Kodak 2012 Annual Report Download - page 85

Table of Contents
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 Kodak’s results of operations or financial position. Kodak 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, 2012, 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 $66 million.
Kodak is 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. Kodak is also 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 Kodak’s products. These matters are in various stages of investigation and litigation, and are being
vigorously defended. Much of the pending litigation against the Debtors has been stayed as a result of the chapter 11 filing and will be subject to
resolution in accordance with the Bankruptcy Code and the orders of the Bankruptcy Court. Although Kodak 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 Kodak’s operating results
or cash flows in a particular period. Kodak routinely assesses all of 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 14: GUARANTEES
Kodak 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 Kodak. At December 31, 2012, the maximum
potential amount of future payments (undiscounted) that Kodak could be required to make under these customer-related guarantees was $19
million. At December 31, 2012, the carrying amount of any liability related to these customer guarantees was not material.
The customer financing agreements and related guarantees, which mature between 2013 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 Kodak only in the event of default on payment by the respective customer. In some cases, particularly for
guarantees related to equipment financing, Kodak 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 would not cover
the maximum potential loss under these guarantees.
EKC also guarantees potential indebtedness to banks and other third parties for some of its consolidated subsidiaries. The maximum amount
guaranteed is $100 million, and the outstanding amount for those guarantees is $83 million with $38 million recorded within the Short-term
borrowings and current portion of long-term debt in the accompanying Consolidated Statement of Financial Position. The remaining $45 million
of outstanding guarantees represent parent guarantees providing financial assurance to third parties that the Company’s subsidiaries will fulfill
their future performance or financial obligations under various contracts, which do not necessarily have corresponding liabilities reported in
Kodak’s financial statements. These guarantees expire in 2013 through 2019.
Pursuant to the terms of the Company’s DIP Credit Agreement, obligations of the Borrowers to the Lenders under the DIP Credit Agreement, as
well as secured agreements in an amount not to exceed $75 million, are guaranteed by the Company and the Company’s U.S. subsidiaries and
included in the above amounts. Secured agreements under the DIP Credit Agreement for the Debtors totaled $20 million as of December 31,
2012.
EKC has previously issued (pre-petition) a guarantee to Kodak Limited (the “Subsidiary”) and the Trustee of the Kodak Pension Plan (the
“KPP”) in the United Kingdom. Under that arrangement, EKC guaranteed to the Subsidiary and the Trustee the ability of the Subsidiary, only to
the extent it becomes necessary to do so, to (1) make contributions to the KPP to ensure sufficient assets exist to make plan benefit payments, as
they become due, if the KPP otherwise would not have sufficient assets and (2) make contributions to the KPP such that it will achieve fully
funded status by the funding valuation for the period ending December 31, 2022. See Note 1, “Bankruptcy Proceedings” for additional
information.
Indemnifications
Kodak 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, Kodak indemnifies officers and directors who are, or were, serving in such
capacity at the request of Kodak or the entity for which they serve. Historically, costs incurred to settle claims related to these indemnifications
have not been material to Kodak’s financial position, results of operations or cash flows.
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