Kodak Reports Q4, Sales up 10%, KPG Delivers Earnings Again
Press release from the issuing company
ROCHESTER, N.Y., Jan. 22 -- Eastman Kodak Company today said fourth-quarter reported net income totaled 7 cents per share and operating cash flow excluding acquisitions was in line with the company's expectations, reflecting the improving financial performance in Kodak's digital products and services.
Kodak's net income for the quarter included a gain from discontinued operations of 4 cents per share and net income from continuing operations of 3 cents per share. Excluding the impact of previously announced focused cost reductions and other one-time items, earnings from continuing operations were 70 cents per share. The earnings include the positive impact of changes in estimates, totaling 11 cents per share, relating to employee-benefit and incentive-compensation accruals reported in prior quarters. The company's earnings guidance for 2003 was a range of $2.10 per share to $2.20 per share, implying fourth-quarter 2003 guidance of 48 cents per share to 58 cents per share.
KPG and NexPress Performance
Net worldwide sales of graphic arts products to Kodak Polychrome Graphics ("KPG"), an unconsolidated joint venture affiliate in which the Company has a 50% ownership interest, decreased 10% in the current quarter as compared with the fourth quarter of 2002, primarily reflecting volume declines and negative price/mix for graphic arts film. This reduction resulted largely from digital technology transition and the effect of continuing economic weakness in the commercial printing market.
Despite continued weakness in the global economy, KPG's earnings performance continues to improve driven primarily by its leading position in the growth segments of digital proofing and digital printing plates, coupled with favorable foreign exchange. KPG's operating profit has been positive for 14 consecutive quarters and continued to contribute positively to Kodak's "Other Charges" during the fourth quarter of 2003.
NexPress, the unconsolidated joint venture between Kodak and Heidelberg in which the Company has a 50% ownership interest, continues to experience good customer acceptance on its sales of NexPress 2100 Digital Production Color Presses despite a weak printing market, with average monthly page volumes for these units running higher than planned.
Overall for the fourth quarter of 2003:
Sales totaled $3.778 billion, an increase of 10% from $3.441 billion in the fourth quarter of 2002. Excluding foreign exchange, sales increased 4%.
The company reported net income of $19 million, or 7 cents per share, compared with reported net income of $113 million, or 39 cents per share, in the fourth quarter of 2002. The net gain from discontinued operations of 4 cents per share reflects the reversal of certain environmental and tax reserves that are no longer required.
Earnings from continuing operations, excluding the impact of focused cost reductions and other one-time items, were $199 million, or 70 cents per share. The adjustments include a charge of 66 cents per share related to the previously announced focused cost reductions; a charge of 2 cents per share for purchased R&D; a charge of 2 cents per share related to legal settlements; and a one-cent per share charge related to the write-down of venture investments. These charges were offset in part by a reversal of an environmental reserve and a tax benefit related to the donation of certain patents totaling 4 cents per share. In the fourth quarter of 2002, earnings from continuing operations, excluding restructuring and other one-time items, were $191 million, or 65 cents per share.
"Kodak continues to deliver on its strategy by growing our digital businesses and managing smartly our traditional businesses," said Kodak Chairman and Chief Executive Officer, Daniel A. Carp. "We expect the economics of our digital businesses to continue to improve in 2004, and we will continue our effort to reduce costs across all of our operations. We also anticipate generating enough cash flow in 2004 to pay down debt while maintaining the required level of investment to pursue our strategic objectives."
Other fourth-quarter 2003 highlights from continuing operations:
Kodak recorded solid cash flow for the quarter and for the year.
For the quarter, operating cash flow excluding acquisitions was $525 million, an increase of $112 million from the fourth quarter of 2002. The increase reflects the previously announced change to the dividend payout, offset in part by a smaller decline in receivables than occurred in the year-ago quarter. (Kodak defines operating cash flow excluding acquisitions as net cash provided by continuing operations, as determined under Generally Accepted Accounting Principles in the U.S. [U.S. GAAP], plus proceeds from the sale of assets minus capital expenditures, investments in unconsolidated affiliates and dividends.)
For the year, operating cash flow excluding acquisitions was $727 million, compared with $1.020 billion in 2002.
Debt increased $642 million from the year-ago level to $3.248 billion, and the company's debt-to-capital ratio increased to 49.9% from 48.4% a year ago. The company held $1.250 billion in cash on its balance sheet at the end of the year, up from $569 million at the end of 2002. Net debt, or total debt minus cash, totaled $1.998 billion at the end of 2003, compared with $2.037 billion at the end of 2002.
Gross Profit on an operational basis declined to 32.6%, down from the year-ago level of 35.5%.
Selling, General and Administrative expenses on an operational basis were 19.2% of sales, down from 20.2% in the year-ago quarter.
The segment results from continuing operations for the fourth quarter of 2003 are as follows:
Photography segment sales totaled $2.618 billion, up 9%. Earnings from operations for the segment were $141 million on a GAAP and an operational basis, down from $174 million a year ago. Highlights for the quarter included an 87% increase in sales of KODAK EASYSHARE consumer digital cameras; strong sales of the KODAK EASYSHARE Printer Docks; a 55% increase in online photofinishing sales by Ofoto; an 11% increase in sales of photo-quality inkjet paper; and a 7% increase in the sales of KODAK Picture Maker kiosks and related media. For the full-year 2003, the company estimates that worldwide consumer film industry volumes declined about 8%.
Health Imaging sales were $704 million, up 14%. Earnings from operations for the segment were $134 million on an operational basis, up from $117 million a year ago. On a GAAP basis, earnings from operations were $124 million in the fourth quarter of 2003. The exclusion of $10 million for in-process R&D charges accounts for the difference in the operational and GAAP earnings from operations for the segment. Highlights included a 26% increase in sales of digital products and services, among them the KODAK DIRECTVIEW PACS System 5 for radiologists.
Commercial Imaging sales were $432 million, up 9%. Earnings from operations were unchanged at $49 million on a GAAP and an operational basis. The segment's results reflect in part strong sales of document scanners, and a positive sales and earnings contribution from the modification of a long-term contract.
All Other sales were $24 million, down 4% from the year-ago quarter. Losses from operations totaled $20 million on a GAAP and an operational basis, compared with losses of $7 million. The All Other category includes Sensors, Optics and miscellaneous businesses, as well as the Kodak Display business.
For the year, sales were $13.317 billion, up 4% compared with $12.835 billion in 2002. Excluding the impact of currency, sales were down 1% compared with a year ago.
Net earnings for the year totaled $265 million, or 92 cents a share, compared with $770 million, or $2.64 per share, in 2002. Excluding the discontinued operations, earnings from continuing operations totaled $238 million, or 83 cents per share. Excluding the impact of focused cost reductions and other one-time items, earnings from continuing operations in 2003 were $662 million, or $2.31 per share. In 2002, earnings from continuing operations, excluding focused cost reductions and other one-time items, were $787 million, or $2.70 per share.
For 2004, Kodak expects operational per-share earnings to range between $2.25 and $2.55, and GAAP earnings to range between 80 cents and $1.30. The company also expects operating cash flow excluding acquisitions of $485 million to $615 million, based on sales of $13.8 billion to $14.2 billion. For the first quarter, the company expects operational earnings per share to approximate those of the year-ago period.
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