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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 20, 2004
Eastman Kodak Company
(Exact name of registrant as specified in charter)
New Jersey 1-87 16-0417150
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
343 State Street,
Rochester, New York 14650
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (585) 724-4000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
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On October 20, 2004, Eastman Kodak Company issued a press release and a
supplemental financial discussion document describing its financial results for
its third fiscal quarter ended September 30, 2004. Copies of the press release
and financial discussion document are attached as Exhibits 99.1 and 99.2,
respectively, to this report.
Within the Company's third quarter 2004 press release and financial discussion
document, the Company makes reference to certain non-GAAP financial measures
including "Income from continuing operations, excluding non-operational items",
"Operating cash flow", "Investable cash flow" and "Operating cash flow excluding
acquisitions", which have a directly comparable GAAP financial measure, and to
certain calculations that are based on non-GAAP financial measures, including
"Days sales outstanding" and "Days supply in inventory." The Company believes
that these measures represent important internal measures of performance.
Accordingly, where these non-GAAP measures are provided, it is done so that
investors have the same financial data that management uses with the belief that
it will assist the investment community in properly assessing the underlying
performance of the company on a year-over-year and quarter-sequential basis.
Whenever such information is presented, the Company has complied with the
provisions of the rules under Regulation G and Item 12 of Form 8-K. The specific
reasons, in addition to the reasons described above, why the Company's
management believes that the presentation of the non-GAAP financial measures
provides useful information to investors regarding Kodak's financial condition,
results of operations and cash flows are as follows:
Income from continuing operations, excluding non-operational items - The
Company's management believes that presenting income from continuing operations,
excluding non-operational items, is an important additional measure of
performance that can be used for comparing results between reporting periods.
These operating measures represent the principle internal measures of
performance, and form the basis of internal management performance expectations
and incentive compensation.
Operating cash flow / Investable cash flow / Operating cash flow excluding
acquisitions - The Company believes that the presentation of operating cash
flow, investable cash flow and operating cash flow excluding acquisitions is
useful information to investors as they facilitate the comparison of cash flows
between reporting periods. In addition, management utilizes these measures as
tools to assess the Company's ability to repay debt and repurchase its own
common stock, after it has satisfied its working capital needs, dividends, and
funded capital expenditures, acquisitions and investments. The operating cash
flow measure equals net cash provided by continuing operations, as determined
under Generally Accepted Accounting Principles in the U.S. (U.S. GAAP), plus
proceeds from the sale of assets minus capital expenditures, acquisitions, debt
assumed in acquisitions, investments in unconsolidated affiliates and dividends.
The investable cash flow measure equals operating cash flow excluding the impact
of acquisitions and debt assumed in acquisitions. The operating cash flow
excluding acquisitions measure equals the net cash provided by continuing
operations, as determined under U.S. GAAP, plus proceeds from the sale of assets
minus capital expenditures, investments in unconsolidated affiliates and
dividends, and yields the same result as the investable cash flow measure.
Accordingly, the Company believes that the presentation of this information is
useful to investors as it provides them with the same data as management uses to
facilitate their assessment of the Company's cash position.
Days sales outstanding (DSO) - The Company believes that the presentation of a
DSO result that includes the impact of reclassifying rebates as an offset to
receivables is useful information to investors, as this calculation is more
reflective of the Company's receivables performance and cash collection efforts
due to the fact that most customers reduce their actual cash payment to the
Company by the amount of rebates owed to them.
Days supply in inventory (DSI) - The Company believes that the presentation of a
DSI result that is based on inventory before the LIFO reserve is useful
information to investors, as this calculation is more reflective of the
Company's actual inventory turns due to the fact that the inventory values in
the calculation are based on current cost. The Company also believes that the
presentation of a DSI result that is based on a cost of goods sold amount that
excludes certain manufacturing-related costs that are considered to be unusual,
or that occur infrequently, is useful information to investors.
Item 9.01. Financial Statements and Exhibits
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(c) Exhibits
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Exhibit 99.1 Press release issued October 20, 2004 Furnished with
regarding financial results for the this document
third quarter of 2004
Exhibit 99.2 Financial discussion document issued Furnished with
October 20, 2004 regarding financial this document
results for the third quarter of 2004
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTMAN KODAK COMPANY
By: /s/ Richard G. Brown
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Name: Richard G. Brown
Title: Controller
Date: October 20, 2004
EXHIBIT INDEX
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Exhibit No. Description
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99.1 Press release issued October 20, 2004 regarding financial results for
the third quarter 2004
99.2 Financial discussion document issued October 20, 2004 regarding
financial results for the third quarter 2004
Exhibit 99.1
Kodak Has 3rd-Quarter Reported Net Income
of $1.67 Per Share;
EPS from Continuing Operations, Excluding
Non-Operational Items, Totals 79 Cents
ROCHESTER, N.Y.--(BUSINESS WIRE)--Oct. 20, 2004--Eastman Kodak
Company today said third-quarter reported net income totaled $1.67 per
share and revenue rose 1%, as increased demand for the company's
digital portfolio continues to offset declining sales of some
traditional products and services. Revenue also benefited from
favorable foreign exchange.
Kodak's net income for the quarter included income from
discontinued operations of $1.51 per share. Excluding the discontinued
operations, income from continuing operations was 16 cents per share.
The company also recorded charges in the quarter totaling 63 cents per
share, primarily related to the focused cost reductions announced in
January. By removing the charges from the calculation of earnings from
continuing operations, Kodak had operational earnings per share of 79
cents.
For the third quarter of 2004:
-- Sales totaled $3.364 billion, an increase of 1% from $3.346
billion in the third quarter of 2003. Excluding foreign
exchange, sales decreased 2%.
-- The company reported net income of $479 million, or $1.67 per
share, compared with $122 million, or 42 cents per share, in
the third quarter of 2003. The net income from discontinued
operations of $1.51 per share in the third quarter of 2004
reflects the $434 million gain on the sale of the company's
Remote Sensing Systems operation to ITT Industries Inc.
-- Earnings from continuing operations, excluding the impact of
the focused cost reductions, were $226 million, or 79 cents
per share. The non-operational items include charges totaling
63 cents per share, primarily related to the previously
announced focused cost reductions. In the third quarter of
2003, earnings from continuing operations, excluding
non-operational items, were $246 million, or 86 cents per
share.
"Kodak continues to deliver on its commitment to improve its
full-year earnings performance during our digital transformation,"
said Kodak Chairman and Chief Executive Officer Daniel A. Carp. "Ever
since we presented our digitally oriented growth strategy in September
2003, the company has met its earnings projections by managing smartly
its traditional businesses and containing cost throughout the
organization, while also driving growth in its digital businesses.
Kodak's digital revenue, for example, increased 39% in the third
quarter, essentially offsetting a decline of 13% in traditional
revenue. What's more, the performance of our acquisitions remains on
target, and our already solid balance sheet strengthened further
during the quarter."
Other third-quarter 2004 details from continuing operations:
-- For the quarter, operating cash flow excluding acquisitions
was $257 million, compared with $252 million for the third
quarter of 2003. (Kodak defines operating cash flow excluding
acquisitions as net cash provided by continuing operations, as
determined under Generally Accepted Accounting Principles in
the U.S. (U.S. GAAP), plus proceeds from the sale of assets,
minus capital expenditures, investments in unconsolidated
affiliates and dividends.)
-- Debt decreased $584 million from the year-end level to $2.664
billion, reflecting substantial progress in achieving the
company's commitment to reduce debt this year by as much as
$800 million. The debt-to-capital ratio decreased to 41.3%
from 49.9% at the end of 2003. The company held $1.113 billion
in cash on its balance sheet at the end of the quarter, up
from $519 million at the end of the second quarter, reflecting
$710 million in net cash proceeds from the RSS sale. The cash
balance was $1.25 billion at the end of 2003.
-- Gross Profit on an operational basis was 33.1%, down from the
year-ago level of 34%.
-- Selling, General and Administrative expenses on an operational
basis were 18.8% of sales, up from 18.6% in the year-ago
quarter, largely reflecting the effect of acquisitions in the
past year.
-- The company benefited from a lower estimated annual effective
tax rate, which contributed 7 cents to operational and GAAP
earnings per share.
The segment results from continuing operations for the third
quarter of 2004 are as follows:
-- Digital & Film Imaging segment sales totaled $2.308 billion,
down 7%. Earnings from operations for the segment were $214
million on a GAAP and an operational basis, compared with $204
million a year ago. Highlights for the quarter included a 41%
increase in the sales of KODAK Picture Maker kiosks and
related media; a 41% increase in consumer digital capture
sales, which includes the KODAK EASYSHARE cameras; and
continued strong sales of motion-picture origination and print
film. The segment's earnings from operations increased largely
because of administrative cost reductions, higher
manufacturing productivity and an improved year-over-year
earnings performance by retail and wholesale photofinishing
operations. For the quarter, the company estimates that U.S.
consumer film industry volume declined about 20% compared with
the third quarter of 2003.
-- Health Imaging sales were $642 million, up 12%. Earnings from
operations for the segment were $102 million on a GAAP and
operational basis, compared with $117 million a year ago.
Highlights included a 24% increase in sales of digital
products and services.
-- Commercial Imaging sales were $195 million, up 3%. Earnings
from operations were $33 million on a GAAP and operational
basis, compared with $24 million a year ago. The segment's
results reflect in part solid demand for imaging services.
-- Graphic Communications sales were $195 million, up 138%,
largely reflecting the acquisition this year of Kodak
Versamark and NexPress. The loss from operations was $40
million on a GAAP and operational basis, compared with a loss
of $3 million a year ago. The integration plans are on or
ahead of schedule for both Kodak Versamark and NexPress, and
both subsidiaries are enjoying solid demand for their products
and services.
-- All Other sales were $24 million, down 14% from the year-ago
quarter. The loss from operations totaled $49 million on a
GAAP basis and $43 million on an operational basis, compared
with a loss of $18 million a year ago. The difference in GAAP
and operational earnings reflects a $6 million charge for
in-process R&D. The All Other category includes the Display &
Components operation and other miscellaneous businesses.
Earnings Outlook:
-- Kodak reaffirms its full-year operational earnings guidance of
$2.44 to $2.64 per share, and GAAP earnings of $2.49 to $2.69
per share. The range does not include a number of variables,
such as the expected adoption in the fourth quarter of
accounting rules related to contingent convertible debt, and
the potential reversal of a reserve related to a proposed
change in U.S. tax law affecting exporters.
"Our third-quarter results demonstrate yet again the company's
success in managing our digital transformation," said Kodak President
and Chief Operating Officer Antonio M. Perez. "We continue to post
strong revenue gains in our digital portfolio, and we are making the
most of our traditional businesses by capitalizing on opportunities in
emerging markets and reducing costs ahead of the decline in demand. We
now expect that demand for consumer film industrywide will decline
approximately 20% worldwide in 2005, with U.S. demand declining as
much as 30%.
"The consumer film forecast is incorporated into the company's
strategic outlook, which continues to call for operational earnings
per share of $3 in 2006," Perez said. "The success to date in driving
digital sales and reducing costs reinforces our confidence in our
strategy and our ability to generate value for shareholders."
Operational items are non-GAAP financial measures as defined by
the Securities and Exchange Commission's final rules under "Conditions
for Use of Non-GAAP Financial Measures." Reconciliations of
operational items included in this press release to the most directly
comparable GAAP financial measures can be found in the Financial
Discussion Document attached to this press release.
Certain statements in this press release may be forward looking in
nature, or "forward-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 reduction plans are forward-looking statements.
Actual results may differ from those expressed or implied in
forward-looking statements. In addition, any forward-looking
statements represent our estimates only as of the date they are made,
and should not be relied upon as representing our estimates as of any
subsequent date. While we may elect to update forward-looking
statements at some point in the future, we specifically disclaim any
obligation to do so, even if our estimates change. The forward-looking
statements contained in these presentations are subject to a number of
factors and uncertainties, the successful:
-- Implementation of our digitally oriented growth strategy;
-- Implementation of our recently announced three-year cost
reduction program;
-- Implementation of our debt reduction plans;
-- Implementation of product strategies (including category
expansion, digitization, organic light emitting diode (OLED)
displays, and digital products);
-- Implementation of intellectual property licensing strategies;
-- Development and implementation of e-commerce strategies;
-- Completion of information systems upgrades, including SAP, our
enterprise system software;
-- Completion of various portfolio actions;
-- Reduction of inventories;
-- Integration of newly acquired businesses;
-- Improvement in manufacturing productivity and techniques;
-- Improvement in receivables performance;
-- Reduction in capital expenditures;
-- Improvement in supply chain efficiency;
-- Implementation of future focused cost reductions, including
personnel reductions; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this presentation are
subject to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions; and
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission.
Any forward-looking statements in this press release should be
evaluated in light of these important factors and uncertainties.
CONTACT: Eastman Kodak
Media Contacts:
Gerard Meuchner, 585-724-4513
gerard.meuchner@kodak.com
or
Dave Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
Investor Relations Contacts:
Don Flick, 585-724-4352
donald.flick@kodak.com
or
Carol Wilke, 585-724-6791
carol.wilke@kodak.com
or
Patty Yahn-Urlaub, 585-724-4683
patty.yahn-urlaub@kodak.com
Exhibit 99.2
Eastman Kodak Company Financial Discussion Document
Third Quarter 2004 Results
The Remote Sensing Systems (RSS) business, which had been included
in the Commercial Imaging segment, was sold to ITT Industries on
August 13, 2004 for $725 million in cash. The after tax gain of $434
million ($1.51 per share), is reported in discontinued operations
within the current quarter. The discussion that follows relates to the
continuing operations portion of the business.
During the third quarter, the Company announced its intention to
begin actions that will result in the repositioning of the management
and product lines of the Commercial Imaging Group (CIG) into other
reportable segments effective January 1, 2005. This move follows the
sale of RSS, which was the largest operation within CIG, accounting
for approximately 27% of its revenue in 2003. The remaining CIG
businesses will be realigned as follows:
-- CIG's Document Products and Services (document scanners,
microfilm and worldwide service and support) as well as the
Business Process Services operations will move into the
Graphic Communications segment. The Graphic Communications
segment will also integrate the service function of its
subsidiaries - Encad, Inc., Kodak Versamark and NexPress
Solutions - and those of Document Products into one service
operation that will do business under the Kodak name.
-- The Aerial and Industrial Materials operation will be moved
into the Digital and Film Imaging Systems segment.
Third Quarter
Consolidated Revenues:
Net worldwide sales were $3.364 billion for the third quarter of
2004 as compared with $3.346 billion for the third quarter of 2003,
representing an increase of $18 million or 1% as reported, or a
decrease of 2% excluding the favorable impact of exchange. The
increase in net sales was composed of:
-- Volume: decreases in volume reduced third quarter sales by
approximately 4.0 percentage points driven primarily by
declines in the film capture SPG and the wholesale and retail
portions of the consumer output SPG.
-- Price/Mix: declines in price/mix reduced third quarter sales
by approximately 3.0 percentage points, primarily driven by
the consumer digital capture SPG and the film capture SPG.
-- Exchange: favorable exchange of approximately 3.0 percentage
points offset the negative impacts of price/mix.
-- Acquisitions: PracticeWorks, Kodak Versamark, Laser Pacific,
and NexPress Solutions (and related entities) contributed $164
million or approximately 5.0 percentage points to third
quarter sales.
Net sales in the U.S. were $1.404 billion for the third quarter of
2004 as compared with $1.394 billion for the prior year quarter,
representing an increase of $10 million, or 1%.
Net sales outside the U.S. were $1.960 billion for the current
quarter as compared with $1.952 billion for the third quarter of 2003,
representing an increase of $8 million, or unchanged as reported, or a
decrease of 4% excluding the favorable impact of exchange.
Kodak's digital product sales (excluding new technologies) were
$1.239 billion for the current quarter as compared with $894 million
for the third quarter of 2003, representing an increase of $345
million, or 39%, primarily driven by the consumer digital capture SPG,
the kiosks/media portion of the consumer output SPG, the home printing
SPG, and digital acquisitions, which include PracticeWorks, Laser
Pacific, Kodak Versamark, and NexPress. Excluding acquisitions,
digital product sales increased 20% year over year. Net sales of the
Company's traditional products were $2.119 billion for the current
quarter as compared with $2.445 billion for the third quarter of 2003,
representing a decrease of $326 million, or 13%, primarily driven by
declines in the film capture SPG and the wholesale and retail portions
of the consumer output SPG.
Non-U.S. Revenues:
The Company's operations outside the U.S. are reported in three
regions: (1) the Europe, Africa and Middle East region ("EAMER"), (2)
the Asia Pacific region and (3) the Canada and Latin America region.
Net sales in the EAMER region were $1.017 billion for the third
quarter of 2004 as compared with $1.040 billion for the prior year
quarter, representing a decrease of $23 million, or 2% as reported, or
a decrease of 9% excluding the favorable impact of exchange.
Net sales in the Asia Pacific region were $629 million for the
current quarter as compared with $591 million for the prior year
quarter, representing an increase of $38 million, or 6% as reported,
or an increase of 3% excluding the favorable impact of exchange.
Net sales in the Canada and Latin America region were $314 million
in the current quarter as compared with $321 million for the third
quarter of 2003, representing a decrease of $7 million, or 2% as
reported, or a decrease of 4% excluding the favorable impact of
exchange.
Emerging Markets:
The Company's major emerging markets include China, Brazil,
Mexico, Russia, India, Korea, Hong Kong and Taiwan. Net sales in
emerging markets were $739 million for the third quarter of 2004 as
compared with $677 million for the prior year quarter, representing an
increase of $62 million, or 9% as reported, and 9% excluding the
favorable impact of exchange.
The emerging market portfolio accounted for approximately 22% of
Kodak's worldwide sales and 38% of Kodak's non-U.S. sales in the
quarter. Sales growth was recorded for most major emerging markets
including China +20%, Mexico +11%, India +9%, and Russia +8%. Brazil
recorded sales declines of 2%.
Strong sales increases in China and India were the result of
strong business performance for most of Kodak's operations in those
areas. The increase in sales in Russia is the result of the Company's
efforts to expand the distribution channels for Kodak products and
services.
Gross Profit:
GAAP:
Gross profit was $1.075 billion for the third quarter of 2004 as
compared with $1.105 billion for the third quarter of 2003,
representing a decrease of $30 million, or 3%. Gross profit includes
charges relating to accelerated depreciation and inventory write-downs
relating to cost reduction actions totaling $37 million in the current
quarter and $33 million in the prior year quarter. During the third
quarter of 2004, the Company's gross profit was favorably impacted by
a LIFO liquidation of $17 million versus $12 million in the third
quarter of 2003.
The gross profit margin was 32.0% in the current quarter as
compared with 33.0% in the prior year quarter. The 1.0 percentage
point decrease was primarily attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross
profit margins by approximately 3.5 percentage points.
Negative price/mix was driven primarily by the consumer
digital capture SPG and the film capture SPG.
-- Manufacturing Cost: manufacturing cost reductions favorably
impacted gross profit margins by approximately 2.0 percentage
points.
-- Exchange: remained essentially unchanged.
-- Acquisitions: favorably impacted gross profit margins by
approximately 0.5 percentage point.
Operational:
Excluding charges relating to accelerated depreciation and
inventory write-downs, gross profit on an operational basis was $1.112
billion for the third quarter of 2004 as compared with $1.138 billion
for the third quarter of 2003, representing a decrease of $26 million,
or 2%. During the third quarter of 2004, the Company's gross profit
was favorably impacted by a LIFO liquidation of $17 million versus $12
million in the third quarter of 2003.
The gross profit margin was 33.1% in the current quarter as
compared with 34.0% in the prior year quarter. The 0.9 percentage
point decrease was primarily attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross
profit margins by approximately 3.5 percentage points
primarily attributable to the consumer digital capture SPG and
the film capture SPG.
-- Manufacturing Cost: manufacturing cost reductions favorably
impacted gross profit margins by approximately 2.0 percentage
points.
-- Exchange: remained essentially unchanged.
-- Acquisitions: acquisitions favorably impacted gross profit
margins by approximately 0.5 percentage point.
Selling, General and Administrative Expenses:
GAAP:
Selling, general and administrative expenses (SG&A) were $633
million for the third quarter of 2004 as compared with $630 million
for the prior year quarter, representing an increase of $3 million.
The prior year quarter included charges of $8 million relating to a
donation to Infotonics SG&A remained unchanged as a percentage of
sales at 18.8%. Unfavorable exchange of $16 million and acquisition
related SG&A of $66 million were mostly offset by savings from the
Company's ongoing cost reduction actions.
Operational:
SG&A expenses on an operational basis were $633 million for the
third quarter of 2004 as compared with $622 million for the prior year
quarter, representing an increase of $11 million, or 2%. The increase
in SG&A is attributable to acquisition related SG&A of $66 million and
unfavorable exchange of $16 million which were mostly offset by
savings from the Company's ongoing cost reduction actions. As a
percentage of sales, SG&A increased from 18.6% for the third quarter
of 2003 to 18.8% for the current quarter.
Research and Development Costs:
GAAP
Research and development costs (R&D) were $219 million for the
third quarter of 2004 as compared with $192 million for the third
quarter of 2003, representing an increase of $27 million, or 14%. R&D
as a percentage of sales increased from 5.7% in the third quarter of
2003 to 6.5% in the current quarter. The increase in R&D is primarily
attributable to acquisition related R&D, increased investments for
digital growth initiatives, and a $6 million charge for in-process R&D
relating to the acquisition of the imaging business of National
Semiconductor Corporation.
Operational
Excluding the $6 million charge for in-process R&D, R&D expenses
on an operational basis were $213 million for the third quarter of
2004 as compared with $192 million for the third quarter of 2003,
representing an increase of $21 million, or 11%. R&D as a percentage
of sales increased from 5.7% in the third quarter of 2003 to 6.3% in
the current quarter.
Restructuring Costs and Other
Cost Reduction Plans:
As announced in January 2004, the company is developing and
executing a new cost reduction program throughout the 2004 to 2006
timeframe, consistent with the implementation of Kodak's new business
model. The program is expected to result in total charges of $1.3
billion to $1.7 billion over the three-year period, with cost savings
in the range of $800 million to $1 billion for full year 2007.
Overall, Kodak's worldwide facility square footage will be reduced by
approximately one third. Approximately 12,000 to 15,000 positions
worldwide are expected to be eliminated through these actions
primarily in global manufacturing, selected traditional businesses and
corporate administration.
Under this program, Kodak implemented cost reduction actions in
the third quarter resulting in pre-tax charges totaling $264 million
or $.62 per share. The components of restructuring in the third
quarter include $186 million for employee severance relating to the
elimination of approximately 3,200 positions and $43 million
associated with exit costs and asset impairments, partially offset by
reserve reversals of $3 million. In addition, the Company recorded
accelerated depreciation and inventory write-offs of $37 million
during the quarter. The following changes in manufacturing plant
operations were announced during the quarter:
-- Closure of a plant in Coburg, Australia that primarily
manufactures color photographic paper, by the end of November
2004.
-- Graphics film sensitizing operations in Harrow, U.K., will
close by the end of March 2005.
-- The Annesley, U.K. plant will close by the end of September
2005. It primarily finishes consumer photographic film.
-- The Chalon, France plant will stop production of consumer film
and color photographic paper by the end of September 2005.
Under the current cost reduction program on a year to date basis,
(including second and third quarter 2004) Kodak has implemented cost
reduction actions resulting in pre-tax charges totaling $428 million
or $.99 per share, which includes the elimination of approximately
5,900 positions.
Earnings From Operations:
GAAP:
Losses from operations for the third quarter of 2004 were $4
million as compared with earnings from operations of $131 million for
the third quarter of 2003, representing a decrease of $135 million, or
103%. This decrease is attributable to the reasons indicated above.
Operational:
EFO on an operational basis for the third quarter of 2004 were
$266 million as compared with $324 million for the third quarter of
2003, representing a decrease of $58 million, or 18%. The decrease in
earnings from operations is attributable to the reasons indicated
above.
Below EFO:
Interest expense for the third quarter of 2004 was $43 million as
compared with $33 million for the prior year quarter, representing an
increase of $10 million, or 30%. Higher interest expense is a result
of higher year over year interest rates, as the Company has eliminated
its commercial paper position.
The "other income (charges)" component includes principally
investment income, income and losses from equity investments, foreign
exchange and gains and losses on the sales of assets and investments.
Other income for the current quarter was $20 million as compared with
other charges of $9 million for the third quarter of 2003. The
improvement is primarily attributable to the movement of NexPress
investments from other income (charges) to the Graphic Communications
segment as a result of the Company's purchase of Heidelberg's 50%
interest in the NexPress joint venture, which closed on May 1, 2004.
Corporate Tax Rate:
GAAP:
The Company's estimated annual effective tax rate from continuing
operations decreased from 17.5% for the prior year third quarter to
12.0% for the third quarter of 2004. This decrease is primarily
attributable to expected increased earnings from operations in certain
lower-taxed jurisdictions outside the U.S. relative to total
consolidated earnings and the expected full-year earnings impact of
the Medicare Prescription Drug, Improvement and Modernization Act of
2003, which is not taxable.
During the third quarter of 2004, the Company recorded a tax
benefit of $72 million on a pre-tax loss of $27 million. The tax
benefit of $72 million for the quarter differs from the tax benefit of
$3 million that results from applying the estimated annual effective
tax rate to the pre-tax loss of $27 million due to (1) the
year-to-date impact through June 30, 2004 of the decrease in the
estimated annual effective tax rate from continuing operations from
15.5% to 12.0% ($12 million, or $.04 per share) and (2) discrete
period tax benefits relating to discrete period charges which are
taxed in jurisdictions that, when aggregated, have tax rates greater
than the estimated annual effective tax rate from continuing
operations. The decrease in the estimated annual effective tax rate is
primarily attributable to expected increased earnings from operations
in lower-taxed jurisdictions outside the U.S. relative to total
consolidated earnings. The discrete period tax benefits resulted from
the following discrete period charges:
-- Tax benefits of $87 million associated with the net focused
cost reduction charges of $264 million; and
-- Tax benefits of $2 million associated with the charge for
in-process research and development of $6 million.
Operational:
The Company's estimated annual effective tax rate from continuing
operations for 2004 is 12.0%. The actual tax provision from continuing
operations on an operational basis was $17 million on $243 million of
pre-tax income in the third quarter of 2004. The tax provision of $17
million differs from the tax provision of $29 million that results
from applying the Company's estimated annual effective tax rate from
continuing operations to the pre-tax income of $243 million due to the
year-to-date impact through June 30, 2004 of the decrease in the
estimated annual effective tax rate from continuing operations from
15.5% to 12.0% ($12 million, or $.04 per share). The decrease in the
estimated annual effective tax rate is primarily attributable to
expected increased earnings from operations in lower-taxed
jurisdictions outside the U.S. relative to total consolidated
earnings.
The decrease in the estimated annual effective tax rate from
continuing operations from 17.5% for the prior year third quarter to
12.0% for the third quarter of 2004 is primarily attributable to
expected increased earnings from operations in certain lower-taxed
jurisdictions outside the U.S. relative to total consolidated earnings
and the expected full-year earnings impact of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, which is
not taxable.
Earnings from Continuing Operations:
GAAP:
Earnings from continuing operations for the third quarter of 2004
were $45 million, or $.16 per diluted share, as compared with earnings
from continuing operations for the third quarter of 2003 of $115
million, or $.40 per diluted share, representing a decrease of $70
million, or 61% year over year. This decrease in earnings from
continuing operations is attributable to the reasons described above.
Operational:
Earnings from continuing operations on an operational basis for
the third quarter of 2004 were $226 million, or $.79 per diluted
share, as compared with earnings from continuing operations on an
operational basis for the third quarter of 2003 of $246 million, or
$.86 per diluted share, representing a decrease of $20 million, or 8%.
Third quarter operational earnings from continuing operations for 2004
exclude the following after-tax items:
-- A charge of $177 million ($264 million pre-tax), or $.62 per
share, resulting from previously announced cost reduction
initiatives. $227 million is recorded in "Restructuring Costs
and Other" and $37 million of accelerated depreciation and
inventory writedowns are recorded in "Cost of Goods Sold"
(COGS).
-- A charge of $4 million ($6 million pre-tax), or $.01 per share
relating to the purchase of in-process R&D associated with the
acquisition of the imaging business of National Semiconductor
Corporation. $6 million is recorded in R&D.
Earnings from Discontinued Operations:
Earnings from discontinued operations for the third quarter of
2004 were $1.51 per diluted share primarily reflecting the after tax
$434 million gain on the sale of RSS to ITT Industries on August 13,
2004. Earnings from discontinued operations relating to RSS in the
third quarter of 2003 were $7 million, or $.02 per diluted share.
Year-over-Year Comparison of Reported and Operational Earnings
(Amounts in millions of dollars)
- ----------------------------------------------------------------------
3Q 04 as Excluded 3Q 04
Reported Items Operational
---------- --------- ------------
Sales $3,364 $3,364
COGS 2,289 (37)a 2,252
---------- --------- ------------
Gross Profit 1,075 37 1,112
SG&A 633 633
R&D 219 (6)b 213
Restructuring costs and other 227 (227)c 0
---------- --------- ------------
Earnings From Operations -4 270 266
Interest Expense 43 43
Other Inc./(Charges) 20 0 20
---------- --------- ------------
Below EFO -23 -23
(Loss)/Earnings before Taxes -27 270 243
----------- ------------
(Benefit) Provision for Taxes -72 89 d 17
----------- -------- ------------
Earnings: Cont. Ops. 45 181 226
Earnings: Disc. Ops. 434 (434) 0
----------- -------- ------------
----------- ------------
Net Earnings $479 ($253) $226
Diluted EPS: Cont. Ops. 0.16 $0.63 0.79
Total Diluted EPS 1.67
- ----------------------------------------------------------------------
Year-over-Year Comparison of Reported and Operational Earnings
(Amounts in millions of dollars)
- ----------------------------------------------------------------------
3Q 03 as Excluded 3Q 03
Reported Items Operational
------------ -------- ------------
Sales $3,346 $3,346
COGS 2,241 (33)e 2,208
------------- ------------
Gross Profit 1,105 33 1,138
SG&A 630 (8)f 622
R&D 192 192
Restructuring costs and other 152 (152)g 0
------------ -------- -----------
Earnings From Operations 131 193 324
Interest Expense 33 33
Other Inc./(Charges) -9 0 -9
------------ -------- -----------
Below EFO -42 -42
(Loss)/Earnings before Taxes 89 193 282
-----------
(Benefit) Provision for Taxes -26 62 h 36
------------ -------- -----------
Earnings: Cont. Ops. 115 131 246
Earnings: Disc. Ops. 7 (7) 0
------------ -------- -----------
-----------
Net Earnings $122 $124 $246
Diluted EPS: Cont. Ops. 0.40 $0.46 0.86
Total Diluted EPS 0.42
- ----------------------------------------------------------------------
Items excluded from Earnings on an operational basis:
a - Charges for accelerated depreciation and inventory writedowns of
$34 million and $3 million, respectively, in connection with the
focused cost reduction actions.
b - Charge for in-process research and development of $6 million.
c - Charges for focused cost reduction actions of $227 million.
d - Tax impacts of the above-mentioned excluded items.
e - Charges for accelerated depreciation of $33 million in connection
with the focused cost reduction actions.
F - Charge for charitable contributions to Infotonics.
g - Charges for focused cost reduction actions of $152 million.
h - Tax impacts of the above-mentioned excluded items.
3Q 04 as 3Q 04 3Q 03 as 3Q 03
Reported Operational Reported Operational
- ----------------- ---------- ----------- -------- -------------
Gross Profit 32.0% 33.1% 33.0% 34.0%
SG&A 18.8% 18.8% 18.8% 18.6%
SG&A w/o Advertis. 14.6% 14.6% 14.3% 14.1%
R&D 6.5% 6.3% 5.7% 5.7%
EFO -0.1% 7.9% 3.9% 9.7%
Net Earnings 1.3% 6.7% 3.4% 7.4%
- ----------------------------------------------------------------------
Segment Results:
Digital and Film Imaging Systems
Revenues:
Net worldwide sales for the Digital and Film Imaging Systems
segment were $2.308 billion for the third quarter of 2004 as compared
with $2.475 billion for the third quarter of 2003, representing a
decrease of $167 million, or 7% as reported, or a decrease of 9%
excluding the favorable impact of exchange. The decrease in net sales
was composed of:
-- Volume: decreases in volume reduced third quarter sales by
approximately 6.5 percentage points driven primarily by
declines in the film capture SPG and the wholesale and retail
photofinishing portions of the consumer output SPG.
-- Price/Mix: declines attributable to price/mix reduced third
quarter sales by approximately 3.5 percentage points driven by
the consumer digital capture SPG and the traditional film
capture SPG.
-- Exchange: favorable exchange of approximately 3.0 percentage
points partially offset the negative impacts of price/mix.
Digital and Film Imaging Systems segment net sales in the U.S.
were $940 million for the current quarter as compared with $1.009
billion for the third quarter of 2003, representing a decrease of $69
million, or 7%. Digital and Film Imaging segment net sales outside the
U.S. were $1.368 billion for the third quarter of 2004 as compared
with $1.466 billion for the prior year quarter, representing a
decrease of $98 million, or 7% as reported, or a decrease of 11%
excluding the favorable impact of exchange.
Digital and Film Imaging Systems segment digital product sales
were $593 million for the current quarter as compared with $438
million for the third quarter of 2003, representing an increase of
$155 million, or 35%, primarily driven by the consumer digital capture
SPG, the kiosks/media portion of the consumer output SPG, and the home
printing SPG. Segment traditional product sales were $1.715 billion
for the current quarter as compared with $2.037 billion for the third
quarter of 2003, representing a decrease of $322 million or 16%,
primarily driven by declines in the film capture and consumer output
SPG's.
Digital Strategic Product Group Revenues
Net worldwide sales of consumer digital capture products, which
includes consumer digital cameras, accessories, memory products and
royalties increased 41% in the third quarter of 2004 as compared with
the prior year quarter, primarily reflecting strong volume increases
and favorable exchange, partially offset by negative price/mix. Sales
continue to be driven by strong consumer acceptance of the EasyShare
digital camera system and the success of new digital camera product
introductions during the quarter.
While complete data for the consumer digital camera market in the
third quarter is not yet available, all indications are that Kodak
gained share worldwide and in the U.S. on a unit basis versus the
prior year on both a quarterly and year to date basis through August.
For the full year, the Company expects to be profitable for the
consumer digital capture SPG.
Net worldwide sales of Picture Maker kiosks/media increased 41% in
the third quarter of 2004 as compared with the third quarter of 2003,
as a result of strong volume increases and favorable exchange. Sales
continue to be driven by strong market acceptance of Kodak's new
generation of kiosks and an increase in consumer demand for digital
printing at retail. However, due to better than expected market demand
for this product, the consumables portion of this business will remain
somewhat capacity constrained throughout the remainder of the year,
which will restrain equipment sales.
Net worldwide sales from the home printing solutions SPG, which
includes inkjet photo paper and printer docks/media, increased 37% in
the current quarter as compared with the third quarter of 2003 driven
by sales of printer docks and associated thermal media. Kodak's
Printer Dock product maintained its number one U.S. market share
position on a unit basis in the 4x6 photo printer category through
August. During the quarter, inkjet paper sales declined year over year
due to a combination of slowing industry growth and lower market
share, although Kodak maintained its top two market share position in
the U.S. during the quarter.
Traditional Strategic Product Group Revenues
Net worldwide sales of the film capture SPG, including consumer
roll film (35mm and APS film), one-time-use cameras (OTUC),
professional films, reloadable traditional film cameras and
batteries/videotape decreased 20% in the third quarter of 2004 as
compared with the third quarter of 2003, primarily reflecting volume
declines and negative price/mix partially offset by favorable
exchange.
U.S. consumer film industry sell-through volumes decreased
approximately 20% in the third quarter of 2004 as compared with the
prior year quarter. Kodak's sell-in consumer film volumes declined 24%
as compared with the prior year quarter, reflecting a decrease in U.S.
retailer inventories.
As previously announced, Kodak anticipates that for full year
2004, worldwide film industry volumes will contract in the 10% to 12%
range, with U.S. volumes declining 18% to 20%. For full year 2005,
worldwide industry volumes could decline as much as 20%, with U.S.
volumes declining as much as 30%.
These projections were part of the basis for the Company's
long-term business model forecast presented on September 22nd at
Kodak's Annual Investor Strategy Meeting.
Net worldwide sales for the retail photofinishing SPG, which
includes color negative paper, minilab equipment and services,
chemistry, and photofinishing services at retail, decreased 13% in the
third quarter of 2004 as compared with the third quarter of 2003,
primarily reflecting volume declines and negative price/mix partially
offset by favorable exchange. Sales increases were recorded for retail
photofinishing equipment during the quarter.
Net worldwide sales for the wholesale photofinishing SPG, which
includes color negative paper, equipment, chemistry, and
photofinishing services at Qualex in the U.S. and CIS (Consumer
Imaging Services) outside the U.S., decreased 29% in the third quarter
of 2004 as compared with the third quarter of 2003, primarily
reflecting lower volumes and negative price/mix partially offset by
favorable exchange.
Net worldwide sales for the entertainment film SPG's, including
origination and print films for the entertainment industry increased
11%, primarily reflecting volume increases, favorable exchange and
positive price/mix. Color negative films benefited from continuing
robust market demand and color print films experienced continued
expansion resulting from international "day and date" motion picture
releases.
Gross profit:
Gross profit for the Digital and Film Imaging Systems segment was
$724 million for the third quarter of 2004 as compared with $807
million for the prior year quarter, representing a decrease of $83
million or 10%. The gross profit margin was 31.4% in the current year
quarter as compared with 32.6% in the prior year quarter. The 1.2
percentage point decline was primarily attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross
profit margins by approximately 5.0 percentage points driven
by the consumer digital capture and the film capture SPG's.
-- Manufacturing Cost: positive manufacturing cost initiatives
improved gross profit margins by approximately 4.0 percentage
points.
-- Exchange: remained unchanged.
SG&A:
In the third quarter, SG&A expenses for the Digital and Film
Imaging Systems segment decreased $61 million or 13%, from $485
million in the third quarter of 2003 to $423 million in the current
quarter, and decreased as a percentage of sales from 19.6% to 18.3%.
Ongoing cost reduction actions more than offset a negative $12 million
impact from exchange and acquisition related SG&A of $2 million.
R&D:
Third quarter R&D costs for the Digital and Film Imaging Systems
segment decreased $31 million, or 26%, from $118 million in the third
quarter of 2003 to $87 million in the current quarter and decreased as
a percentage of sales from 4.8% to 3.8%. The decrease in R&D year over
year was primarily attributable to spending reductions related to
traditional products and services partially offset by increased
investments for digital products.
EFO:
Earnings from operations for the Digital and Film Imaging Systems
segment increased $10 million, from $204 million in the third quarter
of 2003 to $214 million in the third quarter of 2004, primarily as a
result of the factors described above.
Health Imaging
Revenues:
Net worldwide sales for the Health Imaging segment were $642
million for the third quarter of 2004 as compared with $571 million
for the prior year quarter, representing an increase of $71 million,
or 12% as reported, an increase of 9% excluding the favorable impact
of exchange. The increase in net sales was comprised of:
-- Volume: increases in volume contributed approximately 4.0
percentage points to third quarter sales, driven primarily by
volume increases in the digital capture and output SPG's, and
the services SPG.
-- Price/Mix: decrease in price/mix reduced third quarter sales
by approximately 2.5 percentage points, primarily driven by
the traditional medical film portion of the film capture and
output SPG and the digital capture SPG.
-- Exchange: favorable exchange impacted sales by approximately
3.0 percentage points.
-- Acquisition: the PracticeWorks acquisition contributed $47
million or approximately 8.0 percentage points to third
quarter sales.
Net sales in the U.S. were $276 million for the current quarter as
compared with $251 million for the third quarter of 2003, representing
an increase of $25 million, or 10%. Net sales outside the U.S. were
$366 million for the third quarter of 2004 as compared with $320
million for the prior year quarter, representing an increase of $46
million, or 14% as reported, or 9% excluding the favorable impact of
exchange.
Digital products and services revenues:
Net worldwide sales of digital products, which include laser
printers (DryView imagers and wet laser printers), digital media
(DryView and wet laser media), digital capture equipment (computed
radiography capture equipment and digital radiography equipment),
services, dental practice management software and Picture Archiving
and Communications Systems ("PACS"), were $410 million for the current
quarter as compared with $330 million for the third quarter of 2003,
representing an increase of $80 million, or 24%, reflecting volume
increases, and favorable exchange partially offset by negative
price/mix. The increase in digital product sales was primarily
attributable to the PracticeWorks acquisition, the services SPG and
the digital media portion of the digital output SPG.
Traditional products and services revenues:
Net worldwide sales of traditional products, including analog
film, equipment, chemistry and services, were $231 million for the
current quarter as compared with $241 million for the third quarter of
2003, representing a decrease of $10 million, or 4%, driven primarily
by lower volumes and price/mix for the film capture and output SPG
partially offset by favorable exchange.
Gross profit:
Gross profit for the Health Imaging segment was $268 million for
the third quarter of 2004 as compared with $250 million in the prior
year quarter, representing an increase of $18 million, or 7%. The
gross profit margin was 41.7% in the current quarter as compared with
43.8% in the third quarter of 2003. The decrease in the gross profit
margin of 2.1 percentage points was principally attributable to:
-- Price/Mix: price/mix negatively impacted gross profit margins
by approximately 2.0 percentage points primarily driven by the
traditional medical film portion of the film capture and
output SPG and the digital capture SPG.
-- Manufacturing Cost: manufacturing cost decreased gross profit
margins by approximately 2.5 percentage points. Favorable
manufacturing productivity was offset by a number of factors
including silver prices.
-- Exchange: favorable exchange added approximately 1.0
percentage points to the gross profit rate.
-- Acquisition: the PracticeWorks acquisition increased gross
profit by approximately 1.5 percentage points.
SG&A:
In the third quarter, SG&A expenses for the Health Imaging segment
increased $24 million, or 26%, from $89 million in the third quarter
of 2003 to $113 million for the current quarter, and increased as a
percentage of sales from 15.6% to 17.6%. The increase in SG&A expenses
is primarily attributable to $23 million associated with the
PracticeWorks acquisition.
R&D:
Third quarter R&D costs increased $10 million from $43 million in
the third quarter of 2003 to $53 million in the current quarter, and
increased as a percentage of sales from 7.5% to 8.2%. The increase in
R&D expenses is primarily attributable to increased spending to drive
growth in selected areas of the product portfolio and $2 million
associated with the PracticeWorks acquisition.
EFO:
Earnings from operations for the Health Imaging segment decreased
$15 million, or 13%, from $117 million for the prior year quarter to
$102 million for the third quarter of 2004 while the operating
earnings margin rate decreased 4.5 percentage points to 15.9% from
20.5% for the prior year quarter. The decrease in operating earnings
reflects the impact of lower gross profit margins, increased SG&A, and
increased investment for growth in R&D. The operating earnings margin
rate is within the expected mid to upper teen range predicted earlier
this year.
Commercial Imaging
Kodak closed the sale of the Remote Sensing Systems operation to
ITT Industries for $725 million in cash on August 13, 2004. The Remote
Sensing Systems business was part of Kodak's Commercial and Government
Systems operation. The $434 million gain on the sale is accounted for
in "discontinued operations".
Revenues:
Net worldwide sales for the Commercial Imaging segment were $195
million for the third quarter of 2004 as compared with $190 million
for the prior year quarter, representing an increase of $5 million, or
3% as reported, or a decrease of 1% excluding the favorable impact of
exchange. The increase in net sales was primarily comprised of:
-- Volume: volumes decreased third quarter sales by approximately
1.0 percentage point primarily driven by declines in the
micrographics equipment and media SPG, services and support
SPG and the Imaging Services SPG.
-- Price/Mix: remained essentially unchanged.
-- Exchange: favorable exchange contributed approximately 4.0
percentage points to third quarter sales.
Net sales in the U.S. were $79 million for the current year
quarter as compared with $80 million for the prior year quarter,
representing a decrease of $1 million, or 1%. Net sales outside the
U.S. were $116 million in the third quarter of 2004 as compared with
$110 million for the prior year quarter, representing an increase of
$6 million or 5% as reported, or a decrease of 1% excluding the
favorable impact of exchange.
Commercial Imaging segment traditional product sales were $100
million for the current quarter as compared with $97 million for the
third quarter of 2003, representing an increase of $3 million, or 3%,
primarily driven by the aerial and industrial materials SPG. Segment
digital product sales were $95 million for the current quarter as
compared with $93 million for the third quarter of 2003, representing
an increase of $2 million, or 2%.
Gross profit:
Gross profit for the Commercial Imaging segment was $68 million
for the third quarter of 2004 as compared with $60 million in the
prior year quarter, representing an increase of $8 million, or 13%.
The gross profit margin was 34.9% in the current quarter as compared
with 31.6% in the prior year quarter. The increase in the gross profit
margin of 3.3 percentage points was primarily attributable to:
-- Price/Mix: remained essentially unchanged.
-- Manufacturing Cost: manufacturing cost improvements favorably
impacted gross profit margins by approximately 2.0 percentage
points.
-- Exchange: favorable exchange impacted gross profit margins by
approximately 1.0 percentage point.
SG&A:
SG&A expenses for the Commercial Imaging segment were $32 million
in the current quarter as compared with $33 million from the prior
year, and decreased as a percentage of sales from 17.4% to 16.4%.
R&D:
Third quarter R&D costs for the Commercial Imaging segment were $3
million in the current quarter, unchanged from the prior year, but
decreased as a percentage of sales from 1.6 % to 1.5% in the current
quarter.
EFO:
Earnings from operations for the Commercial Imaging segment
increased $9 million, or 38%, from $24 million for the prior year
quarter to $33 million for the third quarter of 2004 while the
operating earnings margin rate increased 4.3 percentage points to
16.9% from 12.6% for the prior year quarter.
Graphic Communications
Revenues:
Net worldwide sales for the Graphic Communications segment were
$195 million for the third quarter of 2004 as compared with $82
million for the prior year quarter, representing an increase of $113
million, or 138% as reported, or 135% excluding the favorable impact
of exchange. The increase in net sales was primarily due to the Kodak
Versamark and NexPress acquisitions.
Net sales in the U.S. were $100 million for the current year
quarter as compared with $42 million for the prior year quarter,
representing an increase of $58 million, or 138%. Net sales outside
the U.S. were $95 million in the third quarter of 2004 as compared
with $40 million for the prior year quarter, representing an increase
of $55 million or 138% as reported, or an increase of 133% excluding
the favorable impact of exchange.
The Graphic Communications segment traditional product sales are
limited to the sales of Kodak traditional graphics products to the KPG
joint venture. Segment digital product sales are comprised of Kodak
Versamark, a leader in continuous inkjet technology, NexPress
Solutions, a producer of digital color and black and white printing
solutions and Encad, a maker of wide format inkjet printers.
Kodak Versamark experienced strong sales during the quarter led by
increased placements of color printing units in the transactional
printing market coupled with a growing annuities (consumables)
business.
Net worldwide sales of graphic arts products to Kodak Polychrome
Graphics ("KPG"), an unconsolidated joint venture affiliate in which
the Company has a 50% ownership interest, increased 3% in the current
quarter as compared with the third quarter of 2003, primarily
reflecting volume increases partially offset by negative price/mix for
graphic arts products. However, digital technology substitution
continues to challenge the sales of the traditional product portfolio
that is sold to KPG.
However, KPG's earnings performance continued to improve on the
strength of its leading position in digital printing plates and
digital proofing, coupled with favorable operating expense management
and foreign exchange. KPG contributed positively to Kodak's "Other
income and charges" during the third quarter of 2004 both in absolute
terms and in quarterly year over year comparisons.
During the quarter, KPG and NexPress Solutions announced that they
will be collaborating in the marketing and distribution of Kodak
NexPress 2100 digital production color presses and Kodak Digimaster
E150 and E125 digital production systems in the U.S. KPG has launched
the NexPress 2100 in the U.S. as of October 1, 2004 and will phase in
remaining geographic territories, as well as the Digimaster E125 and
E150 presses during the first quarter of 2005.
The NexPress installed base of digital production color presses
continues to experience good customer acceptance. During the quarter,
NexPress began shipping the NexPress intelligent color solution
employed by the NexPress 2100 digital color press with a fifth imaging
station. Overall activity levels for production volumes and product
related sales and service are steadily increasing and acquisition
integration remains ahead of plan. NexPress has also announced their
intention to acquire the Buhrmann digital sales and service business
in Europe. Buhrmann, NV is the world's largest distributor of office
supplies. This acquisition expands NexPress' direct market coverage in
several major European markets.
During the third quarter, Encad continued to experience strong
order demand for its new Novajet 1000i wide format inkjet printer.
Gross profit:
Gross profit for the Graphic Communications segment was $44
million for the third quarter of 2004 as compared with $9 million in
the prior year quarter, representing an increase of $35 million, or
389%. The gross profit margin was 22.6% in the current quarter as
compared with 11.0% in the prior year quarter. The increase in the
gross profit margin of 11.6 percentage points was primarily
attributable to:
-- Price/Mix: negative price/mix decreased gross profit margins
by approximately 1.5 percentage point.
-- Manufacturing Cost: manufacturing cost negatively impacted
gross profit margins by approximately 6.5 percentage points.
-- Exchange: exchange negatively impacted gross profit margins by
approximately 1.0 percentage point.
-- Acquisition: the Kodak Versamark and NexPress acquisitions
favorably impacted gross profit margins by approximately 21.0
percentage points.
SG&A:
SG&A expenses for the Graphic Communications segment increased $44
million, from $8 million in the third quarter of 2003 to $52 million
for the current quarter, and increased as a percentage of sales from
9.8% to 26.7%. The increase in SG&A is primarily attributable to the
Kodak Versamark and NexPress Solutions acquisitions, which recorded
$42 million of SG&A expenses in the current quarter.
R&D:
Third quarter R&D costs increased $27 million, from $5 million in
the third quarter of 2003 to $32 million in the current quarter and
increased as a percentage of sales from 6.1% for the third quarter of
2003 to 16.4% for the current quarter. R&D expenses increased in the
third quarter primarily due to the acquisitions of Kodak Versamark and
NexPress Solutions, which had $27 million of R&D expenses in the
current quarter.
EFO:
Losses from operations for the Graphic Communications segment were
$40 million in the current quarter and $3 million for the prior year
quarter driven primarily by the dilution from the NexPress
acquisition.
All Other
During the third quarter, the Company acquired the imaging
business of National Semiconductor Corporation, which develops and
manufactures CMOS image sensors. Financial terms of the agreement have
not been disclosed. The acquired assets will become part of Kodak's
Image Sensor Solutions organization, a worldwide leader in the design
and manufacture of high performance CCD image sensors and CIS
technologies primarily for professional and industrial imaging
markets.
Kodak also announced that it has reached an agreement to
collaborate with IBM on the development and manufacture of image
sensors to power mass market consumer products such as digital cameras
and camera phones. The agreement will leverage IBM's CMOS processing
expertise to allow Kodak to commercialize a new family of CMOS image
sensor devices.
Revenues:
Net worldwide sales for All Other were $24 million for the third
quarter of 2004, as compared with $28 million for the prior year
quarter, representing a decrease of $4 million, or 14% as reported.
SK Display Corporation, the OLED manufacturing joint venture
between Kodak and Sanyo, continues to focus on improving manufacturing
yields and process engineering.
EFO:
GAAP:
The loss from operations for All Other was $49 million in the
current quarter as compared with the loss from operations of $18
million in the third quarter of 2003. During the quarter, the Company
recorded a $6 million R&D charge relating to the purchase of
in-process R&D as part of the National Semiconductor acquisition. The
increase in loss from operations was primarily driven by new
technologies, which include the inkjet and display programs.
Operational:
Excluding a charge of $6 million relating to the purchase of
in-process R&D as part of the National Semiconductor acquisition, the
loss from operations for All Other was $43 million in the current
quarter as compared with the loss from operations of $18 million in
the third quarter of 2003. The increase in loss from operations was
primarily driven by digital investments, which include the inkjet and
display programs.
Balance Sheet:
Cash Flow:
Kodak defines free cash flow as net cash provided by continuing
operations, (as determined under generally accepted accounting
principles in the U.S.- U.S. GAAP), plus proceeds from the sale of
assets minus capital expenditures, acquisitions, debt assumed in
acquisitions and investments in unconsolidated affiliates. Kodak's
definition of operating cash flow equals free cash flow less
dividends. Investable cash is operating cash flow excluding
acquisitions and debt assumed in acquisitions.
During the third quarter, operating cash flow was positive $234
million, $17 million lower than positive $251 million generated in the
year ago quarter and investable cash flow was positive $257 million,
$5 million higher than the third quarter of 2003.
Net cash provided by (used in) continuing operations relating to
operating activities, investing activities and financing activities,
as determined under U.S. GAAP in the third quarter of 2004 was $ 411
million, ($100) million and ($447) million, respectively.
The table below reconciles the net cash provided by continuing
operations relating to operating activities as determined under U.S.
GAAP, to Kodak's definition of operating and investable cash flow for
the third quarter of 2004:
($ millions) 2004 2003
- ----------------------------------------------------------------------
Net cash provided by continuing operations relating to
operating activities: $411 $618
Additions to properties (101) (114)
Net proceeds from sales of businesses/assets 19 19
Investments in unconsolidated affiliates 0 (13)
Acquisitions, net of cash acquired (23) (1)
Dividends (72) (258)
- ----------------------------------------------------------------------
Operating Cash Flow (continuing operations) 234 251
Acquisitions, net of cash acquired 23 1
- ----------------------------------------------------------------------
Investable Cash Flow (continuing operations) $257 $252
- ----------------------------------------------------------------------
The range for investable cash flow for full year 2004, excluding
the proceeds from the Remote Sensing Systems divestiture, remains in
the range of $585 million to $715 million.
Dividend:
The Company makes semi-annual dividend payments, which, when
declared by the Board of Directors, will be paid on the Company's 10th
business day each July and December to shareholders of record as of
the close of the first business day of the preceding month. On May 12,
2004, the Board of Directors declared a dividend of $0.25 payable to
shareholders of record as of June 1, 2004. This dividend was paid July
15, 2004.
On October 19, 2004, the Board of Directors declared a dividend of
$0.25 payable to shareholders of record as of November 1, 2004. This
dividend is payable December 14, 2004. The Board of Directors also
authorized a two-year, $500 million stock repurchase program,
replacing a $2 billion program that expires in December. The
authorization provides the Company with the flexibility to use
proceeds from any significant stock-option exercises by employees to
partially offset earnings per share dilution associated with option
transactions should that become necessary.
Capital Spending:
Capital additions were $101 million in the third quarter of 2004,
which is $13 million lower than the year ago quarter and $10 million
higher quarter sequentially. The majority of the spending supported
new products, manufacturing productivity and quality improvements,
infrastructure improvements and ongoing environmental and safety
initiatives.
Receivables:
Total receivables, net of reserves, of $2.500 billion included
trade ($2.124 billion) and miscellaneous ($376 million) receivables at
the end of the third quarter, 2004, an increase of $231 million from
third quarter of 2003 and a decrease of $105 million quarter
sequentially. The year over year increase is driven by acquisitions,
foreign exchange, and higher sales late in the period.
Accrued customer rebates are classified as miscellaneous payables;
however, the majority of these are cleared through customer
deductions. The effect of offsetting these accrued customer rebates
would reduce the net of reserves trade receivable balance by $450
million to $1.674 billion at the end of the third quarter of 2004, and
would reduce the net of reserves trade receivable balance by $488
million to $1.491 billion at the end of the third quarter of 2003.
Kodak defines days sales outstanding (DSO) as the four quarter
moving average net trade receivables after rebate reclassification,
divided by 12 months of sales, multiplied by 365 days. Due to the fact
that reported sales are net of rebates and a majority of the customer
rebates are cleared through customer deductions, the Company's DSO
calculation includes the impact of reclassifying rebates as an offset
to receivables. By reclassifying the rebates as an offset to
receivables, the Company's DSO calculation is more reflective of the
true number of days the net trade receivables are outstanding.
DSO from continuing operations for the third quarter was 44 days,
unchanged from the prior year quarter and representing a one-day
increase quarter sequentially. If rebate accrual balances were not
offset against receivables for purposes of calculating the DSO, DSO
from continuing operations would have remained unchanged year over
year at 56 days and would have increased one day quarter sequentially,
due to lower receivables balances in the third quarter of 2004 versus
the second quarter of 2004.
Inventory:
Kodak's inventories of $1.427 billion (after LIFO) increased $228
million year over year and increased $171 million quarter
sequentially. The year over year increase is primarily due to the
impact of acquisitions of NexPress and Versamark. The increase over
second quarter represents inventory build in anticipation of fourth
quarter sales.
Kodak defines days supply of inventory (DSI) from continuing
operations as four-quarter average inventory before the LIFO reserve
divided by 12 months COGS as reported, multiplied by 365 days.
For purposes of Kodak's definition, COGS excludes certain
manufacturing-related costs that are considered to be unusual or that
occur infrequently. Kodak defines inventory turns as 12 months COGS as
reported divided by four quarter average inventory before the LIFO
reserve.
DSI from continuing operations of 66 days improved by 3 days from
the third quarter 2003 and worsened by 2 days quarter sequentially.
Inventory turns from continuing operations improved by 0.3 turns to
5.6 turns since the third quarter 2003, and worsened by 0.1 turns
quarter sequentially.
Including the impact of the LIFO reserve using COGS as reported on
a GAAP basis, DSI from continuing operations of 49 days decreased by 1
day from the third quarter of 2003 and increased by 2 days quarter
sequentially. Inventory turns from continuing operations improved 0.2
to 7.4 turns relative to the third quarter of 2003 and worsened 0.4
turns quarter sequentially.
Debt:
Debt decreased by $376 million to $2.664 billion and cash
increased by $594 million to $1.113 billion quarter sequentially. On a
debt less cash basis, net debt was $1.551 billion, a decrease of $356
million from the third quarter 2003 and a decrease of $970 million
from second quarter 2004 level of $2.521 billion. Kodak expects to
reduce gross debt by as much as $800 million during 2004.
Equity was $3.791 billion and debt to total capital ratio was 41.3
%, decreasing 6.9 percentage points quarter sequentially and
decreasing 8.4 percentage points year over year.
Foreign Exchange:
Year over year, the impact of foreign exchange on operating
activities during the third quarter was a positive $0.10 per share and
foreign exchange activities recorded in "Other Charges" had a negative
$0.02 per share impact. Therefore, the sum of the operational and
reportable exchange impacts increased earnings in the quarter by $0.08
per share.
Silver:
During the third quarter, the impact of high silver prices was
largely offset by the effect of favorable foreign exchange. If the
cost of silver were to hold at the September average rate of
approximately $6.40 per ounce and foreign exchange were to hold at
September 30th rates for the remainder of the year, the net impact
would be slightly unfavorable to earnings in the fourth quarter.
However, it remains difficult to forecast the net impact of foreign
exchange and silver pricing.
Earnings Outlook:
Earnings Per Share - Impact From Convertible Debt:
The Emerging Issues Task Force recently reached a consensus that,
beginning in periods ending after December 15, 2004 (fourth quarter
2004 for Kodak), the dilutive effect of contingently convertible debt
instruments with market price contingencies should be included in
diluted earnings per share, regardless of whether the market price
contingency has been met. The Company currently has contingently
convertible debt instruments outstanding that are convertible into
common shares if the market price of our common stock exceeds $37.224
per share for a specified period of time. These types of contingently
convertible debt instruments have generally been, in practice,
excluded from diluted earnings per share calculations until the market
price contingency has been met. Upon adoption of the EITF in the
fourth quarter of 2004, diluted earnings per share will be restated
for each period that the convertible debt was outstanding (starting
with the fourth quarter of 2003). The impact on the historical GAAP
and operational diluted earnings per share has not yet been
determined.
Proposed Tax Legislation:
Recently passed U.S. tax legislation, which if signed into law by
the President, will eliminate a U.S. export tax benefit known as
"Foreign Sales Corporation/ExtraTerritorial Income" (FSC/ETI). FSC/ETI
had previously allowed U.S. companies to exempt a portion of certain
export income from U.S. taxes, but this benefit has been ruled an
illegal subsidy by the WTO. The new legislation, if signed by the
President, will permit Kodak to reverse $56 million, or approximately
$.20 per share, of foreign tax credit reserves currently on the
Company's balance sheet. This amount would be recorded in fourth
quarter 2004 results.
The following guidance does not include the adoption of the
contingent convertible rules or changes to the FSC/ETI benefit:
The Company expects full year operational earnings of $2.44 to
$2.64 per share, implying fourth quarter operational earnings of $.51
to $.71 per share. GAAP earnings of $2.49 to $2.69 per share are
expected for full year 2004, with implied fourth quarter GAAP earnings
of $.18 to $.38 per share.
Upcoming Meetings:
Kodak will host an investor event for those members of the
investment community who will be attending the upcoming RSNA trade
show in Chicago. This function will be held on Wednesday, December 1,
2004 at McCormick Place. Additional details will follow shortly.
Safe Harbor Statement:
Certain statements in this financial discussion document may be
forward looking in nature, or "forward-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 reduction plans are forward-looking statements.
Actual results may differ from those expressed or implied in
forward-looking statements. In addition, any forward-looking
statements represent our estimates only as of the date they are made,
and should not be relied upon as representing our estimates as of any
subsequent date. The forward-looking statements contained in this
financial discussion document are subject to a number of factors and
uncertainties, the successful:
-- Implementation of our digitally oriented growth strategy;
-- Implementation of our recently announced three-year cost
reduction program;
-- Implementation of our debt reduction plans;
-- Implementation of product strategies (including category
expansion, digitization, organic light emitting diode (OLED)
displays, and digital products);
-- Implementation of intellectual property licensing strategies;
-- Development and implementation of e-commerce strategies;
-- Completion of information systems upgrades, including SAP, our
enterprise system software;
-- Completion of various portfolio actions;
-- Reduction of inventories;
-- Integration of newly acquired businesses;
-- Improvement in manufacturing productivity and techniques;
-- Improvement in receivables performance;
-- Reduction in capital expenditures;
-- Improvement in supply chain efficiency;
-- Implementation of future focused cost reductions, including
personnel reductions; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this financial discussion
document are subject to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions; and
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission.
Any forward-looking statements in this financial discussion
document should be evaluated in light of these important factors and
uncertainties.
Eastman Kodak Company
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
(in millions, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 2004 2003
Net sales $ 3,364 $3,346 $9,752 $9,245
Cost of goods sold 2,289 2,241 6,750 6,243
------------ -------- ----------- --------
Gross profit 1,075 1,105 3,002 3,002
Selling, general and
administrative expenses 633 630 1,798 1,895
Research and development
costs 219 192 628 563
Restructuring costs and
other 227 152 412 228
------------ -------- ----------- --------
Earnings from continuing
operations before
interest, other income
(charges), net, and
income taxes (4) 131 164 316
Interest expense 43 33 130 104
Other income (charges),
net 20 (9) 26 (39)
------------ -------- ----------- --------
Earnings from continuing
operations before
income taxes (27) 89 60 173
Benefit for income taxes (72) (26) (144) (36)
------------ -------- ----------- --------
Earnings from continuing
operations 45 115 204 209
Earnings from discontinued
operations, net of
income taxes 434 7 457 37
------------ -------- ----------- --------
NET EARNINGS $ 479 $ 122 $ 661 $ 246
============ ======== =========== ========
Basic and diluted net
earnings
per share:
Continuing
operations $ .16 $ .40 $ .72 $ .73
Discontinued
operations 1.51 .02 1.59 .13
------------ -------- ----------- --------
Total $1.67 $ .42 $2.31 $ .86
============ ======== =========== ========
Number of common shares
used in basic earnings
per share 286.6 286.5 286.6 286.5
Incremental shares from
assumed conversion of
options 0.1 0.1 0.1 0.1
------------ -------- ----------- --------
Number of common shares
used in diluted
earnings per share 286.7 286.6 286.7 286.6
============ ======== =========== ========
SUPPLEMENTAL INFORMATION - UNAUDITED
(in millions)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 2004 2003
Provision for
depreciation $ 227 $ 224 $ 653 $ 616
After-tax exchange losses
and effect of translation
of net monetary items (7) (7) (8) (12)
Cash dividends declared - 72 72 330
Capital expenditures 101 114 283 346
- ----------------------------------------------------------------------
Net Sales from Continuing Operations by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems
Inside the U.S. $ 940 $1,009 - 7% $2,631 $2,668 - 1%
Outside the U.S. 1,368 1,466 - 7 4,004 3,946 + 1
----- ------- ----- ------- ------ -----
Total Digital & Film
Imaging Systems 2,308 2,475 - 7 6,635 6,614 + 0
----- ------- ----- ------- ------ -----
Health Imaging
Inside the U.S. 276 251 + 10 811 755 + 7
Outside the U.S. 366 320 + 14 1,134 972 + 17
----- ------- ----- ------- ------ -----
Total Health Imaging 642 571 + 12 1,945 1,727 + 13
----- ------- ----- ------- ------ -----
Commercial Imaging
Inside the U.S. 79 80 - 1 237 249 - 5
Outside the U.S. 116 110 + 5 347 326 + 6
----- ------- ----- ------- ------ -----
Total Commercial Imaging 195 190 + 3 584 575 + 2
----- ------- ----- ------- ------ -----
Graphic Communications
Inside the U.S. 100 42 +138 238 116 +105
Outside the U.S. 95 40 +138 267 143 + 87
----- ------- ----- ------- ------ -----
Total Graphic
Communications 195 82 +138 505 259 + 95
----- ------- ----- ------- ------ -----
All Other
Inside the U.S. 9 12 - 25 41 33 + 24
Outside the U.S. 15 16 - 6 42 37 + 14
----- ------- ----- ------- ------ -----
Total All Other 24 28 - 14 83 70 + 19
----- ------- ----- ------- ------ -----
Consolidated total $3,364 $3,346 + 1% $9,752 $9,245 + 5%
===== ======= ===== ======= ====== =====
Earnings (Loss) from Continuing Operations Before Interest, Other
Income (Charges), Net, and Income Taxes by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems $ 214 $ 204 + 5% $ 460 $ 277 + 66%
Percent of Sales 9.3% 8.2% 6.9% 4.2%
Health Imaging $ 102 $ 117 - 13% $ 323 $ 357 - 10%
Percent of Sales 15.9% 20.5% 16.6% 20.7%
Commercial Imaging $ 33 $ 24 + 38% $ 96 $ 75 + 28%
Percent of Sales 16.9% 12.6% 16.4% 13.0%
Graphic Communications $ (40) $ (3) -1,233% $ (98) $ 5 -2,060%
Percent of Sales (20.5%) (3.7%) (19.4%) 1.9%
All Other $ (49) $ (18) -172% $(110) $ (56) - 96%
Percent of Sales (204.2%)(64.3%) (132.5%) (80.0%)
------- ------ ------ ------- ------- ----
Total of segments $ 260 $ 324 - 20% $ 671 $ 658 + 2%
Percent of Sales 7.7% 9.7% 6.9% 7.1%
Restructuring costs and
other (264) (185) (507) (285)
Donation to technology
enterprise - (8) - (8)
Impairment of Burrell
Companies' net assets - - - (9)
GE settlement - - - (12)
Patent infringement
claim settlement - - - (14)
Prior year acquisition
settlement - - - (14)
------- ------ ------ ------- ------ -----
Consolidated total $ (4) $ 131 - 103% $164 $ 316 - 48%
======= ====== ====== ======= ====== =====
Earnings (Loss) From Continuing Operations by Reportable Segment
and All Other - Unaudited
(in millions)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems $ 202 $ 177 + 14% $ 416 $ 230 + 81%
Percent of Sales 8.8% 7.2% 6.3% 3.5%
Health Imaging $ 96 $ 109 - 12% $ 284 $ 293 - 3%
Percent of Sales 15.0% 19.1% 14.6% 17.0%
Commercial Imaging $ 31 $ 21 + 48% $ 82 $ 57 + 44%
Percent of Sales 15.9% 11.1% 14.0% 9.9%
Graphic Communications $ (24) $(10) -140% $(71) $(20) -255%
Percent of Sales (12.3%) (12.2%) (14.1%) (7.7%)
All Other $ (44) $(22) -100% $(101) $(51) - 98%
Percent of Sales (183.3%)(78.6%) (121.7%)(72.9%)
------- ------ ------ ------- ------ -----
Total of segments $ 261 $ 275 - 5% $ 610 $ 509 + 20%
Percent of Sales 7.8% 8.2% 6.3% 5.5%
Restructuring costs and
other (264) (185) (507) (285)
Donation to technology
enterprise - (8) - (8)
Impairment of Burrell
Companies' net assets - - - (9)
GE settlement - - - (12)
Patent infringement
claim settlement - - - (14)
Prior year acquisition
settlement - - - (14)
Interest expense (43) (33) (130) (104)
Other corporate items 3 2 7 8
Tax benefit - donation
of patents - - - 8
Income tax effects on
above items
and taxes not
allocated to above 88 64 224 130
------- ------ ------ ------- ------ -----
Consolidated total $ 45 $ 115 - 61% $204 $ 209 - 2%
======= ====== ====== ======= ====== =====
Eastman Kodak Company
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
Sept. 30, Dec. 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,113 $ 1,250
Receivables, net 2,500 2,328
Inventories, net 1,427 1,073
Deferred income taxes 726 602
Other current assets 146 130
Assets of discontinued
operations 30 72
----------- ------------
Total current assets 5,942 5,455
----------- ------------
Property, plant and
equipment, net 4,683 5,051
Goodwill 1,448 1,364
Other long-term assets 3,037 2,883
Assets of discontinued operations - 65
----------- ------------
TOTAL ASSETS $15,110 $14,818
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
current liabilities $ 3,825 $ 3,614
Short-term borrowings 711 946
Accrued income taxes 816 654
Liabilities of discontinued
operations - 36
----------- ------------
Total current liabilities 5,352 5,250
OTHER LIABILITIES
Long-term debt, net of
current portion 1,953 2,302
Postretirement liabilities 3,217 3,344
Other long-term liabilities 797 650
Liabilities of discontinued
operations - 8
----------- ------------
Total liabilities 11,319 11,554
SHAREHOLDERS' EQUITY
Common stock at par 978 978
Additional paid in capital 850 850
Retained earnings 8,115 7,527
Accumulated other
comprehensive loss (293) (231)
Unearned restricted stock (5) (8)
----------- ------------
9,645 9,116
Less: Treasury stock at cost 5,854 5,852
----------- ------------
Total shareholders' equity 3,791 3,264
----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $15,110 $14,818
=========== ============
Eastman Kodak Company
CONSOLIDATED STATEMENT OF CASH FLOWS -UNAUDITED
(in millions)
Nine Months Ended
September 30
--------------------------
2004 2003
Cash flows relating to
operating activities:
Net earnings $661 $246
Adjustments to reconcile to
net cash (used in)
provided by operating
activities:
Earnings from discontinued
operations (457) (37)
Equity in (earnings) losses
from unconsolidated
affiliates (9) 43
Depreciation 653 616
Purchased research and
development 16 21
Gain on sales of
businesses/assets (9) (12)
Restructuring costs,
asset impairments and
other non-cash charges 44 41
Benefit for deferred taxes (121) (4)
Increase in receivables (78) (34)
Increase in inventories (244) (70)
Decrease in liabilities
excluding borrowings (43) (63)
Other items, net 31 94
----------- -----------
Total adjustments (217) 595
----------- -----------
Net cash provided by
continuing operations 444 841
----------- -----------
Net cash provided by
discontinued operations 22 24
----------- -----------
Net cash provided by
operating activities 466 865
----------- -----------
Cash flows relating to
investing activities:
Additions to properties (283) (346)
Net proceeds from sales
of businesses/assets 20 19
Acquisitions, net of
cash acquired (358) (119)
Investments in unconsolidated
affiliates (31) (54)
Marketable securities -
purchases (92) (62)
Marketable securities - sales 91 62
----------- ------------
Net cash used in continuing
operations (653) (500)
----------- ------------
Net cash provided by
(used in) discontinued
operations 708 (5)
----------- ------------
Net cash provided by
(used in) investing
activities 55 (505)
----------- ------------
Cash flows relating to
financing activities:
Net (decrease) increase in
borrowings with original
maturity of 90 days or less (291) 61
Proceeds from other borrowings 111 865
Repayment of other borrowings (403) (641)
Dividend payments (72) (258)
Exercise of employee stock
options - 12
----------- -------------
Net cash (used in) provided
by financing activities (655) 39
----------- -------------
Effect of exchange rate
changes on cash (3) 15
----------- -------------
Net (decrease) increase in
cash and cash equivalents (137) 414
Cash and cash equivalents,
beginning of year 1,250 569
----------- -------------
Cash and cash equivalents,
end of quarter $1,113 $983
=========== =============