Kodak 2007 Annual Report Download - page 32

31
Gross Profit
The increase in gross profit margin for CDG was primarily a result of improvements in price/mix within Digital Capture and Devices, which includes
increases in intellectual property royalties, and favorable foreign exchange. The gross profit margin improvement was partially offset by increased manu-
facturing costs.
Included in gross profit is the impact of a non-recurring extension and amendment of existing license arrangement and new non-recurring license arrange-
ments during the current year. The impact of these licensing arrangements contributed approximately 3.8% of revenue to segment gross profit dollars
in 2006, as compared with 1.0% of revenue to segment gross profit dollars for similar arrangements in 2005. These types of arrangements provide the
Company with a return on portions of historical R&D investments.
Selling, General and Administrative Expenses
The year-over-year decrease in SG&A was primarily driven by a decline in advertising spending as a result of focused cost reduction activities.
Research and Development Costs
The decrease in R&D costs is attributable to cost reduction actions partially offset by spending related to the development of Consumer Inkjet Systems
subsequently launched in 2007.
Film Products Group
For the Year Ended December 31,
(dollars in millions)
2006
% of
Sales 2005
% of
Sales
Increase /
(Decrease) % Change
Total net sales $ 2,312 $ 2,841 $ (529) -19%
Cost of goods sold 1,460 1,605 (145) -9%
Gross profit 852 36.9% 1,236 43.5% (384) -31%
Selling, general and administrative expenses 451 20% 600 21% (149) -25%
Research and development costs 33 1% 63 2% (30) -48%
Earnings from continuing operations before interest, other
income (charges), net and income taxes $ 368 16% $ 573 20% $ (205) -36%
For the Year Ended December 31, Change vs. 2005
2006
Amount
Change vs.
2005 Volume Price/Mix
Foreign
Exchange
Manufacturing
and Other Costs
Total net sales $ 2,312 -18.6% -16.6% -2.5% 0.5% 0.0%
Gross profit margin 36.9% -6.7pp 0.0pp -2.8pp 0.4pp -4.3pp
Worldwide Revenues
The decrease in net sales was comprised of: (1) lower volumes, which was primarily attributable to Film Capture; and (2) unfavorable price/mix related to
Film Capture and Entertainment Imaging. These declines were partially offset by favorable foreign exchange.
Net worldwide sales of Film Capture, including consumer roll film (35mm and APS film), one-time-use cameras (OTUC), professional films, and reloadable
film cameras, decreased 30% in 2006 as compared with 2005, primarily reflecting industry volume declines.
Net worldwide sales for Entertainment Imaging, including origination, intermediate, and print films, and digital products and services for the entertainment
industry decreased 4%, primarily reflecting origination film and services volume declines and negative price/mix for print film, partially offset by volume
increases for intermediate film and favorable foreign exchange. These results also reflect more conservative motion picture release strategies by major
studios including the maturation of industry practice regarding simultaneous worldwide releases of major feature films.
Gross Profit
The decrease in gross profit margin was primarily a result of unfavorable price/mix within Film Capture, and increased manufacturing and other costs.
These decreases were partially offset by favorable foreign currency, and price/mix within Entertainment Imaging. The increases in manufacturing and
other costs are largely related to increased depreciation expense due to asset useful life changes in the third quarter of 2005 and higher silver costs.