Kodak 2004 Annual Report Download - page 72

Financials
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
patents฀for฀existing฀and฀future฀versions฀of฀Sun’s฀Java฀technology.฀The฀other฀
licensed฀Kodak฀patents฀are฀limited฀to฀those฀Kodak฀patents฀infringed฀on฀
October฀12,฀2004฀by฀the฀current฀version฀of฀Sun’s฀Java฀technology.฀฀
Kodak฀also฀released฀Sun฀from฀any฀past฀infringement฀of฀Kodak’s฀
patents฀by฀the฀Java฀technology.฀฀
The฀license฀and฀the฀release฀relative฀to฀Java฀technology฀extend฀to฀
Sun’s฀licensees,฀customers,฀developers,฀suppliers,฀manufacturers,฀and฀
distributors.
Sun฀released฀Kodak฀from฀all฀counterclaims฀that฀it฀had฀asserted฀in฀the฀
litigation.฀฀฀
The฀case฀was฀dismissed฀with฀prejudice.฀฀฀฀฀
The฀Company฀and฀its฀subsidiary฀companies฀are฀involved฀in฀lawsuits,฀
claims,฀investigations฀and฀proceedings,฀including฀product฀liability,฀commer-
cial,฀intellectual฀property,฀environmental,฀and฀health฀and฀safety฀matters,฀
which฀are฀being฀handled฀and฀defended฀in฀the฀ordinary฀course฀of฀business.฀฀
There฀are฀no฀such฀matters฀pending฀representing฀contingent฀losses฀that฀the฀
Company฀and฀its฀General฀Counsel฀expect฀to฀be฀material฀in฀relation฀to฀the฀
Company’s฀business,฀financial฀position฀or฀results฀of฀operations,฀or฀cash฀
flows.฀
NOTE฀12:฀GUARANTEES฀
The฀Company฀guarantees฀debt฀and฀other฀obligations฀under฀agreements฀
with฀certain฀affiliated฀companies฀and฀customers.฀At฀December฀31,฀2004,฀
these฀guarantees฀totaled฀a฀maximum฀of฀$356฀million,฀with฀outstanding฀
guaranteed฀amounts฀of฀$149฀million.฀The฀maximum฀guarantee฀amount฀
includes฀guarantees฀of฀up฀to:฀$160฀million฀of฀debt฀for฀KPG฀($30฀million฀
outstanding);฀$128฀million฀of฀customer฀amounts฀due฀to฀banks฀in฀connec-
tion฀with฀various฀banks’฀financing฀of฀customers’฀purchase฀of฀product฀and฀
equipment฀from฀Kodak฀($71฀million฀outstanding),฀and฀$68฀million฀for฀other฀
unconsolidated฀affiliates฀and฀third฀parties฀($48฀million฀outstanding).฀The฀
KPG฀debt฀facility฀and฀the฀related฀guarantee฀mature฀on฀December฀31,฀2005.฀฀
The฀guarantees฀for฀the฀other฀unconsolidated฀affiliates฀and฀third฀party฀debt฀
mature฀between฀2005฀and฀2010.฀The฀customer฀financing฀agreements฀and฀
related฀guarantees฀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฀pay-
ment฀from฀Kodak฀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฀connec-
tion฀with฀the฀guarantee.฀฀฀฀
Management฀believes฀the฀likelihood฀is฀remote฀that฀material฀payments฀
will฀be฀required฀under฀any฀of฀the฀guarantees฀disclosed฀above.฀With฀respect฀
to฀the฀guarantees฀that฀the฀Company฀issued฀in฀the฀year฀ended฀December฀31,฀
2004,฀the฀Company฀assessed฀the฀fair฀value฀of฀its฀obligation฀to฀stand฀ready฀
to฀perform฀under฀these฀guarantees฀by฀considering฀the฀likelihood฀of฀occur-
rence฀of฀the฀specified฀triggering฀events฀or฀conditions฀requiring฀performance฀
as฀well฀as฀other฀assumptions฀and฀factors.฀The฀Company฀has฀determined฀
that฀the฀fair฀value฀of฀the฀guarantees฀was฀not฀material฀to฀the฀Company’s฀
financial฀position,฀results฀of฀operations฀or฀cash฀flows.฀
The฀Company฀also฀guarantees฀debt฀owed฀to฀banks฀for฀some฀of฀its฀
consolidated฀subsidiaries.฀The฀maximum฀amount฀guaranteed฀is฀$306฀mil-
lion,฀and฀the฀outstanding฀debt฀under฀those฀guarantees,฀which฀is฀recorded฀
within฀the฀short-term฀borrowings฀and฀long-term฀debt,฀net฀of฀current฀portion฀
components฀in฀the฀accompanying฀Consolidated฀Statement฀of฀Financial฀
Position,฀is฀$166฀million.฀These฀guarantees฀expire฀in฀2005฀through฀2006.
The฀Company฀may฀provide฀up฀to฀$100฀million฀in฀loan฀guarantees฀to฀
support฀funding฀needs฀for฀SK฀Display฀Corporation,฀an฀unconsolidated฀affili-
ate฀in฀which฀the฀Company฀has฀a฀34%฀ownership฀interest.฀As฀of฀December฀
31,฀2004,฀the฀Company฀has฀not฀been฀required฀to฀guarantee฀any฀of฀SK฀
Display฀Corporation’s฀outstanding฀debt.
Indemnifications฀฀The฀Company฀issues฀indemnifications฀in฀certain฀in-
stances฀when฀it฀sells฀businesses฀and฀real฀estate,฀and฀in฀the฀ordinary฀course฀
of฀business฀with฀its฀customers,฀suppliers,฀service฀providers฀and฀business฀
partners.฀Further,฀the฀Company฀indemnifies฀its฀directors฀and฀officers฀who฀
are,฀or฀were,฀serving฀at฀Kodak’s฀request฀in฀such฀capacities.฀Historically,฀
costs฀incurred฀to฀settle฀claims฀related฀to฀these฀indemnifications฀have฀not฀
been฀material฀to฀the฀Company’s฀financial฀position,฀results฀of฀operations฀or฀
cash฀flows.฀Additionally,฀the฀fair฀value฀of฀the฀indemnifications฀that฀the฀Com-
pany฀issued฀during฀the฀year฀ended฀December฀31,฀2004฀was฀not฀material฀to฀
the฀Company’s฀financial฀position,฀results฀of฀operations฀or฀cash฀flows.฀
฀
Warranty฀Costs฀฀The฀Company฀has฀warranty฀obligations฀in฀connection฀
with฀the฀sale฀of฀its฀equipment.฀The฀original฀warranty฀period฀for฀equipment฀
products฀is฀generally฀one฀year฀or฀less.฀The฀costs฀incurred฀to฀provide฀for฀
these฀warranty฀obligations฀are฀estimated฀and฀recorded฀as฀an฀accrued฀
liability฀at฀the฀time฀of฀sale.฀The฀Company฀estimates฀its฀warranty฀cost฀at฀the฀
point฀of฀sale฀for฀a฀given฀product฀based฀on฀historical฀failure฀rates฀and฀related฀
costs฀to฀repair.฀The฀change฀in฀the฀Company’s฀accrued฀warranty฀obligations฀
balance,฀which฀is฀reflected฀in฀accounts฀payable฀and฀other฀current฀liabilities฀
in฀the฀accompanying฀Consolidated฀Statement฀of฀Financial฀Position,฀was฀as฀
follows:฀
(in฀millions)
Accrued฀warranty฀obligations฀at฀December฀31,฀2002฀฀ $฀ 43
Actual฀warranty฀experience฀during฀2003฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ (53)฀
2003฀warranty฀provisions฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ 59
Accrued฀warranty฀obligations฀at฀December฀31,฀2003฀฀ $฀ 49
Actual฀warranty฀experience฀during฀2004฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ (60)฀
2004฀warranty฀provisions฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ 75฀
Adjustments฀for฀changes฀in฀estimates฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ (2)฀
Accrued฀warranty฀obligations฀at฀December฀31,฀2004฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀ 62
The฀Company฀also฀offers฀extended฀warranty฀arrangements฀to฀its฀
customers฀that฀are฀generally฀one฀year,฀but฀may฀range฀from฀three฀months฀to฀
three฀years฀after฀the฀original฀warranty฀period.฀The฀Company฀provides฀repair฀
services฀and฀routine฀maintenance฀under฀these฀arrangements.฀The฀Com-
pany฀has฀not฀separated฀the฀extended฀warranty฀revenues฀and฀costs฀from฀
the฀routine฀maintenance฀service฀revenues฀and฀costs,฀as฀it฀is฀not฀practicable฀
to฀do฀so.฀Costs฀incurred฀under฀these฀extended฀warranty฀arrangements฀for฀
the฀year฀ended฀December฀31,฀2004฀amounted฀to฀$208฀million.฀The฀change฀
in฀the฀Company’s฀deferred฀revenue฀balance฀in฀relation฀to฀these฀extended฀
warranty฀arrangements,฀which฀is฀reflected฀in฀accounts฀payable฀and฀other฀
current฀liabilities฀in฀the฀accompanying฀Consolidated฀Statement฀of฀Financial฀
Position,฀was฀as฀follows:฀