Kodak 2000 Annual Report Download - page 38

87% , as considerably higher volumes were only partially miti-
gated by lower effective selling prices.
SG&A expenses decreased 17%, from 22.8% of sales in
1998 to 20.6% in 1999. Excluding advertising expens es, SG&A
expenses decreased 19% , from 19.8% of sales in 1998 to
17.4% in 1999. R&D expenses decreased 11% , from 8.0% of
sales in 1998 to 7.7% in 1999.
E a rnings from operations increased 25% in 1999. Excluding
special charges in both 1998 and 1999, earnings from opera-
tions decreased 2% , as higher volumes and manufacturing pro-
ductivity were offset by lower effective selling prices and the
unfavorable effects of exchange. Net earnings increased 37% ,
but decreased 21% excluding special charges and credits fro m
both years. This decrease reflects lower earnings from opera-
tions and lower gains on sales of pro p e rt i e s .
R e s t ructuring Pro g r a m s
The Company re c o rded a $350 million pre-tax re s t ru c t u r i n g
c h a rge in the third quarter of 1999. Actions under this pro g r a m
w e re effectively completed in 2000. The Company re a l i z e d
a p p roximate savings associated with this program of $90 million
in 2000, and expects an additional $50 million of savings in 2001,
resulting in a total annual run-rate savings of $140 million. The
Company anticipates recovering the net cash cost of this pro-
gram in two years. Approximately 2,900 positions were eliminated
worldwide under this program (see Note 11, Restru c t u r i n g
P rograms and Cost Reduction).
O u t l o o k
The Company expects the overall slowdown in the U.S . economy
and the corresponding industry-wide decrease in photographic
activity to continue through the first two quarters of 2001 before
recovering in the s econd half of the year. The Company will con-
tinue to take actions to minimize the financial impact of this slow-
down. These actions include eff o rts to better manage pro d u c t i o n
and inventory levels while at the same time reducing discre t i o n a ry
spending to further hold down costs. The Company will also con-
sider additional actions, including reductions in staff in cert a i n
a reas of the Company, aimed at making its operations more cost
competitive and improving marg i n s .
During 2000, the Company completed an ongoing pro g r a m
of real estate divestitures and portfolio rationalization that con-
tributed to other income (charges) reaching an annual average of
$100 million over the past three years. Now that this program is
l a r gely c omplete, the other income (charges) category is
expected to run in the $0 to negative $50 million range annually.
The Company expects a 1% reduction in its effective tax rate
f rom 34% in 2000 to 33% in 2001. This reduction was re f l e c t e d
in the earnings guidance issued January 17th, 2001.
F rom a liquidity and capital re s o u rce perspective, the
C ompany will look to reduce its debt levels by focusing on
i n c reas ing cash flow, lowering capital spending and re d u c i n g
i n v e n t o ry and receivable levels.
The Euro
The Treaty on European Union provided that an economic and
m o n e t a ry union (EMU) be established in Europe whereby a sin-
gle European curre n c y, the Euro, replaces the currencies of par-
ticipating member states. The Euro was introduced on January 1,
1999, at which time the value of participating member state cur-
rencies was irrevocably fixed against the Euro and the Euro p e a n
C u rrency Unit (EC U) 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
c i rculate, but as sub-units of the Euro. New public debt will be
issued in Euros and existing debt may be redenominated into
E u ros. At the end of the transitional period, Euro banknotes
and coins will be issued, and the national currencies of the mem-
ber states will cease to be legal tender no later than June 30,
2002. The countries that adopted the Euro on January 1, 1999
a re Austria, Belgium, Finland, France, Germ a n y, Ireland, Italy,
L u x e m b o u rg, The Netherlands, Portugal, and Spain. Greece will
now be part of the transition. The Company has operations in
all of these countries.
As a result of the Euro conversion, it is possible that sell-
ing prices of the Company’s products and services will experi-
ence downward pre s s u re, as current price variations among
countries are reduced due to easy comparability of Euro prices
a c ross countries. Prices will tend to harmonize, although value
added taxes and transportation costs will still justify price diff e r-
entials. Adoption of the Euro will probably accelerate existing
market and pricing trends including pan-European buying and
general price ero s i o n .
On the other hand, currency exchange and hedging costs
will be reduced; lower prices and pan-European buying will ben-
efit 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
I n t e rnet marketing.