Kodak 2004 Annual Report Download - page 35

Financials
33
2 0 0 4 ฀ S U M M A R Y ฀ A N N U A L ฀ R E P O R T
(S&P),฀respectively.฀Interest฀on฀amounts฀borrowed฀under฀these฀facilities฀is฀
calculated฀at฀rates฀based฀on฀spreads฀above฀certain฀reference฀rates฀and฀the฀
Company’s฀credit฀rating.฀Under฀the฀364-Day฀Facility฀and฀5-Year฀Facility,฀
there฀is฀a฀quarterly฀financial฀covenant฀that฀requires฀the฀Company฀to฀main-
tain฀a฀debt฀to฀EBITDA฀(earnings฀before฀interest,฀income฀taxes,฀depreciation฀
and฀amortization)฀ratio,฀on฀a฀rolling฀four-quarter฀basis,฀of฀not฀greater฀than฀3฀
to฀1.฀In฀the฀event฀of฀violation฀of฀the฀covenant,฀the฀facility฀would฀not฀be฀avail-
able฀for฀borrowing฀until฀the฀covenant฀provisions฀were฀waived,฀amended฀or฀
satisfied.฀The฀Company฀was฀in฀compliance฀with฀this฀covenant฀at฀December฀
31,฀2004.฀The฀Company฀does฀not฀anticipate฀that฀a฀violation฀is฀likely฀to฀
occur.฀There฀is฀no฀debt฀outstanding฀under฀either฀facility.฀Letters฀of฀credit฀of฀
$103฀million฀have฀been฀issued฀under฀the฀Letter฀of฀Credit฀sub฀facility฀of฀the฀
5-year฀revolver,฀which฀reduces฀the฀borrowing฀availability฀by฀a฀correspond-
ing฀amount.฀In฀February฀of฀2005,฀the฀Company฀issued฀additional฀letters฀of฀
credit฀for฀$31฀million฀under฀the฀5-year฀revolver.฀These฀additional฀letters฀of฀
credit฀support฀Workers’฀Compensation฀liabilities.
The฀Company฀has฀other฀committed฀and฀uncommitted฀lines฀of฀credit฀
at฀December฀31,฀2004฀totaling฀$148฀million฀and฀$753฀million,฀respectively.฀฀
These฀lines฀primarily฀support฀borrowing฀needs฀of฀the฀Company’s฀subsid-
iaries,฀which฀include฀term฀loans,฀overdraft฀coverage,฀letters฀of฀credit฀and฀
revolving฀credit฀lines.฀Interest฀rates฀and฀other฀terms฀of฀borrowing฀under฀
these฀lines฀of฀credit฀vary฀from฀country฀to฀country,฀depending฀on฀local฀mar-
ket฀conditions.฀Total฀outstanding฀borrowings฀against฀these฀other฀committed฀
and฀uncommitted฀lines฀of฀credit฀at฀December฀31,฀2004฀were฀$53฀million฀
and฀$47฀million,฀respectively.฀These฀outstanding฀borrowings฀are฀reflected฀
in฀the฀short-term฀borrowings฀in฀the฀accompanying฀Consolidated฀Statement฀
of฀Financial฀Position฀at฀December฀31,฀2004.
At฀December฀31,฀2004,฀the฀Company฀had฀no฀commercial฀paper฀
outstanding.฀To฀provide฀additional฀financing฀flexibility,฀the฀Company฀has฀an฀
accounts฀receivable฀securitization฀program,฀which฀was฀renewed฀in฀March฀
2004฀at฀a฀maximum฀borrowing฀level฀of฀$200฀million.฀At฀December฀31,฀
2004,฀the฀Company฀had฀no฀amounts฀outstanding฀under฀this฀program.
As฀part฀of฀the฀Company’s฀plan฀to฀reduce฀debt,฀on฀July฀27,฀2004,฀the฀
Company฀elected฀to฀redeem฀on฀September฀1,฀2004,฀all฀of฀its฀outstanding฀
9.5%฀term฀notes฀due฀June฀15,฀2008,฀at฀a฀redemption฀price฀of฀112.9375%฀
of฀the฀principal฀amount฀of฀$34฀million.฀The฀Company฀recorded฀a฀loss฀on฀the฀
early฀extinguishment฀of฀debt,฀the฀amount฀of฀which฀was฀not฀material.฀฀
On฀October฀10,฀2003,฀the฀Company฀completed฀the฀offering฀and฀sale฀
of฀$500฀million฀aggregate฀principal฀amount฀of฀Senior฀Notes฀due฀2013฀(the฀
Notes),฀which฀was฀made฀pursuant฀to฀the฀Company’s฀new฀debt฀shelf฀regis-
tration.฀The฀remaining฀unused฀balance฀under฀the฀Company’s฀new฀debt฀shelf฀
is฀$2,150฀million.฀Concurrent฀with฀the฀offering฀and฀sale฀of฀the฀Notes,฀on฀
October฀10,฀2003,฀the฀Company฀completed฀the฀private฀placement฀of฀$575฀
million฀aggregate฀principal฀amount฀of฀Convertible฀Senior฀Notes฀due฀2033฀
(the฀Convertible฀Securities)฀to฀qualified฀institutional฀buyers฀pursuant฀to฀Rule฀
144A฀under฀the฀Securities฀Act฀of฀1933.฀Interest฀on฀the฀Convertible฀Securi-
ties฀will฀accrue฀at฀the฀rate฀of฀3.375%฀per฀annum฀and฀is฀payable฀semian-
nually.฀The฀Convertible฀Securities฀are฀unsecured฀and฀rank฀equally฀with฀all฀
of฀the฀Company’s฀other฀unsecured฀and฀unsubordinated฀indebtedness.฀As฀a฀
condition฀of฀the฀private฀placement,฀on฀January฀6,฀2004฀the฀Company฀filed฀
a฀shelf฀registration฀statement฀under฀the฀Securities฀Act฀of฀1933฀relating฀to฀
the฀resale฀of฀the฀Convertible฀Securities฀and฀the฀common฀stock฀to฀be฀issued฀
upon฀conversion฀of฀the฀Convertible฀Securities฀pursuant฀to฀a฀registration฀
rights฀agreement,฀and฀made฀this฀shelf฀registration฀statement฀effective฀on฀
February฀6,฀2004.฀
The฀Convertible฀Securities฀contain฀a฀number฀of฀conversion฀features฀
that฀include฀substantive฀contingencies.฀The฀Convertible฀Securities฀are฀
convertible฀by฀the฀holders฀at฀an฀initial฀conversion฀rate฀of฀32.2373฀shares฀
of฀the฀Company’s฀common฀stock฀for฀each฀$1,000฀principal฀amount฀of฀
the฀Convertible฀Securities,฀which฀is฀equal฀to฀an฀initial฀conversion฀price฀
of฀$31.02฀per฀share.฀The฀initial฀conversion฀rate฀of฀32.2373฀is฀subject฀to฀
adjustment฀for:฀(1)฀stock฀dividends,฀(2)฀subdivisions฀or฀combinations฀of฀the฀
Company’s฀common฀stock,฀(3)฀issuance฀to฀all฀holders฀of฀the฀Company’s฀
common฀stock฀of฀certain฀rights฀or฀warrants฀to฀purchase฀shares฀of฀the฀
Company’s฀common฀stock฀at฀less฀than฀the฀market฀price,฀(4)฀distributions฀
to฀all฀holders฀of฀the฀Company’s฀common฀stock฀of฀shares฀of฀the฀Company’s฀
capital฀stock฀or฀the฀Company’s฀assets฀or฀evidences฀of฀indebtedness,฀(5)฀
cash฀dividends฀in฀excess฀of฀the฀Company’s฀current฀cash฀dividends฀or฀(6)฀
certain฀payments฀made฀by฀the฀Company฀in฀connection฀with฀tender฀offers฀
and฀exchange฀offers.฀
The฀holders฀may฀convert฀their฀Convertible฀Securities,฀in฀whole฀or฀in฀
part,฀into฀shares฀of฀the฀Company’s฀common฀stock฀under฀any฀of฀the฀fol-
lowing฀circumstances:฀(1)฀during฀any฀calendar฀quarter,฀if฀the฀price฀of฀the฀
Company’s฀common฀stock฀is฀greater฀than฀or฀equal฀to฀120%฀of฀the฀appli-
cable฀conversion฀price฀for฀at฀least฀20฀trading฀days฀during฀a฀30฀consecutive฀
trading฀day฀period฀ending฀on฀the฀last฀trading฀day฀of฀the฀previous฀calendar฀
quarter;฀(2)฀during฀any฀five฀consecutive฀trading฀day฀period฀following฀any฀10฀
consecutive฀trading฀day฀period฀in฀which฀the฀trading฀price฀of฀the฀Convertible฀
Securities฀for฀each฀day฀of฀such฀period฀is฀less฀than฀105%฀of฀the฀conver-
sion฀value,฀and฀the฀conversion฀value฀for฀each฀day฀of฀such฀period฀was฀less฀
than฀95%฀of฀the฀principal฀amount฀of฀the฀Convertible฀Securities฀(the฀Parity฀
Clause);฀(3)฀if฀the฀Company฀has฀called฀the฀Convertible฀Securities฀for฀re-
demption;฀(4)฀upon฀the฀occurrence฀of฀specified฀corporate฀transactions฀such฀
as฀a฀consolidation,฀merger฀or฀binding฀share฀exchange฀pursuant฀to฀which฀
the฀Company’s฀common฀stock฀would฀be฀converted฀into฀cash,฀property฀or฀
securities;฀and฀(5)฀if฀the฀credit฀rating฀assigned฀to฀the฀Convertible฀Securi-
ties฀by฀either฀Moody’s฀or฀S&P฀is฀lower฀than฀Ba2฀or฀BB,฀respectively,฀which฀
represents฀a฀three฀notch฀downgrade฀from฀the฀Company’s฀current฀standing,฀
or฀if฀the฀Convertible฀Securities฀are฀no฀longer฀rated฀by฀at฀least฀one฀of฀these฀
services฀or฀their฀successors฀(the฀Credit฀Rating฀Clause).฀฀
The฀Company฀may฀redeem฀some฀or฀all฀of฀the฀Convertible฀Securities฀at฀
any฀time฀on฀or฀after฀October฀15,฀2010฀at฀a฀purchase฀price฀equal฀to฀100%฀
of฀the฀principal฀amount฀of฀the฀Convertible฀Securities฀plus฀any฀accrued฀and฀
unpaid฀interest.฀Upon฀a฀call฀for฀redemption฀by฀the฀Company,฀a฀conversion฀
trigger฀is฀met฀whereby฀the฀holder฀of฀each฀$1,000฀Convertible฀Senior฀Note฀
may฀convert฀such฀note฀to฀shares฀of฀the฀Company’s฀common฀stock.฀฀
The฀holders฀have฀the฀right฀to฀require฀the฀Company฀to฀purchase฀their฀
Convertible฀Securities฀for฀cash฀at฀a฀purchase฀price฀equal฀to฀100%฀of฀
the฀principal฀amount฀of฀the฀Convertible฀Securities฀plus฀any฀accrued฀and฀
unpaid฀interest฀on฀October฀15,฀2010,฀October฀15,฀2013,฀October฀15,฀2018,฀
October฀15,฀2023฀and฀October฀15,฀2028,฀or฀upon฀a฀fundamental฀change฀as฀
described฀in฀the฀offering฀memorandum฀filed฀under฀Rule฀144A฀in฀conjunction฀
with฀the฀private฀placement฀of฀the฀Convertible฀Securities.฀As฀of฀December฀
31,฀2004,฀the฀Company฀has฀reserved฀18,536,447฀shares฀in฀treasury฀stock฀
to฀cover฀potential฀future฀conversions฀of฀these฀Convertible฀Securities฀into฀
common฀stock.฀฀
Certain฀of฀the฀conversion฀features฀contained฀in฀the฀Convertible฀Securi-
ties฀are฀deemed฀to฀be฀embedded฀derivatives฀as฀defined฀under฀SFAS฀No.฀
133,฀“Accounting฀for฀Derivative฀Instruments฀and฀Hedging฀Activities.”฀These฀
embedded฀derivatives฀include฀the฀Parity฀Clause,฀the฀Credit฀Rating฀Clause,฀