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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): July 21, 2004
Eastman Kodak Company
(Exact name of registrant as specified in charter)
New Jersey 1-87 16-0417150
------------------------------------------------------------------------
(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
--------------
Item 7. Financial Statements and Exhibits
- ------------------------------------------
(c) Exhibits
--------
Exhibit 99.1 Press release issued July 21, 2004 Furnished with regarding
financial results for the this document second quarter of 2004
Exhibit 99.2 Financial discussion document issued Furnished with July
21, 2004 regarding financial this document results for the
second quarter of 2004
Item 12. Results of Operations and Financial Condition
- -------------------------------------------------------
On July 21, 2004, Eastman Kodak Company issued a press release and a
supplemental financial discussion document describing its financial results for
its second fiscal quarter ended June 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 second 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.
SIGNATURES
----------
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
------------------------
Name: Richard G. Brown
Title: Controller
Date: July 21, 2004
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
99.1 Press release issued July 21, 2004 regarding financial results for the
second quarter 2004
99.2 Financial discussion document issued July 21, 2004 regarding financial
results for the second quarter 2004
Exhibit 99.1
Kodak Has 2nd-Quarter Reported Net Income
of 54 Cents Per Share; EPS from Continuing Operations, Excluding
Non-Operational Items, Totals 88 Cents
ROCHESTER, N.Y.--(BUSINESS WIRE)--July 21, 2004--Eastman Kodak Company today
said second-quarter reported net income totaled 54 cents per share and revenue
increased 6%, led by rising demand for the company's digital products and
services as well as favorable foreign exchange.
Kodak's net income for the quarter included income from discontinued
operations of 4 cents per share and reported net income from continuing
operations of 50 cents per share. Excluding the impact of previously announced
focused cost reductions and other non-operational items, earnings from
continuing operations were 88 cents per share, higher than the forecast of 55
cents to 65 cents per share that the company issued on April 21. The operational
earnings also include 7 cents per share associated with a tax benefit and the
impact of Medicare prescription drug legislation, which has reduced the
company's health-care costs. The company anticipates that the positive effect of
the Medicare-related benefit will continue at its present level of about 4 cents
per share each quarter for an extended period of years.
For the second quarter of 2004:
-- Sales totaled $3.469 billion, an increase of 6% from $3.259 billion in
the second quarter of 2003. Excluding foreign exchange, sales increased
4%.
-- The company reported net income of $154 million, or 54 cents per share,
compared with $112 million, or 39 cents per share, in the second quarter
of 2003. The net income from discontinued operations of 4 cents per
share in the second quarter of 2004 primarily reflects income from the
company's Remote Sensing Systems operation, which Kodak has agreed to
sell to ITT Industries Inc.
-- Earnings from continuing operations, excluding the impact of the focused
cost reductions, were $253 million, or 88 cents per share. The
non-operational items include a charge of 38 cents per share primarily
related to the previously announced focused cost reductions. In the
second quarter of 2003, earnings from continuing operations, excluding
non-operational items, were $166 million, or 58 cents per share.
"Kodak delivered solid earnings growth in the second quarter, reinforcing
our confidence in the digitally oriented strategy we presented to investors last
year," said Kodak Chairman and Chief Executive Officer Daniel A. Carp. "Sales
continue to increase, led by broad demand among consumers and commercial
customers for our digital products and services. In fact, our digital revenue
increased 48%, more than offsetting a decline of 8% in traditional revenue. At
the same time, Kodak continues to cut costs as part of our commitment to reduce
expenses faster than the decline in portions of our traditional portfolio. The
performance of our acquisitions is on target, and our balance sheet remains
strong."
Other second-quarter 2004 details from continuing operations:
-- For the quarter, operating cash flow excluding acquisitions was a
negative $39 million, compared with negative $27 million for the second
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 $208 million from the year-end level to $3.040 billion
and the debt-to-capital ratio decreased to 48.2% from 49.9% at the end
of 2003. Kodak remains committed to reducing its debt this year by as
much as $800 million. The company held $519 million in cash on its
balance sheet at the end of the quarter, unchanged from the first
quarter of 2004 and down from $1.25 billion at the end of 2003.
-- Gross Profit on an operational basis was 33.1%, down from the year-ago
level of 33.9%, better than the company expected.
-- Selling, General and Administrative expenses on an operational basis
were 17.7% of sales, down from 20.6% in the year-ago quarter.
The segment results from continuing operations for the second quarter of
2004 are as follows:
-- Digital & Film Imaging segment sales totaled $2.396 billion, up 2%.
Earnings from operations for the segment were $230 million on a GAAP and
an operational basis, compared with $119 million a year ago. Highlights
for the quarter included a 93% increase in the sales of KODAK Picture
Maker kiosks and related media; a 91% increase in consumer digital
capture sales, which includes the KODAK EASYSHARE cameras; and 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 15% compared with the
second quarter of 2003.
-- Health Imaging sales were $672 million, up 11%. Earnings from operations
for the segment were $128 million on a GAAP and operational basis,
compared with $131 million a year ago. Highlights included a 22%
increase in sales of digital products and services.
-- Commercial Imaging sales were $193 million, down 3%. Earnings from
operations were $32 million on a GAAP and operational basis, compared
with $31 million a year ago. The segment's results reflect in part solid
market acceptance of the new i600 series of document scanners.
-- Graphic Communications sales were $177 million, up 99%, largely
reflecting the acquisition of Kodak Versamark and NexPress. The loss
from operations was $33 million on a GAAP and operational basis,
compared with a loss of $1 million a year ago. The integration plans are
on or ahead of schedule for both Kodak Versamark and NexPress, and both
subsidiaries enjoyed strong demand for their products and services at
the drupa trade show in May.
-- All Other sales were $31 million, up 35% from the year-ago quarter. The
loss from operations totaled $33 million on a GAAP and an operational
basis, compared with a loss of $22 million a year ago. The All Other
category includes the Display & Components operation and other
miscellaneous businesses.
Earnings Outlook:
-- Kodak expects second-half operational earnings to be in the range of
$1.25 to $1.55 per share, and GAAP earnings to range between $1.71 and
$2.01 per share. For the full year, the company is raising its guidance
for operational earnings to a range of $2.39 to $2.69 per share,
compared with the previous guidance of $2.15 to $2.45 per share. The
company expects full-year GAAP earnings to range between $2.35 and $2.65
per share.
"Our second-quarter results demonstrate that we are successfully
accelerating our participation in digital markets," said Kodak President and
Chief Operating Officer Antonio Perez. "We also recognize that the trend in
consumer film suggests that the volume decline will be greater than we expected
at the start of the year. We now anticipate that worldwide volume industrywide
will decline in the range of 10% to 12% this year, compared with the prior
forecast of a decline of 7% to 9%. In the U.S., we now expect the decline to be
in the range of 18% to 20%, compared with the prior forecast of a decline of 10%
to 12%.
"Consistent with the commitment we made in September, our ability to
generate earnings growth demonstrates that we are managing the traditional
business effectively," Perez said. "As we have stressed previously, we remain
determined to reduce costs in our traditional business ahead of the pace of its
decline."
To that end, Kodak is accelerating the cost reduction program announced in
January. At that time, the company said it would reduce employment by a range of
12,000 to 15,000 worldwide through 2006, with reductions of 2,500 to 3,500
occurring in 2004. Under the January program, the company has already reduced
employment by 2,700 positions through the second quarter, and plans an
additional reduction of 800 to 1,300 positions for the balance of the year.
These actions will result in charges this year of $315 million to $375 million.
"While our earnings outlook reflects a certain volatility that would be
expected in any significant transformation, we are reassured by our performance
thus far that we are on the right course," Perez said. "We fully intend to
continue delivering annual sales and earnings growth, reducing costs, and
introducing more market-leading products and services."
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 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 this press release are subject to a number of factors
and uncertainties, including:
-- The successful implementation of our recently announced digitally
oriented growth strategy;
-- Implementation of product strategies (including category expansion,
digitization, organic light emitting diode (OLED), 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;
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
-- 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;
-- General economic, business, geopolitical, regulatory and
public health conditions; 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.
Editor's Note: For additional information about Kodak, visit our
web site on the Internet at: www.kodak.com
2004
- -0-
*T
Eastman Kodak Company
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
(in millions, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2004 2003 2004 2003
Net sales $ 3,469 $3,259 $6,388 $5,899
Cost of goods sold 2,354 2,163 4,461 4,002
-------- -------- -------- --------
Gross profit 1,115 1,096 1,927 1,897
Selling, general and
administrative expenses 613 707 1,165 1,265
Research and development
costs 212 178 409 371
Restructuring costs and
other 135 44 185 76
-------- -------- -------- -------
Earnings from continuing
operations before
interest,
other income
(charges), net, and
income taxes 155 167 168 185
Interest expense 43 34 87 71
Other income (charges), net 7 (9) 6 (30)
-------- ------- -------- -------
Earnings from continuing
operations before income
taxes 119 124 87 84
(Benefit) provision for
income taxes (24) 18 (72) (10)
-------- ------- -------- -------
Earnings from continuing
operations 143 106 159 94
Earnings from discontinued
operations, net of income
taxes 11 6 23 30
------- ------- --------- -------
NET EARNINGS $ 154 $ 112 $ 182 $ 124
======= ======= ========= =======
Basic and diluted net earnings (loss) per share:
Continuing operations $ .50 $ .37 $ .56 $ .33
Discontinued operations .04 .02 .08 .10
------- ------- --------- -------
Total $ .54 $ .39 $ .64 $ .43
======= ======= ========= =======
Number of common shares
used in basic earnings
per share 286.6 286.5 286.6 286.4
Incremental shares from
assumed conversion of
options 0.0 0.1 0.1 0.2
------- -------- --------- -------
Number of common shares
used in diluted earnings
per share 286.6 286.6 286.7 286.6
======= ======== ========= =======
SUPPLEMENTAL INFORMATION - UNAUDITED
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ---------------------
2004 2003 2004 2003
Provision for
depreciation $ 212 $ 192 $ 426 $ 392
After-tax exchange losses
and effect of translation
of net monetary items 1 (5) (1) (5)
Capital expenditures 91 123 182 234
- ----------------------------------------------------------------------
Net Sales from Continuing Operations by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ---------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems
Inside the U.S. $ 971 $ 972 0% $1,691 $1,659 + 2%
Outside the U.S. 1,425 1,369 + 4 2,636 2,480 + 6
------- ------- ----- -------- ------- -----
Total Digital & Film
Imaging Systems 2,396 2,341 + 2 4,327 4,139 + 5
------- ------- ----- -------- ------- -----
Health Imaging
Inside the U.S. 277 266 + 4 535 504 + 6
Outside the U.S. 395 341 + 16 768 652 +18
------- ------- ----- --------- ------ -----
Total Health Imaging 672 607 + 11 1,303 1,156 +13
------- ------- ----- --------- ------ -----
Commercial Imaging
Inside the U.S. 79 92 - 14 158 169 - 7
Outside the U.S. 114 107 + 7 231 216 + 7
------- ------- ----- --------- ------ -----
Total Commercial Imaging 193 199 - 3 389 385 + 1
------- ------- ----- --------- ------ -----
Graphic Communications
Inside the U.S. 83 37 +124 138 74 +86
Outside the U.S. 94 52 + 81 172 103 +67
------- ------- ----- --------- ----- ----
Total Graphic
Communications 177 89 + 99 310 177 +75
------- ------- ----- -------- ------- ----
All Other
Inside the U.S. 19 10 + 90 32 21 +52
Outside the U.S. 12 13 - 8 27 21 +29
------- ------- ----- ------- ------- ----
Total All Other 31 23 + 35 59 42 +40
------- ------- ----- ------- ------- ----
Consolidated total $3,469 $3,259 + 6% $6,388 $5,899 + 8%
======= ======= ===== ======= ======= ====
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 Six Months Ended
June 30 June 30
------------------------ --------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems $ 230 $ 119 +93% $ 246 $ 73 +237%
Percent of Sales 9.6% 5.1% 5.7% 1.8%
Health Imaging $ 128 $ 131 - 2% $ 221 $ 240 - 8%
Percent of Sales 19.0% 21.6% 17.0% 20.8%
Commercial Imaging $ 32 $ 31 + 3% $ 63 $ 51 + 24%
Percent of Sales 16.6% 15.6% 16.2% 13.2%
Graphic Communications $ (33) $ (1) $ (58) $ 8 -825%
Percent of Sales (18.6%) (1.1%) (18.7%) 4.5%
All Other $ (33) $ (22) - 50% $ (61) $ (38) - 61%
Percent of Sales (106.5%) (95.7%) (103.4%) (90.5%)
-------- ------- ------ -------- ------ ------
Total of segments $ 324 $ 258 + 26% $411 $ 334 +23%
9.3% 7.9% 6.4% 5.7%
Restructuring costs
and other (169) (54) (243) (100)
Impairment of Burrell
Companies' net assets - (9) - (9)
GE settlement - - - (12)
Patent infringement
claim settlement - (14) - (14)
Prior year acquisition
settlement - (14) - (14)
-------- ------ ------- ------- ------ ------
Consolidated total $ 155 $ 167 - 7% $168 $ 185 - 9%
======== ====== ======= ======= ====== ======
Earnings (Loss) From Continuing Operations by Reportable Segment and
All Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging Systems $199 $90 +121% $214 $52 +312%
Percent of Sales 8.3% 3.8% 4.9% 1.3%
Health Imaging $110 $101 + 9% $188 $181 + 4%
Percent of Sales 16.4% 16.6% 14.4% 15.7%
Commercial Imaging $26 $21 + 24% $51 $35 + 46%
Percent of Sales 13.5% 10.6% 13.1% 9.1%
Graphic Communications $(23) $(4) -475% $(45) $ (9) -400%
Percent of Sales (13.0%)(4.5%) (14.5%)(5.1%)
All Other $(32) $(21) - 52% $(57) $(35) - 63%
Percent of Sales (103.2%) (91.3%) (96.6%) (83.3%)
----- ----- ----- ----- ----- -----
Total of segments $280 $187 + 50% $351 $224 + 57%
8.1% 5.7% 5.5% 3.8%
Restructuring costs and other (169) (54) (243) (100)
Impairment of Burrell - (9) - (9)
Companies' net assets
GE settlement - - - (12)
Patent infringement claim - (14) - (14)
settlement
Prior year acquisition - (14) - (14)
settlement
Interest expense (43) (34) (87) (71)
Other corporate items 2 3 4 6
Tax benefit - donation of - - - 8
patents
Income tax effects on above
items and taxes not allocated 73 41 134 76
to above ----- ---- ----- ----- ----- -----
Consolidated total $143 $106 +35% $159 $94 +69%
===== ===== ==== ==== ==== ====
Eastman Kodak Company
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
June 30, Dec. 31,
2004 2003
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 519 $ 1,250
Receivables, net 2,605 2,328
Inventories, net 1,256 1,073
Deferred income taxes 662 602
Other current assets 129 130
Assets of discontinued 104 72
operations ---------- ------------
Total current assets 5,275 5,455
---------- ------------
Property, plant and equipment, 4,795 5,051
net
Goodwill 1,432 1,364
Other long-term assets 3,152 2,883
Assets of discontinued 66 65
operations ---------- ------------
TOTAL ASSETS $14,720 $14,818
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
current liabilities $ 3,626 $ 3,614
Short-term borrowings 1,043 946
Accrued income taxes 657 654
Liabilities of discontinued 37 36
operations ---------- ------------
Total current liabilities 5,363 5,250
OTHER LIABILITIES
Long-term debt, net of current 1,997 2,302
portion
Postretirement liabilities 3,339 3,344
Other long-term liabilities 746 650
Liabilities of discontinued 4 8
operations ---------- ------------
Total liabilities 11,449 11,554
SHAREHOLDERS' EQUITY
Common stock at par 978 978
Additional paid in capital 850 850
Retained earnings 7,636 7,527
Accumulated other comprehensive (336) (231)
loss
Unearned restricted stock (6) (8)
---------- ------------
9,122 9,116
Less: Treasury stock at cost 5,851 5,852
---------- ------------
Total shareholders' equity 3,271 3,264
---------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,720 $14,818
====== ======
Eastman Kodak Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
June 30
---------------------
2004 2003
Cash flows relating to operating activities:
Net earnings $ 182 $ 124
Adjustments to reconcile to net cash (used in)
provided by operating activities:
Earnings from discontinued operations (23) (30)
Equity in losses from unconsolidated affiliates 4 30
Depreciation 426 392
Purchased research and development 9 21
Gain on sales of businesses/assets (1) -
Restructuring costs, asset impairments and
other non-cash charges 22 37
(Benefit) provision for deferred taxes (124) 16
Increase in receivables (204) (164)
Increase in inventories (77) (67)
Decrease in liabilities excluding borrowings (250) (235)
Other items, net 69 99
------- -------
Total adjustments (149) 99
------- -------
Net cash provided by continuing operations 33 223
------- -------
Net cash provided by discontinued operations 4 31
------- -------
Net cash provided by operating activities 37 254
------- -------
Cash flows relating to investing activities:
Additions to properties (182) (232)
Net proceeds from sales of businesses/assets 1 -
Acquisitions, net of cash acquired (335) (118)
Investments in unconsolidated affiliates (31) (41)
Marketable securities - purchases (64) (44)
Marketable securities - sales 58 43
------- -------
Net cash used in continuing operations (553) (392)
------- -------
Net cash used in discontinued operations (2) (4)
------- -------
Net cash used in investing activities (555) (396)
------- -------
Cash flows relating to financing activities:
Net (decrease) increase in borrowings
with original maturity of 90 days or less (40) 129
Proceeds from other borrowings 89 724
Repayment of other borrowings (257) (466)
Exercise of employee stock options - 12
------- -------
Net cash (used in) provided by financing
activities (208) 399
------- -------
Effect of exchange rate changes on cash (5) 12
------- -------
Net (decrease) increase in cash and cash
equivalents (731) 269
Cash and cash equivalents, beginning of year 1,250 569
------- -------
Cash and cash equivalents, end of quarter $ 519 $ 838
==== ====
*T
Exhibit 99.2
Eastman Kodak Company Financial Discussion Document
Second Quarter 2004 Results
The Remote Sensing Systems (RSS) business, which had been included in the
Commercial Imaging segment, is in the process of being sold to ITT Industries.
It is accounted for in the current quarter as discontinued operations. The
discussion that follows relates to the continuing operations portion of the
business.
The presentation of the revised financial results reflecting the Company's
new segment reporting structure and RSS as a discontinued operation for each of
the four quarters and the year ended December 31, 2003, can be found as a
financial attachment at the end of this document.
Second Quarter
Consolidated Revenues:
Net worldwide sales were $3.469 billion for the second quarter of 2004 as
compared with $3.259 billion for the second quarter of 2003, representing an
increase of $210 million or 6% as reported, or an increase of 4% excluding the
favorable impact of exchange. The increase in net sales was composed of:
-- Volume: increases in volume contributed approximately 3.5 percentage
points to second quarter sales driven primarily by the consumer digital
capture SPG, the Picture Maker kiosks/media portion of the consumer
output SPG, and the entertainment films SPG.
-- Price/Mix: declines in price/mix reduced second quarter sales by
approximately 4.0 percentage points, primarily driven by the consumer
digital capture SPG and the film capture SPG.
-- Exchange: favorable exchange of approximately 2.5 percentage points
partially offset the negative impacts of price/mix.
-- Acquisitions: PracticeWorks, Kodak Versamark, Laser Pacific, and
NexPress Solutions (and related entities) acquisitions contributed $143
million or approximately 4.0 percentage points to second quarter sales.
Net sales in the U.S. were $1.429 billion for the second quarter of 2004 as
compared with $1.377 billion for the prior year quarter, representing an
increase of $52 million, or 4%. Net sales outside the U.S. were $2.040 billion
for the current quarter as compared with $1.882 billion for the second quarter
of 2003, representing an increase of $158 million, or 8% as reported, or an
increase of 4% excluding the favorable impact of exchange.
Kodak's digital product sales were $1.242 billion for the current quarter as
compared with $838 million for the second quarter of 2003, representing an
increase of $404 million, or 48%, primarily driven by the consumer digital
capture SPG, the kiosks/media portion of the consumer output SPG, and digital
acquisitions. Net sales of the Company's traditional products were $2.227
billion for the current quarter as compared with $2.421 billion for the second
quarter of 2003, representing a decrease of $194 million, or 8%, primarily
driven by declines in the film capture SPG and the wholesale photofinishing
portion 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 $1.093 billion for the second quarter of
2004 as compared with $1.045 billion for the prior year quarter, representing an
increase of $48 million, or 5% as reported, unchanged excluding the favorable
impact of exchange.
Net sales in the Asia Pacific region were $636 million for the current
quarter as compared with $537 million for the prior year quarter, representing
an increase of $99 million, or 18% as reported, or an increase of 12% excluding
the favorable impact of exchange.
Net sales in the Canada and Latin America region were $311 million in the
current quarter as compared with $300 million for the second quarter of 2003,
representing an increase of $11 million, or 4% as reported, or an increase of 3%
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 $730
million for the second quarter of 2004 as compared with $602 million for the
prior year quarter, representing an increase of $128 million, or 21% as
reported, or an increase of 20% excluding the favorable impact of exchange.
The emerging market portfolio accounted for approximately 21% of Kodak's
worldwide sales and 36% of Kodak's non-U.S. sales in the quarter. Sales growth
was recorded for all major emerging markets including China +82%, Russia +16%,
India +13%, Brazil +6%, and Mexico +3%.
Strong sales increases in China were recorded versus a weak second quarter
of 2003, when SARS significantly impacted operations in that country. India
experienced strong business performance for most of Kodak's operations in that
area. 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 $1.115 billion for the second quarter of 2004 as compared
with $1.096 billion for the second quarter of 2003, representing an increase of
$19 million, or 2%. Gross profit includes charges relating to accelerated
depreciation and inventory write-downs of $34 million in the current quarter and
$10 million in the prior year's quarter relating to focused cost reduction
actions. During the second quarter of 2004, the Company's gross profit was
favorably impacted by a LIFO liquidation of approximately $28 million versus $8
million in the second quarter of 2003.
The gross profit margin was 32.1% in the current quarter as compared with
33.6% in the prior year quarter. The 1.5 percentage point decrease was primarily
attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross profit
margins by approximately 5.0 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 3.0 percentage points.
-- Exchange: remained 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 $1.149 billion for the
second quarter of 2004 as compared with $1.106 billion for the second quarter of
2003, representing an increase of $43 million, or 4%. During the second quarter
of 2004, the Company's gross profit was favorably impacted by a LIFO liquidation
of approximately $28 million versus $8 million in the second quarter of 2003.
The gross profit margin was 33.1% in the current quarter as compared with
33.9% in the prior year quarter. The 0.8 percentage point decrease was primarily
attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross profit
margins by approximately 5.0 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 4.0 percentage points.
-- Exchange: remained 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 $613 million for
the second quarter of 2004 as compared with $707 million for the prior year
quarter, representing a decrease of $94 million, or 13%. The prior year quarter
included charges of $14 million relating to a patent infringement claim, $14
million associated with the settlement of outstanding issues relating to a prior
year acquisition, and $9 million associated with the write-down of the Burrell
Companies' net assets held for sale. SG&A decreased as a percentage of sales
from 21.7% for the second quarter of 2003 to 17.7% for the current quarter.
Unfavorable exchange of $13 million and acquisition related SG&A of $54 million
were more than offset by the savings impacts from the Company's ongoing cost
reduction actions.
Operational:
SG&A expenses on an operational basis were $613 million for the second
quarter of 2004 as compared with $670 million for the prior year quarter,
representing a decrease of $57 million, or 9%.
The decrease in SG&A is attributable to the savings impacts from the
Company's ongoing cost reduction actions, including a $39 million reduction in
advertising expense, which more than offset acquisition related SG&A of $54
million and unfavorable exchange of $13 million. As a percentage of sales, SG&A
decreased from 20.6% for the second quarter of 2003 to 17.7% for the current
quarter.
Research and Development Costs:
Research and development costs (R&D) were $212 million for the second
quarter of 2004 as compared with $178 million for the second quarter of 2003,
representing an increase of $34 million, or 19%. R&D as a percentage of sales
increased from 5.5% in the second quarter of 2003 to 6.1% in the current
quarter. The increase in R&D is primarily attributable to acquisition related
R&D and increased investments for digital growth initiatives. Going forward, the
Company expects to incur R&D expenses at approximately 6% of sales.
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 objective of these actions
is to achieve a business model appropriate for Kodak's traditional businesses,
sharpen the Company's competitiveness in digital markets, and create a more
variable cost structure overall.
In January, the company announced employment reductions in a range of 12,000
to 15,000 worldwide through 2006, as well as expected 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. The company also said in
January that Kodak's worldwide facility square footage overall will be reduced
by approximately one third. The employment reductions are expected to occur
primarily in global manufacturing, selected traditional businesses and corporate
administration.
Under this program, Kodak implemented cost reduction actions in the second
quarter resulting in pre-tax charges totaling $164 million or $.37 per share.
The components of restructuring in the second quarter include $98 million for
employee severance relating to the elimination of approximately 2,700 positions
and $44 million associated with exit costs and asset impairments, partially
offset by reserve reversals of $10 million. In addition, the Company recorded
accelerated depreciation and inventory write-offs of $32 million during the
quarter.
Earlier this year, the Company stated that the cost reduction actions under
this new program would result in charges of $250 million to $400 million
relating to the elimination of 2,500 to 3,500 positions worldwide. The Company
is now accelerating the pace of this cost reduction program relative to the
initial estimates, which will result in total charges for the full-year 2004 of
$315 million to $375 million relating to the elimination of 3,500 to 4,000
positions worldwide. Given the second quarter charges of $164 million, the
Company expects the remaining charges for 2004 under this new program to be $150
million to $210 million relating to the elimination of an additional 800 to
1,300 positions.
Other Asset Impairments:
During the second quarter, the Company recorded inventory writedowns and
fixed asset writeoffs of $5 million, or $.01 per share, relating to its
historical ownership interest in the NexPress related entities acquired.
Earnings From Operations:
GAAP:
Earnings from operations (EFO) for the second quarter of 2004 were $155
million as compared with earnings from operations of $167 million for the second
quarter of 2003, representing a decrease of $12 million, or 7%. This decrease is
attributable to the reasons indicated above.
Operational:
EFO on an operational basis for the second quarter of 2004 were $324 million
as compared with $258 million for the second quarter of 2003, representing an
increase of $66 million, or 26%. The increase in earnings from operations is
attributable to the reasons indicated above.
Below EFO:
Interest expense for the second quarter of 2004 was $43 million as compared
with $34 million for the prior year quarter, representing an increase of $9
million, or 26%. Higher interest expense is a result of higher year over year
interest rates and average debt balances.
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 $7 million as compared with other charges of $9 million for the
second 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 22.5% for the prior year second quarter to 15.5% for the second
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 second quarter of 2004, the Company recorded a tax benefit of $24
million on $119 million of pre-tax income. The tax benefit of $24 million for
the quarter differs from the tax provision of $18 million that results from
applying the estimated annual effective tax rate from continuing operations due
to discrete period tax benefits of $69 million. These discrete period tax
benefits resulted from the following:
-- Tax benefits of $58 million associated with the net focused cost
reduction charges of $164 million
-- Tax benefit of $9 million resulting from an IRS settlement in connection
with the Company's filing position relating to the income tax reporting
of a patent infringement litigation settlement
-- Tax benefits of $2 million associated with inventory writedowns and
fixed asset writeoffs of $5 million relating to Kodak's historical
ownership in the NexPress joint venture in connection with the
completion of the acquisition of the NexPress-related entities from
Heidelberger Druckmaschinen
These focused cost reduction and NexPress-related charges were incurred in
jurisdictions that have tax rates that are greater than the estimated annual
effective tax rate.
Operational:
The decrease in the estimated annual effective tax rate from continuing
operations from 22.5% for the prior year second quarter to 15.5% for the second
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.
The actual tax provision from continuing operations on an operational basis
was $35 million on $288 million of pre-tax income in the second quarter of 2004.
The tax provision of $35 million differs from the tax provision of $44 million
that results from applying the Company's estimated annual effective tax rate
from continuing operations due to the recording of the tax benefit of $9 million
resulting from a IRS settlement in connection with the Company's filing position
relating to the income tax reporting of a patent infringement litigation
settlement.
Earnings from Continuing Operations:
GAAP:
Earnings from continuing operations for the second quarter of 2004 were $143
million, or $.50 per diluted share, as compared with earnings from continuing
operations for the second quarter of 2003 of $106 million, or $.37 per diluted
share, representing an increase of $37 million, or 35% year over year. This
increase in earnings from continuing operations is attributable to the reasons
described above.
Operational:
Earnings from continuing operations on an operational basis for the second
quarter of 2004 were $253 million, or $.88 per diluted share, as compared with
earnings from continuing operations on an operational basis for the second
quarter of 2003 of $166 million, or $.58 per diluted share, representing an
increase of $87 million, or 52%. Second quarter operational earnings from
continuing operations for 2004 exclude the following after-tax items:
-- A charge of $109 million ($169 million pre-tax), or $.38 per share,
resulting from previously announced cost reduction initiatives and the
NexPress inventory writedowns and fixed asset writeoffs.
$135 million is recorded in "Restructuring Costs and Other" and $34 million
of accelerated depreciation and asset impairments are recorded in "Cost of
Goods Sold" (COGS).
Second quarter operational earnings include a $.07 per share net operational
benefit from the following items:
-- A credit of $12 million ($14 million pre-tax), or $.04 per share
relating to the adoption of the Medicare Prescription Drug Act.
The Company anticipates that it will continue to receive this quarterly
benefit at this approximate level for an extended period of years.
-- A tax benefit of $9 million, or $.03 per share resulting from an IRS
settlement in connection with the Company's filing position relating to
the income tax reporting of a patent infringement litigation settlement.
Earnings from Discontinued Operations:
Earnings from discontinued operations for the second quarter of 2004 were
$.04 per diluted share primarily relating to the pending sale of Kodak's Remote
Sensing Systems Business. The Company had earnings of $.02 per share from
discontinued operations in the second quarter of 2003.
- -0-
*T
Year-over-Year Comparison of Reported and Operational Earnings
(Amounts in millions of dollars)
- ----------------------------------------------------------------------
2Q 04 as Excluded 2Q 04 2Q 03 as Excluded 2Q 03 Reported Items
Operational Reported Items Operational
----------------------------------------------------------
Sales $3,469 $3,469 $3,259 $3,259
COGS 2,354 (34) a 2,320 2,163 (10) d 2,153
--------- --------------------- ------------
Gross Profit 1,115 34 1,149 1,096 10 1,106
SG&A 613 613 707 (37) e 670
R&D 212 212 178 178
Restructuring
costs and
other 135 (135) b - 44 (44) f -
--------- --------------------- ------------
Earnings From
Operations 155 169 324 167 91 258
Interest
Expense 43 43 34 34
Other
Inc./(Charges) 7 7 (9) (9)
--------- --------------------- ------------
Below EFO (36) (36) (43) (43)
Earnings
Before Taxes 119 169 288 124 91 215
(Benefit) Provision for
Taxes (24) 59 c 35 18 31 g 49
--------- --------------------- ------------
Earnings -
Cont. Ops. 143 110 253 106 60 166
Earnings from
Disc. Ops. 11 (11) - 6 (6) -
Net Earnings $154 $99 $253 $112 $54 $166
Diluted EPS -
Cont. Ops. $0.50 $0.38 $0.88 $0.37 $0.21 $.58
Total Diluted
EPS $0.54 $0.39
- ----------------------------------------------------------------------
*T
Items excluded from Earnings on an operational basis:
a - Charges for (1) accelerated depreciation and inventory writedowns in
connection with the focused cost reduction actions of $30 million and $2
million, respectively, and (2) inventory writedowns of $2 million relating
to Kodak's historical ownership interest in the NexPress joint venture in
connection with the acquisition of the NexPress-related entities.
b - Charges for (1) focused cost reduction actions of $132 million and (2) the
writeoff of fixed assets of $3 million relating to Kodak's historical
ownership interest in the NexPress joint venture that will be disposed of in
connection with the acquisition of the NexPress-related entities.
c - Tax impacts associated with the above-mentioned excluded items.
d - Charges for accelerated depreciation of $7 million and inventory
writedowns of $3 million in connection with the focused cost reduction
actions.
e - Charges for the Burrell Companies' net assets held for sale impairment of
$9 million, patent infringement claim settlement of $14 million, and prior
year acquisition settlement of $14 million.
f - Charges for focused cost reduction actions of $44 million.
g - Tax impacts associated with the above-mentioned excluded items.
- -0-
*T
As Percent of Sales:
2Q 04 as 2Q 04 2Q 03 as 2Q 03
Reported Operational Reported Operational
------------------------------------------
Gross Profit 32.1% 33.1% 33.6% 33.9%
SG&A 17.7% 17.7% 21.7% 20.6%
SG&A w/o Advertising
13.8% 13.8% 16.4% 15.3%
R&D 6.1% 6.1% 5.5% 5.5%
EFO 4.5% 9.3% 5.1% 7.9%
Net Earnings 4.4% 7.3% 3.4% 5.1%
- ----------------------------------------------------------------------
*T
Segment Results:
Digital and Film Imaging Systems
Revenues:
Net worldwide sales for the Digital and Film Imaging Systems segment were
$2.396 billion for the second quarter of 2004 as compared with $2.341 billion
for the second quarter of 2003, representing an increase of $55 million, or 2%
as reported, or unchanged excluding the favorable impact of exchange. The
increase in net sales was composed of:
-- Volume: higher volumes increased second quarter sales by approximately
4.5 percentage points. Volume increases for the consumer digital capture
SPG, the Picture Maker kiosks portion of the consumer output SPG and the
entertainment films SPG were partially offset by volume declines for
wholesale photofinishing services and traditional film products.
-- Price/Mix: declines attributable to price/mix reduced second quarter
sales by approximately 5.0 percentage points driven by the consumer
digital capture SPG and the traditional film capture SPG.
-- Exchange: favorable exchange of approximately 2.5 percentage points
partially offset the negative impacts of price/mix.
Digital and Film Imaging segment net sales in the U.S. were $971 million for
the current quarter as compared with $972 million for the second quarter of
2003, representing a decrease of $1 million. Digital and Film Imaging segment
net sales outside the U.S. were $1.425 billion for the second quarter of 2004 as
compared with $1.369 billion for the prior year quarter, representing an
increase of $56 million, or 4% as reported, or no change excluding the favorable
impact of exchange.
Digital and Film Imaging Systems segment digital product sales were $592
million for the current quarter as compared with $360 million for the second
quarter of 2003, representing an increase of $232 million, or 64%, primarily
driven by the consumer digital capture SPG and the kiosks/media portion of the
consumer output SPG. Segment traditional product sales were $1.804 billion for
the current quarter as compared with $1.981 billion for the second quarter of
2003, representing a decrease of $177 million or 9%, primarily driven by
declines in film capture and consumer output.
Digital Strategic Product Group Revenues
Net worldwide sales of consumer digital capture products which includes
consumer digital cameras, accessories, memory products and royalties increased
91% in the second 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.
Year to date through May, Kodak gained worldwide digital camera unit market
share versus the prior year. While complete data for second quarter market share
is not yet available, all indications are that Kodak gained digital camera
market share in the U.S. year over year for the full quarter. In May, Kodak was
ranked in the top 3 unit share position in several key countries outside the
U.S. 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 93% in the
second quarter of 2004 as compared with the second 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.
Net worldwide sales from the home printing solutions SPG, which includes
inkjet photo paper and printer docks/media, increased 59% in the current quarter
as compared with the second 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 May. During the quarter, inkjet paper sales declined year over year due
to a combination of slowing industry growth and lower market share. Despite
share losses, Kodak was able to maintain 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 15% in the second
quarter of 2004 as compared with the second 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 15%
in the second quarter of 2004 as compared with the prior year quarter and
remained unchanged quarter sequentially. Kodak's sell-in consumer film volumes
declined 20% as compared with the prior year quarter, reflecting a decrease in
U.S. retailer inventories.
In January 2004, the Company predicted that full year U.S. consumer film
industry volumes would decline 10% to 12%, with worldwide film industry volumes
declining at a rate of 7% to 9%. The most current market data trends indicate
that for full year 2004, the U.S. film industry will contract in the 18% to 20%
range with worldwide volumes declining 10% to 12%.
Net worldwide sales for the retail photofinishing SPG, which includes color
negative paper, minilab equipment and services, chemistry, and photofinishing
services at retail, increased 7% in the second quarter of 2004 as compared with
the second quarter of 2003, primarily reflecting higher volumes of retail
photofinishing equipment and favorable exchange partially offset by negative
price/mix.
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 second quarter of 2004 as compared with the second quarter
of 2003, primarily reflecting lower volumes and negative price/mix partially
offset by favorable exchange.
Net worldwide sales for the entertainment films SPG, including origination
and print films for the entertainment industry increased 11%, primarily
reflecting volume increases and favorable exchange partially offset by negative
price/mix. Color print films benefited from robust market demand complemented by
international motion picture releases.
Gross profit:
Gross profit for the Digital and Film Imaging Systems segment was $744
million for the second quarter of 2004 as compared with $756 million for the
prior year quarter, representing a decrease of $12 million or 2%. The gross
profit margin was 31.1% in the current year quarter as compared with 32.3% 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 6.0 percentage points driven by the consumer
digital capture SPG and the film capture SPG.
-- Manufacturing Cost: positive manufacturing cost initiatives improved
gross profit margins by approximately 5.0 percentage points.
-- Exchange: remained unchanged.
SG&A:
In the second quarter, SG&A expenses for the Digital and Film Imaging
Systems segment decreased $110 million or 21%, from $526 million in the second
quarter of 2003 to $416 million in the current quarter, and decreased as a
percentage of sales from 22.5% to 17.4%. Ongoing cost reduction actions more
than offset a negative $10 million impact from exchange and acquisition related
SG&A of $2 million.
R&D:
Second quarter R&D costs for the Digital and Film Imaging Systems segment
decreased $15 million, or 13%, from $113 million in the second quarter of 2003
to $98 million in the current quarter and decreased as a percentage of sales
from 4.8% to 4.1%. The decrease in R&D year over year was primarily attributable
to cost reduction actions related to traditional products and services partially
offset by an increase in spending for digital products.
EFO:
Earnings from operations for the Digital and Film Imaging Systems segment
increased $112 million, from $118 million in the second quarter of 2003 to $230
million in the second quarter of 2004, primarily as a result of the factors
described above.
Health Imaging
Revenues:
Net worldwide sales for the Health Imaging segment were $672 million for the
second quarter of 2004 as compared with $607 million for the prior year quarter,
representing an increase of $65 million, or 11% as reported, or an increase of
3% excluding the favorable impact of exchange. The increase in net sales was
comprised of:
-- Volume: Increases in volume contributed approximately 3.0 percentage
points to second quarter sales, driven primarily by volume increases in
the digital capture SPG, the digital equipment portion of the digital
output SPG and the equipment services SPG.
-- Price/Mix: Decreases in price/mix reduced second quarter sales by
approximately 3.0 percentage points, primarily driven by the traditional
medical film portion of the film capture and output SPG, the digital
capture SPG, and the digital media portion of the digital output SPG.
-- Exchange: Favorable exchange impacted sales by approximately 3.0
percentage points.
-- Acquisition: The PracticeWorks acquisition contributed $49 million or
approximately 8.0 percentage points to second quarter sales.
Net sales in the U.S. were $277 million for the current quarter as compared
with $266 million for the second quarter of 2003, representing an increase of
$11 million, or 4%. Net sales outside the U.S. were $395 million for the second
quarter of 2004 as compared with $341 million for the prior year quarter,
representing an increase of $54 million, or 16% as reported, or 11% excluding
the favorable impact of exchange.
Health Imaging segment digital product sales were $427 million for the
current quarter as compared with $350 million for the second quarter of 2003,
representing an increase of $77 million, or 22%, primarily driven by the
PracticeWorks acquisition and the digital capture SPG. Segment traditional
product sales were $245 million for the current quarter as compared with $257
million for the second quarter of 2003, representing a decrease of $12 million
or 5%. The primary driver was a decrease in sales of the traditional film
portion of the film capture and output SPG.
Digital Strategic Product Group 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"), increased 22% in the
second quarter of 2004 as compared with the prior year quarter, primarily
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 and higher volumes of digital capture equipment
and services.
Traditional Strategic Product Group Revenues:
Net worldwide sales of traditional products, including analog film,
equipment, chemistry and services, decreased 5% in the second quarter of 2004 as
compared with the second quarter of 2003 driven primarily by lower volumes and
prices for traditional film partially offset by favorable exchange.
Gross profit:
Gross profit for the Health Imaging segment was $296 million for the second
quarter of 2004 as compared with $263 million in the prior year quarter,
representing an increase of $33 million, or 13%. The gross profit margin was
44.0% in the current quarter as compared with 43.3% in the second quarter of
2003. The increase in the gross profit margin of 0.7 percentage point was
principally attributable to:
-- Manufacturing Cost: manufacturing cost improvements increased gross
profit margins by approximately 1.0 percentage point.
-- Price/Mix: Price/mix negatively impacted gross profit margins by
approximately 2.0 percentage points driven by the traditional medical
film portion of the film capture and output SPG and the digital media
portion of the digital output SPG.
-- Exchange: favorable exchange added approximately 0.5 percentage points
to the gross profit rate.
-- Acquisition: the PracticeWorks acquisition increased gross profit by
approximately 1.5 percentage points.
SG&A:
In the second quarter, SG&A expenses for the Health Imaging segment
increased $26 million, or 28%, from $94 million in the second quarter of 2003 to
$120 million for the current quarter, and increased as a percentage of sales
from 15.5% to 17.9%. The increase in SG&A expenses is primarily attributable to
$23 million associated with the PracticeWorks acquisition, and unfavorable
exchange of $2 million.
R&D:
Second quarter R&D costs increased $11 million from $38 million in the
second quarter of 2003 to $49 million in the current quarter, and increased as a
percentage of sales from 6.3% to 7.3%. 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.
Earnings from Operations:
Earnings from operations for the Health Imaging segment decreased $3
million, or 2%, from $131 million for the prior year quarter to $128 million for
the second quarter of 2004 while the operating earnings margin rate decreased
2.6 percentage points to 19.0% from 21.6% for the prior year quarter. The
decrease in earnings from operations is attributable to the reasons indicated
above. Operating earnings are expected to return to the low end of the expected
mid to upper teen range for the remainder of the year as a result of product mix
and increasing expenditures in SG&A and R&D related to investments in strategic
digital growth initiatives.
Commercial Imaging
On February 9, 2004 Kodak announced its intention to sell the Remote Sensing
Systems operation to ITT Industries for $725 million in cash. This transaction
is expected to close during the third quarter. The Remote Sensing Systems
business is part of Kodak's Commercial and Government Systems operation. During
the second quarter, the Commercial Imaging segment excludes the financial
performance of Kodak's Remote Sensing Systems business, which is accounted for
in "discontinued operations" as the Company awaits the closing of the sale.
Revenues:
Net worldwide sales for the Commercial Imaging segment were $193 million for
the second quarter of 2004 as compared with $199 million for the prior year
quarter, representing a decrease of $6 million, or 3% as reported, or a decrease
of 7% excluding the favorable impact of exchange. The decrease in net sales was
primarily comprised of:
-- Volume: volumes decreased second quarter sales by approximately 8.0
percentage point primarily driven by declines in the micrographics
equipment and media SPG as well as the aerial and industrial materials
SPG that benefited from a strong second quarter in 2003.
-- Price/Mix: positive price/mix increased second quarter sales by
approximately 1.0 percentage point.
-- Exchange: favorable exchange contributed approximately 4.0 percentage
points to second quarter sales.
Net sales in the U.S. were $79 million for the current year quarter as
compared with $92 million for the prior year quarter, representing a decrease of
$13 million, or 14%. Net sales outside the U.S. were $114 million in the second
quarter of 2004 as compared with $107 million for the prior year quarter,
representing an increase of $7 million or 7% as reported, or no change excluding
the favorable impact of exchange.
Commercial Imaging segment traditional product sales were $101 million for
the current quarter as compared with $109 million for the second quarter of
2003, representing a decrease of $8 million, or 7%. The primary driver was a
decline in sales of micrographics products and aerial and industrial materials.
Segment digital product sales were $92 million for the current quarter as
compared with $90 million for the second quarter of 2003, representing an
increase of $2 million, or 2%, primarily driven by the Imaging Services SPG.
Gross profit:
Gross profit for the Commercial Imaging segment was $67 million for the
second quarter of 2004 as compared with $72 million in the prior year quarter,
representing a decrease of $5 million, or 7%. The gross profit margin was 34.7%
in the current quarter as compared with 36.2% in the prior year quarter. The
decrease in the gross profit margin of 1.5 percentage points was primarily
attributable to:
-- Price/Mix: declines due to price/mix reduced gross profit margins by
approximately 4.0 percentage points.
-- 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 .5 percentage point.
SG&A:
SG&A expenses for the Commercial Imaging segment decreased $2 million from
$34 million in the second quarter of 2003 to $32 million in the current quarter,
and decreased as a percentage of sales from 17.1% to 16.6%.
R&D:
Second quarter R&D costs for the Commercial Imaging segment decreased $4
million, from $7 million in the second quarter of 2003 to $3 million for the
current quarter, and decreased as a percentage of sales from 3.5% to 1.6% in the
current quarter.
EFO:
Earnings from operations for the Commercial Imaging segment increased $1
million, or 3%, from $31 million for the prior year quarter to $32 million for
the second quarter of 2004 while the operating earnings margin rate increased
1.0 percentage points to 16.6% from 15.6% for the prior year quarter.
Graphic Communications
On May 1, 2004, Kodak closed on the NexPress Solutions deal acquiring:
-- Heidelberg's 50% interest in NexPress Solutions LLC (Kodak and
Heidelberg formed the Nexpress 50/50 JV in 1997 to develop high quality,
on-demand, digital color printing systems)
-- 100% of the stock of Heidelberg Digital LLC (Hdi) - manufacturer of
digital black & white printing systems
-- 100% of the stock of Nexpress GMBH - a R&D center located in
Kiel, Germany
-- Certain sales and service people, inventory and related assets and
liabilities of Heidelberg's sales and service units located throughout
the world.
Kodak paid $1 cash at closing. A unit sales based earn-out formula could
result in a maximum payout of $150 million during the next two calendar years
ending December 31, 2005. Total operational dilution of $.30 to $.35 per share
is expected for full year 2004, with the acquisition becoming accretive in 2007.
During the two months of the second quarter since closing, NexPress contributed
$41 million in sales to the Graphic Communications segment.
On January 5, 2004, Kodak announced the completion of its acquisition of
Scitex Digital Printing, the world leader in high-speed, variable data inkjet
printing systems. Kodak acquired the business for $239 million in net cash. This
acquisition is expected to contribute approximately $200 million to Graphic
Communications segment sales in 2004, and will be slightly dilutive through the
end of the year. Scitex Digital Printing now operates under the name Kodak
Versamark, Inc. During the second quarter, Kodak Versamark contributed $46
million in sales to the Graphic Communications segment.
Revenues:
Net worldwide sales for the Graphic Communications segment were $177 million
for the second quarter of 2004 as compared with $89 million for the prior year
quarter, representing an increase of $88 million, or 99% as reported, or 97%
excluding the favorable impact of exchange. The increase in net sales was due to
the Kodak Versamark and NexPress acquisitions.
Net sales in the U.S. were $83 million for the current year quarter as
compared with $37 million for the prior year quarter, representing an increase
of $46 million, or 124%. Net sales outside the U.S. were $94 million in the
second quarter of 2004 as compared with $52 million for the prior year quarter,
representing an increase of $42 million or 81% as reported, or an increase of
76% 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, the world leader
in continuous inkjet technology, NexPress Solutions, a leader in digital color
and black and white printing solutions and Encad, a maker of large format inkjet
printers.
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, declined 3% in the current quarter as compared with the
second quarter of 2003, primarily reflecting stable volumes offset by negative
price/mix for graphic arts products. Digital technology substitution continues
to negatively affect the traditional product portfolio that is sold to KPG.
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 second quarter of
2004 both in absolute terms and in quarterly year over year comparisons.
NexPress Solutions accepted orders for more than 100 digital color and
monochrome printing systems at the recent drupa 2004 trade exhibition in
Germany. The NexPress installed base of digital production color presses
continues to experience good customer acceptance. Activity levels for production
volumes and product related sales and service are steadily increasing and
acquisition integration plans remain on target.
Kodak Versamark experienced strong sales performance during the second
quarter driven by their success in increasing equipment penetration of the
transactional printing business in conjunction with a growing annuities
business. Kodak Versamark's successes at the drupa 2004 trade exhibition in
Germany included:
-- Receipt of a multi-million dollar order for more than a dozen Kodak
Versamark VX-Series Printing Systems from ISETO Corporation, one of its
largest Japanese distributors
-- The Kodak Versamark VX5000e was hailed as one of the major show
innovations
Encad began shipping its new Novajet 1000i large format printer during the
second quarter. This has resulted in strong order demand.
Gross profit:
Gross profit for the Graphic Communications segment was $33 million for the
second quarter of 2004 as compared with $13 million in the prior year quarter,
representing an increase of $20 million, or 154%. The gross profit margin was
18.6% in the current quarter as compared with 14.6% in the prior year quarter.
The increase in the gross profit margin of 4.0 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 9.0 percentage points.
-- Exchange: favorable exchange impacted gross profit margins by
approximately .5 percentage point.
-- Acquisition: Kodak Versamark and the Nexpress acquisitions favorably
impacted gross profit margins by 14 percentage points.
SG&A:
SG&A expenses for the Graphic Communications segment increased $32 million,
from $7 million in the second quarter of 2003 to $39 million for the current
quarter, and increased as a percentage of sales from 7.9% to 22.0%. The increase
in SG&A is primarily attributable to the Kodak Versamark and the NexPress
acquisitions, which recorded $29 million of SG&A expenses in the current
quarter.
R&D:
Second quarter R&D costs increased $20 million, from $7 million in the
second quarter of 2003 to $27 million in the current quarter and increased as a
percentage of sales from 7.9% for the second quarter of 2003 to 15.3% for the
current quarter. R&D expenses increased in the second quarter primarily due to
the acquisitions of Kodak Versamark and NexPress Solutions, which had $22
million of R&D expenses in the current quarter.
EFO:
Losses from operations for the Graphic Communications segment were $33
million in the current quarter and $1 million for the prior year quarter driven
primarily as a result of the factors described above.
All Other
Revenues:
Net worldwide sales for All Other were $31 million for the second quarter of
2004, as compared with $23 million for the prior year quarter, representing an
increase of $8 million, or 35% as reported.
SK Display Corporation, the OLED manufacturing joint venture between Kodak
and Sanyo, continues to focus on improving manufacturing yields and process
engineering. During the second quarter, Kodak announced the introduction of new
high-performance materials for the manufacture of both passive and active matrix
OLED displays. In addition, the Company is introducing reflective flexible
display technology that has the potential for use in a number of retail and
consumer applications.
EFO:
The loss from operations for All Other was $33 million in the current
quarter as compared with the loss from operations of $22 million in the second
quarter of 2003. The increase in loss from operations was primarily driven by
increased investments in new inkjet 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.
Operating cash flow during the second quarter of 2004 was negative $69
million, $8 million lower than the negative $61 million generated in the year
ago quarter. Excluding the impact of acquisitions of $30 million and $34 million
for the second quarter 2004 and 2003, respectively, the second quarter 2004
investable cash flow of negative $39 million was $12 million lower than the
second 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 second quarter of 2004 was $ 60 million, $(127) million and $
74 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 second
quarter of 2004:
- -0-
*T
($ millions) 2004 2003
- ----------------------------------------------------------------------
Net cash provided by continuing operations relating to $60 $117 operating
activities:
Additions to properties (91) (123)
Net proceeds from sales of businesses/assets 1
Investments in unconsolidated affiliates (9) (21)
Acquisitions, net of cash acquired (30) (34)
- ----------------------------------------------------------------------
Operating Cash Flow (continuing operations) (69) (61)
Acquisitions, net of cash acquired 30 34
- ----------------------------------------------------------------------
Investable Cash Flow (continuing operations) $(39) $(27)
- ----------------------------------------------------------------------
*T
The range for investable cash flow for full year 2004, excluding the
proceeds from the Remote Sensing Systems divestiture, will be $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 on 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.
Capital Spending:
Capital additions were $91 million in the second quarter of 2004, which is
$32 million lower than the year ago quarter and flat 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 $2.605 billion included net of reserves
trade ($2.254 billion) and miscellaneous ($351 million) receivables at the end
of the second quarter, 2004, an increase of $212 million from second quarter of
2003 and an increase of $346 million quarter sequentially. The year over year
increase is driven by acquisitions, foreign exchange, and higher sales.
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 $442 million to $1.812 billion at the end of the second
quarter of 2004, and would reduce the net of reserves trade receivable balance
by $429 million to $1.690 billion at the end of the second quarter of 2003.
Kodak defines day's 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.
Based on the Company's DSO definition, DSO from continuing operations for
the second quarter was 43 days, representing a 2-day decrease from second
quarter, 2003 and flat quarter sequentially. If rebate accrual balances were not
offset against receivables for purposes of calculating the DSO, DSO from
continuing operations would have decreased 1-day year over year and remained
unchanged quarter sequentially, due to higher accrual balances in the second
quarter 2004 versus 2003.
Inventory:
Kodak's inventories of $1.256 billion (after LIFO) increased $66 million
year over year and increased $49 million quarter sequentially. The year over
year increase is primarily due to the impact of exchange and acquisitions, which
were partially offset by operational reductions in inventory levels. The
increase is due to the acquisition of NexPress.
Kodak defines days supply in 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 64 improved by 7 days from the second
quarter 2003 and by 1 day quarter sequentially. Inventory turns from continuing
operations improved by 0.6 turns to 5.7 turns since the second quarter 2003, and
0.1 turns quarter sequentially.
Including the impact of the LIFO reserve using COGS as reported on a GAAP
basis, DSI from continuing operations improved by 4 days from the second quarter
of 2003 and was flat quarter sequentially. Inventory turns from continuing
operations improved 0.7 to 7.8 turns relative to the second quarter of 2003 and
0.1 turns quarter sequentially.
Debt:
Debt increased by $74 million to $3.04 billion and cash increased by $9
million to $519 million quarter sequentially. On a debt less cash basis, net
debt was $2.521 billion, an increase of $369 million from the second quarter
2003 and an increase of $65 million from first quarter 2004 levels of $2.456
billion. Kodak expects to reduce gross debt by as much as $800 million during
2004.
Equity was $3.271 billion and debt to total capital ratio was 48.2 %,
increasing 0.2-percentage points quarter sequentially and decreasing 3.0
percentage points year over year.
Foreign Exchange:
Year over year, the impact of foreign exchange on operating activities
during the second quarter was a positive $0.05 per share and foreign exchange
activities recorded in "Other Charges" had a positive $0.02 per share impact.
Therefore, the sum of the operational and reportable exchange impacts increased
earnings in the quarter by $0.07 per share.
Silver:
During the second 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 June average rate of $6.88 per ounce and foreign exchange were to
hold at June 30 rates for the remainder of the year, the net impact would be
favorable to earnings. However, it remains difficult to forecast the net impact
of foreign exchange and silver pricing.
Earnings Outlook:
The Company expects second half operational earnings of $1.25 to $1.55 per
share, with full year operational earnings of $2.39 to $2.69 per share, compared
with previous guidance of $2.15 to $2.45 per share. GAAP earnings of $2.35 to
$2.65 per share are expected for full year 2004, with second half GAAP earnings
of $1.71 to $2.01 per share.
Upcoming Meetings:
Kodak's annual strategy meeting with investors will be held on Wednesday,
September 22, in New York City. Additional details will follow shortly.
Safe Harbor Statement:
Certain statements in these presentations 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, cash generation,
tax rate, and debt 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, including:
-- The successful implementation of our recently announced
digitally-oriented growth strategy;
-- Implementation of product strategies (including category expansion,
digitization, organic light emitting diode (OLED), 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;
-- Development of our business in emerging markets like
China, India, Brazil, Mexico and Russia;
-- 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;
-- General economic, business, geopolitical, regulatory and
public health conditions; and
-- Other factors and uncertainties disclosed from time to time in our
filings with the Securities and Exchange Commission.
Any forward-looking statements in these presentations should be evaluated in
light of these important factors and uncertainties.
- -0-
*T
Eastman Kodak Company
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
(in millions, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ---------------------
2004 2003 2004 2003
Net sales $ 3,469 $3,259 $6,388 $5,899
Cost of goods sold 2,354 2,163 4,461 4,002
-------- -------- -------- --------
Gross profit 1,115 1,096 1,927 1,897
Selling, general and
administrative expenses 613 707 1,165 1,265
Research and development
costs 212 178 409 371
Restructuring costs and
other 135 44 185 76
-------- -------- --------- --------
Earnings from continuing
operations before
interest, other income
(charges), net, and
income taxes 155 167 168 185
Interest expense 43 34 87 71
Other income (charges), net 7 (9) 6 (30)
-------- -------- -------- --------
Earnings from continuing
operations before
income taxes 119 124 87 84
(Benefit) provision for
income taxes (24) 18 (72) (10)
-------- -------- -------- --------
Earnings from continuing
operations 143 106 159 94
Earnings from discontinued
operations, net of
income taxes 11 6 23 30
-------- ------- -------- --------
NET EARNINGS $ 154 $ 112 $ 182 $ 124
======== ======= ======== ========
Basic and diluted net earnings (loss) per share:
Continuing operations $ .50 $ .37 $ .56 $ .33
Discontinued operations .04 .02 .08 .10
-------- ------- -------- --------
Total $ .54 $ .39 $ .64 $ .43
======== ======= ======== ========
Number of common shares
used in basic earnings
per share 286.6 286.5 286.6 286.4
Incremental shares from
assumed conversion of
options 0.0 0.1 0.1 0.2
------- ------- -------- --------
Number of common shares
used in diluted
earnings per share 286.6 286.6 286.7 286.6
======= ======= ======== ========
SUPPLEMENTAL INFORMATION - UNAUDITED
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2004 2003 2004 2003
Provision for
depreciation $ 212 $ 192 $ 426 $ 392
After-tax exchange losses
and effect of translation
of net monetary items 1 (5) (1) (5)
Capital expenditures 91 123 182 234
- ----------------------------------------------------------------------
Net Sales from Continuing Operations by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging Systems
Inside the U.S. $ 971 $ 972 0% $1,691 $1,659 + 2%
Outside the U.S. 1,425 1,369 + 4 2,636 2,480 + 6
------ -------- ----- -------- ------- -----
Total Digital & Film
Imaging Systems 2,396 2,341 + 2 4,327 4,139 + 5
------ -------- ----- -------- ------- -----
Health Imaging
Inside the U.S. 277 266 + 4 535 504 + 6
Outside the U.S. 395 341 + 16 768 652 +18
------ -------- ----- ------- -------- -----
Total Health Imaging 672 607 + 11 1,303 1,156 +13
------ -------- ----- ------- ------- -----
Commercial Imaging
Inside the U.S. 79 92 - 14 158 169 - 7
Outside the U.S. 114 107 + 7 231 216 + 7
------ -------- ----- ------- -------- ----
Total Commercial Imaging 193 199 - 3 389 385 + 1
------ -------- ----- ------- -------- ----
Graphic Communications
Inside the U.S. 83 37 +124 138 74 +86
Outside the U.S. 94 52 + 81 172 103 +67
------- ------- ----- ------- ------- ----
Total Graphic
Communications 177 89 + 99 310 177 +75
------- ------- ----- -------- ------- ----
All Other
Inside the U.S. 19 10 + 90 32 21 +52
Outside the U.S. 12 13 - 8 27 21 +29
------- ------- ----- -------- ------- ----
Total All Other 31 23 +35 59 42 +40
------- ------- ----- ------- ------- -----
Consolidated total $3,469 $3,259 + 6% $6,388 $5,899 + 8%
======= ======= ===== ======= ======= =====
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 Six Months Ended
June 30 June 30
------------------------ ---------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems $ 230 $ 119 +93% $ 246 $ 73 +237%
Percent of Sales 9.6% 5.1% 5.7% 1.8%
Health Imaging $ 128 $ 131 - 2% $ 221 $ 240 - 8%
Percent of Sales 19.0% 21.6% 17.0% 20.8%
Commercial Imaging $ 32 $ 31 + 3% $ 63 $ 51 + 24%
Percent of Sales 16.6% 15.6% 16.2% 13.2%
Graphic Communications $ (33) $ (1) $ (58) $ 8 -825%
Percent of Sales (18.6%) (1.1%) (18.7%) 4.5%
All Other $ (33) $ (22) - 50% $ (61) $ (38) - 61%
Percent of Sales (106.5%) (95.7%) (103.4%) (90.5%)
-------- -------- ---- -------- -------- -----
Total of segments $ 324 $ 258 + 26% $411 $ 334 +23%
9.3% 7.9% 6.4% 5.7%
Restructuring costs
and other (169) (54) (243) (100)
Impairment of Burrell
Companies' net assets - (9) - (9)
GE settlement - - - (12)
Patent infringement
claim settlement - (14) - (14)
Prior year acquisition
settlement - (14) - (14)
-------- -------- ---- ------- -------- ----
Consolidated total $ 155 $ 167 - 7% $168 $ 185 - 9%
===== ===== ==== ==== ===== ====
Earnings (Loss) From Continuing Operations by Reportable Segment and
All Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging
Systems $ 199 $ 90 +121% $ 214 $ 52 +312%
Percent of Sales 8.3% 3.8% 4.9% 1.3%
Health Imaging $ 110 $ 101 + 9% $ 188 $ 181 + 4%
Percent of Sales 16.4% 16.6% 14.4% 15.7%
Commercial Imaging $ 26 $ 21 + 24% $ 51 $ 35 + 46%
Percent of Sales 13.5% 10.6% 13.1% 9.1%
Graphic Communications $ (23) $ (4) -475% $(45) $ (9) -400%
Percent of Sales (13.0%) (4.5%) (14.5%) (5.1%)
All Other $ (32) $ (21) - 52% $ (57) $ (35) - 63%
Percent of Sales (103.2%) (91.3%) (96.6%) (83.3%)
------ ------ ------ ------ ------ ------
Total of segments $ 280 $ 187 + 50% $ 351 $ 224 + 57%
8.1% 5.7% 5.5% 3.8%
Restructuring costs
and other (169) (54) (243) (100)
Impairment of Burrell
Companies' net assets - (9) - (9)
GE settlement - - - (12)
Patent infringement
claim settlement - (14) - (14)
Prior year acquisition
settlement - (14) - (14)
Interest expense (43) (34) (87) (71)
Other corporate items 2 3 4 6
Tax benefit - donation
of patents - - - 8
Income tax effects on
above items and taxes
not allocated to above 73 41 134 76
------ ------ ------ ------ ------ ------
Consolidated total $ 143 $ 106 + 35% $159 $ 94 + 69%
====== ====== ====== ====== ====== ======
Eastman Kodak Company
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
June 30, Dec. 31,
2004 2003
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 519 $ 1,250
Receivables, net 2,605 2,328
Inventories, net 1,256 1,073
Deferred income taxes 662 602
Other current assets 129 130
Assets of discontinued operations 104 72
---------- -------
Total current assets 5,275 5,455
--------- -------
Property, plant and equipment, net 4,795 5,051
Goodwill 1,432 1,364
Other long-term assets 3,152 2,883
Assets of discontinued operations 66 65
--------- -------
TOTAL ASSETS $14,720 $14,818
========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current
liabilities $ 3,626 $ 3,614
Short-term borrowings 1,043 946
Accrued income taxes 657 654
Liabilities of discontinued operations 37 36
--------- -------
Total current liabilities 5,363 5,250
OTHER LIABILITIES
Long-term debt, net of current portion 1,997 2,302
Postretirement liabilities 3,339 3,344
Other long-term liabilities 746 650
Liabilities of discontinued operations 4 8
--------- -------
Total liabilities 11,449 11,554
SHAREHOLDERS' EQUITY
Common stock at par 978 978
Additional paid in capital 850 850
Retained earnings 7,636 7,527
Accumulated other comprehensive loss (336) (231)
Unearned restricted stock (6) (8)
--------- -------
9,122 9,116
Less: Treasury stock at cost 5,851 5,852
--------- -------
Total shareholders' equity 3,271 3,264
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,720 $14,818
======== =======
Eastman Kodak Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
June 30
-----------------
2004 2003
Cash flows relating to operating activities:
Net earnings $ 182 $ 124
Adjustments to reconcile to net cash (used in)
provided by operating activities:
Earnings from discontinued operations (23) (30)
Equity in losses from unconsolidated affiliates 4 30
Depreciation 426 392
Purchased research and development 9 21
Gain on sales of businesses/assets (1) -
Restructuring costs, asset impairments and
other non-cash charges 22 37
(Benefit) provision for deferred taxes (124) 16
Increase in receivables (204) (164)
Increase in inventories (77) (67)
Decrease in liabilities excluding borrowings (250) (235)
Other items, net 69 99
--------- -------
Total adjustments (149) 99
--------- -------
Net cash provided by continuing operations 33 223
--------- -------
Net cash provided by discontinued operations 4 31
--------- -------
Net cash provided by operating activities 37 254
--------- -------
Cash flows relating to investing activities:
Additions to properties (182) (232)
Net proceeds from sales of businesses/assets 1 -
Acquisitions, net of cash acquired (335) (118)
Investments in unconsolidated affiliates (31) (41)
Marketable securities - purchases (64) (44)
Marketable securities - sales 58 43
--------- -------
Net cash used in continuing operations (553) (392)
--------- -------
Net cash used in discontinued operations (2) (4)
--------- -------
Net cash used in investing activities (555) (396)
--------- -------
Cash flows relating to financing activities:
Net (decrease) increase in borrowings
with original maturity of 90 days or less (40) 129
Proceeds from other borrowings 89 724
Repayment of other borrowings (257) (466)
Exercise of employee stock options - 12
--------- -------
Net cash (used in) provided by financing activities (208) 399
--------- -------
Effect of exchange rate changes on cash (5) 12
--------- -------
Net (decrease) increase in cash and cash equivalents (731) 269
Cash and cash equivalents, beginning of year 1,250 569
--------- -------
Cash and cash equivalents, end of quarter $ 519 $ 838
========= =======
Revised Financial Results For New Segment Reporting and RSS as a
Discontinued Operation
For the three months ended March 31, 2003
(in millions)
OLD STRUCTURE
Commercial All Sub-
Imaging Other Total
Net sales $ 372 $ 21 $ 393
Cost of goods sold (COGS) 265 21 286
----- ----- -----
Gross profit 107 - 107
Selling, general and administrative
expenses (SG&A) 48 5 53
Research and development costs (R&D) 15 12 27
----- ----- -----
Earnings before interest, other
charges, net, and taxes (EFO) $ 44 $ (17) $ 27
===== ===== =====
NEW STRUCTURE
RSS
Commercial Graphic All Disc. Sub-
Imaging Communications Other Ops. Total
Net sales $ 186 $ 88 $ 19 $ 100 $ 393
COGS 126 66 17 77 286
----- ----- ----- ----- -----
Gross profit 60 22 2 23 107
SG&A 32 8 5 8 53
R&D 8 5 13 1 27
----- ----- ----- ----- -----
EFO $ 20 $ 9 $ (16) $ 14 $ 27
===== ===== ===== =====
For the three months ended June 30, 2003
(in millions)
OLD STRUCTURE
Commercial All Sub-
Imaging Other Total
Net sales $ 382 $ 22 $ 404
Cost of goods sold (COGS) 277 21 298
----- ----- -----
Gross profit 105 1 106
Selling, general and administrative
expenses (SG&A) 50 10 60
Research and development costs (R&D) 15 13 28
----- ----- -----
Earnings before interest, other
charges, net, and taxes (EFO) $ 40 $ (22) $ 18
===== ===== =====
NEW STRUCTURE
RSS
Commercial Graphic All Disc. Sub-
Imaging Communications Other Ops. Total
Net sales $ 199 $ 89 $ 23 $ 93 $ 404
COGS 127 76 22 73 298
----- ----- ----- ----- -----
Gross profit 72 13 1 20 106
SG&A 34 7 10 9 60
R&D 7 7 13 1 28
----- ----- ----- ----- -----
EFO $ 31 $ (1) $ (22) $ 10 $ 18
=====
For the three months ended Sept. 30, 2003
(in millions)
OLD STRUCTURE
Commercial All Sub-
Imaging Other Total
Net sales $ 373 $ 28 $ 401
Cost of goods sold (COGS) 280 17 297
----- ----- -----
Gross profit 93 11 104
Selling, general and administrative
expenses (SG&A) 49 8 57
Research and development costs (R&D) 11 22 33
----- ----- -----
Earnings before interest, other
charges, net, and taxes (EFO) $ 33 $ (19) $ 14
===== ===== =====
NEW STRUCTURE
RSS
Commercial Graphic All Disc. Sub-
Imaging Communications Other Ops. Total
Net sales $ 190 $ 82 $ 28 $ 101 $ 401
COGS 130 72 16 79 297
----- ----- ----- ----- -----
Gross profit 60 10 12 22 104
SG&A 32 8 8 9 57
R&D 4 5 22 2 33
----- ----- ----- ----- -----
EFO $ 24 $ (3) $ (18) $ 11 $ 14
===== ===== ===== ===== =====
For the three months ended Dec. 31, 2003
(in millions)
OLD STRUCTURE
Commercial All Sub-
Imaging Other Total
Net sales $ 432 $ 24 $ 456
Cost of goods sold (COGS) 313 14 327
----- ----- -----
Gross profit 119 10 129
Selling, general and administrative
expenses (SG&A) 60 7 67
Research and development costs (R&D) 10 23 33
----- ----- -----
Earnings before interest, other
charges, net, and taxes (EFO) $ 49 $ (20) $ 29
===== ===== =====
NEW STRUCTURE
RSS
Commercial Graphic All Disc. Sub-
Imaging Communications Other Ops. Total
Net sales $ 216 $ 87 $ 23 $ 130 $ 456
COGS 139 85 14 89 327
----- ----- ----- ----- -----
Gross profit 77 2 9 41 129
SG&A 36 14 7 10 67
R&D 4 6 21 2 33
----- ----- ----- ----- -----
EFO $ 37 $ (18) $ (19) $ 29 $ 29
===== ===== ===== ===== =====
For the year ended Dec. 31, 2003
(in millions)
OLD STRUCTURE
Commercial All Sub-
Imaging Other Total
Net sales $ 1,559 $ 95 $ 1,654
Cost of goods sold (COGS) 1,135 73 1,208
----- ----- -----
Gross profit 424 22 446
Selling, general and administrative
expenses (SG&A) 207 30 237
Research and development costs (R&D) 51 70 121
----- ----- -----
Earnings before interest, other
charges, net, and taxes (EFO) $ 166 $ (78) $ 88
===== ===== =====
NEW STRUCTURE
RSS
Commercial Graphic All Disc. Sub-
Imaging Communications Other Ops. Total
Net sales $ 791 $ 346 $ 93 $ 424 $ 1,654
COGS 522 299 69 318 1,208
----- ----- ----- ----- -----
Gross profit 269 47 24 106 446
SG&A 134 37 30 36 237
R&D 23 23 69 6 121
----- ----- ----- ----- -----
EFO $ 112 $ (13) $ (75) $ 64 $ 88
===== ===== ===== ===== =====
*T
CONTACT: Eastman Kodak
Media Contacts:
Gerard Meuchner, 585-724-4513
gerard.meuchner@kodak.com
or
Anthony Sanzio, 585-781-5481
anthony.sanzio@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