Kodak 2005 Annual Report Download - page 20

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that include new or changed formulas. During the year ended December 31, 2005, the Company has made signifi cant progress in executing the
remediation plans that were established to address the material weaknesses identifi ed above. This resulted in material improvements in the
Company’s internal control over fi nancial reporting, including the successful remediation of the material weaknesses in internal controls
surrounding its accounting for pension and other postretirement benefi ts and spreadsheet controls as of December 31, 2005. Internal control over
fi nancial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the
circumvention or overriding of controls or fraud. Therefore, even effective internal control over fi nancial reporting can provide only reasonable
assurance with respect to the preparation and fair presentation of fi nancial statements.
If we cannot protect our reputation due to product quality and liability issues, our business could be harmed.
Kodak products are becoming increasingly sophisticated and complicated to design and build as rapid advancements in technologies occur. Although
Kodak has established internal procedures to minimize risks that may arise from product quality and liability issues, there can be no assurance that
Kodak will be able to eliminate or mitigate occurrences of these issues and associated damages. Kodak may incur expenses in connection with, for
example, product recalls, service and lawsuits, and Kodak’s brand image and reputation as a producer of high-quality products could suffer.
ITEM 1B. UNRESOLVED STAFF COMMENTS
On June 8, 2005, the Company received a comment letter from the staff of the Division of Corporation Finance of the SEC. The comments from the
staff were issued with respect to its review of the Company’s Form 10-K for the year ended December 31, 2004, the Form 10-Q for the quarterly
period ended March 31, 2005 and the Form 8-K fi led on April 22, 2005 relating to the Company’s fi rst quarter 2005 earnings release. In addition to
other comments, the staff’s June 8, 2005 letter included three comments relating to the Company’s restatement of (1) the 2003 quarterly and full-year
periods and (2) the fi rst three quarters of 2004 (the “restatements”). The substance of those three comments is summarized below:
• In Note 1, “Signifi cant Accounting Policies and Restatement,” to the Consolidated Financial Statements as of and for the year ended
December 31, 2004 (Note 1), the Company provided disclosure summarizing the nature of the income taxes, pensions and other
postretirement benefi ts and other errors that resulted in the restatements. In its comment letter, the staff requested additional detailed
information regarding the individual errors within these categories, including an analysis of the impact of those errors on each of the fi ve years
in the period from 2000 through 2004;
• In Note 1, the Company provided disclosure of the net impact of the errors relating to periods prior to 2003 of $1.2 million (net adjustment) and
the fact that, because these errors did not have a material impact on the periods prior to 2003 or to the fi rst quarter of and full-year 2003, the
Company recorded the net adjustment as a charge to Selling, General and Administrative expenses (SG&A) in the quarter ended
March 31, 2003. In its comment letter, the staff requested that the Company (1) explain its treatment of the net adjustment as a charge to
SG&A in the fi rst quarter of 2003 and (2) provide an analysis demonstrating that the items comprising the net adjustment were not material to
the periods prior to 2003; and
• In its comment letter, the staff requested that the Company provide quantitative and qualitative analyses supporting its materiality judgments
for each of the fi ve years in the period from 2000 through 2004. The staff requested that these analyses consider the materiality of each
misstatement individually and in the aggregate, including their impact on individual balance sheet and income statement line items, quarterly
and annual earnings per share, gross margins and the segment data.
The Company responded to all of the staff’s comments in a letter it fi led with the SEC dated August 9, 2005. Included in the Company’s response
were the supplemental analyses and information requested by the staff. As of the date of the fi ling of this Form 10-K, the staff continues to review the
Company’s responses and, therefore, these comments remain unresolved.
ITEM 2. PROPERTIES
The D&FIS segment of Kodak’s business in the United States is centered in Rochester, New York, where photographic goods are manufactured.
Another manufacturing facility in Windsor, Colorado, also produces sensitized photographic goods. Kodak EasyShare Gallery’s operations are
located in Emeryville, California. Digital product manufacturing is located in China and is also outsourced to third parties. Additional D&FIS segment
manufacturing facilities outside the United States are located in the United Kingdom, Brazil, China, France, India, Mexico and Russia. Kodak maintains
marketing and distribution facilities in many parts of the world. There are also several photofi nishing laboratories located across the United States and
certain countries in Europe.
Products in the Health Group segment are manufactured in the United States, primarily in Rochester, New York; Windsor, Colorado; Oakdale,
Minnesota; and White City, Oregon. Manufacturing facilities outside the United States are located in Brazil, China, France, Germany, India and Mexico.
The segment provides digital and traditional products and services including picture archiving and communications systems, radiology information
systems, enterprise and departmental healthcare information systems, digital and computed radiography systems, laser imaging, mammography and
oncology systems, x-ray fi lm systems for general radiography, and dental imaging products.
Products in the Graphic Communications Group segment are manufactured in the United States, primarily in Rochester, New York; Dayton, Ohio;
Columbus, Georgia; Weatherford, Oklahoma; Windsor, Colorado; and San Diego, California. Manufacturing facilities outside the United States are