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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 20, 2005
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
--------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
- ---------------------------------------------------------
On July 20, 2005, 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, 2005. 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 2005 press release and financial discussion
document, the Company makes reference to certain non-GAAP financial measures
including "Earnings from continuing operations, excluding non-operational
items", "Earnings from operations, excluding non-operational items", "Earnings
from continuing operations, excluding the impact of the non-operational net
charges", "Earnings per share, excluding non-operational items", "Free cash
flow", "Operating cash flow" and "Investable cash flow", which have directly
comparable GAAP financial measures, 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 2.02 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:
Earnings from continuing operations, excluding non-operational items/Earnings
from operations, excluding non-operational items/Earnings from continuing
operations, excluding the impact of the non-operational net charges/Earnings per
share, excluding non-operational items - The Company's management believes that
the presentation of earnings from continuing operations, excluding
non-operational items/earnings from operations, excluding non-operational
items/earnings from continuing operations, excluding the impact of the
non-operational net charges/ earnings per share, excluding non-operational
items, are important additional measures 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 certain incentive compensation.
Free cash flow / Operating cash flow / Investable cash flow - The Company
believes that the presentation of free cash flow, operating cash flow and
investable cash flow 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 free cash flow measure equals net cash provided by continuing operations, as
determined under Generally Accepted Accounting Principles in the U.S. (U.S.
GAAP) minus capital expenditures. The operating cash flow measure equals free
cash flow plus proceeds from the sale of assets, minus 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, and forms the basis
of internal management performance expectations and certain incentive
compensation. 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, as it is more
reflective of the Company's actual inventory performance.
Item 9.01. Financial Statements and Exhibits
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(c) Exhibits
--------
Exhibit 99.1 Press release issued July 20, 2005 Furnished with
regarding financial results for the this document
second quarter of 2005
Exhibit 99.2 Financial discussion document issued Furnished with
July 20, 2005 regarding financial this document
results for the second quarter of 2005
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTMAN KODAK COMPANY
By: /s/ Richard G. Brown, Jr.
-----------------------------
Name: Richard G. Brown, Jr.
Title: Controller
Date: July 20, 2005
EXHIBIT INDEX
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Exhibit No. Description
- ---------- -----------
99.1 Press release issued July 20, 2005 regarding financial results for the
second quarter 2005
99.2 Financial discussion document issued July 20, 2005 regarding financial
results for the second quarter 2005
Exhibit 99.1
Kodak Accelerates Digital Transformation Strategy
ROCHESTER, N.Y.--(BUSINESS WIRE)--July 20, 2005--Eastman Kodak
Company (NYSE:EK)
-- Reports 2nd-Qtr GAAP Net Loss of 51 Cents Per Share on 6%
Revenue Increase, Earnings Per Share Excluding Non-Operational
Items Totals 53 Cents; Digital Revenue Increases 43%,
Traditional Decreases 15%
-- Reiterates 2005 Cash Flow Forecast, Reinforces Satisfaction
with Digital Growth, Plans Aggressive Reductions in
Administrative Costs and Traditional Manufacturing
Infrastructure
Eastman Kodak Company (NYSE:EK) announced today an acceleration of
its digital transformation, consistent with the company's expressed
goal of building a business model to achieve long-term success in
digital markets.
The company also recommitted to the goals presented to investors
in January: digital revenue growth in 2005 of approximately 36%, and
digital earnings from operations this year in a range of $275 million
to $325 million. Kodak continues to expect net cash provided by
operating activities this year of $1.0 billion to $1.2 billion, which
corresponds with investable cash flow of $400 million to $600 million.
The key elements of today's announcements are as follows:
-- Second-quarter revenue totaled $3.686 billion, up 6% from the
year-ago quarter. The net loss, on the basis of generally
accepted accounting principles in the U.S. (GAAP), was 51
cents per share, primarily reflecting charges associated with
the previously announced restructuring of Kodak's traditional
infrastructure, in-process research and development charges
related to acquisitions, and an asset impairment charge
relating to an investment in Lucky Film company. Earnings from
continuing operations, excluding non-operational items, were
53 cents per share.
-- As part of the effort to accelerate its digital transformation
and to respond to a faster-than-expected decline in consumer
film sales, Kodak will extend the restructuring activity
originally announced in January 2004, in which the company set
plans to reduce employment worldwide by as many as 15,000
positions. The company now plans to increase the total
employment reduction to a range of 22,500 to 25,000 positions,
and to reduce its traditional manufacturing infrastructure to
approximately $1 billion, compared with $2.9 billion in
January 2004. When largely completed by the middle of 2007,
these activities will result in a business model consistent
with what is necessary to compete profitably in digital
markets.
"Kodak is a company with product portfolios that are proceeding on
two very different tracks," said Antonio M. Perez, Chief Executive
Officer and President, Eastman Kodak Company. "As sales of our
traditional consumer products and services decline faster than
anticipated, we are moving more aggressively to reduce cost. At the
same time, we continue to make significant progress growing the sales
and earnings of our digital portfolio. Second-quarter digital sales,
for example, increased 43%, and we made significant progress in
improving our digital earnings."
"In 24 months, as a result of the actions announced today, we will
bring to an effective end the significant restructuring charges
associated with the transformation and essentially complete the
transition to our digital business model," Perez said. "In that time,
we intend to improve upon the success we are enjoying in digital
markets. In June, for example, our digital revenue exceeded our
traditional revenue on a monthly basis for the first time ever, paving
the way for us to achieve the full-year goal of having digital revenue
surpass traditional revenue. Kodak is a different company that's
becoming a stronger digital player each day."
Second-Quarter 2005 Detailed Results
The following represents the key details of the second quarter:
-- Sales totaled $3.686 billion, an increase of 6% from $3.464
billion in the second quarter of 2004. Sales growth was
favorably affected by foreign exchange in the amount of $54
million, or 2 percentage points.
-- The GAAP net loss was $146 million, or 51 cents per share,
compared with GAAP earnings from continuing operations of $119
million, or 40 cents per share, in the year-ago period. The
net loss includes net after-tax charges of $306 million, or
$1.07 per share, primarily reflecting the non-operational
items discussed above.
-- Earnings from continuing operations, excluding the impact of
the non-operational net charges and adjusting for the dilutive
earnings impact equal to 3 cents per share related to the
company's contingent convertible debt, were $160 million, or
53 cents per share. In the year-ago period, restated earnings
from continuing operations, excluding non-operational items,
were $227 million, or 75 cents per share.
-- Net cash provided by operating activities from continuing
operations, as determined in accordance with GAAP, totaled a
negative $207 million in the second quarter, compared with $60
million in the year-ago quarter.
-- Gross Profit on a GAAP basis was 29.0%, down from 31.8%.
-- Selling, General and Administrative expenses were 17.6% of
sales, down from 17.8%.
-- Debt increased $1.4 billion from the year-end level to $3.721
billion, reflecting acquisitions, and the company held $553
million in cash on its balance sheet at the end of the
quarter, down from $1.255 billion at the end of 2004. The
company is committed to reducing its debt, and its cash
balance should rise this year to approximately $1 billion
because of expected strong cash flow in the second half.
The segment results from continuing operations, before interest,
taxes, and other income and charges (earnings from operations), are as
follows:
-- Digital & Film Imaging segment sales totaled $2.151 billion,
down 12%. Earnings from operations for the segment were $193
million on a GAAP and an operational basis, compared with $229
million a year ago. Highlights for the quarter included a 63%
increase in sales of KODAK EASYSHARE Printer Docks and related
media for home printing; a 25% increase in consumer digital
capture sales, which includes KODAK EASYSHARE cameras; and a
24% increase in the sales of KODAK Picture Maker kiosks and
related media, plus continued strong sales of motion-picture
origination and print film.
-- Graphic Communications Group sales were $794 million, up 144%,
largely reflecting the acquisition of Kodak Polychrome
Graphics (KPG) plus higher sales at Kodak Versamark and
NexPress. On a GAAP basis, the loss from operations in the
second quarter was $33 million. Earnings from operations,
excluding non-operational items, were $31 million, compared
with a loss of $8 million a year ago. The exclusion of $64
million for in-process R&D charges accounts for the difference
in the operational and GAAP measures. Kodak completed the
acquisition of KPG and Creo Inc. in the second quarter, and
the integration of those businesses is proceeding according to
plan.
-- Health Group sales were $694 million, up 3%. Earnings from
operations for the segment were $113 million on a GAAP and
operational basis, compared with $124 million a year ago.
Highlights included an increase in operating margins to 16%
from 11% in the first quarter of 2005, reflecting significant
progress. While the traditional business within Health
performed better than expected, revenue growth in the digital
products portfolio was less than anticipated.
-- All Other sales were $47 million, up 42% from the year-ago
quarter. The loss from operations totaled $43 million on a
GAAP and an operational basis, compared with a loss of $38
million a year ago. The All Other category includes the
Display & Components operation and other miscellaneous
businesses.
Accelerated Transformation
"Our disappointing start in the first half of this year makes it
clear that I need to make some changes, and make them now," Perez
said. "Sales of our consumer traditional products and services are
declining faster than expected. While we are not in a position to
control the rate at which traditional markets decline, there is a lot
I can do about the cost structure of the traditional portfolio.
"As for SG&A, we will take actions that will put us on target for
SG&A costs equal to 14% of sales by the end of 2007," Perez said. "We
will fundamentally change how we do our work, resulting in a
significantly lower structural cost."
The extension of the January 2004 program reflects a need to
address the accelerating decline in consumer film sales worldwide,
principally driven by emerging markets. The extended program includes
two major additional initiatives, both of which will be largely
completed by the middle of 2007:
-- Accelerating the current restructuring of the traditional
manufacturing infrastructure. At the conclusion of this
restructuring, the company expects that its traditional
infrastructure will total approximately $1 billion, a
reduction of 65 percent from the January 2004 level of $2.9
billion. This will allow the remaining capacity to be managed
for a return equal to, or greater than, 10% of sales, based on
the projected future needs of the company. The incremental
employment reduction specific to manufacturing will be
approximately 7,000 positions.
-- Reducing general and administrative costs, in part by
consolidating functions and standardizing business processes.
This will result in an incremental employment reduction
totaling approximately 2,300 positions.
-- Together, these additional actions will generate incremental
annual savings of approximately $800 million. The incremental
cash charges associated with these actions will be
approximately $470 million.
In January 2004, the company committed to reducing employment by
as many as 15,000 positions. (Through June 30, 2005, the company has
reduced employment by approximately 13,475 positions under the January
2004 program.) The administrative and manufacturing actions announced
today, along with a number of smaller actions, will bring the total
worldwide employment reduction since January 2004 to a range of 22,500
to 25,000. The charges associated with the additional moves will
increase the total to a range of $2.7 billion to $3 billion, up from
$1.3 billion to $1.7 billion announced in January 2004. The annual
savings from the new actions will increase the total to a range of
$1.6 billion to $1.8 billion, up from $800 million to $1 billion
announced in January 2004.
Outlook
"From this point forward, we will measure success based on three
priorities - digital revenue growth, digital earnings growth and the
generation of cash to fund our business," Perez said. "The
announcements made today represent another aggressive step in support
of those priorities.
"Yet during this time, it has become increasingly difficult to
provide per share earnings forecasts with any reasonable precision as
our business, and our entire industry, undergoes a complex and rapid
transformation," Perez said. "In light of this and our focus on the
key digital metrics, I have decided to stop the practice of providing
per share earnings forecasts."
The company remains committed to its practice of providing full
and fair disclosure of its results, including regular and expanded
progress reports on the three key metrics -- digital revenue growth,
digital earnings growth and cash generation. The company intends to
report its digital earnings, on a consolidated basis, for the third
and fourth quarters of this year, and to add digital earnings on a
segment basis commencing with the first quarter of 2006.
"Kodak will be engaged during the next 24 months in a series of
restructuring actions that involve extremely complex accounting rules
and treatment," said Robert H. Brust, Kodak's Chief Financial Officer.
"Given that, we plan to focus our earnings discussion on GAAP and
cash. GAAP provides clarity to investors in this complex accounting
environment, while cash is an excellent proxy for how we are managing
the declining traditional portfolio and driving digital
profitability."
As for the company's progress against its key metrics, Kodak
continues to demonstrate its prowess for developing market-leading
products and its determination to get ahead and remain ahead of the
decline in its traditional portfolio.
Kodak ranks No. 1 in just about every digital category in which it
competes - high-speed inkjet printers for commercial use, consumer
digital cameras in the U.S., medical laser printers, photo kiosks and
online photo services, to name a few.
"We will continue to extend our leadership in the digital markets
we serve," Perez said. "We have built our Graphic Communications Group
into the leading single-supplier of equipment and media just as that
industry is poised to transition to digital. Our Health Group has
expanded beyond the radiology market to offer customers a portfolio of
digital products and services to capture, share and manage medical and
dental images and information. Our EasyShare consumer digital product
line continues to gain market share and enjoy critical acclaim for
quality and ease-of-use. Our digital strategy is on track, and we are
determined to make this transformation a success."
Antonio Perez and Robert Brust will host a conference call with
investors at 11:00 a.m. eastern time today. To access the call, please
use the direct dial-in number: 913-981-4912, access code 8956704.
There is no need to pre-register.
For those wishing to participate via an Internet Broadcast, please
access our Kodak Investor Relations web page at:
http://www.kodak.com/go/invest.
The call will be recorded and available for playback by 2:00 p.m.
eastern time today by dialing 719-457-0820, access code 8956704. The
playback number will be active until Wednesday, July 27, at 5:00 p.m.
eastern time.
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 earnings, revenue growth,
cash and cost savings 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 digital growth strategy and business
model;
-- Implementation of our cost reduction program, including asset
rationalization, reduction in general and administrative costs
and personnel reductions;
-- Implementation of our debt management program;
-- Implementation of product strategies (including category
expansion, digitization, organic light emitting diode (OLED)
displays, and digital products);
-- Implementation of intellectual property licensing strategies;
-- Development and implementation of e-commerce strategies;
-- Completion of information systems upgrades, including SAP, our
enterprise system software;
-- Completion of various portfolio actions;
-- Reduction of inventories;
-- Integration of newly acquired businesses;
-- Improvement in manufacturing productivity and techniques;
-- Improvement in receivables performance;
-- Reduction in capital expenditures;
-- Improvement in supply chain efficiency;
-- Implementation of our strategies designed to address the
decline in our analog businesses; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this press release are
subject to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- Changes in our debt credit rating and our ability to access
capital markets;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions, and
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission;
Any forward-looking statements in this press release should be
evaluated in light of these important factors and uncertainties.
2005
CONTACT: Eastman Kodak Company
Media:
Gerard Meuchner, 585-724-4513
gerard.meuchner@kodak.com
or
David Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
Investor Relations:
Don Flick, 585-724-4352
donald.flick@kodak.com
or
Patty Yahn-Urlaub, 585-724-4683
patty.yahn-urlaub@kodak.com
or
Carol Wilke, 585-724-6791
carol.wilke@kodak.com
Exhibit 99.2
Eastman Kodak Company Financial Discussion Document
Second Quarter 2005 Results
Within this financial discussion document, the company makes
reference to certain non-GAAP financial measures including "Earnings
from continuing operations, excluding non-operational items",
"Earnings from operations, excluding non-operational items", "Earnings
from continuing operations, excluding the impact of the
non-operational net charges", "Earnings per share excluding
non-operational items", "Operating cash flow", "Free cash flow", and
"Investable cash flow", 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 2.02 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 included
within the Form 8-K under Item 2.02, "Results of Operations and
Financial Condition," as filed with the Securities and Exchange
Commission on July 20, 2005.
The following table reconciles Eastman Kodak Company's second
quarter 2005 and restated second quarter 2004 earnings from continuing
operations, excluding non-operational items, to earnings from
continuing operations, on a GAAP basis. Earnings from continuing
operations, excluding non-operational items, is a non-GAAP financial
measure under Regulation G. In the third quarter, we will stop
calculating "Earnings from continuing operations, excluding
non-operational items". Consistent with SEC recommended practices, we
will report GAAP earnings only. However, we will continue to provide a
description of the non-operational items by line item in the P&L.
2nd Quarter
(in millions, except per share data)
2005 2004
$ EPS $ EPS
------------- ------------
Earnings from continuing operations,
excluding non-operational items (2004
restated) $ 160 $ 0.53 $ 227 $0.75
COGS
- - Charges for accelerated depreciation in
connection with the focused cost
reduction actions (75) (30)
- - Charges for inventory writedowns in
connection with focused cost reduction
actions (11) (2)
- - Charge for inventory writedowns in
connection with the acquisition of the
NexPress-related entities (2)
----- ------ ----- -----
Subtotal (86) (0.30) (34) (0.11)
----- ------ ----- -----
R&D
- - Charges for in-process research and
development in connection with the
acquisitions of Creo and KPG of $48
million and $16 million, respectively in
2005 (64)
----- ------ ----- -----
Subtotal (64) (0.22)
----- ------ ----- -----
Restructuring
- - Charges for focused cost reduction
actions (267) (131)
- - Charge for the writeoff of fixed assets
relating to Kodak's historical ownership
in the NexPress joint venture that was
disposed of in connection with the
acquisition of the NexPress-related
entities (3)
----- ------ ----- -----
Subtotal (267) (0.93) (134) (0.44)
----- ------ ----- -----
Other Income/(Charges)
- - Gain on the sale of property related to
focused cost reduction actions 13
- - Charge for the impairment of the Lucky
Film investment (19)
----- ------ ----- -----
Subtotal (6) (0.02)
----- ------ ----- -----
Taxes
- - Charge due to a change in estimate with
respect to a tax benefit recorded in
connection with a donation of land in a
prior period (6)
- - Tax impacts of the above-mentioned items 123 60
----- ------ ----- -----
Subtotal 117 0.40 60 0.20
----- ------ ----- -----
Impact of Contingent Convertible Debt on
EPS 0.03
(Loss) earnings from continuing operations
on a GAAP basis $(146) $(0.51)$ 119 $0.40
Unless otherwise indicated, all amounts presented are on a U.S.
GAAP basis.
Consolidated Revenues:
Net worldwide sales were $3.686 billion for the second quarter of
2005 as compared with $3.464 billion for the second quarter of 2004,
representing an increase of $222 million or 6%. The increase in net
sales for the period reflected the favorable impact of foreign
currency fluctuations of $54 million, or 2%, and other factors,
described below, totaling $168 million, or 4%. The increase in net
sales was primarily due to:
-- Volume: volume declines reduced second quarter sales by 4.4
percentage points driven primarily by declines in the film
capture Strategic Product Group (SPG), the wholesale and
retail photofinishing portions of the consumer output SPG, and
the Health Group digital output SPG.
-- Price/Mix: price/mix declines reduced second quarter sales by
3.6 percentage points, primarily driven by the film capture
SPG, consumer digital capture SPG and Health Group digital
capture and digital output SPGs.
-- Exchange: favorable exchange of 1.7 percentage points
partially offset the negative impacts of volume and price/mix.
-- Acquisitions: NexPress Solutions, Kodak Polychrome Graphics
(KPG), and Creo contributed $440 million or approximately 12.7
percentage points to second quarter sales.
Net sales in the U.S. were $1.442 billion for the second quarter
of 2005 as compared with $1.424 billion for the prior year quarter,
representing an increase of $18 million, or 1%.
Net sales outside the U.S. were $2.244 billion for the current
quarter as compared with $2.040 billion for the second quarter of
2004, representing an increase of $204 million, or 10%. The increase
in net sales for the period reflected the favorable impact of foreign
currency fluctuations of $54 million, or 3%.
Kodak's digital product sales were $1.843 billion for the current
quarter as compared with $1.289 billion for the second quarter of
2004, representing an increase of $554 million, or 43%, primarily
driven by KPG, the consumer digital capture SPG, and the home printing
SPG. Product sales from new technologies, included in digital product
sales, were $10 million for the second quarter of 2005.
Net sales of the company's traditional products were $1.843
billion for the current quarter as compared with $2.175 billion for
the second quarter of 2004, representing a decrease of $332 million,
or 15%, primarily driven by declines in the film capture SPG, and the
wholesale and retail photofinishing portions of the consumer output
SPG.
Non-U.S. Revenues:
The company's operations outside the U.S. are reported in three
regions: (1) the Europe, Africa and Middle East Region ("EAMER"), (2)
the Asia Pacific Region and (3) the Canada and Latin America Region.
Net sales in the EAMER region were $1.149 billion for the second
quarter of 2005 as compared with $1.093 billion for the prior year
quarter, representing an increase of $56 million, or 5%. The increase
in net sales for the period reflected the favorable impact of foreign
currency fluctuations of 3%.
Net sales in the Asia Pacific region were $692 million for the
current quarter as compared with $636 million for the prior year
quarter, representing an increase of $56 million, or 9%. The increase
in net sales for the period reflected the favorable impact of foreign
currency fluctuations of 3%.
Net sales in the Canada and Latin America region were $403 million
in the current quarter as compared with $311 million for the second
quarter of 2004, representing an increase of $92 million, or 30%. The
increase in net sales for the period reflected the favorable impact of
foreign currency fluctuations of 3%.
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 $736 million for the second quarter of 2005 as
compared with $728 million for the prior year quarter, representing an
increase of $8 million, or 1%. The increase in net sales for the
period reflected the favorable impact of foreign currency fluctuations
of 2%, partially offset by unfavorable declines totaling 1%.
The emerging market portfolio accounted for approximately 20% of
Kodak's worldwide sales and 33% of Kodak's non-U.S. sales in the
quarter. Sales growth was recorded for India 6%, Brazil 4%, and Russia
2%. Sales declines were recorded for China 6% and Korea 18%.
Sales decreases in China primarily reflect a change in the
underlying adoption patterns of digital products.
Gross Profit:
Gross profit was $1.068 billion for the second quarter of 2005 as
compared with $1.101 billion for the second quarter of 2004,
representing a decrease of $33 million, or 3%. The gross profit margin
was 29.0% in the current quarter as compared with 31.8% in the prior
year quarter. Charges relating to accelerated depreciation and
inventory writedowns in connection with the company's three-year cost
reduction program were $86 million for the second quarter of 2005 as
compared with $34 million for the second quarter of 2004. During the
second quarter of 2005, the Company's gross profit was favorably
impacted by a LIFO liquidation of $29 million versus $30 million in
the second quarter of 2004. In addition, gross profit margin decreased
approximately 2.8 percentage points primarily attributable to:
-- Price/Mix: reduced gross profit by 2.7 percentage points
primarily attributable to the consumer digital capture SPG,
entertainment print films, and the Health Group digital
capture SPG.
-- Manufacturing Cost: unfavorable manufacturing cost decreased
gross profit by 0.8 percentage points as unfavorable
manufacturing variances and increased raw material prices were
only partially offset by cost reduction initiatives.
-- Exchange: favorably impacted gross margin by 0.7 percentage
points.
Selling, General and Administrative Expenses:
SG&A expenses were $648 million for the second quarter of 2005 as
compared with $615 million for the prior year quarter, representing an
increase of $33 million, or 5%. The increase in SG&A is primarily
attributable to:
-- Acquisition related SG&A of $77 million
-- Unfavorable foreign exchange of $8 million
Partially offset by:
-- Cost reduction initiatives
As a percentage of sales, SG&A was 18% for the current quarter, no
change from the second quarter of 2004. The 18% reflects a 3
percentage point improvement from the first quarter of 2005.
Research and Development Costs:
R&D expenses were $276 million for the second quarter of 2005 as
compared with $213 million for the second quarter of 2004,
representing an increase of $63 million, or 30%. The total for the
second quarter of 2005 includes charges for purchased in-process R&D
of $64 million in connection with the acquisitions of Creo and KPG of
$48 million and $16 million, respectively. R&D as a percentage of
sales increased from 6% for the second quarter of 2004 to 7% for the
current quarter.
Restructuring Costs and Other
Cost Reduction Plans:
Kodak announced in January 2004, the company is executing a
three-year cost reduction program throughout the 2004 to 2006
timeframe, consistent with the implementation of Kodak's new business
model. The program was expected to result in total charges of $1.3
billion to $1.7 billion over the three-year period, with cost savings
in the range of $800 million to $1 billion for full year 2007.
Overall, Kodak's worldwide facility square footage is being reduced by
approximately one third. Approximately 12,000 to 15,000 positions
worldwide are being eliminated through these actions primarily in
global manufacturing, selected traditional businesses and corporate
administration.
In the second quarter, Kodak implemented cost reduction actions
resulting in pre-tax charges totaling $353 million, equating to an
after-tax impact of $0.88 per share. The components of restructuring
in the second quarter included $163 million for employee severance
relating to the elimination of approximately 2,200 positions, $86
million associated with exit costs and asset impairments, pension plan
curtailments of $19 million, and reversals of prior reserves of ($1)
million. In addition, the company recorded accelerated depreciation
and inventory write-offs of $86 million during the quarter. The
following changes in manufacturing plant operations and other actions
were announced during the quarter:
-- Consolidation and capacity reductions impacting manufacturing
actions in Chalon-sur-Saone, France
-- Closure of the manufacturing facility in Sao Jose dos Campos,
Brazil
-- Consumer film manufacturing capacity reductions in Rochester,
NY
Under the current cost reduction program on a program-to-date
basis Kodak has implemented cost reduction actions resulting in
pre-tax charges totaling $1.4 billion, which includes the elimination
of approximately 13,475 positions worldwide.
As part of the effort to accelerate its digital transformation,
Kodak will extend the restructuring program originally announced in
January 2004. When largely completed by the middle of 2007, this
program will result in a business model consistent with what is
necessary to compete profitably in digital markets. The extension of
the January 2004 program includes two major additional initiatives,
both of which will be largely completed by the middle of 2007:
-- Reducing general and administrative costs, in part by
consolidating functions and standardizing business processes.
This will result in an incremental employment reduction
totaling approximately 2,300 positions.
-- Accelerating the current restructuring of the traditional
manufacturing asset base. At the conclusion of this
restructuring, the company expects that its traditional asset
base will total approximately $1 billion, a reduction of 65
percent from the January 2004 level. The incremental
employment reduction specific to manufacturing will be
approximately 7,000 positions.
-- Together, these additional actions will generate incremental
annual savings of approximately $800 million. The incremental
cash charges associated with these actions will be
approximately $470 million.
The administrative and manufacturing actions announced today,
along with a number of smaller actions, will bring the total worldwide
employment reduction to a range of 22,500 to 25,000 by mid-year 2007.
The charges associated with the additional moves will increase the
total to a range of $2.7 billion to $3 billion, up from $1.3 billion
to $1.7 billion announced in January 2004. The annual savings from the
new actions will increase the total to a range of $1.6 billion to $1.8
billion, up from $800 million to $1 billion announced in January 2004.
Earnings From Continuing Operations before Interest, Other Income
(Charges) Net and Income Taxes (EFO):
EFO for the second quarter of 2005 was negative $123 million as
compared with positive $139 million for the second quarter of 2004,
representing a decrease of $262 million, or 188%. EFO as a percentage
of sales decreased from 4% in the second quarter of 2004 to negative
3% in the current quarter. The decrease in earnings from operations is
attributable to the reasons indicated above.
Below EFO:
Interest expense for the second quarter of 2005 was $49 million as
compared with $43 million for the prior year quarter, representing an
increase of $6 million, or 14%.
Higher interest expense is a result of increased levels of debt
associated with acquisitions.
The "Other Income/(Charges)" component includes investment income,
income and losses from equity investments, gains and losses on the
sales of assets and investments, and foreign exchange gains and
losses. Other Charges for the current quarter was $38 million as
compared with Other Income of $8 million for the second quarter of
2004.
The increase in other charges for the current year quarter is
primarily attributable to:
-- A loss on foreign exchange of $25 million primarily due to the
unhedged U.S. dollar denominated note payable relating to the
KPG acquisition.
-- A charge of $19 million for the impairment of the Lucky Film
investment.
-- Gain on the sale of property related to focused cost
reductions of $13 million.
-- A change in KPG equity income, which moved from "Other
Income/(Charges)" to the Graphic Communications segment as a
result of the Company's redemption of Sun Chemical's 50%
interest in the KPG joint venture, which closed April 1st.
Corporate Tax Rate:
The Company's estimated annual effective tax rate from continuing
operations decreased from 20% for the prior year second quarter to
15.5% for the second quarter of 2005. This decrease is primarily
attributable to interest and other miscellaneous items, including 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 2005, the Company recorded a tax
benefit from continuing operations of $64 million on a pre-tax loss of
$210 million. The tax benefit of $64 million for the quarter differs
from the tax benefit of $33 million that results from applying the
estimated annual effective tax rate to the pre-tax loss of $210
million due to (1) the year-to-date impact through March 31, 2005, of
the increase in the estimated annual effective tax rate from
continuing operations from 13% to 15.5% ($5 million charge, or $.02
per share) and (2) net discrete period tax benefits relating to net
discrete period charges which are taxed in jurisdictions that, when
aggregated, have tax rates greater than the estimated annual effective
tax rate from continuing operations. The net discrete period tax
benefits resulted from the following discrete period charges and
credits:
-- Tax benefits of $101 million associated with the net focused
cost reduction charges of $354 million;
-- Tax benefits of $24 million associated with the charges for
in-process research and development of $64 million;
-- Tax charges of $2 million associated with gains on $13 million
property sales related to focused cost reductions;
-- Tax charge of $6 million due to a change in estimate with
respect to a tax benefit recorded in connection with a land
donation in a prior period;
-- No tax impact associated with the Lucky Film investment
impairment charge of $19 million as a result of the Company's
tax holiday in China;
-- Tax charges of $5 million associated with changes in state tax
laws in New York and Ohio;
-- Tax charge of $9 million related to the recording of a
valuation allowance against deferred tax assets in Brazil; and
-- Tax charge of $6 million associated with the planned
remittance of earnings from subsidiary companies outside of
the U.S..
During the second quarter of 2004, the Company recorded a tax
benefit from continuing operations of $15 million on $104 million of
pre-tax income. The tax benefit of $15 million for the quarter differs
from the tax provision of $21 million that results from applying the
estimated annual effective tax rate to the pre-tax income of $104
million due to (1) discrete period tax benefits relating to discrete
period charges which are taxed in jurisdictions that, when aggregated,
have tax rates greater than the estimated annual effective tax rate
from continuing operations and (2) the recording of a $9 million tax
benefit as a result of the settlement with the Internal Revenue
Service in connection with the Company's filing relating to the income
tax reporting of a patent infringement litigation settlement. The
discrete period tax benefits resulted from the following discrete
period charges:
-- Tax benefits of $58 million associated with the net focused
cost reduction charges of $162 million; and
-- 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 Heidelberg Druckmaschinen.
Earnings from Continuing Operations:
Earnings from continuing operations for the second quarter of 2005
were negative $146 million, or negative $0.51 per diluted share, as
compared with earnings from continuing operations for the second
quarter of 2004 of positive $119 million, or $0.40 per diluted share,
representing a decrease of $265 million.
Earnings from Discontinued Operations:
Net income from discontinued operations of $17 million in the
second quarter of 2004 primarily reflects earnings from the company's
Remote Sensing Systems business, which was sold to ITT Industries Inc.
in August 2004.
Segment Results:
Digital and Film Imaging Systems
This segment provides consumers, professionals and
cinematographers with digital and traditional products and services.
Revenues:
Net worldwide sales for the Digital and Film Imaging Systems
segment were $2.151 billion for the second quarter of 2005 as compared
with $2.434 billion for the second quarter of 2004, representing a
decrease of $283 million, or 12%. The decrease in net sales was
composed of:
-- Volume: decreases in volume reduced second quarter sales by
9.3 percentage points driven primarily by declines in the film
capture SPG and the wholesale and retail photofinishing
portions of the consumer output SPG.
-- Price/Mix: declines attributable to price/mix reduced second
quarter sales by 4.1 percentage points driven primarily by the
digital capture SPG, the traditional film capture SPG, and the
color negative paper SPG.
-- Exchange: favorable exchange of 1.7 percentage point partially
offsets the negative impacts of volume and price/mix.
Net sales in the U.S. were $896 million for the current quarter as
compared with $984 million for the second quarter of 2004,
representing a decrease of $88 million, or 9%.
Net sales outside the U.S. were $1.255 billion for the second
quarter of 2005 as compared with $1.450 billion for the prior year
quarter, representing a decrease of $195 million, or 13%. The net
sales for the period reflected favorable impact from exchange of 2%.
Digital product sales were $723 million for the current quarter as
compared with $582 million for the second quarter of 2004,
representing an increase of $141 million, or 24%, primarily driven by
the consumer digital capture SPG, the kiosks/media portion of the
consumer output SPG, and the home printing SPG.
Traditional product sales were $1.428 billion for the current
quarter as compared with $1.852 billion for the second quarter of
2004, representing a decrease of $424 million or 23%, primarily driven
by declines in the consumer output and film capture SPGs.
Digital Strategic Product Group Revenues:
Net worldwide sales of consumer digital capture products, which
include consumer digital cameras, accessories, memory products and
royalties, increased 25% in the second quarter of 2005 as compared
with the prior year quarter, primarily reflecting strong volume
increases and favorable exchange, partially offset by negative
price/mix. For digital still cameras, Kodak held the number one unit
market share position for the U.S. market and the number three
position worldwide year to date through May.
Net worldwide sales of Picture Maker kiosks/media increased 24% in
the second quarter of 2005 as compared with the second quarter of
2004, as a result of strong volume increases and favorable exchange.
Sales continue to be driven by strong 4x6 format media sales at retail
locations. Additional media capacity came on line in early April.
Net worldwide sales from the home printing solutions SPG, which
includes inkjet photo paper and printer docks/media, increased 63% in
the current quarter as compared with the second quarter of 2004 driven
by sales of printer docks and associated thermal media. Kodak's
Printer Dock product continues to maintain a leading market share
position in the U.S., UK, and Australia through May. During the
quarter, inkjet paper sales and volume declined year over year.
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 31% in the second quarter of 2005 as
compared with the second quarter of 2004, primarily reflecting volume
declines and negative price/mix partially offset by favorable
exchange.
U.S. consumer film industry sell-through volumes decreased
approximately 25% in the second quarter of 2005 as compared with the
prior year quarter. Consumer film industry volumes in the U.S. are
expected to decline, as previously communicated, up to 30% for the
full year 2005. Kodak's worldwide projection for consumer film
industry volume decline was previously forecast at approximately 20%
and is now expected to decline in the range of 23% to 27% for full
year 2005 primarily as a result of accelerating industry declines in
emerging markets.
Net worldwide sales for the retail photofinishing SPG, which
includes color negative paper, minilab equipment and services,
chemistry, and photofinishing services at retail, decreased 23% in the
second quarter of 2005 as compared with the second quarter of 2004,
primarily reflecting volume declines and negative price/mix partially
offset by favorable exchange.
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 45% in the second
quarter of 2005 as compared with the second quarter of 2004,
reflecting continuing volume declines partially offset by favorable
exchange.
Net worldwide sales for the entertainment film SPGs, including
origination and print films for the entertainment industry increased
12%, primarily reflecting volume increases and favorable exchange
partially offset by negative price/mix. Entertainment films continued
to benefit from a robust market and higher volume driven by
simultaneous worldwide releases of major feature films.
Gross Profit:
Gross profit for the Digital and Film Imaging Systems segment was
$644 million for the second quarter of 2005 as compared with $749
million for the prior year quarter, representing a decrease of $105
million or 14%. The gross profit margin was 30.0% in the current year
quarter as compared with 30.8% 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 3.1 percentage points primarily driven by
the film capture SPG, the color negative paper SPG, and
entertainment print films.
-- Manufacturing Cost: favorable manufacturing cost improved
gross profit margins by 1.6 percentage points.
-- Exchange: favorably impacted gross profit margins by 0.7
percentage points.
SG&A:
In the second quarter, SG&A expenses for the Digital and Film
Imaging Systems segment decreased $43 million or 10%, from $423
million in the second quarter of 2004 to $380 million in the current
quarter, and increased as a percentage of sales from 17% to 18%.
R&D:
Second quarter R&D costs for the Digital and Film Imaging Systems
segment decreased $27 million, or 27%, from $99 million in the second
quarter of 2004 to $72 million in the current quarter and decreased as
a percentage of sales from 4% to 3%. The decrease in R&D year over
year was primarily attributable to spending reductions related to
traditional products and services.
EFO:
Earnings from operations for the Digital and Film Imaging Systems
segment decreased $36 million, or 16%, from $229 million in the second
quarter of 2004 to $193 million in the second quarter of 2005,
primarily as a result of the factors described above. The operating
earnings margin rate was flat at 9% for the current quarter and the
prior year quarter.
Health Group
The Health Group segment comprises the same products and services
as in first quarter 2005. This segment supplies the healthcare
industry with traditional and digital image capture and output
products and services.
Revenues:
Net worldwide sales for the Health Group were $694 million for the
second quarter of 2005 as compared with $672 million for the prior
year quarter, representing an increase of $22 million, or 3%. The
increase in net sales was composed of:
-- Volume: Volume growth increased second quarter sales by 4.3
percentage points, primarily driven by growth in the digital
capture, healthcare information systems, services and dental
systems SPG's offset by decreases in the digital output and
film capture & output SPGs.
-- Price/Mix: Decreases in price/mix reduced second quarter sales
by 2.6 percentage points, primarily driven by the digital
capture, digital output, and the traditional medical film
portion of the film capture and output SPG's.
-- Exchange: Favorable exchange impacted sales by 1.6 percentage
points.
Net sales in the U.S. were $273 million for the current quarter as
compared with $277 million for the second quarter of 2004,
representing a decrease of $4 million, or 1%.
Net sales outside the U.S. were $421 million for the second
quarter of 2005 as compared with $395 million for the prior year
quarter, representing an increase of $26 million, or 7%. The increase
in net sales for the period reflected favorable impact from exchange
of 2%.
Digital Products and Services Revenues:
Net worldwide sales of digital products, which include digital
output (DryView laser imagers/media and wet laser printers/media),
digital capture equipment (computed radiography (CR) and digital
radiography (DR) systems), services, dental systems (practice
management software and digital radiography capture equipment) and
healthcare information systems (PACS - Picture Archiving and
Communications Systems), were $450 million for the current quarter as
compared with $430 million for the second quarter of 2004,
representing an increase of $20 million or 5%. Sales reflect volume
increases and favorable exchange partially offset by negative
price/mix.
Traditional Products and Services Revenues:
Net worldwide sales of traditional products, including analog
film, equipment, chemistry and services were $245 million for the
current quarter as compared with $242 million for the prior year
quarter, representing an increase of $3 million, or 1%. The increase
in net sales for the period reflected favorable impact from exchange
of 2%. Partially offsetting exchange is the decline in net sales
primarily reflecting lower volumes and unfavorable price/mix for the
film capture and output SPG.
Gross Profit:
Gross profit for the Health Group was $281 million for the first
quarter of 2005 as compared with $293 million in the prior year
quarter, representing a decrease of $12 million, or 4%. The gross
profit margin was 40.5% in the current quarter as compared with 43.6%
in the second quarter of 2004. The decrease in the gross profit margin
of 3.1 percentage points was principally attributable to:
-- Manufacturing Cost: manufacturing cost decreased gross profit
margins by 0.6 percentage points, primarily reflecting higher
silver and raw material costs and the impact of unfavorable
manufacturing variances.
-- Price/Mix: Price/mix negatively impacted gross profit margins
by 3.1 percentage points primarily driven by the digital
capture SPG, digital output SPG and the traditional medical
film portion of the film capture and output SPG.
-- Exchange: favorable exchange added 0.6 percentage points to
the gross profit rate.
SG&A:
In the second quarter, SG&A expenses for the Health Group
increased $3 million, or 3%, from $119 million in the second quarter
of 2004 to $122 million for the current quarter, and remained flat at
18%. The increase in SG&A expenses is primarily attributable to the
unfavorable impact of foreign exchange of approximately $2 million.
R&D:
Second quarter R&D costs decreased $3 million from $50 million in
the second quarter of 2004 to $47 million in the current quarter and
remains relatively constant as a percentage of sales at 7%.
EFO:
Earnings from operations for the Health Group decreased $11
million, or 9%, from $124 million for the prior year quarter to $113
million for the second quarter of 2005, while the operating earnings
margin rate decreased 2 percentage points to 16% from 18% for the
prior year quarter. The decrease in operating earnings primarily
reflects the impact of lower gross profit margins.
Graphic Communications
The Graphic Communications segment serves a variety of customers
in the in-plant, data center, commercial printing, packaging,
newspaper and digital service bureau markets with a range of software
and hardware products that provide customers with a range of solutions
for prepress, traditional and digital printing, and document scanning
and multi-vendor IT services.
On January 12, 2005, the Company announced that it had entered
into a Redemption Agreement with Sun Chemical Corporation and Sun
Chemical Group B.V. (collectively, "Sun"), pursuant to which the
parties have agreed to consummate certain transactions that will
result in Kodak owning 100% of the equity interests in Kodak
Polychrome Graphics LLC and Kodak Polychrome Graphics Company Ltd
(KPG). The Company completed its acquisition of KPG on April 1, 2005.
On January 31, 2005, the Company announced that it had entered
into a definitive agreement to acquire all of the outstanding common
shares of Creo Inc., a premier supplier of prepress systems used by
commercial printers worldwide. The Company completed its acquisition
of Creo on June 15, 2005.
Revenues:
Net worldwide sales for the Graphic Communications segment were
$794 million for the second quarter of 2005 as compared with $325
million for the prior year quarter, representing an increase of $469
million, or 144%. The increase in net sales was primarily due to the
completion of the KPG and Creo acquisitions.
Net sales in the U.S. were $251 million for the current year
quarter as compared with $145 million for the prior year quarter,
representing an increase of $106 million, or 73%.
Net sales outside the U.S. were $543 million in the second quarter
of 2005 as compared with $180 million for the prior year quarter,
representing an increase of $363 million or 202%. The increase in net
sales for the period reflected the favorable impact of foreign
currency fluctuations of $7 million, or 2%.
Digital Products and Services Revenues:
The Graphic Communications segment digital product sales for the
current quarter were $632 million versus $256 million for the prior
year quarter an increase of 147% primarily related to the acquisitions
of KPG and Creo. These digital sales are composed of KPG digital
revenues, NexPress Solutions, a producer of digital color and black
and white printing solutions, Creo, a supplier of prepress systems,
Kodak Versamark, a leader in continuous inkjet technology, document
scanners, Encad, a maker of wide format inkjet printers, and service
and support.
Net worldwide sales for NexPress color and black and white
products increased 91% driven by strong volume increases and favorable
exchange partially offset by unfavorable price/mix. The installed base
of digital production color presses continues to grow and increases in
customer average monthly page volumes are leading to higher
consumables revenue. NexPress black & white digital equipment and
related consumables and service delivered strong performance in the
second quarter.
Kodak Versamark sales increased 15% in the current quarter as
compared with the second quarter of 2004, led by increased placements
of color printing solutions in the transactional printing market
coupled with a growing consumables business. The increase in sales
reflects strong volume increases partially offset by unfavorable
price/mix.
Traditional Products and Services Revenues:
Segment traditional product sales for the current quarter are $162
million versus $70 million for the second quarter of 2004, an increase
of 131% primarily due to the KPG acquisition. These traditional sales
are comprised of the sales of Kodak traditional graphics products,
KPG's analog plates and other films, and microfilm products.
Gross Profit:
Gross profit for the Graphic Communications segment was $216
million for the second quarter of 2005 as compared with $85 million in
the prior year quarter, representing an increase of $131 million, or
154%. The gross profit margin was 27.2% in the current quarter as
compared with 26.2% in the prior year quarter. The increase in the
gross profit margin of 1.0 percentage points was primarily
attributable to:
-- Acquisitions: Creo and KPG: increased gross profit margins by
approximately 2.4 percentage points
-- Price/Mix: negative price/mix decreased gross profit margins
by approximately 1.2 percentage points
-- Manufacturing Cost: manufacturing costs negatively impacted
gross profit margins by approximately 0.8 percentage points.
-- Exchange: favorable exchange added 0.6 percentage points to
the gross profit rate.
SG&A:
SG&A expenses for the Graphic Communications segment increased $74
million, or 116%, from $64 million in the second quarter of 2004 to
$138 million for the current quarter, and decreased as a percentage of
sales from 20% to 17%. The decrease in SG&A percentage is primarily
attributable to the acquisitions of KPG and Creo, which have lower
SG&A as a percent of sales.
R&D:
R&D costs increased $82 million, from $29 million in the second
quarter of 2004 to $111 million in the current quarter and increased
as a percentage of sales from 9% for the second quarter of 2004 to 14%
for the current quarter. The R&D expense increase is primarily due to
the $16 million charge for purchased in-process R&D recorded for the
acquisition of KPG, the $48 million charge for the purchased
in-process R&D recorded for the acquisition of Creo with the remainder
due to the operations of the KPG and Creo acquisitions.
EFO:
Losses from operations for the Graphic Communications segment were
$33 million in the current quarter versus losses of $8 million for the
prior year quarter. The current quarter losses include the $16 million
charge for purchased in-process R&D related to the KPG acquisition and
the $48 million charge for the purchased in-process R&D related to the
Creo acquisition, offset by earnings from the KPG and Creo
acquisitions.
All Other
All Other is composed of Kodak's display and components business
for image sensors, optics, display materials, and other small,
miscellaneous businesses. All Other also includes development
initiatives in inkjet technologies. These businesses offer imaging
sensors to original equipment manufacturers (OEMs) and other specialty
materials including organic light emitting diode (OLED) technology to
commercial customers.
Revenues:
Net worldwide sales for All Other were $47 million for the second
quarter of 2005, as compared with $33 million for the prior year
quarter, representing an increase of $14 million, or 42%.
Net sales in the U.S. were $22 million for the current year
quarter as compared with $18 million for the prior year quarter,
representing an increase of $4 million, or 22%.
Net sales outside the U.S. were $25 million in the second quarter
of 2005 as compared with $15 million for the prior year quarter,
representing an increase of $10 million, or 67%.
EFO:
The loss from operations for All Other was $43 million in the
current quarter, a decrease of $5 million or 13% as compared with the
loss from operations of $38 million in the second quarter of 2004. The
loss from operations was primarily driven by digital investments,
which include the inkjet and display programs.
Balance Sheet:
Cash Flow:
Kodak's definition of free cash flow equals net cash provided by
continuing operations relating to operating activities less additions
to properties. Kodak's definition of operating cash flow equals free
cash flow plus proceeds from sales of assets plus distributions from
unconsolidated affiliates minus investments in unconsolidated
affiliates minus acquisitions minus debt assumed through acquisitions
minus dividends. Investable cash flow is operating cash flow excluding
acquisitions and debt assumed in acquisitions.
During the second quarter, operating cash flow from continuing
operations was a negative $1.778 billion, a $1.709 billion change
versus the negative $69 million in the year ago quarter driven
primarily by the acquisition spend for KPG and Creo, higher inventory
balances, higher receivable balances, and an increase in cash payments
associated with restructuring.
Investable cash flow was a negative $297 million, $258 million
lower than the negative $39 million in the second quarter of 2004.
Kodak remains committed to achieve targeted investable cash flow for
the year of $400 million to $600 million.
Net cash (used in) provided by continuing operations relating to
operating activities, investing activities and financing activities,
as determined under U.S. GAAP in the second quarter of 2005 was ($207)
million, ($1,032) million and $772 million, respectively.
The table below reconciles the net cash provided by continuing
operations relating to operating activities as determined under U.S.
GAAP, to Kodak's definition of Free Cash Flow, to Kodak's definition
of operating and investable cash flow for the second quarter of 2005
and 2004 and year to date 2005 and 2004:
1st Quarter
- ---------------------------------------------------------------------
($ millions) 2005 2004
-------------------
Net cash (used in) provided by continuing
operations relating to operating activities: ($223) ($27)
Additions to properties (99) (91)
-------------------
Free Cash Flow (continuing operations) (322) (118)
Net proceeds from sales of businesses/assets 1 0
Distributions from/(investments in) unconsolidated
affiliates 63 (22)
Acquisitions, net of cash acquired (47) (305)
Debt assumed through acquisitions 0 0
Dividends 0 0
-------------------
Operating Cash Flow (continuing operations) (305) (445)
Acquisitions, net of cash acquired 47 305
Debt assumed through acquisitions 0 0
-------------------
Investable Cash Flow (continuing operations) ($258) ($140)
- ---------------------------------------------------------------------
2nd Quarter
- ---------------------------------------------------------------------
($ millions) 2005 2004
-------------------
Net cash (used in) provided by continuing
operations relating to operating activities: ($207) $60
Additions to properties (111) (91)
-------------------
Free Cash Flow (continuing operations) (318) (31)
Net proceeds from sales of businesses/assets 21 1
Distributions from/(investments in) unconsolidated
affiliates 0 (9)
Acquisitions, net of cash acquired (940) (30)
Debt assumed through acquisitions (541) 0
Dividends 0 0
-------------------
Operating Cash Flow (continuing operations) (1778) (69)
Acquisitions, net of cash acquired 940 30
Debt assumed through acquisitions 541 0
-------------------
Investable Cash Flow (continuing operations) ($297) ($39)
- ---------------------------------------------------------------------
Year to Date
- ---------------------------------------------------------------------
($ millions) 2005 2004
-------------------
Net cash provided by continuing operations
relating to operating activities: ($430) $33
Additions to properties (210) (182)
-------------------
Free Cash Flow (continuing operations) (640) (149)
Net proceeds from sales of businesses/assets 22 1
Distributions from/(investments in) unconsolidated
affiliates 63 (31)
Acquisitions, net of cash acquired (987) (335)
Debt assumed through acquisitions (541) 0
Dividends 0 0
-------------------
Operating Cash Flow (continuing operations) (2,083) (514)
Acquisitions, net of cash acquired 987 335
Debt assumed through acquisitions 541 0
-------------------
Investable Cash Flow (continuing operations) ($555) ($179)
- ---------------------------------------------------------------------
Dividend:
The company makes semi-annual dividend payments, which, when
declared by the Board of Directors, will be paid on the company's 10th
business day each July and December to shareholders of record as of
the close of the first business day of the preceding month. Kodak made
no dividend payments during the second quarters of 2005 and 2004. On
May 11, 2005, the Board of Directors declared a cash dividend of 25
cents per share on the outstanding common shares payable to
shareholders of record as of June 1, 2005. This dividend was paid July
15, 2005.
Capital Spending:
Capital additions were $111 million in the second quarter of 2005,
which was $20 million higher than the year ago quarter and $12 million
higher quarter sequentially. The majority of the spending supported
new products, manufacturing productivity and quality improvements,
infrastructure improvements and ongoing environmental and safety
initiatives.
Receivables:
Total net receivables of $2.976 billion, which were composed of
trade ($2.585 billion) and miscellaneous ($391 million) receivables at
the end of the second quarter of 2005, increased $371 million from the
second quarter of 2004 and increased $695 million quarter
sequentially. The quarter sequential increase is a result of second
quarter sales being higher than first quarter sales. The year over
year increase is driven by receivables from acquisitions.
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 trade receivable balance by $361 million to
$2.224 billion at the end of the second quarter of 2005, and would
reduce the net trade receivable balance by $442 million to $1.812
billion at the end of the second quarter of 2004.
Kodak defines days sales outstanding (DSO) as the four-quarter
moving average net trade receivables after customer rebate
reclassification, divided by 12 months of trade sales, multiplied by
365 days. Due to the fact that reported sales are net of customer
rebates and a majority of these 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 is more
reflective of the true number of days the net trade receivables are
outstanding.
DSO from continuing operations for the second quarter was 48 days,
higher than the prior year quarter by 5 days and higher quarter
sequentially by two days. This is primarily due to the newly acquired
businesses that tend to have higher DSO.
If rebate accrual balances were not offset against receivables for
purposes of calculating the DSO, DSO from continuing operations would
have increased year over year by three days to 59 days and one-day
quarter sequentially.
Inventory:
Kodak's inventories of $1.523 billion (after LIFO) increased $263
million year over year and increased $193 million quarter
sequentially. The year over year increase is primarily due to the
acquisitions of NexPress, KPG, and Creo.
Kodak defines days supply of inventory (DSI) from continuing
operations as four-quarter average inventory before the LIFO reserve
divided by 12 months COGS, 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.
Inventory before the LIFO reserve was $1.821 billion, $222 million
higher than a year ago and $174 million higher than the first quarter
of 2005. DSI from continuing operations of 65 days was higher by 3
days from the second quarter 2004 and higher quarter sequentially by
one day.
Kodak defines inventory turns as 12 months COGS divided by
four-quarter average inventory before the LIFO reserve. Inventory
turns from continuing operations were 5.7, which is 0.2 lower than a
year ago and flat quarter sequentially.
Including the impact of the LIFO reserve and using COGS as
reported on a GAAP basis, DSI from continuing operations of 51 days
increased by 4 days from the second quarter of 2004 and 2 days quarter
sequentially. Inventory turns from continuing operations were 0.5
lower than a year ago and 0.2 lower quarter sequentially.
Debt:
Debt increased $1.4 billion from the year-end level to $3.721
billion, reflecting acquisitions, and the company held $553 million in
cash on its balance sheet at the end of the quarter, down from $1.255
billion at the end of 2004. Quarter sequentially, debt increased by
$1.312 billion to $3.721 billion and cash decreased by $478 million to
$553 million. Equity was $3.243 billion and the debt to total capital
ratio was 53.4%, reflecting an increase of 13.7 percentage points
quarter sequentially and an increase of 5.0 percentage points year
over year. The increase is driven primarily by the debt associated
with the acquisitions of KPG and Creo.
Foreign Exchange:
Year over year, the impact of foreign exchange on operating
activities during the second quarter was a positive $0.08 per share
and foreign exchange activities recorded in "Other Income/(Charges)"
had a ($0.07) per share impact. Therefore, the sum of the operational
and reportable exchange impacts increased earnings in the quarter by
$0.01 per share.
Silver:
During the second quarter, the impact of high silver prices was
partially offset by the effect of favorable foreign exchange.
Net Cash Provided by Continuing Operations:
Guidance:
Kodak expects that full year 2005 investable cash flow will range
from $400 to $600 million. The table below provides a reconciliation
to the range from investable cash flow to net cash provided by
continuing operations on a GAAP basis:
2005
- ----------------------------------------------------------------------
Estimated range of Investable Cash Flow $400 to $600 million
- ----------------------------------------------------------------------
Add: estimate of cash flow impacts for:
- ----------------------------------------------------------------------
Additions to properties $450
- ----------------------------------------------------------------------
Dividends $145
- ----------------------------------------------------------------------
Estimated range of net cash provided by
continuing operations (GAAP basis) $995 to $1,195 million
- ----------------------------------------------------------------------
Upcoming Meetings:
Kodak Investor Relations and Graphic Communications will host an
event for those members of the investment community who will be
attending the upcoming Print '05 trade show. The show runs from
September 9th to the 15th at McCormick Place in Chicago. Kodak's
annual strategy meeting with investors will be held on Wednesday,
September 28, in New York City. Additional details will follow
shortly.
Safe Harbor Statement:
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 earnings, revenue growth,
cash and cost savings 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 digital growth strategy and business
model;
-- Implementation of our cost reduction program, including asset
rationalization, reduction in general and administrative costs
and personnel reductions;
-- Implementation of our debt management program;
-- Implementation of product strategies (including category
expansion, digitization, organic light emitting diode (OLED)
displays, and digital products);
-- Implementation of intellectual property licensing strategies;
-- Development and implementation of e-commerce strategies;
-- Completion of information systems upgrades, including SAP, our
enterprise system software;
-- Completion of various portfolio actions;
-- Reduction of inventories;
-- Integration of newly acquired businesses;
-- Improvement in manufacturing productivity and techniques;
-- Improvement in receivables performance;
-- Reduction in capital expenditures;
-- Improvement in supply chain efficiency;
-- Implementation of our strategies designed to address the
decline in our analog businesses; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this press release are
subject to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- Changes in our debt credit rating and our ability to access
capital markets;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions, and
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission;
Any forward-looking statements in this press release should be
evaluated in light of these important factors and uncertainties.
Eastman Kodak Company
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
(in millions, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2005 2004 2005 2004
Net sales $ 3,686 $ 3,464 $ 6,518 $ 6,384
Cost of goods sold 2,618 2,363 4,745 4,476
------- ------- ------- -------
Gross profit 1,068 1,101 1,773 1,908
Selling, general and
administrative expenses 648 615 1,232 1,164
Research and development
costs 276 213 475 410
Restructuring costs and
other 267 134 385 188
------- ------- ------- -------
(Loss) earnings from
continuing operations
before interest, other
income (charges), net and
income taxes (123) 139 (319) 146
Interest expense 49 43 87 87
Other income (charges), net (38) 8 (3) 6
------- ------- ------- -------
Loss from continuing
operations before income
taxes (210) 104 (409) 65
Benefit for income taxes (64) (15) (120) (62)
------- ------- ------- -------
(Loss) earnings from
continuing operations (146) 119 (289) 127
Earnings from discontinued
operations, net of income
taxes - 17 1 30
------- ------- ------- -------
NET (LOSS) EARNINGS $ (146) $ 136 $ (288) $ 157
======= ======= ======= =======
Basic and diluted net
(loss) earnings per share:
Continuing operations $ (.51) $ .40 $ (1.00) $ .44
Discontinued operations .00 .06 .00 .09
------- ------- ------- -------
Total $ (.51) $ .46 $ (1.00) $ .53
======= ======= ======= =======
Number of common shares
used in basic net (loss)
earnings per share 287.1 286.6 287.0 286.6
Effect of dilutive
securities:
Employee stock options - 0.1 - 0.1
Contingent convertible
notes - 18.5 - 18.5
------- ------- ------- -------
Number of common shares
used in diluted net (loss)
earnings per share 287.1 305.2 287.0 305.2
======= ======= ======= =======
Net Sales from Continuing Operations by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2005 2004 Change 2005 2004 Change
D&FIS
Inside the U.S. $ 896 $ 984 - 9% $1,597 $1,725 - 7%
Outside the U.S. 1,255 1,450 - 13 2,355 2,687 - 12
------ ------ ------- ------ ------ ------
Total D&FIS 2,151 2,434 - 12 3,952 4,412 - 10
------ ------ ------- ------ ------ ------
Health
Inside the U.S. 273 277 - 1 518 535 - 3
Outside the U.S. 421 395 + 7 802 768 + 4
------ ------ ------- ------ ------ ------
Total Health 694 672 + 3 1,320 1,303 + 1
------ ------ ------- ------ ------ ------
Graphic Communications
Inside the U.S. 251 145 + 73 407 257 + 58
Outside the U.S. 543 180 + 202 755 351 + 115
------ ------ ------- ------ ------ ------
Total Graphic
Communications 794 325 + 144 1,162 608 + 91
------ ------ ------- ------ ------ ------
All Other
Inside the U.S. 22 18 + 22 35 33 + 6
Outside the U.S. 25 15 + 67 49 28 + 75
------ ------ ------- ------ ------ ------
Total All Other 47 33 + 42 84 61 + 38
------ ------ ------- ------ ------ ------
Consolidated total $3,686 $3,464 + 6% $6,518 $6,384 + 2%
====== ====== ===== ====== ====== =====
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,
------------------------ -----------------------
2005 2004 Change 2005 2004 Change
D&FIS $ 193 $ 229 - 16% $ 197 $ 254 - 22%
Percent of Sales 9% 9% 5% 6%
Health $ 113 $ 124 - 9% $ 184 $ 219 - 16%
Percent of Sales 16% 18% 14% 17%
Graphic
Communications $ (33) $ (8) - 313% $ (53) $ (8) - 563%
Percent of Sales (4)% (2)% (5)% (1)%
All Other $ (43) $ (38) - 13% $ (85) $ (73) - 16%
Percent of Sales (91)% (115)% (101)% (120)%
------ ------ ----- ------ ------
Total of segments $ 230 $ 307 - 25% $ 243 $ 392 - 38%
Percent of Sales 6% 9% 4% 6%
Restructuring costs
and other (353) (168) (562) (246)
------ ------ ----- ------ ------
Consolidated total $ (123) $ 139 - 188% $ (319) $ 146 - 318%
====== ====== ===== ====== ====== =====
Earnings (Loss) from Continuing Operations by Reportable Segment and
All Other - Unaudited
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2005 2004 Change 2005 2004 Change
D&FIS $ 149 $ 187 - 20% $ 161 $ 208 - 23%
Percent of Sales 7% 8% 4% 5%
Health $ 88 $ 101 - 13% $ 151 $ 176 - 14%
Percent of Sales 13% 15% 11% 14%
Graphic
Communications $ (22) $ (5) - 340% $ (23) $ (6) - 283%
Percent of Sales (3)% (2)% (2)% (1)%
All Other $ (38) $ (33) - 15% $ (75) $ (61) - 23%
Percent of Sales (81)% (100)% (89)% (100)%
------ ------ ----- ------ ------
Total of segments $ 177 $ 250 - 29% $ 214 $ 317 - 32%
Percent of Sales 5% 7% 3% 5%
Lucky film impairment (19) - (19) -
Restructuring costs
and other (353) (168) (562) (246)
Property sales 13 - 13 -
Interest expense (49) (43) (87) (87)
Other corporate items 5 2 10 4
Tax on Infotonics
contribution (6) - (6) -
Income tax effects on
above items and
taxes not allocated
to above 86 78 148 139
------ ------ ----- ------ ------
Consolidated total $ (146) $ 119 - 223% $ (289) $ 127 - 328%
====== ====== ===== ====== ====== =====
Eastman Kodak Company
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED
(in millions)
June 30, Dec. 31,
2005 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 553 $ 1,255
Receivables, net 2,976 2,544
Inventories, net 1,523 1,158
Deferred income taxes 582 556
Other current assets 139 105
Assets of discontinued operations 30 30
--------- ---------
Total current assets 5,803 5,648
--------- ---------
Property, plant and equipment, net 4,462 4,512
Goodwill 2,004 1,446
Other long-term assets 3,315 3,131
--------- ---------
TOTAL ASSETS $ 15,584 $ 14,737
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current
liabilities $ 3,868 $ 3,896
Short-term borrowings 966 469
Accrued income taxes 709 625
--------- ---------
Total current liabilities 5,543 4,990
OTHER LIABILITIES
Long-term debt, net of current portion 2,755 1,852
Pension and other postretirement
liabilities 3,356 3,338
Other long-term liabilities 687 737
--------- ---------
Total liabilities 12,341 10,917
SHAREHOLDERS' EQUITY
Common stock at par 978 978
Additional paid in capital 864 859
Retained earnings 7,548 7,922
Accumulated other comprehensive loss (326) (90)
Unearned restricted stock (7) (5)
--------- ---------
9,057 9,664
Less: Treasury stock at cost 5,814 5,844
--------- ---------
Total shareholders' equity 3,243 3,820
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,584 $ 14,737
========= =========
Eastman Kodak Company
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
(in millions)
Six Months Ended
June 30
-------------------------
2005 2004
Cash flows relating to operating
activities:
Net (loss) earnings $ (288) $ 157
Adjustments to reconcile to net cash
(used in) provided by operating
activities:
Earnings from discontinued operations (1) (29)
Equity in (earnings) losses from
unconsolidated affiliates (12) 4
Depreciation and amortization 541 469
Purchased research and development 66 10
Gain on sales of businesses/assets (16) (1)
Restructuring costs, asset impairments
and other non-cash charges 103 24
Benefit for deferred taxes (134) (120)
Decrease (increase) in receivables 69 (204)
Increase in inventories (98) (76)
Decrease in liabilities excluding
borrowings (705) (246)
Other items, net 45 45
--------- ---------
Total adjustments (142) (124)
--------- ---------
Net cash (used in) provided by
continuing operations (430) 33
--------- ---------
Net cash provided by discontinued
operations - 4
--------- ---------
Net cash (used in) provided by
operating activities (430) 37
--------- ---------
Cash flows relating to investing
activities:
Additions to properties (210) (182)
Net proceeds from sales of
businesses/assets 22 1
Acquisitions, net of cash acquired (987) (335)
Distributions from (investments in)
unconsolidated affiliates 63 (31)
Marketable securities - purchases (55) (64)
Marketable securities - sales 45 58
--------- ---------
Net cash used in investing activities (1,122) (553)
--------- ---------
Net cash used in discontinued
operations - (2)
--------- ---------
Net cash used in investing activities (1,122) (555)
--------- ---------
Cash flows relating to financing
activities:
Net increase (decrease) in borrowings
with original maturity of 90 days
or less (308) (40)
Proceeds from other borrowings 1,463 89
Repayment of other borrowings (296) (257)
Exercise of employee stock options 12 -
--------- ---------
Net cash provided by (used in)
financing activities 871 (208)
--------- ---------
Effect of exchange rate changes on cash (21) (5)
--------- ---------
Net decrease in cash and cash equivalents (702) (731)
Cash and cash equivalents, beginning
of year 1,255 1,250
--------- ---------
Cash and cash equivalents, end of quarter $ 553 $ 519
========= =========