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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 1999 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $2.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
At December 31, 1999 310,420,930 shares of Common Stock of the registrant
were outstanding. The aggregate market value (based upon the closing
price of these shares on the New York Stock Exchange at February 4, 2000)
of the voting stock held by nonaffiliates was approximately $19.6
billion.
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PART I
ITEM 1. BUSINESS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing and marketing consumer, professional, health
and other imaging products and services. Kodak's sales, earnings and
identifiable assets by operating segment for the past three years are
shown in Note 17, Segment Information.
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CONSUMER IMAGING SEGMENT
Sales of the Consumer Imaging segment for 1999, 1998 and 1997 were (in
millions) $7,411, $7,164 and $7,681, respectively.
Kodak manufactures and markets various components of consumer imaging
systems. For traditional consumer amateur photography, Kodak supplies
films, photographic papers, processing services, photofinishing
equipment, photographic chemicals, cameras (including one-time-use) and
projectors. The Advanced Photo System is an amateur system of cameras,
films and photofinishing which delivers a variety of consumer features
such as drop-in loading, multiple print size options, index prints, and
negatives returned in the cartridge. Kodak has also developed products
that bridge traditional silver halide and digital products. These
products include kiosks and scanning systems to digitize images, digital
media for storing images, software for enhancing images and a network for
transmitting images. In addition, other digitization options have been
created to stimulate more pictures in use, adding to the consumption of
film and paper, including Kodak Picture CD, Kodak PhotoNet Online, Kodak
/ America Online (AOL) "You've Got Pictures" SM, Kodak Picture Disk,
Kodak Photo CD, and Kodak Picture Maker. The Company presently has
relationships with Intel, Hewlett-Packard, AOL, PictureVision, Inc.,
Adobe Systems, Weave Innovations, and others to expand the category for
silver halide and digital products.
Marketing and Competition. Kodak's consumer imaging products and
services are distributed worldwide through a variety of channels.
Individual products are often used in substantial quantities in more than
one market. Most sales of the Consumer Imaging segment are made through
retailers. Independent retail outlets selling Kodak amateur products
total many thousands. In a few areas abroad, Kodak products are marketed
by independent national distributors. In addition, certain consumer
products may be purchased through the Internet.
Kodak's advertising programs actively promote its consumer imaging
products and services in its various markets, and its principal
trademarks, trade dress and corporate symbol are widely used and
recognized.
Kodak's consumer imaging products and services compete with similar
products and services of others. Competition in traditional and digital
consumer imaging markets is strong throughout the world. Many large and
small companies offer similar consumer products and services that compete
with Kodak's business. Kodak's products are continually improved to meet
the changing needs and preferences of its customers.
3
Raw Materials. The raw materials used by the Consumer Imaging segment
are many and varied and generally available. Silver is one of the
essential materials in traditional photographic film and paper
manufacturing. Digital electronic components are also prevalent in
product offerings.
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KODAK PROFESSIONAL SEGMENT
Sales of the Kodak Professional segment for 1999, 1998 and 1997 were (in
millions) $1,910, $1,840 and $2,272, respectively.
Products of the Kodak Professional segment include films, photographic
papers, digital cameras, printers and scanners, chemicals, and services
targeted to professional customers. These products serve professional
photofinishers, professional photographers and commercial printers and
publishers.
Kodak Polychrome Graphics, a 50/50 joint venture with Sun Chemical
Corporation, was formed on December 31, 1997. The joint venture assumed
responsibility for the photographic plate business, as well as for the
marketing of Kodak graphic arts film, and proofing materials and
equipment. Sales for the segment are lower in 1998 and 1999 compared to
1997 because the Company now sells graphics products to the joint
venture, rather than selling completed products to final customers.
In September 1997, Kodak and Heidelberger Druckmaschinen AG
("Heidelberg") established the NexPress joint venture for the purpose of
developing and marketing new digital color printing solutions for the
graphic arts industry. In connection with the 1999 sale of the Office
Imaging business as further discussed, the Company and Heidelberg also
expanded their joint venture company, NexPress, to include the black-and-
white electrophotographic business. The Company contributed its toner
and developer operations in Rochester and Kirkby, England to the joint
venture.
Marketing and Competition. Kodak's professional imaging products and
services are distributed through a variety of channels, including the
Internet. Most sales of the Kodak Professional segment are made to
professional photographers, printers and publishers.
Kodak's professional imaging products and services compete with similar
products and services of other small and large companies. Strong
competition exists throughout the world in these markets. Kodak's
products are continually improved to meet the changing needs and
preferences of its customers.
Raw Materials. The raw materials used by the Kodak Professional segment
are many and varied and generally available. Silver is one of the
essential materials used in the manufacturing of professional
photographic, industrial x-ray, and graphic arts film, and paper.
Digital electronic components are becoming more prevalent in product
offerings.
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HEALTH IMAGING SEGMENT
Sales of the Health Imaging segment for 1999, 1998 and 1997 were (in
millions) $2,120, $1,526 and $1,532, respectively.
The products of the Health Imaging segment are used to capture, store,
process, print and display images and information in a variety of forms
for customers in the health care industry, for both primary and referral
diagnoses.
Products of the Health Imaging segment include medical films, chemicals,
and processing equipment, as well as services for health care
professionals. As a result of the Imation medical imaging acquisition
discussed below, segment products also include digital, or dry, products,
which are a key component of sales and earnings growth. These products
include digital print film, laser printers, and digital media. The
Health Imaging segment serves customers for general radiology products
and specialty health markets, including cardiology, dental, mammography,
oncology and ultrasound imaging.
On November 30, 1998, Kodak acquired the worldwide medical imaging
business of Imation Corp., which includes Imation's manufacturing
facilities in White City, Oregon and Oakdale, Minnesota, and all of the
outstanding shares of Imation's Cemax-Icon subsidiary in Fremont,
California. At the time of acquisition, this business generated
approximately $500 million in annual revenues.
Marketing and Competition. Kodak's health imaging products and services
are distributed through a variety of channels, primarily to health care
organizations.
Kodak's health imaging products and services compete with similar
products and services of other small and large companies. Strong
competition exists throughout the world in these markets. Kodak's
products are continually improved to meet the changing needs and
preferences of its health care customers.
Raw Materials. The raw materials used by the Health Imaging segment are
many and varied and generally available. Silver is one of the essential
materials used in X-ray film manufacturing.
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OTHER IMAGING SEGMENT
Sales of the Other Imaging segment for 1999, 1998 and 1997 were (in
millions) $2,648, $2,876 and $3,053, respectively.
Products of the Other Imaging segment include motion picture films,
audiovisual equipment, consumer digital cameras and printers, microfilm
products, applications software, printers, scanners and other business
equipment, aerial film, image capture products, optics and optical
systems, as well as supplies and service agreements to support certain of
these products. These products serve customers primarily in motion
picture and television, document imaging, and government markets.
5
In April 1999, the Company sold its digital printer, copier-duplicator,
and roller assembly operations primarily associated with its Office
Imaging business to Heidelberg, which included its operations in
Rochester, NY, Muehlhausen, Germany and Tijuana, Mexico. In November
1999, the Company sold The Image Bank, a wholly-owned subsidiary which
markets and licenses image reproduction rights, to Getty Images, Inc. In
November 1999, the Company sold its Motion Analysis Systems Division,
which manufactures digital cameras and digital video cameras for the
automotive and industrial markets, to Roper Industries, Inc.
Marketing and Competition. Products and services of the Other Imaging
segment are distributed through a variety of channels. The Company also
sells and leases business equipment directly to users, and has a presence
on the Internet.
These products and services compete with similar products and services of
other small and large companies. Strong competition exists throughout
the world in these markets. Kodak's products are continually improved to
meet the changing needs and preferences of its customers.
Raw Materials. The raw materials used are many and varied and generally
available. Silver is one of the essential materials in traditional film
manufacturing. Electronic components represent a significant portion of
the cost of the materials used in the manufacture of business equipment
and digital cameras.
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RESEARCH AND DEVELOPMENT
Through the years, Kodak has engaged in extensive and productive efforts
in research and development. Research and development expenditures for
1999, 1998 and 1997 were (in millions) $817, $922 and $1,230,
respectively. The 1998 figure includes a $42 million charge for the
write-off of in-process research and development associated with the
acquisition of Imation Corp.'s worldwide medical imaging business on
November 30, 1998. The 1997 figure includes a $186 million charge for
the write-off of in-process research and development associated with the
acquisition of Wang Laboratories' software unit on March 17, 1997. See
Note 15, Acquisitions and Joint Ventures.
Research and development groups are located principally in the United
States, primarily in Rochester, New York. Other groups in the United
States are located in Boston, Massachusetts; Washington, D.C.; and Menlo
Park, California. Outside the U.S., research and development groups are
located principally in Australia, England, France, Japan and China.
These groups, in close cooperation with manufacturing units and marketing
organizations, are constantly developing new products and applications to
serve both existing and new markets.
6
It has been Kodak's general practice to protect its investment in
research and development and its freedom to use its inventions by
obtaining patents where feasible. The ownership of these patents
contributes to Kodak's ability to use its inventions but at the same time
is accompanied by patent licensing. While in the aggregate Kodak's
patents are considered to be of material importance in the operation of
its business, the Company does not consider that the patents relating to
any single product or process are of material significance when judged
from the standpoint of its total business.
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ENVIRONMENTAL PROTECTION
Kodak is subject to various laws and governmental regulations concerning
environmental matters. Some of the U.S. federal environmental
legislation having an impact on Kodak includes the Toxic Substances
Control Act, the Resource Conservation and Recovery Act (RCRA), the Clean
Air Act, and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (the Superfund law).
It is the Company's policy to carry out its business activities in a
manner consistent with sound health, safety and environmental management
practices, and to comply with applicable health, safety and environmental
laws and regulations. Kodak continues to engage in a program for
environmental protection and control.
Environmental protection is further discussed in the Notes to Financial
Statements.
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EMPLOYMENT
At the end of 1999, the Company employed 80,650 people, of whom 43,300
were employed in the U.S.
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Financial information by geographic areas for the past three years is
shown in Note 17, Segment Information.
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ITEM 2. PROPERTIES
The Consumer Imaging segment of Kodak's business in the United States is
centered in Rochester, New York, where photographic goods are
manufactured. Another manufacturing facility near Windsor, Colorado,
also produces sensitized photographic goods.
Consumer Imaging manufacturing facilities outside the United States are
located in Australia, Brazil, Canada, China, England, France, India,
Indonesia, Mexico and Russia. Kodak maintains marketing and distribution
facilities in many parts of the world. The Company also owns processing
laboratories in numerous locations worldwide.
7
Products in the Kodak Professional segment are manufactured in the United
States primarily in Rochester, New York. Manufacturing facilities
outside the United States are located in Brazil, Canada, China, England,
France, Germany, Japan and Mexico.
Products in the Health Imaging segment are manufactured in the United
States primarily in Rochester, New York; Windsor, Colorado; Oakdale,
Minnesota; White City, Oregon; and Fremont, California. Manufacturing
facilities outside the United States are located in Brazil, China,
France, Germany, India and Mexico.
Products in the Other Imaging segment are manufactured in the United
States primarily in Rochester, New York and Windsor, Colorado.
Manufacturing facilities outside the United States are located in Brazil,
Canada, England, France, Germany, Japan, India, Ireland and Mexico.
Properties within a country are generally shared by all segments
operating within that country.
Regional distribution centers are located in various places within and
outside of the United States. The Company owns or leases administrative,
manufacturing, marketing and processing facilities in various parts of
the world. The leases are for various periods and are generally
renewable.
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Item 3. LEGAL PROCEEDINGS
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instructions G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders.
(as of December 31, 1999)
Date First Elected
an to
Executive Present
Name Age Positions Held Officer Office
George M. C. Fisher 59 Chairman of the Board,
Chief Executive Officer 1993 1995
Joerg D. Agin 57 Senior Vice President 1996 1996
Michael P. Benard 52 Vice President 1994 1994
Robert H. Brust * 56 Chief Financial Officer
and Executive Vice
President 2000 2000
Daniel A. Carp ** 51 President and
Chief Operating Officer 1995 1997
Martin M. Coyne, II *** 50 Vice President 1997 1995
Jesse J. Greene, Jr. 54 Senior Vice President 1998 1999
Carl E. Gustin, Jr. 48 Senior Vice President 1995 1995
Robert J. Keegan **** 52 Senior Vice President 1997 1997
Carl F. Kohrt 56 Executive Vice President
and Assistant Chief
Operating Officer 1995 1995
Michael P. Morley 56 Senior Vice President 1994 1994
Candy M. Obourn *** 49 Vice President 1997 1991
E. Mark Rajkowski 41 Controller 1998 1998
Willy C. Shih *** 48 Vice President 1997 1997
Patrick T. Siewert *** 44 Vice President 1997 1995
Eric L. Steenburgh 58 Executive Vice President
and Assistant Chief
Operating Officer 1998 1998
Gary P. Van Graafeiland 53 General Counsel and
Senior Vice President 1992 1992
* Effective January 3, 2000
** Effective January 1, 2000 - President and Chief Executive Officer
*** Effective January 1, 2000 - Senior Vice President
**** Effective January 1, 2000 - Executive Vice President
9
Executive officers are elected annually in February.
All of the executive officers have been employed by Kodak in various
executive and managerial positions for more than five years, except Mr.
Agin, who joined the Company on September 1, 1995; Mr. Coyne, who joined
the Company on September 5, 1995; Mr. Keegan, who joined the Company on
July 1, 1997; Mr. Shih, who joined the Company on July 7, 1997; Mr.
Steenburgh, who joined the Company on April 13, 1998; Mr. Rajkowski, who
joined the Company on July 13, 1998; and Mr. Brust, who joined the
Company on January 3, 2000. Prior to joining Kodak in 1995, Mr. Agin
held executive positions with Universal Studios, most recently as Senior
Vice President, New Technology and Business Development. Prior to
joining Kodak in 1995, Mr. Coyne was president of his own consulting
firm, "M. M. Coyne & Associates." Mr. Coyne was previously employed by
Kodak, leaving early in 1995 from the position of Executive Director,
Health Group Marketing. Prior to joining Kodak in 1997, Mr. Keegan held
the position of Executive Vice President with Avery Dennison Corporation
since 1995. Mr. Keegan was previously employed by Kodak, leaving in 1995
from the position of General Manager of Consumer Imaging for Kodak's
European, Middle Eastern and African Region. Prior to joining Kodak in
1997, Mr. Shih was Vice President of Marketing for Technical Computing at
Silicon Graphics Computer Systems, which he joined in 1995. Prior to
joining that company, Mr. Shih held executive positions with DEC, which
he joined in 1994, and IBM Corporation. Prior to joining Kodak in 1998,
Mr. Steenburgh held senior management positions at Xerox Corporation,
Ricoh Company, Ltd., Goulds Pumps, and, most recently, was President of
the Industrial Pump Group Worldwide at ITT Fluid Technology Corporation,
a part of ITT Industries. Prior to joining Kodak in 1998, Mr. Rajkowski
was employed at Price Waterhouse LLP (now PricewaterhouseCoopers LLP)
where he was the Upstate New York Technology Group Managing Partner and
an Audit and Business Advisory Services Partner. Prior to joining Kodak
in 2000, Mr. Brust was Senior Vice President and Chief Financial Officer
with Unisys Corporation since 1997. Prior to joining that company, Mr.
Brust held a variety of management positions with General Electric since
1965.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation
of the ability and integrity of any executive officer during the past
five years.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Eastman Kodak Company common stock is principally traded on the New York
Stock Exchange. There are 131,719 shareholders of record of common stock
as of December 31, 1999. See Liquidity and Capital Resources, and Market
Price Data in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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ITEM 6. SELECTED FINANCIAL DATA
Refer to Summary of Operating Data on page 68.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
(in millions, except per share data)
1999 Change 1998 Change 1997
Sales $14,089 + 5% $13,406 - 8% $14,538
Earnings from operations 1,990 + 5 1,888 130
Net earnings 1,392 - 1,390 5
Basic earnings per share 4.38 + 2 4.30 .01
Diluted earnings per share 4.33 + 2 4.24 .01
1999
The Company results for the year included the following:
A pre-tax restructuring charge of $350 million ($231 million after tax)
relating to worldwide manufacturing and photofinishing consolidation and
reductions in selling, general and administrative positions worldwide.
See Note 11, Restructuring Programs and Cost Reduction. In addition to
this charge, the Company incurred pre-tax charges of $11 million ($7
million after tax) in the fourth quarter of 1999 in connection with this
program. This amount relates primarily to accelerated depreciation of
assets still in use but scheduled to be sold and exited, as well as
relocation costs for manufacturing and photofinishing consolidation.
Accelerated depreciation charges and relocation costs of approximately
$60 million pre-tax, in the aggregate, will be recorded in 2000 to cost
of goods sold in connection with these actions.
A pre-tax charge of $51 million ($34 million after tax) associated with
the Eastman Software business, consisting of amounts recorded for
impaired assets, including goodwill ($39 million pre-tax) and severance
payments to restructure the operation ($12 million pre-tax).
A pre-tax charge of $32 million ($21 million after tax) to write down
existing inventories to net realizable value, fund employee severance
payments and provide for other contractual obligations associated with
the Company's decision to exit the Entertainment Imaging sticker print
kiosk product line.
A pre-tax charge of $20 million ($13 million after tax) for the write-off
of an investment in CalComp Corporation, relating to the development of a
particular inkjet printing technology, which was determined to be
unrecoverable.
11
The sale of its wholly-owned subsidiary, The Image Bank, resulting in a
pre-tax gain of $95 million ($63 million after tax). See Note 16, Sales
of Assets and Divestitures.
The sale of its Motion Analysis Systems Division, resulting in a pre-tax
gain of $25 million ($16 million after tax). See Note 16, Sales of
Assets and Divestitures.
Excluding the above items, net earnings were $1,619 million. Basic
earnings per share were $5.09 and diluted earnings per share were $5.03.
1998
The Company results for the year included the following:
The sale of its NanoSystems subsidiary, resulting in a pre-tax gain of
$87 million ($57 million after tax). See Note 16, Sales of Assets and
Divestitures.
The sale of part of its investment in Gretag Imaging Group ("Gretag") in
connection with Gretag's initial public offering, resulting in a pre-tax
gain of $66 million ($44 million after tax). See Note 16, Sales of
Assets and Divestitures.
A pre-tax charge of $132 million ($87 million after tax) for asset write-
downs and employee severance in the Office Imaging division of the
Document Imaging business unit resulting from significant volume
reductions by the primary customer for Office Imaging products, Danka
Business Systems PLC ("Danka") (the "Office Imaging charge"). See Note
16, Sales of Assets and Divestitures.
A pre-tax charge of $45 million ($30 million after tax), primarily for in-
process research and development (R&D), associated with the acquisition
of the medical imaging business of Imation Corp. (the "Imation charge").
See Note 15, Acquisitions and Joint Ventures.
Excluding the above items, and pre-tax litigation charges of $35 million
($23 million after tax) relating primarily to Health Imaging, net
earnings were $1,429 million. Basic earnings per share were $4.42 and
diluted earnings per share were $4.37.
1997
The Company results for the year included the following:
A pre-tax charge of $1,455 million ($990 million after tax) for
restructuring, asset impairments and other charges. See Note 11,
Restructuring Programs and Cost Reduction.
A pre-tax charge of $186 million ($123 million after tax) for a write-off
of in-process R&D associated with the acquisition of Wang Laboratories'
software unit (the "Wang charge"). See Note 15, Acquisitions and Joint
Ventures.
12
A pre-tax charge of $46 million ($30 million after tax) taken as a
reserve for payments required in connection with the Image Technical
Service, Inc. litigation relating to the sale of micrographics and copier
parts (the "ITS charge").
Excluding these charges, net earnings were $1,148 million. Basic
earnings per share were $3.52 and diluted earnings per share were $3.46.
DETAILED RESULTS OF OPERATIONS
Sales by Operating Segment
(in millions)
1999 Change 1998 Change 1997
Consumer Imaging
Inside the U.S. $ 3,562 + 7% $ 3,342 - 4% $ 3,477
Outside the U.S. 3,849 + 1 3,822 - 9 4,204
------- --- ------- --- -------
Total Consumer Imaging 7,411 + 3 7,164 - 7 7,681
------- --- ------- --- -------
Kodak Professional
Inside the U.S. 766 + 6 725 -22 927
Outside the U.S. 1,144 + 3 1,115 -17 1,345
------- --- ------- --- -------
Total Kodak Professional 1,910 + 4 1,840 -19 2,272
------- --- ------- --- -------
Health Imaging
Inside the U.S. 954 +43 668 - 2 682
Outside the U.S. 1,166 +36 858 + 1 850
------- --- ------- --- -------
Total Health Imaging 2,120 +39 1,526 - 1,532
------- --- ------- --- -------
Other Imaging
Inside the U.S. 1,312 -16 1,558 - 7 1,681
Outside the U.S. 1,336 + 1 1,318 - 4 1,372
------- --- ------- --- -------
Total Other Imaging 2,648 - 8 2,876 - 6 3,053
------- --- ------- --- -------
Total Sales $14,089 + 5% $13,406 - 8% $14,538
======= === ======= === =======
Earnings (Loss) From Operations by Operating Segment - See Note 17,
Segment Information.
Net Earnings (Loss) by Operating Segment - See Note 17, Segment
Information.
13
1999 COMPARED WITH 1998
CONSOLIDATED
- ------------
Worldwide sales for 1999 increased 5% from the prior year. The impact of
portfolio actions on the year-to-year comparison was essentially neutral.
Currency changes against the dollar negatively affected sales by $12
million. Sales growth was achieved across numerous businesses, including
growth in sales of Health Imaging film (analog film as well as laser
imaging products of the acquired Imation medical imaging business),
consumer and professional digital cameras, Consumer Imaging color paper
and film (especially Advantix film and one-time-use cameras), CD media,
and inkjet media.
Sales of digital and digitization products were $2,333 million, up 46%
from $1,597 million a year ago. Sales of digital products accounted for
17% of the Company's worldwide sales. Full year digital losses of $116
million improved $146 million over full year 1998. Digital losses in
1999 are primarily attributable to the Company's increased investments in
digitization products and services, including continued investments in
consumer digital cameras.
Sales in emerging markets increased 6%, and accounted for approximately
16% of the Company's worldwide sales. The emerging markets portfolio
showed growth across a wide geographical range, with China up 30%, Korea
up 36% and India up 19%. Strong growth in Mexico of 16% was offset by a
16% decline in Brazil, resulting in a 2% decline in the Latin American
Region. Sales in Russia remained weak, reflecting a 33% sales decline
from the prior year.
Overall gross profit margins decreased 2.3 percentage points from 45.6%
in 1998 to 43.3% in 1999. Excluding special charges in both years, gross
profit margins decreased .4 percentage points from 46.1% in 1998 to 45.7%
in 1999. Gross profit came under pressure from lower prices, increased
levels of goodwill amortization, startup costs in the China manufacturing
project, and the acquired Imation medical imaging business, which has a
gross profit rate lower than the Company average. These pressures were
offset, almost entirely, by gains in manufacturing productivity,
improvements in digital businesses, and the beneficial effects of
portfolio actions taken, including the divestiture of Office Imaging and
a significant portion of Consumer Imaging's retail business.
Selling, general and administrative (SG&A) expenses for the Company were
essentially level, but decreased from 24.6% of sales in 1998 to 23.4% of
sales in 1999. Excluding restructuring charges, SG&A expenses decreased
2% from the prior year and as a percentage of sales from 24.1% in 1998 to
22.5% in 1999, while SG&A excluding advertising expenses also decreased
from 18.5% to 17.4%. The decrease in rates, excluding restructuring
charges, is due to higher sales and cost reduction activities as well as
reductions in advertising expense.
14
Excluding the Imation charge in 1998, R&D decreased 7%, from 6.6% of
sales in 1998 to 5.8% of sales in 1999, as a result of a number of
factors, including improvement in the R&D cost structure, a more tightly
focused portfolio, and more joint development, with more work shared with
partners.
Earnings from operations increased 5% to $1,990 million. Excluding
special charges in both years, earnings from operations increased $389
million or 19%, as the benefits of higher unit sales volumes across many
of the Company's key products, manufacturing productivity and cost
reductions more than offset lower effective selling prices and the
unfavorable effects of foreign currency rate changes.
Interest expense increased 29% from the prior year, to $142 million, as a
result of higher average borrowings. Other income (charges) decreased
$67 million from the prior year. Excluding special charges and credits
from both years, other income (charges) decreased $70 million, resulting
primarily from reduced investment income, lower gains on asset sales and
R&D investments in the NexPress joint venture. The effective tax rates
were 34% in both 1999 and 1998.
In connection with the $350 million pre-tax restructuring charge recorded
in the third quarter of 1999, the Company expects approximate savings
associated with this program of $100 million in 2000, and an additional
$70 million in 2001, resulting in a total run rate savings of $170
million. The Company anticipates recovering the net cash cost of this
program in less than two years. Approximately 3,400 positions will be
eliminated worldwide under this program by September 30, 2000. During
the fourth quarter of 1999, approximately 400 employees left the Company
under this program.
Approximately 17,400 employees have left the Company under the 1996 and
1997 restructuring programs (see Note 11, Restructuring Programs and Cost
Reduction). The 1996 and 1997 programs are essentially complete, with
remaining actions to be completed in 2000. As a result of these
programs, the Company reduced its operating costs by approximately $730
million in 1998 and an additional $520 million in 1999. These amounts
include approximately $95 million and $62 million, respectively, of lower
pension and health care costs resulting from the restructuring programs.
Cost reduction amounts do not include the benefit of divestitures or the
effects of changes in exchange rates, and are net of increased
investments. Cost reductions in 1999 were achieved across all business
operations and also reflect the benefits of lower employee compensation.
15
CONSUMER IMAGING
- ----------------
Consumer Imaging segment sales for the year increased 3%. Excluding the
impact of the divestiture of the Fox Photo operating unit in September
1998, sales increased 6%, as higher volumes more than offset lower
effective selling prices and the negative effects of foreign exchange.
Sales inside the U.S. increased 7%, as higher volumes were partly offset
by lower effective selling prices and the impact of portfolio changes.
Sales outside the U.S. increased 1%, as higher volumes more than offset
lower effective selling prices and the negative effects of foreign
exchange.
Worldwide film sales increased 4% from the prior year, as volume
increases of 10% more than offset lower effective selling prices. Sales
inside the U.S. increased 2%, as higher unit volumes more than offset
lower effective selling prices. Sales outside the U.S. increased 5%, as
higher volumes more than offset lower effective selling prices and the
unfavorable effects of foreign currency rate changes.
Worldwide color paper sales increased 6% from the prior year, as volume
increases of 9% more than offset lower effective selling prices. Sales
inside the U.S. were particularly strong, increasing 12%, due to higher
unit volumes and slightly higher effective selling prices. Sales outside
the U.S. increased 2%, as higher volumes more than offset lower effective
selling prices and the unfavorable effects of foreign currency rate
changes.
SG&A expenses for the segment decreased 5% from 27.4% of sales in 1998 to
25.2% of sales in 1999, reflecting the benefits of Consumer Imaging's
sales growth and cost reduction activities. Excluding advertising
expenses, SG&A expenses decreased 4% from 18.9% of sales in 1998 to 17.5%
of sales in 1999. R&D expenses decreased 5% from 5.1% of sales in 1998
to 4.7% of sales in 1999.
Earnings from operations increased 20%, as higher sales volumes, cost
reductions and manufacturing productivity more than offset lower
effective selling prices and the unfavorable effects of foreign currency
rate changes. Net earnings were $900 million, an increase of 15% from
the prior year, which included the $44 million after-tax gain related to
the Gretag initial public offering. Excluding the year-ago Gretag gain,
net earnings increased 21%, as a result of increases in earnings from
operations.
KODAK PROFESSIONAL
- ------------------
Kodak Professional segment sales for the year increased 4%. Adjusting
for the contribution of the Japan graphics business to the Kodak
Polychrome Graphics joint venture, sales increased 8%, as higher volumes
more than offset lower effective selling prices. Sales inside the U.S.
increased 6%, as higher volumes more than offset lower effective selling
prices. Sales outside the U.S. increased 3%, as higher volumes more than
offset decreases from portfolio changes.
16
Worldwide Graphics film sales increased 9% on the strength of a 25%
volume increase which more than offset lower graphics film prices.
Worldwide Portrait/Social sales increased 10%, as higher volumes and the
favorable effects of foreign exchange were partially offset by lower
effective selling prices. Sales inside the U.S. increased 10%, due to
higher volumes and higher effective selling prices. Sales outside the
U.S. increased 9%, as volume increases and the favorable effects of
foreign exchange were partially offset by lower effective selling prices.
SG&A expenses for the segment decreased 7% from 20.3% of sales in 1998 to
18.1% of sales in 1999. Excluding advertising expenses, SG&A expenses
decreased 7% from 17.7% of sales in 1998 to 15.9% of sales in 1999. R&D
expenses decreased 23%, from 9.9% of sales in 1998 to 7.4% of sales in
1999. The decrease in R&D reflects the formation of the NexPress joint
venture, whose results, including the Company's investments in R&D, are
reflected in other income (charges).
Earnings from operations increased 13%, or 20% excluding the pre-tax
charge of $20 million for CalComp, as higher sales volumes, manufacturing
productivity, and cost reductions in SG&A and R&D more than offset lower
effective selling prices. Net earnings increased 12%, primarily
reflecting strong contributions from earnings from operations.
HEALTH IMAGING
- --------------
Sales of the Health Imaging segment increased 39%, primarily due to the
acquisition of Imation's medical imaging business. Excluding the effect
of the acquisition, sales increased 2%, as higher volumes more than
offset lower effective selling prices. Sales inside the U.S. increased
43%, due primarily to the acquisition and higher volumes, offset by lower
effective selling prices. Sales outside the U.S. increased 36%, due to
the acquisition and higher volumes, partly offset by lower effective
selling prices.
Worldwide analog film sales increased 19%, as higher volumes more than
offset lower effective selling prices. Analog film sales inside the U.S.
increased 9%, as higher volumes more than offset lower effective selling
prices. Outside the U.S., analog film sales increased 25%, as higher
volumes more than offset lower effective selling prices. Overall,
significant volume growth worldwide is primarily attributable to the
acquisition of Imation's medical imaging business.
Sales of digital products (including digital print film, laser printers
and digital media) increased 98% primarily due to the acquisition of the
medical imaging business from Imation.
17
SG&A expenses increased 34%, due primarily to the acquisition of
Imation's medical imaging business, but decreased from 20.7% of sales in
1998 to 20.0% of sales in 1999. Excluding advertising expenses, SG&A
expenses increased 34%, but decreased from 19.7% of sales in 1998 to
19.1% of sales in 1999. Excluding the 1998 Imation charge, R&D expenses
increased 21%, but decreased from 6.9% of sales in 1998 to 6.0% of sales
in 1999.
Earnings from operations increased 46%, or 29% excluding from 1998 the
pre-tax Imation charge of $45 million, as higher unit sales volumes,
manufacturing productivity, and cost reductions in SG&A and R&D more than
offset lower effective selling prices. Net earnings increased 54%, or
27% excluding from 1998 the charges for Imation and litigation, as a
result of the increase in earnings from operations.
OTHER IMAGING
- -------------
Sales in the Other Imaging segment decreased 8%, as higher unit volumes
were more than offset by portfolio changes (primarily the sale of the
Office Imaging business) and lower effective selling prices. Excluding
the impact of portfolio adjustments, segment sales increased 5%. Sales
of digital cameras and CD media increased significantly, while sales of
motion picture films decreased due to softness in the motion picture
industry. Sales inside the U.S. decreased 16%, as decreases from
portfolio changes more than offset higher volumes. Sales outside the U.S.
increased 1%, as higher volumes more than offset lower effective selling
prices.
Worldwide digital camera sales increased 97%, as significantly higher
volumes were slightly offset by lower effective selling prices. Digital
camera sales inside the U.S. increased 106%, due to significantly higher
volumes. Outside the U.S., sales increased 87%, as considerably higher
volumes were partially offset by lower effective selling prices.
SG&A expenses decreased 17% from 22.8% of sales in 1998 to 20.6% of sales
in 1999. Excluding advertising expenses, SG&A expenses decreased 19%
from 19.8% of sales in 1998 to 17.4% of sales in 1999. R&D expenses
decreased 11% from 8.0% of sales in 1998 to 7.7% of sales in 1999.
Earnings from operations increased 25%. Excluding special charges in
both years, earnings from operations decreased 2%, as higher volumes and
manufacturing productivity were offset by lower effective selling prices
and the unfavorable effects of foreign exchange. Net earnings increased
37%, or decreased 21% excluding special charges and credits from both
years, as a result of lower earnings from operations and lower gains on
sales of properties.
18
1998 COMPARED WITH 1997
CONSOLIDATED
- ------------
Worldwide sales for 1998 were 8% lower than in 1997, largely due to the
transfer of a portion of Kodak's graphics business to a joint venture,
Kodak Polychrome Graphics, on December 31, 1997 (see Note 15,
Acquisitions and Joint Ventures) and the reclassification of certain
promotional expenses by the Company (the "promotion reclass," see
discussion in Consumer Imaging section below). Excluding these effects,
sales decreased 5% from the prior year. In addition, currency changes
against the dollar unfavorably affected sales by $344 million in 1998
compared with 1997. Excluding the effects of currency rate changes and
the above items, sales decreased 2%. A significant portion of this
decrease resulted from volume declines in emerging markets, reflecting
economic conditions.
Overall gross profit margins improved approximately one percentage point
from 44.5% in 1997 to 45.6% in 1998, adjusting for the promotion reclass.
Excluding $165 million of charges related to the 1997 restructuring
program and $68 million of the Office Imaging charge recorded to cost of
goods sold in 1998, gross profit margins improved from 45.7% in 1997 to
46.1% in 1998. This increase is primarily attributable to cost
reductions and manufacturing productivity which more than offset the
unfavorable effects of foreign currency rate changes, lower effective
selling prices, and volume declines in emerging markets. Goodwill
amortization increased to $116 million in 1998 from $80 million in 1997
primarily as a result of the Company's acquisitions in China (see Note
15, Acquisitions and Joint Ventures).
SG&A expenses for the Company decreased 16% from 26.9% of sales in 1997
to 24.6% of sales in 1998. Adjusting 1997 for the promotion reclass and
excluding $64 million of the Office Imaging charge recorded to SG&A in
1998 and the impact of the graphics business from both years, SG&A
decreased 9% from 26.0% of sales to 24.9% of sales. This decrease is
primarily attributable to the benefits associated with the Company's cost
reduction program.
Excluding the Imation charge in 1998 and the Wang charge in 1997, R&D
expenses decreased 16% from 7.2% of sales in 1997 to 6.6% of sales in
1998 as a result of improved expense management and reduced cost
structure. See Note 15, Acquisitions and Joint Ventures, for discussion
of the Imation charge and the Wang charge.
Earnings from operations increased $1,758 million from the prior year.
Excluding from 1997 the $1,455 million charge for restructuring costs,
asset impairments and other charges, and the $186 million Wang charge,
and excluding from 1998 the $132 million Office Imaging charge and the
$45 million Imation charge, earnings from operations for the Company
increased 17%, as cost reductions and manufacturing productivity more
than offset lower effective selling prices and the unfavorable effects of
foreign currency rate changes.
19
Other income (charges) increased significantly from $21 million in 1997
to $328 million in 1998. This increase is primarily attributable to
gains on the sales of NanoSystems and part of the Company's investment in
Gretag, gains from sales of real estate, and the divestiture of some
relatively small businesses, offset by litigation charges recorded in
1998. Interest expense increased 12% from the prior year, to $110
million, as a result of higher average borrowings.
The effective tax rates were 34% in both 1998 and 1997, excluding
restructuring costs, asset impairments and other charges of $1,455
million and the related tax benefit of $465 million from 1997.
As described in Note 15, Acquisitions and Joint Ventures, the Company
made investments in two newly formed companies operating in China in
1998. Under terms of agreements announced in 1998, the Company is
investing more than $1 billion in China. The investment is being used to
upgrade technology, improve manufacturing capacity and expand
distribution and marketing capability needed to build and support a
strong domestic Chinese imaging industry.
CONSUMER IMAGING
- ----------------
Consumer Imaging segment sales for the year decreased 7%. Adjusting 1997
for the promotion reclass discussed below, segment sales for the year
decreased 5%, due to lower effective selling prices, the unfavorable
effects of foreign currency rate changes and lower unit volumes. Sales
inside the U.S. increased 1%, as higher unit volumes were mostly offset
by lower effective selling prices. Sales outside the U.S. decreased 9%,
due to the unfavorable effects of foreign currency rate changes, lower
unit volumes and lower effective selling prices. Removing from both
years sales of Fox Photo, Inc., which was sold in 1998 (see Note 16,
Sales of Assets and Divestitures), worldwide segment sales decreased 4%
and sales inside the U.S. increased 3%. Excluding the effects of
currency rate changes and Fox Photo sales, worldwide segment sales
decreased 1% and sales outside the U.S. decreased 5%.
In the Consumer Imaging segment, certain U.S. promotional expenses which
are shown as sales price reductions in 1998 were shown as advertising and
promotion expenses in 1997. The amount of those expenses was $164
million in 1997. When comparing 1998 to 1997, this amount should be
deducted from 1997 sales as well as advertising expense.
Worldwide film sales decreased 7% from the prior year, adjusting 1997 for
the promotion reclass, due to lower unit volumes, the unfavorable effects
of foreign currency rate changes and lower effective selling prices.
Sales inside the U.S. decreased 5%, as slightly higher unit volumes were
more than offset by lower effective selling prices. Sales outside the
U.S. decreased 8%, as higher effective selling prices were more than
offset by lower unit volumes and the unfavorable effects of foreign
currency rate changes.
20
Worldwide color paper sales decreased 4% from the prior year, adjusting
1997 for the promotion reclass, as higher unit volumes were more than
offset by lower effective selling prices and the unfavorable effects of
foreign currency rate changes. Sales inside the U.S. increased 1%, as
higher unit volumes were mostly offset by lower effective selling prices.
Sales outside the U.S. decreased 7%, as modest increases in unit volumes
were more than offset by the unfavorable effects of foreign currency rate
changes and lower effective selling prices.
SG&A expenses for the segment decreased 9% from 28.6% of sales in 1997 to
27.4% of sales in 1998, after adjusting 1997 for the promotion reclass.
Excluding advertising expenses, SG&A expenses decreased 9% from 19.7% of
sales in 1997 to 18.9% of sales in 1998. R&D expenses decreased 9% from
5.3% of sales in 1997 to 5.1% of sales in 1998.
Earnings from operations increased 1%, as cost reductions and
manufacturing productivity were almost entirely offset by lower effective
selling prices and the unfavorable effects of foreign currency rate
changes. Net earnings for the segment increased 8%, as a result of the
gain on the sale of part of the Company's investment in Gretag, as well
as decreased losses on foreign exchange.
KODAK PROFESSIONAL
- ------------------
Kodak Professional segment sales for the year decreased 19%. Excluding
the impact of the graphics business from both years as a result of the
joint venture discussed above, segment sales decreased 6%. This decrease
is primarily due to the unfavorable effects of foreign currency rate
changes, lower unit volumes and lower effective selling prices. Sales
inside the U.S. decreased 22%, or 3% excluding the impact of the graphics
business from both years, due to lower unit volumes. Sales outside the
U.S. decreased 17%, or 8% excluding the impact of the graphics business
from both years, due to the unfavorable effects of foreign currency rate
changes and lower unit volumes.
SG&A expenses for the segment decreased 41% from 27.6% of sales in 1997
to 20.3% of sales in 1998. Excluding the impact of the graphics business
from both years, SG&A expenses decreased 12% from 27.9% of sales in 1997
to 26.2% of sales in 1998. Excluding advertising expenses and the impact
of the graphics business from both years, SG&A expenses decreased 11%
from 23.9% of sales in 1997 to 22.7% of sales in 1998. Excluding the
impact of the graphics business from both years, R&D expenses decreased
2%, increasing slightly from 11.5% of sales in 1997 to 11.9% of sales in
1998.
Earnings from operations increased 16%, as a result of reduced segment
operating costs associated with the formation of the Kodak Polychrome
Graphics joint venture and improvements in manufacturing productivity,
offset by lower effective selling prices and the unfavorable effects of
foreign currency rate changes. Net earnings for the segment increased
23%, as a result of improvements in earnings from operations, the
Company's earnings from its 50% interest in Kodak Polychrome Graphics and
lower foreign exchange losses.
21
HEALTH IMAGING
- --------------
Sales of the Health Imaging segment were essentially level with 1997.
However, excluding sales from the medical imaging business acquired from
Imation in 1998, segment sales decreased 3%, due to the unfavorable
effects of foreign currency rate changes and lower effective selling
prices. Sales inside the U.S. decreased 2%, or a decline of 5% excluding
Imation, due to lower effective selling prices and lower unit volumes.
Sales outside the U.S. increased 1%, or a decrease of 2% excluding
Imation, as higher unit volumes were more than offset by the unfavorable
effects of foreign currency rate changes.
Including one month of results from the medical imaging business acquired
from Imation, SG&A expenses decreased 5% from 21.7% of sales in 1997 to
20.7% of sales in 1998. Excluding advertising expenses, SG&A expenses
decreased 4% from 20.6% of sales in 1997 to 19.7% of sales in 1998.
Excluding the 1998 Imation charge, R&D expenses decreased 13% from 8.0%
of sales in 1997 to 6.9% of sales in 1998.
Earnings from operations increased 1%, including the Imation charge.
Excluding the Imation charge, earnings from operations increased 15% as a
result of cost reductions and manufacturing productivity which more than
offset lower effective selling prices and the unfavorable effects of
foreign currency rate changes. Net earnings for the segment decreased
4%, due to litigation charges. Excluding the Imation charge, net
earnings increased 10%.
OTHER IMAGING
- -------------
Sales of the Other Imaging segment decreased 6% for the year, primarily
as a result of significant declines in Document Imaging (DI) and
Commercial & Government Systems. Sales inside the U.S. decreased 7%, due
to lower unit volumes and lower effective selling prices. Sales outside
the U.S. decreased 4%, due to the unfavorable effects of foreign currency
rate changes, lower unit volumes and lower effective selling prices. In
the Office Imaging division of DI, sales fell sharply in the fourth
quarter as a result of the primary customer for Office Imaging products,
Danka, experiencing financial difficulties which resulted in significant
volume reductions. In the Business Imaging Systems division of DI, sales
declined as a result of portfolio changes which improved earnings
performance. In Commercial & Government Systems, sales were negatively
impacted by the completion of several large programs in 1997 for which
follow-on programs were not fully underway in 1998.
SG&A expenses increased 3% from 20.9% of sales in 1997 to 22.8% of sales
in 1998. Excluding advertising expenses, SG&A expenses increased from
18.6% of sales in 1997 to 19.8% of sales in 1998. Excluding the Wang
charge, R&D expenses decreased 24% from 9.9% of sales in 1997 to 8.0% of
sales in 1998, primarily due to reductions in Digital & Applied Imaging
and DI.
22
Earnings from operations increased $245 million. Excluding the Wang
charge in 1997 and the Office Imaging charge in 1998, earnings from
operations increased $191 million. This increase is primarily
attributable to the benefits of portfolio changes in the Business Imaging
Systems division and improved performance in Digital & Applied Imaging.
Net earnings for the segment increased $248 million as a result of
improvements in earnings from operations and gains on sales of
properties.
YEAR 2000
- ----------
In 1996, the Company established a formal global program office to assess
the impact of the Year 2000 issue on the software and hardware utilized
in the Company's internal operations and included in its product
offerings to customers. The assessment addressed software applications,
systems software, information technology (IT) infrastructure, embedded
manufacturing control technology, and products and services. The Year
2000 project phases included: inventorying affected technology and
assessing the impact of the Year 2000 issue; developing solution plans;
modification; testing and certification; implementation; and developing
contingency plans.
The outcome of the project was that the Company successfully transitioned
into the year 2000 without any significant problems in software,
hardware, or products and services.
Costs of software and hardware remediation were $13 million in 1997, $27
million in 1998, $12 million in 1999, and are estimated to be $1 million
in 2000. These remediation efforts, almost entirely for software, did
not significantly increase the Company's IT spending since some normal
development and maintenance work was postponed. Furthermore, some non-
compliant systems were eliminated in 1999 as the Company installed Year
2000-compliant globally deployed ERP/SAP software in connection with its
enterprise resource planning project. A charge of $20 million for the
total estimated cost of customer product modification was accrued in
1997, which has substantially been utilized at December 31, 1999.
The Company relies on third-party suppliers for many systems, products
and services including telecommunications and data center support. The
Company would be adversely impacted if these suppliers did not make
necessary changes to their own systems and products successfully and in a
timely manner. Based on the Company's formalized comprehensive supplier
compliance program, the Company believes its suppliers have successfully
transitioned into the year 2000, and is not presently aware of any Year
2000 supplier problems that could have a significant impact on the
Company's business.
The Company has posted additional information about its Year 2000 program
on its Internet web site (www.kodak.com/go/year2000).
23
THE EURO
- --------
The Treaty on European Union provided that an economic and monetary union
(EMU) be established in Europe whereby a single European currency, the
euro, replaces the currencies of participating member states. The euro
was introduced on January 1, 1999, at which time the value of
participating member state currencies was irrevocably fixed against the
euro and the European Currency Unit (ECU) was replaced at the rate of one
euro to one ECU. For the three-year transitional period ending December
31, 2001, the national currencies of member states will continue to
circulate, but as sub-units of the euro. New public debt will be issued
in euros and existing debt may be redenominated into euros. At the end
of the transitional period, euro banknotes and coins will be issued, and
the national currencies of the member states will cease to be legal
tender no later than June 30, 2002. The countries that adopted the euro
on January 1, 1999 are Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain. The
Company has operations in all of these countries.
As a result of the euro conversion, it is possible that selling prices of
the Company's products and services will experience downward pressure, as
current price variations among countries are reduced due to easy
comparability of euro prices across countries. Prices will tend to
harmonize, although value added taxes and transportation costs will still
justify price differentials. Adoption of the euro will probably
accelerate existing market and pricing trends including pan-European
buying and general price erosion.
On the other hand, currency exchange and hedging costs will be reduced;
lower prices and pan-European buying will benefit the Company in its
purchasing endeavors; the number of banks and suppliers needed will be
reduced; there will be less variation in payment terms; and it will be
easier for the Company to expand into new marketing channels such as mail
order and Internet marketing.
The Company is in the process of making changes in areas such as
marketing and pricing, purchasing, contracts, payroll, taxes, cash
management and treasury operations. Billing systems have been modified
so that, in 1999, the Company was able to show total gross, value added
tax, and net in euros on national currency invoices, to enable customers
to pay in the new euro currency if they wish to do so. Countries that
have installed ERP/SAP software in connection with the Company's
enterprise resource planning project are able to invoice and receive
payments in euros as well as in other currencies. Systems for pricing,
payroll and expense reimbursements will continue to use national
currencies until year-end 2001. The functional currencies of the
Company's operations in affected countries will remain the national
currencies until approximately mid-year 2001, when they will change to
the euro. By that time, all affected countries will have converted to
the new ERP/SAP software.
24
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in 1999 was $1,933 million, as
net earnings of $1,392 million, adjusted for depreciation and
amortization, and restructuring, asset impairments, and other charges
provided $2,763 million of operating cash. This was partially offset by
decreases in liabilities (excluding borrowings) of $478 million relating
primarily to severance payments for restructuring programs, and other
changes in working capital. Net cash used in investing activities of
$685 million in 1999 was utilized primarily for capital expenditures of
$1,127 million, offset by proceeds of $468 million from sales of assets
and businesses. Net cash used in financing activities of $1,327 million
in 1999 was the result of stock repurchases and dividend payments,
partially offset by net increases in borrowings of $89 million.
Cash dividends per share of $1.76, payable quarterly, were declared in
each of the years 1999, 1998 and 1997. Total cash dividends of
approximately $563 million, $569 million and $567 million were paid in
1999, 1998 and 1997, respectively.
Net working capital (excluding short-term borrowings) decreased to $838
million from $939 million at year-end 1998. This decrease is primarily
attributable to lower cash balances at December 31, 1999.
Capital additions were $1,127 million in 1999, with the majority of the
spending relating to the Company's China manufacturing operations,
productivity improvements and ongoing environmental and safety spending.
Capital spending (excluding acquisitions) in 2000 is expected to remain
essentially unchanged. As the demand for capital in China declines in
2000, there are plans for increased capital spending to support
digitization activities, information technology, renovations due to
relocations associated with restructuring actions taken in 1999, and
other imaging manufacturing and infrastructure improvements. Capital
additions in 1999 and 1998 by segment are included in Note 17, Segment
Information.
Under its stock repurchase programs, the Company repurchased $925
million, $258 million and $850 million of its shares in 1999, 1998 and
1997, respectively. During the second quarter of 1999, the Company
completed stock repurchases under its 1996 $2 billion authorization.
That program, initiated in May 1996, resulted in 26.8 million shares
being repurchased. Under the new $2 billion program announced on April
15, 1999, the Company repurchased an additional 9.8 million shares for
$656 million in 1999. During 2000, the Company's strategy is to
repurchase shares at a level at least sufficient to eliminate year-on-
year dilution from the exercise of the Company-sponsored employee stock
option program as well as management incentive option grants. This
includes the nearly 8 million share employee-wide option program, which
will vest in April 2000, with a strike price of $65.91. Completion of
the new $2 billion stock repurchase program will be funded by available
cash reserves and cash from operations.
25
The Company has access to a $3.5 billion revolving credit facility
expiring in November 2001. The Company also has a shelf registration
statement for debt securities with an available balance of $2.1 billion.
On April 14, 1999, the Company announced a series of worldwide
environmental goals to provide for greater reductions in emissions, waste
generated, water usage and energy consumption, preservation of natural
resources and improvements to the Company's environmental management
system. These goals will result in spending, primarily capital in
nature, of approximately $100 million over the next five years.
The Company anticipates the net cash cost of the restructuring charge
recorded in the third quarter of 1999 to be approximately $140 million
after tax, which will be recovered through cost savings in less than two
years. Severance-related actions associated with this charge are
expected to be completed by the end of the third quarter of 2000. See
Note 11, Restructuring Programs and Cost Reduction.
See Note 8, Commitments and Contingencies, for other commitments of the
Company.
- -------------------------------------------------------------------------
OTHER
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. This Statement must be adopted by the Company by the year
2001, but may be adopted in any earlier fiscal quarter, and is not to be
applied retroactively. The Company adopted this Statement effective
January 1, 2000. If the Company had adopted SFAS No. 133 in 1999, the
impact would not have been material to its results of operations or
financial position.
Kodak is subject to various laws and governmental regulations concerning
environmental matters. See Note 8, Commitments and Contingencies.
- ------------------------------------------------------------------------
26
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report may be forward-looking in nature, or
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements in this Form
10-K relate to Year 2000 compliance efforts, including expectations about
Year 2000 supplier problems. Also, references to the amount and timing
of expected savings from the 1999 restructuring program are forward-
looking statements.
Actual results may differ from those expressed or implied in forward-
looking statements. With respect to any forward-looking statements
contained in this report, the Company believes that its results are
subject to a number of risk factors, including: the ability to realize
cost reductions and operating efficiencies, including the ability to
implement facility shutdown and headcount reduction programs timely and
in a manner that does not unduly disrupt business operations; the ability
of the Company to identify and address successfully Year 2000 issues in a
timely manner, and at costs that are reasonably in line with projections;
and the ability of the Company's suppliers to identify and address
successfully their own Year 2000 issues in a timely manner.
Any forward-looking statements in this report should be evaluated in
light of these important risk factors.
- -------------------------------------------------------------------------
MARKET PRICE DATA
1999 1998
Price per
share: High Low High Low
1st Qtr. 80- 3/8 62- 5/16 67- 3/4 57-15/16
2nd Qtr. 79-13/16 60-13/16 76- 3/16 62- 3/4
3rd Qtr 78- 1/4 68- 1/4 88-15/16 72-13/16
4th Qtr. 77- 1/2 56- 5/8 85- 1/4 70
- -------------------------------------------------------------------------
SUMMARY OF OPERATING DATA
A summary of operating data for 1999 and for the four years prior is
shown on page 68.
- -------------------------------------------------------------------------
27
ITEM 7A. 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 and/or costs associated with such activities, the Company manages
exposures to changes in commodity prices, interest rates and foreign
currency exchange rates. See Note 9, Financial Instruments, for further
discussion of the Company's policy for managing such exposures.
The majority of foreign currency forward contracts are denominated in
euros or in British pounds sterling. The magnitude and nature of such
hedging activities are explained further in Note 9, Financial
Instruments. If foreign currency exchange rates at December 31, 1999 and
1998 increased 10%, the Company would incur an $87 million and $92
million loss on foreign currency forward contracts outstanding at
December 31, 1999 and 1998, respectively. Such losses would be
substantially offset by gains from the revaluation or settlement of the
underlying positions hedged.
The Company has used silver forward contracts to minimize almost all of
its exposure to increases in silver prices in 1999 and expects to
continue to use these instruments to minimize silver price risk in 2000.
As of December 31, 1999, the Company had open forward contracts hedging
the majority of its planned silver requirements for the first quarter of
2000. Based on broker-quoted termination values, if the price of silver
decreased 10% from $5.33 and $5.01 per troy ounce at December 31, 1999
and 1998, respectively, the fair value of silver forward contracts would
be reduced by $5 million and $25 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 less so through investments in marketable
securities. The Company utilizes U.S. dollar-denominated commercial
paper and borrowings as well as foreign currency-denominated 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 yield to maturity analysis,
if December 31, 1999 interest rates increased 10% (about 55 basis points)
with the December 31, 1999 level of debt, there would be decreases in
fair value of short-term and long-term borrowings of $1 million and $18
million, respectively. If December 31, 1998 interest rates increased 10%
(about 49 basis points) with the December 31, 1998 level of debt, there
would be decreases in fair value of short-term and long-term borrowings
of $1 million and $10 million, respectively.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
consolidated financial statements and related notes which appear on pages
30 through 67. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States, and include certain amounts that are based on management's best
estimates and judgments.
The Company's accounting systems include extensive internal controls
designed to provide reasonable assurance of the reliability of its
financial records and the proper safeguarding and use of its assets.
Such controls are based on established policies and procedures, are
implemented by trained, skilled personnel with an appropriate segregation
of duties, and are monitored through a comprehensive internal audit
program. The Company's policies and procedures prescribe that the
Company and all employees are to maintain the highest ethical standards
and that its business practices throughout the world are to be conducted
in a manner which is above reproach.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who were responsible
for conducting their audits in accordance with generally accepted
auditing standards. Their resulting report is shown below.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of non-
management Board members. The independent accountants and internal
auditors have full and free access to the Audit Committee. The Audit
Committee meets periodically with the independent accountants and the
Director of Corporate Auditing, both privately and with management
present, to discuss accounting, auditing and financial reporting matters.
Daniel A. Carp Jesse J. Greene, Jr.
Chief Executive Officer Acting Chief Financial Officer, and
and Director Senior Vice President and Director
of Strategy and Information Systems
January 18, 2000 January 18, 2000
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Eastman Kodak Company
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2) on page 71 of this
Annual Report on Form 10-K present fairly, in all material respects, the
financial position of Eastman Kodak Company and subsidiary companies at
December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Rochester, New York
January 18, 2000
30
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31,
(in millions, except per share
data)
1999 1998 1997
Sales $14,089 $13,406 $14,538
Cost of goods sold 7,987 7,293 7,976
------- ------- -------
Gross profit 6,102 6,113 6,562
Selling, general and
administrative expenses 3,295 3,303 3,912
Research and development costs 817 880 1,044
Purchased research and
development - 42 186
Restructuring costs and asset
impairments - - 1,290
------- ------- -------
Earnings from operations 1,990 1,888 130
Interest expense 142 110 98
Other income (charges) 261 328 21
------- ------- -------
Earnings before income taxes 2,109 2,106 53
Provision for income taxes 717 716 48
------ ------- -------
NET EARNINGS $1,392 $ 1,390 $ 5
====== ======= =======
Basic earnings per share $ 4.38 $ 4.30 $ .01
====== ======= =======
Diluted earnings per share $ 4.33 $ 4.24 $ .01
====== ======= =======
Earnings used in basic and diluted
earnings per share $1,392 $ 1,390 $ 5
Number of common shares used in
basic earnings per share 318.0 323.3 327.4
Incremental shares from
assumed conversion of options 3.5 4.5 4.5
------ ------- -------
Number of common shares used in
diluted earnings per share 321.5 327.8 331.9
====== ======= =======
The accompanying notes are an integral part of these financial
statements.
31
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except share and per
share data) At December 31,
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 373 $ 457
Marketable securities 20 43
Receivables 2,537 2,527
Inventories 1,519 1,424
Deferred income tax charges 689 855
Other 306 293
------- -------
Total current assets 5,444 5,599
------- -------
PROPERTIES
Land, buildings and equipment at cost 13,289 13,482
Less: Accumulated depreciation 7,342 7,568
------- -------
Net properties 5,947 5,914
------- -------
OTHER ASSETS
Goodwill (net of accumulated
amortization of $671 and $534) 982 1,232
Long-term receivables and other
noncurrent assets 1,801 1,705
Deferred income tax charges 196 283
------- -------
TOTAL ASSETS $14,370 $14,733
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,832 $ 3,906
Short-term borrowings 1,163 1,518
Taxes - income and other 612 593
Dividends payable 139 142
Deferred income tax credits 23 19
------- -------
Total current liabilities 5,769 6,178
OTHER LIABILITIES
Long-term borrowings 936 504
Postemployment liabilities 2,776 2,962
Other long-term liabilities 918 1,032
Deferred income tax credits 59 69
------- -------
Total liabilities 10,458 10,745
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 per share
950,000,000 shares authorized; issued
391,292,760 shares in 1999 and 1998 978 978
Additional paid in capital 889 902
Retained earnings 6,995 6,163
Accumulated other comprehensive loss (145) (111)
------- -------
8,717 7,932
Treasury stock, at cost
80,871,830 shares in 1999 and
68,494,402 shares in 1998 4,805 3,944
------- -------
Total shareholders' equity 3,912 3,988
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,370 $14,733
======= =======
The accompanying notes are an integral part of these financial statements.
32
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in millions, except number of shares)
Accumulated
Additional Other
Common Paid In Retained Comprehensive Treasury
Stock* Capital Earnings Income (Loss) Stock Total
Shareholders' Equity December 31, 1996 $978 $ 910 $ 5,939 $ 67 $(3,160) $4,734
Net earnings - - 5 - - 5
------
Other comprehensive income (loss):
Unrealized holding gains - - - - - 15
Currency translation adjustments - - - (247)
Minimum pension liability adjustment
($57 million pre-tax) - - - - - (37)
------
Other comprehensive loss - - - (269) - (269)
------
Comprehensive loss - - - - - (264)
Cash dividends declared - - (577) - - (577)
Retained earnings - other changes - - (24) - - (24)
Treasury stock repurchased (11,315,800 shares) - - - - (850) (850)
Treasury stock issued under employee plans
(2,540,868 shares) - (31) - - 138 107
Tax reductions - employee plans - 35 - - - 35
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 1997 978 914 5,343 (202) (3,872) 3,161
Net earnings - - 1,390 - - 1,390
------
Other comprehensive income (loss):
Unrealized holding gains arising
during the period ($122 million pre-tax) - - - - - 80
Reclassification adjustment for gains
included in net earnings ($66 million
pre-tax) - - - - - (44)
Currency translation adjustments - - - - - 59
Minimum pension liability adjustment
($7 million pre-tax) - - - - - (4)
------
Other comprehensive income - - - 91 - 91
------
Comprehensive income - - - - - 1,481
Cash dividends declared - - (570) - - (570)
Treasury stock repurchased (3,541,295 shares) - - - - (258) (258)
Treasury stock issued under employee plans
(3,272,713 shares) - (58) - - 186 128
Tax reductions - employee plans - 46 - - - 46
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 1998 978 902 6,163 (111) (3,944) 3,988
33
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Cont'd.
(in millions, except number of shares)
Accumulated
Additional Other
Common Paid In Retained Comprehensive Treasury
Stock* Capital Earnings Income (Loss) Stock Total
Shareholders' Equity December 31, 1998 978 902 6,163 (111) (3,944) 3,988
Net earnings - - 1,392 - - 1,392
------
Other comprehensive income (loss):
Unrealized holding gains arising
during the period ($115 million pre-tax) - - - - - 83
Reclassification adjustment for gains
included in net earnings ($20 million
pre-tax) - - - - - (13)
Currency translation adjustments - - - - - (118)
Minimum pension liability adjustment
($26 million pre-tax) - - - - - 14
------
Other comprehensive loss - - - (34) - (34)
------
Comprehensive income - - - - - 1,358
Cash dividends declared - - (560) - - (560)
Treasury stock repurchased (13,482,648 shares) - - - - (925) (925)
Treasury stock issued under employee plans
(1,105,220 shares) - (24) - - 64 40
Tax reductions - employee plans - 11 - - - 11
---- ----- ------- ----- ------- ------
Shareholders' Equity December 31, 1999 $978 $ 889 $ 6,995 $(145) $(4,805) $3,912
==== ===== ======= ===== ======= ======
* There are 100 million shares of $10 par value preferred stock authorized, none of which have been issued.
Accumulated unrealized holding gains as of December 31, 1999, 1998 and 1997 were $113 million, $43 million,
and $7 million, respectively. Accumulated translation adjustments as of December 31, 1999, 1998 and 1997
were $(231) million, $(113) million and $(172) million, respectively. Accumulated minimum pension liability
adjustments as of December 31, 1999, 1998 and 1997 were $(27) million, $(41) million and $(37) million,
respectively.
The accompanying notes are an integral part of these financial statements.
34
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,
(in millions) 1999 1998 1997
Cash flows from operating activities:
Net earnings $1,392 $1,390 $ 5
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 918 853 828
Purchased research and development - 42 186
Gain on sales of businesses (129) (87) -
Restructuring costs, asset impairments
and other charges 453 - 1,415
Provision (benefit) for deferred
income taxes 247 202 (502)
(Gain) loss on sales/retirements of
assets (33) (79) 25
(Increase) decrease in receivables (121) (1) 165
(Increase) decrease in inventories (201) (43) 77
Decrease in liabilities
excluding borrowings (478) (516) (349)
Other items, net (115) (278) 230
------ ------ -----
Total adjustments 541 93 2,075
------ ------ ------
Net cash provided by operating
activities 1,933 1,483 2,080
------ ------ ------
Cash flows from investing activities:
Additions to properties (1,127) (1,108) (1,485)
Proceeds from sales of assets 158 196 109
Proceeds from sales of businesses 310 101 -
Cash flows related to sales of
businesses (46) (59) (194)
Acquisitions, net of cash acquired (3) (949) (341)
Marketable securities - sales 127 162 15
Marketable securities - purchases (104) (182) -
------ ------ ------
Net cash used in investing
activities (685) (1,839) (1,896)
------ ------ ------
Cash flows from financing activities:
Net (decrease) increase in
borrowings with original maturities
of 90 days or less (136) 894 177
Proceeds from other borrowings 1,343 1,133 1,472
Repayment of other borrowings (1,118) (1,251) (1,526)
Dividends to shareholders (563) (569) (567)
Exercise of employee stock options 44 128 96
Stock repurchase programs (897) (258) (850)
------ ------ ------
Net cash (used in) provided by
financing activities (1,327) 77 (1,198)
------ ------ ------
Effect of exchange rate changes on cash (5) 8 (35)
------ ------ ------
Net decrease in cash and
cash equivalents (84) (271) (1,049)
Cash and cash equivalents, beginning
of year 457 728 1,777
------ ------ ------
Cash and cash equivalents, end of year $ 373 $ 457 $ 728
====== ====== ======
35
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
(in millions)
Cash paid for interest and income taxes was:
1999 1998 1997
Interest, net of portion capitalized
of $36, $41 and $33 $120 $ 90 $ 81
Income taxes 445 498 517
The following transactions are not reflected in the Consolidated
Statement of Cash Flows:
1999 1998 1997
Contribution of assets to Kodak
Polychrome Graphics joint venture $ 13 $ - $216
Minimum pension liability adjustment (14) 4 37
Liabilities assumed in acquisitions - 473 144
The accompanying notes are an integral part of these financial
statements.
36
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Eastman Kodak Company (the Company or Kodak) is engaged primarily in
developing, manufacturing, and marketing consumer, professional, health
and other imaging products and services. The Company's products are
manufactured in a number of countries in North and South America, Europe,
Australia and Asia. The Company's products are marketed and sold in many
countries throughout the world.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Eastman
Kodak Company and its majority owned subsidiary companies. Intercompany
transactions are eliminated and net earnings are reduced by the portion
of the earnings of subsidiaries applicable to minority interests. The
equity method of accounting is used for investments in associated
companies over which Kodak does not effectively have control.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at year end and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency
is the functional currency and translation adjustments are accumulated in
a separate component of shareholders' equity. Translation adjustments
are not tax-effected since they relate to investments which are permanent
in nature.
For subsidiaries and branches that operate in U.S. dollars or whose
economic environment is highly inflationary, the U.S. dollar is the
functional currency and gains and losses that result from translation are
included in earnings. The effect from foreign currency translation was a
gain of $11 million in 1999, a gain of $6 million in 1998, and a loss of
$7 million in 1997.
The Company hedges certain foreign currency transactions by entering into
forward exchange contracts. Gains and losses associated with currency
rate changes on forward contracts hedging foreign currency transactions
are recorded currently in earnings. The effects from foreign currency
transactions, including related hedging activities, were losses of $13
million in 1999, $26 million in 1998, and $66 million in 1997. Gains and
losses related to hedges of firm commitments are deferred and recognized
in earnings or as adjustments of carrying amounts when the transactions
occur.
37
CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less at date of purchase are considered to be cash equivalents.
MARKETABLE SECURITIES AND NONCURRENT INVESTMENTS
At December 31, 1999, investments of $10 million included in marketable
securities were considered held to maturity. Investments of $10 million
included in marketable securities, and $117 million of long-term
marketable securities and other investments which were included in other
noncurrent assets, were considered available for sale.
At December 31, 1998, investments of $26 million included in marketable
securities were considered held to maturity. Investments of $17 million
included in marketable securities, and $112 million of long-term
marketable securities and other investments which were included in other
noncurrent assets, were considered available for sale.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The
cost of most inventories in the U.S. is determined by the "last-in, first-
out" (LIFO) method. The cost of other inventories is determined by the
"first-in, first-out" (FIFO) or average cost method, which approximates
current cost. The Company provides inventory reserves for excess,
obsolete or slow-moving inventory based on changes in customer demand,
technology developments or other economic factors.
PROPERTIES
Properties are recorded at cost reduced by accumulated depreciation.
Depreciation expense is provided based on historical cost and estimated
useful lives ranging from approximately five years to fifty years for
buildings and building equipment and three years to twenty years for
machinery and equipment. The Company generally uses the straight-line
method for calculating the provision for depreciation.
GOODWILL
Goodwill is charged to earnings on a straight-line basis over the period
estimated to be benefited, generally ten years. The Company regularly
assesses all of its long-lived assets for impairment when events or
circumstances indicate their carrying amounts may not be recoverable, in
accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." This is accomplished by comparing the
estimated undiscounted future cash flows of the asset grouping with the
respective carrying amount as of the date of assessment. Should
aggregate future cash flows be less than the carrying value, a write-down
would be required, measured as the difference between the carrying value
and the discounted future cash flows.
38
REVENUE
Revenue is recognized from the sale of film, paper, supplies and
equipment (including sales-type leases for equipment) when the product is
shipped; from maintenance and service contracts over the contractual
period, or as the services are performed; from rentals under operating
leases in the month in which they are earned; and from financing
transactions at level rates of return over the term of the lease or
receivable.
RESEARCH AND DEVELOPMENT COSTS
Product development costs are charged to operations during the period
incurred.
ADVERTISING
Advertising costs are expensed as incurred and included in "selling,
general and administrative expenses." Advertising expenses amounted to
$717 million, $756 million and $988 million in 1999, 1998 and 1997,
respectively.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
or capitalized, as appropriate, in accordance with the American Institute
of Certified Public Accountants (AICPA) Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities." Remediation costs that relate
to an existing condition caused by past operations are accrued when it is
probable that these costs will be incurred and can be reasonably
estimated.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
EARNINGS PER SHARE
Earnings per share is presented in accordance with the provisions of SFAS
No. 128, "Earnings Per Share." Basic earnings per share computations are
based on the weighted-average number of shares of common stock
outstanding during the year. Diluted earnings per share calculations
reflect the assumed exercise and conversion of employee stock options.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," which requires compensation
costs to be recognized based on the difference, if any, between the
quoted market price of the stock on the grant date and the exercise
price.
39
SEGMENT REPORTING
In the fourth quarter of 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
for all periods presented. The Company has four operating segments. The
basis for determining the Company's operating segments is the manner in
which financial information is used by the Company in its operations.
Management operates and organizes itself according to business units
which comprise unique products and services across geographic locations.
RECLASSIFICATIONS
Certain reclassifications of 1998 and 1997 financial statement and
related footnote amounts have been made to conform with the 1999
presentation.
- -------------------------------------------------------------------------
40
NOTE 2: RECEIVABLES
(in millions)
1999 1998
Trade receivables $2,140 $2,167
Miscellaneous receivables 397 360
------ ------
Total (net of allowances of $136 and $169) $2,537 $2,527
====== ======
The Company sells to customers in a variety of industries, markets and
geographies around the world. Receivables arising from these sales are
generally not collateralized. Adequate provisions have been recorded for
uncollectible receivables. There are no significant concentrations of
credit risk.
- -------------------------------------------------------------------------
NOTE 3: INVENTORIES
(in millions) 1999 1998
At FIFO or average cost (approximates
current cost)
Finished goods $1,026 $ 907
Work in process 487 569
Raw materials and supplies 471 439
------ ------
1,984 1,915
LIFO reserve (465) (491)
------ ------
Total $1,519 $1,424
====== ======
Inventories valued on the LIFO method are approximately 48% and 57% of
total inventories in 1999 and 1998, respectively.
- -------------------------------------------------------------------------
NOTE 4: PROPERTIES
(in millions) 1999 1998
Land $ 166 $ 193
Buildings and building equipment 2,579 2,681
Machinery and equipment 9,669 9,764
Construction in progress 875 844
------- -------
13,289 13,482
Accumulated depreciation (7,342) (7,568)
------- -------
Net properties $ 5,947 $ 5,914
======= =======
- -------------------------------------------------------------------------
41
NOTE 5: PAYABLES AND SHORT-TERM BORROWINGS
(in millions) 1999 1998
Trade creditors $ 940 $ 947
Accrued advertising and promotional
expenses 548 439
Employment-related liabilities 912 897
Restructuring programs 362 312
Other 1,070 1,311
------ ------
Total payables $3,832 $3,906
====== ======
Short-term bank borrowings totaled $1,163 million at year-end 1999 and
$1,518 million at year-end 1998. Borrowings included $894 million and
$1,196 million of commercial paper at year-end 1999 and 1998,
respectively. The weighted-average interest rate of borrowings
outstanding at year end was 5.8% in 1999 and 5.5% in 1998.
The Company has a $3.5 billion unused revolving credit facility
established in 1996 and expiring in November 2001 which is available to
support the Company's commercial paper program and for general corporate
purposes. If unused, it has a commitment fee of $1.9 million per year,
at the Company's current credit rating. Interest on amounts borrowed
under this facility is calculated at rates based on spreads above certain
reference rates.
- -------------------------------------------------------------------------
NOTE 6: LONG-TERM BORROWINGS
(in millions)
Description and Interest Maturity Dates
Rates of 1999 Borrowings of 1999 Borrowings 1999 1998
Notes:
5.93% - 8.25% 2001 - 2004 $272 $198
9.20% - 9.95% 2003 - 2021 191 191
Debentures:
1.72% - 13.75% 2000 - 2004 122 147
Other:
.50% - 13.26% 2001 - 2008 353 46
---- ----
938 582
Current maturities (2) (78)
---- ----
Total $936 $504
==== ====
Annual maturities (in millions) of long-term borrowings outstanding at
December 31, 1999 are as follows: 2000: $2; 2001: $281; 2002: $106; 2003:
$342; 2004: $160; and 2005 and beyond: $47.
The Company has a shelf registration statement for debt securities with
an available balance of $2.1 billion.
- -------------------------------------------------------------------------
42
NOTE 7: OTHER LONG-TERM LIABILITIES
(in millions) 1999 1998
Deferred compensation $ 160 $ 160
Restructuring programs - 102
Minority interest in Kodak companies 98 128
Other 660 642
------ ------
Total $ 918 $1,032
====== ======
- -------------------------------------------------------------------------
NOTE 8: COMMITMENTS AND CONTINGENCIES
Environmental
Expenditures for pollution prevention and waste treatment for continuing
operations at various manufacturing facilities were as follows:
1999 1998 1997
(in millions)
Recurring costs for managing
hazardous substances and
pollution prevention $ 69 $ 75 $ 88
Capital expenditures to limit or
monitor hazardous substances and
pollutants 20 25 25
Site remediation costs 5 4 2
---- ---- ----
Total $ 94 $104 $115
==== ==== ====
At December 31, 1999 and 1998, the Company's undiscounted accrued
liabilities for environmental remediation costs amounted to $124 million
and $91 million, respectively.
The Company anticipates the above expenditures to increase in the future.
However, it is not expected that these costs will have an impact which is
materially different from 1999's environmental expenditures on financial
position, results of operations, cash flows or competitive position.
A Consent Decree was signed in 1994 in settlement of a civil complaint
brought by the U.S. Environmental Protection Agency and the U.S.
Department of Justice under which the Company is subject to a Compliance
Schedule by which the Company improved its waste characterization
procedures, upgraded one of its incinerators, and is evaluating and
upgrading its industrial sewer system. The total expenditures required
to complete this program are currently estimated to be approximately $36
million over the next eight years. These expenditures are primarily
capital in nature.
43
The Company is presently designated as a potentially responsible party
(PRP) under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (the Superfund law), or under similar
state laws, for environmental assessment and cleanup costs as the result
of the Company's alleged arrangements for disposal of hazardous
substances at approximately four active Superfund sites. With respect to
each of these sites, the Company's actual or potential allocated share of
responsibility is small. Furthermore, numerous other PRPs have also been
designated at these sites and, although the law imposes joint and several
liability on PRPs, as a practical matter, costs are shared with other
PRPs. Settlements and costs paid by the Company in Superfund matters to
date have not been material. Future costs are also not expected to be
material to the Company's financial position or results of operations.
In addition to the foregoing environmental actions, the Company is
currently implementing a Corrective Action Program required by the
Resource Conservation and Recovery Act (RCRA) at the Kodak Park site in
Rochester, NY. As part of this Program, the Company has completed the
RCRA Facility Assessment (RFA), a broad-based environmental investigation
of the site. The Company is currently in the process of completing, and
in some cases has completed, RCRA Facility Investigations (RFIs) and
Corrective Measures Studies (CMS) for areas at the site. Estimated
future remediation costs are accrued by the Company and are included in
remediation accruals recorded at December 31, 1999.
The Clean Air Act Amendments were enacted in 1990. Expenditures to
comply with the Clean Air Act implementing regulations issued to date
have not been material and have been primarily capital in nature. In
addition, future expenditures for existing regulations, which are
primarily capital in nature, are not expected to be material. Many of
the regulations to be promulgated pursuant to this Act have not been
issued.
The Company has retained certain obligations for environmental
remediation and Superfund matters related to the non-imaging health
businesses sold in 1994. Actions to fulfill these obligations are not
expected to be completed in the near term and costs related to the
obligations are included in remediation accruals recorded at December 31,
1999 and 1998. Included in these obligations are responsibilities for
the liabilities associated with the non-imaging health businesses as a
PRP in approximately eight active Superfund sites.
Other Commitments and Contingencies
The Company has entered into agreements with several companies which
provide Kodak with products and services to be used in its normal
operations. The minimum payments for these agreements are approximately
$173 million in 2000, $113 million in 2001, $38 million in 2002, $38
million in 2003, $35 million in 2004, and $107 million in 2005 and
thereafter.
The Company has also guaranteed debt and other obligations under
agreements with certain affiliated companies and customers. At December
31, 1999, these guarantees totaled approximately $100 million. The
Company does not expect that these guarantees will have a material impact
on the Company's future financial position or results of operations.
44
At December 31, 1999, the Company had outstanding letters of credit
totaling $79 million to ensure the completion of environmental
remediations and payment of possible casualty and Workers' Compensation
claims.
Rental expense, net of minor sublease income, amounted to $142 million in
1999, $149 million in 1998 and $182 million in 1997. The approximate
amounts of noncancelable lease commitments with terms of more than one
year, principally for the rental of real property, reduced by minor
sublease income, are $94 million in 2000, $69 million in 2001, $49
million in 2002, $28 million in 2003, $20 million in 2004, and $42
million in 2005 and thereafter.
The Company and its subsidiary companies are involved in lawsuits,
claims, investigations and proceedings, including product liability,
commercial, environmental, and health and safety matters, which are being
handled and defended in the ordinary course of business. There are no
such matters pending that the Company and its General Counsel expect to
be material in relation to the Company's business, financial position or
results of operations.
- -------------------------------------------------------------------------
NOTE 9: FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and the estimated fair
values of financial instruments at December 31, 1999 and 1998; ( )
denotes liabilities:
1999 1998
(in millions)
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities:
Current $ 20 $ 21 $ 43 $ 43
Long-term 93 93 89 89
Other investments 24 35 23 25
Long-term borrowings (936) (948) (504) (540)
Foreign currency forwards (6) (4) 9 9
Silver forwards - 3 - 7
Marketable securities and other investments are valued at quoted market
prices, except for $2 million and $3 million of equity investments
included in other investments at December 31, 1999 and 1998,
respectively, which are reflected at their carrying value because quoted
market prices do not exist. The fair values of long-term borrowings were
determined by reference to quoted market prices or by obtaining quotes
from dealers. The fair values for the remaining financial instruments in
the above table are based on dealer quotes and reflect the estimated
amounts the Company would pay or receive to terminate the contracts. The
carrying values of cash and cash equivalents, receivables, short-term
borrowings and payables approximate their fair values.
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 and/or costs associated with such activities, the Company manages
exposures to changes in foreign currency exchange rates, commodity
prices, and interest rates.
45
Foreign currency forward contracts are used to hedge existing foreign
currency-denominated assets and liabilities, especially those of the
Company's International Treasury Center. Forward contracts are used to
mitigate the Company's risk to fluctuating commodity prices. The
Company's exposure to changes in interest rates results from its
investing and borrowing 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. Derivative
instruments are not presently used to adjust the Company's interest rate
risk profile. The Company does not utilize financial instruments for
trading or other speculative purposes, nor does it utilize leveraged
financial instruments.
The table below summarizes by major currency the notional amounts of
foreign currency forward contracts in U.S. dollars. The counter-currency
for all of the contracts is the U.S. dollar. Foreign currency amounts
are translated at rates current at the reporting date. The "buy" amounts
represent the U.S. dollar equivalent of commitments to purchase foreign
currencies, and the "sell" amounts represent the U.S. dollar equivalent
of commitments to sell foreign currencies. Substantially all of the
Company's foreign currency forward agreements will mature during 2000.
The market risk related to foreign currency forward contracts is
substantially offset by changes in the valuation and cash flows of the
underlying positions hedged.
1999 1998
(in millions)
Buy Sell Buy Sell
Australian dollar $ - $ 67 $ - $ 65
British pound 3 135 - 385
Euro 656 92 - -
French franc - - 288 -
German mark - - 79 -
Irish punt - - - 83
Spanish peseta - - - 31
Others 39 35 65 31
---- ---- ---- ----
Total $698 $329 $432 $595
==== ==== ==== ====
The Company has used silver forward contracts to minimize almost all of
its exposure to increases in silver prices in 1999 and expects to
continue to use these instruments to minimize silver price risk in 2000.
As of December 31, 1999, the Company had open forward contracts hedging
the majority of its planned silver requirements for the first quarter of
2000. Silver forwards outstanding at December 31, 1999 have notional
amounts of $51 million. All silver hedging contracts are settled in
cash. Gains and losses related to silver hedges are recorded as
adjustments to the carrying amount of silver inventory when purchased,
and recognized in results of operations as silver-containing products are
sold. The market risk related to silver forward contracts is
substantially offset by changes in the cost of silver purchased.
46
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
through specific minimum credit standards and diversification of
counterparties. The Company has procedures to monitor the credit
exposure amounts. The maximum credit exposure at December 31, 1999 was
not significant to the Company.
- -------------------------------------------------------------------------
NOTE 10: INCOME TAXES
The components of earnings (loss) before income taxes and the related
provision (benefit) for U.S. and other income taxes were as follows:
(in millions) 1999 1998 1997
Earnings (loss) before income
taxes
U.S. $1,398 $1,578 $ 328
Outside the U.S. 711 528 (275)
------ ------ ------
Total $2,109 $2,106 $ 53
====== ====== ======
U.S. income taxes
Current provision $ 185 $ 351 $ 388
Deferred provision (benefit) 215 136 (366)
Income taxes outside the U.S.
Current provision 225 113 130
Deferred provision (benefit) 23 61 (115)
State and other income taxes
Current provision 60 50 32
Deferred provision (benefit) 9 5 (21)
------ ------ ------
Total $ 717 $ 716 $ 48
====== ====== ======
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate were as follows:
(in millions) 1999 1998 1997
Amount computed using the statutory
rate $738 $737 $ 19
Increase (reduction) in taxes
resulting from:
State and other income taxes 45 38 7
Goodwill amortization 36 28 18
Export sales and manufacturing
credits (45) (39) (39)
Operations outside the U.S. (36) (15) 36
Other, net (21) (33) 7
---- ---- ----
Provision for income taxes $717 $716 $ 48
==== ==== ====
47
The significant components of deferred tax assets and liabilities were as
follows:
(in millions) 1999 1998
Deferred tax assets
Postemployment obligations $ 992 $1,085
Restructuring programs 74 177
Inventories 153 139
Tax loss carryforwards 94 95
Other 905 887
------ ------
2,218 2,383
Valuation allowance (94) (95)
------ ------
Total $2,124 $2,288
====== ======
Deferred tax liabilities
Depreciation $ 527 $ 472
Leasing 260 310
Other 534 456
------ ------
Total $1,321 $1,238
====== ======
The valuation allowance is primarily attributable to certain net
operating loss carryforwards outside the U.S. A majority of the net
operating loss carryforwards are subject to a five-year expiration
period.
Retained earnings of subsidiary companies outside the U.S. were
approximately $1,439 million and $1,036 million at December 31, 1999 and
1998, respectively. Retained earnings at December 31, 1999 are
considered to be reinvested indefinitely. If remitted, they would be
substantially free of additional tax. It is not practicable to determine
the deferred tax liability for temporary differences related to these
retained earnings.
- -------------------------------------------------------------------------
48
NOTE 11: RESTRUCTURING PROGRAMS AND COST REDUCTION
1999 Program
During the third quarter of 1999, the Company recorded a pre-tax
restructuring charge of $350 million relating to worldwide manufacturing
and photofinishing consolidation and reductions in selling, general and
administrative positions worldwide. The Company recorded $236 million of
the $350 million provision as cost of goods sold, primarily for employee
severance costs, asset write-downs, and shutdown costs related to these
actions. The remaining $114 million was recorded as SG&A for employee
severance payments.
In connection with this program, approximately 3,400 positions will be
eliminated worldwide, with approximately $250 million of the
restructuring charge for severance payments. Approximately $90 million
of the $350 million charge is for asset write-downs, primarily for vacant
buildings to be sold and equipment to be shut down as part of the
Company's sale and exit of its Elmgrove manufacturing facility. In
addition, approximately $10 million of the charge is for shutdown costs
related to the exit of the Elmgrove facility. The net cash cost of the
restructuring program, which will be funded through operations, will be
approximately $140 million after tax.
The 3,400 personnel included in the restructuring were associated with
the realignment of manufacturing (1,500) and service and photofinishing
operations (870); and the consolidation of sales and marketing (460), R&D
(70) and administrative (500) functions in various locations of the
Company's worldwide operations. In the fourth quarter of 1999,
approximately 400 employees left the Company under this program. The
remaining headcount reductions are expected to be completed by September
30, 2000.
The Company expects approximate pre-tax savings associated with this
program of $100 million in 2000, and an additional $70 million in 2001,
resulting in total run rate savings of $170 million. The Company
anticipates recovering the net cash cost of this program in less than two
years.
The following table summarizes the restructuring costs and activity of
the 1999 program:
(in millions)
Severance Shutdown
Costs Costs Total
Initial reserve $250 $10 $260
Amounts utilized 21 - 21
---- --- ----
Balance 12/31/99 $229 $10 $239
49
In addition to the third-quarter 1999 charge, the Company incurred pre-
tax charges of $11 million in the fourth quarter of 1999 related to
accelerated depreciation of assets still in use but scheduled to be sold
and exited under this program. Accelerated depreciation charges and
relocation costs of approximately $60 million pre-tax, in the aggregate,
will be recorded in 2000 in connection with these actions.
1997 Program
The Company recorded a pre-tax provision of $1,455 million in the fourth
quarter of 1997 for severance and other termination benefits and exit
costs related to the strategic realignment of the Company's worldwide
manufacturing, sales and marketing, R&D, administrative, and
photofinishing operations. The Company recorded $165 million of the
$1,455 million provision as cost of goods sold, primarily for inventory
write-downs and other costs. The remaining $1,290 million included $735
million of severance, $127 million of other exit costs and $428 million
of asset impairments.
The principal purpose of this program was to eliminate infrastructure and
operational inefficiencies and redundancies throughout the Company by
taking actions to separate personnel, close facilities and exit non-
strategic businesses. Primary actions involved the reorganization of
sensitized goods manufacturing and research lab operations as well as
decisions to exit numerous businesses across all operating segments, with
a significant portion relating to Consumer Imaging and Other Imaging
segment businesses. Approximately 13,000 employees had been terminated
through the end of 1999 under this plan. Through the end of 1999,
approximately $657 million and $82 million was spent for severance costs
and other business exit costs, respectively. At December 31, 1999 and
1998, the Company had a liability of $123 million and $368 million,
respectively, for this program. The remaining actions under the program
will be completed in 2000.
- -------------------------------------------------------------------------
50
NOTE 12: RETIREMENT PLANS
Substantially all U.S. employees are covered by a noncontributory plan,
the Kodak Retirement Income Plan (KRIP), which is funded by Company
contributions to an irrevocable trust fund. The funding policy for KRIP
is to contribute amounts sufficient to meet minimum funding requirements
as determined by employee benefit and tax laws plus additional amounts
the Company determines to be appropriate. Generally, benefits are based
on a formula recognizing length of service and final average earnings.
Assets in the fund are held for the sole benefit of participating
employees and retirees. The assets of the trust fund are comprised of
corporate equity and debt securities, U.S. government securities,
partnership and joint venture investments, interests in pooled funds, and
various types of interest rate and foreign currency financial
instruments. Kodak common stock represents approximately 7.0% of trust
assets.
The benefit obligation of KRIP excludes amounts for all employees (both
retired and active) of the non-imaging health businesses sold in 1994
since those obligations were transferred to the buyers of such
businesses. The transfer of assets from the KRIP trust fund to the buyers
of the non-imaging health businesses was not completed as of December 31,
1999. The Company retained the obligation for employees of the Office
Imaging business as a result of the sale of this business in 1996.
Most subsidiaries and branches operating outside the U.S. have retirement
plans covering substantially all employees. Contributions by the Company
for these plans are typically deposited under government or other
fiduciary-type arrangements. Retirement benefits are generally based on
contractual agreements that provide for benefit formulas using years of
service and/or compensation prior to retirement. The actuarial
assumptions used for these plans reflect the diverse economic
environments within the various countries in which the Company operates.
On January 1, 2000, the Company adopted a cash balance plan effective for
all U.S. employees hired after February 1999. All U.S. employees hired
prior to that date were granted the option to choose the KRIP plan or the
Cash Balance Plus plan. Written elections were made by employees in
1999, and were effective January 1, 2000. The Cash Balance Plus plan
will be funded by Company contributions to employee cash balance accounts
which earn interest at the 30-year Treasury bond rate. In addition, for
employees participating in this plan and the Company's defined
contribution plan, the Savings and Investment Plan (SIP), the Company
will match SIP contributions for an amount up to 3%, for employee
contributions of up to 5%. As a result of employee elections to the Cash
Balance Plus plan, the Company does not anticipate any material impact on
results of operations, as the estimated reduction in future pension
expense will be almost entirely offset by the cost of matching employee
contributions to SIP.
The Company adopted the disclosure provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," in 1998.
51
Changes in the Company's benefit obligation, plan assets and funded
status for major plans are as follows:
(in millions) 1999 1998
Non- Non-
U.S. U.S. U.S. U.S.
Change in Benefit Obligation
Projected benefit obligation
at January 1 $ 6,523 $1,998 $ 6,810 $1,809
Service cost 107 33 122 33
Interest cost 426 111 444 118
Participant contributions - 12 - 13
Benefit payments (876) (118) (1,113) (119)
Actuarial (gain)loss (370) (69) 224 141
Curtailments (12) (16) 36 (13)
Currency adjustments - (46) - 16
------- ------ ------- ------
Projected benefit obligation
at December 31 $ 5,798 $1,905 $ 6,523 $1,998
======= ====== ======= ======
Change in Plan Assets
Fair value of plan assets
at January 1 $ 6,543 $1,824 $ 6,950 $1,749
Actual return on plan assets 1,673 217 706 129
Employer contributions - 33 - 38
Participant contributions - 12 - 13
Benefit payments (876) (112) (1,113) (107)
Currency adjustments - (49) - 13
Other - (8) - (11)
------- ------ ------- ------
Fair value of plan assets
at December 31 $ 7,340 $1,917 $ 6,543 $1,824
======= ====== ======= ======
Funded Status at December 31 $ 1,542 $ 12 $ 20 $ (174)
Unamortized:
Transition asset (174) (45) (232) (46)
Net (gain) loss (1,251) 94 256 256
Prior service cost 72 23 94 32
------- ------ ------- ------
Net amount recognized at
December 31 $ 189 $ 84 $ 138 $ 68
======= ====== ======= ======
Amounts recognized in the Statement of Financial Position for major plans
are as follows:
(in millions) 1999 1998
Non- Non-
U.S. U.S. U.S. U.S.
Prepaid pension cost $ 189 $ 111 $ 138 $ 93
Accrued benefit liability - (27) - (25)
------- ------ ------- ------
Net amount recognized at
December 31 $ 189 $ 84 $ 138 $ 68
======= ====== ======= ======
52
Pension expense (income) for all plans included:
(in millions) 1999 1998 1997
Non- Non- Non-
U.S. U.S. U.S. U.S. U.S. U.S.
Service cost $ 107 $ 34 $ 122 $ 33 $ 122 $ 36
Interest cost 426 111 444 118 480 118
Expected return on plan
assets (537) (137) (551) (137) (565) (134)
Amortization of:
Transition asset (59) (10) (60) (9) (67) (8)
Prior service cost 10 8 12 8 13 8
Actuarial loss 2 10 11 5 4 1
----- ----- ----- ----- ----- -----
(51) 16 (22) 18 (13) 21
Curtailments (1) - 7 1 - -
Settlements - - - 1 - -
----- ----- ----- ----- ----- -----
Net pension (income) expense (52) 16 (15) 20 (13) 21
Other plans including
unfunded plans 33 51 36 46 31 76
----- ----- ----- ----- ----- -----
Total net pension (income)
expense $ (19) $ 67 $ 21 $ 66 $ 18 $ 97
===== ===== ===== ===== ===== =====
The Company recorded a $9 million curtailment loss as a result of the
reduction in employees in 1999 from the 1997 restructuring program.
Additionally, the Company recorded a $10 million curtailment gain as a
result of the sale of the Office Imaging business, which was included in
the gain on the sale. The Company recorded an $8 million curtailment
loss and a $1 million settlement charge in 1998 as a result of the
reduction in employees in 1998 from the 1997 restructuring program.
The weighted assumptions used to compute pension amounts for major plans
were as follows:
1999 1998
Non- Non-
U.S. U.S. U.S. U.S.
Discount rate 7.5% 6.1% 6.8% 5.8%
Salary increase rate 4.3% 3.2% 4.3% 3.1%
Long-term rate of return on
plan assets 9.5% 8.7% 9.5% 8.1%
The Company also sponsors an unfunded plan for certain U.S. employees,
primarily executives. The benefits of this plan are obtained by applying
KRIP provisions to all compensation, including amounts being deferred,
and without regard to the legislated qualified plan maximums, reduced by
benefits under KRIP. At December 31, 1999 and 1998, the projected
benefit obligations of this plan amounted to $192 million and $232
million, respectively. The Company had recorded long-term liabilities at
those dates of $174 million and $208 million, respectively. Pension
expense recorded in 1999, 1998 and 1997 related to this plan was $21
million, $26 million and $25 million, respectively.
- -------------------------------------------------------------------------
53
NOTE 13: NONPENSION POSTRETIREMENT BENEFITS
The Company provides health care, dental and life insurance benefits to
U.S. eligible retirees and eligible survivors of retirees. In general,
these benefits are provided to U.S. retirees that are covered by the
Company's KRIP plan. These benefits are funded from the general assets
of the Company as they are incurred. Certain non-U.S. subsidiaries offer
health care benefits; however, the cost of such benefits is insignificant
to the Company.
Changes in the Company's benefit obligation and funded status are as
follows:
(in millions) 1999 1998
Net benefit obligation at beginning
of year $ 2,280 $ 2,366
Service cost 13 19
Interest cost 152 161
Plan participants' contributions 3 3
Plan amendments (33) (158)
Actuarial loss 70 78
Curtailments (13) (29)
Benefit payments (165) (160)
------- -------
Net benefit obligation at end of year $ 2,307 $ 2,280
======= =======
Funded status at end of year $(2,307) $(2,280)
Unamortized net loss 491 443
Unamortized plan amendments (646) (773)
------- -------
Net amount recognized and recorded
at end of year $(2,462) $(2,610)
======= =======
The weighted-average assumptions used to compute postretirement benefit
amounts were as follows:
1999 1998
Discount rate 7.5% 6.8%
Salary increase rate 4.3% 4.3%
Health care cost trend (a) 6.5% 7.0%
(a) decreasing to 5.0% by 2002
(in millions) 1999 1998 1997
Components of net postretirement
benefit cost
Service cost $ 13 $ 19 $ 21
Interest cost 152 161 159
Amortization of:
Prior service cost (68) (70) (69)
Actuarial loss 8 16 2
------ ------ ------
105 126 113
Curtailments (90) (103) -
------ ------ ------
Total net postretirement benefit cost $ 15 $ 23 $ 113
====== ====== ======
54
The Company recorded a $71 million and $103 million curtailment gain in
1999 and 1998, respectively, as a result of the reduction in employees
from the 1997 restructuring program. Additionally, the Company recorded
a $15 million curtailment gain in 1999 as a result of the sale of the
Office Imaging business, which was included in the gain on the sale, and
a $4 million curtailment gain as part of the investment in the joint
venture with NexPress.
For employees who have elected to participate in the Company's Cash
Balance Plus plan, effective January 1, 2000, the Company will no longer
fund health care and dental benefits to these employees. This change is
not expected to have a material impact on the Company's future
postretirement benefit cost.
In 1998, the Company moved to a new managed-care base health plan in
order to effectively manage health care costs while maintaining the
quality of care. This change resulted in a reduction of $25 million for
1998 postretirement benefit costs.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage point
change in assumed health care cost trend rates would have the following
effects:
1% 1%
increase decrease
Effect on total service and interest
cost components $ 5 $ (4)
Effect on postretirement benefit
obligation 68 (55)
- -------------------------------------------------------------------------
55
NOTE 14: STOCK OPTION AND COMPENSATION PLANS
The Company's stock incentive plans consist of the 1995 Omnibus Long-Term
Compensation Plan (the 1995 Plan), the 1990 Omnibus Long-Term
Compensation Plan (the 1990 Plan) and, effective January 1, 2000, the
2000 Omnibus Long-Term Compensation Plan (the 2000 Plan). The Plans are
administered by the Executive Compensation and Development Committee of
the Board of Directors.
Under the 1995 Plan, 22 million shares of the Company's common stock may
be granted to a variety of employees between February 1, 1995 and
December 31, 1999. Option prices are not less than 100% of the per-share
fair market value on the date of grant, and the options generally expire
ten years from the date of grant, but may expire sooner if the optionee's
employment terminates. The 1995 Plan also provides for Stock
Appreciation Rights (SARs) to be granted, either in tandem with options
or freestanding. SARs allow optionees to receive payment equal to the
difference between the Company's stock market price on grant date and
exercise date. At December 31, 1999, 217,415 freestanding SARs were
outstanding at option prices ranging from $56.31 to $71.81.
Under the 1990 Plan, 22 million shares of the Company's common stock were
eligible for grant to key employees between February 1, 1990 and January
31, 1995. Option prices could not be less than 50% of the per-share fair
market value on the date of grant; however, no options below fair market
value were granted. The options generally expire ten years from the date
of grant, but may expire sooner if the optionee's employment terminates.
The 1990 Plan also provided that options with dividend equivalents,
tandem SARs and freestanding SARs could be granted. At December 31,
1999, 49,337 tandem SARs and 116,097 freestanding SARs were outstanding
at option prices ranging from $31.45 to $44.50.
In April 1998, the Company made a one-time grant of 100 stock options for
common stock to most employees of the Company at that date (8,468,100
shares under options). The options were granted at fair market value on
the date of grant and expire ten years from the grant date. The options
have a two-year vesting period. The Executive Compensation and
Development Committee of the Board of Directors approved the one-time
grant.
In May 1999, the Board of Directors adopted and shareholders approved the
2000 Plan. The 2000 Plan is substantially similar to, and is intended to
replace, the 1995 Plan which expired on December 31, 1999. Under the
2000 Plan, 22 million shares of the Company's common stock may be granted
to a variety of employees between January 1, 2000 and December 31, 2004.
56
Further information relating to options is as follows:
(Amounts in thousands, except per share amounts)
Shares Range of Price
Under Option Per Share
Outstanding on December 31, 1996 20,854 $30.25 - $83.44
Granted 6,077 $54.38 - $92.31
Exercised 2,422 $30.25 - $71.81
Terminated, Canceled or Surrendered 305 $31.45 - $90.75
------
Outstanding on December 31, 1997 24,204 $30.25 - $92.31
Granted 14,546 $59.00 - $87.59
Exercised 3,208 $30.25 - $82.00
Terminated, Canceled or Surrendered 1,211 $31.45 - $83.38
------
Outstanding on December 31, 1998 34,331 $30.25 - $92.31
Granted 4,276 $60.13 - $79.63
Exercised 1,101 $30.25 - $74.31
Terminated, Canceled or Surrendered 473 $31.45 - $92.31
------
Outstanding on December 31, 1999 37,033 $30.25 - $92.31
Exercisable on December 31, 1999 19,913 $30.25 - $92.31
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123, "Accounting for Stock-Based Compensation," has been
determined as if the Company had accounted for employee stock options
under SFAS No. 123's fair value method. The fair value of options was
estimated at grant date using a Black-Scholes option pricing model with
the following weighted-average assumptions:
1999 1998 1997
Risk free interest rates 5.1% 5.6% 6.7%
Expected option lives 7 years 7 years 7 years
Expected volatilities 28% 27% 25%
Expected dividend yields 2.76% 2.71% 2.32%
The weighted-average fair value of options granted was $18.77, $19.94 and
$25.76 for 1999, 1998 and 1997, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period (2-3
years). The Company's pro forma information follows:
Year Ended December 31,
(in millions, except per share data) 1999 1998 1997
Net earnings (loss)
As reported $1,392 $1,390 $ 5
Pro forma 1,263 1,272 (52)
Basic earnings (loss) per share
As reported $ 4.38 $ 4.30 $ .01
Pro forma 3.96 3.93 (.16)
Diluted earnings (loss) per share
As reported $ 4.33 $ 4.24 $ .01
Pro forma 3.96 3.93 (.16)
57
The following table summarizes information about stock options at
December 31, 1999:
(Number of options in thousands)
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Range of Weighted-
Exercise Average Weighted- Weighted-
Prices Remaining Average Average
At Less Contractual Exercise Exercise
Least Than Options Life Price Options Price
$30 - $45 7,669 2.75 $38.68 7,663 $38.68
$45 - $60 3,239 4.85 $54.19 3,233 $54.18
$60 - $75 22,980 8.05 $67.65 7,233 $70.52
$75 - $90 1,023 7.79 $80.42 679 $81.53
>$90 2,122 7.15 $90.19 1,105 $90.22
------ ------
37,033 19,913
====== ======
- -------------------------------------------------------------------------
NOTE 15: ACQUISITIONS AND JOINT VENTURES
1999
In connection with the sale of the Company's digital printer, copier-
duplicator, and roller assembly operations primarily associated with the
Office Imaging business (See Note 16, Sales of Assets and Divestitures),
the Company and Heidelberger Druckmaschinen AG ("Heidelberg") also
announced an agreement to expand their joint venture company, NexPress,
to include the black-and-white electrophotographic business. The Company
contributed research and development resources to NexPress, as well as
its toner and developer operations in Rochester and Kirkby, England.
This transaction did not have a material effect on the Company's results
of operations or financial position in 1999. Kodak and Heidelberg
established the NexPress joint venture in September 1997 for the purpose
of developing and marketing new digital color printing solutions for the
graphic arts industry. In connection with these arrangements, the
Company serves as a supplier both to Heidelberg and NexPress for
consumables such as photoconductors and raw materials for toner/developer
manufacturing.
1998
On March 12, 1998, the Company acquired 51% of PictureVision Inc.'s stock
for approximately $50 million. PictureVision, the leading provider of
digital imaging network services and solutions at retail, operates as a
subsidiary of the Company. Kodak has integrated the products and
activities of its Picture Network, which provides consumers with an
Internet-based digital imaging network service, with PictureVision's
digital imaging service, PhotoNet. The acquisition has been accounted
for as a purchase and, accordingly, the operating results of the business
have been included in the accompanying consolidated financial statements
from the date of acquisition.
58
In February 1998, the Company contributed $308 million to Kodak (China)
Company Limited (KCCL), a newly formed company operating in China, in
exchange for 80% of the outstanding shares of the company. On March 25
and September 1, 1998, the new company acquired certain manufacturing
assets of Shantou Era Photo Material Industry Corporation, a Chinese
domestic photographic enterprise, for $159 million in cash and $22
million in debt payable in 2003. On March 26, 1998, KCCL acquired
certain manufacturing assets of Xiamen Fuda Photographic Materials
Company, Ltd., another Chinese domestic photographic enterprise, for $149
million.
In February 1998, the Company contributed $32 million to Kodak (Wuxi)
Company Limited (KWCL), a newly formed company operating in China, in
exchange for 70% of the outstanding shares of the business. On April 2,
1998, KWCL acquired part of the manufacturing assets of Wuxi Aermei Film
and Chemical Corporation, a Chinese domestic photographic enterprise, for
$11 million in cash and $21 million in debt payable in 1999.
The acquisitions by KCCL and KWCL have been accounted for as purchases
and, accordingly, the operating results of the acquired companies have
been included in the accompanying consolidated financial statements from
the dates of acquisition. Substantial portions of the purchase prices
were allocated to goodwill, which is being amortized over a ten-year
period.
On November 30, 1998, Kodak acquired certain assets and assumed certain
liabilities of Imation's medical imaging business, including all of the
outstanding shares of Imation's Cemax-Icon subsidiary, for approximately
$530 million. At the date of acquisition, the business acquired by Kodak
generated approximately $500 million in annual revenues. The transaction
was accounted for by the purchase method and, accordingly, the operating
results of the business have been included in the accompanying
consolidated financial statements from the date of acquisition. A
substantial portion of the purchase price was allocated to tangible
assets and goodwill, which is being amortized over a ten-year period.
See discussion regarding in-process R&D charges below.
Pro forma financial information has not been presented since the
acquisitions, both individually and in the aggregate, would not have had
a material impact on the Company's financial position or results of
operations.
59
1997
On March 17, 1997, the Company acquired the assets and liabilities of the
Wang Laboratories' software business unit for approximately $260 million
in cash. The unit is engaged in the development of workflow, imaging,
document management, network storage management, and desktop software.
The transaction was accounted for by the purchase method and,
accordingly, the operating results of the business have been included in
the accompanying consolidated financial statements from the date of
acquisition. Goodwill recorded in connection with the acquisition is
being amortized over five years. See discussion regarding in-process R&D
charges below. In the first quarter of 1999, the Company recorded a pre-
tax charge of $51 million associated with the Eastman Software business.
This amount consisted of $39 million for impaired assets, including
goodwill, and severance payments of $12 million to restructure the
business. The charge recorded for impaired goodwill was determined on a
basis consistent with the Company's policy for accounting for long-lived
asets under SFAS No. 121.
On September 2, 1997, the Company completed a program to increase its
stake in Chinon Industries, Inc. from 12% to 50.1%. The Company's
consolidated financial statements include the accounts of Chinon
beginning September 2. Kodak and Chinon closely collaborate on the
development and production of digital cameras. Kodak and Chinon will
continue to collaborate on engineering and development of digital cameras
and scanners.
On October 2, 1997, the Company purchased CPI's interest in the Fox
Photo, Inc. joint venture for $10 million in cash and a $43.9 million
note. The two companies formed the venture in October 1996. The
transaction was accounted for by the purchase method and, accordingly,
the operating results of the venture have been included in the
accompanying consolidated financial statements from the date of
formation. On September 1, 1998, the Company sold all of its shares of
Fox Photo, Inc. as discussed in Note 16, Sales of Assets and
Divestitures.
On December 31, 1997, the Company and Sun Chemical Corporation formed a
joint venture, Kodak Polychrome Graphics, that supplies film, paper,
conventional and computer-to-plate solutions, processing chemistry and
digital color proofing products to the global graphics arts market. Each
company owns 50% of the venture and shares profits equally. Assets
contributed to the joint venture were reclassified to other noncurrent
assets on the Consolidated Statement of Financial Position. The
Company's investment in the venture is accounted for using the equity
method.
In-process Research and Development Charges
The Company allocated a portion of the purchase price to acquired in-
process R&D totaling $42 million in the fourth quarter of 1998 related to
the Imation acquisition and $186 million in the first quarter of 1997
related to the Wang acquisition.
60
The Company used independent professional appraisal consultants to assess
and allocate values to the in-process R&D. These allocations represent
the estimated fair value based on risk-adjusted future cash flows related
to the incomplete projects. At the dates of the respective business
combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed as of the respective
acquisition dates.
The valuations were determined by the Company using the income approach.
The Company believes that the assumptions used in the forecasts were
reasonable at the time of the respective business combinations. No
assurance can be given, however, that the underlying assumptions used to
estimate expected project sales, development costs or profitability, or
the events associated with such projects, will transpire as estimated.
For these reasons, actual results may vary from the projected results.
Management expects to continue supporting the viable remaining R&D
programs and believes the Company has a reasonable chance of successfully
completing the remaining R&D programs. However, there is a risk
associated with the completion of the R&D projects and the Company cannot
be assured that any will meet with either technological or commercial
success.
Without successful completion of the remaining R&D efforts on the
acquired in-process technologies, the end result would be to fail to
fulfill product design specifications and in turn fail to meet market
requirements. As a result, the Company would not realize the future
revenues and profits attributed to the acquired R&D. Ultimately, the
Company would fail to realize the expected return on such investments.
The failure of any particular individual in-process R&D project would not
materially impact the Company's financial position or results of
operations. Operating results are subject to uncertain market events and
risks, which are beyond the Company's control, such as trends in
technology, market size and growth, and product introduction or other
actions by competitors.
A description of the acquired in-process technology and the estimates of
the fair value of in-process R&D made by the Company for each business
combination are set forth below.
Imation Medical Imaging
The in-process technology acquired from Imation consists of eight R&D
projects within three broad technology groupings: Dry, Imagesetting, and
Analog, which comprise $31 million, $10 million and $1 million,
respectively. The specific nature of the significant technology acquired
from Imation, dry technology, is outlined below.
61
Unlike wet technology used in medical imaging applications, dry
technologies require no wet chemistry, wet film processing, or darkroom
procedures. The dry technology projects include next-generation laser
printing systems for high resolution mammography applications, low cost
decentralized printing networks with dedicated modality connections, and
a flexible image acquisition unit with three direct inputs, network input
and output. Dry technology projects also include next-generation dry
media with improved image stability and lower unit cost.
Estimated net cash inflows from the acquired in-process technology
related to Medical Imaging are projected to commence in the year 2000,
peak in 2001 and steadily decline through 2007. The in-process
technology is expected to be completed in the year 2000.
As of the date of acquisition, $44 million had been expended to develop
these R&D projects. Additionally, an estimated $7 million has been
expended through December 31, 1999. The estimated completion costs to be
incurred through the year 2000 are approximately $3 million. Three of
the eight original projects have yet to be completed as of December 31,
1999. Remaining efforts on these projects include development and
testing phases.
The fair value assigned to purchased in-process technology was determined
by estimating the contribution of the purchased in-process technology to
developing commercially viable products and estimating the resulting cash
flows from the expected product sales of such products. The resulting
cash flows were discounted to their present value using a rate of 12%.
Cash flows attributable to development efforts, including the completion
of developments underway, and future versions of the product that have
not yet been undertaken, were excluded in the valuation of in-process
R&D. A contributory asset charge was applied for the use of working
capital, fixed assets, developed technology and other intangibles. There
were no material anticipated changes from historical pricing, margins,
and expense trends.
Acquired developed technology of approximately $90 million was
capitalized at acquisition date and is being amortized over seven years
on a straight-line basis.
Wang Software
In-process technology acquired from Wang was comprised of several new and
next-generation technology projects, which included the creation of
significant Desktop/Workgroup Imaging Systems and Production Imaging
Systems, as well as Computer Output to Laser Disk (COLD), Document
Warehouse, and New Imaging and Workflow technologies. The fair value
assigned to the Desktop/Workgroup Imaging Systems and Production Imaging
Systems was approximately $6 million and $21 million, respectively, while
the fair value assigned to COLD, Document Warehouse, and New Imaging and
Workflow technologies was approximately $17 million, $30 million and $102
million, respectively. The Company also assessed other in-process
technologies, including Storage Management and Document Management
technologies, to which it assigned a fair market value of approximately
$10 million.
62
Unlike proven existing software technology, the above in-process next-
generation technology is considered unproven and start-up in nature in
the industry. As of the date of acquisition, an estimated $30 million
had been expended to develop these R&D projects. Additionally, an
estimated $27 million has been expended through December 31, 1999. The
estimated completion costs to be incurred through the year 2001 are
approximately $11 million. Remaining efforts on the projects include
development and testing phases.
The fair value assigned to purchased in-process technology was determined
by estimating the contribution of the purchased in-process technology to
developing commercially viable products and estimating the resulting cash
flows from the expected product sales of such products. The resulting
cash flows were discounted to their present value using rates of 17% to
19%. Contributory asset charges were applied for the use of working
capital, fixed assets, developed technology and other intangibles. There
were no material anticipated changes from historical pricing, margins,
and expense trends.
Acquired developed technology of approximately $25 million was
capitalized at acquisition date and is being amortized over five years on
a straight-line basis.
In 1998, the Document Warehouse project had been discontinued as a result
of strategic changes in the Company's portfolio.
In June 1999, an updated, fully functional package of Desktop/Workgroup
software was released. Also, features that were the result of the
Production Imaging project were successfully incorporated into the
Imaging 3.X product that was released in July 1998.
The New Imaging and Workflow technologies had an original release date
scheduled for 2000. As of December 31, 1999, the next generation
products for New Imaging and Workflow had a revised release date of the
first quarter of 2001 with further updates in the third quarter of 2001.
This delay is the result of the products being based on web technology,
which was not envisioned at the time of acquisition.
As of December 31, 1999, the release date for COLD is scheduled for 2001.
This delay is the result of advances in technology in New Imaging and
Workflow technologies that COLD will integrate with in the future.
A significant effort remains to complete the New Imaging and Workflow
technologies and COLD projects. While the in-process R&D projects are
twelve months behind schedule as of December 31, 1999, they continue to
evolve, as new technologies become available to implement them.
- -------------------------------------------------------------------------
63
NOTE 16: SALES OF ASSETS AND DIVESTITURES
1999
In April 1999, the Company sold its digital printer, copier-duplicator,
and roller assembly operations primarily associated with its Office
Imaging business, which included its operations in Rochester, NY,
Muehlhausen, Germany and Tijuana, Mexico to Heidelberg for approximately
$80 million. The transaction did not have a material effect on the
Company's results of operations or financial position.
In November 1999, the Company sold The Image Bank, a wholly-owned
subsidiary which markets and licenses image reproduction rights, to Getty
Images, Inc. for $183 million in cash. As a result of this transaction,
the Company recorded a pre-tax gain of $95 million in other income
(charges).
In November 1999, the Company sold its Motion Analysis Systems Division,
which manufactures digital cameras and digital video cameras for the
automotive and industrial markets, to Roper Industries, Inc. for
approximately $50 million in cash. As a result of this transaction, the
Company recorded a pre-tax gain of $25 million in other income (charges).
1998
In June 1998, the Company sold part of its investment in Gretag Imaging
Group, a Swiss manufacturer of film processing equipment, in connection
with Gretag's initial public offering. The proceeds from the sale were
$72 million and resulted in a pre-tax gain of $66 million in other
income(charges).
On September 1, 1998, the Company sold all of its shares of Fox Photo,
Inc. to Wolf Camera for an amount approximating the current value of Fox
Photo's net assets.
On October 1, 1998, Elan Corporation, plc purchased from Kodak all the
assets and liabilities of Kodak's subsidiary NanoSystems L.L.C., a drug
delivery company, for approximately $150 million in a combination of $137
million cash and warrants to purchase ordinary shares in Elan. The
Company recorded a pre-tax gain of $87 million in other income (charges)
on the sale in the fourth quarter of 1998.
In the fourth quarter of 1998, financial difficulties on the part of
Danka affected its ability to fulfill the original terms of certain of
its agreements with the Company which were established in connection with
the sale of the Office Imaging business in 1996. As a result, in
December 1998, the Company's supply agreement and certain other
agreements with Danka were terminated and interim arrangements for the
supply by the Company to Danka of copier equipment, parts and supplies
were established on a month-to-month basis. As a result of significant
volume reductions by Danka, the Company was required to take action in
the fourth quarter of 1998 that resulted in charges for employee
severance (800 personnel) and write-downs of working capital and
equipment. Such pre-tax charges amounted to $132 million and were
recorded to cost of goods sold ($68 million) and SG&A expenses ($64
million). All actions with respect to this charge, including employee
terminations, were completed by the Company in 1998.
- ------------------------------------------------------------------------
64
NOTE 17: SEGMENT INFORMATION
The Consumer Imaging segment derives revenues from photographic film,
paper, chemicals, cameras, photoprocessing equipment, digitization
services, and photoprocessing services sold to consumers. The Kodak
Professional segment derives revenues from photographic film, paper,
chemicals, and digital cameras sold to professional customers and
graphics film products sold to the Kodak Polychrome Graphics joint
venture. The Health Imaging segment derives revenues from medical film
and processing equipment sold to health care organizations. The Other
Imaging segment derives revenues from motion picture film sold to movie
production and distribution companies, microfilm equipment and media,
printers, scanners and other business equipment, document imaging
software, and consumer digital cameras and media.
Transactions between segments, which are immaterial, are made on a basis
intended to reflect the market value of the products, recognizing
prevailing market prices and distributor discounts. Differences between
the reportable segments' operating results and net assets, and the
Company's consolidated financial statements relate primarily to items
held at the corporate level, and to other items excluded from segment
operating measurements.
Segment financial information is shown below.
65
(in millions) 1999 1998 1997
Sales:
Consumer Imaging $ 7,411 $ 7,164 $ 7,681
Kodak Professional 1,910 1,840 2,272
Health Imaging 2,120 1,526 1,532
Other Imaging 2,648 2,876 3,053
------- ------- -------
Consolidated total $14,089 $13,406 $14,538
======= ======= =======
Earnings (loss) from operations:
Consumer Imaging $ 1,299 $ 1,080 $ 1,072
Kodak Professional 374 330 284
Health Imaging 470 321 317
Other Imaging 197 157 (88)
------- ------- -------
Total of segments 2,340 1,888 1,585
Restructuring costs
and asset impairments (350) - (1,455)
------- ------- -------
Consolidated total $ 1,990 $ 1,888 $ 130
======= ======= =======
Net earnings (loss):
Consumer Imaging $ 900 $ 785 $ 724
Kodak Professional 265 237 192
Health Imaging 315 205 213
Other Imaging 222 162 (86)
------- ------- -------
Total of segments 1,702 1,389 1,043
Restructuring costs
and asset impairments (350) - (1,455)
Gain on sale of NanoSystems - 87 -
Interest expense (142) (110) (98)
Corporate interest income 22 27 25
Income tax effects on above items
and taxes not allocated to segments 160 (3) 490
------- ------- -------
Consolidated total $ 1,392 $ 1,390 $ 5
======= ======= =======
Operating net assets:
Consumer Imaging $ 5,005 $ 4,856 $ 4,009
Kodak Professional 1,636 1,591 1,370
Health Imaging 1,229 1,135 588
Other Imaging 1,074 1,173 887
------- ------- -------
Total of segments 8,944 8,755 6,854
LIFO inventory reserve (465) (491) (534)
Cash and marketable securities 393 500 752
Dividends payable (139) (142) (143)
Net deferred income tax assets
and tax liabilities 191 457 685
Noncurrent other postemployment
liabilities (2,289) (2,455) (2,593)
Other corporate net assets (624) (614) (664)
------- ------- -------
Consolidated net assets (1) $ 6,011 $ 6,010 $ 4,357
======= ======= =======
66
(1) Consolidated net assets are derived from the Consolidated Statement
of Financial Position, as follows:
(in millions) 1999 1998 1997
Total assets $14,370 $14,733 $13,145
Total liabilities 10,458 10,745 9,984
Less: Short-term borrowings (1,163) (1,518) (611)
Less: Long-term borrowings (936) (504) (585)
------- ------- -------
Non-interest-bearing liabilities 8,359 8,723 8,788
------- ------- -------
Consolidated net assets $ 6,011 $ 6,010 $ 4,357
======= ======= =======
Depreciation expense:
Consumer Imaging $ 396 $ 401 $ 387
Kodak Professional 100 117 119
Health Imaging 82 51 61
Other Imaging 195 168 181
------- ------- -------
Consolidated total $ 773 $ 737 $ 748
======= ======= =======
Goodwill amortization expense:
Consumer Imaging $ 94 $ 77 $ 52
Kodak Professional 13 10 7
Health Imaging 24 8 4
Other Imaging 14 21 17
------- ------- -------
Consolidated total $ 145 $ 116 $ 80
======= ======= =======
Capital additions:
Consumer Imaging $ 725 $ 622 $ 796
Kodak Professional 147 143 234
Health Imaging 92 88 91
Other Imaging 163 255 364
------- ------- -------
Consolidated total $ 1,127 $ 1,108 $ 1,485
======= ======= =======
Sales to external customers attributed to (2):
The United States $ 6,714 $ 6,417 $ 6,890
Europe, Middle East and Africa 3,734 3,701 4,036
Asia Pacific 2,267 2,009 2,333
Canada and Latin America 1,374 1,279 1,279
------- ------- -------
Consolidated total $14,089 $13,406 $14,538
======= ======= =======
(2) Sales are reported in the geographic area in which they originate.
Long-lived assets located in:
The United States $ 3,904 $ 4,044 $ 4,007
Europe, Middle East and Africa 715 861 818
Asia Pacific 1,024 704 386
Canada and Latin America 304 305 298
------- ------- -------
Consolidated total $ 5,947 $ 5,914 $ 5,509
======= ======= =======
67
NOTE 18: QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4th Qtr. 3rd Qtr. 2nd Qtr. 1st
Qtr.
(in millions, except per share data)
1999
Sales $3,799 $3,580 $3,610 $3,100
Gross profit 1,654 1,493 1,724 1,231
Net earnings 475(1) 235(2) 491 191(3)
Basic earnings per share 1.51 .74 1.54 .59
Diluted earnings per share (7) 1.50 .73 1.52 .59
1998
Sales $3,563 $3,391 $3,541 $2,911
Gross profit 1,460 1,614 1,713 1,326
Net earnings 272(4) 398 495(5) 225(6)
Basic earnings per share .84 1.23 1.53 .70
Diluted earnings per share .83 1.21 1.51 .69
(1) Includes a gain of $95 million on the sale of The Image Bank, which
increased net earnings by $63 million; a gain of $25 million on
the sale of the Motion Analysis Systems Division, which increased net
earnings by $16 million; and $11 million of charges related to
the restructuring program, which reduced net earnings by $7 million.
(2) Includes $350 million of restructuring costs, which reduced net
earnings by $231 million.
(3) Includes $103 million of charges associated with business exits, which
reduced net earnings by $68 million.
(4) Includes $17 million of litigation charges, which reduced net earnings
by $11 million; $132 million of Office Imaging charges, which reduced
net earnings by $87 million; $45 million primarily for a write-off of
in-process R&D associated with the Imation acquisition, which reduced
net earnings by $30 million; and a gain of $87 million on the sale of
NanoSystems, which increased net earnings by $57 million.
(5) Includes a gain of $66 million on the sale of part of the Company's
investment in Gretag, which increased net earnings by $44 million.
(6) Includes $18 million of litigation charges, which reduced net earnings
by $12 million.
(7) Each quarter is calculated as a discrete period and the sum of the four
quarters does not equal the full year amount.
68
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(Dollar amounts and shares in millions, except per share data)
1999 1998 1997 1996 1995
Sales from continuing
operations $14,089 $13,406 $14,538 $15,968 $14,980
Earnings from operations 1,990 1,888 130 1,845 1,941
Earnings from continuing
operations after tax 1,392(1) 1,390(2) 5(4) 1,011(6) 1,252
Earnings from discontinued
operations after tax - - - 277 -
Net earnings 1,392(1) 1,390(2) 5(4) 1,288(6) 1,252
EARNINGS AND DIVIDENDS
Net earnings
- % of sales 9.9% 10.4% 0.0% 8.1% 8.4%
- % return on average
shareholders' equity 35.2% 38.9% 0.1% 26.1% 27.4%
Basic earnings per share from
continuing operations (7) 4.38 4.30 .01 3.00 3.67
Basic earnings per share (7) 4.38 4.30 .01 3.82 3.67
Diluted earnings per share from
continuing operations 4.33 4.24 .01 2.95 3.62
Diluted earnings per share 4.33 4.24 .01 3.76 3.62
Cash dividends declared
- on common shares 560 570 577 539 547
- per common share 1.76 1.76 1.76 1.60 1.60
Common shares outstanding at
year end 310.4 322.8 323.1 331.8 345.9
Shareholders at year end 131,719 129,495 135,132 137,092 143,574
STATEMENT OF FINANCIAL
POSITION DATA
Working capital (8) $ 838 $ 939 $ 909 $ 2,089 $3,252
Properties - net 5,947 5,914 5,509 5,422 5,377
Total assets 14,370 14,733 13,145 14,438 14,477
Short-term borrowings 1,163 1,518 611 541 586
Long-term borrowings 936 504 585 559 665
Total shareholders' equity 3,912 3,988 3,161 4,734 5,121
SUPPLEMENTAL INFORMATION
Sales - Consumer Imaging $ 7,411 $ 7,164 $ 7,681 $ 7,659 $6,830
- Kodak Professional 1,910 1,840 2,272 2,367 2,358
- Health Imaging 2,120 1,526 1,532 1,627 1,605
- Other Imaging 2,648 2,876 3,053 4,315 4,187
Research and development costs 817 880(3) 1,044(5) 1,028 935
Depreciation 773 737 748 837 807
Taxes (excludes payroll, sales
and excise taxes) 806 809 164 663 796
Wages, salaries and employee
benefits 3,962 4,306 4,985 5,110 5,025
Employees at year end
- in the U.S. 43,300 46,300 54,800 53,400 54,400
- worldwide 80,650 86,200 97,500 94,800 96,600
(see footnotes on next page)
69
SUMMARY OF OPERATING DATA
Eastman Kodak Company and Subsidiary Companies
(footnotes for previous page)
(1) Includes $350 million of restructuring charges, which reduced net
earnings by $231 million, and an additional $11 million of charges
related to this restructuring program, which reduced net earnings by $7
million; $103 million of charges associated with business exits, which
reduced net earnings by $68 million; a gain of $95 million on the
sale of The Image Bank, which increased net earnings by $63 million;
and a gain of $25 million on the sale of the Motion Analysis Systems
Division, which increased net earnings by $16 million.
(2) Includes $35 million of litigation charges, which reduced net
earnings by $23 million; $132 million of Office Imaging charges,
which reduced net earnings by $87 million; $45 million primarily
for a write-off of in-process R&D associated with the Imation
acquisition, which reduced net earnings by $30 million; a gain of
$87 million on the sale of NanoSystems, which increased net earnings
by $57 million; and a gain of $66 million on the sale of part of the
Company's investment in Gretag, which increased net earnings by $44
million.
(3) Excludes a $42 million charge for the write-off of in-process R&D
associated with the Imation acquisition.
(4) Includes $1,455 million of restructuring costs, asset impairments
and other charges, which reduced net earnings by $990 million;
$186 million as a write-off of in-process R&D associated with the
Wang acquisition, which reduced net earnings by $123 million; and a
$46 million litigation charge, which reduced net earnings by $30
million.
(5) Excludes a $186 million charge for the write-off of in-process
R&D associated with the Wang acquisition.
(6) Includes $358 million of restructuring costs, which reduced net
earnings by $256 million, and a $387 million loss related to the sale
of the Office Imaging business, which reduced net earnings by $252
million.
(7) Based on weighted-average number of shares outstanding.
(8) Excludes short-term borrowings.
70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- -------------------------------------------------------------------------
PART III
ITEMS 10(a), 11 AND 12. DIRECTORS OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Responses to the above items, as contained in the Notice of 2000 Annual
Meeting and Proxy Statement, which will be filed within 120 days of the
Company's fiscal year end, are hereby incorporated by reference in this
Annual Report on Form 10-K.
ITEM 10(b). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers list is contained in PART I under the caption
"Executive Officers of the Registrant" on page 8.
- -------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None to report.
- -------------------------------------------------------------------------
71
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE No.
(a) 1. Consolidated financial statements:
Report of independent accountants 29
Consolidated statement of earnings 30
Consolidated statement of financial position 31
Consolidated statement of shareholders' equity 32-33
Consolidated statement of cash flows 34-35
Notes to financial statements 36-67
2. Financial statement schedules:
II - Valuation and qualifying accounts 73
All other schedules have been omitted because they are not
applicable or the information required is shown in the
financial statements or notes thereto.
3. Additional data required to be furnished:
Exhibits required as part of this report are listed in the index
appearing on pages 74 through 79. The management contracts and
compensatory plans and arrangements required to be filed as exhibits
to this form pursuant to Item 14(c) of this report are listed on
pages 75 through 79, Exhibit Numbers (10)A - (10)S.
(b) Report on Form 8-K.
No reports on Form 8-K were filed or required to be filed during
the quarter ended December 31, 1999.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EASTMAN KODAK COMPANY
(Registrant)
By: By:
Daniel A. Carp, Robert H. Brust, Chief Financial
Chief Executive Officer Officer and Executive Vice
President
E. Mark Rajkowski
Controller
Date: March 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
Richard S. Braddock, Director Durk I. Jager, Director
Daniel A. Carp, Director Debra L. Lee, Director
Martha Layne Collins, Director Paul H. O'Neill, Director
Alice F. Emerson, Director John J. Phelan, Jr., Director
George M. C. Fisher, Director Laura D'Andrea Tyson, Director
Paul E. Gray, Director Richard A. Zimmerman, Director
Date: March 13, 2000
73
Schedule II
Eastman Kodak Company and Subsidiary Companies
Valuation and Qualifying Accounts
(in millions)
Balance at Additions Deductions Balance
Beginning Charged to Amounts at End of
of Period Earnings Written Off Period
Year ended December 31, 1999
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $142 $32 $70 $104
Reserve for loss on
returns and allowances 27 27 22 32
---- --- --- ----
TOTAL $169 $59 $92 $136
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 10 $(2) $ 1 $ 7
==== === === ====
Year ended December 31, 1998
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $ 85 $61 $ 4 $142
Reserve for loss on
returns and allowances 27 13 13 27
---- --- --- ----
TOTAL $112 $74 $17 $169
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 10 $ 1 $ 1 $ 10
==== === === ====
Year ended December 31, 1997
Deducted in the Statement
of Financial Position:
From Current Receivables
Reserve for doubtful
accounts $ 70 $50 $35 $ 85
Reserve for loss on
returns and allowances 20 18 11 27
---- --- --- ----
TOTAL $ 90 $68 $46 $112
==== === === ====
From Long-Term Receivables
and Other Noncurrent Assets
Reserve for doubtful
accounts $ 6 $ 5 $ 1 $ 10
==== === === ====
74
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits
Exhibit
Number
(3) A. Certificate of Incorporation.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 3.)
B. By-laws, as amended through February 12, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, Exhibit 3.)
(4) A. Indenture dated as of January 1, 1988 between Eastman
Kodak Company as issuer of (i) 9 3/8% Notes Due 2003,
(ii) 9.95% Debentures Due 2018, (iii) 9 1/2% Notes Due 2008,
(iv) 9.20% Debentures Due 2021, and (v) 7 1/4% Notes Due 1999,
and The Bank of New York as Trustee.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 25, 1988, Exhibit 4.)
B. First Supplemental Indenture dated as of September 6, 1991
and Second Supplemental Indenture dated as of September 20,
1991, each between Eastman Kodak Company and The Bank of New
York as Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 4.)
C. Third Supplemental Indenture dated as of January 26, 1993,
between Eastman Kodak Company and The Bank of New York as
Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 4.)
D. Fourth Supplemental Indenture dated as of March 1, 1993,
between Eastman Kodak Company and The Bank of New York as
Trustee, supplementing the Indenture described in A.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit 4.)
Eastman Kodak Company and certain subsidiaries are parties to
instruments defining the rights of holders of long-term debt
that was not registered under the Securities Act of 1933.
Eastman Kodak Company has undertaken to furnish a copy of these
instruments to the Securities and Exchange Commission upon
request.
75
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
(10) A. Eastman Kodak Company Retirement Plan for Directors, as
amended and restated on July 27, 1999, effective as of
February 12, 1999.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, Exhibit 10.)
B. Eastman Kodak Company Insurance Plan for Directors.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 29, 1985, Exhibit 10.)
C. Eastman Kodak Company Deferred Compensation Plan for
Directors, as amended February 11, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, Exhibit 10.) 80
D. Eastman Kodak Company 1985 Long-Term Performance Award Plan,
as amended effective December 31, 1993.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit 10.)
E. 1982 Eastman Kodak Company Executive Deferred Compensation
Plan, as amended effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999,
Exhibit 10.) 83
F. Eastman Kodak Company 1985 Stock Option Plan, as amended
effective April 16, 1998.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, and the
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998, Exhibit 10.)
76
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
G. Eastman Kodak Company 1990 Omnibus Long-term Compensation
Plan, as amended effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, the
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998, and the Quarterly Report on Form
10-Q for the quarterly period ended September 30,
1999, Exhibit 10.) 86
H. Eastman Kodak Company Management Variable Compensation
Plan, as amended effective October 7, 1999.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997, the Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998, the Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998, and the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, Exhibit 10.)
I. Eastman Kodak Company 1995 Omnibus Long-Term Compensation
Plan, as amended effective December 9, 1999.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1998, the
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998, the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, and
the Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999, Exhibit 10.) 90
J. Kodak Executive Financial Counseling Program.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 10.)
K. Personal Umbrella Liability Insurance Coverage.
Eastman Kodak Company provides $5,000,000 personal umbrella
liability insurance coverage to its directors and approximately
160 key executives. The coverage, which is insured through The
Mayflower Insurance Company, Ltd., supplements participants'
personal coverage. The Company pays the cost of this insurance.
Income is imputed to participants.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
77
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
L. Kodak Executive Health Management Plan, as amended effective
January 1, 1995.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
M. George M. C. Fisher Employment Agreement dated October 27,
1993. $4,000,000 Promissory Note dated November 2, 1993.
$4,284,400 Promissory Note dated November 2, 1993. Notice
of Award of Restricted Stock dated November 11, 1993, as
amended. Notice of Award of Incentive Stock Options dated
November 11, 1993. Notice of Award of Non-Qualified Stock
Options dated November 11, 1993.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
Amendment No. 1 to Employment Agreement dated as of April 4,
1994.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994, Exhibit 10.)
Amendment No. 2 to Employment Agreement dated as of February
25, 1997. Notice of Award of Restricted Stock dated February
25, 1997. Notice of Award of Incentive Stock Options dated
February 25, 1997. Notice of Award of Non-Qualified Stock
Options dated February 25, 1997.
(Incorporated by reference to the Eastman Kodak Company Annual
Report on Form 10-K for the fiscal year ended December 31,
1996.)
Amendment No. 3 to Employment Agreement dated as of
February 1, 2000. 94
N. Harry L. Kavetas Employment Agreement dated as of February 11,
1994, Notice of Award of Non-Qualified Stock Options, Notice
of Award of Incentive Stock Options, and Notice of Award of
Restricted Stock, each dated February 15, 1994.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
Amendment No. 1 to Employment Agreement dated as of
January 21, 1997.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
78
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
Amendment No. 2 to Employment Agreement dated as of
March 3, 1997. Notice of Award of Restricted Stock dated
March 4, 1997. Notice of Award of Incentive Stock Options
dated March 4, 1997. Notice of Award of Non-Qualified Stock
Options dated March 4, 1997 under the Eastman Kodak Company
1995 Omnibus Long-Term Compensation Plan. Notice of Award
of Non-Qualified Stock Options dated March 4, 1997 under
the Eastman Kodak Company 1997 Stock Option Plan.
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
O. Eastman Kodak Company 1997 Stock Option Plan, as amended
and restated effective December 9, 1999. 96
P. Eric Steenburgh Agreement dated March 12, 1998.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998, Exhibit 10.)
Q. Richard T. Bourns Agreement dated January 28, 1999
(Incorporated by reference to the Eastman Kodak Company
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
R. Eastman Kodak Company 2000 Omnibus Long-Term Compensation
Plan, as amended effective December 9, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, and the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, Exhibit 10.) 111
S. Eastman Kodak Company 2000 Management Variable Compensation
Plan, effective as of January 1, 2000.
(Incorporated by reference to the Eastman Kodak Company
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, Exhibit 10.)
T. Eastman Kodak Company Executive Protection Plan, as adopted
effective December 9, 1999. 115
U. Eastman Kodak Company Estate Enhancement Plan, as adopted
effective March 6, 2000. 136
V. Robert J. Keegan Agreement dated June 19, 1997.
Amendment, dated June 24, 1999, to Agreement dated
June 19, 1997. 148
W. Daniel A. Carp Agreement dated November 22, 1999. 165
79
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits (continued)
Exhibit
Number Page
X. Robert H. Brust Agreement dated December 20, 1999. 171
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges. 182
(21) Subsidiaries of Eastman Kodak Company. 183
(23) Consent of Independent Accountants. 185
(27) Financial Data Schedule - Submitted with the EDGAR filing as a
second document to this Form 10-K.
(99) Eastman Kodak Employees' Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended December 30, 1999
(to be filed by amendment).
80
Exhibit (10) C.
EASTMAN KODAK COMPANY DEFERRED COMPENSATION PLAN FOR DIRECTORS
Sections 1.6 and 11.2 of the Eastman Kodak Company Deferred Compensation
Plan for Directors are hereby amended in their entirety to read as follows:
1.6 Change in Control
"Change in Control" means the occurrence of any one of the following events:
A. individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
B. any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (B) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (i) by Kodak or any subsidiary, (ii) by
any employee benefit plan (or related trust) sponsored or
maintained by Kodak or any subsidiary, or (iii) by any underwriter
temporarily holding securities pursuant to an offering of such
securities;
C. the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its subsidiaries that requires the approval
81
of Kodak's shareholders, whether for such transaction or the
issuance of securities in the transaction (a "Reorganization"), or
sale or other disposition of all or substantially all of Kodak's
assets to an entity that is not an affiliate of Kodak (a "Sale"),
unless immediately following such Reorganization or Sale: (i)
more than 60% of the total voting power of (x) the corporation
resulting from such Reorganization or Sale (the "Surviving
Company"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of
the voting securities eligible to elect directors of the Surviving
Company (the "Parent Company"), is represented by Kodak Voting
Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by
shares into which such Kodak Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of such Kodak Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale,
(ii) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Company or the
Parent Company), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (iii) at least a majority of the members of the board
of directors of the Parent Company (or, if there is no Parent
Company, the Surviving Company) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Reorganization or Sale (any Reorganization or
Sale which satisfies all of the criteria specified in (i), (ii)
and (iii) above shall be deemed to be a "Non-Qualifying
Transaction"); or
D. the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by Kodak which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by Kodak
such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
82
11.2 Payment of Deferred Compensation
Upon a Change in Control, each Participant, whether or not he or she is
still a member of the Board, shall be paid in a single, lump-sum cash
payment the balance of his or her Accounts as of the Valuation Date
immediately preceding the date payment is made, (except that the value of
the Stock Account shall be determined as of the date of the Change of
Control), unless such Participant elects in writing no later than prior to
the beginning of the year preceding the year in which the Change in Control
occurs that payment shall be made in substantially equal installments over a
period not longer than eleven years. Such payment shall be made or
commenced as soon as practicable, but in no event later than 90 days after
the date of the Change in Control. If a Participant makes an effective
election to receive payments in installments, the balance in his or her
Stock Account as of the date of the Change in Control shall be transferred
to his or her Deferred Compensation Account.
83
Exhibit (10) E.
1982 EASTMAN KODAK COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN
Sections 1.3 and 11.2 of the 1982 Eastman Kodak Company Executive Deferred
Compensation Plan are hereby amended in their entirety to read as follows:
1.3 Change In Control
"Change in Control" means the occurrence of any one of the following events:
A. individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
B. any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (B) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (i) by Kodak or any subsidiary, (ii) by
any employee benefit plan (or related trust) sponsored or
maintained by Kodak or any subsidiary, or (iii) by any underwriter
temporarily holding securities pursuant to an offering of such
securities;
C. the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its subsidiaries that requires the approval of Kodak's
shareholders, whether for such transaction or the
84
issuance of securities in the transaction (a "Reorganization"), or
sale or other disposition of all or substantially all of Kodak's
assets to an entity that is not an affiliate of Kodak (a "Sale"),
unless immediately following such Reorganization or Sale: (i)
more than 60% of the total voting power of (x) the corporation
resulting from such Reorganization or Sale (the "Surviving
Company"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of
the voting securities eligible to elect directors of the Surviving
Company (the "Parent Company"), is represented by Kodak Voting
Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by
shares into which such Kodak Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of such Kodak Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale,
(ii) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Company or the
Parent Company), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (iii) at least a majority of the members of the board
of directors of the Parent Company (or, if there is no Parent
Company, the Surviving Company) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Reorganization or Sale (any Reorganization or
Sale which satisfies all of the criteria specified in (i), (ii)
and (iii) above shall be deemed to be a "Non-Qualifying
Transaction"); or
D. the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by Kodak which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by Kodak
such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
85
11.2 Payment of Deferred Compensation
Upon a Change in Control, each Participant, whether or not he or she is
still employed by Kodak or any Subsidiary, shall be paid in a single, lump-
sum cash payment the balance of his or her Accounts as of the Valuation Date
immediately preceding the date payment is made, (except that the value of
the Stock Account shall be determined as of the date of the Change of
Control), unless such Participant elects in writing no later than prior to
the beginning of the year preceding the year in which the Change in Control
occurs that payment shall be made in substantially equal installments over a
period not longer than eleven years. Such payment shall be made or
commenced as soon as practicable, but in no event later than 90 days after
the date of the Change in Control. If a Participant makes an effective
election to receive payments in installments, the balance in his or her
Stock Account as of the date of the Change in Control shall be transferred
to his or her Deferred Compensation Account.
86
Exhibit (10) G.
EASTMAN KODAK COMPANY 1990 OMNIBUS LONG-TERM COMPENSATION PLAN
Sections 2.5, 24, 26(g) and 26(h) of the Eastman Kodak Company 1990 Omnibus
Long-Term Compensation Plan are hereby amended in their entirety to read as
follows:
2.5 "Change in Control" means the occurrence of any one of the following
events:
(a) individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of the Company as a result of an actual
or threatened election contest (as described in Rule 14a-11 under
the Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of
the Company's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (1)by the Company or any subsidiary, (2)
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary, or (3) by any
underwriter temporarily holding securities pursuant to an offering
of such securities;
(c) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of
the Company's shareholders, whether for such transaction or the
issuance of securities in the transaction
87
(a "Reorganization"), or sale or other disposition of all or
substantially all of the Company's assets to an entity that is not
an affiliate of the Company (a "Sale"), unless immediately
following such Reorganization or Sale: (1) more than 60% of the
total voting power of (x) the corporation resulting from such
Reorganization or Sale (the "Surviving Company"), or (y) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Company
(the "Parent Company"), is represented by Kodak Voting Securities
that were outstanding immediately prior to such Reorganization or
Sale (or, if applicable, is represented by shares into which such
Kodak Voting Securities were converted pursuant to such
Reorganization or Sale), and such voting power among the holders
thereof is in substantially the same proportion as the voting
power of such Kodak Voting Securities among the holders thereof
immediately prior to the Reorganization or Sale, (2) no person
(other than any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Company or the Parent Company), is
or becomes the beneficial owner, directly or indirectly, of 25% or
more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Company (or,
if there is no Parent Company, the Surviving Company) and (3) at
least a majority of the members of the board of directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) following the consummation of the Reorganization or Sale
were Incumbent Directors at the time of the Board's approval of
the execution of the initial agreement providing for such
Reorganization or Sale (any Reorganization or Sale which satisfies
all of the criteria specified in (1), (2) and (3) above shall be
deemed to be a "Non-Qualifying Transaction"); or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by the Company which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by the
Company such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
88
24. Amendment
The Committee may suspend or terminate the Plan at any time. In addition,
the Committee may, from time to time, amend the Plan in any manner, but may
not without shareholder approval adopt any amendment which would
(a) materially increase the benefits accruing to Participants under the
Plan, (b) materially increase the number of shares of Common Stock which may
be issued under the Plan (except as specified in paragraph 18), or
(c) materially modify the requirements as to eligibility for participation
in the Plan.
Notwithstanding anything herein to the contrary, if any provision of this
Plan would, in the opinion of the Committee, cause any business combination
approved by the Board to be ineligible for pooling-of-interests accounting
treatment, the Committee may amend such provision in a manner to make such
treatment available.
26. Change In Ownership
(g) Miscellaneous. Upon a Change In Ownership, (i) the provisions of
paragraphs 16, 20 and 21 hereof shall become null and void and of
no further force and effect; and (ii) except as provided in the
second paragraph of paragraph 24, no action, including, but not by
way of limitation, the amendment, suspension, or termination of
the Plan, shall be taken which would affect the rights of any
Participant or the operation of the Plan with respect to any Award
to which the Participant may have become entitled hereunder on or
prior to the date of such action or as a result of such Change In
Ownership.
(h) Payments and Continuation of Stock Based Awards. Unless otherwise
determined by the Committee, upon a Change in Ownership pursuant
to which (i) Common Stock is exchanged solely for common stock of
the Surviving Company or the Parent Company (as defined in
paragraph 2.5(c)), as applicable, which is actively traded on the
New York Stock Exchange and (ii) such Surviving Company or Parent
Company, as applicable, assumes all outstanding Awards pursuant to
the terms hereof, then: (A) the provisions of paragraphs 26(d) and
(e) shall not apply to any Award which is stock based, (B) the
cash payment provided for in paragraph 26(f) shall not be made
except in accordance with the deferred compensation plan or
agreement pursuant to which the payment of the Award has been
deferred, and (C) paragraphs 27(f) and (g) shall not apply to the
extent that they require a cash payment with respect to any Award
which is stock based. For the purposes of this paragraph 26 (h),
an Award shall be considered assumed only if, for every share of
Common Stock subject thereto immediately prior to the Change in
Control, the Participant has the right, following the Change in
89
Control, to acquire the consideration received in the Change in
Control transaction by holders of shares of Common Stock and the
Surviving Company or the Parent Company, as applicable, agree to
honor, fulfill and discharge the Awards in accordance with the
terms of this Plan.
90
Exhibit (10) I.
EASTMAN KODAK COMPANY 1995 OMNIBUS LONG-TERM COMPENSATION PLAN
Sections 2.8, 17.9, 17.10 and 19.6 of the Eastman Kodak Company 1995 Omnibus
Long-Term Compensation Plan are hereby amended in their entirety to read as
follows:
2.8 Change In Control
"Change in Control" means the occurrence of any one of the following events:
(a) individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (1)by Kodak or any subsidiary, (2) by any
employee benefit plan (or related trust) sponsored or maintained
by Kodak or any subsidiary, or (3) by any underwriter temporarily
holding securities pursuant to an offering of such securities;
(c) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its subsidiaries that requires the approval of Kodak's
shareholders, whether for such transaction or the
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issuance of securities in the transaction (a "Reorganization"), or
sale or other disposition of all or substantially all of Kodak's
assets to an entity that is not an affiliate of Kodak (a "Sale"),
unless immediately following such Reorganization or Sale: (1)
more than 60% of the total voting power of (x) the corporation
resulting from such Reorganization or Sale (the "Surviving
Company"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of
the voting securities eligible to elect directors of the Surviving
Company (the "Parent Company"), is represented by Kodak Voting
Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by
shares into which such Kodak Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of such Kodak Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale,
(2) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Company or the
Parent Company), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (3) at least a majority of the members of the board
of directors of the Parent Company (or, if there is no Parent
Company, the Surviving Company) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Reorganization or Sale (any Reorganization or
Sale which satisfies all of the criteria specified in (1), (2) and
(3) above shall be deemed to be a "Non-Qualifying Transaction");
or
(d) the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by Kodak which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by Kodak
such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
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17.9 Miscellaneous
Upon a Change In Ownership, (i) the provisions of Sections 14.2, 14.3 and
19.3 hereof shall become null and void and of no further force and effect;
and (ii) except as provided in the second paragraph of Section 19.6, no
action, including, but not by way of limitation, the amendment, suspension,
or termination of the Plan, shall be taken which would affect the rights of
any Participant or the operation of the Plan with respect to any Award to
which the Participant may have become entitled hereunder on or prior to the
date of such action or as a result of such Change In Ownership.
17.10 Payments and Continuation of Stock Based Awards
Unless otherwise determined by the Committee, upon a Change in Ownership
pursuant to which (i) Common Stock is exchanged solely for common stock of
the Surviving Company or the Parent Company (as defined in Section 2.8), as
applicable, which is actively traded on the New York Stock Exchange and (ii)
such Surviving Company or Parent Company, as applicable, assumes all
outstanding Awards pursuant to the terms hereof, then: (A) the provisions of
Sections 17.5 and 17.6 shall not apply to any Award which is stock based,
(B) the cash payment provided for in Section 17.7 shall not be made except
in accordance with the deferred compensation plan or agreement pursuant to
which the payment of the Award has been deferred, (C) all Awards deferred by
a Participant under the Performance Stock Program, but for which he or she
has not received payment as of the date of the Change In Ownership, will be
paid in the form of unrestricted shares of Common Stock as soon as
practicable, but in no event later than 90 days after the Change In
Ownership, and (D) Sections 18.7 and 18.8 shall not apply to the extent that
they require a cash payment with respect to any Award which is stock based.
For the purposes of this Section 17.10, an Award shall be considered assumed
only if, for every share of Common Stock subject thereto immediately prior
to the Change in Control, the Participant has the right, following the
Change in Control, to acquire the consideration received in the Change in
Control transaction by holders of shares of Common Stock and the Surviving
Company or the Parent Company, as applicable, agree to honor, fulfill and
discharge the Awards in accordance with the terms of this Plan.
19.6. Amendment/Termination
The Committee may suspend or terminate the Plan at any time with or without
prior notice. In addition, the Committee may, from time to time and with or
without prior notice, amend the Plan in any manner, but may not without
shareholder approval adopt any amendment which would require the vote of the
shareholders of Kodak pursuant to Section 162(m) of the Code, but only
insofar as such amendment affects Covered Employees.
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Notwithstanding anything herein to the contrary, if any provision of this
Plan would, in the opinion of the Committee, cause any business combination
approved by the Board to be ineligible for pooling-of-interests accounting
treatment, the Committee may amend such provision in a manner to make such
treatment available.
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Exhibit (10) M.
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Third Amendment"), made as of the 1st day of
February, 2000 is intended to further amend an Employment Agreement, dated
as of the 27th day of October, 1993 and amended on April 4, 1994 and
February 25, 1997, by and between George M.C. Fisher (the "Executive") and
Eastman Kodak Company (the "Company") hereinafter the "Employment
Agreement."
WHEREAS, the Executive and the Company desire to amend the provisions
of the Employment Agreement regarding the sale of the Executive's primary
Rochester, NY residence.
NOW, THEREFORE, based upon the mutual promises and conditions contained
herein, the parties hereto do hereby agree that the Employment Agreement
will be amended effective as of the day and year first above written as
follows:
1. Subsection (d) of Section 10 of the Employment Agreement is amended to
add the following as new subsection (iii):
As an alternative to Section 10(d)(ii), the Executive may elect to
receive the treatment afforded to him by this Section 10(d)(iii). This
Section 10(d)(iii) will only be operative, however, if: (x) the
Executive sells his primary Rochester, NY residence (the "Rochester
Residence") to a purchaser, other than the Company, prior to his
termination of employment from the Company; and (y) the Company
consents to the sale. In such event, the Company will promptly pay the
Executive the difference, if any, between: (x) the Executive's purchase
price of the Rochester Residence plus the cost of all documented
improvements made by the Executive to the Rochester Residence; and (y)
the sales price the Executive receives upon the sale of the Rochester
Residence. The Company will also promptly reimburse the Executive for
all of the reasonable expenses and closing costs he incurs in selling
the Rochester Residence.
2. The first sentence of Subsection (g) of Section 10 of the Employment
Agreement is amended in its entirety to read as follows:
It is the intention of the Company that the Executive shall, after
taking into account any taxes on reimbursements or other benefits under
this Section 10, be kept whole with respect to such reimbursement or
other benefit except this sentence shall not apply to fringe benefits
described in Section 10(b), purchase payments to the Executive in
respect of either residence in Barrington, Illinois described in
Section 10(d), any payment or reimbursement made to the Executive in
connection with the sale of his Rochester
95
Residence under Section 10(d)(iii), the use of Company aircraft
described in Section 10(e) (except as otherwise expressly provided
therein) or the tax, if any, attributable to any reimbursement or
benefit provided under Section 10(f).
3. All of the remaining terms of the Employment Agreement, to the extent
they are not inconsistent with the terms of this Third Amendment, will
remain in full force and effect, without amendment or modification.
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as of the day and year first above written.
Eastman Kodak Company
By:
Michael P. Morley
Title: Director, Human Resources
and Senior Vice President
George M.C. Fisher
96
Exhibit (10) O.
EASTMAN KODAK COMPANY
1997 STOCK OPTION PLAN
Article Page
1. Purpose and Term of Plan 97
2. Definitions 97
3. Eligibility 101
4. Plan Administration 101
5. Form of Awards 102
6. Shares Subject to Plan 103
7. Stock Options 103
8. Miscellaneous 104
9. Change In Ownership 108
10. Change In Control 109
97
ARTICLE 1 -- PURPOSE AND TERM OF PLAN
1.1 Purpose
The purpose of the Plan is to provide motivation to the corporate officers
of Kodak to put forth maximum efforts toward the continued growth,
profitability, and success of Kodak by providing incentives through the
ownership and performance of the Common Stock of Kodak. Toward this
objective, the Committee may grant stock options to the corporate officers
of Kodak on the terms and subject to the conditions set forth in the Plan.
1.2 Term
The Plan shall become effective on February 13, 1997. Awards shall not be
granted pursuant to the Plan after December 31, 1998.
ARTICLE 2 -- DEFINITIONS
2.1. Award
"Award" means any stock option granted under the Plan to a Participant by
the Committee pursuant to the terms, conditions, restrictions and
limitations of the Plan and those that the Committee may establish by the
Award Notice or otherwise.
2.2. Award Notice
"Award Notice" means a written notice from Kodak to a Participant that
establishes the terms, conditions, restrictions, and/or limitations
applicable to an Award in addition to those established by this Plan and by
the Committee's exercise of its administrative powers.
2.3. Board
"Board" means the Board of Directors of Kodak.
2.4 Cause
"Cause" means (a) the willful and continued failure by a Participant to
substantially perform his or her duties with his or her employer after
written warnings identifying the lack of substantial performance are
delivered to the Participant by his or her employer to specifically identify
the manner in which the employer believes that the Participant has not
substantially performed his or her duties, or (b) the willful engaging by a
Participant in illegal conduct which is materially and demonstrably
injurious to Kodak or a Subsidiary.
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2.5 Change In Control
"Change in Control" means the occurrence of any one of the following events:
(a) individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (1)by Kodak or any subsidiary, (2) by any
employee benefit plan (or related trust) sponsored or maintained
by Kodak or any subsidiary, or (3) by any underwriter temporarily
holding securities pursuant to an offering of such securities;
(c) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its subsidiaries that requires the approval of Kodak's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Reorganization"), or sale or
other disposition of all or substantially all of Kodak's assets to
an entity that is not an affiliate of Kodak (a "Sale"), unless
immediately following such Reorganization or Sale: (1) more than
60% of the total voting power of (x) the corporation resulting
from such Reorganization or Sale (the "Surviving Company"), or
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(y) if applicable, the ultimate parent corporation that directly
or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Company
(the "Parent Company"), is represented by Kodak Voting Securities
that were outstanding immediately prior to such Reorganization or
Sale (or, if applicable, is represented by shares into which such
Kodak Voting Securities were converted pursuant to such
Reorganization or Sale), and such voting power among the holders
thereof is in substantially the same proportion as the voting
power of such Kodak Voting Securities among the holders thereof
immediately prior to the Reorganization or Sale, (2) no person
(other than any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Company or the Parent Company), is
or becomes the beneficial owner, directly or indirectly, of 25% or
more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Company (or,
if there is no Parent Company, the Surviving Company) and (3) at
least a majority of the members of the board of directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) following the consummation of the Reorganization or Sale
were Incumbent Directors at the time of the Board's approval of
the execution of the initial agreement providing for such
Reorganization or Sale (any Reorganization or Sale which satisfies
all of the criteria specified in (1), (2) and (3) above shall be
deemed to be a "Non-Qualifying Transaction"); or
(d) the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by Kodak which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by Kodak
such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
2.6 Change In Control Price
"Change In Control Price" means the highest closing price per share paid for
the purchase of Common Stock on the New York Stock Exchange during the
ninety (90) day period ending on the date the Change In Control occurs.
100
2.7 Change In Ownership
"Change In Ownership" means a Change In Control that results directly or
indirectly in Kodak's Common Stock ceasing to be actively traded on the New
York Stock Exchange.
2.8 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, including regulations thereunder and successor provisions and
regulations thereto.
2.9 Committee
"Committee" means the Executive Compensation and Development Committee of
the Board, or such other Board committee as may be designated by the Board
to administer the Plan; provided that the Committee shall consist of three
or more directors, all of whom are a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Exchange Act.
2.10 Common Stock
"Common Stock" means common stock, $2.50 par value per share, of Kodak.
2.11 Disability
"Disability" means a disability under the terms of the Kodak Long-Term
Disability Plan.
2.12 Effective Date
"Effective Date" means the date an Award is determined to be effective by
the Committee upon its grant of such Award.
2.13 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, including rules thereunder and successor provisions and rules
thereto.
2.14 Kodak
"Kodak" means Eastman Kodak Company.
2.15 Participant
"Participant" means any corporate officer of Kodak to whom an Award has been
granted by the Committee under the Plan.
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2.16 Plan
"Plan" means the Eastman Kodak Company 1997 Stock Option Plan.
2.17 Subsidiary
"Subsidiary" means a corporation or other business entity in which Kodak
directly or indirectly has an ownership interest of 50 percent or more.
2.18 Retirement
"Retirement" means voluntary termination of employment: (i) on or after age
55 with 10 or more years of service or on or after age 65; or (ii) at any
time if the Participant had an age and years of service combination of at
least 75 points on December 31, 1995.
ARTICLE 3 -- ELIGIBILITY
3.1 In General
All of the corporate officers of Kodak are eligible to participate in the
Plan. The Committee shall select, from time to time, Participants from those
corporate officers who, in the opinion of the Committee, can further the
Plan's purposes. Once a Participant is so selected, the Committee shall
determine the size of the Award(s) to be made to the Participant and shall
establish in the related Award Notice(s) the terms, conditions, restrictions
and/or limitations, if any, applicable to the Award(s) in addition to those
set forth in this Plan and any administrative rules and regulations issued
by the Committee.
ARTICLE 4 -- PLAN ADMINISTRATION
4.1 Responsibility
The Committee shall have total and exclusive responsibility to control,
operate, manage and administer the Plan in accordance with its terms.
4.2 Authority of the Committee
The Committee shall have all the authority that may be necessary or helpful
to enable it to discharge its responsibilities with respect to the Plan.
Without limiting the generality of the preceding sentence, the Committee
shall have the exclusive right to: (a) interpret the Plan; (b) determine
eligibility for participation in the Plan; (c) decide all questions
concerning eligibility for and the amount of Awards payable under the Plan;
(d) construe any ambiguous provision of the Plan; (e) correct any default;
(f) supply any omission; (g) reconcile any inconsistency; (h) issue
administrative guidelines as an aid to
102
administer the Plan and make changes in such guidelines as it from time to
time deems proper; (i) make regulations for carrying out the Plan and make
changes in such regulations as it from time to time deems proper; (j)
determine whether Awards should be granted singly, in combination or in
tandem; (k), to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions, and limitations; (l) accelerate the
vesting, exercise, or payment of an Award when such action or actions would
be in the best interest of Kodak; and (m) take any and all other action it
deems necessary or advisable for the proper operation or administration of
the Plan.
4.3 Discretionary Authority
The Committee shall have full discretionary authority in all matters related
to the discharge of its responsibilities and the exercise of its authority
under the Plan including, without limitation, its construction of the terms
of the Plan and its determination of eligibility for participation and
Awards under the Plan. It is the intent of Plan that the decisions of the
Committee and its action with respect to the Plan shall be final, binding
and conclusive upon all persons having or claiming to have any right or
interest in or under the Plan.
4.4 Action by the Committee
The Committee may act only by a majority of its members. Any determination
of the Committee may be made, without a meeting, by a writing or writings
signed by all of the members of the Committee. In addition, the Committee
may authorize any one or more of its number to execute and deliver documents
on behalf of the Committee.
4.5 Delegation of Authority
The Committee may delegate some or all of its authority under the Plan to
any person or persons so long as such delegation is in writing; provided,
however, that only the Committee may select and grant Awards to Participants
who are subject to Section 16 of the Exchange Act.
ARTICLE 5 -- FORM OF AWARDS
5.1 In General
Awards shall be paid in the form of stock options pursuant to Article 7.
All Awards shall be subject to the terms, conditions, restrictions and
limitations of the Plan. The Committee may, in its sole judgment, subject
an Award to such other terms, conditions, restrictions and/or limitations
(including, but not limited to, the time and conditions of exercise and
restrictions on transferability and vesting), provided they are not
inconsistent with the terms of the Plan.
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ARTICLE 6 -- SHARES SUBJECT TO PLAN
6.1 Available Shares
The maximum number of shares of Common Stock, $2.50 par value per share, of
Kodak which shall be available for grant of Awards under the Plan during
its term shall not exceed 2,255,000. (Such amount shall be subject to
adjustment as provided in Section 6.2.) Any shares of Common Stock related
to Awards which terminate by expiration, forfeiture, cancellation or
otherwise without the issuance of such shares, are settled in cash in lieu
of Common Stock, or are exchanged with the Committee's permission for Awards
not involving Common Stock, shall not be available again for grant under the
Plan. The shares of Common Stock available for issuance under the Plan
shall be treasury shares.
6.2 Adjustment to Shares
If the number of outstanding shares of Common Stock shall, at any time, be
increased or decreased or changed or converted into cash or other property
as a result of (a) any subdivision or consolidation of shares, stock
dividend, stock split, recapitalization, reclassification or similar capital
adjustment or (b) any combination, exchange of shares or similar event
arising from Kodak's participation in any corporate merger, consolidation,
or similar transaction in which Kodak is the surviving entity and is not
substantially or completely liquidated, the number and kind of shares with
respect to which an Award may thereafter be exercised and the exercise price
shall be appropriately adjusted by the Committee. Any fractional shares
resulting from such adjustments shall be disregarded.
ARTICLE 7 -- STOCK OPTIONS
7.1 In General
Awards may be granted under the Plan by the Committee in the form of stock
options. These stock options shall be non-qualified stock options (i.e.,
stock options which are not incentive stock options).
7.2 Terms and Conditions of Stock Options
An option shall be exercisable in whole or in such installments and at such
times as may be determined by the Committee. The price at which Common
Stock may be purchased upon exercise of a stock option shall be not less
than 100% of the fair market value of the Common Stock, as determined by the
Committee, on the Effective Date of the option's grant. Moreover, all
options shall not expire later than 10 years from the Effective Date of the
option's grant. Stock options shall not be repriced, i.e., there shall be
no grant of a stock option(s) to a Participant in exchange for a
Participant's agreement to cancellation of a higher-priced stock option(s)
that was previously granted to such Participant.
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7.3 Additional Terms and Conditions
The Committee may, by way of the Award Notice or otherwise, establish such
other terms, conditions, restrictions and/or limitations, if any, of any
stock option Award, provided they are not inconsistent with the Plan.
7.4 Exercise
Upon exercise, the option price of a stock option may be paid in cash,
shares of Common Stock, a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether restricted
or unrestricted, and may impose such conditions as it deems appropriate on
the use of such Common Stock to exercise a stock option. Stock options
awarded under the Plan may be exercised by way of Kodak's broker-assisted
stock option exercise program, provided such program is available at the
time of the option's exercise. The Committee may permit a Participant to
satisfy any amounts required to be withheld under applicable Federal, state
and local tax laws, in effect from time to time, by electing to have
withhold a portion of the shares of Common Stock to be delivered for the
payment of such taxes.
ARTICLE 8 -- MISCELLANEOUS
8.1 Nonassignability
(a) In General. Except as otherwise determined by the Committee or as
otherwise provided in Subsection (b) below, no Awards or any other
payment under the Plan shall be subject to any manner to alienation,
anticipation, sale, transfer (except by will or the laws of descent and
distribution), assignment, pledge, or encumbrance, nor shall any Award
be payable to or exercisable by anyone other than the Participant to
whom it was granted.
(b) Exception. The Committee shall have the discretionary authority to
grant Awards or amend outstanding Awards to provide that they be
transferable, subject to such terms and conditions as the Committee
shall establish. In addition to any such terms and conditions, the
following terms and conditions shall apply to all transfers of Awards:
1. Permissible Transferees. Transfers shall only be permitted to:
(i) the Participant's "Immediate Family Members," as that term is
defined in Subsection (b)(8) below; (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members; or (iii) a
family partnership or family limited partnership in which each
partner is, at the time of the transfer and all times subsequent
thereto, either an Immediate Family Member or a trust for the
exclusive benefit of one or more Immediate Family Members.
105
2. No Consideration. All transfers shall be made for no
consideration.
3. Subsequent Transfers. Once a Participant transfers an Award, any
subsequent transfer of such transferred Award shall be permitted
provided, however, such subsequent transfer complies with all of
the terms and conditions of this Section 8.1.
4. Transfer Agent. In order for a transfer to be effective, the
Committee's designated transfer agent must be used to effectuate
the transfer. The costs of such transfer agent shall be borne
solely by the transferor.
5. Withholding. In order for a transfer to be effective, a
Participant must agree in writing prior to the transfer on a form
provided by Kodak to pay any and all payroll and withholding taxes
due upon exercise of the transferred Award. In addition, prior to
the exercise of a transferred Award by a transferee, arrangements
must be made by the Participant with Kodak for the payment of all
payroll and withholding taxes.
6. Terms and Conditions of Transferred Awards. Upon transfer, an
Award continues to be governed by and subject to the terms and
conditions of the Plan and the Award's Award Notice. A transferee
of an Award is entitled to the same rights as the Participant to
whom such Award was awarded, as if no transfer had taken place.
Accordingly, the rights of the transferee are subject to the terms
and conditions of the original grant to the Participant, including
provisions relating to expiration date, exercisability, option
price and forfeiture.
7. Notice to Transferees. Kodak shall be under no obligation to
provide a transferee with any notice regarding the transferred
Award held by the transferee upon forfeiture or any other
circumstance.
8. Immediate Family Member. For purposes of this Section 8.1, the
term "Immediate Family Member" shall mean the Participant and his
or her spouse, children or grandchildren, whether natural, step or
adopted children or grandchildren.
8.2 Withholding Taxes
The Company shall be entitled to deduct from any payment under the Plan,
regardless of the form of such payment, the amount of all applicable income
and employment taxes required by law to be withheld with respect to such
payment or may require the Participant to pay to it such tax prior to and as
a condition of the making of such payment. In accordance
106
with any applicable administrative guidelines it establishes, the Committee
may allow a Participant to pay the amount of taxes required by law to be
withheld from an Award by withholding from any payment of Common Stock due
as a result of such Award, or by permitting the Participant to deliver to
Kodak, shares of Common Stock having a fair market value, as determined by
the Committee, equal to the amount of such required withholding taxes.
8.3 Amendments to Awards
The Committee may at any time unilaterally amend any unexercised, unearned,
or unpaid Award, including, but not by way of limitation, Awards earned but
not yet paid, to the extent it deems appropriate; provided, however, that
any such amendment which, in the opinion of the Committee, is adverse to the
Participant shall require the Participant's consent.
8.4 Regulatory Approvals and Listings
Notwithstanding anything contained in this Plan to the contrary, Kodak shall
have no obligation to issue or deliver certificates of Common Stock
evidencing any Award resulting in the payment of Common Stock prior to (i)
the obtaining of any approval from any governmental agency which Kodak
shall, in its sole discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on the stock exchange on which the
Common Stock may be listed, and (iii) the completion of any registration or
other qualification of said shares under any state or Federal law or ruling
of any governmental body which Kodak shall, in its sole discretion,
determine to be necessary or advisable.
8.5 No Right to Continued Employment or Grants
Participation in the Plan shall not give a Participant any right to remain
in the employ of Kodak. Kodak reserves the right to terminate any employee
at any time. Further, the adoption of this Plan shall not be deemed to give
any employee or any other individual any right to be selected as a
Participant or to be granted an Award.
8.6 Amendment/Termination
The Committee may suspend or terminate the Plan at any time with or without
prior notice. In addition, the Committee may at any time and from time to
time, with or without prior notice, amend the Plan in any manner.
Notwithstanding anything herein to the contrary, if any provision of this
Plan would, in the opinion of the Committee, cause any business combination
approved by the Board to be ineligible for pooling-of-interests accounting
treatment, [the Committee may amend such provision in a manner to make such
treatment available] [such provision shall not
107
be given effect to the extent (and only to the extent) that such treatment
would be denied as a result of such provision, all as determined by Kodak's
independent public accounting firm].
8.7 Governing Law
The Plan shall be governed by and construed in accordance with the laws of
the State of New York, except as superseded by applicable Federal Law.
8.8 No Right, Title, or Interest in Company Assets
No Participant shall have any rights as a shareholder as a result of
participation in the Plan until the date of issuance of a stock certificate
in his or her name, and, in the case of restricted shares of Common Stock,
such rights are granted to the Participant under the Plan. To the extent
any person acquires a right to receive payments from Kodak under the Plan,
such rights shall be no greater than the rights of an unsecured creditor of
Kodak and the Participant shall not have any rights in or against any
specific assets of Kodak. All of the Awards granted under the Plan shall be
unfunded.
8.9 Section 16 of the Exchange Act
In order to avoid any Exchange Act violations, the Committee may, from time
to time, impose additional restrictions upon an Award, including but not
limited to, restrictions regarding tax withholdings and restrictions
regarding the Participant's ability to exercise Awards under Kodak's broker-
assisted exercise program.
8.10 No Guarantee of Tax Consequences
No person connected with the Plan in any capacity, including, but not
limited to, Kodak and its directors, officers, agents and employees makes
any representation, commitment, or guarantee that any tax treatment,
including, but not limited to, Federal, state and local income, estate and
gift tax treatment, will be applicable with respect to amounts paid to or
for the benefit of a Participant under the Plan, or that such tax treatment
will apply to or be available to a Participant on account of participation
in the Plan.
8.11 Other Benefits
No Award granted under the Plan shall be considered compensation for
purposes of computing benefits under any retirement plan of Kodak nor affect
any benefits or compensation under any other benefit or compensation plan of
Kodak now or subsequently in effect.
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ARTICLE 9 -- CHANGE IN OWNERSHIP
9.1 Background
Absent a specific provision in a Participant's Award Notice addressing the
treatment of the Participant's Award upon a Change In Control, the
provisions of this Article 9 shall govern the treatment of the Participant's
Award in the event of a Change In Ownership. Upon a Change In Ownership:
(i) the terms of this Article 9 shall immediately become operative, without
further action or consent by any person or entity; (ii) all terms,
conditions, restrictions, and limitations in effect on any Award shall
immediately lapse as of the date of such event; (iii) no other terms,
conditions, restrictions and/or limitations shall be imposed upon any Awards
on or after such date, and in no circumstance shall an Award be forfeited on
or after such date; and (iv) all Awards shall automatically become one
hundred percent (100%) vested immediately.
9.2 Valuation of Awards
Upon a Change In Ownership, all outstanding Awards shall be valued and
cashed out on the basis of the Change In Control Price.
9.3 Payment of Awards
Upon a Change In Ownership, any Participant, whether or not he or she is
still employed by Kodak, shall be paid, in a single lump-sum cash payment,
as soon as practicable but in no event later than 90 days after the Change
In Ownership, all of his or her Awards.
9.4 Miscellaneous
Upon a Change In Ownership, except as provided in the second paragraph of
Section 8.6, no action, including, but not by way of limitation, the
amendment, suspension, or termination of the Plan, shall be taken which
would affect the rights of any Participant or the operation of the Plan with
respect to any Award to which the Participant may have become entitled
hereunder on or prior to the date of such action or as a result of such
Change In Ownership.
9.5 Payments and Continuation of Awards
Unless otherwise determined by the Committee, upon a Change in Ownership
pursuant to which (i) Common Stock is exchanged solely for common stock of
the Surviving Company or the Parent Company (as defined in Section 2.5), as
applicable, which is actively traded on the New York Stock Exchange and (ii)
such Surviving Company or Parent Company, as applicable, assumes all
outstanding Awards pursuant to the terms hereof, then: (A) the provisions of
Sections 9.2 and 9.3 shall not apply to any Award, and (B) Section 10.4
shall not apply to the extent that it requires a cash payment with respect
to any Award. For the
109
purposes of this Section 9.5, an Award shall be considered assumed only if,
for every share of Common Stock subject thereto immediately prior to the
Change in Control, the Participant has the right, following the Change in
Control, to acquire the consideration received in the Change in Control
transaction by holders of shares of Common Stock and the Surviving Company
or the Parent Company, as applicable, agree to honor, fulfill and discharge
the Awards in accordance with the terms of this Plan.
ARTICLE 10 -- CHANGE IN CONTROL
10.1 Background
Absent a specific provision in a Participant's Award Notice addressing the
treatment of the Participant's Award upon a Change In Control, the
provisions of this Article 10 shall govern the treatment of the
Participant's Award in the event of a Change In Control. All Participants
shall be eligible for the treatment afforded by this Article 10 if their
employment by Kodak terminates within two years following a Change In
Control, unless the termination is due to (i) death, (ii) Disability, (iii)
Cause, (iv) resignation other than (A) resignation from a declined
reassignment to a job that is not reasonably equivalent in responsibility or
compensation (as defined in Kodak's Termination Allowance Plan), or that is
not in the same geographic area (as defined in Kodak's Termination Allowance
Plan), or (B) resignation within 30 days following a reduction in base pay,
or (v) Retirement.
10.2 Vesting and Lapse of Restrictions
If a Participant is eligible for treatment under this Article 10, (i) all of
the terms, conditions, restrictions, and limitations in effect on any of his
or her Awards shall immediately lapse as of the date of his or her
termination of employment; (ii) no other terms, conditions, restrictions
and/or limitations shall be imposed upon any of his or her Awards on or
after such date, and in no event shall any of his or her Awards be forfeited
on or after such date; and (iii) all of his or her Awards shall
automatically become one hundred percent (100%) vested immediately upon his
or her termination of employment.
10.3 Valuation of Awards
If a Participant is eligible for treatment under this Article 10, his or her
Awards shall be valued and cashed out in accordance with the provisions of
Section 9.3.
10.4 Payment of Awards
If a Participant is eligible for treatment under this Article 10, he or she
shall be paid, in a single lump-sum cash payment, as soon as practicable but
in no event later than 90 days after the date of his or her termination of
employment, all of his or her Awards.
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10.5 Miscellaneous
Upon a Change In Control, no action, including, but not by way of
limitation, the amendment, suspension or termination of the Plan, shall be
taken which would affect the rights of any Participant or the operation of
the Plan with respect to any Award to which the Participant may have become
entitled hereunder on or prior to the date of the Change In Control or to
which he or she may become entitled as a result of such Change In Control.
10.6 Legal Fees
Kodak shall pay all legal fees and related expenses incurred by a
Participant in seeking to obtain or enforce any payment, benefit or right he
or she may be entitled to under the Plan after a Change In Control;
provided, however, the Participant shall be required to repay any such
amounts to Kodak to the extent a court of competent jurisdiction issues a
final and non-appealable order setting forth the determination that the
position taken by the Participant was frivolous or advanced in bad faith.
111
Exhibit (10) R.
EASTMAN KODAK COMPANY 2000 OMNIBUS LONG-TERM COMPENSATION PLAN
Sections 2.9, 17.8, 17.9, and 19.6 of the 2000 Omnibus Long-Term
Compensation Plan are hereby amended in their entirety to read as follows:
2.9 Change In Control
"Change in Control" means the occurrence of any one of the following events:
(a) individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Kodak Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (1)by Kodak or any subsidiary, (2) by any
employee benefit plan (or related trust) sponsored or maintained
by Kodak or any subsidiary, or (3) by any underwriter temporarily
holding securities pursuant to an offering of such securities;
(c) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its subsidiaries that requires the approval of Kodak's
shareholders, whether for such transaction or the
112
issuance of securities in the transaction (a "Reorganization"), or
sale or other disposition of all or substantially all of Kodak's
assets to an entity that is not an affiliate of Kodak (a "Sale"),
unless immediately following such Reorganization or Sale: (1)
more than 60% of the total voting power of (x) the corporation
resulting from such Reorganization or Sale (the "Surviving
Company"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of
the voting securities eligible to elect directors of the Surviving
Company (the "Parent Company"), is represented by Kodak Voting
Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by
shares into which such Kodak Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of such Kodak Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale,
(2) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Company or the
Parent Company), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (3) at least a majority of the members of the board
of directors of the Parent Company (or, if there is no Parent
Company, the Surviving Company) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Reorganization or Sale (any Reorganization or
Sale which satisfies all of the criteria specified in (1), (2) and
(3) above shall be deemed to be a "Non-Qualifying Transaction");
or
(d) the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than
25% of Kodak Voting Securities as a result of the acquisition of Kodak
Voting Securities by Kodak which reduces the number of Kodak Voting
Securities outstanding; provided that if after such acquisition by Kodak
such person becomes the beneficial owner of additional Kodak Voting
Securities that increases the percentage of outstanding Kodak Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
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17.8 Miscellaneous
Upon a Change In Ownership, (i) the provisions of Sections 14.2, 14.3, 14.4
and 19.3 hereof shall become null and void and of no further force and
effect; and (ii) except as provided in the second paragraph of Section 19.6,
no action, including, but not by way of limitation, the amendment,
suspension, or termination of the Plan, shall be taken which would affect
the rights of any Participant or the operation of the Plan with respect to
any Award to which the Participant may have become entitled hereunder on or
prior to the date of such action or as a result of such Change In Ownership.
17.9 Payments and Continuation of Stock Based Awards
Unless otherwise determined by the Committee, upon a Change in Ownership
pursuant to which (i) Common Stock is exchanged solely for common stock of
the Surviving Company or the Parent Company (as defined in Section 2.9), as
applicable, which is actively traded on the New York Stock Exchange and (ii)
such Surviving Company or Parent Company, as applicable, assumes all
outstanding Awards pursuant to the terms hereof, then: (A) the provisions of
Sections 17.5 and 17.6 shall not apply to any Award which is stock based,
(B) the cash payment provided for in Section 17.7 shall not be made except
in accordance with the deferred compensation plan or agreement pursuant to
which the payment of the Award has been deferred, (C) all Awards deferred by
a Participant under the Performance Stock Program, but for which he or she
has not received payment as of the date of the Change In Ownership, will be
paid in the form of unrestricted shares of Common Stock as soon as
practicable, but in no event later than 90 days after the Change In
Ownership, and (D) Sections 18.7 and 18.8 shall not apply to the extent that
they require a cash payment with respect to any Award which is stock based.
For the purposes of this Section 17.9, an Award shall be considered assumed
only if, for every share of Common Stock subject thereto immediately prior
to the Change in Control, the Participant has the right, following the
Change in Control, to acquire the consideration received in the Change in
Control transaction by holders of shares of Common Stock and the Surviving
Company or the Parent Company, as applicable, agree to honor, fulfill and
discharge the Awards in accordance with the terms of this Plan.
19.6 Amendment/Termination
The Committee may suspend or terminate the Plan at any time for any reason
with or without prior notice. In addition, the Committee may, from time to
time for any reason and with or without prior notice, amend the Plan in any
manner, but may not without shareholder approval adopt any amendment which
would require the vote of the shareholders of Kodak pursuant to Section
162(m) of the Code, but only insofar as such amendment affects Covered
Employees.
114
Notwithstanding anything herein to the contrary, if any provision of this
Plan would, in the opinion of the Committee, cause any business combination
approved by the Board to be ineligible for pooling-of-interests accounting
treatment, the Committee may amend such provision in a manner to make such
treatment available.
115
Exhibit (10) T.
EASTMAN KODAK COMPANY
EXECUTIVE PROTECTION PLAN
Article Page
1. Purpose and Effective Date 116
2. Definitions 116
3. Eligibility 124
4. Payments Upon Termination of Employment 124
5. Full Settlement; No Mitigation 126
6. Reimbursement of Expenses 126
7. Administration 126
8. Miscellaneous 127
Exhibit A Tier 1 Employees 129
Exhibit B Tier 2 Employees 130
Exhibit C Tier 3 Employees 131
Exhibit D Certain Additional Payments by the Company 132
Exhibit E Included Subsidiaries 135
116
ARTICLE 1 -- PURPOSE AND EFFECTIVE DATE
1.1 Purpose
The purpose of the Eastman Kodak Company Executive Protection Plan is to
secure the continued services of certain executives of the Eastman Kodak
Company and its subsidiaries and their continued dedication to their duties
in the event of any threat or occurrence of a Change in Control (as defined
in Section 2.5).
1.2 Effective Date
The Plan shall become effective December 9, 1999.
ARTICLE 2 -- DEFINITIONS
2.1 Base Salary
"Base Salary" means the highest annual rate of base salary payable by the
Company to a Participant during the 12-month period immediately prior to the
Participant's Date of Termination.
2.2 Board
"Board" means the Board of Directors of Kodak or, in the event of a
transaction described in Section 2.5(c), the Board of Directors of the
"Parent Company," as defined in clause (1)(y) of such section.
2.3 Bonus Amount
"Bonus Amount" means the higher of Participant's target bonus under the
applicable Company annual incentive compensation plan for the year in which
the Date of Termination occurs or the year in which the Change in Control
occurs.
2.4 Cause
"Cause" means:
(a) for Tier 1 Employees (1) the willful and continued failure of
Participant to perform substantially Participant's duties with the
Company (other than any such failure resulting from Participant's
incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Participant by
the Board which specifically identifies the manner in which the
Board believes that Participant has not substantially performed
Participant's duties, or (2) the willful engaging by Participant
in illegal conduct or gross misconduct which is demonstrably and
materially injurious to the Company or its affiliates. For
117
purposes of this paragraph, no act or failure to act by
Participant shall be considered "willful" unless done or omitted
to be done by Participant in bad faith and without reasonable
belief that Participant's action or omission was in the best
interests of the Company or its affiliates. Any act, or failure
to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for Kodak
shall be conclusively presumed to be done, or omitted to be done,
by Participant in good faith and in the best interests of the
Company. Cause shall not exist with respect to Tier 1 Employees
who were Kodak's "named executive officers" (as defined in Item
402(a) of Regulation S-K under the Securities Exchange Act of 1934
(the "Act")) for the last fiscal year of Kodak prior to a Change
in Control unless and until Kodak has delivered to Participant a
copy of a resolution duly adopted by three-quarters (3/4) of the
entire Board (excluding Participant if Participant is a Board
member) at a meeting of the Board called and held for such purpose
(after reasonable notice to Participant and an opportunity for
Participant, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board an event set
forth in clauses (1) or (2) has occurred and specifying the
particulars thereof in detail; and
(b) for Tier 2 and Tier 3 Employees (1) the willful and continued
failure of Participant to perform substantially Participant's
duties with the Company (other than any such failure
resulting from Participant's incapacity due to physical or
mental illness) after a written demand for substantial
performance is delivered to Participant by the Company
which specifically identifies the manner in which the
Company believes that Participant has not substantially
performed Participant's duties, or (2) the willful
engaging by Participant in illegal conduct or gross
misconduct which is demonstrably and materially injurious to
the Company or its affiliates. For purpose of this
paragraph, no act or failure to act by Participant shall be
considered "willful" unless done or omitted to be done by
Participant in bad faith and without reasonable belief that
Participant's action or omission was in the best interests of
the Company or its affiliates. Any act, or failure to act,
based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for
Kodak shall be conclusively presumed to be done, or omitted
to be done, by Participant in good faith and in the best
interests of the Company.
118
2.5 Change In Control
"Change in Control" means the occurrence of any one of the following
events:
(a) individuals who, on December 9, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a
director subsequent to December 9, 1999, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Kodak in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of Kodak as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Act) ("Election Contest") or any other actual or threatened
solicitation of proxies or consents by or on behalf of any
"person" (as such term is defined in Section 3(a)(9) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest, shall be deemed to be an Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
Kodak representing 25% or more of the combined voting power of
Kodak's then outstanding securities eligible to vote for the
election of the Board (the "Company Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not
be deemed to be a Change in Control by virtue of any of the
following acquisitions: (1) by Kodak or any Subsidiary, (2) by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any of its affiliates, or (3) by any underwriter
temporarily holding securities pursuant to an offering of such
securities;
(c) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving Kodak
or any of its Subsidiaries that requires the approval of Kodak's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Reorganization"), or sale or
other disposition of all or substantially all of Kodak's assets to
an entity that is not an affiliate of Kodak (a "Sale"), unless
immediately following such Reorganization or Sale: (1) more than
60% of the total voting power of (x) the corporation resulting
from
119
such Reorganization or Sale (the "Surviving Company"), or (y) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Company
(the "Parent Company"), is represented by Company Voting
Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of such Company Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale,
(2) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Company or the
Parent Company), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (3) at least a majority of the members of the board
of directors of the Parent Company (or, if there is no Parent
Company, the Surviving Company) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Reorganization or Sale (any Reorganization or
Sale which satisfies all of the criteria specified in (1), (2) and
(3) above shall be deemed to be a "Non-Qualifying Transaction");
or
(d) the shareholders of Kodak approve a plan of complete liquidation
or dissolution of Kodak.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of
more than 25% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by Kodak which reduces the
number of Company Voting Securities outstanding; provided that if after
such acquisition by Kodak such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such
person, a Change in Control shall then occur.
2.6 Committee
"Committee" means the Executive Compensation and Development Committee of
the Board or other Board committee appointed by the Board.
2.7 Company
"Company" means Kodak and the Subsidiaries.
120
2.8 Date of Termination
"Date of Termination" means the date on which Participant's employment with
Participant's Employer terminates.
2.9 Employee
"Employee" means a regular, full-time employee in wage grade 48 or above or
the equivalent thereof of an Employer
2.10 Employer
"Employer" means Kodak or any Subsidiary that is participating in this Plan
pursuant to Section 8.1.
2.11 Good Reason
"Good Reason" means:
(a) for Tier 1 Employees, the occurrence of any of the following
events within the two-year period following a Change in Control without
Participant's express written consent:
(1) the assignment of, or change in, the duties or
responsibilities of Participant that are not comparable in
any adverse respect with Participant's duties or
responsibilities immediately prior to such Change in Control,
other than a change in Participant's titles or reporting
relationship;
(2) a reduction in Participant's Total Remuneration as in effect
immediately prior to such Change in Control or as the same
may be increased from time to time thereafter;
(3) a material reduction in the perquisites and fringe benefits
provided to Participant immediately prior to the Change in
Control or as the same may be increased from time to time
thereafter;
(4) the failure of a successor to assume the terms, conditions
and obligations of this Plan in accordance with Section 8.3;
or
(5) an amendment or termination of the Plan not permitted
pursuant to Section 8.2.
An isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company within seven (7) days
after receipt of written notice thereof given by
121
Participant to the Company shall not constitute Good Reason.
Participant's right to terminate employment for Good Reason shall
not be affected by Participant's incapacities due to mental or
physical illness and Participant's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any
event or condition constituting Good Reason; and
(b) for Tier 2 Employees, the occurrence of any of the following
events within the two-year period following a Change in Control
without Participant's express written consent:
(1) the assignment of, or change in, the duties or
responsibilities of Participant that are not comparable in
any adverse respect with Participant's duties or
responsibilities immediately prior to such Change in Control,
other than a change in Participant's titles or reporting
relationship;
(2) a reduction in Participant's Total Remuneration as in effect
immediately prior to such Change in Control or as the same
may be increased from time to time thereafter; or
(3) reassignment of Participant to a job that is not in the same
geographic area as Participant's job immediately prior to
such Change in Control unless: (x) there is an agreement by
the Participant, confirmed in an offer letter or other
agreement, to reassignment; or (y) the Participant was in a
position immediately prior to the Change In Control where
periodic reassignment is standard practice;
(4) the failure of a successor to assume the terms, conditions
and obligations of this Plan in accordance with Section 8.3;
or
(5) an amendment or termination of the Plan not permitted
pursuant to Section 8.2.
An isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company within seven (7) days
after receipt of written notice thereof given by Participant shall
not constitute Good Reason. Participant's right to terminate
employment for Good Reason shall not be affected by Participant's
incapacities due to mental or physical illness and Participant's
continued employment shall not constitute consent to, or a waiver
of rights with respect to, any event or condition constituting
Good Reason; and
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(c) for Tier 3 Employees, the occurrence of any of the following
events within the two-year period following a Change in Control
without such Participant's express written consent:
(1) the assignment of duties of Participant that are materially
inconsistent with the duties of the position held by
Participant immediately prior to such Change in Control;
(2) a reduction in Participant's Total Remuneration as in effect
immediately prior to such Change in Control or as the same
may be increased from time to time thereafter;
(3) reassignment of Participant to a job that is not in the same
geographic area as Participant's job immediately prior to
such Change in Control unless: (x) there is an agreement by
the Participant, confirmed in an offer letter or other
agreement, to reassignment; or (y) the Participant was in a
position immediately prior to the Change In Control where
periodic reassignment is standard practice;
(4) the failure of a successor to assume the terms, conditions
and obligations of this Plan in accordance with Section 8.3;
or
(5) an amendment or termination of the Plan not permitted
pursuant to Section 8.2.
An isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company within fourteen (14)
days after receipt of written notice thereof given by Participant
shall not constitute Good Reason. Participant's right to
terminate employment for Good Reason shall not be affected by
Participant's incapacities due to mental or physical illness and
Participant's continued employment shall not constitute consent
to, or a waiver of rights with respect to, any event or condition
constituting Good Reason.
2.12 Kodak
"Kodak" means Eastman Kodak Company.
2.13 Participant
"Participant" means, as applicable, a Tier 1 Employee, a Tier 2 Employee or
a Tier 3 Employee.
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2.14 Plan
"Plan" means the Eastman Kodak Company Executive Protection Plan.
2.15 Qualifying Termination
"Qualifying Termination" means for all Participants other than Kodak's Chief
Executive Officer: (a) a termination of the Participant's employment by the
Employer other than for Cause, or (b) a termination of the Participant's
employment by such Participant for Good Reason. In the case of Kodak's
Chief Executive Officer, "Qualifying Termination" means: (a) a termination
of the Chief Executive Officer's employment by the Employer other than for
Cause, or (b) a termination of the Chief Executive Officer's employment by
the Chief Executive Officer's for Good Reason or (c) a voluntary termination
of employment by the Chief Executive Officer for any reason (or no reason at
all) during the 30-day period commencing 23 months after the date of a
Change in Control. Termination of a Participant's employment on account of
Participant's death or on account of Participant's disability, as defined
under the Employer's long-term disability plan, shall not be treated as a
Qualifying Termination.
2.16 Subsidiary
"Subsidiary" means any corporation or other entity in which Kodak has a
direct or indirect ownership interest of more than 50% of the total combined
voting power of the then outstanding securities or interests of such
corporation or other entity entitled to vote generally in the election of
directors or in which Kodak has the right to receive more than 50% of the
distribution of profits or more than 50% of the assets in liquidation or
dissolution.
2.17 Tier 1 Employee
"Tier 1 Employee" means an Employee selected by the Committee and named on
Exhibit A.
2.18 Tier 2 Employee
"Tier 2 Employee" means an Employee selected by the Committee and named on
Exhibit B.
2.19 Tier 3 Employee
"Tier 3 Employee" means an Employee selected by the Committee and named on
Exhibit C.
2.20 Total Remuneration
"Total Remuneration" means the aggregate of Participant's Base Salary,
target annual bonus compensation, target long-term bonus compensation and
benefits and coverage under all Company employee benefit plans.
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ARTICLE 3 -- ELIGIBILITY
3.1 In General
All Tier 1, Tier 2 and Tier 3 Employees participate in this Plan.
3.2 Termination Prior to Change In Control
If a Participant ceases to be an Employee prior to a Change in Control, such
Participant shall have no further rights under this Plan; provided, however,
if (a) such Participant's employment is terminated prior to a Change in
Control for reasons that would have constituted a Qualifying Termination if
they had occurred following a Change in Control; (b) such Participant
reasonably demonstrates that such termination (or Good Reason event) was in
contemplation of a Change In Control by a third party who had indicated an
intention or taken steps reasonably calculated to effect a Change in
Control; and (c) a Change in Control involving such third party (or a party
competing with such third party to effectuate a Change in Control) does
occur, then for purposes of this Plan, the date immediately prior to the
date of such termination of employment or event constituting Good Reason
shall be treated as a Change in Control with respect to such Participant.
The timing of payments and benefits to Participant under Article 4, with
respect to a Participant described in the immediately preceding sentence,
will be determined by treating the date of the actual Change in Control as
the Employee's Date of Termination hereunder.
ARTICLE 4 -- PAYMENTS UPON TERMINATION OF EMPLOYMENT
4.1 In General
If during the two-year period following a Change in Control the employment
of a Participant shall terminate, by reason of a Qualifying Termination,
then the Company shall provide to such Participant the benefits described in
this Article 4.
4.2 Accrued Compensation
Within fourteen (14) days following a Participant's Date of Termination, the
Company shall pay to such Participant a lump-sum cash amount equal to the
sum of (1) the Participant's Base Salary (without regard to any reduction
constituting Good Reason) through the Date of Termination and any bonus
awards that have been awarded, but are not yet payable, (2) any accrued
vacation or sick pay, and (3) any other accrued compensation, in each case
to the extent not theretofore paid.
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4.3 Severance
Within fourteen (14) days following the Participant's Date of Termination,
the Company shall pay to such Participant a lump-sum cash amount, based upon
Participant's position (without regard to any change in position following a
Change in Control which would constitute Good Reason hereunder) immediately
prior to the Change in Control, equal to:
(a) for a Tier 1 Employee, three (3) times the sum of such
Participant's Base Salary and Bonus Amount;
(b) for a Tier 2 Employee, two (2) times the sum of such Participant's
Base Salary and Bonus Amount; and
(c) for a Tier 3 Employee, the greater of the amounts described
in (1) or (2) below:
(1) one (1) times the sum of such Participant's Base Salary
and Bonus Amount; or
(2) For all Participants employed by Kodak, the termination
allowance payable to such Participant under the Kodak Employee
Protection Plan assuming such Participant were eligible for
benefits under such plan, and for all other Participants, the
termination allowance payable under any plan or program
adopted by the Participant's Employer which is similar in purpose
to the Kodak Employee Protection Plan
4.4 Continuation of Benefits
For a period commencing on the Date of Termination and continuing for twelve
(12) months thereafter the Company shall continue to provide Participant and
Participant's dependents with the same level of coverage under those of the
medical, dental, disability and life insurance plans as shall have been in
effect for such Participant (and dependents) immediately prior to the Date
of Termination and on the same terms and conditions as in effect immediately
prior to the Date of Termination (or, if more favorable to the Participant,
immediately prior to the Change in Control); except, however, no employee
contributions will be required for such coverages. If the Participant
cannot continue to participate in the plans of Kodak (or the Participant's
Employer) providing such benefits, the Company shall otherwise provide such
benefits on the same after-tax basis as if participation had continued. The
twelve (12) month period during which medical and dental coverage is
provided to a Participant under this Section 4.4 will not be considered part
of the "Continuation Period" for purposes of electing any COBRA continuation
coverage.
4.5 Additional Payments
Payments made to a Participant shall be subject to the additional payments
of Exhibit D hereto, if applicable.
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4.6 Withholding Taxes
The Company will withhold from all payments due to a Participant (or
Participant's beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, Kodak or any Employer is
required to withhold therefrom.
ARTICLE 5 -- FULL SETTLEMENT; NO MITIGATION
5.1 Full Settlement
The Company's obligation to make the payments provided for in this Plan and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Participant or others.
5.2 No Mitigation
In no event shall the Participant be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Participant under any of the provisions of this Plan and such amounts shall
not be reduced whether or not the Participant obtains other employment.
ARTICLE 6 -- REIMBURSEMENT OF EXPENSES
The Company shall pay all legal fees and related expenses which a
Participant may reasonably incur in seeking to obtain or enforce any
payment, benefit or right provided by this Plan after a Change in Control,
including any such fees and expenses incurred in seeking advice with respect
to the amount provided in Exhibit D; provided, however, the Participant
shall be required to repay any such amounts to the Company to the extent
that a court of competent jurisdiction issues a final and non-appealable
order setting forth the determination that the position taken by the
Participant was frivolous or advanced in bad faith.
ARTICLE 7 -- ADMINISTRATION
The Plan shall be administered by the Committee. Consistent with the
requirements of ERISA and the regulations thereunder of the Department of
Labor, the Committee shall provide adequate written notice to any
Participant whose claim for benefits under Article 4 has been denied,
setting forth specific reasons for such denial, written in a manner
calculated to be understood by such Participant, and affording such
Participant a full and fair review of the decision denying the claim.
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ARTICLE 8 -- MISCELLANEOUS
8.1 Participating Employers
Each Subsidiary set forth on Exhibit E hereto shall be deemed to be an
Employer and the provisions of this Plan shall be fully applicable to the
Tier 2 and Tier 3 Employees of such Subsidiary.
8.2 Termination or Amendment of Plan
The Committee may amend or terminate this Plan at any time prior to a Change
in Control; provided, however, that except as provided in Section 8.6 no
such action which would adversely affect the rights or potential rights of
Participants shall be effective if taken during the twelve (12) month period
prior to a Change in Control. In no event may the Plan be amended or
terminated within the 24 month period following a Change In Control.
8.3 Successors
(a) This Plan shall not be terminated by any merger, consolidation,
share exchange or similar event involving Kodak whether or not
Kodak is the surviving or resulting entity. In the event of any
merger, consolidation, share exchange or similar event, the
provisions of this Plan shall be binding upon the surviving or
resulting corporation or the person or entity to which such assets
are transferred.
(b) This Plan shall inure to the benefit of and be enforceable by
each Participant's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If a Participant shall die while any
amounts are payable to Participant hereunder (including any
payments which may be owed under Article 4), all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Plan to such person or
persons appointed in writing by Participant to receive such
amounts or, if no person is so appointed, to such
Participant's estate.
8.4 Governing Law; Validity
The interpretation, construction and performance of this Plan, unless pre-
empted by the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), shall be governed by and construed and enforced in accordance
with the laws of the State of New York without regard to the principle of
conflicts of laws. The invalidity or unenforceability of any provision of
this Plan shall not affect the validity or enforceability of any other
provision of this Plan, which other provisions shall remain in full force
and effect.
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8.5 Funding
Neither Kodak nor any Employer shall be required to fund or otherwise
segregate assets to be used for the payment of any benefits under the Plan.
The Company shall make such payments only out of its general corporate
funds, and therefore its obligation to make such payments shall be subject
to any claims of its other creditors having priority as to its assets.
8.6 Pooling of Interests
Notwithstanding anything contained herein to the contrary, if any provision
of this Plan would, in the opinion of the Committee, cause any business
combination approved by the Board to be ineligible for pooling-of-interests
accounting treatment, the Committee may amend such provision in a manner to
make such treatment available or terminate the Plan.
8.7 Other Severance Benefits
Any amounts payable to any Participant on account of Participant's
termination of employment (including, without limitation, the Kodak Employee
Protection Plan) pursuant to (a) any other plan, policy or program of, or
agreement with, Kodak or other Employer or (b) any statute or governmental
regulation shall be offset against any payments made to such Participant
pursuant to this Plan to the extent necessary to avoid the duplication of
benefits.
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Exhibit A
List of Tier 1 Employees
130
Exhibit B
List of Tier 2 Employees
131
Exhibit C
List of Tier 3 Employees
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Exhibit D
Certain Additional Payments by the Company.
(a) Anything in this Plan to the contrary notwithstanding, in the
event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any
entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of a Participant (whether pursuant to the
terms of this Plan or otherwise, but determined without regard to any
additional payments required under this Exhibit D) (the "Payments") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any interest or penalties are
incurred by a Participant with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to such
Participant an additional payment (a "Gross-Up Payment") in an amount such
that after payment by the Participant of all taxes (including any Excise
Tax) imposed upon the Gross-Up Payment, the Participant retains an amount of
the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-up Payment in Participant's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the
calendar year in which the Gross-up Payment is to be made. For purposes of
determining the amount of the Gross-up Payment, Participant shall be deemed
to (i) pay federal income taxes at the highest marginal rates of federal
income taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes and
(iii) have otherwise allowable deductions for federal income tax purposes at
least equal to those which could be disallowed because of the inclusion of
the Gross-up Payment in the Participant's adjusted gross income.
Notwithstanding the foregoing provisions of this Exhibit D, if it shall be
determined that Participant is entitled to a Gross-Up Payment, but that the
Payments would not be subject to the Excise Tax if the Payments were reduced
by an amount that is less than 10% of the portion of the Payments that would
be treated as "parachute payments" under Section 280G of the Code, then the
amounts payable to the Participant under this Plan shall be reduced (but not
below zero) to the maximum amount that could be paid to Participant without
giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up
Payment shall be made to Participant. The reduction of the amounts payable
hereunder, if applicable, shall be made by reducing first the payments under
Section 4.3, unless an alternative method of reduction is elected by
Participant.
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For purposes of reducing the Payments to the Safe Harbor Cap, only amounts
payable under this Plan (and no other Payments) shall be reduced. If the
reduction of the amounts payable hereunder would not result in a reduction
of the Payments to the Safe Harbor Cap, no amounts payable under this Plan
shall be reduced pursuant to this provision.
(b) All determinations required to be made under this Exhibit D,
including whether and when a Gross-Up Payment is required, the amount of
such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap
and the assumptions to be utilized in arriving at such determinations, shall
be made by the public accounting firm that is retained by Kodak as of the
date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and
Participant within fifteen (15) business days of the receipt of notice from
the Company or Participant that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, Participant
may appoint another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company and the Company shall
enter into any Agreement requested by the Accounting Firm in connection with
the performance of the services hereunder. The Gross-up Payment with
respect to any Payments shall be made no later than thirty (30) days
following such Payment. If the Accounting Firm determines that no Excise
Tax is payable by Participant, it shall furnish Participant with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on Participant's applicable federal income tax return will not
result in the imposition of a negligence or similar penalty. In the event
the Accounting Firm determines that the Payments shall be reduced to the
Safe Harbor Cap, it shall furnish Participant with a written opinion to such
effect. The Determination by the Accounting Firm shall be binding upon the
Company and Participant. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the Determination, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment") or Gross-up Payments are made by the Company
which should not have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event that Participant
thereafter is required to make payment of any Excise Tax or additional
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be
promptly paid by the Company to or for the benefit of Participant. In the
event the amount of the Gross-up Payment exceeds the amount necessary to
reimburse Participant for Participant's Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any
such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code) shall be promptly paid
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by Participant (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for the
benefit of the Company. Participant shall cooperate, to the extent
Participant's expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
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Exhibit E
Included Subsidiaries
136
Exhibit (10) U.
Eastman Kodak Company
Estate Enhancement Program
1. Purpose
The purpose of the Eastman Kodak Company Estate Enhancement Program
(the "Plan") is to provide Eligible Executives of Eastman Kodak Company
(the "Company") the ability to elect life insurance coverage pursuant
to a split-dollar life insurance arrangement.
2. Definitions
For purposes of this Plan, the following terms have the meanings set
forth below:
2.01 Adjusted Company Death Benefit means the portion of the Policy
death benefit payable to the Company solely as a result of an
Alternative Death Benefit Election being in effect for the Policy,
and shall be determined by subtracting from the amount of Policy
death benefit paid to the Company an amount equal to the portion
of the Policy death benefit that would have been paid to the
Company if an Alternative Death Benefit Election was not in effect
for the Policy.
2.02 Agreement means the Agreement executed by the Participant (or
other Policy Owner) and the Company implementing the terms of this
Plan.
2.03 Alternative Death Benefit means a Company-paid death benefit paid
by the Company to the Former Policy Owner's beneficiary(ies)
pursuant to an Alternative Death Benefit Election under Section 8
of the Plan.
2.04 Alternative Death Benefit Amount means, with respect to a
Participant, an amount that, after subtracting any Company
federal, state, and local income tax savings resulting from the
deductibility of the payment for corporate tax purposes, is equal
to the Adjusted Company Death Benefit reduced by the income taxes
(if any) payable by the Company as a result of receiving the
Adjusted Company Death Benefit. The Alternative Death Benefit
Amount shall be determined at the time the payment is to be made,
based on the Company's federal, state and local income tax rate
(calculated at the marginal tax rate then applicable to the
Company, but net of any federal deduction for state and local
taxes) at the time of the payment, and shall be determined by the
Plan Administrator.
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2.05 Alternative Death Benefit Election means an election made by the
Elector or Policy Owner pursuant to Section 8 of the Plan.
2.06 Board of Directors means the Board of Directors of the Company.
2.07 Collateral Assignment means the Collateral Assignment executed by
the Policy Owner pursuant to Section 6.02 of the Plan.
2.08 Committee means the Executive Compensation and Development
Committee of the Board of Directors of the Company.
2.09 Company means Eastman Kodak Company.
2.10 Company Death Benefit means the portion of the Policy death
benefit payable to Company as provided in Section 7.
2.11 Company Default means an action of the Company with respect
to the Policy, or failure to act, as is defined in Section
10.01 of the Plan.
2.12 Compensation means amounts a Participant agrees to forego to
participate in the Plan pursuant to Section 3.02, and shall
include all or any portion of one or more of the following:
(i) existing balances under the Eastman Kodak Company 1982
Executive Deferred Compensation Plan; and, (ii) other amounts
deemed by the Senior Vice President of Human Resources of the
Company to constitute Compensation for the purpose of this
Plan.
2.13 Effective Date means December 9, 1999.
2.14 Elector means the person or persons who are entitled to make
or revoke an Alternative Death Benefit Election pursuant to
Section 8.01.
2.15 Eligible Executive means any corporate officer of the Company
chosen by the Committee to be an Eligible Executive for the
purpose of this Plan.
2.16 Enrollment and Election to Forego Compensation Form means the
form used by a Participant to make an election to forego
Compensation pursuant to Section 3.02 of the Plan, the terms
of which are incorporated by reference in this Plan.
2.17 Former Policy Owner means the person(s) or entity that is the
Policy Owner immediately prior to when an Alternative Death
Benefit Election is first made with respect to a Policy.
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2.18 Insurer means, with respect to a Participant's Policy, the
insurance company issuing the Policy on the Participant's
life (or on the lives of the Participant and the
Participant's spouse, in the case of a Survivorship Policy)
pursuant to the provisions of the Plan.
2.19 Participant means an Eligible Executive who elects to
participate in the Plan.
2.20 Participant's Coverage Amount means the portion of the
Policy's death benefit payable to the beneficiary(ies) of the
Policy Owner as provided in Section 7.
2.21 Plan Administrator means the Director, Human Resources and
Senior Vice President, Eastman Kodak Company.
2.22 Policy means the life insurance coverage acquired on the life
of the Participant (or on the lives of the Participant and
the Participant's spouse, in the case of a Survivorship
Policy) by the Company.
2.23 Policy Owner means the person or entity designated as owner
on the application for the Policy, or the person or entity to
which a Policy Owner assigns his or her interest in the
Policy.
2.24 Premium means, with respect to a Policy on the life of a
Participant (or the lives of a Participant and a
Participant's spouse, if the Policy is a Survivorship
Policy), the amount the Company is obligated, pursuant to the
terms of the Plan, to pay to the Insurer with respect to such
Policy.
2.25 Survivorship Policy means a Policy insuring the lives of the
Participant and a Participant's spouse, with the death
benefit payable at the death of the last survivor of the
Participant and his or her spouse.
3. Participation
3.01 Eligibility. Any Eligible Executive shall be eligible to
participate in the Plan. An Eligible Executive shall become a
Participant by completing such forms, documents and procedures as
specified by the Plan Administrator. The Participant (and, in the
case of a Survivorship Policy, the Participant's spouse) shall
cooperate with the Insurer by furnishing any and all information
requested by the Insurer in order to facilitate the issuance of
the Policy, including furnishing such medical information and
taking such physical
139
examinations as the Insurer may deem necessary. In the absence of
such cooperation, the Company shall have no further obligation to
the Participant to allow him or her to participate in the Plan.
3.02 Election to Forego Compensation. As a condition of participating
in the Plan, each Participant shall be required to make an
election in which the Participant shall commit to forego the
receipt of a specified amount of Compensation. The Participant
shall make an election to forego Compensation by execution of an
Enrollment and Election to Forego Compensation Form prior to the
issuance of the Participant's Policy.
4. Amount and Type of Coverage
The amount and type of coverage provided under the Policy shall be that
amount and type specified in the Agreement.
5. Payment of Premiums
5.01 Company Payments. The Company shall pay Premiums equal to the
Compensation foregone by a Participant as provided in the
Enrollment and Election to Forego Compensation Form. As nearly as
is practical and except as otherwise provided in an Agreement, the
amount and timing of the Premium payments shall correspond to the
amount of foregone Compensation and the time at which the foregone
Compensation would have been paid if not foregone. However, with
respect to amounts foregone from the Eastman Kodak Company 1982
Executive Deferred Compensation Plan, a corresponding Premium
shall be paid at the time the Policy is issued. Any premium paid
within thirty (30) days of the time specified for payment shall be
considered to be paid at the time specified for payment.
5.02 Participant Payments. Unless otherwise provided in an Agreement,
a Participant (or Policy Owner) shall not be required to pay any
portion of the Premium due on the Policy. However, the
Participant (or Policy Owner) may elect to pay a Policy premium in
addition to the Premium amount paid by the Company.
6. Policy Ownership
6.01 Ownership. Except as otherwise provided in this Plan and related
Agreement, the Policy Owner shall be the sole and exclusive owner
of a Participant's Policy.
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6.02 Company's Rights. The Company shall not have any ownership rights
in the Policy (except as provided in Section 8). The Company's
rights shall be limited to: (1) the right to receive a portion of
the Policy death benefit (as provided in Section 7a) in the event
of the payment of the Policy death benefit while the Collateral
Assignment is in effect with respect to the Policy; and, (2) the
right to receive all of
the proceeds of any surrender, withdrawal or loan processed while
the Collateral Assignment is in effect, except as otherwise
specified in the Agreement. In exchange for the Company's
agreement to pay the Premiums described in Section 5.01 of the
Plan and the Participant's Agreement, the Policy Owner shall
execute a Collateral Assignment to the Company of the rights
provided to the Company under this Plan and related Agreement.
The Company shall have the right to direct the Policy Owner in
writing to take any required action consistent with these rights,
and upon the receipt of such written direction from the Company,
the Policy Owner promptly shall take such action as is necessary
to comply therewith. The Company shall have the right to assign
any part or all of its interest in the Policy, subject to the
Policy Owner's rights, and the terms and conditions of this Plan
and related Agreement, to any person, entity or trust by the
execution of a written instrument delivered to the Policy Owner.
6.03 Prohibited Policy Transactions. Except as otherwise provided in
the Agreement, the Policy Owner (including the Company, if the
Company becomes the Policy Owner pursuant to Section 8) shall not
borrow from, hypothecate, withdraw cash value from, surrender in
whole or in part, cancel, or in any other manner encumber a Policy
without the prior written consent of the Company (or without the
prior written consent of the Former Policy Owner, if the Company
is the Policy Owner).
6.04 Investment of Policy Cash Values. If the Policy provides the
Policy Owner with a choice of investment funds for the Policy cash
values, and if the Company becomes the Policy Owner pursuant to
Section 8, the Company shall thereafter invest the cash values in
the funds selected by and in the proportions specified by the
Former Policy Owner, unless otherwise specified in the
Participant's Agreement. The Company agrees to submit an
investment election to the Insurer within thirty (30) days after a
written investment request is submitted to the Company by the
Former Policy Owner or other person or entity designated in the
Participant's Agreement.
6.05 Possession of Policy. The Policy Owner shall maintain possession
of the Policy.
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7. Death Benefit
Upon the death of the Participant (or the death of the survivor of the
Participant and the Participant's spouse, if the Policy is a
Survivorship Policy), the death benefit under the Policy shall be
divided as follows:
a. The Company shall be entitled to receive as the Company Death
Benefit an amount equal to the greater of: (i) the Policy cash
accumulation value immediately prior to the death of the
Participant (or the death of the survivor of the Participant and
the Participant's spouse, if the Policy is a Survivorship Policy)
and before any surrender charges; or (ii) the cumulative Premiums
paid by the Company under the Policy. If the Policy provides for
a death benefit equal to the sum of the face amount of the Policy
and any cash account or accumulation value, any Company Death
Benefit should first be paid from the cash account or accumulation
value portion of the death benefit.
b. The beneficiary(ies) of the Policy Owner shall be entitled to
receive the Participant's Coverage Amount, which shall consist of
the excess, if any, of the Policy death benefit over the Company
Death Benefit.
8. Alternative Death Benefit Election
8.01 Alternative Death Benefit Election. The Alternative Death
Benefit Election provided for in this Section may be made
or revoked by the person or persons designated as the
Elector in the Participant's Agreement. If no such person
is designated in the Agreement, or if no designated person
is living and able to make the election, the election may be
made or revoked by the Policy Owner (or Former Policy Owner,
if the Company becomes the Policy Owner). Any such election
shall be filed with the Plan Administrator in such form as
may be prescribed by the Plan Administrator. When an
Alternative Death Benefit Election is made, the Policy Owner
shall immediately transfer the ownership of the Policy to the
Company, and the Company shall be designated as beneficiary
to receive the entire Policy death benefit. In addition,
using a form provided by the Plan Administrator, the Former
Policy Owner shall designate a beneficiary to receive the
Alternative Death Benefit.
The Elector may revoke the Alternative Death Benefit Election. In
the event of such a revocation, the Company shall continue to be
the Policy Owner and shall, by endorsement filed with the Insurer,
provide the Former Policy Owner the right to designate a
beneficiary of an amount of Policy death benefit equal to the
Participant's Coverage Amount. The revocation of an Alternative
Death Benefit
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Election shall not preclude an Elector (or other eligible party)
from making a later Alternative Death Benefit Election (or from
revoking such later election).
An Alternative Death Benefit Election (or an election to revoke
such an election) shall be effective when any
necessary documentation is submitted to and accepted by the
Insurer. The Policy Owner (or Former Policy Owner, if applicable)
and the Company will promptly submit any required forms or
documents to the Insurer when an Alternative Death Benefit
Election is made or revoked.
8.02 Payment of Benefit. The Alternative Death Benefit shall be
paid by the Company from the general funds of the Company,
and shall not constitute an insurance benefit. It shall be
paid by the Company to the Former Policy Owner's
beneficiary(ies) no later than thirty (30) days after the
Company receives the Policy death benefit. The amount of the
payment shall be equal to the Alternative Death Benefit
Amount. As long as an Alternative Death Benefit Election is
in effect, the beneficiary(ies) of the Former Policy Owner
shall receive only the Alternative Death Benefit, and shall
not be entitled to receive any portion of any death benefits
that would become payable under the Participant's Policy.
9. Election to Reduce Policy Face Amount
The Policy Owner (except the Company, if the Company becomes a Policy
Owner) or, if applicable, the Former Policy Owner, may elect to reduce
the Policy face amount, except that the Policy face amount shall not be
reduced to an amount less than the total of the Policy Premiums paid or
to be paid by the Company pursuant to the Participant's Agreement. If
the Company is the Policy Owner, then, within sixty (60) days of
receipt of a written request from the Former Policy Owner, the Company
shall complete and submit the necessary forms to the Insurer to reduce
the Policy face amount in accordance with the Former Policy Owner's
request.
10. Company Default
10.01 Company Default. A Company Default shall be deemed to have
occurred with respect to a Policy if the Company fails to pay a
Premium on the Policy as required under the terms of the Agreement
within sixty (60) days after the due date for such Premium, or if
the Company processes or attempts to process a policy loan, or a
complete or partial surrender, or a cash value withdrawal without
prior written approval from the Policy Owner (or Former Policy
Owner, if applicable).
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10.02 Rights upon Company Default. In the event of a Company
Default as described in Section 10.01, the Policy Owner (or Former
Policy Owner, if applicable) shall have the right to require the
Company to cure the Company Default by notifying the Company in
writing within sixty (60) days after the Company Default occurs,
or if later, within thirty (30) days after the Policy Owner (or
Former Policy Owner) becomes aware of the Company Default. If the
Company fails to cure the Company Default within
sixty (60) days after being notified by the
Policy Owner (or Former Policy Owner) of the Company Default, the
Policy Owner (or Former Policy Owner) shall have the right to
require the Company to transfer its interest in the Participant's
Policy to the Policy Owner (or Former Policy Owner). The Policy
Owner (or Former Policy Owner) may exercise this right by
notifying the Company, in writing, within sixty (60) days after
the end of the period given to the Company to cure the Company
Default pursuant to the preceding sentence. Upon receipt of such
notice, the Company shall immediately transfer its rights in the
Policy to the Policy Owner (or Former Policy Owner), either by a
release of the Collateral Assignment, or by a transfer of
ownership if the Company is the Policy Owner, and the Company
shall thereafter have no rights with respect to such Policy. A
Policy Owner's (or Former Policy Owner's) failure to exercise its
rights under this Section shall not be deemed to release the
Company from any of its obligations under the Plan, and shall not
preclude the Policy Owner (or Former Policy Owner) from seeking
other remedies with respect to the Company Default. Also, a
Policy Owner's (or Former Policy Owner's) failure to exercise its
rights under this Section will not preclude the Policy Owner (or
Former Policy Owner) from exercising such rights upon a later
Company Default.
11. Governing Laws and Notices
11.01 Governing Law. This Plan shall be governed by and construed
in accordance with the substantive law of New York without giving
effect to the choice of law rules of New York.
11.02 Notices. All notices hereunder shall be in writing and sent
by first class mail with postage prepaid. Any notice to the
Company shall be addressed to the attention of the Director, Human
Resources and Senior Vice President, Eastman Kodak Company at the
principal office of the Company at 343 State Street, Rochester, NY
14650. A copy of any notice to the Company should be sent at the
same time and in the same manner to the Company's General Counsel
at the same address. Any notice to the Participant (or other
Policy Owner or Former Policy Owner) shall be addressed to the
Participant
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(or other Policy Owner or Former Policy Owner) at the address
following such party's signature on his or her Agreement. Any
party may change its address by giving written notice of such
change to the other party pursuant to this Section.
12. Miscellaneous Provisions
12.01 No Contract of Employment. This Plan and any Agreement
executed hereunder shall not be deemed to constitute a contract of
employment between an Eligible Executive and the
Company, or a Participant and the Company, nor shall any provision
restrict the right of the Company to discharge an Eligible
Executive or Participant, or to restrict the right of an Eligible
Executive or Participant to terminate employment with the Company.
12.02 Gender. The masculine pronoun includes the feminine and the
singular includes the plural where appropriate for valid
construction.
12.03 Cooperation With Insurer. In order to be eligible to
participate in this Plan, the Participant (and, in the case of a
Survivorship Policy, the Participant's spouse) shall cooperate
with the Insurer by furnishing any and all information requested
by the Insurer in order to facilitate the issuance of the policy,
including furnishing such medical information and taking such
physical examinations as the Insurer may deem necessary. In the
absence of such cooperation, the Company shall have no further
obligation to the Participant to allow him or her to participate
in the Plan.
12.04 Cancellation of Policy. If the Insurer cancels the
Participant's Policy pursuant to Policy provisions related to
the suicide of the Participant (or the Participant's spouse,
if the Policy is a Survivorship Policy), a material
misstatement of information, nondisclosure of medical
information, or any other Policy provision, then no benefits
shall be payable to the beneficiary(ies) of such Participant
(or other Policy Owner, or Former Policy Owner, where
applicable). In such case, the Participant's election to
forego Compensation which has not yet become payable shall be
void. Also, the Company shall pay to the Participant (or the
Participant's estate, if the Participant has died) an amount
equal to the Compensation already foregone by the Participant
in accordance with the Participant's election under Section
3.02 plus any amounts paid by the Participant or other Policy
Owner or Former Policy Owner under Section 5.02, or, if less,
the amount the Company receives from the Insurer upon
cancellation of the Participant's Policy.
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12.05 Inconsistent Terms. In the event of any inconsistency
between the terms of this Plan as described herein and the
terms of any Policy purchased hereunder or any related
Agreement, the terms of such Policy or Agreement shall be
controlling as to that Participant, or his or her Policy
Owner or Former Policy Owner, if other than the Participant,
his successor-in-interest (if any) and his or her beneficiary
or beneficiaries.
13. Amendment, Termination, Administration, and Successors
13.01 Amendment/Termination. The Committee may amend, modify or
terminate the Plan at any time, but any such amendment,
modification or termination will not affect the rights of any
Participant, Policy Owner or Former Policy Owner under any
Agreement entered into with the Company prior to the date of such
amendment, modification or termination without the Participant's,
Policy Owner's or Former Policy Owner's written consent.
13.02 Administration. This Plan shall be administered by the Plan
Administrator. The Plan Administrator shall have the authority to
make, amend, interpret, and enforce all rules and regulations for
the administration of the Plan and decide or resolve any and all
questions, including interpretations of the Plan, as may arise in
connection with the Plan in the Plan Administrator's sole
discretion. In the administration of this Plan, the Plan
Administrator from time to time may employ agents and delegate to
them or to others (including Eligible Executives) such
administrative duties as it sees fit. The Plan Administrator from
time to time may consult with counsel, who may be counsel to the
Company. The decision or action of the Plan Administrator (or its
designee) with respect to any question arising out of or in
connection with the administration, interpretation and application
of this Plan shall be final and conclusive and binding upon all
persons having any interest in the Plan.
13.03 Delegation. The Plan Administrator may allocate or delegate
all or any of his or her responsibilities or powers under the Plan
to any persons or persons selected by the Plan Administrator
provided any such delegation be in writing. In addition, the
Company may allocate or delegate all or any of its
responsibilities or powers under the Plan to any person or persons
selected by the Company provided any such delegation be in
writing.
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13.04 Successors. The terms and conditions of this Plan shall
inure to the benefit of and bind the Company, the Participant and
the Policy Owner, as well as their successors, assigns, and
representatives. The Company shall have the right to absolutely
and irrevocably assign its rights, title and interest in a Policy
without the consent of the Participant or Policy Owner.
14. Claims Procedure
Any controversy or claim arising out of or relating to this Plan shall
be filed with the Plan Administrator or its designee which shall make
all determinations concerning such claim. Any decision by the Plan
Administrator denying such claim shall be in writing and shall be
delivered to all parties in interest in accordance with the notice
provisions of Section 11.02 herein. Such decision shall set forth the
reasons for denial in plain language. Pertinent provisions of the Plan
shall be cited and, where appropriate, an explanation as to how the
claimant can perfect the claim will be provided. This notice of denial
of benefits will be provided within ninety (90) days of the Plan
Administrator's receipt of the claim for benefits. If the Plan
Administrator fails to notify the claimant of its decision regarding
the claim, the claim shall be considered denied, and the claimant then
shall be permitted to proceed with an appeal as provided for in this
Section.
A claimant who has been completely or partially denied a benefit shall
be entitled to appeal this denial of his or her claim by filing a
written statement of his or her position with the Plan Administrator no
later than sixty (60) days after receipt of the written notification of
such denial. The Plan Administrator shall schedule an opportunity for
a full and fair review of the issue within thirty (30) days of receipt
of the appeal. The decision on review shall set forth specific reasons
for the decision, and shall cite specific references to the pertinent
Plan provisions on which the decision is based.
Following the review of any additional information submitted by the
claimant, either through the hearing process or otherwise, the Plan
Administrator shall render a decision on the review of the denied claim
in the following manner:
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a. The Plan Administrator shall make its decision regarding the
merits of the denied claim within sixty (60) days following
receipt of the request for review (or within 120 days after such
receipt, in a case where there are special circumstances requiring
extension of time for reviewing the appealed claim). The Plan
Administrator shall deliver the decision to the claimant in
writing. If an extension of time for reviewing the appealed claim
is required because of special circumstances, written notice of
the extension shall be furnished to the claimant prior to the
commencement of the extension. If the decision on review is not
furnished within the prescribed time, the claim shall be deemed
denied on review.
b. The decision on review shall set forth specific reasons for the
decision, and shall cite specific references to the pertinent Plan
provisions on which the decision is based.
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Exhibit (10) V.
June 19, 1997
Mr. Robert J. Keegan
485 West California Blvd.
Pasadena, California 91105
Dear Bob:
I am pleased to provide you with an offer to be reemployed with Eastman
Kodak Company (Kodak) as President, Kodak Professional. This letter will
confirm the terms and conditions of our offer and your reemployment by
Kodak.
1. Position.
Your position will be President, Kodak Professional, reporting to Daniel A.
Carp, President and Chief Operating Officer, in his Chief Operating Officer
role. Upon your reemployment, we will recommend to the Board of Directors
that you be elected to a corporate vice president position.
2. Reemployment Date.
You will commence your reemployment with Kodak on July 1, 1997.
3. Compensation.
A. Base Salary. Your annual base salary will be $340,000.
B. MVCP. You will be a participant in Kodak's Management Variable
Compensation Plan (MVCP) with an annual target award of 50% of
your base salary. For purposes of the 1997 plan year, any award
payable to you will be prorated based on your length of service
with Kodak during such year.
C. Wage Dividend. You shall be eligible to participate in the Wage
Dividend Plan. If awards are granted under the Wage Dividend Plan
for the 1997 Performance Period, your award (per the terms of the
Plan) will be paid in the form of nonqualified stock options to
acquire Kodak common stock and be based upon your participating
earnings for the 1997 Performance Period.
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D. Performance Share Program. Immediately upon your reemployment
with Kodak, Kodak management will recommend to the Executive
Compensation and Development Committee of Kodak's Board of
Directors that you be named as a participant in the Performance
Stock Program under the Eastman Kodak Company 1995 Omnibus Long-
Term Compensation Plan (the "Omnibus Plan") for purposes of the
1995-1997, 1996-1998, and 1997-1999 Performance Cycles. Under the
terms of the Performance Stock Program, to the extent awards are
paid for a Performance Cycle, newly eligible participants are
entitled to a pro-rata "Target Award," as that term is defined in
the Omnibus Plan, based on the number of months he or she was
eligible to participate in the program for such cycle. Given your
wage grade, your Target Award for a Performance Cycle under the
Performance Stock Program will be 3,625 shares of restricted Kodak
common stock.
E. Stock Option Program. You will be eligible to participate in
Kodak's Stock Option Program under the Omnibus Plan. Grants are
typically made in the Spring of each year. If awards are granted
for the 1998 calendar year, it is anticipated that you would be
eligible for a stock option grant of approximately 23,000 shares.
Individual awards under the program are, however, wholly within
the discretion of the Executive Compensation and Development
Committee of the Board of Directors and, if made, are a function
of a participant's attainment of established performance criteria
which includes business unit performance as well as individual
performance.
F. 1982 Eastman Kodak Company Executive Deferred Compensation
Plan. Immediately upon your reemployment with Kodak, you will be
eligible to participate in the 1982 Eastman Kodak Company
Executive Deferred Compensation Plan. However, in order to defer
any compensation earned for the remainder of 1997, you must file a
written election within ten (10) business days of the date of your
reemployment.
4. Stock Option Award.
Upon your employment, Kodak will propose that the Executive Compensation and
Development Committee of the Board (the "Compensation Committee") grant to
you a one-time grant of 18,000 non-qualified stock options. These options
will be issued to you under the terms of the 1995 Omnibus Plan. The options
shall provide for an exercise price equal to the fair market value of Kodak
common stock on the date of the options' grant and a term of 10 years. The
options shall vest in thirty three and one third percent (33 1/3%)
consecutive annual installments starting one year from the date of grant.
If your employment terminates for any reason other than a "Permitted
Reason," as determined by the CEO in the exercise of
150
his sole discretion, during the one year period following the date of grant,
you shall immediately forfeit all of the options. Thereafter, so long as
these options remain unvested, they shall be subject to forfeiture in the
event of your termination of employment for any reason other than death,
"Disability," or an "Approved Reason," as those terms are defined under the
terms of the 1995 Omnibus Plan.
5. Signing Bonus.
Upon your reemployment by Kodak, we will pay you a $42,500 gross cash
signing bonus, subject to all federal, state, and FICA withholdings, which
will be paid within 30 days of your start date.
This cash signing bonus will not be "benefits bearing." In other words, the
amount will not be taken into account or considered for any reason for
purposes of determining any company provided benefits or compensation to
which you may become eligible, including by way of illustration and not by
way of limitation, the wage dividend or any pension or other retirement
benefit.
6. Benefits.
Under Kodak's flexible benefit program, immediately upon your reemployment
you will be eligible to elect, subject to the applicable plan's terms and
conditions, health care coverage, long-term disability coverage, life
insurance coverage and long term care coverage. Upon your reemployment, you
will also be eligible for Kodak paid and provided personal financial
counseling and personal umbrella liability insurance, as well as coverage
under the company's Short Term Disability Plan and Executive Health
Management Plan.
Immediately upon your reemployment, you will be eligible to participate in
the Eastman Kodak Employees' Savings and Investment Plan ("SIP"). You will
be eligible to make rollover deferrals to SIP from other qualified plans
within two years from the date of your hire.
7. Pension.
A. Kodak agrees to enhance the benefits you may become entitled to
under the Kodak Retirement Income Plan ("KRIP"), Kodak Unfunded
Retirement Income Plan ("KURIP"), and the Kodak Excess Retirement
Income Plan ("KERIP") by virtue of your service following your
reemployment with Kodak (hereinafter collectively referred to as
the "Retirement Benefit"). Assuming you satisfy the conditions of
Subsection B below, and subject to the offset provision in
Subsection C below, Kodak agrees upon your retirement under the
terms of KRIP to calculate your Retirement Benefit based on the
following
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deemed service in addition to any actual service you earn
subsequent to your reemployment with Kodak; (i) your service with
Kodak from October 4, 1971 until August 27, 1995; and (ii) an
additional 1 year and 8 months for the period you were employed by
Avery. Notwithstanding the preceding, this crediting of deemed
service shall apply solely for purposes of establishing: (i) your
"Vesting Service"; (ii) the total amount of "Accrued Service" used
to calculate your Retirement Benefit; and (iii) your "Total
Service" for purposes of determining the applicability of any
early retirement reduction factor used to compute your Retirement
Benefit. It is not intended to enhance any other Kodak benefit or
compensation to which you may become entitled.
B. In order to receive the enhanced Retirement Benefit described in
Subsection A above, you must, absent termination by Kodak for a
reason other than "Cause," as defined in Section 11, remain
continuously employed by Kodak until August 1, 2002. In other
words, if, prior to August 1, 2002, either you terminate your
employment for any reason or Kodak terminates your employment for
"Cause", you will not be entitled to receive the benefit described
in Subsection A above.
C. The enhanced Retirement Benefit provided under Subsection A,
calculated in the form of a straight life annuity payable monthly
pursuant to the terms of KRIP, shall be offset by $7,792.00 per
month, i.e., the actuarially computed equivalent value, expressed
in the form of a straight life annuity payable monthly, of the
lump sum payment you received under KRIP, KURIP and KERIP upon
your termination from Kodak on August 27, 1995.
D. The amount of the benefit, if any, payable to you under Subsection
A above shall: (i) be paid out of Kodak's general assets, not
under KRIP; (ii) not be funded in any manner; (iii) be included in
your gross income as ordinary income, subject to all income and
payroll tax withholdings required to be made under applicable
laws; (iv) not be grossed up or given any other special tax
treatment by Kodak; and (v) paid in such form(s) as Kodak in its
discretion determines.
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8. Pre-Retirement Income Benefit.
A. Kodak agrees to enhance your Pre-retirement Survivor Income
Benefit (Pre-retirement SIB) Coverage under KRIP, KURIP and KERIP.
Assuming you satisfy the conditions of Subsection B below, the
amount of your Pre-retirement SIB coverage shall be calculated
pursuant to Section 10.03(e) of KRIP; except, however, that for
purposes of Step 1, your "Accrued Benefit" shall be calculated by
taking into account an additional 1 year and 8 months for the
period you were employed by Avery.
B. In order to receive the enhanced Pre-retirement SIB benefit
described in Subsection A above, you must, absent termination by
Kodak for a reason other than "Cause," as defined in Section 11,
remain continuously employed by Kodak until August 1, 2002. In
other words, if, prior to August 1, 2002, either you terminate
your employment for any reason or Kodak terminates your employment
for "Cause", you will not be entitled to receive the benefit
described in Subsection A above.
C. The amount of the benefit, if any, payable under this Section 8
shall: (i) be paid out of Kodak's general assets, not under KRIP:
(ii) not be funded in any manner; (iii) be included in gross
income as ordinary income, subject to all income and payroll tax
withholdings required to be made under applicable laws; and (iv)
not be grossed up or given any other special tax treatment by
Kodak.
9. Retiree Health and Dental Coverage.
A. Assuming you satisfy the conditions of Subsection B below, Kodak
agrees to credit you with an additional 1 year and 8 months for
the period you were employed by Avery for purposes of determining
any company contribution towards the coverage you may be eligible
for during your retirement under Kodak Medical Assistance Plan
("Kmed") and the Kodak Dental Assistance Plan ("Kdent"). Your
company contribution under each such plan is, however, subject to
reduction or termination at any time and from time to time by
Kodak to the extent such reduction or termination results or is
otherwise caused by Kodak's exercise of its right to amend,
suspend or terminate Kmed or Kdent. Furthermore, the health and
dental coverages for which you may be eligible for under Kmed and
Kdent are subject to amendment, suspension, or termination at any
time and from time to time by Kodak to the extent Kodak exercises
its right to amend, suspend, or terminate Kmed or Kdent. In the
event of such action, Kodak shall be under no obligation to
provide replacement or substitute coverage.
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B. In order to receive the crediting of service described in
Subsection A above, you must, absent termination by Kodak for a
reason other than "Cause," as defined in Section 11, remain
continuously employed by Kodak until August 1, 2002. In other
words, if, prior to August 1, 2002, either you terminate your
employment for any reason or Kodak terminates your employment for
"Cause", you will not be entitled to receive the benefit described
in Subsection A above.
10. Employee Benefit Plan and Definitions.
A. Employee Benefit Plan. Although it is Kodak's belief that the
terms of Sections 7, 8 and 9 do not constitute an "employee
benefit plan" under Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), in the event such terms are held
to be an "employee benefit plan," Kodak's Senior Vice President
and Director, Human Resources shall be the plan administrator of
the plan. The plan administrator shall have total and exclusive
responsibility to control, operate, manage and administer the plan
in accordance with its terms and all the authority that may be
necessary of helpful to enable him/her to discharge his/her
responsibilities with respect to the plan. Without limiting the
generality of the preceding sentence, the plan administrator shall
have the exclusive right to: interpret the plan, decide all
questions concerning eligibility for and the amount of benefits
payable under the plan, construe any ambiguous provision of the
plan, correct any default, supply any omission, reconcile any
inconsistency, and decide all questions arising in the
administration, interpretation and application of the plan. The
plan administrator shall have full discretionary authority in all
matters related to the discharge of his/her responsibilities and
the exercise of his/her authority under the plan, including,
without limitation, his/her construction of the terms of the plan
and his/her determination of eligibility for benefits under the
plan. It is the intent of the plan, as well as both parties
hereto, that the decisions of the plan administrator and his/her
action with respect to the plan shall be final and binding upon
all persons having or claiming to have any right or interest in or
under the plan and that no such decision or actions shall be
modified upon judicial review unless such decision or action is
proven to be arbitrary or capricious.
B. Definitions. Any defined term used in Sections 7, 8, 9 and 10,
other than those specifically defined therein, shall have the same
meaning for purposes of this letter as that ascribed to it under
KRIP.
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11. Severance.
A. In General. If during the first three (3) years of your
reemployment, Kodak terminates your employment for reasons other
than "Cause" or "Disability," as those terms are defined below,
you shall receive the severance allowance described in Subsection
B below and management will recommend that your termination be
treated as an "Approved Reason" in accordance with the terms of
Subsection C below.
B. Severance Allowance. Kodak will pay you, subject to your continued
satisfaction of the terms of the Employees' Agreement referenced
in Section 15 below, a severance allowance equal to one and one
half (1 1/2) times your then-current annual base salary plus your
then-current target annual incentive award under MVCP. The
severance allowance will be paid in equal consecutive bi-monthly
payments over the eighteen month period commencing on the date of
your termination of employment.
This severance allowance shall be paid to you in lieu of any other
severance benefit, payment or allowance that you would otherwise
be eligible for, except any benefits payable to you under Kodak's
Termination Allowance Plan ("TAP") or any successor plan thereto.
To the extent, however, you are eligible for a severance benefit
under TAP (or any successor plan), the benefits payable to you
under this Section 11 shall be reduced by the amount of such
severance benefit. In no event shall any of this severance
allowance be "benefits bearing." In other words, the amount of
this allowance will not be taken into account, or considered for
any reason, for purposes of determining any company provided
benefits or compensation to which you may become eligible,
including by way of illustration and not by way of limitation, the
wage dividend. Kodak shall withhold from this severance allowance
all income, payroll and employment taxes required by applicable
law or regulation to be withheld.
In the event you breach any of the terms of the Employee's
Agreement, in addition to and not in lieu of, any other remedies
that Kodak may pursue against you, no further severance allowance
payments will be made to your pursuant to this Section 11 and you
agree to immediately repay to Kodak all moneys previously paid to
you pursuant to this Section.
C. Approved Reason. For purposes of any stock options granted to you
under the Omnibus Plan or any successor plans thereto, management
will recommend to the Executive Compensation and Development
Committee of the Board of Directors that your termination be
treated as an "Approved Reason."
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D. Cause. For purposes of this Section 11, "Cause" shall mean:
i. your continued failure, for a period of at least 30 calendar
days following a written warning, to perform your regularly
assigned duties; or
ii. your failure to follow a lawful written directive of the
Chief Executive Officer or your supervisor; or
iii. your willful violation of any material rule, regulation, or
policy that may be established from time to time for the
conduct of Kodak's business; or
iv. your unlawful possession, use or sale of narcotics or other
controlled substances, or, performing job duties while
illegally used controlled substances are present in your
system; or
v. any act of omission or commission by you in the scope of our
employment (a) which results in the assessment of a civil or
criminal penalty against you or Kodak, or (b) which in the
reasonable judgment of your supervisor could result in a
material violation of any foreign or U.S. federal, state or
local law or regulation having the force of law; or
vi. your conviction of or plea of guilty or no contest to any
crime involving moral turpitude; or
vii. any intentional misrepresentation of a material fact to, or
concealment of a material fact from, your supervisor or any
other person in Kodak to whom you have a reporting
relationship in any capacity.
E. Disability. For purposes of this Plan, the term "Disability"
means disability under the terms of the Kodak Long-Term Disability
Plan.
12. Relocation.
A. In General. Upon your reemployment with Kodak, you will be
eligible for Kodak's Enhanced Relocation Program for new hires as
modified by the terms of this Section 12. To the extent there is
an inconsistency between the terms of this Section 12 and the
Enhanced Relocation Program for new hires, the terms of this
Section 12 will control. In order to receive any of the benefits
under Kodak's Enhanced Relocation Program for new hires or this
Section 12, you will be required to comply with the requirements
of the Enhanced Relocation Program for new hires.
156
B. Pasadena Residence. It is understood that your current personal
residence is 485 West California Boulevard, Pasadena, California
(the "Pasadena Residence"). We also understand that your wife and
daughter will maintain their primary residence in the Pasadena
Residence until approximately June of 1998. Accordingly, it is
recognized that you will not be marketing the Pasadena Residence
for sale until shortly before such time.
C. Protected Value. If as a result of your reasonably diligent and
good faith efforts, you are unable to obtain a bona fide offer for
your Pasadena Residence for a gross selling price equal to or
greater than $1,200,000.00, Kodak agrees, subject to your
satisfaction of the conditions described in this Section 12, to
pay you an amount equal to the difference between $1,200,000.00
and the gross selling price you actually receive upon the sale of
the Pasadena Residence. To the extent such amount is determined
by Kodak to be taxable income to you, no special tax treatment
will be afforded to you by Kodak with regards to such payment and
Kodak shall withhold from the payment all applicable income and
payroll taxes.
D. Conditions. In order to receive the benefit described in Section
12(C) above, you must be employed by Kodak at the time of the sale
of your Pasadena Residence. In addition, you must maintain the
Pasadena residence in reasonable condition, ordinary wear and tear
excepted. Also, you agree to keep the Pasadena Residence insured
against risk of loss or damage by fire and other casualties
customarily insured against with a standard extended coverage
endorsement, such insurance to be in an amount not less than the
full replacement value of the Pasadena Residence. You will bear
the risk of loss for any casualty until transfer of title. In the
event of a partial casualty loss to the Pasadena Residence, you
will be required to promptly repair any damage suffered by the
property. In the event of a total casualty loss, Kodak's
liability under Section 12(C) will be limited to the difference,
if any, between $1,200,000.00 and the Fair Market Value of the
Pasadena Residence immediately prior to the total casualty. The
process described in Section 12(E) below shall be used to
determine the Fair Market Value of the Pasadena Residence prior to
the total casualty.
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E. Fair Market Value. The "Fair Market Value" of the Pasadena
Residence immediately prior to a total casualty will be determined
by the result of two appraisals obtained from appraisers who have
not appraised the Pasadena Residence within the past 12 months.
You may choose the two appraisers from Prudential Relocation's
list of approved appraisers under the Kodak Relocation Program.
Do not order the appraisals directly. Indicate your choice of
appraisers to the Relocation Counselor assigned to you by Kodak
who will in turn order the appraisals. Once the results of the
two appraisals are received, the Fair Market Value will be
determined by averaging the two appraisals. If, however, the two
appraisals vary in dollar amount by more that 5% of the higher
appraisal, you will have the option of requesting that a third
appraisal be performed. The third appraisal will be
performed by an appraiser selected by you from Prudential
Relocation's list of approved appraisers under the Kodak
Relocation Program. Once this third appraisal is completed, the
two closest appraisals will be averaged to determine the Fair
Market Value. If you decide not to have a third appraisal
performed, the first two appraisals will be averaged to determine
the Fair Market Value.
F. Protection Against Loss Program. You will be ineligible for the
Protection Against Loss Program under the Enhanced Relocation
Program for new hires.
G. Temporary Housing. To assist you in finding a permanent residence
in the Rochester, New York area, Kodak agrees to reimburse you for
your temporary housing expenses. More specifically, for a twelve
(12) month period commencing on your start date, Kodak agrees to
reimburse you for your temporary housing expenses up to a maximum
dollar amount of $1,500 per month. These expenses must be
incurred for temporary housing in the Rochester, New York area.
Proper documentation of these expenses will be required in
accordance with the terms of Kodak's relocation program. To the
extent you are subject to Federal or state income tax on these
expense reimbursements, Kodak will "gross-up" the reimbursements
so that after such taxes are incurred by you, you shall receive a
net payment equal to the amount of the expense. The amount of any
such "gross-up" shall not be included in the calculation of the
$1,500 per month limit.
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13. Physical Exam, Drug Test and INS.
In accordance with Kodak policy, a reemployment physical examination must be
conducted. As a part of the pre-employment exam, you will be screened for
the use of chemical substances. This offer is contingent on a negative drug
screen result. The drug screen and physical exam will be at Kodak expense.
You will be contacted shortly to make those arrangements.
Kodak is required by Immigration and Naturalization Service and Federal Law
to verify identity and authorization to work of all prospective employees.
Upon acceptance of Kodak's offer, you will receive information which
outlines fully the details of this requirement. Inability to comply with
these requirements will cause rescission of this conditional offer.
14. Confidentiality.
It is important that the relationship between you and Kodak be established
at the outset so as to enable you to properly safeguard confidential
information which you may have acquired from your previous employer(s).
"Confidential Information" is defined as information proprietary to a
previous employer which is generally secret, and which you learned while
employed with that employer.
By accepting this conditional offer, you represent to Kodak that your
obligations regarding the Confidential Information will not impede your
ability to perform the duties and responsibilities required by virtue of
your position with Kodak. You further represent that the performance of
these duties and responsibilities will not violate any agreement between you
and any other person, firm, entity or organization or violate any Federal,
state or local law, executive order or regulation.
During your reemployment with Kodak, we would expect that you will keep in
mind the Confidential Information and inform us if you believe that any
duties or responsibilities to which you are assigned will involve its use or
disclosure. I am available at any time to discuss questions which might
arise in this regard. All such discussions you may have with me or anyone at
Kodak in this regard should refer to the Confidential Information only in
general terms so as to avoid disclosure of the information you believe to be
confidential.
15. Employee's Agreement.
Attached is a copy of the Kodak Employee's Agreement which you must sign and
return to me upon your acceptance of this conditional offer.
159
16. Miscellaneous.
A. Merger. By accepting this conditional offer of reemployment, you
agree and acknowledge that this letter contains the entire
understanding between Kodak and yourself with respect to your
reemployment and supersedes any and all previous written or oral
negotiations, commitments, and agreements with respect to such
subject matter.
B. At Will. Please also keep in mind that, regardless of any
provision contained in this letter to the contrary, your
reemployment with Kodak is "at will". That is, you are free to
terminate your employment at any time, for any reason, and Kodak
is free to do the same.
C. Confidentiality. You will agree to keep the existence of this
letter confidential except that you may review it with your
attorney, financial advisor and/or spouse and with me or my
designee.
D. Unenforceability. If any portion of this letter is deemed to be
void or unenforceable by a court of competent jurisdiction, the
remaining portions will remain in full force and effect to the
maximum extent allowed by law. The parties intend and desire that
each portion of this letter be given the maximum possible effect
allowed by law.
E. Headings. The heading of the several sections of this letter have
been prepared for convenience and reference only and shall not
control, affect the meaning, or be taken as the interpretation of
any provision of this letter.
F. Applicable Law. This letter, and its interpretation and
application, will be governed and controlled by the laws of the
State of New York.
G. Employment. You are expected to devote your best efforts and all
of your business time to the affairs of Kodak. You may, however,
engage in any charitable, civic and community activities,
provided, however, such activity(ies) do not conflict with Kodak's
Business Conduct Guide or materially interfere with your duties or
responsibilities.
H. Survival. The rights, obligations and other terms of Sections 7,
8, 9, 10, 11, 14, 15 and 16 shall, to the extent applicable,
survive your termination of employment, regardless of whether such
termination is initiated by you or Kodak.
160
If you find the foregoing acceptable, please acknowledge this by signing
your name on the signature line provided below and returning the signed
original of this letter, along with the executed copy of the enclosed
Employee's Agreement, directly to my attention within seven (7) days of your
receipt of this letter.
Very truly yours,
Michael P. Morley
Accepted:
Robert J. Keegan
Dated:
161
June 24, 1999
Robert J. Keegan
President, Consumer Imaging
and Senior Vice President
Eastman Kodak Company
343 State Street
Rochester, NY 14614
Re: Amendment to June 19, 1997 Letter Agreement
Dear Bob:
By way of a letter agreement dated June 19, 1997 (the "June 19, 1997 Letter
Agreement"), Eastman Kodak Company ("Kodak") entered into an agreement with
you confirming the terms and conditions of your reemployment by Kodak. The
purpose of this letter, which will become an agreement once both you and
Kodak sign it, is to amend the June 19, 1997 Letter Agreement.
By way of background, under the terms of the June 19, 1997 Letter Agreement,
Kodak agreed to provide you with several enhanced retirement benefits. The
June 19, 1997 Letter Agreement provides, however, that you must remain
continuously employed by Kodak until August 1, 2002 in order to receive
these enhanced retirement benefits. This letter agreement deletes this
precondition from the June 19, 1997 Letter Agreement. In this regard, you
and Kodak agree to the following:
1. Pension
Section 7 of the June 19, 1997 Letter Agreement entitled "Pension" is
amended in its entirety to read as follows:
7. Pension.
A. Kodak agrees to enhance the benefits you may become entitled to
under the Kodak Retirement Income Plan ("KRIP"), Kodak Unfunded
Retirement Income Plan ("KURIP"), and the Kodak Excess Retirement
Income Plan ("KERIP") by virtue of your service following your
reemployment with Kodak (hereinafter collectively referred to as
the "Retirement Benefit"). Subject to the offset provision in
Subsection B below, Kodak agrees upon your retirement under the
terms of KRIP to calculate your Retirement Benefit based on the
following deemed service in addition to any actual service you
earn subsequent to your reemployment with Kodak: (i) your service
with Kodak from October 4, 1971 until August 27, 1995; and (ii) an
additional 1 year and 8 months for the period you were employed by
Avery. Notwithstanding the preceding, this crediting of deemed
service shall apply solely for purposes of establishing: (i) your
"Vesting Service"; (ii)
162
the total amount of "Accrued Service" used to calculate your
Retirement Benefit; and (iii) your "Total Service" for purposes of
determining the applicability of any early retirement reduction
factor used to compute your Retirement Benefit. It is not
intended to enhance any other Kodak benefit or compensation to
which you may become entitled.
B. The enhanced Retirement Benefit provided under Subsection A,
calculated in the form of a straight life annuity payable monthly
pursuant to the terms of KRIP, shall be offset by $7,792.00 per
month, i.e., the actuarially computed equivalent value, expressed
in the form of a straight life annuity payable monthly, of the
lump sum payment you received under KRIP, KURIP and KERIP upon
your termination from Kodak on August 27, 1995.
C. The amount of the benefit, if any, payable to you under Subsection
A above shall: (i) be paid out of Kodak's general assets, not
under KRIP; (ii) not be funded in any manner; (iii) be included in
your gross income as ordinary income, subject to all income and
payroll tax withholdings required to be made under applicable
laws; (iv) not be grossed up or given any other special tax
treatment by Kodak; and (v) paid in such form(s) as Kodak in its
discretion determines.
2. Pre-Retirement Income Benefit
Section 8 of the June 19, 1997 Letter Agreement entitled "Pre-Retirement
Income Benefit" is amended in its entirety to read as follows:
8. Pre-Retirement Income Benefit.
A. Kodak agrees to enhance your Pre-Retirement Survivor Income
Benefit (Pre-Retirement SIB) Coverage under KRIP, KURIP and KERIP.
The amount of your Pre-retirement SIB coverage shall be calculated
pursuant to Section 10.03(e) of KRIP; except, however, that for
purposes of Step 1, your "Accrued Benefit" shall be calculated by
taking into account an additional 1 year and 8 months for the
period you were employed by Avery.
B. The amount of the benefit, if any, payable under this Section 8
shall: (i) be paid out of Kodak's general assets, not under KRIP:
(ii) not be funded in any manner; (iii) be included in gross
income as ordinary income, subject to all income and payroll tax
withholdings required to be made under applicable laws; and (iv)
not be grossed up or given any other special tax treatment by
Kodak.
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3. Retiree Health and Dental Coverage
Section 9 of the June 19, 1997 Letter Agreement is amended in its entirety
to read as follows:
9. Retiree Health and Dental Coverage.
Kodak agrees to credit you with an additional 1 year and 8 months for
the period you were employed by Avery for purposes of determining any
company contribution towards the coverage you may be eligible for
during your retirement under Kodak Medical Assistance Plan ("Kmed") and
the Kodak Dental Plan ("Kdent"). Your company contribution under each
such plan is, however, subject to reduction or termination at any time
and from time to time by Kodak to the extent such reduction or
termination results or is otherwise caused by Kodak's exercise of its
right to amend, suspend or terminate Kmed or Kdent. Furthermore, the
health and dental coverages for which you may be eligible for under
Kmed and Kdent are subject to amendment, suspension, or termination at
any time and from time to time by Kodak to the extent Kodak exercises
its right to amend, suspend, or terminate Kmed or Kdent. In the event
of such action, Kodak shall be under no obligation to provide
replacement or substitute coverage.
4. Remaining Terms of June 19, 1997 Letter Agreement
All of the remaining terms of the June 19, 1997 Letter Agreement, to the
extent they are not inconsistent with the terms of this letter agreement,
will remain in full force and effect, without amendment or modification.
* * *
You agree that this letter agreement supersedes and replaces any and all
agreements or understandings whether written or oral that you may have with
Kodak concerning your employment by and retirement from Kodak; except,
however, this letter does not supersede or replace your Eastman Kodak
Company Employee's Agreement.
You agree to keep the existence of this letter agreement confidential except
that you may review it with your financial advisor, attorney and/or spouse
and with my designee or me.
Please keep in mind that, regardless of any provision contained in this
letter agreement to the contrary, your employment with Kodak is "at will."
That is, you are free to terminate your employment at any time, for any
reason, and Kodak is free to do the same.
This letter agreement may be signed in counterparts with the same effect as
if the signatures of each counterpart were upon a single document. All
counterparts shall be deemed an original of this letter agreement.
164
Your signature below means that you accept the terms and conditions set
forth in this letter agreement.
If you find the foregoing acceptable, please sign your name on the signature
line provided below and return the original signed copy of this letter
agreement directly to my attention within ten (10) days of the date of this
letter agreement. Thank you.
Very truly yours,
Michael P. Morley
Signed:
Robert J. Keegan
Dated:
165
Exhibit (10) W.
November 22, 1999
Daniel A. Carp
15 Sylvan Glenn
Fairport, NY 14450
Dear Dan:
This letter confirms changes in your employment with Eastman Kodak Company
("Kodak") in light of your recent appointment by the Board of Directors (the
"Board") as President and Chief Executive Officer of Kodak. These changes
will become effective January 1, 2000.
1. Base Salary
Your new base salary will be at the rate of $1,000,000 per year.
2. Management Variable Compensation Plan
Your target annual award under Kodak's Management Variable Compensation Plan
("MVCP") will be 105% of your base salary, making your new total targeted
annual compensation $2,050,000.
3. Stock Option Program
Your new target stock option award will be 100,000 non-qualified stock
options to acquire Kodak common stock. As you are aware, your specific award
under the program for a particular year is a function of your attainment of
established performance criteria that include corporate, business unit and
individual performance.
4. Performance Stock Program
Effective with the 2000-2002 performance cycle, your new target award for a
performance cycle under the Performance Stock Program will be 15,000 shares
of restricted stock.
5. Employee Benefit Plans
You will continue to be eligible to participate in all employee pension and
welfare benefit plans made generally available by Kodak to its senior level
executives or to its employees, as such plans may be in effect from time to
time.
6. Fringe Benefits
You will be entitled to participate in any of Kodak's executive fringe
benefits in accordance with the terms and conditions of such arrangements as
are in effect from time to time for Kodak's senior-level executives.
166
Kodak will, at its expense, make available to you and your spouse company
aircraft for business and personal use at your discretion. It is recognized
that some of your travel by company aircraft may be required for security
purposes and, as such, will constitute business use of the aircraft. To the
extent that income is imputed to you for either your or your spouse's use of
the company aircraft, Kodak will pay you a "gross-up" payment so that after
any federal, state and local income and payroll taxes are incurred by you,
you will be in the same after-tax position assuming the value of the use of
the company aircraft was not includible in your taxable income.
7. Termination Without Cause
In the event your employment is terminated by Kodak without "Cause" for
other than "Disability," as these terms are defined below, you will be
entitled, subject to your satisfaction of the terms of this letter
agreement, including, but not limited to, Section 10 below, to the following
payments and benefits:
(a) MVCP. Kodak will pay you a prorated MVCP award for the year in which
your termination of employment occurs based on performance for, and
your service during, the year, payable at the same time the plan's
other participants receive their awards for the year.
(b) Stock Options. You will be granted Approved Reason and Permitted
Reason treatment for purposes of any stock options held by you on the
date of your termination of employment; such options to vest in
accordance with their terms.
(c) Restricted Stock. You will receive Approved Reason treatment for
purposes of any shares of restricted Stock held by you on the date of
your termination of employment.
(d) Performance Stock Program. Kodak will grant you Approved Reason
treatment for purposes of all completed performance cycles under the
Performance Stock Program and prorated awards for all pending
performance cycles under such program based on performance for, and
your service during, the performance cycle, payable at the same time
the program's other participants receive their awards for the
performance cycle.
(e) Severance. Kodak will pay you a severance allowance equal to 3
times your then base salary plus your then target MVCP award. The
severance allowance will be paid, at your election, in any of the
permitted payment forms provided for under the then existing terms
of Kodak's Termination Allowance Plan ("TAP").
167
To the extent you are eligible for any other severance, separation or
termination benefit or payment of any kind under any Kodak plan,
program or letter agreement, including by way of illustration and not
by way of limitation, TAP and the Executive Protection Plan, the
severance allowance will be reduced by the amount of such benefit or
payment. Kodak will withhold from the severance allowance all income,
payroll and employment taxes required by applicable law or regulation
to be withheld. The severance allowance will not be "benefits
bearing." In other words, the amount of the severance allowance will
not be taken into account, nor considered for any reason, for purposes
of determining any company provided benefits or compensation to which
you are or may become eligible.
(f) Enhanced Pension. You will receive an enhanced pension benefit. More
specifically, Kodak will credit you with additional years of deemed age
to: (1) determine your eligibility for an "Early Retirement Benefit"
under the Kodak Retirement Income Plan ("KRIP"), the Kodak Unfunded
Retirement Income Plan ("KURIP") and the Kodak Excess Retirement Income
Plan ("KERIP"); and (2) establish your "Total Service" for purposes of
determining the applicability of any early retirement reduction factor
contained in KRIP, KURIP or KERIP. This crediting of additional years
of deemed age applies solely for these purposes and is not intended to
enhance any other Kodak benefit or compensation to which you may become
entitled, including, but not limited to, any survivor income benefit
that may become payable under KRIP or any other company plan as a
result of your death. For purposes of determining your eligibility for
an Early Retirement Benefit under KRIP, KURIP, or KERIP, if at the time
of your termination of employment you are less than age 55, you will be
treated as if you were age 55. To determine your "Total Service," the
amount of deemed age you will receive will depend on the time of your
termination of employment. If your termination occurs prior to your
55th birthday, you will be treated as if you were age 55 for purposes
of computing your "Total Service." If your termination occurs on or
after your 55th birthday, but prior to your 60th birthday, you will be
treated as if you were age 60 for purposes of computing you "Total
Service."
In order to receive the enhanced retirement benefit described above,
you must file a timely election to remain in KRIP rather than Cash
Balance Plus.
The amount of the enhanced retirement benefit, if any, payable to you
above will: (i) be paid in such form(s) as Kodak, in its discretion,
determines; (ii) be paid out of Kodak's general assets, not under KRIP;
(iii) not be funded in any manner; (iv) be included in your gross
income as ordinary income, subject to all income and payroll tax
withholding required to be made under all applicable laws; and (v) not
be grossed up or be given any other special tax treatment by Kodak.
168
(g) Forfeiture. Payment of the payments and benefits under this
Section 7 will be conditioned on your continuing compliance with
the terms of your Eastman Kodak Company Employee's Agreement, this
letter agreement and the release described in Section 10 below.
(h) Cause. For purposes of this letter agreement, "Cause" means: (i) your
continuous failure for a period of at least ninety (90) calendar days
following delivery to you of a written notification from the Board to
bring the usual, customary and reasonable functions of your position to
a satisfactory level; (ii) your failure to follow a lawful written
directive of the Board; (iii) your willful violation of any material
rule, regulation, or policy that may be established from time to time
for the conduct of Kodak's business; (iv) your unlawful possession, use
or sale of narcotics or other controlled substances, or performing job
duties while illegally used controlled substances are present in your
system; (v) any act of omission or commission by you in the scope of
your employment (a) which results in the assessment of a civil or
criminal penalty against you or Kodak, or (b) which in the reasonable
judgment of the Board could result in a material violation of any
foreign or U.S. federal, state or local law or regulation having the
force of law; (vi) your conviction of or plea of guilty or no contest
to any crime involving moral turpitude; (vii) any misrepresentation by
you of a material fact to, or concealment of a material fact from, the
Board; (viii) your material breach of this letter agreement, your
Eastman Kodak Company Employee's Agreement or the Kodak Business
Conduct Guide.
8. Termination Due to Disability
(a) In General. In the event your employment is terminated by Kodak due to
"Disability," as defined below, you will be entitled to the benefits to
which you are then eligible under the terms of Kodak's benefit plans as
then in effect. You will also be eligible, subject to your
satisfaction of the terms of this letter agreement, including, but not
limited to, Section 10 below, to the payments and benefits described in
Sections 7(b) and 7(e) above, subject to adjustment as hereinafter
provided. For purposes of determining the amount of the severance
allowance to which you are eligible under Section 7(e), the amount of
the severance allowance will be reduced by the present value of any
benefits payable to you under the Kodak Long-Term Disability Plan or
any successor plan thereto. For purposes of this calculation, the same
actuarial assumptions that are then used to calculate a lump sum
distribution under KRIP will be used to calculate the present value of
any benefits payable to you under the Kodak Long-Term Disability Plan
or any successor plan thereto.
169
(b) Disability. For purposes of this letter agreement, "Disability" means
your inability to substantially perform your duties and
responsibilities as Kodak's President and Chief Executive Officer for a
period of 90 consecutive days as determined by an "approved medical
doctor." For this purpose an "approved medical doctor" means a medical
doctor selected by Kodak and you. If the parties cannot agree on a
medical doctor, each party will select a medical doctor and the two
doctors will select a third who will be the "approved medical doctor"
for this purpose.
9. Change in Control
Should you elect to participate in the Transition Plan of the Executive
Severance Plan, Kodak agrees, upon your termination of employment, to
provide you the benefit described in Section 7(f).
10. Release
In order to receive the benefits described in Sections 8 and 9, you must,
immediately prior to your termination of employment, sign an agreement and
release in a form satisfactory to Kodak's Senior Vice President and
Director, Human Resources in his or her sole discretion. The agreement and
release will require that you release and discharge Kodak and its affiliated
companies from any and all claims and liabilities arising prior to your
termination of employment and any and all claims and liabilities arising
after your termination of employment which relate to either your employment
or termination of employment. In addition, the agreement and release will
require you to adhere to certain post-employment obligations such as
returning all company property, assisting in litigation, and refraining from
soliciting employees and customers. In the event you either fail to sign
the agreement and release or, once signed, make an effective revocation of
the agreement and release, you will not be entitled to the benefits
described in Sections 7 and 8.
11. ERISA
To the extent the terms of this letter agreement constitute one or more
"employee benefit plans" under Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), Kodak's Senior Vice President and
Director, Human Resources shall be the plan administrator of the plan(s).
The plan administrator shall have total and exclusive responsibility to
control, operate, manage and administer the plan in accordance with its
terms and all the authority that may be necessary or helpful to enable
him/her to discharge his/her responsibilities with respect to the plan.
Without limiting the generality of the preceding sentence, the plan
administrator shall have the exclusive right to: interpret the plan, decide
all questions concerning eligibility for and the amount of benefits payable
under the plan, construe any ambiguous provision of the plan, correct any
default, supply any omission, reconcile any inconsistency, and decide all
questions arising in the administration,
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interpretation and application of the plan. The plan administrator shall
have full discretionary authority in all matters related to the discharge of
his/her responsibilities and the exercise of his/her authority under the
plan, including, without limitation, his/her construction of the terms of
the plan and his/her determination of eligibility for benefits under the
plan. It is the intent of the plan, as well as both parties hereto, that
the decisions of the plan administrator and his/her action with respect to
the plan shall be final and binding upon all persons having or claiming to
have any right or interest in or under the plan and that no such decision or
actions shall be modified upon judicial review unless such decision or
action is proven to be arbitrary or capricious.
12. Miscellaneous
By accepting this letter agreement, you agree and acknowledge that this
letter agreement contains the entire understanding between Kodak and
yourself with respect to your employment by Kodak and termination of such
employment and supersedes all previous written or oral negotiations,
commitments, and agreements with respect to such subject matters. This
letter agreement does not, however, supersede your Eastman Kodak Company
Employee's Agreement.
Please also keep in mind that, regardless of any provision contained in this
letter agreement to the contrary, your employment at Kodak is "at will".
That is, you will be free to terminate your employment at any time, for any
reason, and Kodak is free to do the same.
This letter agreement, and its interpretation and application, will be
governed and controlled by the laws of the State of New York without giving
effect to principles of conflicts of laws.
* * *
Should you have any questions regarding the terms of this letter, please
contact Mike Morley. If you find the terms of this letter agreement
acceptable, please acknowledge this by signing your name on the signature
line provided below and returning the signed original of this letter
directly to Mike's attention.
Very truly yours,
Richard S. Braddock
Signature: Date:
Daniel A. Carp
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Exhibit (10) X.
December 20, 1999
Mr. Robert H. Brust
7 Saint Davids Road
Saint Davids, PA 19087
Dear Robert:
We would like to extend an offer to you to join Eastman Kodak Company
("Kodak") as Chief Financial Officer and Executive Vice President, Eastman
Kodak Company. We are confident that your professional talents will be a
great asset to our company.
This letter outlines the compensation and benefits arrangements of your
offer and employment with Kodak.
1. Position
Your position will be Chief Financial Officer, Eastman Kodak Company. Upon
your employment, we will recommend to the Board of Directors that you be
elected an Executive Vice President, Eastman Kodak Company.
2. Employment Date
You will commence your employment with Kodak on or before January 10, 2000.
3. Base Salary
Your base salary will be at the rate of $500,000 per year.
4. Management Variable Compensation Plan
You will be eligible to participate in Kodak's Management Variable
Compensation Plan ("MVCP") with an annual target award of 72% of your base
salary, making your total targeted annual compensation $860,000.
5. Signing Bonus-Stock Option Award
Upon your employment, Kodak management will propose to the Executive
Compensation and Development Committee of the Board of Directors of Kodak
(the "Compensation Committee") that you be granted, as a signing bonus, a
one-time grant of 50,000 non-qualified stock options (NQSOs). The NQSOs
will be issued to you under the terms of the 2000 Omnibus Long-Term
Compensation Plan (the "Omnibus Plan"). The NQSOs will vest 33 1/3% on each
of the first three anniversaries of the date of grant.
172
If your employment terminates for any reason, other than a "Permitted
Reason" as determined by the CEO, during the one-year period following the
date of grant, you will immediately forfeit all of the NQSOs. Thereafter,
so long as the NQSOs remain unvested, the unvested portion will be subject
to forfeiture in the event of your termination of employment for any reason
other than for death or for "Disability" or an "Approved Reason" as those
terms are defined under the terms of the Omnibus Plan. The NQSOs will be
granted for 10 years and have an exercise price equal to the mean between
the high and low at which Eastman Kodak common stock trades on the New York
Stock Exchange on the date of grant by the Compensation Committee.
6. Replacement Stock Option Award
It is understood that as a result of your employment by Kodak, you will be
forfeiting a number of stock options to acquire your current employer's
common stock. If this occurs, Kodak management will recommend to the
Compensation Committee that you be granted a one-time special grant of
150,000 NQSOs. If approved, the NQSOs will be issued to you under the
Omnibus Plan under the same terms and conditions as those described in
Section 5 above, except, however, these NQSOs will vest 20% on each of the
first five anniversaries of the date of grant.
7. Signing Bonus-Restricted Stock Award
Upon your employment, Kodak management will recommend to the Compensation
Committee that you be awarded a one-time grant under the Omnibus Plan of
11,625 shares of restricted Kodak Common Stock. All of the shares will vest
on the fifth anniversary of the date of their grant. If your employment
terminates for any reason, other than a "Permitted Reason" as determined by
the CEO in the exercise of his sole discretion, during the one year period
following the date of grant, you will immediately forfeit all of the shares.
Thereafter, so long as these shares remain unvested, they will be subject to
forfeiture in the event of your termination of employment for any reason
other than for death or for "Disability" or an "Approved Reason," as those
terms are defined under the terms of the Omnibus Plan.
8. Stock Option Program
You will be eligible to participate in our Stock Option Program under the
Omnibus Plan. Grants are typically made in the spring of each year. If
awards are granted for the 2000 calendar year, it is anticipated that you
would be eligible for a grant of approximately 28,000 NQSOs. Individual
awards under the program are, however, wholly within the discretion of the
Compensation Committee and, if made, are a function of a participant's
attainment of established performance criteria which includes corporate,
business unit and individual performance.
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9. Performance Stock Program
Upon your employment with Kodak, you will be named a participant in the
Performance Stock Program under the Omnibus Plan for purposes of the 1998-
2000, 1999-2001 and 2000-2002 Performance Cycles. Awards earned under the
program are paid in the form of restricted shares of Kodak common stock.
The restrictions, which lapse at age 60, require continuous employment,
noncompetition and nonalienation of awards. Newly eligible participants are
eligible for a pro-rata "Target Award," as that term is defined in the
Omnibus Plan, based on the number of months he or she was eligible to
participate in the program for such cycle. Given your wage grade, your
Target Award for a full Performance Cycle under the Performance Stock
Program will be 5,250 shares of restricted Kodak common stock.
10. Loan
We understand that as a result of accepting employment with Kodak, you will
forfeit 75,000 restricted shares of your current employer's common stock.
If this occurs, Kodak will upon the commencement of your employment loan you
$3,000,000. At the time of such loan, you will deliver to Kodak a five-year
recourse note in the form of Exhibit A. The loan will accrue interest at
the Applicable Federal Rate provided by the Internal Revenue Service in the
most recent announcement preceding such loan. Twenty percent of the
principal of and all accrued interest on such note will be forgiven on each
of the first five anniversaries of the date of such loan. You will not,
however, be entitled to forgiveness on any such anniversary date if you
voluntarily terminate your employment or are terminated for "Cause," as
defined below, on or prior to such anniversary date.
11. Pension Benefits
A. In General. Kodak agrees to enhance the retirement benefits you
may become entitled to under Kodak's retirement plans. Assuming
you satisfy the conditions of Section 11(B) below and subject to
the offset provisions contained in Section 11(D) below, Kodak
agrees upon your termination of employment to pay you a single
life annuity of $12,500 per month.
B. Continuous Employment. In order to receive the enhanced
retirement benefit described above, you must remain continuously
employed with Kodak during the 5 year period commencing on the
date of your employment. Except as provided in Section 11(C)
below, if your employment terminates for any reason, whether
voluntarily or involuntarily, prior to the fifth anniversary of
your employment with Kodak, you will not be entitled to receive
any of the enhanced retirement benefits described above.
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C. Termination For Other Than Cause or Disability. Notwithstanding
Section 11(B) above, if Kodak involuntarily terminates your
employment for other than "Cause" or "Disability," as those terms
are defined below, you will be entitled to a pro-rated portion of
the $12,500 single life annuity. The pro-rated portion shall be
determined by multiplying $12,500 by the following fraction:
(A)/60
For purposes of the foregoing fraction, "A" shall be the total
number of your completed full months of service with Kodak prior
to your termination of employment. Thus, by way of example, if
Kodak were to terminate your employment for other than "Cause"
after you have completed 36 months of service, you would receive a
single life annuity of $7,500 per month (36/60 x $12,500 =
$7,500), subject to the offset provision contained in Section
11(D) below.
D. Offset. The amount of the retirement benefit, if any, provided to
you under this Section 11 will be offset by the retirement
benefits that you accrue under the terms of any Kodak retirement
plan, including, but not limited to, the Kodak Retirement Income
Plan, Kodak Unfunded Retirement Income Plan, and company matching
contributions under the Eastman Kodak Employees' Savings and
Investment Plan, during the five year period commencing on the
first day of your employment with Kodak. The calculation of this
offset will be performed at the end of this 5 year period. For
purposes of this calculation, the present lump sum value of the
life annuity provided to you under this Section 11 will be
determined using a discount rate equal to the then most recent 20
year Treasury Bill rate and your then life expectancy determined
under the GAM 83 table.
E. Payment. The amount of the enhanced retirement benefit, if any,
payable to you under this Section 11 will: (i) be paid in such
form(s) as Kodak, in its discretion, determines; (ii) be paid out
of Kodak's general assets, not under KRIP; (iii) not be funded in
any manner; (iv) be included in your gross income as ordinary
income, subject to all income and payroll tax withholding required
to be made under all applicable laws; and (v) not be grossed up or
be given any other special tax treatment by Kodak.
F. Employee Benefit Plan. To the extent the terms of this enhanced
retirement benefit constitute an "employee benefit plan" under
Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), the Senior Vice President, Eastman Kodak Company
and Director, Human Resources shall
175
be the plan administrator of the plan. The plan administrator
shall have total and exclusive responsibility to control, operate,
manage and administer the plan in accordance with its terms and
all the authority that may be necessary or helpful to enable
him/her to discharge his/her responsibilities with respect to the
plan. Without limiting the generality of the preceding sentence,
the plan administrator shall have the exclusive right to:
interpret the plan, decide all questions concerning eligibility
for and the amount of benefits payable under the plan, construe
any ambiguous provision of the plan, correct any default, supply
any omission, reconcile any inconsistency, and decide all
questions arising in the administration, interpretation and
application of the plan. The plan administrator shall have full
discretionary authority in all matters related to the discharge of
his/her responsibilities and the exercise of his/her authority
under the plan, including, without limitation, his/her
construction of the terms of the plan and his/her determination of
eligibility for benefits under the plan. It is the intent of the
plan, as well as both parties hereto, that the decisions of the
plan administrator and his/her action with respect to the plan
shall be final and binding upon all persons having or claiming to
have any right or interest in or under the plan and that no such
decision or actions shall be modified upon judicial review unless
such decision or action is proven to be arbitrary or capricious.
G. Cause. For purposes of this letter, "Cause" shall mean:
i. your continuous failure for a period of at least 90 calendar
days following delivery to you of a written notification from
Kodak's Chief Executive Officer or President or from your
supervisor to bring the usual, customary and reasonable
functions of your position to a satisfactory level; or
ii. your failure to follow a lawful written directive of the
Chief Executive Officer, President or your supervisor; or
iii. your willful violation of any material rule, regulation, or
policy that may be established from time to time for the
conduct of Kodak's business; or
iv. your unlawful possession, use or sale of narcotics or other
controlled substances, or performing job duties while
illegally used controlled substances are present in your
system; or
176
v. any act of omission or commission by you in the scope of our
employment (a) which results in the assessment of a civil or
criminal penalty against you or Kodak, or (b) which in the
reasonable judgment of your supervisor could result in a
material violation of any foreign or U.S. federal, state or
local law or regulation having the force of law; or
vi. your conviction of or plea of guilty or no contest to any
crime involving moral turpitude; or
vii. any misrepresentation of a material fact to, or concealment
of a material fact from, your supervisor or any other person
in Kodak to whom you have a reporting relationship in any
capacity; or
viii. your breach of this letter agreement, the Eastman Kodak
Company Employees' Agreement or the Kodak Business Conduct
Guide.
H. Disability. For purposes of this letter agreement, "Disability"
shall mean disability as defined under the terms of the Kodak Long-
Term Disability Plan.
12. Severance Allowance
A. In General. If prior to the fifth anniversary of the date of your
employment by Kodak, your employment is terminated by Kodak for
reasons other than "Cause" or "Disability," as those terms are
defined above, Kodak will pay you, subject to your satisfaction of
the terms of this Section 12, a severance allowance equal to one
(1) times your then-current annual base salary plus your then-
current target annual incentive award under MVCP. The severance
allowance will be paid in equal consecutive bi-monthly payments
over the two (2) year period commencing on the date of your
termination of employment.
This severance allowance shall be paid to you in lieu of any other
severance benefit, payment or allowance that you would otherwise
be eligible for, except any benefits payable to you under any
Kodak severance plan. To the extent, however, you are eligible
for a benefit under a Kodak severance plan, the benefits payable
to you under this Section 12 will be reduced by the amount of such
severance benefit. In no event shall any of this severance
allowance be "benefits bearing." Kodak will withhold from this
severance allowance all income, payroll and employment taxes
required by applicable law or regulation to be withheld.
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In the event you breach any of the terms of the Eastman Kodak
Company Employees' Agreement described in Section 21 below or the
Agreement, Waiver and Release described in Section 12(B) below, in
addition to and not in lieu of, any other remedies that Kodak may
pursue against you, no further severance allowance payments will
be made to your pursuant to this section and you agree to
immediately repay to the Kodak all moneys previously paid to you
pursuant to this section.
B. Agreement, Waiver and Release. In order to receive the severance
allowance described in Section 12(A) above, you must execute
immediately prior to your termination of employment a waiver,
general release and covenant not to sue in favor of the Company
(the "Agreement, Waiver and Release"), in a form satisfactory to
the Senior Vice President, Eastman Kodak Company and Director,
Human Resources.
13. Stock Ownership Guidelines
Kodak has in place for its senior managers stock ownership guidelines.
Under these guidelines, all senior executives are required to own common
stock of Kodak equal to a set multiple of his or her base salary. The
multiple that you are expected to own is two times your base salary. This
amount must be achieved by the fifth anniversary of the date of your
employment by Kodak.
14. Vacation
You will be entitled to four weeks vacation per calendar year.
15. Benefits
You will be eligible to participate immediately in Kodak's Flexible Benefits
Plan, which includes health and dental coverage, short- and long-term
disability coverage, group life insurance and eligibility for long-term care
insurance. In addition, you will be able to participate in Kodak's Short-
Term Disability Plan and will be eligible for up to 52 weeks of benefits
under the terms of such plan. This is based upon a special credit of having
15 years of deemed service for purposes of the plan.
Our executives also qualify for company-paid coverage of $5 million of
personal umbrella liability insurance ("PULI").
You will be eligible to participate in Kodak's Cash Balance Plus retirement
plan. The enclosed brochure describes this plan in more detail.
178
In addition, you will be eligible to participate in the 1982 Eastman Kodak
Company Executive Deferred Compensation Plan ("EDCP"). This is a non-
qualified/unfunded plan in which you may elect to defer a portion of your
base salary and MVCP award. You may enroll within the first ten (10)
business days after joining Kodak or in the Fall 1998 enrollment period for
1999.
Immediately upon your employment, you will also be eligible to participate
in the Eastman Kodak Employees' Savings and Investment Plan ("SIP"). You
will be eligible to make rollover deferrals to SIP from other qualified
plans within two years from the date of your hire.
Our executives are provided with individual financial counseling services
through one of three companies. You will be immediately eligible for this
benefit. You are also eligible to participate in the Kodak Executive Health
Management Plan.
16. Relocation
You will be eligible to participate in the Company's Enhanced New Hire
Relocation Program (the "Relocation Program"). One of the features of the
Program is a Mortgage Interest Subsidy ("MIS") whereby Kodak will protect
you for two (2) years if your new first mortgage interest rate is more than
1.1% higher than the rate on your existing first mortgage. The Mortgage
Interest Subsidy will be calculated based on the difference, if any, between
(x) the rate of interest on your new first mortgage, and (y) the rate on
your existing first mortgage plus one percent. MIS is paid annually in the
form of a lump sum payment subject to all applicable income and payroll tax
withholdings.
17. Temporary Housing
To assist you in finding a permanent residence in the Rochester, New York
area, Kodak agrees to reimburse you for your temporary housing expenses.
More specifically, for up to a six month period commencing on your start
date, Kodak agrees to reimburse you for your temporary housing expenses up
to a maximum dollar amount of $2,000 per month. These expenses must be
incurred for temporary housing in the Rochester, New York area. Proper
documentation of these expenses will be required in accordance with the
terms of Kodak's relocation program. To the extent you are subject to
Federal or state income tax on these expense reimbursements, Kodak will
"gross-up" the reimbursements so that after such taxes are incurred by you,
you shall receive a net payment equal to the amount of the expense. The
amount of any such "gross-up" will not be included in the calculation of the
$2,000 per month limit.
179
18. Confidential Information
It is important that the relationship between you and Kodak be established
at the outset so as to enable you to properly safeguard confidential
information which you may have acquired from your previous employer(s).
"Confidential Information" is defined as information proprietary to a
previous employer which is generally secret, and which you learned while
employed with that employer.
By accepting this conditional offer, you represent to Kodak that your
obligations regarding the Confidential Information will not impede your
ability to perform the duties and responsibilities required by virtue of
your position with Kodak. You further represent that the performance of
these duties and responsibilities will not violate any agreement between you
and any other person, firm, entity or organization or violate any Federal,
state or local law, executive order or regulation.
During your employment with Kodak, we would expect that you will keep in
mind the Confidential Information and inform us if you believe that any
duties or responsibilities to which you are assigned will involve its use or
disclosure. I am available at any time to discuss questions which might
arise in this regard. All such discussions you may have with me or anyone at
Kodak in this regard should refer to the Confidential Information only in
general terms so as to avoid disclosure of the information you believe to be
confidential.
19. No Conflicts of Interest
By signing this letter, you represent that you are not subject to any
restrictions, particularly, but without limitation, in connection with any
previous employment, which now or hereafter prevent you from entering into
and performing your obligations under this letter or which materially and
adversely affect (or may in the future, so far as you can reasonably
foresee, materially affect), your rights to participate in the affairs of
Kodak.
20. Employment Preconditions
This conditional offer of employment is subject to the following conditions
and may be withdrawn by Kodak due to your inability to satisfy any one or
more of these conditions. By signing this letter, you agree and acknowledge
that Kodak may perform the activities contemplated below in order to verify
the stated conditions.
A. Physical Exam and Drug Test. You are required to complete a
physical examination and drug screen before this offer becomes
final. This will be at Kodak's expense. This offer is contingent
upon a negative drug screen urinalysis test result. Additional
information will be sent to you under separate cover from our
Medical Department.
180
B. INS. All employers are now required by Federal law to verify
identity and authorization to work for all prospective employees.
Enclosed is an Immigration and Naturalization Service I-9 form
that outlines the details of these requirements. Inability to
comply with these requirements will cause rescission of this
conditional offer.
C. Check of Past Employment, Education, Credit History, etc. Kodak
will conduct a check of your past employment, education, credit
history and criminal convictions records. This offer is
contingent upon such check being acceptable to Kodak. Informed
Directions International of 110 15th Street NE, Canton, Ohio
44714, has been engaged by Kodak to conduct this check. Enclosed
is a disclosure letter required by Federal Law concerning our
request to obtain a copy of your credit report. You will also
find enclosed a consent form authorizing Kodak to obtain such
credit report. Please sign and date the consent form and enclose
it along with this letter.
D. Reference Evaluation. Kodak will conduct a check of your
references. This offer is contingent upon this reference check
being acceptable to Kodak.
21. Employee's Agreement
Attached is a copy of the Kodak Employees' Agreement, which you must sign
and return to me upon your acceptance of this conditional offer.
22. Miscellaneous
By accepting this conditional offer of employment, you agree and acknowledge
that this letter contains the entire understanding between Kodak and
yourself with respect to your employment and supersedes all previous written
or oral negotiations, commitments, and agreements with respect to such
subject matter.
You are expected to devote your best efforts and all of your business time
to the affairs of Kodak. You may, however, engage in any charitable, civic
and community activities, provided, however, such activity(ies) do not
materially interfere with your Kodak duties and responsibilities.
Please also keep in mind that, regardless of any provision contained in this
letter to the contrary, your employment at Kodak is "at will." That is, you
will be free to terminate your employment at any time, for any reason, and
Kodak is free to do the same.
181
You agree to keep the existence of this letter confidential except that you
may review it with your financial advisor, attorney and/or spouse and with
my designee or me.
If any portion of this letter is deemed to be void or unenforceable by a
court of competent jurisdiction, the remaining portions will remain in full
force and effect to the maximum extent allowed by law. The parties intend
and desire that each portion of this letter be given the maximum possible
effect by law.
This letter, and its interpretation and application, will be governed and
controlled by the laws of the State of New York.
* * *
Please respond to this conditional offer of employment prior to December 23,
1999. If you find the conditional offer acceptable, please acknowledge this
by signing your name on the signature line provided and returning the signed
original of this letter, along with the executed copy of the enclosed
Employees' Agreement and the consent form authorizing Kodak to obtain your
credit report, directly to me.
Please feel free to contact me at (716) 724-4573 if you have any questions.
Sincerely,
Michael P. Morley
cc: Daniel A. Carp
George M.C. Fisher
Signature Date
Robert H. Brust
Social Security No. Birthdate
182
Exhibit (12)
Eastman Kodak Company and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(in millions, except for ratios)
Year Ended December 31
1999 1998 1997 1996 1995
Earnings from
continuing operations
before provision for
income taxes $2,109 $2,106 $ 53 $1,556 $1,926
Add:
Interest expense 142 110 98 83 78
Share of interest expense
of 50% owned companies 8 7 5 2 1
Interest component of
rental expense (1) 47 50 61 81 63
Amortization of
capitalized interest 24 24 23 22 22
------ ------ ------ ------ ------
Earnings as adjusted $2,330 $2,297 $ 240 $1,744 $2,090
====== ====== ====== ====== ======
Fixed charges
Interest expense 142 110 98 83 78
Share of interest expense
of 50% owned companies 8 7 5 2 1
Interest component of
rental expense (1) 47 50 61 81 63
Capitalized interest 36 41 33 29 30
------ ------ ------ ------ ------
Total fixed charges $ 233 $ 208 $ 197 $ 195 $ 172
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 10.0x(2) 11.0x 1.2x(3) 8.9x(4) 12.2x
(1) Interest component of rental expense is estimated to equal 1/3 of
such expense, which is considered a reasonable approximation of the
interest factor.
(2) The ratio is 11.5x before deducting restructuring costs of $350
million.
(3) The ratio is 8.6x before deducting restructuring costs, asset
impairments and other charges of $1,455 million.
(4) The ratio is 12.8x before deducting restructuring costs of $358
million and the loss on the sale of the Office Imaging business of
$387 million.
183
Exhibit (21)
Subsidiaries of Eastman Kodak Company
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company New Jersey
Eastman Kodak International
Sales Corporation Barbados
Torrey Pines Realty Company, Inc. Delaware
Cinesite, Inc. Delaware
FPC Inc. California
Qualex Inc. Delaware
Qualex Canada Photofinishing Inc. Canada
Eastman Software Inc. Delaware
PictureVision Inc. Delaware
Eastman Gelatine Corporation Massachusetts
Eastman Canada Inc. Canada
Kodak Canada Inc. Canada
Kodak (Export Sales) Ltd. Hong Kong
Kodak Argentina S.A.I.C. Argentina
Kodak Chilena S.A.F. Chile
Kodak Caceo Ltd. Delaware
Kodak Panama, Ltd. New York
Kodak Americas, Ltd. New York
Kodak Venezuela, S.A. Venezuela
Kodak (Near East), Inc. New York
Kodak (Singapore) Pte. Limited Singapore
Kodak Philippines, Ltd. New York
Kodak Limited England
Cinesite (Europe) Limited England
Kodak India Limited India
Kodak International Finance Ltd. England
Kodak Polska Sp.zo.o Poland
Kodak AO Russia
Kodak (Ireland) Manufacturing Limited Ireland
Kodak Ireland Limited Ireland
Kodak-Pathe SA France
Kodak A.G. Germany
E. K. Holdings, B.V. Netherlands
Kodak Brasileira C.I.L. Brazil
Kodak Korea Limited South Korea
Kodak Far East Purchasing, Inc. New York
Kodak New Zealand Limited New Zealand
Kodak (Australasia) Pty. Ltd. Australia
Kodak (Kenya) Limited Kenya
Kodak (Egypt) S.A.E. Egypt
Kodak (Malaysia) S.B. Malaysia
Kodak Taiwan Limited Taiwan
184
Exhibit (21)
(Continued)
Organized
Companies Consolidated Under Laws of
Eastman Kodak Company
Eastman Kodak International Capital
Company, Inc. Delaware
Kodak de Mexico S.A. de C.V. Mexico
Kodak Export de Mexico, S. de R.L. de C.V. Mexico
Kodak Mexicana S.A. de C.V. Mexico
N.V. Kodak S.A. Belgium
Kodak a.s. Denmark
Kodak Norge A/S Norway
Kodak SA Switzerland
Kodak (Far East) Limited Hong Kong
Kodak (Thailand) Limited Thailand
Kodak G.m.b.H. Austria
Kodak Kft. Hungary
Kodak Oy Finland
Kodak Nederland B.V. Netherlands
Kodak S.p.A. Italy
Kodak Portuguesa Limited New York
Kodak S.A. Spain
Kodak AB Sweden
Eastman Kodak (Japan) Ltd. Japan
Kodak Japan Ltd. Japan
Kodak Imagex K.K. Japan
K.K. Kodak Information Systems Japan
Kodak Japan Industries Ltd. Japan
Kodak (China) Limited Hong Kong
Kodak Electronic Products (Shanghai) Co., Ltd. China
BASO Precision Optics, Ltd. Taiwan
K.H. Optical Company Limited Hong Kong
Kodak Photographic Equipment (Shanghai) Co., Ltd. China
Kodak (China) Co. Ltd. China
Kodak (WUXI) Co. Ltd. China
Note: Subsidiary Company names are indented under the name of the parent
company.
185
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33- 48258,
No. 33-49285, No. 33-64453, and No. 333-31759), Form S-4 (No. 33- 48891), and
S-8 (No. 33-5803, No. 33-35214, No. 33-56499, No. 33-65033, No. 33-65035,
No. 333-57729, No. 333-57659, No. 333-57663, No. 333-57665, and No. 333-
23371) of Eastman Kodak Company of our report dated January 18, 2000,
appearing on page 29 of this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Rochester, New York
March 13, 2000