Kodak 2002 Annual Report Download - page 12

Financials
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impairments, higher losses related to minority interests and an
increase in foreign exchange losses. This activity was partially
offset by a gain recognized on the sale of assets in the current
year.
The Company’s effective tax rate from continuing operations
decreased from 30% for 2001 to 16% for 2002. The effective tax
rate from continuing operations of 16% for 2002 is less than the
U.S. statutory rate of 35% primarily due to the charges for the
focused cost reductions and asset impairments being deducted in
jurisdictions that have a higher tax rate than the U.S. federal
income tax rate, and also due to discrete period tax benefits of
approximately $99 million relating to the closure and
restructuring of certain of the Company’s business activities and
other one-time items, which were partially offset by the impact of
recording a valuation allowance to provide for certain tax benefits
that the Company would be required to forgo in order to fully
realize the benefits of its foreign tax credit carryforwards.
The effective tax rate from continuing operations of 30% for
2001 is less than the U.S. statutory rate of 35% primarily
because of a tax benefit from favorable tax settlements in the
third quarter of 2001, which was partially offset by the impact of
nondeductible goodwill amortization in 2001.
Excluding the items described above, the Company’s effective
tax rate from continuing operations decreased from 31% for 2001
to 27% for 2002. The lower effective tax from continuing
operations in the current year as compared with the prior year is
primarily attributable to the tax benefits from the elimination of
goodwill amortization in 2002 and further increases in earnings in
lower tax rate jurisdictions. The Company expects its effective tax
rate to be approximately 27% in 2003.
Net earnings from continuing operations for 2002 were $793
million, or $2.72 per basic and diluted share, as compared with
net earnings from continuing operations for 2001 of $81 million,
or $.28 per basic and diluted share, representing an increase of
$712 million, or 879%. The increase in net earnings from
continuing operations is primarily attributable to the reasons
outlined above.
Photography Net worldwide sales for the Photography segment
were $9,002 million for 2002 as compared with $9,403 million
for 2001, representing a decrease of $401 million, or 4% as
reported, with no net impact from exchange. Approximately 2.0
percentage points of the decrease were attributable to declines in
volume, driven primarily by volume decreases in consumer and
professional film and photofinishing, and approximately 2.0
percentage points of the decrease were attributable to declines in
price/mix, driven primarily by consumer film products.
Photography segment net sales in the U.S. were $4,034
million for the current year as compared with $4,482 million for
the prior year, representing a decrease of $448 million, or 10%.
Photography segment net sales outside the U.S. were $4,968
million for the current year as compared with $4,921 million for
the prior year, representing an increase of $47 million, or 1% as
reported, with no impact from exchange.
Net worldwide sales of consumer film products, including
35mm film, Advantix film and one-time-use cameras, decreased
6% in 2002 as compared with 2001, reflecting declines due to
lower volumes of 2%, negative price/mix of 3%, and 1% negative
impact of exchange. Sales of the Company’s consumer film
products within the U.S. decreased 12% in the current year as
compared with the prior year, reflecting declines due to lower
volumes of 7% and negative price/mix of 5%. The lower film
product sales are attributable to a declining industry demand
driven by a weak economy and the impact of digital substitution.
Sales of the Company’s consumer film products outside the U.S.
remained flat, with declines related to negative exchange of 1%
offsetting increases related to higher volumes of 1%.
The U.S. film industry volume decreased approximately 3%
in 2002 as compared with 2001 due to continuing economic
weakness and the impact of digital substitution. For the fifth
consecutive year, the Company has met its goal of maintaining
full year U.S. consumer film market share.
Net worldwide sales of consumer color paper decreased 3%
in 2002 as compared with 2001, reflecting declines due to
volume and exchange of 2% and 1%, respectively. Net sales of
consumer color paper in the U.S. decreased 7% in the current
year as compared with the prior year, reflecting declines from
lower volumes of 8%, partially offset by favorable price/mix of
1%. Net sales of consumer color paper outside the U.S.
decreased 1%, reflecting a 1% decline related to negative
price/mix and a 2% decline related to negative exchange, partially
offset by a 2% increase in volume.
Net worldwide photofinishing sales, including Qualex in the
U.S. and Consumer Imaging Services (CIS) outside the U.S.,
decreased 4% in 2002 as compared with 2001, 5% of which was
attributable to lower volumes, partially offset by 1% favorable
impact of exchange. In the U.S., Qualex’s processing volumes
(wholesale and on-site) decreased approximately 14% in 2002 as
compared with 2001, which is composed of decreases in
wholesale and on-site processing volumes of 13% and 16%,
respectively. These declines reflect the effects of a continued
weak film industry, the adverse impact of several hundred store
closures by a major U.S. retailer, and the impact of digital
substitution. During the current year, CIS revenues in Europe
benefited from the acquisition of (1) Spector Photo Group’s
wholesale photofinishing and distribution operations in France,
Germany, and Austria, (2) ColourCare Limited’s wholesale
processing and printing operations in the United Kingdom and (3)
Percolor photofinishing operations in Spain. These benefits were
partially offset by weak industry trends for photofinishing in the
second half of the year.
The average penetration rate for the number of rolls scanned
at Qualex’s wholesale labs averaged 7.5% for 2002, reflecting an
increase from the 5.3% rate in 2001. The growth was driven by
continued consumer acceptance of Picture CD and Retail.com, the