Kodak 2004 Annual Report Download - page 25

Financials
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2 0 0 4 ฀ S U M M A R Y ฀ A N N U A L ฀ R E P O R T
in฀both฀years.฀The฀increase฀was฀primarily฀due฀to฀$12฀million฀of฀R&D฀costs฀
associated฀with฀the฀acquisition฀of฀PracticeWorks,฀$10฀million฀of฀which฀was฀
a฀one-time฀write-off฀of฀purchased฀in-process฀R&D.฀The฀remainder฀of฀the฀
increase฀was฀due฀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฀increased฀$45฀million,฀or฀10%,฀from฀
$431฀million฀for฀2002฀to฀$476฀million฀for฀2003฀due฀primarily฀to฀the฀reasons฀
described฀above.฀฀
Commercial฀Imaging
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀the฀Commercial฀Imaging฀
segment฀remained฀constant฀at฀$791฀million฀for฀both฀2003฀and฀2002,฀or฀
a฀decrease฀of฀6%฀excluding฀the฀favorable฀impact฀of฀exchange.฀Favorable฀
exchange฀and฀price/mix,฀which฀contributed฀approximately฀6.1฀and฀0.3฀per-
centage฀points,฀respectively,฀to฀2003฀sales฀was฀entirely฀offset฀by฀decreases฀
due฀to฀volume฀of฀approximately฀6.4฀percentage฀points,฀primarily฀driven฀by฀
declines฀in฀document฀imaging฀products฀and฀services.
Net฀sales฀in฀the฀U.S.฀were฀$334฀million฀for฀2003฀as฀compared฀with฀
$366฀million฀for฀2002,฀representing฀a฀decrease฀of฀$32฀million,฀or฀9%.฀฀
Net฀sales฀outside฀the฀U.S.฀were฀$457฀million฀in฀2003฀as฀compared฀with฀
$425฀million฀in฀2002,฀representing฀an฀increase฀of฀$32฀million,฀or฀8%,฀or฀a฀
decrease฀of฀4%฀excluding฀the฀favorable฀impact฀of฀exchange.฀
Digital฀and฀Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Com-
mercial฀Imaging฀segment฀digital฀product฀sales฀remained฀constant฀at฀$367฀
million฀for฀both฀2003฀and฀2002.฀Segment฀traditional฀product฀sales฀were฀
constant฀at฀$424฀million฀for฀both฀2003฀and฀2002.฀฀
Gross฀Profit฀฀Gross฀profit฀for฀the฀Commercial฀Imaging฀segment฀for฀2003฀
decreased฀$15฀million,฀or฀5%,฀from฀$282฀million฀for฀2002฀to฀$267฀million฀
for฀2003.฀The฀gross฀profit฀margin฀was฀33.8%฀for฀2003฀as฀compared฀with฀
35.7%฀for฀2002.฀The฀decrease฀in฀the฀gross฀profit฀margin฀of฀1.9฀percent-
age฀points฀was฀attributable฀to฀an฀increase฀in฀manufacturing฀cost,฀which฀
negatively฀impacted฀gross฀profit฀margins฀by฀approximately฀2.2฀percentage฀
points,฀partially฀offset฀by฀exchange,฀which฀favorably฀impacted฀gross฀profit฀
margins฀by฀0.5฀percentage฀points.฀฀
Selling,฀General฀and฀Administrative฀Expenses฀฀SG&A฀expenses฀for฀
the฀Commercial฀Imaging฀segment฀increased฀$1฀million,฀or฀1%,฀from฀$134฀
million฀for฀2002฀to฀$135฀million฀for฀2003฀and฀2002.฀As฀a฀percentage฀of฀
sales,฀SG&A฀expenses฀also฀remained฀constant฀at฀17%฀for฀both฀years.฀
Research฀and฀Development฀Costs฀฀R&D฀costs฀for฀the฀Commercial฀
Imaging฀segment฀decreased฀$7฀million,฀or฀23%,฀from฀$30฀million฀for฀2002฀
to฀$23฀million฀for฀2003.฀As฀a฀percentage฀of฀sales,฀R&D฀costs฀decreased฀
from฀4%฀in฀2002฀to฀3%฀in฀2003.฀฀
฀
Earnings฀(Losses)฀From฀Continuing฀Operations฀Before฀Interest,฀
Other฀Income฀(Charges),฀Net฀and฀Income฀Taxes฀฀Earnings฀from฀con-
tinuing฀operations฀before฀interest,฀other฀income฀(charges),฀net฀and฀income฀
taxes฀for฀the฀Commercial฀Imaging฀segment฀decreased฀$9฀million,฀or฀8%,฀
from฀$118฀million฀in฀2002฀to฀$109฀million฀in฀2003.฀The฀decrease฀in฀earn-
ings฀from฀operations฀is฀primarily฀attributable฀to฀the฀reasons฀outlined฀above.฀
Graphic฀Communications
Worldwide฀Revenues฀฀Net฀worldwide฀sales฀for฀the฀Graphic฀Communica-
tions฀segment฀were฀$346฀million฀for฀2003฀as฀compared฀with฀$402฀million฀
for฀2002,฀representing฀a฀decrease฀of฀$56฀million,฀or฀14%฀as฀reported,฀
with฀no฀impact฀from฀exchange.฀The฀decrease฀in฀net฀sales฀was฀due฀to:฀(1)฀
declines฀in฀volume฀of฀approximately฀9.4฀percentage฀points,฀which฀was฀
primarily฀attributable฀to฀graphics฀products฀and฀(2)฀declines฀due฀to฀price/mix฀
of฀approximately฀5.2฀percentage฀points,฀which฀was฀also฀driven฀by฀graphics฀
products.
Net฀sales฀in฀the฀U.S.฀were฀$156฀million฀for฀2003฀as฀compared฀with฀
$174฀million฀for฀2002,฀representing฀a฀decrease฀of฀$18฀million,฀or฀10%.฀Net฀
sales฀outside฀the฀U.S.฀were฀$190฀million฀for฀2003฀as฀compared฀with฀$228฀
million฀for฀2002,฀representing฀a฀decrease฀of฀$38฀million,฀or฀17%,฀with฀no฀
impact฀from฀exchange.฀
Digital฀and฀Traditional฀Strategic฀Product฀Groups’฀Revenues฀฀Graphic฀
Communications฀segment฀2003฀and฀2002฀digital฀product฀sales฀are฀com-
prised฀of฀Encad,฀Inc.฀products฀and฀services.฀Segment฀traditional฀product฀
sales฀are฀limited฀to฀the฀sales฀of฀traditional฀graphics฀products฀to฀the฀KPG฀
joint฀venture.฀฀
Net฀worldwide฀sales฀of฀graphic฀arts฀products฀to฀Kodak฀Polychrome฀
Graphics฀(KPG),฀an฀unconsolidated฀joint฀venture฀affiliate฀in฀which฀the฀Com-
pany฀has฀a฀50%฀ownership฀interest,฀decreased฀14%฀in฀2003฀as฀compared฀
with฀2002,฀reflecting฀declines฀in฀both฀volume฀and฀price/mix฀in฀graphic฀arts฀
film.฀This฀reduction฀was฀primarily฀due฀to฀the฀effects฀of฀digital฀substitution.
฀
Gross฀Profit฀฀Gross฀profit฀for฀the฀Graphic฀Communications฀segment฀for฀
2003฀decreased฀$38฀million,฀or฀44%,฀from฀$87฀million฀for฀2002฀to฀$49฀
million฀for฀2003.฀The฀gross฀profit฀margin฀was฀14.2%฀for฀2003฀as฀com-
pared฀with฀21.6%฀for฀2002.฀The฀decrease฀in฀the฀gross฀profit฀margin฀of฀7.4฀
percentage฀points฀was฀attributable฀to:฀(1)฀declines฀attributable฀to฀price/mix,฀
which฀reduced฀gross฀profit฀margins฀by฀approximately฀4.2฀percentage฀
points฀primarily฀due฀to฀declining฀contributions฀from฀traditional฀graphic฀arts฀
products฀for฀the฀reasons฀outlined฀above,฀(2)฀unfavorable฀exchange,฀which฀
negatively฀impacted฀gross฀profit฀margins฀by฀2.8฀percentage฀points฀and฀(3)฀
an฀increase฀in฀manufacturing฀cost,฀which฀negatively฀impacted฀gross฀profit฀
margins฀by฀approximately฀0.9฀percentage฀points.฀฀
Selling,฀General฀and฀Administrative฀Expenses฀฀SG&A฀expenses฀for฀
the฀Graphic฀Communications฀segment฀remained฀constant฀at฀$37฀million฀for฀
both฀2003฀and฀2002.฀As฀a฀percentage฀of฀sales,฀SG&A฀expenses฀increased฀
from฀9%฀for฀2002฀to฀11%฀for฀2003,฀primarily฀due฀to฀the฀impact฀of฀unfavor-
able฀exchange฀and฀an฀increase฀in฀the฀benefit฀rate.฀
Research฀and฀Development฀Costs฀฀R&D฀costs฀for฀the฀Graphic฀Commu-
nications฀segment฀decreased฀$6฀million,฀or฀21%,฀from฀$29฀million฀for฀2002฀
to฀$23฀million฀for฀2003.฀As฀a฀percentage฀of฀sales,฀R&D฀costs฀remained฀
constant฀at฀7%฀for฀both฀years.฀