<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
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
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Number of Shares Outstanding at
Class June 30, 2000
Common Stock, $2.50 par value 307,894,689
<PAGE> 2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
<CAPTION>
(in millions, except per share data)
Second Quarter First Half-Year
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $3,749 $3,610 $6,844 $6,710
Cost of goods sold 2,043 1,886 3,799 3,755
------ ------ ------ ------
Gross profit 1,706 1,724 3,045 2,955
Selling, general and
administrative expenses 752 810 1,434 1,556
Research and development costs 208 198 409 405
------ ------ ----- ------
Earnings from operations 746 716 1,202 994
Interest expense 42 38 79 68
Other income 62 67 81 108
------ ------ ----- ------
Earnings before income taxes 766 745 1,204 1,034
Provision for income taxes 260 254 409 352
------ ------ ------ ------
NET EARNINGS $ 506 $ 491 $ 795 $ 682
====== ====== ====== ======
Basic earnings per share $ 1.63 $ 1.54 $ 2.56 $ 2.13
====== ====== ====== ======
Diluted earnings per share $ 1.62 $ 1.52 $ 2.55 $ 2.11
====== ====== ====== ======
Earnings used in basic and
diluted earnings per share $ 506 $ 491 $ 795 $ 682
Number of common shares used in
basic earnings per share 309.7 319.1 310.0 320.6
Incremental shares from
assumed conversion of options 2.1 3.9 2.1 3.5
------ ------ ------ ------
Number of common shares used in
diluted earnings per share 311.8 323.0 312.1 324.1
====== ====== ====== ======
CONSOLIDATED STATEMENT OF
RETAINED EARNINGS
Retained earnings at beginning
of period $7,148 $6,212 $6,995 $6,163
Net earnings 506 491 795 682
Cash dividends declared (137) (140) (273) (282)
------ ------ ------ ------
Retained earnings
at end of period $7,517 $6,563 $7,517 $6,563
====== ====== ====== ======
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The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 3
<TABLE>
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
<CAPTION>
June 30, Dec.31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 258 $ 373
Marketable securities 18 20
Receivables 2,988 2,537
Inventories 1,739 1,519
Deferred income tax charges 712 689
Other 299 306
------- -------
Total current assets 6,014 5,444
------- -------
PROPERTIES
Land, buildings and equipment at cost 13,000 13,289
Less: Accumulated depreciation 7,192 7,342
------- -------
Net properties 5,808 5,947
------- -------
OTHER ASSETS
Goodwill (net of accumulated amortization
of $731 and $671) 968 982
Other noncurrent assets 1,926 1,801
Deferred income tax charges 143 196
------- -------
TOTAL ASSETS $14,859 $14,370
======= =======
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 3,317 $ 3,832
Short-term borrowings 1,798 1,163
Taxes - income and other 668 612
Dividends payable 137 139
Deferred income tax credits 24 23
------- -------
Total current liabilities 5,944 5,769
OTHER LIABILITIES
Long-term borrowings 1,155 936
Postemployment liabilities 2,702 2,776
Other long-term liabilities 896 918
Deferred income tax credits 62 59
------- -------
Total liabilities 10,759 10,458
SHAREHOLDERS' EQUITY
Common stock at par* 978 978
Additional paid in capital 869 889
Retained earnings 7,517 6,995
Accumulated other comprehensive loss (311) (145)
------- -------
9,053 8,717
Less: Treasury stock at cost* 4,953 4,805
------- -------
Total shareholders' equity 4,100 3,912
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,859 $14,370
======= =======
<FN>
* Common stock: $2.50 par value, 950 million shares authorized,
391 million shares issued at June 30, 2000 and December 31,
1999. Treasury stock at cost consists of approximately 83
million shares at June 30, 2000 and 81 million shares at
December 31, 1999.
Total comprehensive income was $427 million and $475 million
for the quarters, and $629 million and $584 million for the
half-years, ended June 30, 2000 and June 30, 1999,
respectively.
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The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 4
<TABLE>
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
First Half-Year
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 795 $ 682
Adjustments to reconcile to
net cash (used in) provided by operating activities:
Depreciation and amortization 434 442
Asset impairment and other charges 16 103
Provision for deferred taxes 34 35
Gain on sales/retirements of assets (70) (37)
Increase in receivables (514) (536)
Increase in inventories (263) (83)
Decrease in liabilities excluding borrowings (458) (245)
Other items, net (203) (218)
------ ------
Total adjustments (1,024) (539)
------ ------
Net cash (used in) provided by operating
activities (229) 143
------ ------
Cash flows from investing activities:
Additions to properties (365) (478)
Proceeds from sales of assets 122 78
Cash flows related to sales of businesses - 51
Acquisitions, net of cash acquired (66) (3)
Sales of marketable securities 55 63
Purchases of marketable securities (53) (33)
------ ------
Net cash used in investing activities (307) (322)
------ ------
Cash flows from financing activities:
Net increase in borrowings
with original maturity of
90 days or less 543 778
Proceeds from other borrowings 1,008 518
Repayment of other borrowings (679) (516)
Dividends to shareholders (275) (284)
Exercise of employee stock options 23 17
Stock repurchase programs (193) (491)
------ ------
Net cash provided by financing activities 427 22
------ ------
Effect of exchange rate changes on cash (6) (8)
------ ------
Net decrease in cash and cash equivalents (115) (165)
Cash and cash equivalents, beginning of year 373 457
------ ------
Cash and cash equivalents, end of quarter $ 258 $ 292
====== ======
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The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 5
Eastman Kodak Company and Subsidiary Companies
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the
Company in accordance with the accounting policies stated in
the 1999 Annual Report and should be read in conjunction with
the Notes to Financial Statements appearing therein. In the
opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation
have been included in the financial statements. The financial
statements are based in part on estimates and have not been
audited by independent accountants. PricewaterhouseCoopers LLP
will audit the annual statements.
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NOTE 2: COMMITMENTS AND CONTINGENCIES
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. Refer to Item 1, Legal Proceedings, on
page 25.
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NOTE 3: DERIVATIVES AND MARKET RISK
On January 1, 2000, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
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 may enter into
derivative contracts.
The Company manages its foreign currency related risk primarily
through the use of foreign currency forward contracts. The
majority of the contracts held by the Company are denominated
in euros, Canadian dollars and Australian dollars.
<PAGE> 6
The Company entered into foreign currency forward contracts
that are designated as cash flow hedges of exchange rate risk
related to forecasted foreign currency-denominated
intercompany sales. During the second quarter of 2000, the
Company entered into cash flow hedges for the euro, the
Canadian dollar, and the Australian dollar, with maturity dates
ranging from June 2000 to December 2000. At June 30, 2000,
the fair value of open contracts was a pre-tax loss of $7
million, recorded in other comprehensive income. During the
second quarter of 2000, no amounts were reclassified from other
comprehensive income to cost of goods sold. Hedge
ineffectiveness was insignificant. Amounts deferred to other
comprehensive income will be reclassified into cost of goods
sold within the next twelve months.
The Company does not apply hedge accounting to the foreign
currency forward contracts used to offset currency-related
changes in the fair value of foreign currency-denominated
assets and liabilities. These contracts are marked to market
through earnings at the same time that the exposed assets and
liabilities are remeasured through earnings (both in other
income).
A sensitivity analysis indicates that if foreign currency
exchange rates at June 30, 2000 and 1999 increased 10%, the
Company would incur losses of $54 million and $52 million on
foreign currency forward contracts outstanding at June 30, 2000
and 1999, respectively. Such losses would be substantially
offset by gains from the revaluation or settlement of the
underlying positions hedged.
The Company is exposed to commodity price risk related to
forecasted worldwide purchases of silver, a key ingredient in
the manufacture of traditional photographic film and paper. To
mitigate this risk the Company designates silver forward
contracts as cash flow hedges of its forecasted silver
purchases. At June 30, 2000, the Company had open forward
contracts hedging virtually all of its planned silver
requirements through the first quarter of 2001. The fair value
of these open contracts was less than $1 million. During the
second quarter of 2000, less than $1 million of realized gains
was recorded in cost of goods sold, and a realized loss of
approximately $3 million (pre-tax) was recorded in other
comprehensive income. Hedge ineffectiveness was insignificant.
All open contracts mature by March 2001. All of the realized
gains and losses in other comprehensive income will be
reclassified into cost of goods sold within the next twelve
months.
A sensitivity analysis indicates that based on broker-quoted
termination values, if the price of silver decreased 10% from
$5.02 and $5.22 per troy ounce at June 30, 2000 and 1999,
respectively, the fair value of silver forward contracts would
be reduced by $21 million and $15 million, respectively. Such
losses in fair value, if realized, would be offset by lower
costs of manufacturing silver-containing products.
<PAGE> 7
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 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 June 30, 2000 interest rates increased 10% (about
63 basis points) with the June 30, 2000 level of debt, there
would be decreases in fair value of short-term and long-term
borrowings of $1 million and $23 million, respectively. If June
30, 1999 interest rates increased 10% (about 58 basis points)
with the June 30, 1999 level of debt, there would be decreases
in fair value of short-term and long-term borrowings of $2
million and $7 million, respectively.
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NOTE 4: ACQUISITIONS
On May 15, 2000, the Company acquired the remaining ownership
interest in PictureVision, Inc. for cash and assumed
liabilities with a total transaction value of approximately $90
million. PictureVision, the leading provider of digital
imaging network services and solutions, will operate as a
wholly-owned subsidiary of the Company. Prior to acquiring the
remaining interest of PictureVision, the Company owned 51% of
its stock. In connection with this transaction, the Company
recorded approximately $25 million in charges for acquired in-
process research and development (R&D) and other acquisition-
related charges. Goodwill recorded in connection with the
second quarter acquisition is being amortized over 7 years.
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NOTE 5: RESTRUCTURING CHARGES
Please refer to the discussion under the heading "Restructuring
Programs" on pages 21-22.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
SUMMARY
(in millions, except per share data)
CAPTION>
Second Quarter First Half-Year
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Sales $3,749 $3,610 + 4% $6,844 $6,710 + 2%
Earnings from operations 746 716 + 4 1,202 994 +21
Net earnings 506 491 + 3 795 682 +17
Basic earnings per share 1.63 1.54 + 6 2.56 2.13 +20
Diluted earnings per share 1.62 1.52 + 7 2.55 2.11 +21
</TABLE>
2000
Sales for the three- and six-months ended June 30, 2000 reflect
solid volume gains in consumer films, papers and digital
cameras, as well as strength in emerging markets. This growth
was partially mitigated by foreign exchange movements, which
had a $92 million and a $146 million adverse impact on sales
for the quarter and year-to-date periods, respectively. Sales
were also impacted by portfolio actions in 1999, primarily
related to the sale of The Image Bank and The Motion Analysis
Systems Division in November 1999.
Net earnings in the first half year were reduced by after-tax
charges of $15 million ($23 million pre-tax) for accelerated
depreciation and relocation expenses associated with the sale
and exit of an equipment manufacturing facility. Excluding
these charges, first-half earnings per share would have been
$2.60, or 12% higher than adjusted first-half 1999 earnings per
share of $2.32, the latter excluding after-tax charges of $68
million ($103 million pre-tax) related to portfolio adjustments
to exit non-strategic or under-performing businesses and
product lines.
The Company's current year second quarter results included
certain charges and credits outlined below:
In connection with the Company's efforts to reposition Eastman
Software and the rationalization of certain manufacturing
assets, the Company recorded a pre-tax charge of $31 million in
the quarter. Of this charge, $20 million is related to the
write-down of assets to net realizable value and severance
costs.
Also during the quarter, a plan approved by Kodak Polychrome
Graphics (KPG) management to improve the cost structure of the
joint venture resulted in Kodak recording a $15 million pre-tax
charge as its share of the cost of that program. Steps to be
taken at KPG include capacity rationalization to better align
sources of supply and demand and severance charges associated
with achieving a more competitive cost structure. It is
possible that additional charges may be recorded by the Company
in future quarters as KPG completes this improvement program.
Additionally, the Company incurred approximately $25 million of
charges for in-process R&D and other acquisition-related costs
in connection with its purchase of the remaining interest in
its PictureVision subsidiary, as further described in Note 4,
"Acquisitions".
<PAGE> 9
During the quarter, the Company also reversed approximately $44
million of severance related costs originally recorded as part
of its third quarter 1999 restructuring charge, which is fully
described in the section titled "Restructuring Programs".
The Company also benefited during the quarter from gains
associated with the de-mutualizaton of an insurance company,
resulting in a one-time cash payment of approximately $25
million.
The impact on the Company's results from the above items was a
reduction in pre-tax earnings of approximately $2 million and $1
million in after-tax earnings for the quarter and half year. As
a result of these charges and credits, cost of goods sold (COGS)
was reduced by approximately $19 million, R&D was increased by
approximately $6 million, and selling, general and administrative
expenses (SG&A) was increased by less than $1 million. In
addition, "Other Income" was adversely impacted by approximately
$15 million as the result of the KPG cost reduction plan. Except
as specifically described in the business segment discussions
which follow, the impact of these items on operating segment
results is immaterial.
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<PAGE> 10
<TABLE>
Sales by Operating Segment
(in millions)
<CAPTION>
Second Quarter First Half-Year
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Consumer Imaging
Inside the U.S. $1,122 $1,002 +12% $1,812 $1,679 + 8%
Outside the U.S. 993 994 0 1,810 1,786 + 1
------ ------ --- ------ ------ ---
Total Consumer Imaging 2,115 1,996 + 6 3,622 3,465 + 5
------ ------ --- ------ ------ ---
Kodak Professional
Inside the U.S. 180 182 - 1 335 348 - 4
Outside the U.S. 256 303 -16 513 586 -12
------ ------ --- ------ ------ ---
Total Kodak Professional 436 485 -10 848 934 - 9
------ ------ --- ------ ------ ---
Health Imaging
Inside the U.S. 258 248 + 4 497 469 + 6
Outside the U.S. 286 277 + 3 573 577 - 1
------ ------ --- ------ ------ ---
Total Health Imaging 544 525 + 4 1,070 1,046 + 2
------ ------ --- ------ ------ ---
Other Imaging
Inside the U.S. 327 293 +12 639 617 + 4
Outside the U.S. 327 311 + 5 665 648 + 3
------ ------ --- ------ ------ ---
Total Other Imaging 654 604 + 8 1,304 1,265 + 3
------ ------ --- ------ ------ ---
Total Sales $3,749 $3,610 + 4% $6,844 $6,710 + 2%
====== ====== === ====== ====== ===
</TABLE>
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<TABLE>
Earnings from Operations by Operating Segment
(in millions)
<CAPTION>
Second Quarter First Half-Year
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Consumer Imaging $457 $417 +10% $ 641 $ 558 + 15%
Percent of Sales 21.6% 20.9% 17.7% 16.1%
Kodak Professional $ 63 $ 99 -36% $ 131 $ 161 - 19%
Percent of Sales 14.4% 20.4% 15.4% 17.2%
Health Imaging $127 $127 0% $ 242 $ 227 + 7%
Percent of Sales 23.3% 24.2% 22.6% 21.7%
Other Imaging $ 55 $ 73 -25% $ 144 $ 48 +200%
Percent of Sales 8.4% 12.1% 11.0% 3.8%
---- ---- --- ------ ------ ----
Total of segments $702 $716 - 2% $1,158 $ 994 + 16%
Percent of Sales 18.7% 19.8% 16.9% 14.8%
Restructuring
(charges) credits 44 - 44 -
---- ---- --- ------ ------ ----
Total Earnings from Operations $746 $716 + 4% $1,202 $ 994 + 21%
==== ==== === ====== ====== ====
Percent of Sales 19.9% 19.8% 17.6% 14.8%
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</TABLE>
<PAGE> 11
<TABLE>
Net Earnings by Operating Segment
(in millions)
<CAPTION>
Second Quarter First Half-Year
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Consumer Imaging $332 $289 +15% $472 $394 + 20%
Percent of Sales 15.7% 14.5% 13.0% 11.4%
Kodak Professional $ 28 $ 86 -67% $ 62 $138 - 55%
Percent of Sales 6.4% 17.7% 7.3% 14.8%
Health Imaging $ 91 $ 90 + 1% $169 $157 + 8%
Percent of Sales 16.7% 17.1% 15.8% 15.0%
Other Imaging $ 45 $ 49 - 8% $103 $ 33 +212%
Percent of Sales 6.9% 8.1% 7.9% 2.6%
---- ---- --- ---- ---- ----
Total of segments $496 $514 - 4% $806 $722 + 12%
Percent of Sales 13.2% 14.2% 11.8% 10.8%
Restructuring
(charges) credits 44 - 44 -
Interest expense (42) (38) (79) (68)
Other corporate items 13 6 18 10
Income tax effects on
above items and taxes
not allocated to
segments (5) 9 6 18
---- ---- ---- ---- ---- ----
Total Net Earnings $506 $491 + 3% $795 $682 + 17%
==== ==== === ==== ==== ===
Percent of Sales 13.5% 13.6% 11.6% 10.2%
</TABLE>
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<TABLE>
COSTS AND EXPENSES
(in millions)
<CAPTION>
Second Quarter First Half-Year
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Gross profit $1,706 $1,724 - 1% $3,045 $2,955 + 3%
Percent of Sales 45.5% 47.7% 44.5% 44.0%
Selling, general and
administrative expenses $ 752 $ 810 - 7% $1,434 $1,556 - 8%
Percent of Sales 20.1% 22.4% 21.0% 23.2%
Research and development
costs $ 208 $ 198 + 5% $ 409 $ 405 + 1%
Percent of Sales 5.5% 5.5% 6.0% 6.0%
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</TABLE>
2000 COMPARED WITH 1999
Second Quarter
Consolidated
Second quarter 2000 sales increased 4% over the comparable 1999
period. Double-digit growth in emerging markets and higher unit
volumes in consumer films, papers, digital cameras and health
imaging digital products more than offset the negative impact of
portfolio adjustments and currency movements. When adjusted for
portfolio changes, revenues increased by 5% year over year. When
adjusted for both portfolio changes and currency movements, sales
increased 8% over the second quarter of 1999.
<PAGE> 12
Emerging markets continued positive sales momentum in the
second quarter, posting a 13% year-on-year improvement. The
emerging market portfolio accounted for approximately 17% of
Kodak's worldwide sales in the quarter. The portfolio showed
growth across all regions including Latin America (+10%),
Eastern Europe, Africa, Middle East (+9%), Greater China
(+14%), Asia Area (+17%), and Greater Russia (+37%).
Sales of digital products and services in the second quarter
were $725 million, a year-over-year increase of 2%. Adjusting
for portfolio, and excluding the cyclical writeable CD business
and graphics digital, sales were up 17%. Operating results
associated with these sales for the second quarter were $12
million, a year-over-year increase of 9% (this measure of
digital performance excludes the impact of PictureVision and
Eastman Software charges). Digital products and services
represented 19% of the Company's sales in the second quarter.
Second quarter digital sales were negatively impacted by a
decline in sales of digital graphics products (principally
computer to plate and digital proofing systems) to the KPG
joint venture. Excluding graphics components for both years,
digital sales in the quarter were $635 million, a year-over-
year increase of 10%. On the same comparison basis, earnings
improved $22 million year over year from a loss of $28 million
to a loss of $6 million in the second quarter.
The principal source of improved digital earnings in the
quarter was increasing contributions from Health Imaging
digital products (principally laser film). Increased
investments in the consumer digital still camera business and
continuing price pressure in the writeable CD business
adversely impacted digital earnings in the quarter.
Second quarter gross profit declined by approximately 2.2
percentage points, from 47.7% of sales to 45.5% year over year.
The decline in margin was driven principally by lower prices,
unfavorable sales mix, and the impact of negative exchange,
partially offset by volume-driven manufacturing productivity.
Included in the 2000 second quarter gross profit are
accelerated depreciation and relocation expenses associated
with the sale and exit of our equipment manufacturing facility
of approximately $12 million and other charges and credits
recorded in the second quarter as discussed previously, which
reduced COGS by approximately $19 million.
SG&A expenses declined both in dollars and as a percentage of
sales from 22.4% to 20.1%, while SG&A excluding advertising
expenses also declined, from 17.2% to 15.1%. This decrease is
principally due to the Company's ongoing cost reduction
activities and portfolio actions.
R&D expenditures increased from $198 million to $208 million
and is in line with the prior year on a percentage of sales
basis at 5.5%. Included in R&D expense in the 2000 second
quarter are other charges and credits, which increased R&D by
approximately $6 million, primarily related to the write-off of
in-process R&D in connection with the acquisition of the
remaining ownership interest in PictureVision, Inc.
<PAGE> 13
Earnings from operations were $746 million, an increase of 4%,
despite the year-over-year impact of currency exchange, which
reduced earnings from operations by $36 million. The Company
continued to realize savings from cost reduction activities, as
SG&A expenses continued to decline both in dollars and as a
percent of sales, contributing to earnings growth.
Interest expense increased $4 million or 11% over last year,
primarily as a result of higher average borrowing rates. Other
income decreased $5 million, which is primarily the result of
lower equity earnings for the KPG joint venture, which includes
the $15 million charge, discussed previously, partially offset
by the sales of investments.
Net earnings were $506 million, or $1.62 per share, up 7% on a
per-share basis from $491 million, or $1.52 per share a year
ago.
Consumer Imaging
Worldwide Consumer Imaging sales in the second quarter were up 6%
year over year, or an increase of 9% when adjusted for the impact
of unfavorable exchange. U.S. Consumer Imaging sales were up
12%. Outside the U.S., sales were flat, but up 6% excluding the
unfavorable impact of exchange.
In the quarter, Consumer Imaging experienced sales growth across
a broad range of product categories including 35mm color negative
film, Advantix film, one- time-use cameras, color paper,
photofinishing, and consumer digital products and services.
Geographically, the Consumer Imaging segment experienced strong
emerging markets performance, with year-over-year sales up 12%.
Sales growth was led by Eastern Europe including Russia (+18%),
Southeast Asia including India (+13%), Greater China (+11%) and
Latin America (+8%).
Worldwide film sales (including 35mm film, Advantix film, and one-
time-use cameras) to dealers in the second quarter were up 7%,
reflecting a 13% volume increase partially offset by a 3%
price/mix decline and negative 3% exchange impact. U.S. film
sales to dealers were up 11%, reflecting a 10% volume increase
and positive price/mix of 1%. Outside the U.S., film sales to
dealers were up 4%, reflecting volume growth of 16%, partially
offset by a 6% price/mix decline and negative 5% exchange impact.
Throughout the second quarter, the Company continued to
successfully shift consumers to the differentiated, higher value
MAX and Advantix product lines. In the U.S., MAX and Advantix
films combined grew to more than 59% of total consumer roll film
revenues, which compares favorably to the 57% recorded in the
first quarter of 2000 and up 8 percentage points over the second
quarter of 1999.
Worldwide paper sales in the second quarter were up 4%,
reflecting 10% volume growth partially offset by a 3% price
decline and 3% unfavorable exchange. U.S. paper sales were up
12%, reflecting 13% volume growth on lower prices. Outside the
U.S., paper sales were down 1%, reflecting volume gains of 8%,
offset by a combination of negative 4% price and 5% unfavorable
exchange.
<PAGE> 14
SG&A expenses for the segment decreased 9%, from 24.4% of sales
to 21.1%. Excluding advertising expenses, SG&A expenses
decreased 12%, from 16.8% of sales to 14.0%. Research and
development expenses decreased 8%, from 4.3% of sales to 3.7%.
In the second quarter, Consumer Imaging Segment earnings from
operations increased 10% or $40 million year over year.
Worldwide, strong gains in film volumes, continued cost
reductions, and the reassignment of the sales and earnings of
PictureVision to the Other Imaging segment, contributed to
Consumer Imaging segment earning improvements.
Consumer Imaging's earnings from operations rate improved to
21.9% of sales from the 20.9% of a year ago. A 3 percentage
point reduction in gross profit margin rate was offset by more
than a 3 percentage point reduction in SG&A rate. The reduction
in the gross profit margin rate was due to the unfavorable
effects of price, mix and exchange, which more than offset
favorable manufacturing productivity. Net earnings for the
segment of $332 million increased $43 million or 15% over second
quarter 1999.
Kodak Professional
Kodak Professional second quarter revenues were down 10% from
the previous year, principally due to declines in sales to the
KPG joint venture. Adjusted for portfolio, revenues were down
9% year over year, or down 7% excluding portfolio and
unfavorable exchange. Sales inside the U.S. decreased 1%, and
sales outside the U.S. decreased 16%, despite a 14% growth rate
in emerging market sales.
The Commercial Business saw a continuation of the trends visible
in the first quarter, with declining sales in the color reversal
film business in developed markets and lower levels of sales for
professional digital still cameras. However, in emerging
markets, the Commercial digital output portfolio continued to
show good growth.
The Portrait/Social business showed growth both in its sensitized
products portfolio and digital offerings, with continuing strong
acceptance of its ProImage products in emerging markets and its
Portra products in developed markets.
The sales declines in the Commercial Business discussed above
were essentially offset by sales increases in the Portrait/Social
business, resulting in flat year-over-year sales, excluding
graphics sales. The primary contributor to the segment's year-
over-year revenue decline was the reduced level of product sales
to the KPG joint venture. These declines reflect the ongoing
inventory re-balancing efforts of KPG, which is part of an
overall process improvement program within the joint venture.
<PAGE> 15
SG&A expenses for the segment increased 2%, from 18.8% of sales
to 21.3%, as a result of increased spending related to e-
Commerce initiatives. Excluding advertising expenses, SG&A
expenses increased 5%, from 16.1% of sales to 18.8%. R&D
expenses decreased 3%, but increased as a percentage of sales
from 7.2% to 7.8%.
Kodak Professional earnings from operations decreased 36% from
the year-ago quarter, as a result of lower sales volumes, adverse
pricing and unfavorable mix. Net earnings for the segment
decreased 67% from $86 million in 1999 to $28 million in 2000,
with the 2000 number adversely affected by the charge taken for
the Company's KPG joint venture discussed previously.
Health Imaging
In the second quarter, worldwide sales in the Health Imaging
Segment increased 4% year over year or an increase of 6% when
adjusted for the impact of exchange. U.S. sales increased 4%
while sales outside the U.S. were up 3%, or up 7% when adjusted
for exchange. Sales in emerging markets increased 10%.
Sales of digital products (including laser printers, digital
media, digital capture equipment and Picture Archiving and
Communications Systems (PACS)) increased 14% year over year.
Placements of DryView laser imagers reached record levels for the
second consecutive quarter, achieving an increase of more than 2X
over last year, while DryView media sales increased 50% year over
year. Wet laser imaging sales continued their expected decline
from last year. Sales of digital capture products and PACS
increased nearly 40% year over year.
Sales of traditional medical products, including analog film,
equipment, chemistry and services, decreased 2% year over year,
an increase of 1% when adjusted for the impact of exchange. For
analog films, modest volume growth, driven by market share gains,
was offset by price declines and unfavorable exchange in the
quarter. Within this category, however, mammography and oncology
specialty films continued to show strong growth of 17%. Dental
product sales were down in the quarter due to a planned reduction
in dealer inventories, which will result in better alignment of
sell-in with sell-through.
SG&A expenses for the segment increased 2%, but decreased from
18.7% of sales to 18.4%, reflecting continued cost control and
on-going benefits from the successful integration of the
Imation business acquired in December 1998. Excluding
advertising expenses, SG&A expenses decreased 2%, from 18.1% of
sales to 17.1%. R&D expenses decreased 3%, from 6.7% of sales
to 6.3%, consistent with the long term spending target for the
business.
Earnings from operations were flat with the prior year at $127
million, as the benefits of overall increased sales and modest
manufacturing productivity were offset by lower margins due to
the change in product price/mix and exchange. Net earnings
increased 1% over the second quarter of 1999.
<PAGE> 16
Other Imaging
Other Imaging Segment sales were up 8% over the second quarter
of 1999. When adjusted for the divestiture of The Image Bank
and the Motion Analysis Systems Division, sales were up 15%.
Segment sales growth in the quarter was led by strong digital
camera unit volume increases of approximately 55% and strong
growth of photograde inkjet paper sales. The Commercial &
Government Systems unit also contributed strong sales growth as
did the Entertainment Imaging business, which continued to
benefit from the increasing rate of new releases in the motion
picture industry.
SG&A expenses for the segment increased 1%, but decreased as a
percentage of sales from 22.0% to 20.4%. Excluding advertising
expenses, SG&A expenses increased 2%, but decreased as a
percent of sales from 18.7% to 17.5%. The reduction in costs,
on a percent of sales basis, reflects the Company's goal of
growing its business without adding significantly to its
administrative cost base. Included in SG&A expenses for the
second quarter 2000, are other charges and credits of
approximately $23 million, primarily related to Eastman
Software and PictureVision as discussed previously.
R&D expenses increased 43%, from 7.3% of sales to 9.6%. The
increase was primarily due to the write-off of in-process R&D
acquired in connection with the purchase of the remaining
interest of PictureVision and increased investments in the
Company's digital portfolio of products and services.
Earnings from operations for the segment were down 25%,
reflecting the impact of Eastman Software charges and costs
associated with the acquisition of PictureVision. Net earnings
for the segment decreased 8%.
<PAGE> 17
Year to date
Consolidated
Sales for the six months ended June 30, 2000 increased 2% over
the comparable 1999 period. Higher unit volumes in consumer
films and paper, health imaging films and digital cameras along
with increases in photofinishing revenues were partially offset
by portfolio adjustments, adverse currency, and declines in sales
of graphics products and CD media. When adjusted for portfolio
changes, sales increased 4% year over year. When adjusted for
both portfolio changes and currency movements, sales increased 6%
over the first half of 1999.
Sales in emerging markets, which accounted for 18% of the
Company's half-year sales, increased 15% over the comparable 1999
year-to-date period. Solid growth over the comparable 1999 year-
to-date period was seen across all regions including Greater
China (+17%), Latin America (+9%), Asia Area (+18%), Eastern
Europe, Africa, Middle East (+10%), and Greater Russia (+51%).
Sales of digital products and services were $1,431 million for
the first six months of 2000, and represent a 5% increase over
the $1,366 million recorded in 1999. Sales from
digital/digitization products and services accounted for 21% of
the Company's total year-to-date sales. Excluding the impact of
charges taken for PictureVision and Eastman Software, discussed
previously, earnings from the Company's digital business totaled
$8 million, a $12 million increase over last year's $4 million
loss.
Gross profit increased 3% in the year-to-date period from 44.0%
of sales to 44.5% of sales. The increase in margins was the
result of higher manufacturing volumes and improved productivity
offset by the negative impact of price, mix, and exchange. 2000
gross profit includes accelerated depreciation and relocation
costs of approximately $23 million and other charges and credits,
discussed previously, which reduced COGS by approximately $19
million. 1999 gross profit includes pre-tax charges of
approximately $91 million related to portfolio adjustments,
discussed previously.
SG&A expenses decreased 8% from 23.2% of sales to 21.0%, while
SG&A excluding advertising expenses also declined as a percent of
sales, from 18.4% to 16.4%. This reflects the Company's cost
reduction and portfolio actions, which benefited SG&A both in
dollars and as a percent of sales. 1999 SG&A includes
approximately $12 million related to portfolio adjustments,
discussed previously.
R&D expenditures were flat as a percentage of sales and increased
slightly in dollar terms, from $405 million to $409 million.
Included in R&D expense for 2000 are other charges, primarily for
in-process R&D as discussed previously, of approximately $6
million.
<PAGE> 18
Earnings from operations increased 21%. Included in 1999 earnings
from operations were charges of approximately $103 million
related to portfolio actions discussed previously. 2000 earnings
from operations includes charges of approximately $23 million for
accelerated depreciation and relocation expenses partially offset
by other charges and credits which increased earnings from
operations by approximately $13 million. Year-over-year currency
movements had a $62 million negative impact on earnings from
operations. In addition to the items discussed above, earnings
from operations benefited from the continued downward trend in
SG&A costs, both in dollars and as a percentage of sales.
Interest expense increased 16% from the prior period, primarily
as a result of higher average borrowing rates. Other income
decreased $27 million, primarily due to lower equity earnings for
the KPG joint venture, which includes a $15 million charge,
discussed previously, and the reclassification of Nexpress R&D
costs into the joint venture, partially offset by the sales of
investments.
Net earnings increased 17% from $682 million to $795 million for
the six-month period ended June 30, 1999 and 2000, respectively.
Earnings per share increased 21% over the first half of 1999, and
12% when adjusted for 1999 portfolio actions and 2000 accelerated
depreciation and relocation expenses, discussed above. The
effective tax rate was 34% in both periods.
Consumer Imaging
Year-to-date sales in the Consumer Imaging segment increased 5%
year over year and increased 7% excluding unfavorable foreign
exchange movement. U.S. sales increased 8% while sales outside
the U.S. grew by 1%, and 6% excluding the effect of exchange
movements. Sales outside the U.S. were driven by 14% growth in
emerging markets, which saw double-digit sales growth in film
both in volume and dollar terms.
Worldwide film sales (including 35 mm film, Advantix film, and
one-time-use cameras) increased 5% over the first half of 1999,
reflecting an 11% volume increase which more than offset negative
price and foreign exchange movements of 3% and 2%, respectively.
U.S. film sales increased 7% on increased volume and flat prices.
Outside the U.S., film sales to dealers increased 4% reflecting
15% higher volumes offset by lower prices and unfavorable
exchange movements.
Worldwide paper sales increased 3% for the six months ended June
30, 2000 over the comparable year-ago period. This increase
reflects 8% volume gains, partially mitigated by 2% lower prices
and a 3% negative impact on currency. U.S. paper sales increased
by 8% reflecting volume gains of 9% and slightly lower prices.
Outside the U.S., paper sales were flat, as an 8% increase in
unit volume was offset by price declines and negative exchange
movements.
SG&A expenses for the segment decreased 6%, from 25.9% of sales
to 23.3% of sales, reflecting the benefits of the Company's cost
reduction efforts. Excluding advertising expenses, SG&A expenses
decreased 7%, from 18.5% of sales to 16.5%. R&D expenses
decreased 4%, from 4.9% of sales to 4.5%.
<PAGE> 19
Earnings from operations increased 15%, as the benefits of higher
unit sales volumes, manufacturing productivity, and cost
reductions more than offset exchange and lower effective selling
prices. Net earnings were $472 million, which reflects a 20%
increase over the prior-year period.
Kodak Professional
Sales in the Kodak Professional segment decreased 9% over the
first half of 1999. Adjusting the year-over-year comparison
for the impact of the formation of the KPG joint venture in
Japan, sales declined 7%. Increased revenues in the Company's
Portrait/Social business did not offset declines in digital
camera volumes, reduced sales in the segment's commercial
business and lower sales of graphic products to KPG. U.S.
revenues decreased 4% and revenues outside the U.S. decreased
12%, or 10% excluding the unfavorable impact of foreign
exchange.
SG&A expenses for the segment increased 2%, from 18.6% of sales
to 20.9%. Excluding advertising expenses, SG&A expenses
increased 4%, from 16.2% of sales to 18.5%, reflecting
increased e-Commerce related spending. R&D expenses decreased
12%, from 8.2% of sales to 8.0%.
Earnings from operations decreased 19%, while net earnings
(which includes the $15 million pre-tax charge related to the
KPG business discussed previously) declined 55%. Included in
1999 earnings from operations is a $20 million pre-tax charge
related to the Company's investment in CalComp Corporation.
The decline in net earnings reflects lower revenues along with
a reduction of joint venture income from KPG.
Health Imaging
Sales in the Health Imaging segment increased 2% from the prior
year-to-date period, and 5% excluding the adverse effect of
currency movements. Increased sales of DryView media and
digital products more than offset an expected decrease in wet
laser imaging sales. Sales inside the U.S. increased 6%, while
sales outside the U.S. decreased 1%, despite an increase of 10%
in emerging market sales. Excluding the adverse effect of
foreign currency movement, sales outside the U.S. increased 3%.
SG&A expenses for the segment decreased 6%, from 20.1% to 18.5%
of sales. Excluding advertising expenses, SG&A expenses
decreased 8%, from 19.4% of sales to 17.5%, reflecting the
benefits of cost control initiatives and the continued
successful integration of the Imation business acquired in
December 1998. R&D expenses increased 3%, from 6.1% of sales
to 6.2%.
Earnings from operations increased 7%, as higher sales and
lower SG&A costs more than offset slightly lower margins, the
result of changes in product mix and the negative impact of
exchange. Segment net earnings increased 8%, from $157 million
to $169 million for the six months ended June 30, 1999 and
2000, respectively.
<PAGE> 20
Other Imaging
Sales in the Other Imaging segment increased 3% from the prior
year-to-date period, as higher unit volumes more than offset
portfolio changes and lower prices. Adjusting for the impact of
portfolio changes, segment sales increased 12%. Sales growth in
the first half was led by strong digital camera unit volume
increases of 76%, strong sales performance in the Commercial &
Government Systems unit, and growth in Entertainment Imaging,
which continues to benefit from the increasing rate of new
releases in the motion picture industry.
SG&A expenses for the segment decreased 14%, from 21.7% of sales
to 18.0% of sales. Excluding advertising expenses, SG&A expenses
decreased 17%, from 19.0% of sales to 15.3%. First half 2000
SG&A expenses include other charges and credits of approximately
$23 million, primarily related to Eastman Software and
PictureVision, as discussed previously. 1999 SG&A expenses
include charges of approximately $12 million related to portfolio
adjustments, discussed previously.
R&D expenses increased 18%, from 7.4% of sales to 8.5%, primarily
due to the write-off of in-process R&D related to the
PictureVision acquisition and increased investments in digital
products and services.
Earnings from operations were $144 million, $96 million higher
than the prior year period. Included in 1999 earnings from
operations were charges of approximately $83 million related to
portfolio actions discussed previously. 2000 earnings from
operations include charges of approximately $4 million for
accelerated depreciation and relocation expenses and other
charges, discussed previously, of approximately $40 million.
Aside from these charges, earnings from operations reflect higher
sales levels and lower SG&A costs, which more than offset the
unfavorable effects of foreign currency rate changes. Net
earnings for the segment were $103 million, an increase of $70
million over the prior year.
<PAGE> 21
RESTRUCTURING PROGRAMS
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
were to be eliminated worldwide, with approximately $250
million of the restructuring charge for severance payments.
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. Approximately $90 million of
the $350 million charge was 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 Rochester, New York. In addition,
approximately $10 million of the charge was for shutdown costs
related to the exit of the Elmgrove facility. The net cash
cost of the restructuring program, which is being funded
through operations, is approximately $107 million after tax.
This expected cash outflow includes the effect of the revisions
to the program discussed below. As of the second quarter of
2000, approximately 1,625 employees have left the Company under
this program.
During the second quarter of 2000, the Company reversed
approximately $44 million of severance related costs originally
recorded as part of its third quarter 1999 restructuring
charge. The reversal is the result of two factors. First,
certain manufacturing operations originally planned to be
outsourced will now be retained, as cost beneficial
arrangements for the Company could not be reached. Second,
severance actions in Japan and Europe have now been completed
at a cost less than originally estimated. Consequently,
approximately 500 (450 manufacturing and 50 administrative)
fewer employees will be separated, resulting in total planned
terminations under the third quarter 1999 program of 2,900.
The remaining headcount reductions are expected to be completed
by September 30, 2000. Of the $44 million reversal,
approximately $25 million was recorded in cost of goods sold
and approximately $19 million was recorded as part of SG&A,
consistent with where the original charges were recorded.
The Company originally anticipated 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. As a result of the 500 fewer
terminations noted above, the Company now expects pre-tax
savings of $90 million in 2000 and an additional $50 million in
2001, resulting in a revised annual run-rate savings of $140
million. The Company anticipates recovering the net cash cost
of this revised program in less than two years.
<PAGE> 22
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 114 2 116
Amounts reversed 44 - 44
---- --- ----
Balance 6/30/00 $ 92 $ 8 $100
In addition to the third-quarter 1999 charge, the Company
incurred pre-tax charges of $12 million and $23 million during
the quarter and year-to-date periods ending June 30, 2000,
respectively, related to accelerated depreciation of assets
still in use but scheduled to be sold and exited under this
program. It is estimated that accelerated depreciation charges
and relocation costs of approximately $10-$15 million pre-tax,
per quarter, will be recorded through the first quarter of 2001
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 13,350 employees had
been terminated through the end of the second quarter 2000
under this plan. Through the end of the second quarter 2000,
approximately $694 million and $92 million was spent for
severance costs and other business exit costs, respectively.
At June 30, 2000, the Company had a liability of approximately
$76 million for this program. The remaining actions under the
program are expected to be completed in 2000.
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<PAGE> 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 be sub-units of the euro.
New public debt will be issued in euro and existing debt may be
re-denominated into euro. 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. Other countries are expected to follow
later. The Company has operations in all of these countries.
As a result of the euro conversion, it is probable 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 the Company is now 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.
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<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the first half of
2000 was $229 million. Net earnings, adjusted for depreciation
and amortization and asset impairment and other charges,
provided $1,245 million of operating cash. This was more than
offset by increases in receivables of $514 million, reflecting
normal seasonal changes; decreases in liabilities (excluding
borrowings) of $458 million, related primarily to severance
payments for restructuring programs and the payment of accrued
wage dividend and incentive compensation; and increased
inventories of $263 million reflecting the Company's decision
to move to a level loading inventory strategy. Net cash used
in investing activities of $307 million for the first half of
2000 was primarily to support capital expenditures. Total
capital expenditures are expected to be approximately $1.1
billion for the year, essentially level with 1999, with third
and fourth quarter spending to support manufacturing
productivity, quality improvements, environmental compliance
and new products including e-Commerce initiatives, digital
photofinishing and digital cameras. Net cash provided by
financing activities of $427 million for the first half of 2000
was primarily due to net increases in total borrowings of $872
million, reduced by $275 million of dividend payments and $193
million for stock repurchases.
Cash dividends per share of $.44, payable quarterly, were
declared in the second quarter of 2000 and 1999. Total cash
dividends of $273 million and $282 million were declared in the
first half of 2000 and 1999, respectively.
Net working capital (excluding short-term borrowings) at the
end of the quarter was $1,868 million, compared with $838
million at year-end 1999. This increase reflects the level
loading of inventory, higher receivables and lower overall
payables, as discussed above.
On April 15, 1999, the Company's Board of Directors authorized a
new stock repurchase program for up to $2 billion of the
Company's outstanding stock. This program is the third since
1995, and brings the total repurchases authorized under the
three programs to $5 billion. Through the first half of 2000,
the Company repurchased $193 million of outstanding shares under
the $2 billion program initiated in 1999, bringing the total
repurchased under that program to $848 million.
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<PAGE> 25
Item 3. Quantitative And Qualitative Disclosures About Market
Risk
See Note 3, DERIVATIVES AND MARKET RISK.
----------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
----------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Shareholders of Eastman Kodak
Company was held on May 10.
A total of 245,562,780 of the Company's shares were present or
represented by proxy at the meeting. This represented more
than 79% of the Company's shares outstanding.
The individuals named below were reelected to a three-year term
as Class I Directors:
Name Votes Received Votes Withheld
Martha Layne Collins 208,974,535 36,588,245
George M. C. Fisher 208,831,610 36,731,170
Paul E. Gray 209,022,646 36,540,134
John J. Phelan, Jr. 208,970,984 36,591,796
The individual named below was elected to a two-year term as a
Class III Director:
Name Votes Received Votes Withheld
Debra L. Lee 208,934,820 36,627,960
Richard S. Braddock, Daniel A. Carp, Alice F. Emerson, Durk I.
Jager, Paul H. O'Neill, Laura D'Andrea Tyson and Richard A.
Zimmerman all continue as directors of the Company.
The election of PricewaterhouseCoopers LLP as independent
accountants was ratified, with 242,855,321 shares voting for,
637,647 shares voting against, and 2,069,812 shares abstaining.
No vote was taken on the shareholder proposal regarding
executive compensation.
<PAGE> 26
The shareholder proposal concerning annual election of
directors received a majority of the votes cast, with
119,052,143 shares voting for, 77,104,159 shares voting
against, 4,037,915 shares abstaining, and 45,368,563 non-votes.
Although this shareholder proposal received a majority of the
votes cast, implementation of annual election of directors
requires an amendment to the Company's Certificate of
Incorporation, which requires a favorable vote of 80% of all
shares outstanding.
The shareholder proposal concerning the request for additional
environmental disclosure was defeated, with 14,399,344 shares
voting for, 161,971,013 shares voting against, 23,823,860
shares abstaining, and 45,368,563 non-votes.
The shareholder proposal concerning the request for an
executive compensation review was defeated, with 18,591,801
shares voting for, 167,307,757 shares voting against,
14,294,654 shares abstaining, and 45,368,568 non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and financial statement schedules required as part
of this report are listed in the index appearing on page 27.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed or required to be filed for
the quarter ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements 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)
Date August 10, 2000
E. Mark Rajkowski
Controller
<PAGE> 27
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Exhibit Page
(10) V. Robert J. Keegan Agreement dated June 19, 1997.
Amendment, dated June 24, 1999, to Agreement dated
June 19, 1997.
(Incorporated by reference to the Eastman Kodak
Company Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, Exhibit 10.)
Amendment, dated July 10, 2000, to Agreement dated
June 19, 1997, as amended. 28
(10) Y. Carl F. Kohrt Agreement dated May 11, 2000. 33
(27) Financial Data Schedule - Submitted with the EDGAR
filing as a second document to this Form 10-Q.
<PAGE> 28
Exhibit (10) V.
July 10, 2000
Robert J. Keegan
President, Consumer Imaging
and Executive 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, Eastman Kodak
Company ("Kodak") entered into an agreement with you confirming
the terms and conditions of your reemployment by Kodak. This
letter agreement was amended by way of a subsequent letter
agreement dated June 24, 1999. The June 19, 1997 letter
agreement as modified by the June 24, 1999 letter agreement will
hereinafter be referred to as the "June 19, 1997 Letter
Agreement."
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 in several respects. More specifically, this letter
agreement modifies your enhanced pension provision, provides you
permitted reason treatment if you are terminated for other than
cause and establishes a new severance benefit. 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") (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
<PAGE> 29
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. In addition, for
purposes of applying any early retirement
reduction factor used to calculate your Retirement
Benefit, Kodak will, for so long as you are less
than age fifty five, treat you as if you were age
fifty five. This deemed service and age 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. Permitted Reason
The June 19, 1997 Letter Agreement is amended to add the
following as new Section 17 entitled "Permitted Reason."
17. Permitted Reason
A. In General. For purposes of any nonqualified
stock options granted to you under the 2000
Omnibus Long-Term Compensation Plan, your
termination of employment will be treated as a
"Permitted Reason;" provided, however your
termination of employment is not voluntary or due
to "Cause."
<PAGE> 30
B. Cause. For purposes of this Section 17, the term
"Cause" will mean:
(i) your failure to perform your duties in a
manner deemed satisfactory by your
supervisor; or
(ii) your failure to follow a lawful written
directive of Eastman Kodak Company's Chief
Executive Officer, your supervisor or any
other person to whom you have a reporting
relationship in any capacity; or
(iii)your violation of any material rule,
regulation, or policy that may be established
from time to time for the conduct of your
employer'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 your employment (a) which
results in the assessment of a civil or
criminal penalty against you or your
employer, 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 to whom
you have a reporting relationship in any
capacity; or
(viii)your breach of your Eastman Kodak Company
Employee's Agreement or your breach of the
Eastman Kodak Company Business Conduct Guide.
<PAGE> 31
3. Severance
Section 11 of the June 19, 1997 Letter Agreement is amended in
its entirety to read as follows:
11. Severance Benefits
A. In General. If Kodak terminates your employment
for reasons other than "Cause," as defined in
Section 17 below, or "Disability," as defined in
Section 11(C), Kodak will pay you, subject to your
satisfaction of the terms of this section, a
severance allowance equal to two (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 payments over the two (2) year period
commencing on the date of your termination of
employment.
This severance allowance will 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 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.
In the event you breach any of the terms of your
Eastman Kodak Company Employees' Agreement or the
Agreement, Waiver and Release described 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 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 this
section, you must execute immediately prior to
your termination of employment a waiver, general
release and covenant not to sue in favor of Kodak
(the "Agreement, Waiver and Release"), in a form
satisfactory to the Senior Vice President and
Director, Human Resources, of Kodak.
C. Disability. For purposes of this letter, the term
"Disability" means disability under the terms of
the Kodak Long-Term Disability Plan.
<PAGE> 32
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.
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
MPM:llh
Signed:
Robert J. Keegan
Dated:
<PAGE> 33
Exhibit (10) Y.
May 11, 2000
Carl F. Kohrt
xxxxxxxxxxxx
Rochester, NY xxxxx
RE: Retirement
Dear Carl:
The purpose of this letter is to confirm the terms of your
impending retirement from Eastman Kodak Company ("Kodak"). Once
signed by both parties, this letter will constitute an agreement
between Kodak and you. For purposes of this letter agreement
"Company" will mean Kodak and all of its affiliated entities.
1. Retirement Date
It is hereby agreed that you will terminate your employment from
Kodak at the close of business on June 30, 2000 (the "Termination
Date") and subsequently retire on July 1, 2000.
2. Responsibilities
During the remainder of your employment by Kodak, you will
continue in your present position and be responsible for
performing the duties and responsibilities associated with this
position, and such other duties and responsibilities that may be
assigned to you from time to time, in a timely and satisfactory
manner. You will continue to receive your current salary and
benefits through the Termination Date.
3. Stock Options and Stock Appreciation Rights
Subject to your satisfaction of the terms of this letter
agreement, your termination of employment will be treated as an
"Approved Reason" for purposes of your Kodak stock options and
stock appreciation rights. Thus, you will not forfeit any Kodak
stock option or stock appreciation rights by virtue of your
termination of employment. You will not, however, receive a
stock option award for the 2000 calendar year under the Company's
annual management stock option program.
<PAGE> 34
4. Performance Stock Program
Subject to your satisfaction of the terms of this letter
agreement, your termination of employment will also be treated as
for an "Approved Reason" for purposes of: (i) the 1993-1995
Restricted Stock Subplan to the 1990 Omnibus Long-Term
Compensation Plan; (ii) the 1995-1996, 1997-1999, 1998-2000, and
1999-2001 Performance Cycles of the Performance Stock Program
under the 1995 Omnibus Long-Term Compensation Plan; and (iii) the
2000-2002 Performance Cycle of the Performance Stock Program
under the 2000 Omnibus Long-Term Compensation Plan.
To the extent the Compensation Committee grants awards under the
1998-2000, 1999-2001 and 2000-2002 Performance Cycles of the
Performance Stock Program, your awards, which will be paid in the
form of Common Stock free of restrictions on the cycle's
respective Award Payment Date, will be pro-rated based upon your
length of service during the cycle. With regard to any award
earned by you for any of these cycles, the Committee will
exercise negative discretion only to the extent it generally does
so for all or substantially all of the other participants of such
cycle.
5. Management Variable Compensation Plan
You will be eligible for an award under the 2000 Management
Variable Compensation Plan ("MVCP") for the 2000 Performance
Period if awards are paid for such period. Your award will be
based solely on corporate 2000 MPCP results. Any award earned
will be pro-rated based upon your length of service to June 30,
2000 and paid in 2001 at the same time the plan's other
participants receive their awards for the 2000 Performance
Period.
It is understood and agreed that the only subjective element
existing with regard to the determination of your award will be
in terms of measuring the corporate performance commitments for
the 2000 MPCP. Subject to the foregoing, your award, if any, for
the 2000 Performance Period will be paid without reduction for
any reason.
Subject to the foregoing, you hereby acknowledge and agree that
Kodak's determination with regard to the amount and payment of
any MVCP award for 2000 will be final and binding upon you, and
any other person having or claiming to have any right or interest
on your behalf in or under the plan, and that the failure of
Kodak to award you a MVCP award for 2000 will not give rise to
any claim against Kodak or any affiliate or their respective
directors, officers or employees.
6. Release
In partial consideration for the treatment afforded to you under
the terms of this letter agreement, you hereby agree to execute
immediately prior to your termination of employment the release
annexed hereto as Addendum A. In the event you fail to sign the
release, or once signed make an effective revocation of the
release, you will not be entitled to any of treatment described
in this letter agreement.
<PAGE> 35
7. Cooperation
You agree to cooperate fully with the Company from now to the
date of your termination of employment and thereafter during the
one (1) year period following your termination on all matters
relating to your employment and termination of employment, the
transition of your duties and responsibilities to your
successor(s), and the conduct of the Company's business. You
further agree during such periods to cooperate fully with the
Company, and conduct all of your actions, statements and
communications in a manner consistent with the announcement by
Kodak of your termination of employment. Such announcement will
be prepared by Kodak, but will be subject to your review in your
reasonable discretion.
Kodak agrees that any authorized official statements issued by
either the Chief Executive Officer's Office or Communications and
Public Affairs which specifically relates to your termination of
employment will be consistent with the announcement by Kodak of
your termination of employment.
You also agree that from now to the Termination Date and
thereafter during the two (2) year period following your
termination, you will not in any way disparage, make any
statement, or take any action which is adverse, inimical or
otherwise detrimental to the Company's interests or those of
Kodak's or its affiliates' current or former officers, directors,
and employees or cause any of such persons embarrassment or
humiliation or otherwise cause or contribute to such persons
being held in disrepute by the public or Kodak's or its
affiliates' shareholders, clients, customers, employees or
competitors.
Nothing in this Section 7 will prohibit you upon the request of a
Kodak officer from providing truthful and balanced evaluations of
former subordinates. Similarly, nothing in this Section 7 will
prohibit you from providing testimony in connection with any
legal matters where your testimony is either required by a court
of competent jurisdiction or requested by a Kodak officer.
In the event of your breach of this letter agreement, and
regardless of whatever actions or remedies Kodak pursues as a
result thereof, you agree to continue to adhere to the
requirements of this Section 7.
8. Non-Solicitation of Employees
You agree, in partial consideration for the treatment afforded to
you under this letter agreement, that during the one (1) year
period immediately following the Termination Date, you will not
in any way, directly or indirectly, either for yourself, on
behalf of, or in conjunction with, any other person, persons,
partnership, corporation, organization or other entity, either
solicit, divert, induce or attempt to induce any of Kodak's or
its affiliates' employees or independent contractors to terminate
their employment or contractual relationship with Kodak or the
affiliate, as the case may be, or work for you in any capacity or
otherwise interfere with Kodak's or its affiliate's relationship
with its employees or independent contractors.
In the event of your breach of this letter agreement, and
regardless of whatever actions or remedies Kodak pursues as a
result thereof, you agree to continue to adhere to the
requirements of this Section 8.
<PAGE> 36
9. Employees' Agreement
During your employment by Kodak, you signed an "Eastman Kodak
Company Employee's Agreement" in which you reaffirmed your
obligation not to disclose company trade secret, confidential or
proprietary information. Further, you agreed not to engage in
work or activities on behalf of a competitor of Kodak's in the
field in which you were employed by Kodak for a period of two (2)
years following termination of your employment by Kodak. By
signing this letter agreement, you reaffirm the Employee's
Agreement and agree that it is, and will be at the time of your
termination, in full force and effect, without amendment or
modification.
To the extent you locate one or more opportunities in any field
or fields in which you have worked for Kodak, Kodak agrees, upon
your request, to promptly review and respond to the terms of each
such employment opportunity to determine whether such opportunity
is in Kodak's opinion violative of the terms of the Employee's
Agreement. All such requests should be submitted directly the
Director, Human Resources and Senior Vice President, Eastman
Kodak Company. You will be entitled to rely on any response from
Kodak.
In the event of your breach of this letter agreement, and
regardless of whatever actions or remedies Kodak pursues as a
result thereof, you agree to continue to adhere to the
requirements of this Section 9.
10. Cooperation on Legal Matters
You understand that following your termination of employment,
Kodak may need your continued cooperation and involvement with
various pieces of litigation and other legal matters which are
pending at such time or which may arise thereafter. In further
consideration of the benefits under this letter agreement, you
agree, at Kodak's request from time to time, to cooperate with
Kodak in its efforts to defend and/or pursue any such litigation
or other legal matters. You will provide this assistance to
Kodak at no additional remuneration beyond the benefits provided
to you under this letter agreement. When performing these
services at Kodak's request, Kodak will reimburse you for
reasonable travel and lodging expenses that you incur upon
submission of documentation acceptable to Kodak. By way of
illustration and not by way of limitation, the types of services
that may be requested of you under this Section 10 include:
attending strategy sessions, attending preparations for trial,
appearing at depositions, executing affidavits and testifying at
trials.
In the event of your breach of this letter agreement, and
regardless of whatever actions or remedies Kodak pursues as a
result thereof, you agree to continue to adhere to the
requirements of this Section 10.
<PAGE> 37
11. Return of Kodak Property
As a terminating employee, you are reminded that prior to your
termination of employment you must return to Kodak, (i) all
documents, and other tangible items, and any copies, that are in
your possession or control and which contain confidential
information in written, magnetic or other form and shall have not
given such documents, items, or copies to anyone other than
another Kodak employee; and (ii) all other Kodak property within
your possession including, but not limited to, office keys,
identification badges or passes, Kodak credit cards, automobiles,
and computer equipment and software. You understand and
acknowledge your continuing obligation regarding the disclosure
of confidential, proprietary and trade secret information that
you have obtained during your employment with Kodak.
12. Injunctive Relief
You acknowledge by accepting the treatment afforded to you under
this letter agreement that any breach or threatened breach by you
of any term of Section 7, 8, 9, 10 and 11 hereof may not be
remedied solely by the recovery of damages or the withholding of
benefits and Kodak shall therefore be entitled to an injunction
against such breach or threatened breach without posting any bond
or other security. Nothing herein, however, shall prohibit Kodak
from pursuing, in connection with an injunction or otherwise, any
other remedies available at law or equity for such breach or
threatened breach, including the recovery of damages.
13. Financial Counseling
You will, at Kodak's expense, continue to be eligible to
participate in Kodak's financial counseling program for the two-
year period commencing upon the Termination Date. The payment of
these expenses on your behalf will be treated as ordinary income
to you and reported accordingly. In addition, you will, at
Kodak's expense, continue to receive income tax preparation
services from PriceWaterhouseCoopers, LLC for the 2000 calendar
year. Furthermore, if Kodak believes it is to its advantage to
have your tax return for the 2001 calendar year be prepared by
PriceWaterhouseCoopers, LLC, you agree to have
PriceWaterhouseCoopers, LLC prepare your return provided the cost
thereof is paid by Kodak.
14. Miscellaneous
A. Confidentiality. You will agree to keep the contents
and existence of this letter confidential except that
you may review it with your attorney, financial
advisor, spouse, or adult children, or with my designee
or me. Kodak will protect this letter agreement
against unauthorized disclosure using the same degree
of care that it employs to avoid disclosure,
publication, or dissemination of similar confidential
information.
B. Unenforceability. If any portion of this letter
agreement 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 agreement be given the
maximum possible effect allowed by law.
<PAGE> 38
C. Headings. The heading of the several sections of this
letter agreement 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 agreement.
D. Applicable Law. Except as superseded by applicable
federal law, all matters pertaining to this letter
agreement (including its interpretation, application,
validity, performance and breach) shall be governed by
and construed and enforced in accordance with the laws
of the state of New York without giving effect to its
principles of conflicts of laws.
E. Amendment. This letter agreement may not be changed,
modified, or amended, except in a writing signed by
both you and Kodak that expressly acknowledges that it
is changing, modifying or amending this letter
agreement.
F. Forfeiture. In the event that you violate any
provision of this letter agreement, including Addendum
"A", or your Employees' Agreement, in addition to, and
not in lieu of, any other remedies that Kodak may
pursue against you, you will no longer receive the
treatment afforded to you under this letter agreement
and you agree to immediately repay all monies
previously paid to you pursuant to this letter
agreement. In such event all other provisions of this
letter agreement shall remain in full force and effect
as though the breach had not occurred. Notwithstanding
the foregoing, if your violation of this letter
agreement, including Addendum "A", or your Employees'
Agreement is in Kodak's reasonable judgement solely a
minor violation that can be cured by you within a
period of 5 business days, then Kodak will provide you
written notice of such breach and if such breach is not
cured to Kodak's reasonable satisfaction within 5
business days of your receipt of such written notice,
it is only then that you will no longer receive the
treatment afforded to you under this letter agreement
and will be required to immediately repay all monies
previously paid to you pursuant to this letter
agreement
Your signature below means that:
1. You have had ample opportunity to discuss the terms and
conditions of this letter agreement with an attorney
and/or financial advisor of your choice and as a result
fully understand its terms and conditions; and
2. You accept the terms and conditions set forth in this
letter agreement; and
3. Except as provided in this letter agreement and except
for claims and rights not released by you as set forth in
Exhibit "A" to Addendum "A" of this letter agreement,
this letter agreement, including in particular its
reference regarding the continuing effectiveness of the
Employees' Agreement, supersedes and replaces any and
all agreements or understandings whether written or oral
that you may have with the Company concerning any special or
other separation, retirement or compensation arrangement.
<PAGE> 39
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 directly to me. Thank you.
Very truly yours,
Michael P. Morley
MPM:llh
Enclosure
Signed:
Carl F. Kohrt
Dated:
<PAGE> 40
ADDENDUM A
AGREEMENT, WAIVER AND RELEASE
NOTICE: YOU ARE ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO
EXECUTING THIS AGREEMENT.
This Agreement, Waiver and Release (the "Agreement") is a
contract between the undersigned employee ("you") who is
terminating employment on the 30th day of June, 2000 and your
employer, the Eastman Kodak Company ("Kodak").
1. Benefits
In consideration for signing this Agreement, you will receive the
benefits (the "Termination Benefits") described in the letter
agreement between yourself and Kodak dated May 11, 2000, to which
this Agreement is attached as Addendum A.
2. Release
In consideration for the Termination Benefits, you hereby release
and discharge Eastman Kodak Company (Kodak), its parent
corporations, subsidiaries, affiliates, successors and assigns
and their respective directors, officers, employees and agents
(hereinafter collectively referred to as the "Releasees"), both
individually and in their official capacity, from all claims,
actions and causes of action of any kind, which you, or your
agents, executors, heirs, or assigns ever had, now have, or may
have, whether known or unknown, as a result of your employment by
or termination of employment from Kodak. This Agreement
includes, but is not limited to, the following: any action or
cause of action asserted or which could have been asserted under
the Age Discrimination In Employment Act of 1967, Title VII of
the Civil Rights Act of 1964, the New York Human Rights Law, the
New York Labor Law, the Employee Retirement Income Security Act,
the Americans with Disabilities Act, the Fair Labor Standards
Act, the National Labor Relations Act or the Equal Pay Act, all
as amended; claims for wrongful discharge, unjust dismissal, or
constructive discharge; claims for breach of any alleged oral,
written or implied contract of employment; claims for salary,
severance payments, bonuses or other compensation of any kind;
claims for benefits; claims for libel, slander, defamation and
attorneys' fees; and any other claims under federal, state or
local statute, law, rule or regulation.
BY SIGNING THIS AGREEMENT, YOU GIVE UP ANY RIGHT YOU MAY HAVE TO
BRING A LAWSUIT OR RECEIVE A RECOVERY ON ANY CLAIM AGAINST KODAK
AND THOSE ASSOCIATED WITH KODAK BASED ON ANY ACTIONS, FAILURES TO
ACT, STATEMENTS, OR EVENTS OCCURRING PRIOR TO THE DATE OF THIS
AGREEMENT, INCLUDING CLAIMS THAT IN ANY WAY ARISE FROM OR RELATE
TO YOUR EMPLOYMENT WITH KODAK OR THE TERMINATION OF THAT
EMPLOYMENT.
<PAGE> 41
3. Release Exclusions
Excluded from the scope of this Release are claims for the
compensation and benefits described on Exhibit "A", a copy of
which is annexed hereto and made a part hereof.
4. Termination Date
You hereby acknowledge that your employment with Kodak will
terminate as of the close of business on June 30, 2000.
5. Future Relationship with Kodak
In further consideration of the Termination Benefits, you agree
to waive reinstatement of employment and/or future employment
with Releasees, and agree not to knowingly apply for, solicit,
seek or otherwise attempt to obtain employment with Releasees
without first obtaining written authorization from the office of
Kodak's Senior Vice President and Director, Human Resources. You
further agree that should any such employment application be made
by you to any Releasees without first obtaining such written
authorization, Releasees shall have no obligation to process that
application or to hire you, and the failure to process that
application or to hire you shall not constitute a violation of
any state, federal or local law, order, regulation or common law
doctrine.
6. No Future Lawsuits
In addition to any and all other obligations you may have under
the terms of this Agreement, you also separately and
independently covenant and agree that you will not sue Releasees
upon any of the claims that you have released in Section 2 of
this Agreement, and/or upon a claim arising out of any employment
application which you may make in violation of Section 5 of this
Agreement. You further agree not to assist any other person or
entity in bringing any lawsuit against Kodak in any state or
federal court unless such restriction is prohibited by law.
7. Breach
You agree that if you violate any part of this Agreement, you
will be responsible for all costs incurred by Kodak that flow
from that violation, including Kodak's legal fees and other costs
associated with any legal action that arises from that violation.
You also agree that if you violate any part of this Agreement,
you will not be entitled to the Termination Benefits.
You further agree that any breach or threatened breach by you of
this Agreement cannot be remedied solely by the recovery of
damages and Kodak shall therefore be entitled to any injunction
against such breach or threatened breach without posting any bond
or other security. Nothing herein, however, shall be construed
as prohibiting Kodak from pursuing, in connection with an
injunction or otherwise, any other remedies available at law or
equity for such breach or threatened breach, including the
recovery of damages.
<PAGE> 42
8. Period of Review and Other Considerations
a. Date of Receipt. You acknowledge that you received this
Agreement on or prior to May 20, 2000.
b. Attorney Consultation. You acknowledge that you have had
the opportunity to consult with an attorney of your choice
concerning this Agreement.
c. Period of Review. You acknowledge that you have been given
at least 21 days in which to consider signing this
Agreement. You understand that in the event you execute
this Agreement within less than 21 days of the date of its
delivery to you, you acknowledge that such decision was
entirely voluntary and that you have had the opportunity to
consider this Agreement for the entire 21 day period.
d. Entire Agreement. This Agreement, including in particular
its reference regarding the continuing effectiveness of the
Employees' Agreement, along with the attached Exhibit "A"
sets forth the entire agreement between Kodak and yourself
and supersedes and renders null and void any and all prior
or contemporaneous oral or written understandings,
statements, representations or promises regarding the
subject matter hereof. This Agreement does not, however,
supersede the Employees' Agreement or the letter agreement
between you and Kodak dated May 11, 2000 that remain in full
force and effect.
e. Governing Law. Except as superseded by applicable federal
law, this Agreement, and its interpretation and application,
will be governed and controlled by the laws of the State of
New York, applicable as though to a contract made in New
York by residents of New York and wholly to be performed in
New York without giving effect to principles of conflicts of
laws. If any provision of this Agreement including, but not
limited to, the waiver of claims under any particular
statute, should be deemed unenforceable, the remaining
provisions shall, to the extent possible, be carried into
effect, taking into account the general purpose and spirit
of this Agreement.
f. Revocation of Agreement. You understand that you have the
right to revoke this Agreement within 7 days of your signing
it, and that this Agreement shall not become effective or
enforceable until this 7 day period has expired. To revoke
this Agreement, you agree to notify in writing: Senior Vice
President and Director, Human Resources, Eastman Kodak
Company, 343 State Street, Rochester, NY 14650. Unless so
revoked, this Agreement will be effective at 5:00 p.m. on
such seventh day. You agree that if you exercise your right
to revoke this Agreement within 7 days, you will not be
entitled to the Termination Benefits and you will
immediately return to Kodak any consideration you have
already received.
<PAGE> 43
YOU HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL THE PROVISIONS
OF THIS AGREEMENT, AND YOU ARE ENTERING INTO THIS AGREEMENT
VOLUNTARILY. YOU ACKNOWLEDGE THAT THE CONSIDERATION YOU ARE
RECEIVING IN EXCHANGE FOR EXECUTING THIS AGREEMENT IS GREATER
THAN THAT WHICH YOU WOULD BE ENTITLED TO IN THE ABSENCE OF THIS
AGREEMENT. YOU HAVE NOT RELIED UPON ANY REPRESENTATION OR
STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS AGREEMENT.
WITNESS MY SIGNATURE, THIS DAY OF , .
Carl F. Kohrt
Sworn to before me this
day of , .
Notary Public
WITNESS MY SIGNATURE, THIS DAY OF , .
Employer Representative Signature
Sworn to before me this
day of , .
Notary Public
<PAGE> 44
Exhibit "A"
1. Claims for benefits to which you may be eligible under the
terms of the following benefit plans, as such plans may be
amended from time to time: Kodak Retirement Income Plan, Eastman
Kodak Employees' Savings and Investment Plan, Kodak Employee
Stock Ownership Plan, the Kodak Excess Retirement Income Plan,
Kodak Unfunded Retirement Income Plan, Estate Enhancement Plan
and the Kodak Long Term Care Plan.
2. Claims for expenses incurred by you or your covered family
members prior to your termination of employment under the
Kodak Flexible Benefits Plan, Kodak Medical Assistance Plan,
Kodak Dental Plan, Kodak Life Insurance Plan, Kodak Long
Term Disability Plan, Kodak Short Term Disability Plan,
Kodak Workers' Compensation Supplement Plan, Kodak Dependent
Life Insurance Plan, Kodak Accidental Death Insurance Plan,
and Kodak Dependent Accidental Death Insurance Plan.
3. Claims for accrued, but unpaid and unused, benefits under
the Vacation Plan.
4. Claims for any amounts or awards due you under the Eastman
Kodak Company 1982 Executive Deferred Compensation Plan, the
Eastman Kodak Company 1990 Omnibus Long-Term Compensation
Plan, the Eastman Kodak Company 1995 Omnibus Long-Term
Compensation Plan or the 2000 Omnibus Long-Term Compensation
Plan.
5. Any claims that may arise after the date this Agreement is
executed unrelated to your employment or the termination of
your employment.
6. Claims arising under the letter agreement between you and
Kodak dated May 11, 2000.
7. Claims under the Kodak Health Care Reimbursement Account.
8. Claims for retiree coverage to which you may be eligible
under the terms of the following plans, as such plans may be
amended from time to time: Kodak Medical Assistance Plan,
Kodak Dental Plan and the Kodak Life Insurance Plan.
9. Claims for continuation of health care coverage under terms
of the Consolidated Omnibus Reconciliation Act, as amended,
("COBRA").
