Kodak 2005 Annual Report Download - page 35

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2005 COMPARED WITH 2004
Results of Operations — Continuing Operations
Consolidated
Worldwide Revenues
Net worldwide sales were $14,268 million for 2005 as compared with $13,517 million for 2004, representing an increase of $751 million or 6%.
This increase in net sales was primarily attributable to the acquisitions of KPG, Creo and NexPress, which contributed $1,562 million or approximately
11.6 percentage points to sales, and favorable exchange, which increased sales by approximately 0.5 percentage points. These increases were
partially offset by declines in volumes and declines in price/mix, which decreased 2005 sales by approximately 1.9 and 4.6 percentage points,
respectively. The decrease in volumes was primarily driven by declines in the fi lm capture Strategic Product Group (SPG), the wholesale and retail
photofi nishing portions of the consumer output SPG, and the digital output and fi lm capture and output SPGs within the Health Group segment.
The decrease in price/mix was primarily driven by the fi lm capture SPG, consumer digital capture SPG and the digital capture SPG within the
Health Group segment.
Net sales in the U.S. were $5,979 million for 2005 as compared with $5,658 million for the prior year, representing an increase of $321 million, or
6%. Net sales outside the U.S. were $8,289 million for the current year as compared with $7,859 million for the prior year, representing an increase
of $430 million, or 5%, which includes a favorable impact from exchange of 1%.
Digital Strategic Product Groups’ Revenues
The Company’s digital product sales, including new technologies product sales of $27 million, were $7,757 million for 2005 as compared with
$5,532 million, including new technologies of $23 million, for the prior year, representing an increase of $2,225 million, or 40%, primarily driven
by the digital portion of KPG and Creo, the consumer digital capture SPG, the kiosks/media portion of the consumer output SPG, and the home
printing SPG.
Traditional Strategic Product Groups’ Revenues
Net sales of the Company’s traditional products were $6,511 million for 2005 as compared with $7,985 million for the prior year, representing a
decrease of $1,474 million, or 18%, primarily driven by declines in the fi lm capture SPG, and the wholesale and retail photofi nishing portions of the
consumer output SPG.
Foreign 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 Pacifi c
Region, and (3) the Canada and Latin America Region. Net sales in the EAMER Region were $4,223 million for 2005 as compared with $4,038 million
for 2004, representing an increase of $185 million, or 5%, which includes an insignifi cant impact from exchange. Net sales in the Asia Pacifi c Region
were $2,652 million for 2005 as compared with $2,549 million for 2004, representing an increase of $103 million, or 4%, which includes a favorable
impact from exchange of 1%. Net sales in the Canada and Latin America Region were $1,414 million for 2005 as compared with $1,272 million for
2004, representing an increase of $142 million, or 11%, which includes a favorable impact from exchange of 2%.
The Company’s major emerging markets include China, Brazil, Mexico, Russia, India, Korea, Hong Kong and Taiwan. Net sales in emerging markets
were $2,845 million for 2005 as compared with $2,871 million for the prior year, representing a decrease of $26 million, or 1%, which includes a
favorable impact from exchange of 1%. The emerging market portfolio accounted for approximately 20% of Kodak’s worldwide sales and 34% of
Kodak’s non-U.S. sales in the current year. The decrease in emerging market sales was primarily attributable to sales declines in Taiwan, Korea,
China and Hong Kong of 16%, 15%, 13% and 10%, respectively. These declines were offset by sales increases in Mexico, Brazil, Russia and India of
13%, 5%, 1% and 1%, respectively.
Gross Profi t
Gross profi t was $3,651 million for 2005 as compared with $3,935 million for 2004, representing a decrease of $284 million, or 7%. The gross profi t
margin was 25.6% in the current year as compared with 29.1% in the prior year. The 3.5 percentage point decrease was primarily attributable to
declines that reduced gross profi t margins by approximately 3.8 percentage points due to: (1) price/mix, driven primarily by consumer digital
cameras, one-time-use cameras, traditional consumer and digital health products and services, partially offset by the year-over-year increase in
royalty income relating to digital capture; and (2) declines in volumes, which reduced gross profi t margins by approximately 0.1 percentage points.
These decreases were partially offset by exchange, which favorably impacted gross profi t margins by approximately 0.4 percentage points.
Included in the increased manufacturing costs referred to above is $139 million of additional depreciation expense related to the change in estimate
of the useful lives of production machinery and equipment as a result of the faster-than-expected decline in the Company’s traditional fi lm and paper
business. During the third quarter of 2005, the Company revised the useful lives of production machinery and equipment from 3-20 years to 3-5