Kodak 2010 Annual Report Download - page 69

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The Company’s Brazilian operations are involved in governmental assessments of indirect and other taxes in various stages of
litigation, primarily related to federal and state value-added taxes. The Company is disputing these matters and intends to vigorously
defend its position. Based on the opinion of legal counsel and current reserves already recorded for those matters deemed probable
of loss, management does not believe that the ultimate resolution of these matters will materially impact the Company’s results of
operations or financial position. The Company routinely assesses all these matters as to the probability of ultimately incurring a
liability in its Brazilian operations and records its best estimate of the ultimate loss in situations where it assesses the likelihood of
loss as probable. As of December 31, 2010, the unreserved portion of these contingencies, inclusive of any related interest and
penalties, for which there was at least a reasonable possibility that a loss may be incurred, amounted to approximately $69 million.
In 2008, the Company recorded a contingency accrual of approximately $21 million related to employment litigation matters in the
U.S. The employment litigation matters related to a number of cases, which had similar fact patterns related to legacy equal
employment opportunity issues. On April 27, 2009, the plaintiffs filed an unopposed motion for preliminary approval of a settlement in
this action pursuant to which the Company established a settlement fund in the amount of $21 million that will be used for payments
to plaintiffs and class members, as well as attorney’s fees, litigation costs, and claims administration costs. The settlement has been
approved by the court, and as of January 2011, all amounts related to these matters have been paid.
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. The
Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability, and
records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
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 equipment and product from the Company. At
December 31, 2010, the maximum potential amount of future payments (undiscounted) that the Company could be required to make
under these customer-related guarantees was $47 million. At December 31, 2010, the carrying amount of any liability related to
these customer guarantees was not material.
The customer financing agreements and related guarantees, which mature between 2011 and 2016, 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 may not cover the maximum potential loss under these guarantees.
Eastman Kodak Company (“EKC”) also guarantees potential indebtedness to banks and other third parties for some of its
consolidated subsidiaries. The maximum amount guaranteed is $261 million, and the outstanding amount for those guarantees is
$238 million with $109 million 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. These guarantees expire in
2010 through 2019. Pursuant to the terms of the Company’s Amended Credit Agreement, obligations of the Borrowers to the
Lenders under the Amended Credit Agreement, as well as secured agreements in an amount not to exceed $100 million, are
guaranteed by the Company and the Company’s U.S. subsidiaries and included in the above amounts. These secured agreements
totaled $90 million as of December 31, 2010.
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 that arrangement, EKC guaranteed 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. On October 12, 2010, the 2007 guarantee was
replaced by a new guarantee from EKC to the Subsidiary and the Trustees. The new guarantee continues to guarantee the
Subsidiary’s ability to make contributions as set forth in the 2007 guarantee but extends the full funding date to December 31, 2022.
The new guarantee expires (a) upon the conclusion of the funding valuation for the period ending December 31, 2022 if the Plan
achieves full funded status or on payment of the balance if the Plan is underfunded by no more than 60 million British pounds by that
date, (b) 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, or (c) June 30, 2024 on payment of the balance in the event that the Plan is underfunded by