Kodak 2008 Annual Report Download - page 78

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The Company recorded in the fourth quarter of 2008 a contingency accrual of approximately $20 million related to employment
litigation matters. The Company and its subsidiaries are involved in various lawsuits, claims, investigations and proceedings,
including commercial, customs, employment, environmental, and health and safety matters, which are being handled and defended
in the ordinary course of business. In addition, the Company is subject to various assertions, claims, proceedings and requests for
indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a
broad spectrum of the Company’s products. These matters are in various stages of investigation and litigation and are being
vigorously defended. Although the Company does not expect that the outcome in any of these matters, individually or collectively,
will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable. Therefore,
judgments could be rendered or settlements entered that could adversely affect the Company’s operating results or cash flow in a
particular period.
NOTE 11: GUARANTEES
The Company guarantees debt and other obligations of certain customers. The debt and other obligations are primarily due to banks
and leasing companies in connection with financing of customers’ purchases of product and equipment from the Company. At
December 31, 2008, the maximum potential amount of future payments (undiscounted) that the Company could be required to make
under these customer-related guarantees was $75 million. At December 31, 2008, the carrying amount of any liability related to
these customer guarantees was not material.
The customer financing agreements and related guarantees, which mature between 2009 and 2013, 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. However, any proceeds
received from the liquidation of these assets are not expected to be material and would not cover the maximum potential amount of
future payments under these guarantees.
Eastman Kodak Company (“EKC”) also guarantees amounts owed to banks and other third parties for some of its consolidated
subsidiaries. The maximum amount guaranteed is $509 million, and the outstanding debt under those guarantees, which is recorded
within the short-term borrowings and current portion of long-term debt, and long-term debt, net of current portion components in the
accompanying Consolidated Statement of Financial Position, is $189 million. These guarantees expire in 2009 through 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 (the “Credit Facilities”) and other obligations of the Company and its subsidiaries to the Credit
Facilities’ lenders are guaranteed.
During the fourth quarter of 2007, EKC issued a guarantee to Kodak Limited (the “Subsidiary”) and the Trustees (the “Trustees”) of
the Kodak Pension Plan of the United Kingdom (the “Plan”). Under this arrangement, EKC 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 plan 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 typically 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. Currently, the Plan’s local funding valuation is in process and expected to be completed in March 2009. In conjunction
with that funding valuation process, EKC and the Subsidiary are in discussions with the Trustees regarding the amount of future
annual contributions and the date by which the Plan will achieve full funded status. These negotiations may require changes to the
existing guarantee described above. The funding status of the Plan is included in Pension and other postretirement liabilities
presented in the Consolidated Statement of Financial Position.
Indemnifications
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, 2008 was not material to the
Company’s financial position, results of operations or cash flows.