Kodak 2003 Annual Report Download - page 37

Financials
37
favorable conditions to the Company in the face of price and aggressive
competitors.
Kodak conducts business in developing markets with economies that
tend to be more volatile than those in the United States and Western
Europe. The risk of doing business in developing markets like China, India,
Brazil, Argentina, Mexico, Russia and other economically volatile areas
could adversely affect Kodak’s operations and earnings. Such risks include
the financial instability among customers in these regions, political insta-
bility and potential conflicts among developing nations and other non-eco-
nomic factors such as irregular trade flows that need to be managed suc-
cessfully with the help of the local governments. Kodak’s failure to suc-
cessfully manage economic, political and other risks relating to doing
business in developing countries and economically and politically volatile
areas could adversely affect its business.
Kodak, as a result of its global operating and financing activities, is
exposed to changes in currency exchange rates and interest rates, which
may adversely affect its results of operations and financial position.
Exchange rates and interest rates in certain markets in which the
Company does business tend to be more volatile than those in the United
States and Western Europe. For example, in early 2002, the United States
dollar was eliminated as Argentina’s monetary benchmark, resulting in
significant currency devaluation. There can be no guarantees that the eco-
nomic situation in developing markets or elsewhere will not worsen, which
could result in future effects on earnings should such events occur.
CAUTIONARY STATEMENT PURSUANT
TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report may be forward-looking in nature, or
“forward-looking statements” as defined in the United States Private
Securities Litigation Reform Act of 1995. For example, references to the
Company’s revenue, cash flow expectations and future focused cost
reductions for 2004 are forward-looking statements.
Actual results may differ from those expressed or implied in forward-
looking statements. In addition, any forward-looking statements represent
the Company’s estimates only as of the date they are made, and should
not be relied upon as representing the Company's estimates as of any
subsequent date. While the Company may elect to update forward-looking
statements at some point in the future, the Company specifically disclaims
any obligation to do so, even if its estimates change. The forward-looking
statements contained in this report are subject to a number of factors and
uncertainties, including the successful: implementation of the recently
announced digitally-oriented growth strategy, including the related imple-
mentation of future focused cost reductions; implementation of product
strategies (including digital products, category expansion, digitization, and
OLED displays); implementation of intellectual property licensing strate-
gies; development and implementation of e-commerce strategies; comple-
tion of information systems upgrades, including SAP, our enterprise system
software; completion of various portfolio actions; reduction of inventories
and capital expenditures; improvement in receivables performance;
improvement in manufacturing productivity and techniques; improvement
in supply chain efficiency; and the development of the Company’s busi-
ness in emerging markets like China, India, Brazil, Mexico, and Russia.
The forward-looking statements contained in this report are subject to the
following additional factors and uncertainties: inherent unpredictability of
currency fluctuations and raw material costs; competitive actions, includ-
ing pricing; the nature and pace of technology evolution, including the
analog-to-digital transition; continuing customer consolidation and buying
power; general economic, business, geo-political and public health condi-
tions; and other factors and uncertainties disclosed herein and from time
to time in the Company’s other filings with the Securities and Exchange
Commission, including but not limited to the items discussed in “Risk
Factors” as set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 of this report.
Any forward-looking statements in this report should be evaluated in
light of these important factors and uncertainties as well as the risk fac-
tors and other cautionary information contained herein.
MARKET PRICE DATA
2003 2002
Price per share: High Low High Low
1st Quarter $ 41.08 $ 26.88 $ 34.30 $ 25.58
2nd Quarter 32.46 26.99 35.49 28.15
3rd Quarter 30.10 20.39 32.36 26.30
4th Quarter 25.83 20.43 38.48 25.60
SUMMARY OF OPERATING DATA
A summary of operating data for 2003 and for the four years prior is
shown on page 79.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financing activities, is
exposed to changes in foreign currency exchange rates, commodity prices
and interest rates, which may adversely affect its results of operations and
financial position. In seeking to minimize the risks associated with such
activities, the Company may enter into derivative contracts.
Foreign currency forward contracts are used to hedge existing for-
eign currency denominated assets and liabilities, especially those of the
Company’s International Treasury Center, as well as forecasted foreign
currency denominated intercompany sales. Silver forward contracts are
used to mitigate the Company’s risk to fluctuating silver prices. The
Company’s exposure to changes in interest rates results from its investing
and borrowing activities used to meet its liquidity needs. Long-term debt
is generally used to finance long-term investments, while short-term debt
is used to meet working capital requirements. The Company does not uti-
lize financial instruments for trading or other speculative purposes.
Using a sensitivity analysis based on estimated fair value of open
forward contracts using available forward rates, if the U.S. dollar had been
10% weaker at December 31, 2003 and 2002, the fair value of open for-
ward contracts would have increased $23 million and $13 million, respec-
tively. Such gains or losses would be substantially offset by losses or
gains from the revaluation or settlement of the underlying positions
hedged.
Using a sensitivity analysis based on estimated fair value of open
forward contracts using available forward prices, if available forward silver
prices had been 10% lower at December 31, 2003 and 2002, the fair
value of open forward contracts would have decreased $1 million and $4
million, respectively. Such losses in fair value, if realized, would be offset
by lower costs of manufacturing silver-containing products.
The Company is exposed to interest rate risk primarily through its
borrowing activities and, to a lesser extent, through investments in mar-