Kodak 2006 Annual Report Download - page 48

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to the increase in sales as a result of the acquisitions, as well as the fact that the acquired businesses generally have lower SG&A as a percentage of
sales.
Research and Development Costs
R&D costs for the Graphic Communications Group segment increased $133 million, or 92%, from $145 million for 2004 to $278 million for 2005, and
decreased as a percentage of sales from 11% in 2004 to 9% in 2005. The dollar increase was primarily attributable to the write-off of in-process R&D
associated with the KPG and Creo acquisitions of $52 million, as well as increased levels of R&D spending associated with the acquired companies of
$95 million.
Loss From Continuing Operations Before Interest, Other Income (Charges), Net and Income Taxes
The loss from continuing operations before interest, other income (charges), net and income taxes for the Graphic Communications Group segment
was $41 million in 2005 compared with a loss of $91 million in 2004. This improvement in earnings of $50 million is attributable to the reasons
described above.
Health Group
Worldwide Revenues
Net worldwide sales for the Health Group segment were $2,655 million for 2005 as compared with $2,686 million for the prior year, representing a
decrease of $31 million, or 1%. The decrease in sales was primarily attributable to decreases in price/mix of approximately 2.4 percentage points,
primarily driven by the digital capture SPG, digital output SPG, and the traditional medical film portion of the film capture and output SPG. These
decreases were partially offset by increases in volume, primarily driven by the digital capture SPG and the services SPG, which contributed approxi-
mately 1.0 percentage points to the increase in sales. Sales were also favorably impacted by exchange of approximately 0.3 percentage points.
Net sales in the U.S. were $1,052 million for 2005 as compared with $1,114 million for 2004, representing a decrease of $62 million, or 6%. Net sales
outside the U.S. were $1,603 million for 2005 as compared with $1,572 million for the prior year, representing an increase of $31 million, or 2%,
which includes a favorable impact from exchange of less than 1%.
Digital Strategic Product Groups’ Revenues
Health Group segment digital sales, which include digital products (DryView laser imagers/media and wet laser printers/media), digital capture
equipment (computed radiography capture equipment and digital radiography equipment), services, dental systems (practice management software
and digital radiography capture equipment) healthcare information systems (Picture Archiving and Communications Systems (PACS)), and Radiology
Information Systems (RIS), were $1,719 million for 2005 as compared with $1,693 million for 2004, representing an increase of $26 million, or 2%.
The increase in digital product sales was primarily attributable to volume increases and favorable exchange, partially offset by negative price/mix.
Traditional Strategic Product Groups’ Revenues
Health Group segment’s traditional product sales, including analog film, equipment, and chemistry, were $936 million for 2005 as compared with
$993 million for 2004, representing a decrease of $57 million, or 6%. The primary drivers were lower volumes and unfavorable price/mix for the film
capture and output SPG, partially offset by favorable exchange.
Gross Profit
Gross profit for the Health Group segment was $1,021 million for 2005 as compared with $1,132 million in the prior year, representing a decrease of
$111 million, or 10%. The gross profit margin was 38.5% in 2005 as compared with 42.1% in 2004. The decrease in the gross profit margin of 3.6
percentage points was principally attributable to: (1) price/mix, which negatively impacted gross profit margins by 2.6 percentage points driven by the
digital capture SPG, digital output SPG and the traditional medical film portion of the film capture and output SPG, and (2) an increase in manufactur-
ing cost, which decreased gross profit margins by approximately 1.3 percentage points due to an increase in silver and raw material costs. These
decreases were partially offset by favorable exchange, which contributed approximately 0.4 percentage points to the gross profit margins.
Selling, General and Administrative Expenses
SG&A expenses for the Health Group segment increased $21 million, or 4%, from $468 million in 2004 to $489 million for 2005 and increased as
a percentage of sales from 17% in 2004 to 18% in 2005. The increase in SG&A expenses is primarily attributable to increases in certain corporate
overhead costs. SG&A was also negatively impacted by costs associated with the OREX acquisition of approximately $6 million.
Research and Development Costs
R&D costs for 2005 were $162 million as compared with the prior year of $180 million, representing a decrease of $18 million or 10%, and decreased
as a percentage of sales from 7% to 6%. This decrease is a result of reduced R&D spending related to traditional products and services.
Earnings From Continuing Operations Before Interest, Other Income (Charges), Net and Income Taxes
Earnings from continuing operations before interest, other income (charges), net and income taxes for the Health Group segment decreased $114 mil-
lion, or 24%, from $484 million for the prior year to $370 million for 2005 due to the reasons described above.