Kodak 2004 Annual Report Download - page 44

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Financials
42
E A S T M A N฀ K OD A K ฀ C O M PA N Y
category฀expansion฀and฀digitization);฀implementation฀of฀intellectual฀prop-
erty฀licensing฀strategies;฀development฀and฀implementation฀of฀e-commerce฀
strategies;฀completion฀of฀information฀systems฀upgrades,฀including฀SAP,฀our฀
enterprise฀system฀software;฀completion฀of฀various฀portfolio฀actions;฀reduc-
tion฀of฀inventories;฀completion฀of฀focused฀capital฀expenditures;฀integra-
tion฀of฀newly฀acquired฀businesses;฀performance฀of฀accounts฀receivable;฀
improvement฀in฀manufacturing฀productivity฀and฀techniques;฀improvement฀in฀
supply฀chain฀efficiency;฀implementation฀of฀future฀focused฀cost฀reductions,฀
including฀personnel฀reductions;฀and฀the฀development฀of฀the฀Company’s฀
business฀in฀emerging฀markets฀like฀China,฀India,฀Brazil,฀Mexico฀and฀Russia.฀฀
The฀forward-looking฀statements฀contained฀in฀this฀report฀are฀subject฀to฀the฀
following฀additional฀factors฀and฀uncertainties:฀inherent฀unpredictability฀of฀
currency฀fluctuations฀and฀raw฀material฀costs;฀changes฀in฀the฀Company’s฀
debt฀credit฀ratings฀and฀its฀ability฀to฀access฀capital฀markets;฀competitive฀
actions,฀including฀pricing;฀the฀nature฀and฀pace฀of฀technology฀evolution,฀
including฀the฀analog-to-digital฀transition;฀continuing฀customer฀consolida-
tion฀and฀buying฀power;฀current฀and฀future฀proposed฀changes฀to฀tax฀laws,฀
as฀well฀as฀other฀factors฀which฀could฀adversely฀impact฀our฀effective฀tax฀
rate฀in฀the฀future;฀general฀economic,฀business,฀geo-political,฀regulatory฀
and฀public฀health฀conditions;฀market฀growth฀predictions;฀and฀other฀factors฀
and฀uncertainties฀disclosed฀herein฀and฀from฀time฀to฀time฀in฀the฀Company’s฀
other฀filings฀with฀the฀Securities฀and฀Exchange฀Commission.
Any฀forward-looking฀statements฀in฀this฀report฀should฀be฀evaluated฀in฀
light฀of฀these฀important฀factors฀and฀uncertainties฀as฀well฀as฀other฀caution-
ary฀information฀contained฀herein.
SUMMARY฀OF฀OPERATING฀DATA฀
A฀summary฀of฀operating฀data฀for฀2004฀and฀for฀the฀four฀years฀prior฀is฀shown฀
on฀page฀98.
Quantitative฀and฀Qualitative฀Disclosures฀about฀
Market฀Risk฀฀
The฀Company,฀as฀a฀result฀of฀its฀global฀operating฀and฀financing฀activities,฀is฀
exposed฀to฀changes฀in฀foreign฀currency฀exchange฀rates,฀commodity฀prices,฀
and฀interest฀rates,฀which฀may฀adversely฀affect฀its฀results฀of฀operations฀and฀
financial฀position.฀In฀seeking฀to฀minimize฀the฀risks฀associated฀with฀such฀
activities,฀the฀Company฀may฀enter฀into฀derivative฀contracts.
Foreign฀currency฀forward฀contracts฀are฀used฀to฀hedge฀existing฀
foreign฀currency฀denominated฀assets฀and฀liabilities,฀especially฀those฀of฀the฀
Company’s฀International฀Treasury฀Center,฀as฀well฀as฀forecasted฀foreign฀cur-
rency฀denominated฀intercompany฀sales.฀Silver฀forward฀contracts฀are฀used฀
to฀mitigate฀the฀Company’s฀risk฀to฀fluctuating฀silver฀prices.฀The฀Company’s฀
exposure฀to฀changes฀in฀interest฀rates฀results฀from฀its฀investing฀and฀borrow-
ing฀activities฀used฀to฀meet฀its฀liquidity฀needs.฀Long-term฀debt฀is฀generally฀
used฀to฀finance฀long-term฀investments,฀while฀short-term฀debt฀is฀used฀to฀
meet฀working฀capital฀requirements.฀The฀Company฀does฀not฀utilize฀financial฀
instruments฀for฀trading฀or฀other฀speculative฀purposes.
Using฀a฀sensitivity฀analysis฀based฀on฀estimated฀fair฀value฀of฀open฀
forward฀contracts฀using฀available฀forward฀rates,฀if฀the฀U.S.฀dollar฀had฀
been฀10%฀weaker฀at฀December฀31,฀2004฀and฀2003,฀the฀fair฀value฀of฀open฀
forward฀contracts฀would฀have฀increased฀$62฀million฀and฀$23฀million,฀
respectively.฀Such฀gains฀or฀losses฀would฀be฀substantially฀offset฀by฀losses฀or฀
gains฀from฀the฀revaluation฀or฀settlement฀of฀the฀underlying฀positions฀hedged.
Using฀a฀sensitivity฀analysis฀based฀on฀estimated฀fair฀value฀of฀open฀
forward฀contracts฀using฀available฀forward฀prices,฀if฀available฀forward฀silver฀
prices฀had฀been฀10%฀lower฀at฀December฀31,฀2004฀and฀2003,฀the฀fair฀value฀
of฀open฀forward฀contracts฀would฀have฀decreased฀$1฀million฀and฀$1฀million,฀
respectively.฀Such฀losses฀in฀fair฀value,฀if฀realized,฀would฀be฀offset฀by฀lower฀
costs฀of฀manufacturing฀silver-containing฀products.
The฀Company฀is฀exposed฀to฀interest฀rate฀risk฀primarily฀through฀its฀
borrowing฀activities฀and,฀to฀a฀lesser฀extent,฀through฀investments฀in฀market-
able฀securities.฀The฀Company฀may฀utilize฀borrowings฀to฀fund฀its฀working฀
capital฀and฀investment฀needs.฀The฀majority฀of฀short-term฀and฀long-term฀
borrowings฀are฀in฀fixed-rate฀instruments.฀There฀is฀inherent฀roll-over฀risk฀for฀
borrowings฀and฀marketable฀securities฀as฀they฀mature฀and฀are฀renewed฀at฀
current฀market฀rates.฀The฀extent฀of฀this฀risk฀is฀not฀predictable฀because฀of฀
the฀variability฀of฀future฀interest฀rates฀and฀business฀financing฀requirements.
Using฀a฀sensitivity฀analysis฀based฀on฀estimated฀fair฀value฀of฀short-
term฀and฀long-term฀borrowings,฀if฀available฀market฀interest฀rates฀had฀been฀
10%฀(about฀40฀basis฀points)฀higher฀at฀December฀31,฀2004,฀the฀fair฀value฀of฀
short-term฀and฀long-term฀borrowings฀would฀have฀decreased฀$1฀million฀and฀
$59฀million,฀respectively.฀Using฀a฀sensitivity฀analysis฀based฀on฀estimated฀
fair฀value฀of฀short-term฀and฀long-term฀borrowings,฀if฀available฀market฀
interest฀rates฀had฀been฀10%฀(about฀43฀basis฀points)฀higher฀at฀December฀
31,฀2003,฀the฀fair฀value฀of฀short-term฀and฀long-term฀borrowings฀would฀have฀
decreased฀$2฀million฀and฀$70฀million,฀respectively.฀
The฀Company’s฀financial฀instrument฀counterparties฀are฀high-quality฀
investment฀or฀commercial฀banks฀with฀significant฀experience฀with฀such฀
instruments.฀The฀Company฀manages฀exposure฀to฀counterparty฀credit฀risk฀
by฀requiring฀specific฀minimum฀credit฀standards฀and฀diversification฀of฀coun-
terparties.฀The฀Company฀has฀procedures฀to฀monitor฀the฀credit฀exposure฀
amounts.฀The฀maximum฀credit฀exposure฀at฀December฀31,฀2004฀was฀not฀
significant฀to฀the฀Company.