Kodak 2005 Annual Report Download - page 45

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Gross Profi t
Gross profi t for the D&FIS segment was $2,644 million for 2004 as compared with $2,899 million for 2003, representing a decrease of $255 million
or 9%. The gross profi t margin was 28.2% in the current year as compared with 30.8% in the prior year. The 2.6 percentage point decrease was
primarily attributable to decreases in price/mix that impacted gross profi t margins by approximately 5.0 percentage points, partially offset by
manufacturing cost improvements, which favorably impacted gross margins by approximately 2.5 percentage points. The decrease in price/mix was
primarily due to the impact of digital replacement, resulting in a decrease in sales of higher margin traditional products, the impact of which was only
partially offset by increased sales of lower margin digital products.
Selling, General and Administrative Expenses
SG&A expenses for the D&FIS segment were $1,681 million for 2004 as compared with $1,991 million for 2003, representing a decrease of
$310 million or 16%. The net decrease in SG&A spending is primarily attributable to cost savings realized from position eliminations associated with
ongoing focused cost reduction programs and reductions in advertising expense, partially offset by unfavorable exchange. As a percentage of sales,
SG&A expense decreased from 21% in the prior year to 18% in the current year.
Research and Development Costs
R&D costs for the D&FIS segment decreased $116 million or 24% from $481 million in 2003 to $365 million in 2004. As a percentage of sales,
R&D costs decreased from 5% in the prior year to 4% in the current year. The decrease in R&D is primarily due to a decline in spending related to
consumer and professional imaging traditional products and services. In addition, the decline was partly attributable to a $21 million write-off for
purchased in-process R&D in 2003, with no such charge incurred in the current year.
Earnings From Continuing Operations Before Interest, Other Income (Charges), Net and Income Taxes
Earnings from continuing operations before interest, other income (charges), net and income taxes for the D&FIS segment increased $171 million, or
40%, from $427 million in 2003 to $598 million in 2004, primarily as a result of the factors described above.
Health Group
On October 7, 2003, the Company completed the acquisition of all of the outstanding shares of PracticeWorks, Inc., a leading provider of dental
practice management software. As part of this transaction, Kodak also acquired 100% of PracticeWorks’ Paris-based subsidiary, Trophy Radiologie,
S.A., a developer and manufacturer of dental digital radiographic equipment, which PracticeWorks purchased in December 2002. The acquisition of
PracticeWorks and Trophy was expected to contribute approximately $200 million in sales to the Health Group segment during the fi rst full year. Full
year 2004 net sales for PracticeWorks (acquired in October 2003) were $212 million, which resulted in incremental net sales of $164 million for the
Health Group segment.
Worldwide Revenues
Net worldwide sales for the Health Group segment were $2,686 million for 2004 as compared with $2,431 million for 2003, representing an increase
of $255 million, or 10%, including a favorable impact from exchange of 4%. The increase in sales consists of: (1) an increase from favorable
exchange of approximately 3.6 percentage points, (2) the acquisition of PracticeWorks Inc. in October 2003, which accounted for approximately
6.0 percentage points of the sales increase, and (3) an increase in volume of approximately 4.1 percentage points, driven primarily by volume
increases in digital products. These increases were partially offset by declines in price/mix of approximately 3.2 percentage points, which were
related to both digital and traditional products.
Net sales in the U.S. were $1,114 million for the current year as compared with $1,061 for the prior year, representing an increase of $53 million, or
5%. Net sales outside the U.S. were $1,572 million for 2004 as compared with $1,370 million for 2003, representing an increase of $202 million, or
15%, including a favorable impact from exchange of 6%.
Digital Strategic Product Groups’ Revenues
The Health Group segment’s digital sales, 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), were $1,732 for the current year compared with $1,437 million
for 2003, representing an increase of $295 million, or 21%. The increase in digital product sales was primarily attributable to the PracticeWorks
acquisition and higher volumes of digital capture equipment, digital media and services.