Kodak 2004 Annual Report Download - page 4

MANAGEMENT’S LETTER
2
EASTMAN KODAK COMPANY
MANAGEMENT’S LETTER
In the fi rst full year of its digital transformation
strategy, Kodak came out of the gate at a full
gallop—and we continue to build momentum.
From robust digital revenue growth, to our
ability to manage effectively the decline in our
traditional fi lm business, to fulfi llment of our digital
acquisitions plan, our results are evidence we are
building a more diversifi ed, leaner, stronger Kodak
for the future.
Simply stated: our strategy is on course.
STRATEGY UPDATE
In September 2003, we announced our strategy to
broaden our digital presence in consumer, commer-
cial and healthcare markets. These three “pillars”
represent the foundation of our business, and are
areas where Kodak already has a base from which
to grow. We also announced we would select future
business opportunities, notably in the display and
inkjet markets, that build on our core competencies
and our solid base of intellectual property.
In all cases, we are competing in markets
where—based on our brand, technology and expertise—we are uniquely
positioned to be a market leader. They are also markets where customers
are facing their own transition to digital technology, and where we, as a
trusted and respected brand, can help.
This strategy has required us to make a number of portfolio and
operational changes. We have successfully acquired and are integrat-
ing companies and technologies, notably in graphic communications and
health, that will help boost our revenue and earnings and fuel our long-term
growth by rounding out our portfolio and expanding our distribution to new
markets. Integration of these key acquisitions continues on, and in some
cases ahead of, plan.
We have also exited some businesses. Our Remote Sensing Systems
unit, which primarily served the government, aerospace and defense indus-
tries, was sold for $725 million. We also exited the APS camera business,
although we continue to serve consumers with APS fi lms.
We are reducing costs, facilities and functions worldwide to change
our overall business model for the competitive digital world. We’re prepar-
ing ourselves to be faster to market with products and total systems solu-
tions, and to operate with tighter margins and higher productivity.
Our key business groups have developed, and are executing, growth
strategies aligned with Kodak’s overall strategy and goals, as outlined in
this letter.
FINANCIAL REVIEW
In 2004, we achieved overall revenue growth of 5%, fueled by a 42%
growth in revenues from our digital products. In fact, Kodak gained market
share in virtually every digital category in which we participate.
The rapid growth in digital during the year impacted traditional
product sales, particularly in mature consumer markets such as the U.S.,
Europe and Japan. However, we maintained market share in these valuable
traditional businesses, and continue to see increased sales of consumer
fi lm in emerging markets.
Overall, our quick response to the shifting demand for digital versus
traditional imaging products included accelerating our announced plan
to reduce the footprint of Kodak operations, and our employee popula-
tion, worldwide. Actions included closing or consolidating some fi lm and
photographic paper manufacturing operations and overnight processing
labs. Under this plan, Kodak eliminated approximately 9,600 positions
worldwide during 2004. Facility and employment reductions will continue,
as will consolidations of functions and common processes. At the same
time, our newly acquired companies and technologies are being integrated
into our allied businesses, expanding the profi le of Kodak, the products and
services we offer and the skill sets we possess.
The Company continued to strengthen its balance sheet, reducing
debt by more than $900 million, and generating $536 million in investable
cash. Our cash position was $1.255 billion at year-end.
To Our Shareholders:
“ From robust digital revenue growth, to our ability to manage effectively the decline in our
traditional film business, to fulfillment of our digital acquisitions plan, our results are evidence
we are building a more diversified, leaner, stronger Kodak for the future.”
Daniel A. Carp
Chairman and Chief Executive Officer
Antonio M. Perez
President and Chief Operating Officer