executive's฀former฀target฀award฀under฀the฀management฀ stock฀option฀program฀to฀his฀or฀her฀target฀award฀under฀the฀new฀program,฀the฀Compensation฀Committee฀used฀a฀value-neutral฀approach฀recommended฀by฀ an...

  • Page 149
    ...฀least฀annually,฀and฀a฀target฀award฀under฀ the฀Company's฀annual฀variable฀compensation฀plan฀of฀100%฀of฀his฀base฀salary.฀As฀a฀hiring฀bonus,฀Mr.฀Perez฀received฀a฀grant฀of฀stock฀options฀for฀500,000฀ shares฀and฀100,000฀shares฀of...

  • Page 150
    ...,฀Digital฀&฀Film฀Imaging฀Systems.฀Under฀this฀letter฀agreement,฀Mr.฀Masson฀is฀ eligible฀to฀receive฀a฀severance฀allowance฀equal฀to฀one฀times฀his฀base฀salary฀plus฀target฀annual฀bonus฀if฀he฀is฀terminated฀by฀the฀Company฀prior...

  • Page 151
    ...then฀outstanding฀securities; •฀฀ a฀merger,฀consolidation,฀statutory฀share฀exchange฀or฀similar฀form฀of฀corporate฀transaction฀involving฀the฀Company฀or฀any฀of฀its฀subsidiaries฀that฀ requires฀the฀approval฀of฀the฀Company's฀shareholders;฀or...

  • Page 152
    ...฀stock฀account.฀The฀Company฀does฀not฀provide฀its฀executive฀officers฀any฀ incentives฀to฀encourage฀them฀to฀participate฀in฀the฀phantom฀stock฀account.฀The฀plan's฀benefits฀are฀neither฀funded฀nor฀secured.฀As฀of฀December฀31,฀2004...

  • Page 153
    ...For฀purposes฀of฀this฀table,฀Remuneration฀means฀APC.฀To฀the฀extent฀that฀an฀employee's฀annual฀retirement฀income฀benefit฀exceeds฀the฀amount฀payable฀from฀the฀ Company's฀funded฀plan,฀it฀is฀paid฀from฀one฀or฀more฀unfunded฀supplementary...

  • Page 154
    ...the฀cash฀balance฀feature฀of฀the฀Company's฀pension฀plan,฀the฀Company฀establishes฀an฀account฀for฀each฀participating฀employee.฀Every฀month฀the฀employee฀works,฀the฀Company฀credits฀the฀employee's฀account฀with฀an฀amount฀equal฀to฀4%฀of...

  • Page 155
    ...Act,฀due฀diligence฀related฀to฀merger฀and฀ acquisition฀activity,฀audits฀of฀the฀Company's฀employee฀benefit฀plans฀and฀accounting฀and฀reporting฀consultations฀relating฀to฀new฀accounting฀standards. Tax฀Fees฀in฀2004฀consisted฀of฀$0.8฀million...

  • Page 156
    ...฀plan฀include฀Board฀education,฀the฀Board's฀annual฀strategic฀retreat,฀the฀Board's฀business฀plan,฀the฀action฀plan฀from฀the฀Board's฀2004฀ evaluation฀and฀the฀Board's฀access฀to฀the฀Company's฀high฀potential฀candidates. Reports 47 DIVERSITY...

  • Page 157
    ...฀of฀Kodak฀shares฀or฀stock฀units.฀In฀recommending฀this฀change฀to฀the฀Board,฀the฀Committee฀considered฀the฀following฀factors:฀overall฀pay฀positioning฀of฀the฀current฀program฀was฀below฀market฀median,฀the฀Company's฀new฀strategic฀focus...

  • Page 158
    ...actions฀taken฀by฀the฀Committee฀last฀year฀include reviewing฀the฀Company's฀Social฀Responsibility฀Policies;฀ •฀reviewing฀the฀Company's฀Health,฀Safety฀and฀Environment฀strategies฀and฀management฀system;฀ •฀reviewing฀and฀approving฀the฀Company...

  • Page 159
    ...that฀they฀are฀aligned฀with฀the฀ Company's฀business฀strategy฀and฀objectives,฀shareholder฀interests,฀desired฀behaviors฀and฀corporate฀culture periodically฀reviewing฀the฀Company's฀executive฀compensation฀plans฀to฀ensure฀that฀they฀are฀consistent...

  • Page 160
    ...฀to฀in฀this฀Report฀as฀the฀"Peer฀Group."฀The฀following฀criteria฀was฀used฀to฀select฀the฀Peer฀Group:฀market฀capitalization;฀revenue;฀consumer/commercial/hi-tech฀mix;฀mix฀of฀high฀growth฀and฀steady฀growth฀companies;฀and฀similar฀industry...

  • Page 161
    ...-year฀period฀based฀on฀the฀ Company's฀total฀shareholder฀return฀relative฀to฀those฀companies฀within฀the฀Standard฀&฀Poor's฀500฀Composite฀Price฀Index.฀The฀pending฀cycles฀of฀the฀Performance฀Stock฀Program,฀however,฀will฀continue฀to฀run...

  • Page 162
    ...000฀shares.฀These฀options฀were฀granted฀under฀the฀same฀ terms฀and฀conditions฀as฀awards฀made฀to฀all฀officers฀generally฀under฀the฀Company's฀stock฀option฀program.฀That฀is,฀the฀options฀were฀priced฀at฀100%฀of฀ the฀fair฀market฀value...

  • Page 163
    ...฀under฀the฀Company's฀unfunded฀nonqualified฀deferred฀compensation฀plan,฀under฀the฀following฀employment฀termination฀scenarios:฀retirement,฀termination฀without฀cause,฀death฀and฀change฀ in฀control.฀Charts฀were฀prepared฀and฀reviewed฀with฀the...

  • Page 164
    ...Shareholder฀Return The฀following฀graph฀compares฀the฀performance฀of฀the฀Company's฀common฀stock฀with฀the฀performance฀of฀the฀Standard฀&฀Poor's฀500฀Composite฀Stock฀ Price฀Index฀and฀the฀Dow฀Jones฀Industrial฀Index฀by฀measuring฀the฀changes...

  • Page 165
    ...฀the฀following฀acquisitions:฀1)฀by฀Kodak฀or฀any฀Subsidiary;฀2)฀by฀any฀employee฀benefit฀plan฀(or฀related฀trust)฀sponsored฀or฀maintained฀by฀Kodak฀or฀any฀Subsidiary;฀ 3)฀by฀any฀underwriter฀temporarily฀holding฀securities฀pursuant฀to...

  • Page 166
    ...฀provisions฀and฀rules฀thereto. 2.17฀฀Fair฀Market฀Value฀฀"Fair฀Market฀Value"฀means฀the฀mean฀of฀the฀high฀and฀low฀sales฀prices฀of฀a฀share฀of฀Common฀Stock฀on฀a฀particular฀date฀ on฀the฀New฀York฀Stock฀Exchange.฀In฀the...

  • Page 167
    ...฀to฀purchase฀Common฀Stock฀at฀such฀price฀or฀prices฀and฀during฀such฀ periods฀established฀pursuant฀to฀Article฀8฀of฀the฀Plan. 2.38฀฀Subsidiary฀฀"Subsidiary"฀means฀a฀corporation฀or฀other฀business฀entity฀in฀which฀Kodak฀directly...

  • Page 168
    ...aid฀to฀administer฀the฀Plan฀and฀make฀ changes฀in฀such฀guidelines฀or฀sub-plans฀as฀it฀from฀time฀to฀time฀deems฀proper;฀j)฀prescribe,฀amend฀and฀rescind฀rules฀and฀regulations฀relating฀to฀the฀Plan,฀ including฀rules฀governing฀its฀own...

  • Page 169
    ...฀Company,฀including฀shares฀purchased฀in฀the฀open฀market,฀or฀authorized฀but฀unissued฀shares. b)฀For฀purpose฀of฀this฀Section฀6.1,฀the฀aggregate฀number฀of฀shares฀available฀for฀Awards฀under฀this฀Plan฀shall฀be฀increased฀by,฀i)฀shares...

  • Page 170
    ...the฀Company฀in฀ payment฀or฀satisfaction฀of฀the฀purchase฀price฀or฀tax฀withholding฀obligation฀of฀an฀Award,฀v)฀shares฀reacquired฀by฀the฀Company฀on฀the฀open฀market฀using฀ Option฀Proceeds;฀provided,฀however,฀that฀the฀aggregate฀number...

  • Page 171
    ...฀ share฀of฀a฀Stock฀Option฀after฀it฀is฀granted,฀ii)฀cancel฀a฀Stock฀Option฀when฀the฀option฀price฀per฀share฀exceeds฀the฀Fair฀Market฀Value฀of฀the฀underlying฀shares฀ in฀exchange฀for฀another฀Award฀or฀iii)฀take฀any฀other฀action...

  • Page 172
    ...฀12.4(a): ฀ i)฀Kodak.฀In฀the฀case฀of฀a฀Participant฀who฀has฀signed฀a฀Kodak฀company฀employee's฀agreement฀that฀has฀restrictive฀covenants฀similar฀to฀those฀in฀Section฀฀ ฀ (iii)฀below฀(an฀"Eastman฀Kodak฀Company฀Employee's฀Agreement...

  • Page 173
    ...฀securities฀equivalent฀to฀such฀cash฀payment)฀equal฀ to฀the฀difference,฀if฀any,฀between฀the฀Change฀in฀Control฀Price฀and฀the฀purchase฀price฀per฀share,฀if฀any,฀under฀the฀Award฀multiplied฀by฀the฀number฀of฀shares฀ of฀Common฀Stock...

  • Page 174
    ...then฀Fair฀Market฀ Value฀and฀the฀exercise฀price฀per฀share฀of฀Common฀Stock฀multiplied฀by฀the฀number฀of฀shares฀of฀Common฀Stock฀subject฀to฀such฀award)฀of฀the฀assumed฀(or฀ substituted)฀Award฀immediately฀after฀the฀Change฀in฀Control...

  • Page 175
    ...฀payment฀of฀Common฀Stock฀due฀as฀a฀result฀of฀such฀Award฀at฀minimum฀statutory฀ tax฀rates,฀or฀by฀permitting฀the฀Participant฀to฀tender฀(actually฀or฀through฀attestation)฀to฀the฀Company,฀shares฀of฀Common฀Stock฀having฀a฀Fair฀Market...

  • Page 176
    ...฀of฀Kodak฀required฀under฀the฀New฀York฀Stock฀Exchange's฀ shareholder฀approval฀rules. 16.7฀฀Governing฀Law฀฀The฀Plan฀shall฀be฀governed฀by฀and฀construed฀in฀accordance฀with฀the฀laws฀of฀the฀State฀of฀New฀York,฀except฀as฀superseded...

  • Page 177
    ...return฀on฀assets,฀return฀on฀ capital,฀shareholder฀returns,฀total฀shareholder฀return,฀return฀on฀invested฀capital,฀profit฀margin,฀earnings฀per฀share,฀net฀earnings,฀operating฀earnings,฀ Common฀Stock฀price฀per฀share,฀sales฀or฀market฀share...

  • Page 178
    ...return฀on฀assets,฀return฀on฀capital,฀shareholder฀returns,฀total฀ shareholder฀return,฀return฀on฀invested฀capital,฀profit฀margin,฀earnings฀per฀share,฀net฀earnings,฀operating฀earnings,฀Common฀Stock฀price฀per฀share,฀sales฀or฀ market฀share...

  • Page 179
    ...to฀subscribe฀for฀or฀purchase฀any฀part฀of฀ any฀new฀or฀additional฀issue฀of฀shares,฀or฀any฀treasury฀shares,฀or฀of฀securities฀of฀the฀Company฀or฀of฀any฀subsidiary฀of฀the฀Company฀convertible฀into,฀or฀ exchangeable฀for,฀or฀carrying...

  • Page 180
    ...฀5฀as฀a฀single฀class.฀ The฀number฀of฀directors฀constituting฀the฀Company's฀current฀Board฀of฀Directors฀is฀thirteen฀(13)฀sixteen฀(16),฀the฀address฀of฀each฀director฀is฀343฀State฀ Street,฀Rochester,฀New฀York฀14650,฀and฀their฀names...

  • Page 181
    ...฀compliance฀with฀law,฀ethics฀and฀the฀Company฀own฀statement฀of฀values,฀and฀the฀integrity฀of฀its฀relationships฀ with฀employees,฀customers฀and฀suppliers. •฀฀ Risk฀Management฀฀Reviewing฀and฀assessing฀management's฀processes฀and฀policies...

  • Page 182
    ...฀investors,฀analysts,฀customers,฀suppliers฀and฀other฀constituencies).฀The฀Board฀will฀look฀to฀management฀to฀speak฀for฀the฀Company.฀฀ Board฀members฀will฀refer฀all฀inquiries฀from฀and฀communications฀with฀the฀Company's฀stakeholder฀groups...

  • Page 183
    ...of฀the฀Company's฀stock฀through฀payment฀of฀a฀portion฀of฀the฀Company's฀compensation฀in฀stock,฀deferred฀compensation฀stock฀equivalents฀or฀options฀to฀ purchase฀the฀Company's฀stock.฀The฀Corporate฀Responsibility฀and฀Governance฀Committee฀will...

  • Page 184
    ...฀new฀directors฀with,฀among฀other฀things,฀the฀ Company's฀business,฀strategic฀plans,฀significant฀financial,฀accounting฀and฀risk฀management฀issues,฀compliance฀programs,฀conï¬,icts฀policies,฀code฀of฀business฀conduct,฀corporate฀governance...

  • Page 185
    ...an฀executive฀officer฀or฀an฀employee,฀or฀whose฀immediate฀family฀member฀is฀an฀executive฀ officer฀of฀another฀company฀that฀makes฀payments฀to,฀or฀receives฀payments฀from,฀the฀Company฀for฀property฀or฀services฀in฀an฀amount฀which,฀in...

  • Page 186
    ...fing฀by฀senior฀managers,฀to฀familiarize฀ new฀Directors฀with฀the฀Company's฀overall฀business฀and฀operations,฀strategic฀plans฀and฀goals,฀financial฀statements,฀and฀key฀policies฀and฀practices,฀ including฀corporate฀governance฀matters. APPENDIX...

  • Page 187
    ...฀the฀best฀course฀of฀action฀in฀a฀particular฀situation;฀b)฀encourages฀employees฀to฀report฀violations฀of฀laws,฀ rules,฀regulations฀or฀the฀Company's฀Business฀Conduct฀Guide;฀and฀c)฀informs฀employees฀that฀the฀Company฀will฀not฀permit...

  • Page 188
    ...or฀the฀Audit฀Committee฀may฀waive฀a฀Company฀business฀conduct฀or฀ethics฀policy฀for฀a฀Kodak฀director,฀and฀the฀waiver฀must฀be฀promptly฀ disclosed฀to฀shareholders. Annual฀Review The฀Board฀shall฀review฀and฀reassess฀the฀adequacy฀of฀this...

  • Page 189
    ...Company฀and฀services฀associated฀with฀SEC฀registration฀statements,฀periodic฀reports฀and฀other฀documents฀filed฀ with฀the฀SEC฀or฀other฀documents฀issued฀in฀connection฀with฀securities฀offerings. III.฀AUDIT-RELATED฀SERVICES Audit-related฀services...

  • Page 190
    ...฀services฀related฀to฀the฀accounting฀records฀or฀financial฀statements฀of฀the฀audit฀client •฀฀Financial฀information฀systems฀design฀and฀implementation •฀฀Appraisal฀or฀valuation฀services,฀fairness฀opinions฀or฀contribution-in-kind฀reports...

  • Page 191
    n Eastman฀Kodak฀Company฀2005฀Annual฀Meeting A N N U THEATER฀ON฀THE฀ RIDGE 200฀Ridge฀Road฀West Rochester,฀NY฀ A L DIRECTIONS From฀the฀West ฀ Take฀Ridge฀Road฀(Rt.฀104)฀to฀Dewey฀ Avenue.฀Turn฀left฀onto฀Dewey฀Avenue,฀ then฀right฀on฀...

  • Page 192
    WORLDWIDE www.kodak.com C C 5 - 2 / 2 0 0 5 ฀ ฀ ฀ C A T. ฀ N o . ฀ 8 3 418 3 6