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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): January 26, 2005
Eastman Kodak Company
(Exact name of registrant as specified in charter)
New Jersey 1-87 16-0417150
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
343 State Street,
Rochester, New York 14650
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (585) 724-4000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
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On January 26, 2005, Eastman Kodak Company issued a press release and a
supplemental financial discussion document describing its financial results for
its fourth fiscal quarter ended December 31, 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 fourth quarter 2004 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"
(and the line items comprising earnings from continuing operations on an
operational basis), "Earnings from continuing operations, excluding focused cost
reductions and other non-operational items", "Free cash flow", "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 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/focused
cost reductions - The Company's management believes that presenting earnings
from continuing operations, excluding non-operational items/focused cost
reductions, 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.
Free cash flow / 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 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), plus proceeds from the sale of assets minus capital expenditures,
acquisitions, debt assumed in acquisitions and investments in unconsolidated
affiliates. The operating cash flow measure equals free cash flow less
dividends. The investable cash flow measure equals operating cash flow excluding
the impact of acquisitions and debt assumed in acquisitions. Operating cash flow
excluding acquisitions is the same 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, 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
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Exhibit 99.1 Press release issued January 26, 2005 Furnished with
regarding financial results for the this document
fourth quarter of 2004
Exhibit 99.2 Financial discussion document issued Furnished with
January 26, 2005 regarding financial this document
results for the fourth quarter of 2004
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTMAN KODAK COMPANY
By: /s/ Richard G. Brown, Jr.
-----------------------------
Name: Richard G. Brown, Jr.
Title: Controller
Date: January 26, 2005
EXHIBIT INDEX
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Exhibit No. Description
- ---------- ------------
99.1 Press release issued January 26, 2005 regarding financial results
for the fourth quarter 2004
99.2 Financial discussion document issued January 26, 2005 regarding
financial results for the fourth quarter 2004
Exhibit 99.1
Kodak Has Preliminary 4th-Quarter Reported Net Loss of 4 Cents Per Share
EPS from Continuing Operations, Excluding Non-Operational Items, Totals 78
Cents in 4th Quarter and $2.62 for Full-Year 2004
Digital Sales Rise 40% in 4th Qtr, Offsetting 16% Decline in Traditional Sales;
Full-Year Operational Earnings Per Share Increase 22%
ROCHESTER, N.Y.--(BUSINESS WIRE)--Jan. 26, 2005--Eastman Kodak
Company today reported a preliminary fourth-quarter net loss of 4
cents per share and a revenue increase of 3%. While charges for
restructuring generated the loss, rising demand for the company's
digital portfolio more than offset reduced sales of some traditional
products and services.
Kodak's reported net loss for the quarter included a loss from
continuing operations of 6 cents per share, slightly offset by income
from discontinued operations of 2 cents per share. The company
recorded non-operational charges and gains in the quarter that reduced
earnings from continuing operations, on a net basis, by 88 cents per
share, primarily reflecting the focused cost reductions announced in
January 2004. In addition, the adoption of new rules related to the
effect of contingently convertible debt on diluted earnings per share
reduced earnings from continuing operations by 4 cents in the quarter.
By removing the charges and gains from the calculation of earnings
from continuing operations, and adjusting for the new earnings per
share rules as they relate to contingently convertible debt, Kodak had
operational earnings per share of 78 cents in the fourth quarter.
Results are preliminary because, during the course of the year-end
closing process, errors were discovered relating to the company's
accounting for income taxes. Working in conjunction with its
independent registered public accounting firm, PricewaterhouseCoopers,
the company is in the process of determining the magnitude of these
errors. Although they have no bearing on the company's revenue, cash
flow or its earnings before taxes, the errors may affect the company's
after-tax income.
For the fourth quarter of 2004:
-- Sales totaled $3.765 billion, an increase of 3% from $3.648
billion in the fourth quarter of 2003. Excluding foreign
exchange, sales increased 1%.
-- The company reported a net loss of $12 million, or 4 cents per
share, compared with net income of $19 million, or 7 cents per
share, in the fourth quarter of 2003. The net income from
discontinued operations of 2 cents per share in the fourth
quarter of 2004 reflects a $5 million adjustment to the gain
reported in the third quarter of 2004 from the sale of the
company's Remote Sensing Systems operation to ITT Industries
Inc.
-- Earnings from continuing operations, excluding the impact of
non-operational items, were $236 million, or 78 cents per
share. The non-operational items include charges totaling
$1.10 per share, primarily related to the previously announced
cost reductions, and gains totaling 22 cents per share,
reflecting legal settlements. In the fourth quarter of 2003,
earnings from continuing operations, excluding non-operational
items, were $181 million, or 60 cents per share.
"Kodak delivered in 2004," said Kodak Chairman and Chief Executive
Officer Daniel A. Carp. "We began the year with a commitment to
increase our full-year per share operational earnings, and we did
that. We head into 2005 committed to increase per share operational
earnings again. Our digital sales this year will exceed our
traditional sales for the first time, and our digital profit growth
will exceed the decline in profit associated with our traditional
business. We are more confident than ever that we have the leadership,
the technology and the products and services required to achieve our
strategic goals and enhance shareholder value."
In the fourth quarter, Kodak provided more evidence that it is
executing on its strategy to drive digital growth while managing
smartly its traditional businesses. The company's digital revenue rose
40% in the quarter, more than offsetting a 16% decline in traditional
revenue. The company's Digital & Film Imaging Systems Group, which
includes the consumer film business, posted an earnings increase of 6%
even as sales declined by 3%, reflecting effective cost and capacity
controls in the traditional portfolio.
"Our digital sales growth demonstrates our ability to attract
customers with innovative products and to make smart acquisitions that
generate profitable growth," said Kodak President and Chief Operating
Officer Antonio M. Perez. "We also continue to reduce costs ahead of
the decline in some of our traditional businesses and we decreased our
debt by more than $900 million, strengthening an already solid balance
sheet."
Other fourth-quarter 2004 details from continuing operations:
-- For the quarter, operating cash flow excluding acquisitions
was $458 million, compared with $473 million for the fourth
quarter of 2003. The company generated less cash flow than it
had projected earlier in the year, reflecting higher cash
payments associated with the accelerated pace of
restructuring, as well as a lower-than-expected reduction of
inventory. (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 $927 million from the year-end 2003 level to
$2.321 billion, exceeding the company's goal of reducing debt
in 2004 by as much as $800 million. The debt-to-capital ratio
decreased to 37.9% at the end of 2004, from 49.9% at the end
of 2003. The company's cash balance remains strong at $1.255
billion as of the end of 2004, essentially unchanged from
2003.
-- Gross Profit on an operational basis was 29.5%, down from the
year-ago level of 32.7%.
-- Selling, General and Administrative expenses on an operational
basis were 18.7% of sales, down from 19.6% in the year-ago
quarter.
The segment results from continuing operations for the fourth
quarter of 2004 are as follows:
-- Digital & Film Imaging segment sales totaled $2.550 billion,
down 3%. Earnings from operations for the segment were $149
million on a GAAP and operational basis, compared with $141
million a year ago. Highlights for the quarter included a 49%
increase in consumer digital capture sales, which includes the
KODAK EASYSHARE line of cameras; a 48% increase in the sales
of KODAK Picture Maker kiosks and related media; and continued
strong sales of motion-picture origination and print film. The
segment's earnings from operations increased largely because
of cost reductions.
-- Health Imaging sales were $742 million, up 5%. Earnings from
operations for the segment were $118 million on a GAAP and
operational basis, compared with $134 million a year ago.
Highlights included an 11% increase in sales of digital
products and services.
-- Graphic Communications sales were $219 million, up 152%,
largely reflecting the acquisition in 2004 of Kodak Versamark
and NexPress. The loss from operations was $42 million on a
GAAP and operational basis, compared with a loss of $18
million a year ago, reflecting the anticipated dilution of the
NexPress acquisition. The integration plans are on or ahead of
schedule for both Kodak Versamark and NexPress, and both
subsidiaries are enjoying solid demand for their products and
services.
-- Commercial Imaging sales were $219 million, up 1%. Earnings
from operations were $33 million on a GAAP and operational
basis, compared with $37 million a year ago.
-- All Other sales were $35 million, up 52% from the year-ago
quarter. The loss from operations totaled $72 million on a
GAAP and operational basis, compared with a loss of $19
million a year ago. The loss primarily reflects increased
investments in new technology, and legal fees associated with
patent litigation involving Sun Microsystems Inc. The All
Other category includes the Display & Components operation and
other miscellaneous businesses.
"The company continues to make steady progress on its strategy,"
Carp said. "We are introducing exciting new products, increasing our
digital sales, improving our manufacturing performance and reducing
debt. We also are aggressively cutting fixed costs, and we are
developing a multi-year plan to trim administrative costs, consistent
with creating a business model that is competitive for the digital
markets we serve."
2004 full-year results:
-- For the year, sales were $13.517 billion, up 5% from $12.893
billion in 2003. Excluding the impact of foreign exchange,
sales rose 2% compared with 2003.
-- Reported net earnings for the year totaled $649 million, or
$2.16 a share, compared with $265 million, or 92 cents per
share, in 2003. Earnings from continuing operations totaled
$187 million, or 65 cents per share, compared with $199
million, or 69 cents per share, in 2003. Excluding the impact
of focused cost reductions and other non-operational items,
earnings from continuing operations in 2004 were $789 million,
or $2.62 per share. In 2003, earnings from continuing
operations, excluding focused cost reductions and other
non-operational items, were $623 million, or $2.15 per share.
"We remain committed to achieving our strategic goals, including
delivering per-share operational earnings of $3.00 in 2006," Perez
said. "We are making progress quarter by quarter in our effort to
remake Kodak as a digital company that generates value for its
shareholders."
Earnings Outlook:
-- Kodak expects that per-share operational earnings in 2005 will
range from $2.60 to $2.90, with operating cash flow excluding
acquisitions between $400 million and $600 million. Revenue
will range from $14 billion to $14.6 billion. For the first
half of 2005, the company's per-share operational earnings are
expected to range from $1.10 to $1.20.
Details on Income Tax Accounting
"As noted above, the errors are confined to income tax accounting,
and as such they do not affect the company's business operations,"
said Robert H. Brust, Kodak's Chief Financial Officer. "Because the
errors are confined to income tax accounting, they do not affect
Kodak's 2004 revenue, cash flow or pre-tax earnings. They also do not
affect the company's anticipated tax rate for 2005, nor do they in any
way affect the company's financial strength or business prospects, or
our earnings outlook for 2005 and beyond.
"Remember that Kodak has been devoting significant resources for
more than a year to assessing, and strengthening as appropriate, its
controls in the context of its Sarbanes-Oxley Section 404 review,"
Brust said. "This situation arises from tax accounting errors, not
misconduct. It involves complex tax rules, in many cases relating to
our restructuring actions overseas, that vary by country.
"Kodak's management, in conjunction with external consultants, is
currently analyzing its income tax accounts, and adjustments may
result from this review," Brust said. "We are moving as quickly as we
can to take appropriate corrective action, and we are keeping the
Audit Committee of the company's Board of Directors fully informed. We
expect to complete the work during the next six weeks, at which time
we will issue final results for the fourth quarter and for the year."
As a result of the income tax accounting errors, the company has
determined that it has an internal control deficiency that constitutes
a "material weakness," as defined by the Public Company Accounting
Oversight Board's Auditing Standard No. 2. Consequently, management
will be unable to conclude that the company's internal controls over
financial reporting are effective as of Dec. 31, 2004. Therefore,
PricewaterhouseCoopers will issue an adverse opinion with respect to
the company's internal controls over financial reporting. An
assessment of the company's internal controls will be included in its
Annual Report on Form 10-K, which will be filed in March.
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 management 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 digitally oriented growth strategy;
-- Implementation of our three-year cost reduction program;
-- 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 future focused cost reductions, including
personnel reductions; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this press release are subject
to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions;
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission, and;
-- The results of the company's ongoing investigation regarding
the income tax accounting errors described above.
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 at www.kodak.com.
CONTACT: Eastman Kodak
Media Contacts:
Gerard Meuchner, 585-724-4513
gerard.meuchner@kodak.com
or
David Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
Investor Relations Contacts:
Don Flick, 585-724-4352
donald.flick@kodak.com
or
Carol Wilke, 585-724-6791
carol.wilke@kodak.com
or
Patty Yahn-Urlaub, 585-724-4683
patty.yahn-urlaub@kodak.com
Exhibit 99.2
Eastman Kodak Company Financial Discussion Document
Fourth Quarter 2004 Results
The fourth quarter results are preliminary because, during the
course of the year-end closing process, errors were discovered
relating to the company's accounting for income taxes. Working in
conjunction with its independent registered public accounting firm,
PricewaterhouseCoopers, the company is in the process of determining
the magnitude of these errors. Although they have no bearing on the
company's revenue, cash flow or its earnings before taxes, the errors
may affect the company's after-tax income.
Within this financial discussion document, the company makes
reference to certain non-GAAP financial measures including "Earnings
from continuing operations on an operational basis" (and the line
items comprising earnings from continuing operations on an operational
basis), "Free cash flow", "Operating cash flow", and "Invest able 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 January 26, 2005.
The following table presents Eastman Kodak Company's fourth
quarter and full year 2004 and 2003 results in accordance with
Generally Accepted Accounting Principles ("As Reported") and on a
continuing operations basis, excluding non-operational items
("Operational"). Earnings from continuing operations, excluding
non-operational items is a non-GAAP financial measure under Regulation
G. Accordingly, the following tables include a reconciliation of the
Operational results to the As Reported results, which represent the
most directly comparable financial measures in accordance with
Generally Accepted Accounting Principles in the U.S. ("U.S. GAAP").
Fourth Quarter 2004 vs. Fourth Quarter 2003
Year-over-Year Comparison of Reported and Operational Earnings
(Amounts in millions of dollars)
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4Q 04 as Excluded 4Q 04
Reported Items Operational
--------- -------- -----------
Sales $3,765 $3,765
COGS 2,768 (112) A 2,656
--------- -------- -----------
Gross Profit 997 112 1,109
SG&A 709 (6) B 703
R&D 220 220
Restructuring costs and other 289 (289) C 0
--------- -------- -----------
Earnings From Operations -221 407 186
Interest Expense 38 38
Other Inc./(Charges) 131 (101) D 30
--------- -------- -----------
Below EFO 93 (101) -8
--------
(Loss)/Earnings before Taxes -128 306 178
--------- -----------
(Benefit) Provision for Taxes -111 53 E -58
--------- -------- -----------
Earnings: Cont. Ops. -17 253 236
Earnings: Disc. Ops. 5 (5) 0
--------- -------- -----------
--------- -------- -----------
Net Earnings ($12) $248 $236
Diluted EPS: Cont. Ops. -0.06 $0.84 0.78
Total Diluted EPS -0.04
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4Q 03 as Excluded 4Q 03
Reported Items Operational
--------- -------- -----------
Sales $3,648 $3,648
COGS 2,472 (16) F 2,456
--------- -------- -----------
Gross Profit 1,176 16 1,192
SG&A 717 (2) G 715
R&D 212 (10) H 202
Restructuring costs and other 256 (256) I 0
--------- -------- -----------
Earnings From Operations -9 284 275
Interest Expense 43 43
Other Inc./(Charges) -12 4 J -8
--------- -------- -----------
Below EFO -55 4 -51
(Loss)/Earnings before Taxes -64 288 224
--------- -----------
(Benefit) Provision for Taxes -54 97 K 43
--------- -------- -----------
Earnings: Cont. Ops. -10 191 181
Earnings: Disc. Ops. 29 (29) 0
--------- -------- -----------
--------- -------- -----------
Net Earnings $19 $162 $181
Diluted EPS: Cont. Ops. -0.03 $0.63 0.60
Total Diluted EPS 0.07
- ----------------------------------------------------------------------
Items excluded from Earnings on an operational basis:
A - Charges for accelerated depreciation and inventory writedowns of
$97 million and $15 million, respectively, in connection with the
focused cost reduction actions.
B - Charge for an unfavorable legal settlement of $6 million
C - Charges for (1) focused cost reduction actions of $282 million and
(2) the write-off of fixed assets of $7 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.
D - Exclusion of favorable legal settlements of $101 million.
E - Tax impacts of the above-mentioned excluded items.
F - Charges for accelerated depreciation and inventory writedowns of
$15 million and $1 million, respectively, in connection with the
focused cost reduction actions.
G - Charges for legal settlements of $8 million and strategic asset
writedowns of $3 million, partially offset by the reversal of an
environmental reserve of $9 million.
H - Charge for in-process research and development of $10 million in
connection with the acquisition of PracticeWorks, Inc.
I - Charges for focused cost reduction actions of $256 million.
J - Charge for non-strategic venture asset writedowns of $4 million.
K - Tax impacts of the above-mentioned excluded items.
- ----------------------------------------------------------------------
4Q 04 as 4Q 04
As Percent of Sales: Reported Operational
--------- ------------
Gross Profit 26.5% 29.5%
SG&A 18.8% 18.7%
SG&A w/o Advertising 14.6% 14.5%
R&D 5.8% 5.8%
EFO -5.9% 4.9%
Net Earnings -0.5% 6.3%
- ----------------------------------------------------------------------
4Q 03 as 4Q 03
As Percent of Sales: Reported Operational
--------- ------------
Gross Profit 32.2% 32.7%
SG&A 19.7% 19.6%
SG&A w/o Advertising 15.1% 15.0%
R&D 5.8% 5.5%
EFO -0.2% 7.5%
Net Earnings -0.3% 5.0%
- ----------------------------------------------------------------------
Full Year 2004 vs. Full Year 2003
2004 2003
----------------------
- EPS EPS
Earnings from continuing operations on an
operational basis $789 $2.62 $623 $2.15
Less non-operational items, net of taxes:
Charges for accelerated depreciation,
inventory writedowns and focused cost
reduction actions -644 -378
Asset impairments -7 -6
Legal settlements 59 -30
Purchased R&D -10 -19
Venture writedowns - -4
Environmental reserve adjustment - 6
Infotonics contribution - -5
Tax benefits/credits - 12
----- -----
Earnings from continuing operations, as
reported $187 $0.65 $199 $0.69
---- ----- ---- -----
Fourth Quarter
Consolidated Revenues:
Net worldwide sales were $3.765 billion for the fourth quarter of
2004 as compared with $3.648 billion for the fourth quarter of 2003,
representing an increase of $117 million or 3% as reported, or an
increase of 1% excluding the favorable impact of exchange. The
increase in net sales was composed of:
-- Volume: volumes were unchanged driven primarily by declines in
the film capture Strategic Product Group (SPG) and the
wholesale and retail photofinishing portions of the consumer
output SPG offset by increases in the Health Imaging digital
capture SPG, consumer digital capture SPG, home printing SPG
and kiosk portion of the consumer output SPG. .
-- Price/Mix: declines reduced fourth quarter sales by
approximately 3.0 percentage points, primarily driven by the
film capture SPG and Health Imaging digital capture SPG.
-- Exchange: favorable exchange of approximately 2.0 percentage
points offset the negative impacts of price/mix.
-- Acquisitions: Kodak Versamark, Laser Pacific, and NexPress
Solutions contributed $138 million or approximately 4.0
percentage points to fourth quarter sales. The results of the
Health Imaging business segment for the fourth quarter of 2004
and 2003 include the PracticeWorks acquisition.
Net sales in the U.S. were $1.692 billion for the fourth quarter
of 2004 as compared with $1.584 billion for the prior year quarter,
representing an increase of $108 million, or 7%.
Net sales outside the U.S. were $2.073 billion for the current
quarter as compared with $2.064 billion for the fourth quarter of
2003, representing an increase of $9 million, or flat on a percentage
basis. Excluding the favorable impact of exchange, net sales outside
the U.S. decreased 4%.
Kodak's digital product sales (excluding new technologies) were
$1.785 billion for the current quarter as compared with $1.278 billion
for the fourth quarter of 2003, representing an increase of $507
million, or 40%, primarily driven by the consumer digital capture SPG,
the kiosks/media portion of the consumer output SPG, the home printing
SPG, and digital acquisitions, which include Laser Pacific, Kodak
Versamark, and NexPress. Excluding acquisitions, digital product sales
increased 29% year over year.
Net sales of the company's traditional products were $1.977
billion for the current quarter as compared with $2.367 billion for
the fourth quarter of 2003, representing a decrease of $390 million,
or 16%, 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 $1.029 billion for the fourth
quarter of 2004 as compared with $1.001 billion for the prior year
quarter, representing an increase of $28 million, or 3% as reported,
or a decrease of 4% excluding the favorable impact of exchange.
Net sales in the Asia Pacific region were $680 million for the
current quarter as compared with $692 million for the prior year
quarter, representing a decrease of $12 million, or 2% as reported, or
a decrease of 4% excluding the favorable impact of exchange.
Net sales in the Canada and Latin America region were $364 million
in the current quarter as compared with $371 million for the fourth
quarter of 2003, representing a decrease of $7 million, or 2% as
reported, or a decrease of 4% excluding the favorable impact of
exchange.
Emerging Markets:
The company's major emerging markets include China, Brazil,
Mexico, Russia, India, Korea, Hong Kong and Taiwan. Net sales in
emerging markets were $751 million for the fourth quarter of 2004 as
compared with $734 million for the prior year quarter, representing an
increase of $17 million, or 2% as reported, or an increase of 1%
excluding the favorable impact of exchange.
The emerging market portfolio accounted for approximately 20% of
Kodak's worldwide sales and 36% of Kodak's non-U.S. sales in the
quarter. Sales growth was recorded for China +8%, India +2%, and
Brazil +2%. Sales declines were recorded for Russia -8% and Mexico
- -3%.
Sales increases in China were driven by performance in Health
Imaging, Entertainment Imaging products and services, and Graphic
Communications. India sales were primarily driven by growth in the
Health Imaging and Entertainment Imaging businesses.
Gross Profit:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
Excluding charges relating to accelerated depreciation and
inventory writedowns in connection with the company's three-year cost
reduction program, gross profit on an operational basis was $1.109
billion for the fourth quarter of 2004 as compared with $1.192 billion
for the fourth quarter of 2003, representing a decrease of $83
million, or 7%.
The gross profit margin was 29.5% in the current quarter as
compared with 32.7% in the prior year quarter. The 3.2 percentage
point decrease was primarily attributable to:
-- Price/Mix: price/mix reduced gross profit by approximately 2.5
percentage points primarily attributable to the consumer
digital capture SPG and the film capture SPG.
-- Manufacturing Cost: unfavorable manufacturing variances
reduced gross profit by approximately 1.0 percentage point.
-- Exchange: favorable by 0.5 percentage points.
-- Acquisitions: gross profit from acquisitions had minimal
impact.
Selling, General and Administrative Expenses:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
SG&A expenses on an operational basis were $703 million for the
fourth quarter of 2004 as compared with $715 million for the prior
year quarter, representing a decrease of $12 million, or 2%. The
decrease in SG&A is attributable to the company's cost reduction
actions offset partially by acquisition related SG&A of $38 million
and unfavorable exchange of $15 million. As a percentage of sales,
SG&A decreased from 20% for the fourth quarter of 2003 to 19% for the
current quarter.
Research and Development Costs:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational
R&D expenses on an operational basis were $220 million for the
fourth quarter of 2004 as compared with $202 million for the fourth
quarter of 2003, representing an increase of $18 million, or 9%. The
increase in R&D is attributable to acquisition related R&D of $28
million partially offset by a decrease in R&D for traditional products
and services. R&D as a percentage of sales remained flat at 6%.
Restructuring Costs and Other
Cost Reduction Plans:
As 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 is expected to result in total charges of $1.3
billion to $1.7 billion over the three-year period, with cost savings
in the range of $800 million to $1 billion for full year 2007.
Overall, Kodak's worldwide facility square footage 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.
Under this program, Kodak implemented cost reduction actions in
the fourth quarter resulting in pre-tax charges totaling $394 million
or $1.07 per share. The components of restructuring in the fourth
quarter include $144 million for employee severance relating to the
elimination of approximately 3,750 positions and $149 million
associated with exit costs and asset impairments, partially offset by
reserve reversals and curtailments of $11 million. In addition, the
company recorded accelerated depreciation and inventory write-offs of
$112 million during the quarter. The following changes in
manufacturing plant operations and other actions were announced during
the quarter:
-- The Toronto manufacturing operation will be closed by
mid-2005.
-- Additional closure of consumer photofinishing labs in Europe
(UK, Spain, and Norway).
Under the current cost reduction program on a year-to-date basis
(Quarters 2, 3, 4) Kodak has implemented cost reduction actions
resulting in after tax charges totaling $591 million or $1.94 per
share, which includes the elimination of approximately 9,650 positions
worldwide.
Other Asset Impairments:
During the fourth quarter, the company recorded fixed asset
write-offs of $7 million, or $0.01 per share, relating to its
historical ownership interest in the acquired NexPress related
entities.
Earnings From Operations:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
EFO on an operational basis for the fourth quarter of 2004 were
$186 million as compared with $275 million for the fourth quarter of
2003, representing a decrease of $89 million, or 32%. EFO as a
percentage of sales decreased from 8% in the fourth quarter of 2003 to
5% in the current quarter. The decrease in earnings from operations is
attributable to the reasons indicated above.
Below EFO:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
Interest expense for the fourth quarter of 2004 was $38 million as
compared with $43 million for the prior year quarter, representing a
decrease of $5 million, or 12%. Lower interest expense is a result of
the company's significantly lower debt levels partially offset by
higher interest rates.
The "Other Income/(Charges)" component includes 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 $30 million as compared with Other Charges of
$8 million for the fourth quarter of 2003. The improvement is
partially attributable to the fact that in the prior period the
NexPress investments were accounted for under the equity method and
included in Other Income/(Charges). As a result of the company's
purchase of Heidelberg's 50% interest in the NexPress joint venture,
which closed on May 1, 2004, NexPress is consolidated in the company's
Statement of Earnings and included in the Graphic Communications
segment. Additional improvement is contributed from the year-over-year
increase in equity earnings from Kodak Polychrome Graphics as well as
gains from the sale of assets and investments.
Corporate Tax Rate:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
The company's annual effective tax rate from continuing operations
for 2004 is 9%. The actual tax benefit from continuing operations on
an operational basis was $58 million on $178 million of pre-tax income
in the fourth quarter of 2004. The tax benefit of $58 million differs
from the tax provision of $16 million that results from applying the
company's annual effective tax rate from continuing operations to the
pre-tax income of $178 million due to (1) the year to date impact
through September 30, 2004 of the decrease in the estimated annual
effective tax rate from continuing operations from 12% to the final
rate of 9% (benefit of $18 million, or $.06 per share) and (2) the
President's signing into law the American Jobs Creation Act of 2004,
which resulted in the company's reversal of its foreign tax credit
valuation allowance during the quarter (benefit of $56 million or
$0.18 per share).
The decrease in the annual effective tax rate from continuing
operations from 18% for the prior year to 9% for 2004 is primarily
attributable to increased earnings from operations in certain
lower-taxed jurisdictions outside the U.S. relative to total
consolidated earnings and the full-year earnings impact of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003,
which is not taxable.
Earnings from Continuing Operations:
GAAP: refer to the "Year-over-Year Comparison of Reported and
Operational Earnings" table with footnotes
Operational:
Earnings from continuing operations on an operational basis for
the fourth quarter of 2004 were $236 million, or $.78 per diluted
share, as compared with earnings from continuing operations on an
operational basis for the fourth quarter of 2003 of $181 million, or
$.60 per diluted share, representing an increase of $55 million, or
30%.
Fourth quarter operational earnings from continuing operations for
2004 exclude the following after-tax items:
-- A charge of $308 million ($394 million pre-tax), or $1.07 per
share, resulting from previously announced cost reduction
initiatives. $282 million is recorded in "Restructuring Costs
and Other" and $112 million of accelerated depreciation and
inventory writedowns are recorded in "Cost of Goods Sold"
(COGS).
-- A charge of $4 million ($7 million pre-tax), or $0.01 per
share, resulting from a NexPress asset impairment is recorded
in "Restructuring Costs and Other".
-- A charge of $4 million ($6 million pre-tax), or $.01 per
share, relating to an unfavorable legal settlement is recorded
in SG&A.
-- A credit of $57 million ($92 million pre-tax), or $0.20 per
share, relating to the Sun Microsystems legal settlement is
recorded in "Other Income/(Charges)".
-- A credit of $6 million ($9 million pre-tax), or $0.02 per
share, relating to a favorable legal settlement, is recorded
in "Other Income/(Charges)".
Earnings from Discontinued Operations:
The net income from discontinued operations of $0.02 per share in
the fourth quarter of 2004 reflects a $5 million adjustment to the
gain reported in the third quarter of 2004 from the sale of the
company's Remote Sensing Systems (RSS) operation to ITT Industries
Inc. Net income from discontinued operations of $29 million in the
fourth quarter of 2003 primarily reflects earnings from RSS as well as
the reversal of environmental reserves.
Segment Results:
Unless otherwise indicated, the segment results on a GAAP and
operational basis are the same.
Digital and Film Imaging Systems
Revenues:
Net worldwide sales for the Digital and Film Imaging Systems
segment were $2.550 billion for the fourth quarter of 2004 as compared
with $2.618 billion for the fourth quarter of 2003, representing a
decrease of $68 million, or 3% as reported, or a decrease of 5%
excluding the favorable impact of exchange. The decrease in net sales
was composed of:
-- Volume: decreases in volume reduced fourth quarter sales by
approximately 2.0 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 fourth
quarter sales by approximately 3.0 percentage points driven
primarily by the traditional film capture SPG.
-- Exchange: favorable exchange of approximately 2.0 percentage
points partially offset the negative impacts of volume and
price/mix.
Net sales in the U.S. were $1.184 billion for the current quarter
as compared with $1.144 billion for the fourth quarter of 2003,
representing an increase of $40 million, or 3%.
Net sales outside the U.S. were $1.366 billion for the fourth
quarter of 2004 as compared with $1.474 billion for the prior year
quarter, representing a decrease of $108 million, or 7% as reported,
or a decrease of 12% excluding the favorable impact of exchange.
Digital product sales were $1.015 billion for the current quarter
as compared with $710 million for the fourth quarter of 2003,
representing an increase of $305 million, or 43%, primarily driven by
the consumer digital capture SPG, the home printing SPG, and the
kiosks/media portion of the consumer output SPG.
Traditional product sales were $1.535 billion for the current
quarter as compared with $1.908 billion for the fourth quarter of
2003, representing a decrease of $373 million or 20%, primarily driven
by declines in the consumer output and film capture SPG's.
Digital Strategic Product Group Revenues
Net worldwide sales of consumer digital capture products, which
includes consumer digital cameras, accessories, memory products and
royalties increased 49% in the fourth quarter of 2004 as compared with
the prior year quarter, primarily reflecting strong volume increases.
Sales continue to be driven by strong consumer acceptance of the
EasyShare digital camera system and robust market demand during the
holiday selling season.
While complete data for the consumer digital camera market in the
fourth quarter is not yet available, all indications are that Kodak
held the number one unit market share position for the entire U.S.
market during the quarter. On a worldwide basis, Kodak gained unit
market share year-to-date through November. Kodak was profitable for
the digital capture SPG on a full year basis.
Net worldwide sales of Picture Maker kiosks/media increased 48% in
the fourth quarter of 2004 as compared with the fourth 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. While improving during the quarter, the
consumables portion of this business remained somewhat capacity
constrained during the quarter, which restrained equipment sales.
Additional capacity for kiosk consumables products is expected to come
on line in early 2005.
Net worldwide sales from the home printing solutions SPG, which
includes inkjet photo paper and printer docks/media, increased 46% in
the current quarter as compared with the fourth 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
November. During the quarter, inkjet paper sales declined year over
year due primarily to slowing industry growth resulting from improving
retail digital print solutions. However, Kodak gained unit market
share year-over-year and continued to maintain its top two market
share position in the U.S.
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 23% in the fourth quarter of 2004 as
compared with the fourth 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 22% in the fourth quarter of 2004 as compared with the
prior year quarter. Kodak's sell-in consumer film volumes declined 27%
as compared with the prior year quarter, reflecting a decrease in U.S.
retailer inventories. For full year 2004 the U.S. consumer film
industry declined approximately 18%, which is at the low end of the
expected decline of 18% to 20%.
Net worldwide sales for the retail photofinishing SPG, which
includes color negative paper, mini lab equipment and services,
chemistry, and photofinishing services at retail, decreased 18% in the
fourth quarter of 2004 as compared with the fourth quarter of 2003,
primarily reflecting volume declines and negative price/mix partially
offset by favorable exchange. Sales increases were recorded for retail
photofinishing equipment during the quarter.
Net worldwide sales for the wholesale photofinishing SPG, which
includes color negative paper, equipment, chemistry, and
photofinishing services at Qualex in the U.S. and CIS (Consumer
Imaging Services) outside the U.S., decreased 40% in the fourth
quarter of 2004 as compared with the fourth quarter of 2003, primarily
reflecting lower volumes partially offset by favorable exchange.
Net worldwide sales for the entertainment film SPG's, including
origination and print films for the entertainment industry increased
8%, primarily reflecting volume increases and favorable exchange
partially offset by negative price/mix. Entertainment films continued
to benefit from a robust market and industry demand for product.
Gross profit:
Gross profit for the Digital and Film Imaging Systems segment was
$684 million for the fourth quarter of 2004 as compared with $795
million for the prior year quarter, representing a decrease of $111
million or 14%. The gross profit margin was 26.8% in the current year
quarter as compared with 30.4% in the prior year quarter. The 3.6
percentage point decline was primarily attributable to:
-- Price/Mix: declines attributable to price/mix reduced gross
profit margins by approximately 3.5 percentage points
primarily driven by the film capture SPG.
-- Manufacturing Cost: unfavorable manufacturing variances
reduced gross profit margins by approximately 0.5 percentage
points.
-- Exchange: favorably impacted gross profit margins by
approximately 0.5 percentage points.
SG&A:
In the fourth quarter, SG&A expenses for the Digital and Film
Imaging Systems segment decreased $78 million or 15%, from $532
million in the fourth quarter of 2003 to $454 million in the current
quarter, and decreased as a percentage of sales from 20% to 18%.
Ongoing cost reduction actions more than offset a negative $11 million
impact from exchange.
R&D:
Fourth quarter R&D costs for the Digital and Film Imaging Systems
segment decreased $40 million, or 33%, from $122 million in the fourth
quarter of 2003 to $82 million in the current quarter and decreased as
a percentage of sales from 5% 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 increased $8 million, from $141 million in the fourth quarter
of 2003 to $149 million in the fourth quarter of 2004, primarily as a
result of the factors described above. The operating earnings margin
rate increased 1 percentage point to 6% from 5% for the prior year
quarter.
Health Imaging
Revenues:
Net worldwide sales for the Health Imaging segment were $742
million for the fourth quarter of 2004 as compared with $704 million
for the prior year quarter, representing an increase of $38 million,
or 5% as reported, or an increase of 2% excluding the favorable impact
of exchange. The increase in net sales was composed of:
-- Volume: Increases in volume contributed approximately 5.0
percentage points to fourth quarter sales, driven primarily by
volume increases in the digital capture SPG, dental systems
SPG and services SPG.
-- Price/Mix: Decrease in price/mix reduced fourth quarter sales
by approximately 3.0 percentage points, primarily driven by
the traditional medical film portion of the film capture and
output SPG and the digital capture SPG.
-- Exchange: Favorable exchange impacted sales by approximately
3.0 percentage points.
Net sales in the U.S. were $303 million for the current quarter as
compared with $306 million for the fourth quarter of 2003,
representing a decrease of $3 million, or 1%.
Net sales outside the U.S. were $439 million for the fourth
quarter of 2004 as compared with $398 million for the prior year
quarter, representing an increase of $41 million, or 10% as reported,
or 5% excluding the favorable impact of exchange.
Digital products and services revenues:
Net worldwide sales of digital products, which include laser
printers (DryView imagers and wet laser printers), digital media
(DryView and wet laser media), digital capture equipment (computed
radiography capture equipment and digital radiography equipment),
services, dental practice management software and Picture Archiving
and Communications Systems ("PACS"), increased 11% in the fourth
quarter of 2004 as compared with the prior year quarter, reflecting
volume increases, and favorable exchange partially offset by negative
price/mix. The increase in digital product sales was primarily
attributable to higher volumes in the digital capture SPG, dental
systems SPG and services SPG. Health Imaging ended the year with an
improved year over year order backlog in key digital products.
Traditional products and services revenues:
Net worldwide sales of traditional products, including analog
film, equipment, chemistry and services, decreased 4% in the fourth
quarter of 2004 as compared with the fourth quarter of 2003 driven
primarily by lower volumes and price/mix for the film capture and
output SPG partially offset by favorable exchange.
Gross profit:
Gross profit for the Health Imaging segment was $309 million for
the fourth quarter of 2004 as compared with $307 million in the prior
year quarter, representing an increase of $2 million, or 1%. The gross
profit margin was 41.6% in the current quarter as compared with 43.6%
in the fourth quarter of 2003. The decrease in the gross profit margin
of 2 percentage points was principally attributable to:
-- Manufacturing Cost: productivity/cost decreased gross profit
margins by approximately 1.0 percentage point, reflecting, in
part, higher silver costs.
-- Price/Mix: Price/mix negatively impacted gross profit margins
by approximately 2.0 percentage points primarily driven by the
traditional medical film portion of the film capture and
output SPG and the digital capture SPG.
-- Exchange: favorable exchange added approximately 1.0
percentage point to the gross profit rate.
SG&A:
In the third quarter, SG&A expenses for the Health Imaging segment
increased $8 million, or 6%, from $125 million in the fourth quarter
of 2003 to $133 million for the current quarter, and remained flat as
a percentage of sales at 18%. The increase in SG&A expenses is
primarily attributable to increased spending to drive growth and the
unfavorable impact of foreign exchange.
R&D:
GAAP
Fourth quarter R&D costs decreased $1 million from $58 million in
the fourth quarter of 2003 to $57 million in the current quarter and
remained flat as a percentage of sales at 8%.
Operational
Excluding the impact of the fourth quarter 2003 in-process R&D
charge relating to the PracticeWorks acquisition, fourth quarter R&D
costs increased $9 million from $48 million in the fourth quarter of
2003 to $57 million in the current quarter. R&D increased as a
percentage of sales from 7% for the fourth quarter of 2003 to 8% for
the current quarter, primarily due to increased spending to drive
growth in selected areas of the product portfolio.
EFO:
GAAP
Earnings from operations for the Health Imaging segment decreased
$6 million, or 5%, from $124 million for the prior year quarter to
$118 million for the fourth quarter of 2004 while the operating
earnings margin rate decreased 2 percentage points to 16% from 18% for
the prior year quarter. The decrease in operating earnings reflects
the impact of increased SG&A and R&D attributable to the investment
for growth.
Operational
Excluding the impact of the fourth quarter 2003 in-process R&D
charge relating to the PracticeWorks acquisition, earnings from
operations for the Health Imaging segment decreased $16 million, or
12%, from $134 million for the prior year quarter to $118 million for
the fourth quarter of 2004. The operating earnings margin rate
decreased 3 percentage points to 16% from 19% for the prior year
quarter, while remaining flat on a quarter sequential basis.
Commercial Imaging
The company previously announced its intention to reposition the
management and product lines of the Commercial Imaging Group (CIG)
into other reportable segments effective January 1, 2005. This move
follows the sale of RSS, which was the largest operation within CIG,
accounting for approximately 27% of its revenue in 2003. The remaining
CIG businesses are being realigned as follows:
-- Document products and services (document scanners, microfilm
and worldwide service and support) as well as the business
process services operations will move into the Graphic
Communications segment. The Graphic Communications segment
will also integrate the service function of its subsidiaries -
Encad, Inc., Kodak Versamark and NexPress Solutions - and
those of document products into one service operation that
will do business under the Kodak name.
-- The aerial and industrial materials operation will be moved
into the Digital and Film Imaging Systems segment.
-- The optics operation will be moved into the Digital and Film
Imaging Systems segment.
Revenues:
Net worldwide sales for the Commercial Imaging segment were $219
million for the fourth quarter of 2004 as compared with $216 million
for the prior year quarter, representing an increase of $3 million, or
1% as reported, or a decrease of 2% excluding the favorable impact of
exchange. The increase in net sales was primarily composed of:
-- Volume: decreased fourth quarter sales by approximately 2.0
percentage points primarily driven by declines in the
micrographics equipment and media SPG, services and support
SPG, partially offset by increases in the Imaging Services SPG
and aerial and industrial materials SPG.
-- Price/Mix: remained essentially unchanged.
-- Exchange: favorable exchange contributed approximately 3.0
percentage points to fourth quarter sales.
Net sales in the U.S. were $81 million for the current year
quarter as compared with $85 million for the prior year quarter,
representing a decrease of $4 million, or 5%.
Net sales outside the U.S. were $138 million in the fourth quarter
of 2004 as compared with $131 million for the prior year quarter,
representing an increase of $7 million or 5% as reported, or flat
excluding the favorable impact of exchange.
Segment digital product sales were $101 million for the current
quarter as compared with $96 million for the fourth quarter of 2003,
representing an increase of $5 million, or 5%.
Segment traditional product sales were $118 million for the
current quarter as compared with $120 million for the fourth quarter
of 2003, representing a decrease of $2 million, or 2%.
Gross profit:
Gross profit for the Commercial Imaging segment was $71 million
for the fourth quarter of 2004 as compared with $77 million in the
prior year quarter, representing a decrease of $6 million, or 8%. The
gross profit margin was 32.4% in the current quarter as compared with
35.6% in the prior year quarter. The decrease in the gross profit
margin of 3.2 percentage points was primarily attributable to:
-- Price/Mix: favorably impacted gross profit margins by
approximately 1.0 percentage point.
-- Manufacturing Cost: unfavorably impacted gross profit margins
by approximately 4.5 percentage points.
-- Exchange: favorable exchange impacted gross profit margins by
approximately 0.5 percentage points.
SG&A:
SG&A expenses for the Commercial Imaging segment were $34 million
in the current quarter as compared with $35 million from the prior
year quarter, and remained flat as a percentage of sales at 16%.
R&D:
Fourth quarter R&D costs for the Commercial Imaging segment were
$4 million in the current quarter, as compared with $5 million from
the prior year quarter, and remained flat as a percentage of sales at
2 %.
EFO:
Earnings from operations for the Commercial Imaging segment
decreased $4 million, or 11%, from $37 million for the prior year
quarter to $33 million for the fourth quarter of 2004. The operating
earnings margin rate decreased 2 percentage points to 15% from 17% for
the prior year quarter.
Graphic Communications
Revenues:
Net worldwide sales for the Graphic Communications segment were
$219 million for the fourth quarter of 2004 as compared with $87
million for the prior year quarter, representing an increase of $132
million, or 152% as reported, or 151% 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 $112 million for the current year
quarter as compared with $40 million for the prior year quarter,
representing an increase of $72 million, or 180%.
Net sales outside the U.S. were $107 million in the fourth quarter
of 2004 as compared with $47 million for the prior year quarter,
representing an increase of $60 million or 128% as reported, or an
increase of 126% excluding the favorable impact of exchange.
The Graphic Communications segment digital product sales are
composed of NexPress Solutions, a producer of digital color and black
and white printing solutions, Kodak Versamark, a leader in continuous
inkjet technology, and Encad, a maker of wide format inkjet printers.
Segment traditional product sales are limited to the sales of Kodak
traditional graphics products to Kodak Polychrome Graphics (KPG), an
unconsolidated joint venture affiliate in which the company has a 50%
ownership interest.
The NexPress installed base of digital production color presses
continues to experience good customer acceptance and increases in
customer average monthly page volumes are leading to increased
consumables business. Overall activity levels for production volumes
and product related sales and service are steadily increasing and
acquisition integration remains ahead of plan.
Kodak Versamark sales increased 31% year over year in the fourth
quarter, based on a proforma statement for 2003 (as Versamark was
acquired in January 2004), led by increased placements of color
printing solutions in the transactional printing market coupled with a
growing consumables business.
Net worldwide sales of graphic arts products to KPG decreased 3%
in the current quarter as compared with the fourth quarter of 2003.
Although the traditional graphic arts products continue in secular
decline, KPG registered improved market share performance in the
quarter. On January 12, 2005 Kodak announced that it would become the
sole owner of KPG, through redemption of Sun Chemical Corporation's
50% interest in the joint venture, with an expected closing date of
April 2005.
KPG's earnings and cash 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 fourth quarter of 2004 both in absolute
terms and in quarterly year over year comparisons.
During the fourth quarter, Encad continued to experience strong
order demand for its award winning NOVAJET 1000i wide format inkjet
printer.
Gross profit:
Gross profit for the Graphic Communications segment was $40
million for the fourth quarter of 2004 as compared with $3 million in
the prior year quarter, representing an increase of $37 million. The
gross profit margin was 18.3% in the current quarter as compared with
3.4% in the prior year quarter. The increase in the gross profit
margin of 14.9 percentage points was primarily attributable to:
-- Price/Mix: negative price/mix decreased gross profit margins
by approximately 1 percentage point.
-- Manufacturing Cost: manufacturing cost positively impacted
gross profit margins by approximately 3 percentage points.
-- Exchange: exchange negatively impacted gross profit margins by
approximately 1 percentage point.
-- Acquisition: the Kodak Versamark and NexPress acquisitions
favorably impacted gross profit margins by approximately 14
percentage points.
SG&A:
SG&A expenses for the Graphic Communications segment increased $35
million, from $14 million in the fourth quarter of 2003 to $49 million
for the current quarter, and increased as a percentage of sales from
16% to 22%. The increase in SG&A is primarily attributable to the
Kodak Versamark and NexPress Solutions acquisitions.
R&D:
Fourth quarter R&D costs increased $27 million, from $6 million in
the fourth quarter of 2003 to $33 million in the current quarter and
increased as a percentage of sales from 7% for the fourth quarter of
2003 to 15% for the current quarter. The R&D expenses increase is
primarily due to the acquisitions of Kodak Versamark and NexPress
Solutions.
EFO:
Losses from operations for the Graphic Communications segment were
$42 million in the current quarter and $18 million for the prior year
quarter. The increase in the current year was driven primarily by the
dilution from the NexPress acquisition.
All Other
Revenues:
Net worldwide sales for All Other were $35 million for the fourth
quarter of 2004, as compared with $23 million for the prior year
quarter, representing an increase of $12 million, or 52% as reported.
SK Display Corporation, the OLED manufacturing joint venture
between Kodak and Sanyo, continues to focus on improving manufacturing
yields and process engineering.
EFO:
The loss from operations for All Other was $72 million in the
current quarter as compared with the loss from operations of $19
million in the fourth quarter of 2003. The increase in loss from
operations was primarily driven by digital investments, which include
the inkjet and display programs, and legal fees associated with patent
litigation involving Sun Microsystems, Inc.
Balance Sheet:
Cash Flow:
Kodak defines free cash flow as net cash provided by continuing
operations, (as determined under generally accepted accounting
principles in the U.S.- U.S. GAAP), plus proceeds from the sale of
assets minus capital expenditures, acquisitions, debt assumed in
acquisitions and investments in unconsolidated affiliates. Kodak's
definition of operating cash flow equals free cash flow less
dividends. Investable cash is operating cash flow excluding
acquisitions and debt assumed in acquisitions.
During the fourth quarter, operating cash flow from continuing
operations was a positive $447 million, $604 million higher than the
negative $157 million in the year ago quarter and investable cash flow
from continuing operations was a positive $458 million, $15 million
lower than the fourth quarter of 2003. Investable cash flow from
continuing operations of $536 million for full year 2004 was less than
the expected range of $585 million to $715 million. This is a result
of higher cash payments associated with the accelerated pace of
restructuring, as well as a lower-than-expected reduction of
inventory.
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 fourth quarter of 2004 was $702
million, ($175) million and ($411) million, respectively.
The tables below reconcile the net cash provided by continuing
operations relating to operating activities as determined under U.S.
GAAP, to Kodak's definition of operating and investable cash flow for
the fourth quarter of 2004 and the full year 2004:
4th Quarter, 2004
- ----------------------------------------------------------------------
($ millions) 2004 2003
----------
Net cash provided by continuing operations relating to
operating activities: $702 $726
Additions to properties (177)(151)
Net proceeds from sales of businesses/assets 4 5
Investments in unconsolidated affiliates - (35)
Acquisitions, net of cash acquired (11)(578)
Debt assumed through acquisitions 0 (52)
----------
Free Cash Flow (continuing operations) 518 (85)
Dividends 71 72
----------
Operating Cash Flow (continuing operations) 447 (157)
Acquisitions, net of cash acquired 11 578
Debt assumed through acquisitions - 52
----------
Investable Cash Flow (continuing operations) $458 $473
- ----------------------------------------------------------------------
Full Year 2004
- ----------------------------------------------------------------------
($ millions) 2004 2003
--------------
Net cash provided by continuing operations relating to
operating activities: $1,146 $1,567
Additions to properties (460) (497)
Net proceeds from sales of businesses/assets 24 24
Investments in unconsolidated affiliates (31) (89)
Acquisitions, net of cash acquired (369) (697)
Debt assumed through acquisitions - (52)
--------------
Free Cash Flow (continuing operations) 310 256
Dividends 143 330
--------------
Operating Cash Flow (continuing operations) 167 (74)
Acquisitions, net of cash acquired 369 697
Debt assumed through acquisitions - 52
--------------
Investable Cash Flow (continuing operations) $536 $675
- ----------------------------------------------------------------------
Dividend:
The company makes semi-annual dividend payments, which, when
declared by the Board of Directors, will be paid on the company's 10th
business day each July and December to shareholders of record as of
the close of the first business day of the preceding month. On October
19, 2004, the Board of Directors declared a dividend of $0.25 payable
to shareholders of record as of November 1, 2004. This dividend of $71
million was paid December 14, 2004. Total dividends paid in the full
year 2004 were $143 million compared to $330 million paid in the full
year 2003.
Capital Spending:
Capital additions were $177 million in the fourth quarter of 2004,
which was $26 million higher than the year ago quarter and $76 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. Total capital additions were $460 million for the full
year 2004, which was $37 million lower than full year 2003.
Receivables:
Total net receivables of $2.551 billion, which were composed of
trade ($2.144 billion) and miscellaneous ($407 million) receivables at
the end of the fourth quarter, 2004, increased $223 million from the
fourth quarter of 2003 and increased $51 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 trade receivable balance by $499 million to
$1.645 billion at the end of the fourth quarter of 2004, and would
reduce the net trade receivable balance by $528 million to $1.475
billion at the end of the fourth quarter of 2003.
Kodak defines days sales outstanding (DSO) as the four quarter
moving average net trade receivables after rebate reclassification,
divided by 12 months of trade 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 is more reflective of the true
number of days the net trade receivables are outstanding.
DSO from continuing operations for the fourth quarter was 45 days,
higher than the prior year quarter by two days and higher quarter
sequentially by one day.
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 2 days to 57 days and 1 day quarter
sequentially.
Inventory:
Kodak's inventories of $1.155 billion (after LIFO) increased $82
million year over year and decreased $272 million quarter
sequentially. The year over year increase is primarily due to the
acquisition of NexPress and Versamark. The decrease over third quarter
represents strong fourth quarter sales.
Kodak defines days supply of inventory (DSI) from continuing
operations as four-quarter average inventory before the LIFO reserve
divided by 12 months COGS, 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 $1.485 billion, which was
$50 million higher than a year ago and $264 million lower than third
quarter 2004. DSI from continuing operations of 63 days improved by
two days from the fourth quarter 2003 and improved 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 5.8, which is 0.2 higher than a year
ago and unchanged quarter sequentially.
Including the impact of the LIFO reserve and using COGS as
reported on a GAAP basis, DSI from continuing operations of 48 days
decreased by 1 day from the fourth quarter of 2003 and quarter
sequentially. Inventory turns from continuing operations remained
constant at 7.5 turns relative to the fourth quarter of 2003 and
improved 0.1 turn quarter sequentially.
Debt:
Debt decreased by $343 million to $2.321 billion and cash
increased by $142 million to $1.255 billion quarter sequentially.
Kodak reduced gross debt year over year by $927 million, exceeding the
expectation of an $800 million reduction by year end 2004. This was
accomplished while cash balances remained about the same as a year ago
at $1.255 billion due in part to the proceeds from the sale of RSS. On
a debt less cash basis, net debt was $1.066 billion, a decrease of
$932 million from the fourth quarter 2003 and a decrease of $485
million from third quarter 2004 level of $1.551 billion.
Equity was $3.805 billion and the debt to total capital ratio was
37.9%, reflecting a decrease of 3.4 percentage points quarter
sequentially and a decrease of 12.0 percentage points year over year.
Foreign Exchange:
Year over year, the impact of foreign exchange on operating
activities during the fourth quarter was a positive $0.12 per share
and foreign exchange activities recorded in "Other Income/(Charges)"
had a negative $0.02 per share impact. Therefore, the sum of the
operational and reportable exchange impacts increased earnings in the
quarter by $0.10 per share.
Silver:
During the fourth quarter, the impact of high silver prices was
more than offset by the effect of favorable foreign exchange.
Earnings Per Share:
Impact from Contingent Convertible Debt:
The Emerging Issues Task Force recently reached a consensus that,
beginning in periods ending after December 15, 2004 (fourth quarter
2004 for Kodak), the dilutive effect of contingent convertible debt
instruments with market price contingencies should be included in
diluted earnings per share, regardless of whether the market price
contingency has been met. The company currently has contingent
convertible debt instruments outstanding that are convertible into
common shares if the market price of our common stock exceeds $37.224
per share for a specified period of time. These types of contingent
convertible debt instruments have generally been, in practice,
excluded from the diluted earnings per share calculations until the
market price contingency has been met. There is no economic or cash
flow impact associated with this change in accounting.
The diluted earnings per share have been restated for each period that
the convertible debt was outstanding (starting with the fourth quarter
of 2003), as follows:
Operational EPS
(In Millions, except per share data) 2004 2003
--------------------------
Qtr 4 YTD Qtr 4 YTD
--------------------------
Numerator
- ---------
Earnings from continuing operations, excluding
non-operational items, used in basic net
earnings per share $236 $789 $181 $623
Effect of dilutive securities:
Interest expense on contingent convertible
notes, net of taxes 3 12 3 3
--------------------------
Net earnings used in diluted net earnings
per share $239 $801 $183 $626
--------------------------
Denominator
- -----------
Number of common shares used in basic net
earnings per share 286.7 286.6 286.6 286.5
Effect of dilutive securities:
Employee stock options 0.5 0.2 0.0 0.1
Contingent convertible notes 18.5 18.5 16.7 4.2
--------------------------
Number of common shares used in diluted net
earnings per share 305.8 305.3 303.3 290.8
--------------------------
Basic EPS $0.82 $2.75 $0.63 $2.17
--------------------------
Diluted EPS $0.78 $2.62 $0.60 $2.15
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
As Reported EPS
(In Millions, except per share data) 2004 2003
--------------------------
Qtr 4 YTD Qtr 4 YTD
--------------------------
Numerator
- ---------
(Loss) earnings from continuing operations
used in basic net (loss) earnings per
share $(17) $187 $(10) $199
Effect of dilutive securities:
Interest expense on contingent convertible
notes, net of taxes - 12 - 3
--------------------------
(Loss) earnings used in diluted net earnings
per share $(17) $199 $(10) $202
--------------------------
Denominator
- -----------
Number of common shares used in basic net
earnings per share 286.7 286.6 286.6 286.5
Effect of dilutive securities:
Employee stock options - 0.2 - 0.1
Contingent convertible notes - 18.5 - 4.2
--------------------------
Number of common shares used in diluted net
earnings per share 286.7 305.3 286.6 290.8
--------------------------
Basic EPS $(0.06)$0.65 $(0.03)$0.69
--------------------------
Diluted EPS $(0.06)$0.65 $(0.03)$0.69
- ----------------------------------------------------------------------
(a) The impact of the assumed conversion of contingently convertible
notes or stock options on the calculation of diluted earnings per
share for Quarter 4 of 2003 and Quarter 4 of 2004 on an as
reported basis is anti-dilutive and, therefore, has been excluded
from diluted earnings per share.
Guidance:
The company provided guidance for full year operational earnings
(excluding the impact of contingent convertible debt) of $2.44 to
$2.64 per share, implying fourth quarter operational earnings of $.51
to $.71 per share. The GAAP earnings per share from continuing
operations are presented in the tables below for comparability to the
operational earnings per share.
The following table shows the impact of contingent convertible
debt on prior quarters so that fourth quarter actual can be
meaningfully added to year-to-date actual.
Earnings Per Share per the Company's October 20, 2004 earnings release
- ----------------------------------------------------------------------
2004 GAAP Operational
Q1 Actual $0.06 $0.26
Q2 Actual $0.50 $0.88
Q3 Actual $0.16 $0.79
----------------------------------------
YTD $0.72 $1.93
Q4 Guidance .18 to .38 .51 to .71
Full Year Guidance .90 to 1.10 2.44 to 2.64
- ----------------------------------------------------------------------
Earnings Per Share including Contingent Convertible Debt Impact
- ----------------------------------------------------------------------
2004 GAAP Operational
Q1 Actual $0.06 $0.25
Q2 Actual $0.48 $0.84
Q3 Actual $0.16 $0.75
----------------------------------------
YTD $0.70 $1.84
Q4 Actual -$0.06 $0.78
Full Year Actual $0.65 $2.62
- ----------------------------------------------------------------------
Tax Legislation:
On October 22, 2004, President Bush signed the American Jobs
Creation Act of 2004 (the "2004 Jobs Act") into law. The 2004 Jobs Act
generally repeals the current U.S. federal income tax benefits
associated with Foreign Sales Corporation/Extra-Territorial Income
(FSC/ETI) provisions of the U.S. federal income tax law and, in
certain circumstances, replaces these benefits with alternative U.S.
federal income tax benefits. Historically, pursuant to the FSC/ETI
provisions, the company's U.S. federal income tax liability has been
reduced with respect to income it receives from certain products
manufactured in the United States for export and ultimate sale outside
of the United States. In addition to the repeal of FSC/ETI, the Act
creates a deduction for qualified domestic production activities and
contains important provisions relating to the repatriation of foreign
earnings. As a result of the 2004 Jobs Act, in the fourth quarter of
2004 the company recorded a $56 million income tax benefit relating to
the reversal of a $56 million foreign tax credit valuation allowance.
2005 Outlook:
The company's operational earnings guidance for 2005 is in the
range of $2.60 to $2.90 per share. For the first half of 2005, the
company's operational earnings per share are expected to range from
$1.10 to $1.20. On an as reported basis, earnings per share from
continuing operations is expected to range from $1.25 to $1.55 for the
full year 2005 and from $0.65 to $0.75 for the first half of 2005. The
primary difference between the operational and as reported measures is
management's estimate of restructuring costs to be incurred in 2005
under the three-year cost reduction program.
Kodak expects that full year 2005 operating cash flow excluding
acquisitions will range between $400 to $600 million. The table below
provides a reconciliation to the range of net cash provided by
continuing operations on an as reported basis:
2005
- ----------------------------------------------------------------------
Estimated range of operating cash flow
excluding acquisitions $400 to $600 million
- ----------------------------------------------------------------------
Add: estimate of cash flow impacts for:
- ----------------------------------------------------------------------
Additions to properties $600
- ----------------------------------------------------------------------
Dividends $145
- ----------------------------------------------------------------------
Estimated range of net cash provided by $1,145 to $1,345
continuing operations, as reported million
- ----------------------------------------------------------------------
Upcoming Meetings:
Kodak will host an investor event for those members of the
investment community who will be attending the upcoming Photo
Marketing Association trade show at the Orange County Convention
Center in Orlando, Florida. This function will be held on Tuesday,
February 22, 2005 at 9:00 AM EST. Additional details will follow
shortly.
Safe Harbor Statement:
Certain statements in this financial discussion document may be
forward looking in nature, or "forward-looking statements" as defined
in the United States Private Securities Litigation Reform Act of 1995.
For example, references to expectations for the company's growth in
sales and earnings, the effects of legislation, cash generation, tax
rate, and debt management 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 financial discussion document are subject
to a number of factors and uncertainties, including the successful:
-- Implementation of our digitally oriented growth strategy;
-- Implementation of our three-year cost reduction program;
-- 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 future focused cost reductions, including
personnel reductions; and
-- Development of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this financial discussion
document are subject to the following additional risk factors:
-- Inherent unpredictability of currency fluctuations and raw
material costs;
-- Competitive actions, including pricing;
-- The nature and pace of technology evolution, including the
analog-to-digital transition;
-- Continuing customer consolidation and buying power;
-- Current and future proposed changes to tax laws, as well as
other factors which could adversely impact our effective tax
rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions;
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission, and;
-- The results of the company's ongoing investigation regarding
the income tax accounting errors described above.
Any forward-looking statements in this financial discussion
document should be evaluated in light of these important factors and
uncertainties.
Eastman Kodak Company
CONSOLIDATED STATEMENT OF EARNINGS -UNAUDITED
Three Months Ended For the Year Ended
December 31 December 31
------------------ ------------------
2004 2003 2004 2003
(in millions, except per share data)
Net sales $ 3,765 $ 3,648 $13,517 $12,893
Cost of goods sold 2,768 2,472 9,518 8,715
--------- -------- --------- --------
Gross profit 997 1,176 3,999 4,178
Selling, general and
administrative expenses 709 717 2,507 2,612
Research and development cost 220 212 848 775
Restructuring costs and other 289 256 701 484
--------- -------- --------- --------
(Losses) earnings from
continuing operations
before interest,
other income
(charges), net and
income taxes (221) (9) (57) 307
Interest expense 38 43 168 147
Other income (charges), net 131 (12) 157 (51)
--------- -------- --------- --------
(Loss) earnings from
continuing operations
before income taxes (128) (64) (68) 109
Benefit for income taxes (111) (54) (255) (90)
--------- -------- --------- --------
(Loss) earnings from
continuing operations $ (17) $ (10) $ 187 $ 199
========= ======== ========= ========
Earnings from discontinued
operations, net of
income taxes $ 5 $ 29 $ 462 $ 66
========= ======== ========= ========
NET (LOSS) EARNINGS $ (12) $ 19 $ 649 $ 265
========= ======== ========= ========
Basic net (loss) earnings per share:
Continuing operations $ (.06) $ (.03) $ .65 $ .69
Discontinued operations .02 .10 1.61 .23
--------- -------- --------- --------
Total $ (.04) $ .07 $ 2.26 $ .92
========= ======== ========= ========
Diluted net (loss) earnings per share:
Continuing operations $ (.06) $ (.03) $ .65 $ .69
Discontinued operations .02 .10 1.51 .23
--------- -------- --------- --------
Total $ (.04) $ .07 $ 2.16 $ .92
========= ======== ========= ========
Numerator:
(Loss) earnings from
continuing operations
used in basic net (loss)
earnings per share $ (17) $ (10) $ 187 $199
Effect of dilutive securities:
Interest expense on
contingent convertible
notes, net of taxes - - 12 3
--------- ------- --------- --------
(Loss) earnings from
continuing operations
used in diluted net (loss)
earnings per share $ (17) $ (10) $ 199 $ 202
========= ======= ========= ========
Denominator:
Number of common shares
used in basic net
(loss) earnings per share 286.7 286.6 286.6 286.5
Effect of dilutive securities:
Employee stock options - - 0.2 0.1
Contingent convertible notes - - 18.5 4.2
--------- ------- --------- --------
Number of common shares
used in diluted
net (loss) earnings
per share 286.7 286.6 305.3 290.8
========= ======= ========= ========
Cash dividends per share $ .25 $ .00 $ .50 $ 1.15
========= ======= ========= ========
Net Sales from Continuing Operations by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended For the Year Ended
December 31 December 31
-------------------- --------------------
2004 2003 Change 2004 2003 Change
Digital & Film Imaging Systems
Inside the U.S. $1,184 $1,144 + 3% $3,815 $3,812 0%
Outside the U.S. 1,366 1,474 - 7 5,370 5,420 - 1
------ ----- ---- ----- ----- -----
Total Digital & Film
Imaging Systems 2,550 2,618 - 3 9,185 9,232 - 1
------ ----- ---- ----- ----- -----
Health Imaging
Inside the U.S. 303 306 - 1 1,114 1,061 + 5
Outside the U.S. 439 398 + 10 1,573 1,370 + 15
------ ----- ---- ----- ----- -----
Total Health Imaging 742 704 + 5 2,687 2,431 + 11
------ ----- ---- ----- ----- -----
Commercial Imaging
Inside the U.S. 81 85 - 5 318 334 - 5
Outside the U.S. 138 131 + 5 485 457 + 6
------ ----- ---- ----- ----- -----
Total Commercial Imaging 219 216 + 1 803 791 + 2
------ ----- ---- ----- ----- -----
Graphic Communications
Inside the U.S. 112 40 +180 350 156 +124
Outside the U.S. 107 47 +128 374 190 + 97
------ ----- ---- ----- ----- -----
Total Graphic Communications 219 87 +152 724 346 +109
------ ----- ---- ----- ----- -----
All Other
Inside the U.S. 12 9 + 33 53 42 + 26
Outside the U.S. 23 14 + 64 65 51 + 27
------ ----- ---- ----- ----- -----
Total All Other 35 23 + 52 118 93 + 27
------ ----- ---- ----- ----- -----
Consolidated total $3,765 $3,648 + 3% $13,517 $12,893 + 5%
====== ===== ==== ====== ===== =====
Earnings (Loss) from Continuing Operations Before Interest, Other
Income (Charges), Net, and Income Taxes by Reportable Segment and All
Other - Unaudited
(in millions)
Three Months Ended For the Year Ended
December 31 December 31
-------------------- --------------------
2004 2003 Change 2004 2003 Change
Digital & Film
Imaging Systems $ 149 $ 141 + 6% $ 609 $ 418 + 46%
Percent of Sales 6% 5% 7% 5%
Health Imaging $ 118 $ 124 - 5% $ 441 $ 481 - 8%
Percent of Sales 16% 18% 16% 20%
Commercial Imaging $ 33 $ 37 - 11% $ 129 $ 112 +15%
Percent of Sales 15% 17% 16% 14%
Graphic Communications $ (42) $ (18) -133% $(140) $ (13) -977%
Percent of Sales (19)% (21)% (19)% (4)%
All Other $ (72) $ (19) -279% $(182) $ (75) -143%
Percent of Sales (206)% (83)% (154)% (81)%
------- ------ ---- ------- ------ ----
Total of segments $ 186 $ 265 - 30% $ 857 $ 923 - 7%
Percent of Sales 5% 7% 6% 7%
Strategic asset impairments - (3) - (3)
Restructuring costs and
other (401) (272) (908) (557)
Donation to technology
enterprise - - - (8)
Impairment of Burrell
Companies' net assets - - - (9)
GE settlement - - - (12)
Touch Point settlement (6) - (6) -
Patent infringement
claim settlement - - - (14)
Prior year acquisition
settlement - - - (14)
Legal settlement - (8) - (8)
Environmental reserve
reversal - 9 - 9
------- ------ ---- ------- ----- ------
Consolidated total $ (221) $ (9) -2356% $ (57) $ 307 -119%
======= ====== ==== ======= ===== ======
Earnings (Loss) From Continuing Operations by Reportable Segment and
All Other - Unaudited
(in millions)
Three Months Ended For the Year Ended
December 31 December 31
-------------------- --------------------
2004 2003 Change 2004 2003 Change
Digital & Film
Imaging Systems $ 167 $ 123 + 36% $ 583 $ 353 + 65%
Percent of Sales 7% 5% 6% 4%
Health Imaging $ 112 $ 96 + 17% $ 396 $ 389 + 2%
Percent of Sales 15% 14% 15% 16%
Commercial Imaging $ 32 $ 17 + 88% $ 114 $ 74 +54%
Percent of Sales 15% 8% 14% 9%
Graphic Communications $ (27) $(21) - 29% $ (98) $ (41) -139%
Percent of Sales (12)% (24)% (14)% (12)%
All Other $ (70) $ (8) - 775% $(171) $ (59) -190%
Percent of Sales (200)% (35)% (145)% (63)%
------- ------ ----- ------- ------ -----
Total of segments $ 214 $ 207 + 4% $ 824 $ 716 +15%
Percent of Sales 6% 6% 6% 6%
Strategic asset impairments - (7) - (7)
Restructuring costs
and other (401) (272) (908) (557)
Donation to technology
enterprise - - - (8)
Impairment of Burrell
Companies' net assets - - - (9)
GE settlement - - - (12)
Touch Point settlement (6) - (6) -
Sun Microsystems settlement 92 - 92 -
BIGT settlement 9 - 9 -
Patent infringement
claim settlement - - - (14)
Prior year acquisition
settlement - - - (14)
Legal settlement - (8) - (8)
Environmental reserve
reversal - 9 - 9
Interest expense (38) (43) (168) (147)
Other corporate items 5 3 12 11
Tax benefit - donation
of patents - 5 - 13
Income tax effects on
above items and taxes
not allocated to above 108 96 332 226
------- ------ ----- ------- ------ -----
Consolidated total $ (17) $ (10) - 70% $187 $ 199 - 6%
======= ====== ===== ======= ====== =====
Eastman Kodak Company
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED
(in millions, except share and per share data)
At December 31,
2004 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,255 $ 1,250
Receivables, net 2,551 2,328
Inventories, net 1,155 1,073
Deferred income taxes 666 602
Other current assets 107 130
Assets of discontinued operations 30 72
---------- ---------
Total current assets 5,764 5,455
---------- ---------
Property, plant and equipment, net 4,512 5,051
Goodwill 1,468 1,364
Other long-term assets 3,104 2,883
Assets of discontinued operations - 65
---------- ---------
TOTAL ASSETS $14,848 $14,818
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current
liabilities $ 3,892 $ 3,614
Short-term borrowings 469 946
Accrued income taxes 637 654
Liabilities of discontinued operations - 36
---------- ---------
Total current liabilities 4,998 5,250
Long-term debt, net of current portion 1,852 2,302
Post retirement liabilities 3,445 3,344
Other long-term liabilities 748 650
Liabilities of discontinued operations - 8
---------- ---------
Total liabilities 11,043 11,554
---------- ---------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
391,292,760 shares issued in 2004
and 2003; 286,696,938 and
286,580,671 shares outstanding
in 2004 and 2003 978 978
Additional paid in capital 850 850
Retained earnings 8,027 7,527
Accumulated other comprehensive loss (201) (231)
Unearned restricted stock (5) (8)
--------- ---------
9,649 9,116
Treasury stock, at cost
104,595,822 shares in 2004 and
104,712,089 shares in 2003 5,844 5,852
--------- ---------
Total shareholders' equity 3,805 3,264
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,848 $14,818
========= =========
Eastman Kodak Company
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
For the Year Ended December 31,
(in millions) 2004 2003
Cash flows from operating activities:
Net earnings $ 649 $ 265
Adjustments to reconcile to net cash
provided by operating activities:
(Earnings) loss from discontinued
operations (462) (66)
Equity in (earnings) losses from
unconsolidated
affiliates (20) 52
Depreciation and amortization 1,018 852
Gain on sales of businesses/assets (13) (11)
Purchased research and development 16 32
Restructuring costs, asset impairments
and other charges 136 156
Benefit for deferred income taxes (127) (15)
(Increase) decrease in receivables (50) 15
Decrease in inventories 81 123
(Decrease) increase in liabilities
excluding borrowings (308) 62
Other items, net 226 102
--------- --------
Total adjustments 497 1,302
--------- --------
Net cash provided by continuing
operations 1,146 1,567
--------- --------
Net cash provided by discontinued
operations 22 78
--------- --------
Net cash provided by operating
activities 1,168 1,645
--------- --------
Cash flows from investing activities:
Additions to properties (460) (497)
Net proceeds from sales of
businesses/assets 24 24
Acquisitions, net of cash acquired (369) (697)
Investments in unconsolidated
affiliates (31) (89)
Marketable securities - sales 124 86
Marketable securities - purchases (116) (87)
--------- --------
Net cash used in continuing
operations (828) (1,260)
--------- --------
Net cash provided by (used in)
discontinued
operations 708 (7)
--------- --------
Net cash used in investing
activities (120) (1,267)
--------- --------
Cash flows from financing activities:
Net decrease in borrowings with
maturities of 90 days or less (308) (574)
Proceeds from other borrowings 147 1,693
Repayment of other borrowings (767) (531)
Dividends to shareholders (143) (330)
Exercise of employee stock options 5 12
--------- --------
Net cash (used in) provided by
financing activities (1,066) 270
--------- --------
Effect of exchange rate
changes on cash 23 33
--------- --------
Net increase in cash and cash
equivalents 5 681
Cash and cash equivalents, beginning
of year 1,250 569
--------- --------
Cash and cash equivalents, end of year $1,255 $1,250
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