Kodak 2005 Annual Report Download - page 47

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Worldwide Revenues
Net worldwide sales for the Graphic Communications Group segment were $1,343 million for 2004 as compared with $967 million for 2003,
representing an increase of $376 million, or 39%, including a favorable impact from exchange of less than 1%. The increase in net sales was
primarily attributable to the acquisitions of Kodak Versamark and the NexPress-related entities, which contributed approximately $375 million in net
sales to the Graphic Communications Group segment.
Net sales in the U.S. were $587 million for 2004 as compared with $415 million for 2003, representing an increase of $172 million, or 41%. Net sales
outside the U.S. were $756 million in the current year as compared with $552 million in the prior year, representing an increase of $204 million, or
37%, which includes favorable impacts from exchange of 1%.
Digital Strategic Product Groups’ Revenues
The Graphic Communications Group segment’s digital product sales, which consist of Kodak Versamark, the NexPress-related entities, Encad, Inc.
products and services, and document imaging service and support, were $1,065 million for the current year as compared with $665 million for the
prior year, representing an increase of $400 million, or 60%. The increase is primarily attributable to the acquisitions of Versamark and the
NexPress-related entities.
Kodak Versamark experienced strong sales performance driven by increased placements of color printing units in the transactional printing market
coupled with a growing consumables business.
Traditional Strategic Product Groups’ Revenues
The Graphic Communications Group segment’s traditional product sales were primarily attributable to sales of traditional graphics products to the
KPG joint venture, and document imaging imagelink equipment and media sales. Net worldwide sales of traditional products for the Graphic
Communications Group segment declined $24 million or 8% from $302 million in 2003 to $278 million in 2004. This decline was primarily
attributable to negative price/mix for graphic arts products, partially offset by increasing volumes.
Gross Profi t
Gross profi t for the Graphic Communications Group segment for 2004 increased $81 million, or 32%, from $257 million for 2003 to $338 million
for 2004. The gross profi t margin was 25.2% for 2004 as compared with 26.6% for 2003. The decrease in the gross profi t margin of
1.4 percentage points was primarily attributable to (1) an increase in manufacturing cost, which negatively impacted gross profi t margins by
approximately 3.2 percentage points, primarily due to an increase in silver prices and additional costs incurred in relation to the relocation of
manufacturing facilities for graphics products from Mexico to Great Britain and the U.S., (2) volume declines, which negatively impacted gross profi t
margins by 0.9 percentage points, and (3) negative price/mix of 0.6 percentage points. Partially offsetting these negative impacts were the
acquisitions of Kodak Versamark and the NexPress-related entities, which contributed 2.1 percentage points to gross profi t margin for the current year
period. This is despite the fact that Kodak Versamark’s margins were negatively affected by the impact of the purchase accounting for the inventory
that was acquired with Kodak Versamark at its fair value, which was sold during 2004. This negative impact was partially offset by a positive impact
of purchase accounting for the inventory that was acquired with the NexPress-related entities at its fair value. Additionally, favorable exchange
positively impacted gross profi t margins by 1.5 percentage points.
Selling, General and Administrative Expenses
SG&A expenses for the Graphic Communications Group segment were $259 million for 2004 as compared with $139 million in the prior year,
representing an increase of $120 million, or 86%, and increased as a percentage of sales from 14% in the prior year to 19% in the current year.
The increase in SG&A expenses is primarily attributable to the acquisitions of Kodak Versamark and the NexPress-related entities, which together
accounted for $120 million of SG&A expenses in the current year period.
Research and Development Costs
R&D costs for the Graphic Communications Group segment increased $82 million, or 228%, from $36 million for 2003 to $118 million for the current
year, and increased as a percentage of sales from 4% in the prior year to 9% in the current year. The increase was primarily attributable to the
acquisitions of Kodak Versamark and the NexPress-related entities, which together accounted for $90 million of R&D in the current period, and
includes a $10 million charge for purchased in-process R&D associated with the Kodak Versamark and NexPress-related entities acquisitions.
Earnings (Losses) From Continuing Operations Before Interest, Other Income (Charges), Net and Income Taxes
Earnings (losses) from continuing operations before interest, other income (charges), net and income taxes for the Graphic Communications Group
segment decreased $121 million from earnings of $82 million in 2003 to losses of $39 million in 2004. This increase in losses is primarily attributable
to the acquisition of the NexPress-related entities on May 1, 2004, the purchase of Scitex Digital Printing (renamed Kodak Versamark) on