Kodak today issued its Q2 2003 earnings statement, in that the company states that overall sales declined by 6% and that earnings were down to $112 million in Q2 2003 compared to $284 million in Q2 2002. Sales for Q2 2003 totalled $3.3 billion, virtually unchanged compared to the same quarter last year. "Kodak expects to reduce employment by a range of 4,500 to 6,000, beginning later this year." This on top of the 7,000 jobs lost last year. Chairman and CEO Daniel A. Carp said "We are evolving from a historical film company into one that is aggressively pursuing the vast potential of digital imaging across all of our operations. We are extending the Kodak brand into the digital age so that we become known as the world's leading imaging company, building on our proud heritage as the world's leading picture company"
Kodak Reports 2nd-Quarter Net Income of 39 Cents Per Share; Sales Unchanged at $3.352 Billion
EPS from Continuing Operations, Excluding Charges and Other Items, Total 60 Cents
ROCHESTER, N.Y., July 23 -- Eastman Kodak Company today said that second-quarter net income, in accordance with Generally Accepted Accounting Principles (GAAP) in the U.S., totaled 39 cents per share and that sales were unchanged compared with the year-ago period.
Excluding the impact of previously announced focused cost reductions and other non-operational items, earnings from continuing operations were 60 cents per share, higher than the forecast of 25 cents to 35 cents per share that the company issued on June 18. Relative to the June 18 forecast, the actual results primarily reflect a more favorable sales mix of health imaging and traditional consumer products and services. Better-than-expected performance from joint ventures and a lower-than-expected tax rate also contributed to the difference between actual and forecasted results.
For the second quarter of 2003:
- Sales totaled $3.352 billion, unchanged from the second quarter of
2002. Excluding foreign exchange, sales declined 6%.
- The company reported net income of $112 million, or 39 cents per share,
compared with net income of $284 million, or 97 cents per share, in
the second quarter of 2002.
- Earnings from continuing operations, excluding the impact of focused cost reductions and other non-operational items, were $172 million, or 60 cents per share. The after-tax non-operational items include a charge of $36 million, or 13 cents per share, related to the previously announced focused cost reductions; a charge of $9 million, or 3 cents per share, in connection with the settlement of a patent infringement claim; a charge of $9 million, or 3 cents per share, in connection with a prior-year acquisition; and a charge of $6 million, or 2 cents per share, to write down certain assets held for sale following the acquisition of the Burrell companies. In the second quarter of 2002, earnings from continuing operations, excluding non-operational items, totaled $250 million, or 86 cents per share. The after-tax, non-operational items from the year-ago quarter include a one-time tax benefit totaling 15 cents per share resulting from the closure of a subsidiary, and a one-time write-down of assets associated with venture investments totaling 3 cents per share.
"We are pleased to report quarterly earnings that are stronger than we had previously expected," said Kodak Chairman and Chief Executive Officer Daniel A. Carp. "Most of our businesses continue to perform well in a difficult economic environment. We are encouraged by the market's acceptance of the innovative products and services Kodak is creating from our latest computed radiography systems and Vision2 motion-picture film, to the newest EasyShare consumer digital cameras and the well-received EasyShare Printer Dock."
"Our traditional consumer film and processing operations continue to face challenges associated with the increasing popularity of digital photography as well as persistent economic weakness, continuing price pressure and an associated decline in travel and tourism," Carp said. "Consumer adoption of digital photography is growing at a more rapid pace than a year ago, and this is trimming demand for consumer film. At the same time, we are seeing evidence that more consumers want to print their digital photos at retail and at home. This trend presents a huge opportunity for Kodak to generate profitable sales of our market-leading Picture Maker kiosks and inkjet paper, which will help offset declining sales from traditional film.
"Given these developments, we remain cautious about a material upturn in the traditional consumer products and services for the balance of 2003," Carp said. "In this environment, we remain committed to reducing costs aggressively, strengthening our balance sheet and bringing to market more innovative products for the benefit of our customers."
Other second-quarter 2003 details from continuing operations:
- Kodak's operating cash flow was lower than the year-ago quarter, primarily
reflecting lower net income from continuing operations, increased incentive
compensation payments earned in 2002, including wage dividend, and a
larger year-over-year increase in accounts receivable.
- For the quarter, operating cash flow was a negative $53 million, compared
with a positive $302 million in the second quarter of 2002. The $53
million use of cash in the second quarter of 2003 included acquisitions
of $34 million, while the year-ago quarter included no acquisitions.
(Kodak defines operating cash flow as net cash provided by continuing
operations, as determined under GAAP, plus proceeds from the sale of
assets minus capital expenditures, acquisitions, investments in unconsolidated
affiliates and dividends.)
- The company's debt totaled $2.990 billion at the end of the quarter,
compared with $3.053 billion in the year-ago quarter. The company held
$838 million in cash on its balance sheet at the end of the quarter,
up from $524 million at the end of the second quarter of 2002.
- Gross profit on an operational basis was 33.6%, compared with 37.6%
in the year-ago period.
- Selling, general and administrative expenses on an operational basis were 20.3% of sales, up from 19.4% in the year-ago quarter.
The segment results from continuing operations for the second quarter of 2003 are as follows:
- Photography segment sales totaled $2.341 billion, down 2%. The segment
had earnings from operations of $119 million on an operational and GAAP
basis, compared with earnings from operations of $257 million a year
ago. Highlights for the quarter included a 65% increase in consumer
digital camera sales, and an 18% increase in sales of motion-picture
origination and print film.
- Health Imaging segment sales were $607 million, up 7%. Earnings from
operations on an operational and GAAP basis for the segment were $131
million, up from $112 million in the year-ago period. Highlights included
higher-than-expected sales of digital radiography, computed radiography
and Picture Archiving and Communications Systems (PACS).
- Commercial Imaging segment sales were $382 million, up 6%. Earnings
from operations on an operational and GAAP basis were $40 million, compared
with $53 million in the year-ago period.
- All Other sales were $22 million, down from $28 million. Losses from operations on an operational and GAAP basis totaled $22 million, compared with losses of $6 million in the year-ago period. The All Other category includes the Kodak Display business, as well as Sensors, Optics and miscellaneous businesses.
- Given the extraordinary volatility of the current environment, reflecting global economic weakness, international conflict as well as the shifting mix of the portfolio of products sold, the company expects operational earnings of $0.85 to $1.15 per share, and GAAP earnings of $0.25 to $0.65 per share, for the second half of 2003.
"As the results today indicate, our employees are succeeding in a marketplace where change is constant and rapid," Carp said. "For example, we expect that sales of our Digital & Applied Imaging products and services which include inkjet paper, the Ofoto online photo service and EasyShare cameras and docks will top more than $1 billion this year. Our Health Imaging segment continues to post strong results as digital products and services account for an increasing share of its sales."
"The performance of these businesses point to a fundamental shift at Kodak," Carp said. "We are evolving from a historical film company into one that is aggressively pursuing the vast potential of digital imaging across all of our operations. We are extending the Kodak brand into the digital age so that we become known as the world's leading imaging company, building on our proud heritage as the world's leading picture company. And during this evolution, we will create new products and services with different business models but with a potential for growth that is far beyond that of our more mature operations.
"We will do this in markets that are global and intensely competitive," Carp said. "They reward companies that increase productivity, reduce costs and move fast to take advantage of marketplace opportunities. Additionally, our historical consumer business is getting smaller, so it is vital that the cost structure of this business reflects that reality. We will continue to shape our company so that we remain competitive for a future in a digital world."
Consistent with this business reality, Kodak plans to reduce its cost structure. The reductions will occur primarily in corporate administrative departments, manufacturing, and research and development. In addition, reductions will occur in the infrastructure and administration supporting the Consumer Imaging and Kodak Professional operations.
Based on preliminary plans, Kodak expects to reduce employment by a range of 4,500 to 6,000, beginning later this year. This estimated reduction represents about 6% to 9% of the company's worldwide employment base of about 70,000 at the end of 2002. In keeping with past practice and consistent with requirements in various countries, the company will offer severance packages and outplacement services to those affected.
The company will take charges during the next twelve months in the range of $350 million to $450 million to cover the costs associated with the new reductions. The company expects to generate annual savings of $300 million to $400 million from the new reductions, with $275 million to $325 million expected to be realized in 2004.
"Being a global company means taking actions that maintain and extend our competitive position," Carp said. "While we can't know for certain when the economy will rebound, we do know that the market forces demanding lower costs, flexible manufacturing strategies and speed to market will not abate. We also are looking at a wide range of alternative cost reduction efforts, including health care, travel and general budget reductions. The combination of these actions will help Kodak become more profitable and more agile as we compete for a larger slice of the $385 billion infoimaging market that we serve."
Operational items are non-GAAP financial measures as defined by the Securities and Exchange Commission's final rules under "Conditions for Use of Non-GAAP Financial Measures." Reconciliations of operational items included in this press release to the most directly comparable GAAP financial measures can be found in the Financial Discussion Document attached to this press release.
Certain statements in this press release may be forward looking in nature, or "forward-looking statements" as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the Company's second half 2003 revenue, earnings, cash flow expectations and future focused cost reductions are forward-looking statements.
Actual results may differ from those expressed or implied in forward-looking statements. In addition, any forward-looking statements represent our estimates only as of July 23, 2003, and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. The forward-looking statements contained in this press release are subject to a number of risk factors, including the successful:
Implementation of product strategies (including category expansion, digitization, OLED, and digital products);
- Implementation of intellectual property licensing strategies;
- Development and implementation of e-commerce strategies;
- Completion of information systems upgrades, including SAP;
- Completion of various portfolio actions;
- Reduction of inventories;
- Improvement in manufacturing productivity;
- Improvement in receivables performance;
- Reduction in capital expenditures;
- Improvement in supply chain efficiency;
- Implementation of future focused cost reductions, including personnel reductions;
- Development of the Company's business in emerging markets like China, India, Brazil, Mexico, and Russia.
The forward-looking statements contained in this press release are subject to the following additional risk factors:
- Inherent unpredictability of currency fluctuations and raw material costs;
- Competitive actions, including pricing;
- The nature and pace of technology substitution, including the analog-to-digital shift;
- Continuing customer consolidation and buying power;
- General economic, geo-political, public health and business conditions.
- Other factors disclosed previously and from time to time in the Company's filings with the Securities and Exchange Commission.
Any forward-looking statements in this press release should be evaluated in light of these important risk factors.