Kodak 2002 Annual Report Download - page 36

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Financials
36
consumers have moved from branded products to private label
products. On the health and commercial side, aggressive pricing
tactics intensified in the contract negotiations as competitors
were vying for customers and market share domestically.
Continued economic weakness could also adversely impact Kodak’s
revenues and growth rate. Failure to successfully manage the
consumers’ return to branded products if and when the economic
conditions improve could adversely impact Kodak’s revenue and
growth rate. If the pricing and programs are not sufficiently
competitive with those offered by Kodak’s current and future
competitors, Kodak may lose market share, adversely affecting its
revenue and gross margins.
The Company’s strategy to balance the consumer shift from
analog to digital, and the nature and pace of technology
substitution could impact Kodak’s revenues, earnings and growth
rate. Competition remains intense in the digital industry with a
large number of competitors vying for customers and market
share domestically and internationally. Kodak intends to continue
new program introductions and competitive pricing to drive
demands in the marketplace. The process of developing new
products and services is complex and often uncertain due to the
frequent introduction of new products that offer improved
performance and pricing. Kodak’s ability to successfully transition
products and deploy new products requires that Kodak make
accurate predictions of the product development schedule as well
as volumes, product mix, customer demand and configuration.
Kodak may anticipate demand and perceived market acceptance
that differs from the product’s realizable customer demand and
revenue stream. Further, in the face of intense industry
competition, any delay in the development, production or
marketing of a new product could decrease any advantage Kodak
may have to be the first or among the first to market. Kodak’s
failure to carry out a product rollout in the time frame
anticipated and in the quantities appropriate to customer demand
could adversely affect the future demand for its products and
services and have an adverse effect on its business.
The impact of continuing customer consolidation and buying
power could have an adverse impact on Kodak’s revenue, gross
margins, and earnings. In the competitive consumer retail
environment there is a movement from small individually owned
retailers to larger and commonly known mass merchants. In the
commercial environment, there is a continuing consolidation of
various group purchasing organizations. The resellers and
distributors may elect to use suppliers other than Kodak. Kodak’s
challenge is to successfully negotiate contracts that provide the
most favorable conditions to the Company in the face of price and
program aggressive competitors.
Continued weak global economic conditions could adversely
impact the Company’s revenues and growth rate. Continued
softness in the Company’s markets and purchasers’ uncertainty
about the extent of the global economic downturn could result in
lower demand for products and services. While worsening
economic conditions have had a negative impact on results of
operations, revenues, gross margins and earnings could further
deteriorate as a result of economic conditions. Furthermore, there
can be no assurances as to the timing of an economic upturn.
The Company expects 2003 to be another difficult economic
year compounded by rising political tensions, with a slight
improvement in full year revenues. The Company expects earnings
to be flat for the first quarter of 2003 compared with the same
period last year. We do not expect to see any real upturn in the
economy until 2004, with a very gradual return to consumer
spending habits and behavior that will positively affect our
business growth. The Company will continue to take actions to
minimize the financial impact of this slowdown. These actions
include efforts to better manage production and inventory levels
and reduce capital spending, while at the same time reducing
discretionary spending to further hold down costs. The Company
will also complete the implementation of the restructuring
programs announced in 2002, as well as implement new focused
cost reduction actions in 2003, to make its operations more cost
competitive and improve margins.