Kodak 2006 Annual Report Download - page 4

Financial Review
Since we began our transformation, we have measured our progress
against three clear metrics:
• digital earnings
• digital revenue
• cash generation
Let’s take a look at our results for 2006.
In digital earnings*, we delivered a result of $343 million, nearly fi ve
times that of the prior year, representing a $271 million increase.
This was driven by healthier gross profi t margins, strong earnings
improvement in our graphic communications and consumer digital
businesses, and global cost-reduction initiatives.
Business Review
We can proudly point to examples of growth and revitalization in
each of our business areas.
Graphic Communications Group
A strategic pillar in Kodak’s future, in just three years our
Graphic Communications Group (GCG) has gone from a passive
and very modest participation in the industry to a business with
more than 100,000 customers worldwide and revenue of more than
$3.6 billion. To put our leadership position in perspective, consider
this: Today, about 40 percent of the world’s commercially printed
pages are touched by Kodak technology.
charge.
Just as acquisitions were key to our growth in 2005, our
performance in 2006 depended on our ability to successfully
integrate those acquisitions into Kodak. GCG has come together
well; our integration is ahead of plan, our investment in digital
technologies has begun to pay o , and we are on track to achieve our
target business model.
We now o er the industry’s broadest range of prepress equipment,
workfl ow software, digital printing, variable data printing, and
consumables. In 2006, we put our capabilities to good use, achieving
substantial recognition for our products and industry leadership:
• NAPL (National Association for Printing Leadership) Industry Award;
• Flexographic Prepress Platemakers Association Innovator of the Year;
• Stevie International Business Award for Service and Support;
• AIIM E-Doc Magazine’s Best of Show for the Kodak i1220 scanner;
• Numerous GATF (Graphic Arts Technical Foundation) awards;
• Prinergy Evo workfl ow system became the fastest-selling workfl ow
in the history of the industry;
• First sales of Kodak NexPress 2100 and Kodak Versamark dual
printing systems in Brazil;
• 10th anniversary of our groundbreaking CTP Thermal technology.
With recognition such as this, and a broad and deep portfolio, we
are uniquely positioned to serve customers in blended production
environments, with technologies and products that support both
conventional o set and digital printing. Consequently, we believe our
prospects for growth, both in revenue and earnings, are strong.
The second metric, digital revenue*, grew by $316 million, but was
less than we would have liked. However, this shortfall was partly due
to deliberate action on our part as we chose and publicly announced
on January 30, 2006, to forego revenue and market share in certain
areas of the low-end digital capture category in the interest of
focusing on improving overall digital profi t margins.
As for cash generation, we fi nished 2006 with nearly $1.5 billion
in cash. Our cash fl ow was exceptionally strong, even after paying
out $548 million in restructuring costs and reducing our debt by
$805 million, to $2.778 billion. We plan to further reduce our debt
by another $1.15 billion in 2007, predicated upon the anticipated
closing of the sale of our Health Group to Onex Corporation in the
fi rst half of the year.
Our fi nancial results in 2006 refl ect our determination to become a
more profi table company. As we enter 2007 with solid momentum,
we will place a strong emphasis on developing a sustainable,
profi table growth model, utilizing our talented people and our
valuable resources to generate greater value for our shareholders.
* Amounts used that are considered non-GAAP fi nancial measures are defi ned and
reconciled to the most directly comparable GAAP measures on page 1 of this annual
report to shareholders. GAAP refers to accounting principles generally accepted in
the U.S.