Kodak 2010 Annual Report Download - page 31

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Revenues
For the year ended December 31, 2010, net sales decreased compared with the same period in 2009 primarily due to volume
declines in the FPEG segment (-6%). Favorable price/mix in the CDG segment (+2%) was largely offset by unfavorable price/mix in
the GCG segment (-2%).
For the year ended December 31, 2009, net sales decreased compared with 2008 primarily due to volume declines within all three
segments (FPEG: -6%, GCG: -5% and CDG: -3%) driven by lower demand as a result of the global economic slowdown which
began in the fourth quarter of 2008 as well as continued secular declines in the FPEG segment. Unfavorable price/mix also impacted
sales equally across all three segments (-3 %). Foreign exchange negatively impacted sales equally across all three segments due
to a stronger U.S. dollar.
Included in revenues were non-recurring intellectual property licensing agreements in the CDG segment. These licensing
agreements contributed $838 million, $435 million and $227 million to revenues in 2010, 2009 and 2008, respectively. The Company
expects to secure other new licensing agreements, the timing and amounts of which are difficult to predict. These types of
arrangements provide the Company with a return on portions of its R&D investments, and new licensing opportunities are expected
to have a continuing positive impact on the results of operations.
Gross Profit
The increase in gross profit margin as a percentage of sales from 2009 to 2010 was primarily driven by manufacturing and other cost
reductions within the CDG (+2 pp) and GCG (+1 pp) segments. Also contributing to the increase in gross profit margin was favorable
price/mix in the CDG segment (+2 pp), partially offset by unfavorable price/mix in the GCG segment (-1 pp).
Gross profit margin as a percent of sales for 2009 was essentially flat as compared with 2008. Driving the slight increase in gross
profit margin were cost improvements (+5 pp), largely driven by ongoing cost reduction efforts within CDG (+4 pp) and FPEG (+1
pp). Largely offsetting these increases were unfavorable price/mix (-4 pp), which impacted all segments, but was most prominent in
CDG (-2 pp), and unfavorable foreign exchange (-1 pp).
Included in gross profit were non-recurring intellectual property licensing agreements in the CDG segment. These licensing
agreements contributed $838 million, $435 million and $227 million to gross profit for non-recurring agreements in 2010, 2009 and
2008, respectively.
Selling, General and Administrative Expenses
The decrease in consolidated selling, general and administrative expenses (SG&A) from 2009 to 2010 of 2% was attributable to
decreases in SG&A in the FPEG segment (-7%) primarily driven by cost reduction actions, partially offset by increases in SG&A in
the CDG and GCG segments (5%) primarily due to increased advertising costs.
The decrease in consolidated SG&A expenses from 2008 to 2009 of 19% was primarily the result of company-wide cost reduction
actions implemented in 2009 in response to economic conditions.
Research and Development Costs
The decrease in consolidated research and development (R&D) costs from 2009 to 2010 of 10% was primarily driven by the
rationalization and refocusing of investments.
The decrease in consolidated R&D costs from 2008 to 2009 of 26% was primarily the result of focused cost reduction efforts.
Restructuring Costs, Rationalization and Other
These costs, as well as the restructuring and rationalization-related costs reported in cost of sales, are discussed under the
"Restructuring Costs, Rationalization and Other" section.
Other Operating Expenses (Income), Net
The other operating expenses (income), net category includes gains and losses on sales of assets and businesses and certain
impairment charges. The amount for 2010 primarily reflects a $626 million goodwill impairment charge related to the FPEG segment.
The amount for 2009 primarily reflects a gain of approximately $100 million on the sale of assets of the Company’s organic light
emitting diodes (OLED) group, as described further below. The amount for 2008 primarily reflects a $785 million goodwill impairment
charge related to the GCG segment.
In November 2009, the Company agreed to terminate its patent infringement litigation with LG Electronics, Inc., LG Electronics USA,
Inc., and LG Electronics Mobilecomm USA, Inc., entered into a technology cross license agreement with LG Electronics, Inc. and
agreed to sell assets of its OLED group to Global OLED Technology LLC, an entity established by LG Electronics, Inc., LG Display
Co., Ltd. and LG Chem, Ltd. As the transactions were entered into in contemplation of one another, in order to reflect the asset sale
separately from the licensing transaction, the total consideration was allocated between the asset sale and the licensing transaction
based on the estimated fair value of the assets sold. Fair value of the assets sold was estimated using other competitive bids
received by the Company. Accordingly, $100 million of the proceeds was allocated to the asset sale. The remaining gross proceeds
of $414 million were allocated to the licensing transaction and reported in net sales of the CDG segment for the year ended
December 31, 2009.