Kodak 2004 Annual Report Download - page 24

Financials
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
impacted฀gross฀margins฀by฀approximately฀0.5฀and฀1.1฀percentage฀points,฀
respectively.฀The฀decrease฀in฀price/mix฀was฀primarily฀due฀to฀the฀impact฀of฀
digital฀substitution,฀resulting฀in฀a฀decrease฀in฀sales฀of฀higher฀margin฀tradi-
tional฀products,฀the฀impact฀of฀which฀was฀only฀partially฀offset฀by฀increased฀
sales฀of฀lower฀margin฀digital฀products.฀฀
Selling,฀General฀and฀Administrative฀Expenses฀฀SG&A฀expenses฀
for฀the฀D&FIS฀segment฀were฀$1,967฀million฀for฀2003฀as฀compared฀with฀
$1,935฀million฀for฀2002,฀representing฀an฀increase฀of฀$32฀million฀or฀2%.฀฀
The฀net฀increase฀in฀SG&A฀spending฀is฀primarily฀attributable฀to฀unfavorable฀
exchange฀of฀$96฀million฀and฀an฀increase฀in฀the฀benefit฀rate,฀partially฀offset฀
by฀cost฀savings฀realized฀from฀position฀eliminations฀associated฀with฀ongoing฀
focused฀cost฀reduction฀programs.฀As฀a฀percentage฀of฀sales,฀SG&A฀expense฀
remained฀constant฀at฀21%฀for฀both฀years.
Research฀and฀Development฀Costs฀฀R&D฀costs฀for฀the฀D&FIS฀segment฀
decreased฀$32฀million฀or฀6%฀from฀$513฀million฀in฀2002฀to฀$481฀million฀
in฀2003.฀As฀a฀percentage฀of฀sales,฀R&D฀costs฀decreased฀slightly฀from฀6%฀
in฀2002฀to฀5%฀in฀2003.฀The฀decrease฀in฀R&D฀was฀primarily฀due฀to฀cost฀
savings฀realized฀from฀position฀eliminations฀associated฀with฀ongoing฀focused฀
cost฀reduction฀programs.฀These฀cost฀savings฀were฀partially฀offset฀by฀$21฀
million฀of฀write-offs฀for฀purchased฀in-process฀R&D฀associated฀with฀an฀
acquisition฀made฀in฀2003.฀฀
Earnings฀(Losses)฀From฀Continuing฀Operations฀Before฀Interest,฀
Other฀Income฀(Charges),฀Net฀and฀Income฀Taxes฀฀Earnings฀from฀con-
tinuing฀operations฀before฀interest,฀other฀income฀(charges),฀net,฀and฀income฀
taxes฀for฀the฀D&FIS฀segment฀decreased฀$355฀million,฀or฀46%,฀from฀$771฀
million฀in฀2002฀to฀$416฀million฀in฀2003,฀primarily฀as฀a฀result฀of฀the฀factors฀
described฀above.
Health
On฀October฀7,฀2003,฀the฀Company฀completed฀the฀acquisition฀of฀all฀of฀the฀
outstanding฀shares฀of฀PracticeWorks,฀Inc.,฀a฀leading฀provider฀of฀dental฀
practice฀management฀software฀and฀digital฀radiographic฀imaging฀systems฀
for฀approximately฀$475฀million฀in฀cash,฀inclusive฀of฀transaction฀costs,฀and฀
assumed฀net฀debt฀of฀approximately฀$20฀million.฀This฀acquisition฀enables฀
Kodak฀to฀offer฀its฀customers฀a฀full฀spectrum฀of฀dental฀imaging฀products฀and฀
services฀from฀traditional฀film฀to฀digital฀radiography฀and฀photography.฀฀
฀
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀the฀Health฀segment฀were฀
$2,431฀million฀for฀2003฀as฀compared฀with฀$2,274฀million฀for฀2002,฀repre-
senting฀an฀increase฀of฀$157฀million,฀or฀7%฀as฀reported,฀or฀an฀increase฀of฀
2%฀excluding฀the฀favorable฀impact฀of฀exchange.฀The฀increase฀in฀sales฀was฀
comprised฀of:฀(1)฀an฀increase฀from฀favorable฀exchange฀of฀approximately฀
5.4฀percentage฀points,฀(2)฀the฀acquisition฀of฀PracticeWorks฀Inc.฀in฀October฀
2003,฀which฀accounted฀for฀approximately฀2.1฀percentage฀points฀of฀the฀
sales฀increase฀as฀it฀contributed฀$48฀million฀to฀2003฀sales฀of฀dental฀systems฀
and฀(3)฀an฀increase฀in฀volume฀of฀approximately฀2.9฀percentage฀points,฀
driven฀primarily฀by฀volume฀increases฀in฀digital฀products.฀These฀increases฀
were฀partially฀offset฀by฀declines฀in฀price/mix฀of฀approximately฀3.3฀percent-
age฀points,฀which฀were฀related฀to฀both฀digital฀and฀traditional฀products.฀
Net฀sales฀in฀the฀U.S.฀were฀$1,061฀million฀for฀2003฀as฀compared฀with฀
$1,088฀for฀2002,฀representing฀a฀decrease฀of฀$27฀million,฀or฀2%.฀Net฀sales฀
outside฀the฀U.S.฀were฀$1,370฀million฀for฀2003฀as฀compared฀with฀$1,186฀
million฀for฀2002,฀representing฀an฀increase฀of฀$184฀million,฀or฀16%฀as฀
reported,฀or฀an฀increase฀of฀5%฀excluding฀the฀favorable฀impact฀of฀exchange.฀฀
Digital฀Strategic฀Product฀Groups’฀Revenues฀฀Health฀segment฀digital฀
sales,฀which฀include฀laser฀printers฀(DryView฀imagers฀and฀wet฀laser฀print-
ers),฀digital฀media฀(DryView฀and฀wet฀laser฀media),฀digital฀capture฀equip-
ment฀(computed฀radiography฀capture฀equipment฀and฀digital฀radiography฀
equipment),฀services,฀dental฀practice฀management฀software,฀and฀Health-
care฀Information฀Systems฀(HCIS)฀including฀Picture฀Archiving฀and฀Com-
munications฀Systems฀(PACS),฀were฀$1,438฀million฀for฀2003฀compared฀with฀
$1,269฀million฀for฀2002,฀representing฀an฀increase฀of฀$169฀million฀or฀13%.฀฀
The฀increase฀in฀digital฀product฀sales฀was฀primarily฀attributable฀to฀favorable฀
exchange,฀higher฀volumes฀of฀digital฀media,฀digital฀capture฀equipment฀and฀
services,฀and฀the฀PracticeWorks฀acquisition.฀Service฀revenues฀increased฀
due฀to฀an฀increase฀in฀digital฀equipment฀service฀contracts฀during฀2003฀as฀
compared฀with฀2002.฀These฀increases฀were฀partially฀offset฀by฀declines฀in฀
price/mix฀for฀digital฀media฀and฀digital฀capture฀equipment.฀
Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Health฀segment฀
traditional฀products,฀including฀analog฀film,฀equipment,฀chemistry฀and฀ser-
vices,฀were฀$993฀million฀for฀2003฀compared฀with฀$1,005฀million฀for฀2002,฀
representing฀a฀decrease฀of฀$12฀million฀or฀1%,฀reflecting฀declines฀in฀volume฀
and฀negative฀price/mix฀almost฀entirely฀offset฀by฀favorable฀exchange.฀฀฀
Gross฀Profit฀฀Gross฀profit฀for฀the฀Health฀segment฀was฀$1,045฀million฀for฀
2003฀as฀compared฀with฀$930฀million฀for฀2002,฀representing฀an฀increase฀
of฀$115฀million,฀or฀12%.฀The฀gross฀profit฀margin฀was฀43.0%฀in฀2003฀as฀
compared฀with฀40.9%฀in฀2002.฀The฀increase฀in฀the฀gross฀profit฀margin฀
of฀2.1฀percentage฀points฀was฀primarily฀attributable฀to:฀(1)฀a฀decrease฀in฀
manufacturing฀cost,฀which฀increased฀gross฀profit฀margins฀by฀approximately฀
3.1฀percentage฀points,฀primarily฀due฀to฀favorable฀media฀and฀equipment฀
manufacturing฀cost฀led฀by฀DryView฀digital฀media฀and฀digital฀capture฀
equipment,฀complemented฀by฀lower฀service฀costs,฀(2)฀favorable฀exchange,฀
which฀contributed฀approximately฀1.1฀percentage฀points฀to฀the฀gross฀profit฀
margin฀and฀(3)฀the฀acquisition฀of฀PracticeWorks฀in฀the฀fourth฀quarter฀of฀
2003,฀which฀increased฀gross฀profit฀margins฀by฀approximately฀0.4฀percent-
age฀points฀for฀the฀current฀year.฀These฀increases฀were฀partially฀offset฀by฀
decreases฀attributable฀to฀price/mix,฀which฀negatively฀impacted฀gross฀profit฀
margins฀by฀2.5฀percentage฀points฀due฀to฀lower฀prices฀for฀digital฀media,฀
digital฀capture฀equipment฀and฀analog฀medical฀film.฀฀
Selling,฀General฀and฀Administrative฀Expenses฀฀SG&A฀expenses฀for฀
the฀Health฀segment฀increased฀$44฀million,฀or฀13%,฀from฀$347฀million฀for฀
2002฀to฀$391฀million฀for฀2003.฀As฀a฀percentage฀of฀sales,฀SG&A฀expenses฀
increased฀from฀15%฀for฀2002฀to฀16%฀for฀2003.฀The฀increase฀in฀SG&A฀
expenses฀is฀primarily฀due฀to฀the฀acquisition฀of฀PracticeWorks,฀which฀had฀
$21฀million฀of฀SG&A฀expenses฀in฀2003,฀an฀increase฀in฀the฀benefit฀rate,฀and฀
the฀unfavorable฀impact฀of฀exchange,฀which฀accounted฀for฀$16฀million฀of฀the฀
increase.฀฀฀
฀
Research฀and฀Development฀Costs฀฀R&D฀costs฀for฀the฀Health฀segment฀
increased฀$26฀million,฀or฀17%,฀from฀$152฀million฀in฀2002฀to฀$178฀million฀
in฀2003.฀As฀a฀percentage฀of฀sales,฀R&D฀costs฀remained฀unchanged฀at฀7%฀