Kodak 2004 Annual Report Download - page 34

Financials
32
E A S T M A N฀ K OD A K ฀ C O M PA N Y
During฀2004,฀the฀Company฀made฀severance฀payments฀of฀$15฀million฀
and฀exit฀cost฀payments฀of฀$4฀million฀related฀to฀the฀First฀Quarter,฀2003฀
Restructuring฀Program.฀In฀addition,฀the฀Company฀reversed฀$1฀million฀of฀
severance฀reserves฀during฀2004,฀as฀severance฀payments฀were฀less฀than฀
originally฀estimated.฀This฀reversal฀was฀included฀in฀restructuring฀costs฀and฀
other฀in฀the฀accompanying฀Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀
ended฀December฀31,฀2004.฀The฀remaining฀severance฀payments฀relating฀to฀
initiatives฀already฀implemented฀under฀the฀First฀Quarter,฀2003฀Restructuring฀
Program฀will฀be฀paid฀during฀2005฀since,฀in฀many฀instances,฀the฀employees฀
whose฀positions฀were฀eliminated฀can฀elect฀or฀are฀required฀to฀receive฀their฀
severance฀payments฀over฀an฀extended฀period฀of฀time.฀฀฀฀
As฀a฀result฀of฀initiatives฀implemented฀under฀the฀First฀Quarter,฀2003฀
Restructuring฀Program,฀the฀Company฀recorded฀$7฀million฀of฀accelerated฀
depreciation฀on฀long-lived฀assets฀in฀cost฀of฀goods฀sold฀in฀the฀accompanying฀
Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀ended฀December฀31,฀2004.฀฀
The฀accelerated฀depreciation฀relates฀to฀long-lived฀assets฀accounted฀for฀
under฀the฀held฀and฀used฀model฀of฀SFAS฀No.฀144.฀The฀year-to-date฀amount฀
of฀$7฀million฀relates฀to฀lab฀equipment฀used฀in฀photofinishing฀that฀was฀used฀
until฀its฀abandonment.฀฀฀฀
The฀charges฀of฀$7฀million฀recorded฀during฀2004฀were฀applicable฀to฀
the฀D&FIS฀segment.฀The฀program-to-date฀charges฀of฀$112฀million฀included฀
$92฀million฀applicable฀to฀the฀D&FIS฀segment,฀$4฀million฀applicable฀to฀the฀
Commercial฀Imaging฀segment฀and฀$1฀million฀applicable฀to฀the฀Graphic฀
Communications฀segment.฀The฀balance฀of฀$15฀million฀was฀applicable฀to฀
manufacturing฀and฀administrative฀functions,฀which฀are฀shared฀across฀all฀
segments.฀฀
฀As฀of฀the฀end฀of฀the฀third฀quarter฀of฀2003,฀the฀Company฀had฀commit-
ted฀to฀all฀of฀the฀initiatives฀originally฀contemplated฀under฀the฀First฀Quarter,฀
2003฀Restructuring฀Program.฀A฀total฀of฀1,850฀positions฀were฀eliminated฀
as฀a฀result฀of฀the฀initiatives฀implemented฀under฀the฀First฀Quarter,฀2003฀
Restructuring฀Program.฀Cost฀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฀believes฀that฀its฀cash฀flow฀from฀operations฀will฀be฀sufficient฀
to฀cover฀its฀working฀capital฀and฀capital฀investment฀needs,฀debt฀maturities฀
and฀dividend฀payments.฀The฀Company’s฀cash฀balances฀and฀financing฀ar-
rangements฀will฀be฀used฀to฀bridge฀timing฀differences฀between฀expenditures฀
and฀cash฀generated฀from฀operations.
The฀Company’s฀cash฀and฀cash฀equivalents฀increased฀$5฀million,฀from฀
$1,250฀million฀at฀December฀31,฀2003฀to฀$1,255฀million฀at฀December฀31,฀
2004.฀The฀increase฀resulted฀primarily฀from฀$1,168฀million฀of฀net฀cash฀pro-
vided฀by฀operating฀activities.฀This฀was฀offset฀by฀$1,066฀million฀of฀net฀cash฀
used฀in฀financing฀activities,฀and฀$120฀million฀of฀net฀cash฀used฀in฀investing฀
activities.฀฀฀
The฀net฀cash฀provided฀by฀operating฀activities฀of฀$1,168฀million฀was฀
mainly฀attributable฀to฀the฀Company’s฀net฀earnings฀for฀the฀year฀ended฀
December฀31,฀2004,฀as฀adjusted฀for฀the฀earnings฀from฀discontinued฀
operations,฀equity฀in฀earnings฀from฀unconsolidated฀affiliates,฀depreciation,฀
purchased฀research฀and฀development,฀restructuring฀costs,฀asset฀impair-
ments฀and฀other฀non-cash฀charges,฀a฀benefit฀from฀deferred฀taxes,฀and฀a฀
gain฀on฀sales฀of฀businesses/assets.฀This฀source฀of฀cash฀was฀partially฀offset฀
by฀$481฀million฀of฀restructuring฀payments฀and฀an฀increase฀in฀receivables฀
of฀$43฀million.฀The฀increase฀in฀receivables฀is฀primarily฀attributable฀to฀
increased฀sales฀of฀digital฀products.฀The฀net฀cash฀used฀in฀investing฀activities฀
from฀continuing฀operations฀of฀$828฀million฀was฀utilized฀primarily฀for฀capital฀
expenditures฀of฀$460฀million฀and฀business฀acquisitions฀of฀$369฀million.฀The฀
net฀cash฀used฀in฀financing฀activities฀of฀$1,066฀million฀was฀the฀result฀of฀net฀
reduction฀of฀debt฀of฀$928฀million฀as฀well฀as฀dividend฀payments฀for฀the฀year฀
ended฀December฀31,฀2004.฀
The฀Company฀maintains฀$2,373฀million฀in฀committed฀bank฀lines฀
of฀credit฀and฀$753฀million฀in฀uncommitted฀bank฀lines฀of฀credit฀to฀ensure฀
continued฀access฀to฀short-term฀borrowing฀capacity.฀On฀September฀5,฀2003,฀
the฀Company฀filed฀a฀shelf฀registration฀statement฀on฀Form฀S-3฀(the฀new฀
debt฀shelf฀registration)฀for฀the฀issuance฀of฀up฀to฀$2,000฀million฀of฀new฀debt฀
securities.฀Pursuant฀to฀Rule฀429฀under฀the฀Securities฀Act฀of฀1933,฀$650฀
million฀of฀remaining฀unsold฀debt฀securities฀under฀a฀prior฀shelf฀registration฀
statement฀were฀included฀in฀the฀new฀debt฀shelf฀registration,฀thus฀giving฀
the฀Company฀the฀ability฀to฀issue฀up฀to฀$2,650฀million฀in฀public฀debt.฀After฀
issuance฀of฀$500฀million฀in฀notes฀in฀October฀2003฀(referred฀to฀below),฀the฀
remaining฀availability฀under฀the฀new฀debt฀shelf฀registration฀is฀currently฀at฀
$2,150฀million.฀These฀funding฀alternatives฀provide฀the฀Company฀with฀suffi-
cient฀flexibility฀and฀liquidity฀to฀meet฀its฀working฀capital฀and฀investing฀needs.฀฀
However,฀the฀success฀of฀future฀public฀debt฀issuances฀will฀be฀dependent฀on฀
market฀conditions฀at฀the฀time฀of฀such฀an฀offering.฀฀
The฀Company’s฀primary฀uses฀of฀cash฀include฀debt฀maturities,฀acquisi-
tions,฀dividend฀payments,฀and฀temporary฀working฀capital฀needs.฀The฀Com-
pany฀has฀a฀dividend฀policy฀whereby฀it฀makes฀semi-annual฀payments฀which,฀
when฀declared,฀will฀be฀paid฀on฀the฀Company’s฀10th฀business฀day฀each฀July฀
and฀December฀to฀shareholders฀of฀record฀on฀the฀close฀of฀the฀first฀business฀
day฀of฀the฀preceding฀month.฀On฀May฀12,฀2004,฀the฀Board฀of฀Directors฀
declared฀a฀dividend฀of฀$.25฀per฀share฀payable฀to฀shareholders฀of฀record฀at฀
the฀close฀of฀business฀on฀June฀1,฀2004.฀This฀dividend฀was฀paid฀on฀July฀15,฀
2004.฀On฀October฀19,฀2004,฀the฀Board฀of฀Directors฀declared฀a฀dividend฀of฀
$.25฀per฀share฀payable฀to฀shareholders฀of฀record฀at฀the฀close฀of฀business฀
on฀November฀1,฀2004.฀This฀dividend฀was฀paid฀on฀December฀14,฀2004.฀
Capital฀additions฀were฀$460฀million฀in฀the฀year฀ended฀December฀31,฀
2004,฀with฀the฀majority฀of฀the฀spending฀supporting฀new฀products,฀manu-
facturing฀productivity฀and฀quality฀improvements,฀infrastructure฀improve-
ments,฀and฀ongoing฀environmental฀and฀safety฀initiatives.฀For฀the฀full฀year฀
2005,฀the฀Company฀expects฀its฀capital฀spending,฀excluding฀acquisitions,฀to฀
be฀in฀the฀range฀of฀$575฀million฀to฀$625฀million.
During฀the฀year฀ended฀December฀31,฀2004,฀the฀Company฀expended฀
$481฀million฀against฀the฀related฀restructuring฀reserves,฀primarily฀for฀the฀
payment฀of฀severance฀benefits.฀Employees฀whose฀positions฀were฀elimi-
nated฀could฀elect฀to฀have฀their฀severance฀benefits฀paid฀over฀a฀period฀of฀up฀
to฀two฀years฀following฀their฀date฀of฀termination.
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฀credit฀facilities฀
are฀comprised฀of฀the฀$1,000฀million฀364-day฀committed฀revolving฀credit฀
facility฀(364-Day฀Facility)฀expiring฀in฀July฀2005฀and฀a฀5-year฀committed฀
facility฀at฀$1,225฀million฀expiring฀in฀July฀2006฀(5-Year฀Facility).฀If฀unused,฀
they฀have฀a฀commitment฀fee฀of฀$4.5฀million฀per฀year฀at฀the฀Company’s฀
current฀credit฀rating฀of฀Baa3฀and฀BBB-฀from฀Moody’s฀and฀Standard฀&฀Poors฀