Kodak 2001 Annual Report Download - page 26

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24
To Our Shareholders
No question about it: 2001 was an extraordinary and difficult year for the
nation, for the world and for nearly every business, including Kodak. The
continuing worldwide economic slump, coupled with the tragic events of
September 11, severely impacted industries important to our business,
including travel, theme parks, lodging, advertising and entertainment.
Through these challenging times, we focused on strengthening
Kodak’s value as an investment, maintaining our market share in key
segments of our business and laying the groundwork for future growth.
In the broad category of infoimaging—our strategic framework going
forward—we’re driving the convergence of images and information
beyond traditional boundaries, and into new image applications and
business opportunities for Kodak.
While our revenues and earnings were down for the year, our
successful drive to generate cash—including continuing, aggressive
cost-reduction programs—produced a strong balance sheet and healthy
dividend payouts. We maintained our full-year market share in the U.S.
consumer film business and increased it slightly worldwide. We drove
Kodak digital imaging to record revenues, with consumer-friendly
products and services—including online and retail photo printing and
the highly successful Kodak EasyShare camera launch—that are in the
forefront of this burgeoning business.
We gained market share in our Health Imaging business, but pricing
pressures and some operating issues led to margin declines. We moved
quickly to put in place corrective measures that are returning that
segment to its promising, profitable path.
Cash Management
Consistent with current economic reality, we have reduced our cost base
and increased our focus on cash generation. On the cost front, we took
a number of steps to reduce worldwide employment by about 9% and
expect to see much of the resulting savings in our full-year 2002 results.
We drove inventories down by 34 percent, or $581 million. We reduced
receivables and continued our tight restraint on capital expenditures,
with the latter decreasing 21% year-over-year.
All these actions contributed to a greatly strengthened cash position
compared to a year earlier. Cash flow for 2001 was $373 million after
paying dividends. Excluding a December 2001 accelerated dividend
payment, cash flow was $504 million.
Investing for the Long Term
At the same time we were managing cash and costs, we continued to
invest in our long-term future. We invested in fundamental research and
development (R&D), and made strategic acquisitions that will position us
well going forward. In a very cash-efficient way, we invested in a business
venture for the manufacture of flat-panel displays for consumer devices
such as cameras and personal data assistants (PDAs). We acquired a
number of wholesale photofinishing laboratories in Europe, which will allow
us to offer more pan-European services. We acquired Ofoto, Inc., a leading
online photography service that will accelerate our growth in that desirable
market. We also acquired the imaging services business of Bell & Howell
Company to expand the existing services portfolio in document imaging,
and made selective, smaller acquisitions in certain strategic areas.
Sharpening Our Focus
In November, we introduced a new operating model that is centered
around strategic product groups—enabling a sharper focus on the
customers and markets we serve. Our new alignment will reduce
complexity, provide key managers with more decision-making authority
and enable business groups and product managers to concentrate on
processes and decisions that have the greatest influence on generating
profitable growth.
As part of this effort, we integrated strategic product groups from
our existing businesses and geographic regions into units that share
common technology and product platforms and customer sets.
• The Photography Group, our largest business, includes Consumer
Imaging, Digital & Applied Imaging, the photography portion
of our Kodak Professional business and Entertainment Imaging.
• Health Imaging, our second-largest business, remains a
stand-alone business.
• Commercial Imaging consists of Document Imaging, Commercial &
Government Systems, Graphics and Wide-Format Inkjet. Included in the
group are two joint venture operations, Kodak Polychrome Graphics and
NexPress. The Wide-Format Inkjet business has been consolidated into
our recent acquisition of ENCAD, Inc.
• The Components Group includes Kodak’s Display Products, Image
Sensor Solutions, and the Optics business, which was formerly part of
Commercial & Government Systems. These businesses will spearhead
our diversification into high-growth product areas consistent with our
historical strengths in image and materials science.