Kodak 2003 Annual Report Download - page 2

MANAGEMENT’S LETTER
2
MANAGEMENT’S LETTER
To Our Shareholders
Kodak took aggressive steps in 2003 to remake itself into a leaner,
stronger, more diversified company as fundamental structural change con-
tinued to reshape the global imaging industry. As we sharpened our focus
on the commercial, consumer and health imaging markets, we imple-
mented a digitally oriented strategy to support revenue and sustainable
earnings growth. To deliver on our strategy, we exercised prudent cost
management and put in place an experienced leadership team.
Our strategy is firmly rooted in Kodak’s core businesses: digital and
traditional imaging. Continued success in both components of the busi-
ness is vital to the Company’s future as the merger of information and
imaging technologies (infoimaging) accelerates the demand for digital
imaging solutions. The Company is expanding the horizon for imaging
services while implementing an improved business model for its tradition-
al and digital businesses.
This environment required an aggressive leveraging of our strength
in digital imaging while at the same time maintaining our historic leader-
ship in maturing traditional businesses. In 2003, our digital businesses
accelerated smartly in key world markets. Several of our traditional silver
halide markets showed volume declines in developed countries, although
the growth opportunity for traditional products in emerging market coun-
tries improved during the year.
Because of Kodak’s proven success in digital imaging—already a $4
billion business for Kodak—our customers look to us for leadership as
market dynamics evolve. In fact, a Forrester Technology Brand Scorecard
placed Kodak number two in trust among 58 major technology brands. We
have the market knowledge, the technical assets and the global brand
strength to succeed.
FINANCIAL PERFORMANCE
As the world economy slowly gained momentum during the year, our
financial strategy was characterized by strict cost control, an improving
cash position and a selective acquisition strategy for key businesses. We
ended the year on a positive note financially, the result of solid progress
on our overall business strategy.
Increased sales volumes were driven primarily by consumer digital
cameras, printer dock products, inkjet media and motion picture print
films in the Photography segment, digital products in Health Imaging and
imaging services and document scanners in the Commercial Imaging seg-
ment. Earnings from continuing operations were impacted by declines in
price/mix for traditional businesses, and costs related to restructuring.
Investable cash flow throughout the year was on target. Inventory turns
improved, reflecting revenue growth in our digital businesses. We contin-
ued strict control of capital spending, which was on plan.
Our action on the dividend was not an easy decision. But given the
choices, including higher debt levels, we believe it was a prudent way to
help fund growth and generate shareholder value over time.
Internal and external investments will fuel our growth. Internal invest-
ments focused on technical core competencies that play well in the future
digital systems world. R&D investments leveraged Kodak’s deep knowl-
edge in materials science, imaging science and coating technologies. This
expertise supports the rapid growth of Kodak digital systems and enables
cash generation through reduced cost of traditional products.
In 2003, Kodak delivered breakthrough technology in silver halide
film systems for entertainment and consumer imaging, while accomplish-
ing significant cost reductions for all of our traditional products. Kodak
innovators contributed to leadership imaging systems for markets such as
wide-format inkjet, digital cinema and document scanning. New products
in computed radiography, computer-aided diagnostics and picture archiv-
ing and communications (PACS) are based on Kodak innovations. Our
technical core competencies are the foundation for successful products,
such as the EasyShare printer dock, inkjet photo paper with ColorLast
technology, picture maker imaging kiosks and the new mobile imaging
service—not to mention exciting future imaging systems now in our
research laboratories.
Kodak inventors around the world filed more than 900 patent appli-
cations in 2003, and received 748 U.S. patents—an increase of 11% over
2002. The Company’s overall strength in intellectual property includes new
areas such as inkjet, where the Company has more than 700 patents, and
new display technology such as our world-leading organic light emitting
diodes (OLED).
The second investment component involves acquisition of external
capabilities that complement our existing businesses. An example is the
acquisition of PracticeWorks, the world leader in digital dental imaging,
and a leading provider of management software for dental offices. This
acquisition intelligently expands our Health Imaging digital portfolio for
dental markets. In 2003, we made six such targeted acquisitions in
Health, Entertainment Imaging and Commercial Printing. Our Digital and
Film Imaging Systems business acquired a 20% share of China Lucky Film
Corp., the largest photo film manufacturer headquartered in China. This
investment will help Kodak and Lucky Film expand the traditional film
market in China.
“In 2003, our digital businesses accelerated smartly in key world markets.”
“Because of Kodak’s proven success in digital imaging — already a $4 billion business for Kodak—
our customers look to us for leadership as market dynamics evolve.”
“Our technical core competencies are the foundation for successful
products, such as the EasyShare printer dock, inkjet photo paper with ColorLast
technology, picture maker imaging kiosks and the new mobile imaging service …”