Kodak 2004 Annual Report Download - page 38
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Please find page 38 of the 2004 Kodak annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Financials
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E A S T M A N K OD A K C O M PA N Y
hascollateralorrecourseprovisionstorecoverandselltheequipmentto
reduceanylossesthatmightbeincurredinconnectionwiththeguarantee.
Managementbelievesthelikelihoodisremotethatmaterialpayments
willberequiredunderanyoftheguaranteesdisclosedabove.Withrespect
totheguaranteesthattheCompanyissuedintheyearendedDecember31,
2004,theCompanyassessedthefairvalueofitsobligationtostandready
toperformundertheseguaranteesbyconsideringthelikelihoodofoccur-
renceofthespecifiedtriggeringeventsorconditionsrequiringperformance
aswellasotherassumptionsandfactors.TheCompanyhasdetermined
thatthefairvalueoftheguaranteeswasnotmaterialtotheCompany’s
financialposition,resultsofoperationsorcashflows.
TheCompanyalsoguaranteesdebtowedtobanksforsomeofits
consolidatedsubsidiaries.Themaximumamountguaranteedis$306mil-
lion,andtheoutstandingdebtunderthoseguarantees,whichisrecorded
withintheshort-termborrowingsandlong-termdebt,netofcurrentportion
componentsintheaccompanyingConsolidatedStatementofFinancial
Position,is$166million.Theseguaranteesexpirein2005through2006.
TheCompanymayprovideupto$100millioninloanguaranteesto
supportfundingneedsforSKDisplayCorporation,anunconsolidatedaffili-
ateinwhichtheCompanyhasa34%ownershipinterest.AsofDecember
31,2004,theCompanyhasnotbeenrequiredtoguaranteeanyoftheSK
DisplayCorporation’soutstandingdebt.
TheCompanyissuesindemnificationsincertaininstanceswhenit
sellsbusinessesandrealestate,andintheordinarycourseofbusiness
withitscustomers,suppliers,serviceprovidersandbusinesspartners.
Further,theCompanyindemnifiesitsdirectorsandofficerswhoare,or
were,servingatKodak’srequestinsuchcapacities.Historically,costs
incurredtosettleclaimsrelatedtotheseindemnificationshavenotbeen
materialtotheCompany’sfinancialposition,resultsofoperationsorcash
flows.Additionally,thefairvalueoftheindemnificationsthattheCompany
issuedduringtheyearendedDecember31,2004wasnotmaterialtothe
Company’sfinancialposition,resultsofoperationsorcashflows.
Qualex,awhollyownedsubsidiaryofKodak,hasa50%ownership
interestinExpressStopFinancing(ESF),whichisajointventurepartner-
shipbetweenQualexandasubsidiaryofDanaCreditCorporation(DCC),
awhollyownedsubsidiaryofDanaCorporation.Qualexaccountsforits
investmentinESFundertheequitymethodofaccounting.ESFprovideda
long-termfinancingsolutiontoQualex’sphotofinishingcustomersincon-
nectionwithQualex’sleasingofphotofinishingequipmenttothirdparties,
asopposedtoQualexextendinglong-termcredit.Aspartoftheoperations
ofitsphotofinishingservices,Qualexsoldequipmentunderasales-type
leasearrangementandrecordedalong-termreceivable.Theselong-term
receivablesweresubsequentlysoldtoESFwithoutrecoursetoQualexand,
therefore,thesereceivableswereremovedfromQualex’saccounts.ESF
incurreddebttofinancethepurchaseofthereceivablesfromQualex.This
debtwascollateralizedsolelybythelong-termreceivablespurchasedfrom
Qualexand,inpart,bya$40millionguaranteefromDCC.OnDecember17,
2004,alloutstandingdebtofESFwaspaidinfullandtheESFguaran-
teewasterminated.QualexprovidednoguaranteeorcollateraltoESF’s
creditorsinconnectionwiththedebt,andESF’sdebtwasnon-recourseto
Qualex.Qualex’sonlycontinuedinvolvementinconnectionwiththesaleof
thelong-termreceivablesistheservicingoftherelatedequipmentunder
theleases.Qualexhascontinuedrevenuestreamsinconnectionwiththis
equipmentthroughfuturesalesofphotofinishingconsumables,including
paperandchemicals,andmaintenance.
Althoughthelessees’requirementtopayESFundertheleaseagree-
mentsisnotcontingentuponQualex’sfulfillmentofitsservicingobliga-
tions,undertheagreementwithESF,Qualexwouldberesponsibleforany
deficiencyintheamountofrentnotpaidtoESFasaresultofanylessee’s
claimregardingmaintenanceorsupplyservicesnotprovidedbyQualex.
Suchleasepaymentswouldbemadeinaccordancewiththeoriginallease
terms,whichgenerallyextendover5to7years.Todate,theCompany
hasincurrednosuchmaterialclaims,andQualexdoesnotanticipateany
significantsituationswhereitwouldbeunabletofulfillitsserviceobliga-
tionsunderthearrangementwithESF.ESF’soutstandingleasereceivable
amountwasapproximately$113millionatDecember31,2004.
EffectiveJuly20,2004,ESFenteredintoanagreementamendingthe
ReceivablesPurchaseAgreement(RPA),whichrepresentsthefinancing
arrangementbetweenESFanditsbanks.UndertheamendedRPAagree-
ment,maximumborrowingswereloweredto$200million.OnDecember
17,2004,ESFterminatedtheRPAuponpaymentinfull,toitsbanks,of
thethenoutstandingbalanceoftheRPAtotaling$138million.Pursuant
totheESFpartnershipagreementbetweenQualexandDCC,commenc-
ingOctober6,2003,QualexnolongersellsitsleasereceivablestoESF.
QualexcurrentlyisutilizingtheservicesofImagingFinancialServices,Inc.,
awhollyownedsubsidiaryofGeneralElectricCapitalCorporation,asan
alternativefinancingsolutionforprospectiveleasingactivitywithitsU.S.
customers.
2003
TheCompany’scashandcashequivalentsincreased$681millionduring
2003to$1,250millionatDecember31,2003.Theincreaseresultedpri-
marilyfrom$1,645millionofcashflowsfromoperatingactivitiesand$270
millionofcashprovidedbyfinancingactivities,partiallyoffsetby$1,267
millionofcashflowsusedininvestingactivities.
Thenetcashprovidedbyoperatingactivitiesof$1,645millionfor
theyearendedDecember31,2003waspartiallyattributabletonetearn-
ingsof$253millionwhich,whenadjustedforearningsfromdiscontinued
operations,equityinlossesfromunconsolidatedaffiliates,gainonsaleof
assets,depreciationandgoodwillamortization,purchasedresearchand
development,benefitfordeferredincometaxesandrestructuringcosts,
assetimpairmentsandothercharges,provided$1,233millionofoperating
cash.Alsocontributingtonetcashprovidedbyoperatingactivitieswerea
decreaseininventoriesof$118million,anincreaseinliabilitiesexcluding
borrowingsof$103million,thecashreceiptof$19millioninconnection
withtheSterlingWinthropsettlement,adecreaseinaccountsreceivable
of$15million,andthe$98millionimpactfromthechangeinotheritems,
net.Thenetcashusedininvestingactivitiesof$1,267millionwasutilized
primarilyforbusinessacquisitionsof$697million,ofwhich$59million
relatedtothepurchaseofminorityinterestsinChinaandIndia,capital
expendituresof$497million,andinvestmentsinunconsolidatedaffiliates
of$89million.Theseusesofcashwerepartiallyoffsetbynetproceeds
fromthesaleofassetsof$24million.Thenetcashprovidedbyfinancing
activitiesof$270millionwasprimarilytheresultofthenetincreaseinbor-
rowingsof$588millionandtheexerciseofemployeestockoptionsof$12
million,whichwerepartiallyoffsetbydividendpaymentsof$330million.