Kodak 2004 Annual Report Download - page 43

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
Delays฀in฀our฀plans฀to฀improve฀manufacturing฀productivity฀and฀con-
trol฀cost฀of฀operations฀could฀negatively฀impact฀our฀gross฀margins.฀
Delays฀in฀Kodak’s฀plans฀to฀improve฀manufacturing฀productivity฀and฀
control฀costs฀of฀operations฀could฀negatively฀impact฀the฀gross฀margins฀of฀the฀
Company.฀Kodak’s฀failure฀to฀successfully฀manage฀operational฀performance฀
factors฀could฀delay฀or฀curtail฀planned฀improvements฀in฀manufacturing฀
productivity.฀Accelerating฀digital฀substitution฀could฀result฀in฀lower฀volumes฀
in฀the฀factory฀than฀planned,฀which฀would฀also฀negatively฀impact฀gross฀mar-
gins.฀If฀Kodak฀is฀unable฀to฀successfully฀negotiate฀raw฀material฀costs฀with฀its฀
suppliers,฀or฀incurs฀adverse฀pricing฀on฀certain฀of฀its฀commodity-based฀raw฀
materials,฀reduction฀in฀the฀gross฀margins฀could฀occur.฀Additionally,฀delays฀
in฀the฀Company’s฀execution฀of฀increasing฀manufacturing฀capabilities฀for฀
certain฀of฀its฀products฀in฀some฀of฀its฀emerging฀markets,฀particularly฀China฀
where฀it฀is฀more฀cost฀competitive,฀could฀adversely฀impact฀gross฀margins.
If฀we฀fail฀to฀execute฀our฀capital฀spending฀plan,฀this฀could฀adversely฀
impact฀our฀cash฀flow.฀
If฀Kodak฀exceeds฀its฀2005฀capital฀spending฀plan,฀this฀factor฀could฀ad-
versely฀impact฀the฀Company’s฀cash฀flow฀outlook.฀Further,฀if฀Kodak฀deems฀
it฀necessary฀to฀spend฀more฀on฀regulatory฀requirements฀or฀if฀unanticipated฀
general฀maintenance฀obligations฀arise฀that฀require฀more฀capital฀spending฀
than฀planned,฀the฀increased฀spending฀could฀have฀an฀adverse฀impact฀on฀
Kodak’s฀cash฀flow.
If฀our฀planned฀improvements฀in฀supply฀chain฀efficiency฀are฀delayed,฀
this฀could฀adversely฀affect฀our฀revenues฀and฀earnings.฀
Kodak’s฀planned฀improvement฀in฀supply฀chain฀efficiency,฀if฀delayed,฀could฀
adversely฀affect฀its฀business฀by฀preventing฀shipments฀of฀certain฀products฀
to฀be฀made฀in฀their฀desired฀quantities฀and฀in฀a฀timely฀manner.฀฀The฀planned฀
efficiencies฀could฀be฀compromised฀if฀Kodak฀expands฀into฀new฀markets฀with฀
new฀applications฀that฀are฀not฀fully฀understood฀or฀if฀the฀portfolio฀broadens฀
beyond฀that฀anticipated฀when฀the฀plans฀were฀initiated.฀฀The฀unforeseen฀
changes฀in฀manufacturing฀capacity฀could฀also฀compromise฀the฀supply฀chain฀
efficiencies.
The฀competitive฀pressures฀we฀face฀could฀harm฀our฀revenue,฀gross฀
margins฀and฀market฀share.฀
Competition฀remains฀intense฀in฀the฀imaging฀sector฀in฀the฀Digital฀&฀Film฀
Imaging฀Systems,฀Graphic฀Communications฀and฀Health฀segments.฀In฀the฀
D&FIS฀segment,฀price฀competition฀has฀been฀driven฀somewhat฀by฀con-
sumers’฀conservative฀spending฀behaviors฀during฀times฀of฀a฀weak฀world฀
economy,฀international฀tensions฀and฀the฀accompanying฀concern฀over฀war฀
and฀terrorism.฀In฀the฀Health฀and฀Graphic฀Communications฀segments,฀ag-
gressive฀pricing฀tactics฀intensified฀in฀the฀contract฀negotiations฀as฀competi-
tors฀were฀vying฀for฀customers฀and฀market฀share฀domestically.฀If฀the฀pricing฀
and฀programs฀are฀not฀sufficiently฀competitive฀with฀those฀offered฀by฀Kodak’s฀
current฀and฀future฀competitors,฀Kodak฀may฀lose฀market฀share,฀adversely฀
affecting฀its฀revenue฀and฀gross฀margins.
If฀we฀fail฀to฀manage฀distribution฀of฀our฀products฀and฀services฀prop-
erly,฀our฀revenue,฀gross฀margins฀and฀earnings฀could฀be฀adversely฀
impacted.฀
The฀impact฀of฀continuing฀customer฀consolidation฀and฀buying฀power฀could฀
have฀an฀adverse฀impact฀on฀Kodak’s฀revenue,฀gross฀margins,฀and฀earnings.฀
In฀the฀competitive฀consumer฀retail฀environment,฀there฀is฀a฀movement฀from฀
small฀individually฀owned฀retailers฀to฀larger฀and฀commonly฀known฀mass฀
merchants.฀In฀the฀commercial฀environment,฀there฀is฀a฀continuing฀consolida-
tion฀of฀various฀group฀purchasing฀organizations.฀The฀resellers฀and฀distribu-
tors฀may฀elect฀to฀use฀suppliers฀other฀than฀Kodak.฀Kodak’s฀challenge฀is฀to฀
successfully฀negotiate฀contracts฀that฀provide฀the฀most฀favorable฀conditions฀
to฀the฀Company฀in฀the฀face฀of฀price฀and฀aggressive฀competitors.
Economic฀uncertainty฀in฀developing฀markets฀could฀affect฀adversely,฀
our฀revenue฀and฀earnings.฀
Kodak฀conducts฀business฀in฀developing฀markets฀with฀economies฀that฀tend฀
to฀be฀more฀volatile฀than฀those฀in฀the฀United฀States฀and฀Western฀Europe.฀
The฀risk฀of฀doing฀business฀in฀developing฀markets฀like฀China,฀India,฀Brazil,฀
Argentina,฀Mexico,฀Russia฀and฀other฀economically฀volatile฀areas฀could฀
adversely฀affect฀Kodak’s฀operations฀and฀earnings.฀Such฀risks฀include฀the฀
financial฀instability฀among฀customers฀in฀these฀regions,฀political฀instability฀
and฀potential฀conflicts฀among฀developing฀nations฀and฀other฀non-economic฀
factors฀such฀as฀irregular฀trade฀flows฀that฀need฀to฀be฀managed฀success-
fully฀with฀the฀help฀of฀the฀local฀governments.฀Kodak’s฀failure฀to฀successfully฀
manage฀economic,฀political฀and฀other฀risks฀relating฀to฀doing฀business฀in฀
developing฀countries฀and฀economically฀and฀politically฀volatile฀areas฀could฀
adversely฀affect฀its฀business.
Because฀we฀sell฀our฀products฀and฀services฀worldwide,฀we฀are฀subject฀
to฀changes฀in฀currency฀exchange฀rates฀and฀interest฀rates฀that฀may฀
adversely฀impact฀our฀operations฀and฀financial฀position.฀
Kodak,฀as฀a฀result฀of฀its฀global฀operating฀and฀financing฀activities,฀is฀exposed฀
to฀changes฀in฀currency฀exchange฀rates฀and฀interest฀rates,฀which฀may฀
adversely฀affect฀its฀results฀of฀operations฀and฀financial฀position.฀Exchange฀
rates฀and฀interest฀rates฀in฀certain฀markets฀in฀which฀the฀Company฀does฀
business฀tend฀to฀be฀more฀volatile฀than฀those฀in฀the฀United฀States฀and฀
Western฀Europe.฀For฀example,฀in฀early฀2002,฀the฀United฀States฀dollar฀was฀
eliminated฀as฀Argentina’s฀monetary฀benchmark,฀resulting฀in฀significant฀cur-
rency฀devaluation.฀There฀can฀be฀no฀guarantees฀that฀the฀economic฀situation฀
in฀developing฀markets฀or฀elsewhere฀will฀not฀worsen,฀which฀could฀result฀in฀
future฀effects฀on฀earnings฀should฀such฀events฀occur.
Cautionary฀Statement฀Pursuant฀to฀Safe฀Harbor฀
Provisions฀of฀the฀Private฀Securities฀Litigation฀฀
Reform฀Act฀of฀1995
Certain฀statements฀in฀this฀report฀may฀be฀forward-looking฀in฀nature,฀or฀“for-
ward-looking฀statements”฀as฀defined฀in฀the฀United฀States฀Private฀Securities฀
Litigation฀Reform฀Act฀of฀1995.฀For฀example,฀references฀to฀expectations฀
for฀the฀Company’s฀growth฀in฀sales฀and฀earnings,฀the฀effects฀of฀legislation,฀
cash฀generation,฀tax฀rate,฀and฀debt฀management฀are฀forward-looking฀state-
ments.
Actual฀results฀may฀differ฀from฀those฀expressed฀or฀implied฀in฀forward-
looking฀statements.฀In฀addition,฀any฀forward-looking฀statements฀represent฀
the฀Company’s฀estimates฀only฀as฀of฀the฀date฀they฀are฀made,฀and฀should฀
not฀be฀relied฀upon฀as฀representing฀the฀Company’s฀estimates฀as฀of฀any฀
subsequent฀date.฀While฀the฀Company฀may฀elect฀to฀update฀forward-looking฀
statements฀at฀some฀point฀in฀the฀future,฀the฀Company฀specifically฀disclaims฀
any฀obligation฀to฀do฀so,฀even฀if฀its฀estimates฀change.฀The฀forward-looking฀
statements฀contained฀in฀this฀report฀are฀subject฀to฀a฀number฀of฀factors฀and฀
uncertainties,฀including฀the฀successful:฀implementation฀of฀the฀digitally-
oriented฀growth฀strategy,฀including฀the฀related฀implementation฀of฀the฀three-
year฀cost฀reduction฀program;฀implementation฀of฀the฀debt฀management฀
program;฀implementation฀of฀product฀strategies฀(including฀digital฀products,฀