Kodak 2004 Annual Report Download - page 21

Financials
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2 0 0 4 ฀ S U M M A R Y ฀ A N N U A L ฀ R E P O R T
business฀and฀consumer฀inkjet฀development฀activities฀primarily฀drove฀the฀
increase฀in฀the฀loss฀from฀operations.
Results฀of฀Operations—Discontinued฀Operations
Earnings฀from฀discontinued฀operations,฀net฀of฀income฀taxes,฀for฀2004฀were฀
$475฀million,฀or฀$1.66฀per฀basic฀and฀diluted฀share฀primarily฀relating฀to฀the฀
sale฀of฀Kodak’s฀Remote฀Sensing฀Systems฀business,฀which฀contributed฀
$466฀million฀to฀earnings฀from฀discontinued฀operations,฀including฀the฀after-
tax฀gain฀on฀the฀sale฀of฀$439฀million.฀The฀2003฀earnings฀from฀discontinued฀
operations,฀net฀of฀income฀taxes,฀were฀$64฀million,฀or฀$.22฀per฀basic฀and฀di-
luted฀share฀and฀reflects฀net฀of฀tax฀earnings฀of฀$27฀million฀primarily฀related฀
to฀reversals฀of฀tax฀and฀environmental฀reserves฀as฀well฀as฀$40฀million฀of฀
after-tax฀earnings฀from฀Kodak’s฀Remote฀Sensing฀Systems฀business.
Net฀Earnings
Net฀earnings฀for฀2004฀were฀$556฀million,฀or฀$1.94฀per฀basic฀and฀diluted฀
share,฀as฀compared฀with฀net฀earnings฀for฀2003฀of฀$253฀million,฀or฀$.88฀per฀
basic฀and฀diluted฀share,฀representing฀an฀increase฀of฀$303฀million,฀or฀120%.฀
This฀increase฀is฀primarily฀attributable฀to฀the฀reasons฀outlined฀above.
2003฀COMPARED฀WITH฀2002฀฀฀
(2003฀RESTATED)
Results฀of฀Operations—Continuing฀Operations
Consolidated
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀were฀$12,909฀million฀for฀
2003฀as฀compared฀with฀$12,549฀million฀for฀2002,฀representing฀an฀increase฀
of฀$360฀million,฀or฀3%฀as฀reported,฀or฀a฀decrease฀of฀2%฀excluding฀the฀
favorable฀impact฀from฀exchange.฀The฀increase฀in฀net฀sales฀was฀primarily฀
due฀to฀increased฀volumes฀and฀favorable฀exchange,฀which฀increased฀sales฀
for฀2003฀by฀1.4฀and฀5.5฀percentage฀points,฀respectively.฀The฀increase฀in฀
volumes฀was฀primarily฀driven฀by฀consumer฀digital฀cameras,฀printer฀dock฀
products,฀inkjet฀media฀and฀entertainment฀print฀films฀in฀the฀D&FIS฀seg-
ment,฀digital฀products฀in฀the฀Health฀segment,฀partially฀offset฀by฀decreased฀
volumes฀for฀traditional฀consumer฀film฀products.฀Favorable฀exchange฀
resulted฀from฀an฀increased฀level฀of฀sales฀in฀non-U.S.฀countries฀as฀the฀U.S.฀
dollar฀weakened฀throughout฀2003฀in฀relation฀to฀most฀foreign฀currencies,฀
particularly฀the฀Euro.฀In฀addition,฀the฀acquisition฀of฀PracticeWorks,฀Inc.฀
(PracticeWorks)฀in฀the฀fourth฀quarter฀of฀2003฀accounted฀for฀an฀additional฀
0.4฀percentage฀points฀of฀the฀increase฀in฀net฀sales.฀These฀increases฀were฀
partially฀offset฀by฀decreases฀attributable฀to฀price/mix,฀which฀reduced฀sales฀
for฀2003฀by฀approximately฀4.2฀percentage฀points.฀These฀decreases฀were฀
driven฀primarily฀by฀price/mix฀declines฀in฀traditional฀products฀and฀services,฀
and฀consumer฀digital฀cameras฀in฀the฀D&FIS฀segment,฀film฀and฀laser฀
imaging฀systems฀in฀the฀Health฀segment,฀and฀graphic฀arts฀products฀in฀the฀
Graphic฀Communications฀segment.฀฀฀฀
Net฀sales฀in฀the฀U.S.฀were฀$5,421฀million฀for฀2003฀as฀compared฀with฀
$5,707฀million฀for฀2002,฀representing฀a฀decrease฀of฀$286฀million,฀or฀5%.฀฀
Net฀sales฀outside฀the฀U.S.฀were฀$7,488฀million฀for฀2003฀as฀compared฀with฀
$6,842฀million฀for฀2002,฀representing฀an฀increase฀of฀$646฀million,฀or฀9%฀
as฀reported,฀or฀no฀change฀excluding฀the฀favorable฀impact฀of฀exchange.
Digital฀Strategic฀Product฀Groups’฀Revenues฀฀The฀Company’s฀digital฀
product฀sales,฀excluding฀New฀Technologies฀product฀sales,฀were฀$3,736฀
million฀for฀2003฀as฀compared฀with฀$2,963฀million฀for฀2002,฀representing฀an฀
increase฀of฀$773฀million,฀or฀26%,฀primarily฀driven฀by฀the฀consumer฀digital฀
capture฀SPG,฀the฀home฀printing฀SPG,฀and฀the฀digital฀capture฀and฀applica-
tions฀SPG฀of฀the฀Health฀segment.฀฀
฀
Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Net฀sales฀of฀the฀
Company’s฀traditional฀products฀were฀$9,156฀million฀for฀2003฀as฀compared฀
with฀$9,564฀million฀for฀2002,฀representing฀a฀decrease฀of฀$408฀million,฀or฀
4%,฀primarily฀driven฀by฀declines฀in฀the฀film฀capture฀SPG฀and฀the฀consumer฀
output฀SPG.
Foreign฀Revenues฀฀The฀Company’s฀operations฀outside฀the฀U.S.฀are฀
reported฀in฀three฀regions:฀(1)฀the฀Europe,฀Africa฀and฀Middle฀East฀region฀
(EAMER),฀(2)฀the฀Asia฀Pacific฀region฀and฀(3)฀the฀Canada฀and฀Latin฀America฀
region.฀Net฀sales฀in฀EAMER฀for฀2003฀were฀$3,880฀million฀as฀compared฀with฀
$3,484฀million฀for฀2002,฀representing฀an฀increase฀of฀11%฀as฀reported,฀or฀
a฀decrease฀of฀2%฀excluding฀the฀favorable฀impact฀of฀exchange.฀Net฀sales฀in฀
the฀Asia฀Pacific฀region฀for฀2003฀were฀$2,368฀million฀compared฀with฀$2,240฀
million฀for฀2002,฀representing฀an฀increase฀of฀6%฀as฀reported,฀or฀a฀decrease฀
of฀1%฀excluding฀the฀favorable฀impact฀of฀exchange.฀Net฀sales฀in฀the฀Canada฀
and฀Latin฀America฀region฀for฀2003฀were฀$1,240฀million฀as฀compared฀with฀
$1,118฀million฀for฀2002,฀representing฀an฀increase฀of฀11%฀as฀reported,฀or฀an฀
increase฀of฀5%฀excluding฀the฀favorable฀impact฀of฀exchange.
The฀Company’s฀major฀emerging฀markets฀include฀China,฀Brazil,฀
Mexico,฀India,฀Russia,฀Korea,฀Hong฀Kong฀and฀Taiwan.฀Net฀sales฀in฀emerging฀
markets฀were฀$2,591฀million฀for฀2003฀as฀compared฀with฀$2,425฀million฀for฀
2002,฀representing฀an฀increase฀of฀$166฀million,฀or฀7%฀as฀reported,฀or฀an฀
increase฀of฀4%฀excluding฀the฀favorable฀impact฀of฀exchange.฀The฀emerging฀
market฀portfolio฀accounted฀for฀approximately฀20%฀and฀35%฀of฀the฀Company’s฀
worldwide฀and฀non-U.S.฀sales,฀respectively,฀in฀2003.฀฀฀฀
Sales฀growth฀in฀Russia,฀India฀and฀China฀of฀26%,฀17%฀and฀12%,฀
respectively,฀were฀the฀primary฀drivers฀of฀the฀increase฀in฀emerging฀market฀
sales,฀partially฀offset฀by฀decreased฀sales฀in฀Taiwan,฀Hong฀Kong฀and฀Brazil฀
of฀19%,฀10%฀and฀7%,฀respectively.฀The฀increase฀in฀sales฀in฀Russia฀was฀a฀
result฀of฀continued฀growth฀in฀the฀number฀of฀Kodak฀Express฀stores,฀which฀
represent฀independently฀owned฀photo฀specialty฀retail฀outlets,฀and฀the฀
Company’s฀efforts฀to฀expand฀the฀distribution฀channels฀for฀Kodak฀products฀
and฀services.฀Sales฀increases฀in฀India฀were฀driven฀by฀the฀continued฀success฀
from฀the฀Company’s฀efforts฀to฀increase฀the฀level฀of฀camera฀ownership฀
and฀from฀the฀continued฀success฀of฀independently฀owned฀Photoshop฀retail฀
stores.฀Sales฀growth฀in฀China฀resulted฀from฀strong฀business฀performance฀
for฀all฀Kodak’s฀operations฀in฀that฀region฀in฀the฀first,฀third฀and฀fourth฀quar-
ters฀of฀2003;฀however,฀this฀growth฀was฀partially฀offset฀by฀the฀impact฀of฀the฀
Severe฀Acute฀Respiratory฀Syndrome฀(SARS)฀situation,฀particularly฀for฀con-
sumer฀and฀professional฀products฀and฀services,฀which฀negatively฀impacted฀
sales฀in฀China฀during฀the฀second฀quarter.฀The฀sales฀declines฀experienced฀
in฀Hong฀Kong฀and฀Taiwan฀during฀2003฀are฀also฀a฀result฀of฀the฀impact฀of฀
SARS.฀The฀sales฀decline฀in฀Brazil฀is฀reflective฀of฀the฀continued฀economic฀
weakness฀experienced฀there.฀฀