Kodak 2007 Annual Report Download - page 36

35
— Decrease in restructuring liabilities driven by cash payments for severance benefits, partially offset by restructuring charges within the current
year;
— The settlement of asset retirement obligations due to footprint reduction actions; and
— These decreases were partially offset by an increase in trade accounts payable due to the Company’s efforts to bring accounts payable metrics
more in line with its peer group.
Included in the uses of cash in operating activities discussed above were:
• Cash expenditures of $446 million against restructuring reserves and pension and other postretirement liabilities, primarily for the payment of
severance benefits. Certain employees whose positions were eliminated could elect to receive severance payments for up to two years following
their date of termination;
• Contributions (funded plans) or benefit payments (unfunded plans) totaling approximately $111 million relating to major U.S. and non-U.S. defined
benefit pension plans; and
• Benefit payments totaling approximately $218 million relating to postretirement benefit plans in the U.S., United Kingdom and Canada.
Net cash used in continuing operations in investing activities for the year ended December 31, 2007 of $41 million includes capital additions of $259
million. The majority of this spending supports new products, manufacturing capacity, productivity and quality improvements, infrastructure improvements,
equipment placements with customers, and ongoing environmental and safety initiatives. Proceeds from sales of businesses and assets in the period
provided cash of $227 million.
Net cash provided by discontinued operations from investing activities in 2007 was $2,449 million largely due to the proceeds received in connection with
the sale of the Health Group business, and the HPA business previously included in GCG. The Company utilized a portion of the cash received from the
sale of the Health Group for the full repayment of the Secured Term Debt of $1.15 billion, as reflected in net cash used in financing activities in the period.
Net cash used in continuing operations in financing activities in 2007 was $1,324 million, including the repayment of debt discussed above and dividends
of $144 million. The Company’s dividend policy is to pay semi-annual dividends, when declared, on the Company’s 10th business day each July and De-
cember to shareholders of record on the close of the first business day of the preceding month. On May 9, and October 16, 2007, the Board of Directors
declared semi-annual cash dividends of $.25 per share payable to shareholders of record at the close of business on June 1, and November 1, 2007, re-
spectively. These dividends were paid on July 16 and December 14, 2007. Total dividends paid for the year ended December 31, 2007 were $144 million.
The Company believes that its cash flow from operations, in addition to asset sales, will be sufficient to cover its working capital and capital investment
needs and the funds required for future debt reduction, restructuring payments, dividend payments, employee and retiree benefit plan payments/contri-
butions, and potential acquisitions. The Company’s cash balances and its financing arrangements, which are principally the Company’s committed and
uncommitted credit lines, as further discussed in Note 9, “Short-Term Borrowings and Long Term Debt” in the Notes to Financial Statements, will be used
to bridge timing differences between expenditures and cash generated from operations.
Sources of Liquidity
Refer to Note 9, “Short-Term Borrowings and Long-Term Debt” in the Notes to Financial Statements for further discussion of sources of liquidity, presenta-
tion of long-term debt, related maturities and interest rates as of December 31, 2007 and 2006.
Credit Quality
Moody’s and S&P’s ratings for the Company, including their outlooks, as of the filing date of this Form 10-K are as follows:
Senior Secured Rating Corporate Rating Senior Unsecured Rating Outlook
Moody’s Ba1 B1 B2 Stable
S&P BB B+ B Negative
On September 11, 2007, Standard & Poor’s (S&P) concluded a review on Kodak. The conclusion of this work has resulted in an affirmation of the
Company’s Corporate Rating at B+, and an unchanged outlook of negative. However, S&P has removed the Company from credit watch, where it had
been placed with negative implications on August 2, 2006. The Company’s Senior Secured rating has improved two levels to BB.
S&P’s ratings reflect their concerns regarding the continued decline in the Company’s traditional business, the Company’s uncertain profitability and cash
flow generation of its digital business, and the potential for additional restructuring charges.
On May 7, 2007, Moody’s concluded a review for possible downgrade, which was initiated in May 2006 after the Company announced its intention to
explore strategic alternatives for its Health business. As a result, the Company’s Corporate and Senior Unsecured ratings were confirmed at B1 and B2,
respectively, and the Senior Secured rating, reflecting the remaining 5-Year Revolving Credit Facility, was upgraded from Ba3 to Ba1. The rating outlook
was changed from negative to stable.