Kodak 2011 Annual Report Download - page 27

OVERVIEW
In 2011, Kodak had three reportable business segments, which are more fully described later in this discussion in “Kodak Operating Model and Reporting
Structure.” The three business segments in 2011 were: Consumer Digital Imaging Group, Graphic Communications Group and Film, Photofinishing and
Entertainment Group.
The Company’s digital growth strategy has centered on exploiting its competitive advantage at the intersection of materials science and digital imaging
science. The Company has leading market positions in large markets including digital printing plates, scanners, and kiosks. In addition, the Company
has been introducing differentiated value propositions in new growth markets that are in transformation. These digital growth initiatives are: consumer
inkjet, within CDG, and commercial inkjet, workflow software and services, and packaging solutions within GCG.
While the digital growth initiatives have largely required investment, the Company’s strategy has been to gain scale in these product lines to enable a
more significant and profitable contribution from them. Revenue from these growth initiative product lines grew 17% for the year ended December 31,
2011 versus the prior year.
The Company has been using cash received from operations, including intellectual property licensing, and the sale of non-core assets, to fund its
investment in the digital growth initiatives and its transformation from a traditional manufacturing company to a digital technology company. In July
2011, the Company announced that it is exploring strategic alternatives related to its digital imaging patent portfolios. As this process proceeds, the
Company will continue to pursue its patent licensing program as well as all litigation related to its digital imaging patents. The Company faces short-
term uncertainty relating to certain of the Company’s intellectual property licensing activities pending the outcome of the infringement litigation against
Apple Inc. and Research in Motion Ltd. before the International Trade Commission.
Revenue and profitability for the year ended December 31, 2011 declined from the prior year primarily due to a decrease in non-recurring intellectual
property licensing arrangements from the prior year. Revenue and profitability were also negatively impacted by industry-related volume declines and
increased commodity costs, particularly silver, in FPEG. The Company has been utilizing price increases and silver-indexed pricing models, as well as its
silver hedging program to mitigate the impact of historically high silver prices on FPEG. Revenue declines also resulted from competitive pricing pressures
and participation choices made by the Company in digital cameras within CDG. In February 2012 the Company announced plans to phase out its dedicated
capture devices business, including digital cameras, pocket video cameras, and digital picture frames in the first half of 2012.
While some of the revenue decline was offset by revenue growth in consumer inkjet and GCG, profitability was also negatively impacted by the ongoing
investment in the consumer and commercial inkjet businesses.
The Company’s Bankruptcy Filing is intended to permit the Company to reorganize and improve liquidity in the U.S. and abroad, monetize non-strategic
intellectual property, fairly resolve legacy liabilities, and focus on the most valuable business lines to enable sustainable profitability. The Company’s goal
is to develop and implement a reorganization plan that meets the standards for confirmation under the Bankruptcy Code. Confirmation of a reorganization
plan could materially alter the classifications and amounts reported in the Company’s consolidated financial statements, which do not give effect to any
adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a reorganization plan or
other arrangement or the effect of any operational changes that may be implemented.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accompanying consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to
management’s discussion and analysis of the financial condition and results of operations. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities.
The Company believes that the critical accounting policies and estimates discussed below involve the most complex management judgments due to
the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. Specific risks
associated with these critical accounting policies are discussed throughout this MD&A, where such policies affect our reported and expected financial
results. For a detailed discussion of the application of these and other accounting policies, refer to the Notes to Financial Statements in Item 8.
The consolidated financial statements and related notes have been prepared assuming that the Company will continue as a going concern, although its
Bankruptcy Filing raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not
include any adjustments related to the recoverability and classification of recorded assets
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