Kodak 2002 Annual Report Download - page 17

Financials
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2% decline in price/mix and 5% decline due to negative
exchange.
During 2001, the Company continued the efforts to shift
consumers to the differentiated, higher value MAX and Advantix
film product lines. For 2001, sales of the MAX and Advantix
product lines as a percentage of total consumer roll film revenue
increased from a level of 62% in the fourth quarter of 2000 to
68% by the fourth quarter of 2001.
The U.S. film industry volume was down slightly in 2001
relative to 2000; however, the Company maintained full-year U.S.
consumer film market share for the fourth consecutive year.
During 2001, the Company reached its highest worldwide
consumer film market share position in the past nine years. The
Company’s traditional film business is developing in new markets,
and management believes the business is strong. However, digital
substitution is occurring and the Company continues its
development and application of digital technology in such areas as
wholesale and retail photofinishing. Digital substitution is
occurring more quickly in Japan and more slowly in the U.S.,
Europe and China.
Net worldwide sales of consumer color paper decreased 11%
in 2001 as compared with 2000, reflecting a 4% decline in both
volume and price/mix and a 3% decline due to exchange. The
downward trend in color paper sales existed throughout 2001 and
is due to industry declines resulting from digital substitution,
market trends toward on-site processing where there is a
decreasing trend in double prints, and a reduction in mail-order
processing where Kodak has a strong share position. Effective
January 1, 2001, the Company and Mitsubishi Paper Mills Ltd.
formed the business venture, Diamic Ltd., a consolidated sales
subsidiary, which is expected to improve the Company’s color
paper market share in Japan.
Net worldwide photofinishing sales, including Qualex in the
U.S. and CIS outside the U.S., decreased 16% in 2001 as
compared with 2000. This downward trend, which existed
throughout 2001, is the result of a significant reduction in the
placement of on-site photofinishing equipment due to the
saturation of the U.S. market and the market’s anticipation of the
availability of new digital minilabs. During the fourth quarter of
2001, the Company purchased two wholesale, overnight
photofinishing businesses in Europe. The Company acquired
Spector Photo Group’s wholesale photofinishing and distribution
activities in France, Germany and Austria, and ColourCare
Limited’s wholesale processing and printing operations in the U.K.
The Company believes that these acquisitions will facilitate its
strategy to enhance retail photofinishing activities, provide access
to a broader base of customers, create new service efficiencies
and provide consumers with technologically advanced digital
imaging services.
The Company continued its strong focus on the consumer
imaging digital products and services, which include the picture
maker kiosks and related media and consumer digital services
revenue from picture CD, “You’ve Got Pictures” and Retail.com.
Combined revenues from the placement of picture maker kiosks
and the related media decreased 2% in 2001 as compared with
2000, reflecting a decline in the volume of new kiosk placements
partially offset by a 15% increase in kiosk media volume. This
trend in increased media usage reflects the Company’s focus on
creating new sales channels and increasing the media burn per
kiosk. Revenue from consumer digital services increased 15% in
2001 as compared with 2000.
The Company experienced an increase in digital penetration
in its Qualex wholesale labs. The principal products that
contributed to this increase were Picture CD and Retail.com. The
average digital penetration rate for the number of rolls processed
increased each quarter during 2001 up to a rate of 6.7% in the
fourth quarter, reflecting a 49% increase over the fourth quarter
of 2000. In certain major retail accounts, the digital penetration
reached levels of up to 15%.
During the second quarter of 2001, the Company purchased
Ofoto, Inc. The Company believes that Ofoto will solidify the
Company’s leading position in online imaging products and
services. Since the acquisition, Ofoto has demonstrated strong
order growth, with the average order size increasing by 31% in
2001 as compared with the 2000 level. In addition, the Ofoto
customer base reflected growth of approximately 12% per month
throughout 2001.
Net worldwide sales of the Company’s consumer digital
cameras decreased 3% in 2001 as compared with 2000,
reflecting volume growth of 35% offset by declining prices and a
2% decrease due to negative exchange. The significant volume
growth over the 2000 levels was driven by strong market
acceptance of the new EasyShare consumer digital camera
system, competitive pricing initiatives, and a shift in the go-to-
market strategy to mass-market distribution channels. These
factors have moved the Company into the number two consumer
market share position in the U.S., up from the number three
position as of the end of 2000. Net worldwide sales of
professional digital cameras decreased 12% in 2001 as compared
with 2000, primarily attributable to a 20% decline in volume.
Net worldwide sales of inkjet photo paper increased 55% in
2001 as compared with 2000, reflecting volume growth of 42%
and increased prices. The inkjet photo paper demonstrated
double-digit growth year-over-year throughout 2001, reflecting the
Company’s increased promotional activity at key retail accounts,
improved merchandising and broader channel distribution of the
entire line of inkjet paper within the product group. Net
worldwide sales of professional thermal paper remained flat,
reflecting an 8% increase in volume offset by declines
attributable to price and negative exchange impact of 7% and
1%, respectively.
Net worldwide sales of professional film products, which
include color negative, color reversal and commercial black-and-
white film, decreased 13% in 2001 as compared with 2000. The
downward trend in the sale of professional film products existed
throughout 2001 and is the result of ongoing digital capture
substitution and continued economic weakness in a number of
markets worldwide. Net worldwide sales of sensitized professional