Kodak 2004 Annual Report Download - page 18

Financials
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
senting฀an฀increase฀of฀$255฀million,฀or฀10%฀as฀reported,฀or฀an฀increase฀of฀
7%฀excluding฀the฀favorable฀impact฀of฀exchange.฀The฀increase฀in฀sales฀was฀
comprised฀of:฀(1)฀an฀increase฀from฀favorable฀exchange฀of฀approximately฀
3.5฀percentage฀points,฀(2)฀the฀acquisition฀of฀PracticeWorks,฀Inc.฀in฀October฀
2003,฀which฀accounted฀for฀approximately฀5.4฀percentage฀points฀of฀the฀
sales฀increase฀and฀(3)฀an฀increase฀in฀volume฀of฀approximately฀4.1฀percent-
age฀points,฀driven฀primarily฀by฀volume฀increases฀in฀digital฀products.฀These฀
increases฀were฀partially฀offset฀by฀declines฀in฀price/mix฀of฀approximately฀
3.1฀percentage฀points,฀which฀were฀related฀to฀both฀digital฀and฀traditional฀
products.฀
Net฀sales฀in฀the฀U.S.฀were฀$1,114฀million฀for฀the฀current฀year฀as฀
compared฀with฀$1,061฀for฀the฀prior฀year,฀representing฀an฀increase฀of฀$53฀
million,฀or฀5%.฀Net฀sales฀outside฀the฀U.S.฀were฀$1,572฀million฀for฀2004฀as฀
compared฀with฀$1,370฀million฀for฀2003,฀representing฀an฀increase฀of฀$202฀
million,฀or฀15%฀as฀reported,฀or฀an฀increase฀of฀8%฀excluding฀the฀favorable฀
impact฀of฀exchange.฀฀
Digital฀Strategic฀Product฀Groups’฀Revenues฀฀Health฀segment฀digital฀
sales,฀which฀include฀laser฀printers฀(DryView฀imagers฀and฀wet฀laser฀print-
ers),฀digital฀media฀(DryView฀and฀wet฀laser฀media),฀digital฀capture฀equip-
ment฀(computed฀radiography฀capture฀equipment฀and฀digital฀radiography฀
equipment),฀services,฀dental฀practice฀management฀software฀and฀Picture฀
Archiving฀and฀Communications฀Systems฀(PACS),฀were฀$1,719฀for฀the฀cur-
rent฀year฀compared฀with฀$1,438฀million฀for฀2003,฀representing฀an฀increase฀
of฀$281฀million,฀or฀20%.฀The฀increase฀in฀digital฀product฀sales฀was฀primarily฀
attributable฀to฀the฀PracticeWorks฀acquisition฀and฀higher฀volumes฀of฀digital฀
capture฀equipment,฀digital฀media฀and฀services.฀
฀
Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Health฀segment฀
traditional฀product฀sales,฀including฀analog฀film,฀equipment,฀chemistry฀and฀
services,฀were฀$967฀million฀for฀the฀current฀year฀as฀compared฀with฀$993฀
million฀for฀2003,฀representing฀a฀decrease฀of฀$26฀million฀or฀3%,฀with฀the฀
decrease฀mainly฀attributable฀to฀decreases฀in฀volume฀and฀negative฀price/mix฀
from฀analog฀medical฀film,฀partially฀offset฀by฀favorable฀exchange.฀฀฀
Gross฀Profit฀฀Gross฀profit฀for฀the฀Health฀segment฀was฀$1,129฀million฀for฀
2004฀as฀compared฀with฀$1,045฀million฀for฀2003,฀representing฀an฀increase฀
of฀$84฀million,฀or฀8%.฀The฀gross฀profit฀margin฀was฀42.0%฀in฀2004฀as฀
compared฀with฀43.0%฀in฀2003.฀The฀decrease฀in฀the฀gross฀profit฀margin฀
of฀1.0฀percentage฀points฀was฀primarily฀attributable฀to:฀(1)฀price/mix฀which฀
negatively฀impacted฀gross฀profit฀margins฀by฀2.0฀percentage฀points฀due฀to฀
digital฀media,฀digital฀capture฀equipment฀and฀analog฀medical฀film฀and฀(2)฀
an฀increase฀in฀manufacturing฀cost,฀which฀decreased฀gross฀profit฀margins฀
by฀0.9฀percentage฀points฀primarily฀due฀to฀increases฀in฀silver฀prices฀and฀
petroleum-based฀materials฀during฀the฀current฀year.฀These฀decreases฀were฀
partially฀offset฀by฀increases฀attributable฀to฀favorable฀exchange,฀which฀
contributed฀approximately฀0.8฀percentage฀points฀to฀the฀gross฀profit฀margin,฀
and฀the฀acquisition฀of฀PracticeWorks฀in฀the฀fourth฀quarter฀of฀2003,฀which฀
increased฀gross฀profit฀margins฀by฀approximately฀1.1฀percentage฀points฀for฀
the฀current฀year.฀฀฀฀
Selling,฀General฀and฀Administrative฀Expenses฀฀SG&A฀expenses฀for฀
the฀Health฀segment฀increased฀$95฀million,฀or฀24%,฀from฀$391฀million฀
for฀2003฀to฀$486฀million฀for฀2004.฀Although฀the฀dollar฀increase฀in฀SG&A฀
expenses฀was฀significant,฀the฀increase฀as฀a฀percent฀of฀sales฀was฀only฀2.0฀
percentage฀points฀from฀16%฀in฀2003฀to฀18%฀in฀2004.฀The฀increase฀in฀
SG&A฀expenses฀is฀primarily฀due฀to฀the฀acquisition฀of฀PracticeWorks,฀which฀
accounted฀for฀$65฀million฀of฀the฀increase฀in฀SG&A฀expenses฀in฀2004,฀
increased฀spending฀on฀growth฀initiatives฀and฀the฀unfavorable฀impact฀of฀
exchange,฀which฀accounted฀for฀$12฀million฀of฀the฀increase.฀฀฀
Research฀and฀Development฀Costs฀฀R&D฀costs฀for฀the฀Health฀segment฀
increased฀$30฀million,฀or฀17%,฀from฀$178฀million฀in฀2003฀to฀$208฀million฀
in฀2004,฀and฀increased฀as฀a฀percentage฀of฀sales฀from฀7%฀in฀2003฀to฀8%฀in฀
2004.฀The฀increase฀is฀primarily฀attributable฀to฀increased฀spending฀to฀drive฀
growth฀in฀selected฀areas฀of฀the฀product฀portfolio.฀
Earnings฀(Losses)฀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฀segment฀decreased฀$41฀million,฀or฀9%,฀from฀
$476฀million฀for฀2003฀to฀$435฀million฀for฀2004฀due฀primarily฀to฀the฀reasons฀
described฀above.฀฀
Commercial฀Imaging
On฀February฀9,฀2004฀Kodak฀announced฀its฀intention฀to฀sell฀the฀Remote฀
Sensing฀Systems฀(RSS)฀operation฀to฀ITT฀Industries฀for฀$725฀million฀in฀cash.฀
This฀transaction฀closed฀during฀the฀third฀quarter฀of฀2004.฀The฀RSS฀business฀
was฀part฀of฀Kodak’s฀commercial฀and฀government฀systems฀operation.฀The฀
Commercial฀Imaging฀segment฀results฀for฀2004฀and฀2003฀exclude฀the฀
financial฀performance฀of฀Kodak’s฀RSS฀business,฀which฀is฀accounted฀for฀in฀
discontinued฀operations.฀Certain฀overhead฀costs฀that฀were฀previously฀al-
located฀to฀the฀RSS฀business฀that฀were฀not฀eliminated฀as฀a฀result฀of฀the฀sale฀
are฀still฀being฀reported฀within฀the฀Commercial฀Imaging฀segment฀up฀through฀
the฀completion฀of฀the฀divestiture,฀as฀the฀Commercial฀Imaging฀segment฀
managed฀the฀RSS฀business฀until฀the฀completion฀of฀the฀divestiture.฀Subse-
quent฀overhead฀costs฀have฀been฀allocated฀to฀all฀of฀the฀existing฀segments.฀฀
฀
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀the฀Commercial฀Imag-
ing฀segment฀were฀$803฀million฀for฀2004฀as฀compared฀with฀$791฀million฀
for฀2003,฀representing฀an฀increase฀of฀$12฀million,฀or฀2%฀as฀reported,฀or฀a฀
decrease฀of฀3%฀excluding฀the฀favorable฀impact฀of฀exchange.฀The฀increase฀
in฀net฀sales฀was฀primarily฀comprised฀of฀an฀increase฀of฀approximately฀4.7฀
percentage฀points฀due฀to฀favorable฀exchange,฀which฀was฀partially฀offset฀by฀
declines฀due฀to฀volume฀of฀approximately฀3.1฀percentage฀points,฀primarily฀
driven฀by฀declines฀in฀the฀micrographics฀equipment฀and฀media฀SPG.
Net฀sales฀in฀the฀U.S.฀were฀$318฀million฀for฀2004฀as฀compared฀with฀
$334฀million฀for฀2003,฀representing฀a฀decrease฀of฀$16฀million,฀or฀5%.฀Net฀
sales฀outside฀the฀U.S.฀were฀$485฀million฀in฀the฀current฀year฀as฀compared฀
with฀$457฀million฀in฀the฀prior฀year,฀representing฀an฀increase฀of฀$28฀million,฀
or฀6%,฀or฀a฀decrease฀of฀2%฀excluding฀the฀favorable฀impact฀of฀exchange.฀
Digital฀and฀Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Com-
mercial฀Imaging฀segment฀digital฀product฀sales฀were฀$384฀million฀for฀the฀
current฀year฀as฀compared฀with฀$367฀million฀for฀2003,฀representing฀an฀
increase฀of฀$17฀million,฀or฀5%.฀Segment฀traditional฀product฀sales฀were฀
$419฀million฀for฀the฀current฀year฀as฀compared฀with฀$424฀million฀for฀2003,฀
representing฀a฀decrease฀of฀$5฀million,฀or฀1%.฀The฀primary฀driver฀was฀an฀