Kodak 2004 Annual Report Download - page 26

Financials
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
Earnings฀(Losses)฀From฀Continuing฀Operations฀Before฀Interest,฀
Other฀Income฀(Charges),฀Net฀and฀Income฀Taxes฀฀Earnings฀or฀losses฀
from฀continuing฀operations฀before฀interest,฀other฀income฀(charges),฀net฀฀
and฀income฀taxes฀for฀the฀Graphic฀Communications฀segment฀decreased฀
$32฀million,฀or฀152%,฀from฀earnings฀of฀$21฀million฀in฀2002฀to฀losses฀of฀
$11฀million฀in฀2003.฀The฀decrease฀in฀earnings฀from฀operations฀is฀primarily฀
attributable฀to฀the฀reasons฀outlined฀above.฀
KPG’s฀earnings฀performance฀continued฀to฀improve฀driven฀primarily฀
by฀its฀world-leading฀position฀in฀the฀growth฀segments฀of฀digital฀proofing฀
and฀digital฀printing฀plates,฀coupled฀with฀favorable฀foreign฀exchange.฀The฀
Company’s฀equity฀in฀the฀earnings฀of฀KPG฀contributed฀positive฀results฀to฀
other฀income฀(charges),฀net฀during฀2003.
NexPress,฀the฀unconsolidated฀joint฀venture฀between฀Kodak฀and฀
Heidelberg฀in฀which฀the฀Company฀had฀a฀50%฀ownership฀interest,฀continued฀
to฀increase฀unit฀placements฀of฀the฀NexPress฀2100฀Digital฀Production฀Color฀
Press฀despite฀a฀weak฀printing฀market,฀with฀good฀customer฀acceptance.฀
All฀Other
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀All฀Other฀were฀$93฀million฀
for฀2003฀as฀compared฀with฀$80฀million฀for฀2002,฀representing฀an฀increase฀
of฀$13฀million,฀or฀16%.฀Net฀sales฀in฀the฀U.S.฀were฀$42฀million฀in฀2003฀as฀
compared฀with฀$45฀million฀for฀2002,฀representing฀a฀decrease฀of฀$3฀million,฀
or฀7%.฀Net฀sales฀outside฀the฀U.S.฀were฀$51฀million฀in฀2003฀as฀compared฀
with฀$35฀million฀in฀2002,฀representing฀an฀increase฀of฀$16฀million,฀or฀46%.
Losses฀From฀Continuing฀Operations฀Before฀Interest,฀Other฀Income฀
(Charges),฀Net฀and฀Income฀Taxes฀฀Losses฀from฀continuing฀operations฀
before฀interest,฀other฀income฀(charges),฀net฀and฀income฀taxes฀for฀All฀Other฀
increased฀$50฀million฀from฀a฀loss฀of฀$27฀million฀in฀2002฀to฀a฀loss฀of฀$77฀
million฀in฀2003.฀Increased฀levels฀of฀investment฀for฀the฀Company’s฀display฀
business฀primarily฀drove฀the฀increase฀in฀the฀loss฀from฀operations.
Results฀of฀Operations—Discontinued฀Operations
On฀February฀9,฀2004,฀the฀Company฀announced฀its฀intent฀to฀sell฀the฀assets฀
and฀business฀of฀the฀Remote฀Sensing฀Systems฀operation,฀including฀the฀stock฀
of฀Kodak’s฀wholly฀owned฀subsidiary,฀Research฀Systems,฀Inc.,฀collectively฀
known฀as฀RSS,฀to฀ITT฀Industries฀for฀$725฀million฀in฀cash.฀RSS,฀a฀leading฀
provider฀of฀specialized฀imaging฀solutions฀to฀the฀aerospace฀and฀defense฀
community,฀was฀previously฀presented฀as฀part฀of฀the฀Company’s฀commercial฀
&฀government฀systems’฀operation฀within฀the฀Commercial฀Imaging฀segment.฀
Its฀customers฀include฀NASA,฀other฀U.S.฀government฀agencies,฀and฀aero-
space฀and฀defense฀companies.
Earnings฀from฀discontinued฀operations,฀net฀of฀income฀taxes,฀for฀2003฀
were฀$64฀million,฀or฀$.22฀per฀basic฀and฀diluted฀share,฀as฀compared฀with฀
earnings฀from฀discontinued฀operations,฀net฀of฀income฀taxes,฀for฀2002฀of฀
$9฀million,฀or฀$.03฀per฀basic฀and฀diluted฀share.฀The฀2003฀earnings฀from฀
discontinued฀operations,฀net฀of฀income฀taxes,฀primarily฀reflects฀net฀of฀tax฀
earnings฀of฀$40฀million฀related฀to฀the฀operations฀of฀RSS,฀and฀net฀of฀tax฀
earnings฀of฀$27฀million฀primarily฀related฀to฀reversals฀of฀tax฀and฀environ-
mental฀reserves฀as฀described฀below.฀฀
During฀the฀first฀quarter฀of฀2003,฀the฀Company฀reversed฀a฀tax฀reserve฀
of฀$15฀million฀through฀discontinued฀operations.฀The฀reversal฀of฀the฀tax฀
reserve฀was฀triggered฀by฀the฀Company’s฀repurchase฀of฀certain฀properties฀
that฀were฀initially฀sold฀in฀connection฀with฀the฀1994฀divestiture฀of฀Sterling฀
Winthrop฀Inc.,฀which฀represented฀a฀portion฀of฀the฀Company’s฀non-imaging฀
health฀businesses.฀The฀repurchase฀of฀these฀properties฀will฀allow฀the฀Com-
pany฀to฀directly฀manage฀the฀environmental฀remediation฀that฀the฀Company฀
is฀required฀to฀perform฀in฀connection฀with฀those฀properties,฀which฀will฀
result฀in฀better฀overall฀cost฀control.฀In฀addition,฀the฀repurchase฀eliminated฀
the฀uncertainty฀regarding฀the฀recoverability฀of฀tax฀benefits฀associated฀
with฀the฀indemnification฀payments฀that฀were฀previously฀being฀made฀to฀the฀
purchaser.
During฀the฀fourth฀quarter฀of฀2003,฀the฀Company฀recorded฀a฀net฀of฀
tax฀credit฀of฀$7฀million฀through฀discontinued฀operations฀for฀the฀reversal฀
of฀an฀environmental฀reserve,฀which฀was฀primarily฀attributable฀to฀positive฀
developments฀in฀the฀Company’s฀remediation฀efforts฀relating฀to฀a฀formerly฀
owned฀manufacturing฀site฀in฀the฀U.S.฀In฀addition,฀during฀the฀fourth฀quarter฀
of฀2003,฀the฀Company฀reversed฀state฀income฀tax฀reserves฀of฀$3฀million,฀net฀
of฀tax,฀through฀discontinued฀operations฀due฀to฀the฀favorable฀outcome฀of฀tax฀
audits฀in฀connection฀with฀a฀formerly฀owned฀business.฀฀
The฀earnings฀from฀discontinued฀operations,฀net฀of฀income฀taxes,฀of฀
$9฀million฀for฀2002฀reflects฀net฀of฀tax฀earnings฀of฀$32฀million฀related฀to฀
the฀operations฀of฀RSS,฀and฀net฀of฀tax฀earnings฀of฀$12฀million฀related฀to฀the฀
favorable฀outcome฀of฀litigation฀associated฀with฀the฀1994฀sale฀of฀Sterling฀
Winthrop฀Inc.฀These฀earnings฀were฀partially฀offset฀by฀losses฀incurred฀from฀
the฀shutdown฀of฀Kodak฀Global฀Imaging,฀Inc.฀(KGII),฀which฀amounted฀to฀$35฀
million฀net฀of฀tax.฀
Net฀Earnings
Net฀earnings฀for฀2003฀were฀$253฀million,฀or฀$.88฀per฀basic฀and฀diluted฀
share,฀as฀compared฀with฀net฀earnings฀for฀2002฀of฀$770฀million,฀or฀$2.64฀
per฀basic฀and฀diluted฀share,฀representing฀a฀decrease฀of฀$517฀million,฀or฀
67%.฀This฀decrease฀is฀primarily฀attributable฀to฀the฀reasons฀outlined฀above.