Kodak 2005 Annual Report Download - page 3

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CHAIRMAN’S LETTER
In 2005, for the fi rst time in Kodak’s history, more than half of our revenue came from digital
products and services, and we solidifi ed our leading market share in many of the consumer
and commercial digital categories in which we participate.
We completed an aggressive acquisitions program in our Graphic Communications business,
setting the stage for that segment to contribute signifi cantly to digital sales and earnings in
2006. We ended the year in an excellent cash position, with $1.7 billion of cash on hand, and
we secured access to signifi cant fi nancing to ensure liquidity for our transformation.
We also worked aggressively to refresh our brand for the digital world. As you may have
noticed from our new product designs, advertising, packaging, and even the look of this
annual report, the very face of Kodak is changing.
Having passed the halfway point of our four-year transformation, we’ve achieved a series of
milestones that position us well for the remainder of our journey. Because of our now sizable
digital business, we have started to:
• attract new customers and business partners;
• negotiate mutually advantageous relationships with retailers and suppliers; and
• shift focus to design of technology platforms versus individual products.
We now have in place the core product portfolio, organizational structure and leadership team
that will take us through the second half of our transformation.
Financial Review
After a challenging start in 2005, Kodak came on strong at the fi nish. Revenues were up 6% overall, and digital revenue growth* — one of our key
performance metrics — was 40% for the year, exceeding our target of 36% growth.
Our net loss of $1.362 billion stemmed largely from $1.1 billion in non-cash charges to account for tax valuation allowances in the U.S. Our decision to
accelerate our restructuring also contributed to the year’s results.
In the fourth quarter, when the company generates a signifi cant amount of its sales and earnings for a given year, we demonstrated substantial
improvement in our digital results. Digital earnings* for the quarter, for example, grew to $158 million.
For the year, net operating cash from continuing operations totaled $1.180 billion, at the high end of the $1.0 to $1.2 billion range we had expected.
In addition to cash that came from our digital and traditional earnings, we generated cash from reductions in inventories and receivables, real estate
sales and continued progress in leveraging our intellectual property.
Further strengthening our fi nancial picture, in October we obtained $2.7 billion of new credit lines that will address our fi nancing needs for the
foreseeable future. This allowed us to refi nance $1.2 billion in short-term debt (primarily related to our acquisition of Creo, Inc.) with long-term debt.
It also gives us access to more than $1 billion of new borrowing capacity should we need it.
* Amounts used that are considered non-GAAP fi nancial measures are defi ned and reconciled to the most directly comparable GAAP measure on page 5 of this
annual report to shareholders. GAAP refers to accounting principles generally accepted in the U.S.
To Our Shareholders:
“ Having passed the halfway point of our four-year
transformation, we’ve achieved a series of milestones
that position us well for the remainder of our journey.”
Antonio M. Perez
Chairman and Chief Executive Offi cer