Compared with the second quarter of 2005, total sales were down nine percent to US-$ 3.360 billion, mainly due to the decline in the Film and Photofinishing Systems Group and the Consumer Digital Imaging Group. Digital revenue was up six percent to US-$ 1.829 billion; traditional revenue declined 22 percent to US-$ 1.522 billion. The company’s loss from continuing operations before interest, extraordinary influences, net and income taxes was US-$ 167 million, compared with a loss of US-$ 137 million in the year-ago quarter. The GAAP net loss was US-$ 282 million, after US-$ 155 million in the year-ago period.
Consumer Digital sales totaled US-$ 628 million, down six percent. The loss from operations for the segment was US-$ 79 million, compared with a year-ago loss of US-$ 52 million. According to a Kodak press release, this primarily reflects lower volumes and the company’s goal to emphasize margin expansion over revenue growth. Sales of Kodak’s Film and Photofinishing Systems division were US-$ 1.153 billion, down from US-$ 1.503 billion in the year-ago quarter; earnings from operations dropped from US-$ 244 million to US-$ 113 million. This decrease was primarily attributable to an expected decline in revenue, non-cash charges for depreciation and higher silver prices, the company said. Kodak’s Graphic Communications group recorded sales of US-$ 908 million during the second quarter, up 14 percent, mainly due to the acquisitions of KPG and Creo. Earnings from operations increased by US-$ 64 million, from a loss of US-$ 42 million in the year-ago period to earnings of US-$ 22 million. Sales of the Health group declined six percent to US-$ 655 million, with earnings from operations of US-$ 78 million, compared with US-$ 109 million a year ago.
According to a press release, Kodak continues to implement its restructuring program to support the company’s goal of building a business model to achieve sustained success in digital markets. A detailed update on Kodak‘s transformation strategy is scheduled for Kodak’s Annual Strategy Review meeting on November 15, 2006, in New York City.
Separately, Eastman Kodak has announced an agreement with Flextronics International Ltd., a well known electroncis manufacturing services (EMS) provider based in Singapore. Under the terms of the agreement, Flextronics will manufacture and distribute Kodak consumer digital cameras and will manage certain camera design and development functions. Kodak will divest its entire digital camera manufacturing requirements to Flextronics, including assembly, production and testing. Flextronics will also manage the operations and logistics services for Kodak’s digital still cameras. According to a press release, Kodak will continue to develop the high-level system design, product look and feel and user experience, and will conduct advanced research and development for its digital still cameras. The company will also retain its intellectual property, as well as Kodak trademarks, trade names, Kodak customers, customer information and customer relationships, Kodak feature specifications, Kodak digital camera designs and Kodak digital camera technologies.
Upon closing of the transaction, Flextronics will acquire a significant portion of the Kodak Digital Product Center, Japan, Ltd. (KDPC) in Chino and Yokohama, Japan. The associated camera design functions, the employees and the digital camera manufacturing, assembly and warehousing requirements as well as related employees of Kodak Electronics Products, Shanghai Co., Ltd. (KEPS) in China. Approximately 550 Kodak personnel are expected to be transfered to Flextronics facilities.
The agreement does not require shareholder approval from either company, but is subject to customary regulatory approvals. Closing is expected during Kodak’s third quarter of 2006.