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  • Kodak Loses $298M, May Sell Health Imaging Unit
May 2006
ROCHESTER, N.Y., May 4, 2006 -- Eastman Kodak Co. today reported a $298 million loss for the first quarter -- or $1.04 a share -- and said it is considering selling its second-highest revenue earner, the 110-year-old Health Group, which generated $2.7 billion in 2005. In a separate statement, the company announced organizational changes associated with its continuing transition to digital photography.

Kodak said the $298 million loss for the first quarter of 2006, its sixth straight quarterly loss, stems largely from its restructuring charges ($197 million after taxes) and the rising costs of silver and oil.

The Health Group makes digital x-ray imaging equipment, medical printers and x-ray film. Its origins can be traced back to the birth of diagnostic imaging technology with the discovery of the x-ray in 1895, according to Kodak's Web site. As early as 1914, Kodak had radiography experts on staff. The unit has remained a part of Kodak under various names, and in 2001 became one of three business groups formed through a company reorganization. The Health Group has been Kodak's second-highest revenue producer (behind only the Photography Group) since 2003.

"Our stated corporate goal is to be among the top three in each of the businesses in which we compete," said Antonio M. Perez, Kodak's chairman and CEO, in a statement. "While the Health Group is enjoying strong organic growth in elements of its digital portfolio, such as digital capture solutions and healthcare information solutions, we have been observing for some time consolidation in this industry. Given our valuable assets and the changing market landscape, we feel that now is the time to investigate strategic alternatives." Kodak said it has hired Goldman, Sachs & Co. as its adviser in the effort.

Kodak has been struggling to make the transition from film photography to digital for several years, reporting a $1 billion loss in October 2005 and announcing it will cut 25,000 jobs and close one-third of its facilities by mid-2007. (See "Kodak Loses $1B, Plans More Job Cuts")

For the first quarter of 2006, Kodak said, the company's sales totaled $2.9 billion, an increase of 2 percent over the first quarter of 2005. The company said the sale of digital products and services increased 29 percent from a year ago, to $1.6 billion. The Graphic Communications Group sales were $870 million, up 136 percent, Kodak said, reflecting the 2005 acquisitions of Kodak Polychrome Graphics and Creo Inc., a supplier of prepress systems used by commercial printers. (See "Kodak Buying Out Graphics Unit" and "Kodak to Acquire Creo")

Health Group sales for the first quarter were $585 million, down 7 percent, which Kodak attributed to higher silver costs, which affect the Health Group more than any other Kodak business because of the high silver content of its products. This was partially offset by improved earnings in computed radiography, healthcare information systems and digital radiography, the company said. Digital earnings were $17 million, down from $33 million in the first quarter of 2005.

The company also announced today organizational changes it will implement by July 1 that are designed to improve its ability to compete in digital markets. Kodak said it would assign its manufacturing facilities to specific business units and streamline certain administrative functions to hold the businesses more directly accountable for their results and to further reduce costs.

The changes include integrating the units of the Global Manufacturing & Logistics (GM&L) organization into other relevant business units or functions and disbanding the Chief Administrative Office. Also in conjunction with the changes, Kodak said three senior officers will retire this year: Charles S. Brown Jr., senior vice president and chief administrative officer; Daniel T. Meek, senior vice president and director, GM&L; and Charles C. Barrentine, vice president and director, Kodak Operating System.

"These are all important steps toward completing the creation of the new Kodak," Perez said. "These planned actions are part of our broader digital transformation and will help us to better manage our digital and traditional businesses, achieve our digital business model, and reduce administrative costs company-wide for sustained success."

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digital photography
A form of photography in which an electronic camera converts an image to an electronic signal that is stored in digital format on magnetic media or film.
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