Kodak 2007 Annual Report Download - page 38

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The guarantees for the third party debt mature between 2008 and 2011. The customer financing agreements and related guarantees typically have a term
of 90 days for product and short-term equipment financing arrangements, and up to five years for long-term equipment financing arrangements. These
guarantees would require payment from the Company only in the event of default on payment by the respective debtor. In some cases, particularly for
guarantees related to equipment financing, the Company has collateral or recourse provisions to recover and sell the equipment to reduce any losses that
might be incurred in connection with the guarantees.
The Company also guarantees debt and other obligations owed to banks and other third parties for some of its consolidated subsidiaries. The maximum
amount guaranteed is $637 million, and the outstanding debt under those guarantees, which is recorded within the short-term borrowings and long-term
debt, net of current portion components in the accompanying Consolidated Statement of Financial Position, is $229 million. These guarantees expire
between 2008 and 2013. Pursuant to the terms of the Company’s $2.7 billion Senior Secured Credit Agreement dated October 18, 2005, obligations under
the $2.7 billion Secured Credit Facilities and other obligations of the Company and its subsidiaries to the $2.7 billion Secured Credit Facilities lenders are
guaranteed.
During the fourth quarter of 2007, Eastman Kodak Company (the “Parent”) issued a guarantee to Kodak Limited (the “Subsidiary”) and the Trustees of the
Kodak Pension Plan of the United Kingdom (the “Trustees”). Under this arrangement, the Parent guarantees to the Subsidiary and the Trustees the ability
of the Subsidiary, only to the extent it becomes necessary to do so, to (1) make contributions to the Plan to ensure sufficient assets exist to make benefit
payments, and (2) make contributions to the Plan such that it will achieve full funded status by the funding valuation for the period ending December 31,
2015. The guarantee expires upon the conclusion of the funding valuation for the period ending December 31, 2015 whereby the Plan achieves full funded
status or earlier, in the event that the Plan achieves full funded status for two consecutive funding valuation cycles which are performed at least every
three years.
The limit of potential future payments is dependent on the funding status of the Plan as it fluctuates over the term of the guarantee. However, as of
December 31, 2007 management believes that performance under this guarantee by Eastman Kodak Company is unlikely. The funding status of the Plan
is included in Pension and other postretirement liabilities presented in the Consolidated Statement of Financial Position.
The Company issues indemnifications in certain instances when it sells businesses and real estate, and in the ordinary course of business with its
customers, suppliers, service providers and business partners. Further, the Company indemnifies its directors and officers who are, or were, serving
at the Company’s request in such capacities. Historically, costs incurred to settle claims related to these indemnifications have not been material to the
Company’s financial position, results of operations or cash flows. Additionally, the fair value of the indemnifications that the Company issued during the
year ended December 31, 2007 was not material to the Company’s financial position, results of operations or cash flows.
2006
Cash Flow Activity
The Company’s primary sources and uses of cash for the year ended December 31, 2006 included earnings from continuing operations, adjusted for non-
cash items of income and expense, debt payments, restructuring payments, capital additions, working capital needs, dividend payments and employee
and retiree benefit plan payments/contributions.
Net cash provided by continuing operations from operating activities was $685 million for the year ended December 31, 2006. The Company’s primary
sources of cash from operating activities for the year are earnings from continuing operations, as adjusted for non-cash items of income and expense,
which provided $327 million of operating cash. Included in cash flow from operating activities was approximately $315 million provided by non-recurring
licensing arrangements during 2006. The Company’s other primary sources and uses of cash in operating activities include:
• Decrease in inventories due to planned inventory reductions driven by corporate initiatives and a decline in demand for traditional products;
• Decrease in receivables driven by the continued industry decline in sales of traditional products and services;
• Net increase in liabilities resulting from non-cash adjustments to tax liabilities, partially offset by a decrease in accounts payable and other liabili-
ties; and
• Recognition of deferred income on intellectual property arrangements.
Included in the uses of cash in operating activities discussed above were:
• Cash expenditures of $548 million against restructuring reserves and pension and other postretirement liabilities, primarily for the payment of
severance benefits;
• Contributions (funded plans) or benefit payments (unfunded plans) totaling approximately $187 million relating to major U.S. and non-U.S. defined
benefit pension plans; and
• Benefit payments totaling approximately $224 million relating to U.S., United Kingdom and Canada postretirement benefit plans.