Kodak 2006 Annual Report Download - page 16

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Change in Reporting Structure
In December 2006, the Company announced that effective January 1, 2007 the Film and Photofinishing Systems Group would be called the Film
Products Group, and that certain strategic product groups (SPG’s) previously included in FPG would become part of CDG. Also effective January 1,
2007, consumer inkjet systems, formerly reported in All Other, would become part of CDG. This change in structure is to align the Company’s reporting
structure to the way in which the Company manages its business effective January 1, 2007. The most significant change, the transfer of photographic
paper and photofinishing services to CDG from FPG, reflects the increasing manner in which images captured or generated by CDG products and
services are printed and shared. CDG will be the Company’s primary point of contact for the digital picture-taking consumer, providing a full range of
products and services for capturing, storing, printing and sharing images. Additionally, the new structure will concentrate FPG’s portfolio exclusively on
film-related and entertainment imaging businesses. The following indicates the changes from the old reporting structure to the new reporting structure
that will be implemented beginning in the first quarter of 2007:
Consumer Digital Imaging Group Segment (CDG): This segment will include photographic paper and photofinishing services, formerly part of FPG,
and consumer inkjet systems, formerly part of All Other.
Film Products Group Segment (FPG): The Film Products Group segment will no longer include photographic paper and photofinishing services, since
they will become part of CDG. Additionally, the non-destructive testing business, formerly included in the FPG segment, will be included in the Health
Group segment.
Graphic Communications Group Segment (GCG): There are no changes to the composition of the GCG segment from 2006. However, as the GCG
segment completes its integration process and further aligns the discrete businesses, starting in the first quarter of 2007, the GCG segment results
will be reported using its new organizational structure, as described in Item 7, “Management’s Discussion and Analysis of Financial Condition and
Report of Operations.”
Health Group Segment (KHG): The Company announced on January 10, 2007 that it has reached an agreement to sell the Health Group to Onex
Corporation for as much as $2.55 billion. The transaction is expected to close in the first half of 2007. As a result, the results of operations and assets,
net of liabilities, to be sold, inclusive of the non-destructive testing business formerly included in FPG, will be reported as a discontinued operation
beginning in the first quarter of 2007.
All Other: In February 2007, the Company announced its entry into the consumer inkjet business. Beginning with the first quarter of 2007, the results
of the consumer inkjet business, formerly included in All Other, will be reported within the CDG segment. There are no other changes to the composi-
tion of All Other.
Financial information by Geographic Area
Financial information by geographic area for the past three years is shown in Note 23, “Segment Information.”
Raw Materials
The raw materials used by the Company are many and varied, and are generally readily available. Silver is one of the essential materials used in the
manufacture of films and papers. The Company purchases silver from numerous suppliers under annual agreements or on a spot basis. Paper base is
an essential material in the manufacture of photographic papers. The Company has contracts to acquire paper base from certified photographic paper
suppliers over the next several years. Lithographic aluminum is the primary material used in the manufacture of offset printing plates. The Company
procures raw aluminum coils from several suppliers on a spot basis or under contracts generally in place over the next one to three years.
Seasonality of Business
Sales and earnings of the CDG segment are linked to the timing of holidays, vacations and other leisure or gifting seasons. In 2006, sales of digital
products were highest in the last four months of the year. Digital capture and home printing products have experienced peak sales in this period as a
result of the December holidays. Sales are normally lowest in the first quarter due to the absence of holidays and fewer people taking vacations during
that time. These trends are expected to continue as the Company continues to experience growth in sales of digital products.
Sales and earnings of the FPG segment are linked to the timing of holidays, vacations and other leisure activities. Sales and earnings are normally
strongest in the second and third quarters as demand is high due to heavy vacation activity and events such as weddings and graduations.
Sales and earnings of the GCG segment exhibit modestly higher levels in the fourth quarter. This is driven primarily by the sales of continuous inkjet,
electrophotographic printing, and document scanner products due to seasonal customer demand linked to commercial year-end budgeting processes.
With respect to the KHG segment, the sales of consumable products, which generate the major portion of the earnings of this segment, tend to occur
uniformly throughout the year. Sales of equipment products, which carry lower margins than consumables, are highest in the fourth quarter as pur-
chases by healthcare customers are linked to their year-end capital budget process. This pattern is also reflected in the third month of each quarter.