Kodak 2006 Annual Report Download - page 20

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Our revenue, earnings and expenses may suffer if third parties assert that we violate their intellectual property rights.
Third parties may claim that the Company or customers indemnified by Kodak are infringing upon their intellectual property rights. In recent years,
individuals and groups have begun purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to
extract settlements from large companies like the Company. Even if Kodak believes that the claims are without merit, the claims can be time-con-
suming and costly to defend and distract management’s attention and resources. Claims of intellectual property infringement also might require the
Company to redesign affected products, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or
permanent injunction prohibiting Kodak from marketing or selling certain of its products. Even if the Company has an agreement to indemnify it against
such costs, the indemnifying party may be unable to uphold its contractual agreement to Kodak. If we cannot or do not license the infringed technol-
ogy at all or on reasonable terms or substitute similar technology from another source, our revenue and earnings could suffer.
If we are not successful in transitioning certain financial processes and administrative functions to a global shared services model and
outsourcing some of the work to third parties, our business performance, cost savings and cash flow could be adversely impacted.
The Company continues to migrate various administrative and financial processes, such as general accounting, accounts payable, credit and collec-
tions, call centers and human resources processes to a global shared services model to more effectively manage its costs. Delays in the migration to
the global shared services model and to third party vendors could adversely impact the Company’s ability to meet its cost reduction goals. Also, if third
party vendors do not perform to Kodak’s standards, such as a delay in collection of customer receipts, the Company’s cash flow could be negatively
impacted.
Our inability to develop and implement e-commerce strategies that align with industry standards could adversely affect our business.
In the event Kodak were unable to develop and implement e-commerce strategies that are in alignment with consumer trends, the Company’s busi-
ness could be adversely affected. The availability of software and standards related to e-commerce strategies is of an emerging nature. Kodak’s ability
to successfully align with the industry standards and services and ensure timely solutions requires the Company to make accurate predictions of the
future accepted standards and services.
System integration issues could adversely affect our revenues and earnings.
Portions of our IT infrastructure may experience interruptions, delays or cessations of service or product errors in connection with systems integra-
tion or migration work that takes place from time to time; in particular, installation of SAP within our Graphic Communications Group. We may not be
successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming,
disruptive and resource-intensive. Such disruption could adversely affect our ability to fulfill orders and interrupt other processes. Delayed sales,
higher costs or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.
Our inability to effectively manage our acquisitions could adversely impact our revenues and earnings.
In 2005, Kodak completed two large business acquisitions in its Graphic Communications Group segment in order to strengthen and diversify its port-
folio of businesses, while establishing itself as a leader in the graphic communications market. The Company is accelerating the current restructuring
of its traditional manufacturing infrastructure. In the event that Kodak fails to effectively manage the continuing decline of its more traditional busi-
nesses while simultaneously integrating these acquisitions, it could fail to obtain the expected synergies and favorable impact of these acquisitions.
Such a failure could cause Kodak to lose market opportunities and experience a resulting adverse impact on its revenues and earnings.
Our inability to complete divestitures and other portfolio actions could adversely impact our financial position.
In January 2007, Kodak announced that it has reached an agreement to sell the Health Group to Onex Corporation. The transaction is expected to
close in the first half of 2007. In the event that the Company is unable to complete the divestiture of the Health Group, it could fail to realize the favor-
able impacts to the Company created through the reduction of debt and other uses. Such a failure could cause Kodak to experience an adverse impact
on its financial position.
Economic trends in our major markets could adversely affect net sales.
Economic downturns and declines in consumption in Kodak’s major markets may affect the levels of both commercial and consumer sales. Purchases
of Kodak’s consumer products are to a significant extent discretionary. Accordingly, weakening economic conditions or outlook could result in a decline
in the level of consumption and could adversely affect Kodak’s results of operations.
If we do not timely implement our planned inventory reductions, this could adversely affect our cash flow.
Unanticipated delays in the Company’s plans to continue inventory reductions in 2007 could adversely impact Kodak’s cash flow outlook. Planned
inventory reductions could be compromised by slower sales due to the competitive environment for digital products, and the continuing decline in
demand for traditional products, which could also place pressures on Kodak’s sales and market share. In the event Kodak is unable to successfully
manage these issues in a timely manner, they could adversely impact the planned inventory reductions.