Kodak 2003 Annual Report Download - page 21

Financials
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an increase in price/mix of approximately 1.0 percentage point, which was
almost entirely offset by declines in volume of approximately 0.9 percent-
age points related to graphic arts and micrographic products.
Net sales in the U.S. were $818 million for 2002 as compared with
$820 million for 2001, representing a decrease of $2 million. Net sales
outside the U.S. were $638 million in the current year as compared with
$634 million in the prior year, representing an increase of $4 million, or
1%, with no impact from exchange.
Net worldwide sales of the Company’s commercial and government
products and services increased 7% in 2002 as compared with 2001. The
increase in sales was principally due to an increase in revenues from gov-
ernment products and services under its government contracts.
Net worldwide sales for inkjet products were a contributor to the net
increase in Commercial Imaging sales as these revenues increased 175%
in 2002 as compared with 2001. The increase in sales was attributable to
the 2002 acquisition of ENCAD, Inc., which represented approximately 5%
of total net worldwide Commercial Imaging segment sales for 2002 and
virtually all of the 175% increase in sales of inkjet products. The acquisi-
tion of ENCAD has improved the Company’s channel to the inkjet printer
market.
Net worldwide sales of graphic arts products to KPG decreased 10%
in 2002 as compared with 2001, primarily reflecting volume declines in
graphic arts film. This reduction resulted largely from digital technology
substitution and the effect of continuing economic weakness in the com-
mercial printing market. The Company’s equity in the earnings of KPG con-
tributed positive results to other charges, net during 2002, but was not
material to the Company’s results from operations.
Gross profit for the Commercial Imaging segment for 2002
decreased slightly from $451 million for 2001 to $449 million for 2002.
The gross profit margin was 30.8% for 2002 as compared with 31.0% for
2001. The gross profit margin remained relatively flat due to declines
related to price/mix, which reduced margins by approximately 1.9 per-
centage points. These declines were offset by productivity/cost improve-
ments, which increased margins by approximately 1.9 percentage points.
ENCAD comprised approximately 3% of the gross profit dollars for 2002
and contributed to the year-over-year decrease in the gross profit margin
percentage.
SG&A expenses for the Commercial Imaging segment decreased $14
million, or 7%, from $208 million for 2001 to $194 million for 2002. As a
percentage of sales, SG&A expenses decreased from 14.3% for 2001 to
13.3% for 2002. The primary contributors to the decrease in SG&A
expenses were cost reductions from the prior year restructuring actions,
which had a larger impact on the results of 2002 as compared with 2001,
partially offset by the acquisition of ENCAD, Inc. in 2002, which increased
SG&A by $23 million.
R&D costs for the Commercial Imaging segment increased $5 mil-
lion, or 9%, from $58 million for 2001 to $63 million for 2002. The
increase was due to the acquisition of ENCAD, Inc. in 2002, which
increased R&D costs by $8 million. As a percentage of sales, R&D costs
increased from 4.0% in 2001 to 4.3% in 2002.
Earnings from continuing operations before interest, other charges,
net, and income taxes for the Commercial Imaging segment increased $20
million, or 12%, from $172 million in 2001 to $192 million in 2002. The
increase in earnings from operations is primarily attributable to overall
expense management and the elimination of goodwill amortization in
2002, which was $15 million in 2001, partially offset by a lower gross
profit margin.
All Other Net worldwide sales for All Other were $103 million for 2002 as
compared with $110 million for 2001, representing a decrease of $7 mil-
lion, or 6%. Net sales in the U.S. were $53 million in 2002 as compared
with $68 million for 2001, representing a decrease of $15 million, or 22%.
Net sales outside the U.S. were $50 million in the current year as com-
pared with $42 million in the prior year, representing an increase of $8
million, or 19%.
Loss from continuing operations before interest, other charges, net,
and income taxes for All Other decreased $32 million from a loss of $60
million in 2001 to a loss of $28 million in 2002. The reduction in the loss
from operations was primarily attributable to cost reductions in certain
miscellaneous businesses and the benefit of current year manufacturing
cost.
Results of Operations— Discontinued Operations
In March 2001, the Company acquired Citipix from Groupe Hauts Monts
along with two related subsidiaries involved in mapping services. Citipix
was involved in the aerial photography of large cities in the United States,
scanning of this imagery and hosting the imagery on the Internet for gov-
ernment, commercial and private sectors. The acquired companies were
formed into Kodak Global Imaging, Inc. (KGII), a wholly owned subsidiary,
which was reported in the commercial and government products and
services business in the Commercial Imaging segment. Due to a combina-
tion of factors, including the collapse of the telecommunications market,
limitations on flying imposed by the events of September 11th, delays and
losses of key contracts and the global economic downturn, KGII did not
achieve the financial results expected by management during both 2001
and 2002. In November 2002, the Company approved a plan to dispose of
the operations of KGII.
Net sales from KGII for the years ended December 31, 2002 and
2001 were $6 million and $5 million, respectively. The Company incurred
operational losses before income taxes from KGII for the years ended
December 31, 2002 and 2001 of $13 million and $7 million, respectively.
The Company recognized losses before income taxes in the fourth quarter
of 2002 of approximately $44 million for costs associated with the dispos-
al of KGII. The disposal costs were comprised of impairment losses related
to the write-down of the carrying value of goodwill, intangibles and fixed
assets to fair value, losses recognized from the sale of certain assets and
the accrual of various costs related to the shutdown of KGII, including sev-
erance relating to approximately 150 positions.
Also during the fourth quarter of 2002, the Company recognized
earnings before income taxes of $19 million as a result of the favorable
outcome of litigation associated with the 1994 sale of Sterling Winthrop
Inc.
The loss from discontinued operations before income taxes for the
years ended December 31, 2002 and 2001 was at an effective tax rate of
38% and 31%, respectively, resulting in the loss from discontinued opera-
tions, net of incomes taxes in the Consolidated Statement of Earnings of
$23 million and $5 million, respectively.