Eastman Kodak Company (the “Company” or “Kodak”) helps consumers, businesses, and creative professionals unleash the power of pictures and printing to enrich their lives. When used in this report, unless otherwise indicated, “we,” “our,” “us,” the “Company” and “Kodak” refer to Eastman Kodak Company. The Company’s products span:
Digital still and video cameras and related accessories
Consumer inkjet printers and media
Digital picture frames
Retail printing kiosks, APEX drylab systems and related media
KODAK Gallery online imaging services
Prepress equipment and consumables
Workflow software for commercial printing
Electrophotographic equipment and consumables
Commercial inkjet printing systems
Origination and print films for the entertainment industry
Consumer and professional photographic film
Photographic paper and processing chemicals
Wholesale photofinishing services
Kodak was founded by George Eastman in 1880 and incorporated in 1901 in the State of New Jersey. The Company is headquartered in Rochester, New York.
The recessionary trends in the global economy, which began in 2008 and continued through much of 2009, significantly impacted the Company’s revenue. While the rate of decline slowed significantly in the fourth quarter of 2009, the level of business activity has not returned to pre-recession levels. During this recessionary period, the Company maintained market leading positions in large product segments and gained market share with investments into large market categories in need of transformation. The Company ended 2009 with a more efficient cost structure and a strong cash position. The Company believes it is entering 2010 with its most competitive digital portfolio ever, sustainable traction in new markets, value propositions that are embraced by its customers and a leaner cost structure that will help deliver profitable digital growth.
The Company’s key goals for 2010 are:
· Improve segment earnings
· Accelerate digital revenue growth
· Continue to invest in new markets in need of transformation
· Exploit benefits of operating leverage
· Drive positive cash flow before restructuring
As of and for the year ended December 31, 2009, the Company reported financial information for three reportable segments: Consumer Digital Imaging Group (“CDG”), Film, Photofinishing and Entertainment Group (“FPEG”), and Graphic Communications Group (“GCG”). The balance of the Company's operations, which individually and in the aggregate do not meet the criteria of a reportable segment, are reported in All Other.
The following business discussion is based on the three reportable segments and All Other as they were structured as of and for the year ended December 31, 2009. The Company's sales, earnings and assets by reportable segment for these three reportable segments and All Other for each of the past three years are shown in Note 24, “Segment Information,” in the Notes to Financial Statements.
CONSUMER DIGITAL IMAGING GROUP (“CDG”) SEGMENT
CDG's mission is to enhance people’s lives and social interactions through the capabilities of digital imaging technology, combined with Kodak’s unique consumer knowledge, brand and intellectual property. This focus has led to a full range of product and service offerings to the consumer. CDG’s strategy is to extend image taking, searching and organizing, sharing and printing to bring innovative new experiences to consumers – in ways that extend Kodak’s legendary heritage in ease of use.
Digital Capture and Devices: Consumer digital capture and devices include digital still and pocket video cameras, digital picture frames, and imaging essentials, as well as branded licensed products. These product lines fuel Kodak’s participation in the imaging device and accessory markets. Products are sold directly to retailers or distributors, and are also available to customers through the Internet at the KODAK Store (www.kodak.com) and other online providers. In January 2010, Kodak extended its pocket video camera line, following the success of the KODAK Zi6 Pocket Video Camera, which was launched in 2009. The line now includes the KODAK Zi8, which added an external mic jack; and the KODAK PlaySport pocket video camera, which is rugged, waterproof and is designed for action and adventure. KODAK pocket video cameras allow consumers to take stunning high definition videos, which can be easily uploaded to YOUTUBE via a built-in USB connector. Additionally, the Company also introduced a variety of stylish and compact digital still cameras with the unique and innovative ‘SHARE’ button that enables simple upload to YOUTUBE, FLICKR, FACEBOOK, and KODAK Gallery (“Gallery”) for archiving and gifting. Another unique product is the KODAK Slice TouchScreen digital camera, a powerful camera and photo album in one that makes storing, sorting and sharing pictures easy with its 2 GB internal memory and Smart Find Facial Recognition Technology.
Digital Capture and Devices also includes the licensing activities related to the Company’s intellectual property in digital imaging products. These arrangements provide the Company with design freedom, access to new markets and partnerships, and the generation of cash and income.
Kodak is a leader in the digital picture frame category. The newest product in the line, announced at the Consumer Electronics Show in January 2010 is the KODAK Pulse digital frame. This wireless picture frame has its own email address that receives photos automatically and allows consumers to view albums from FACEBOOK and Gallery. The full line of frames – both standard and wireless – enable consumers to easily share and view images and videos with family and friends simply and easily.
Retail Systems Solutions: The Retail Systems Solutions group’s product and service offerings to retailers include retail kiosks and consumables, consumer and retailer software workflows, remote business monitoring, retail store merchandising and identity programs, and after sale service and support. Consumers can make a wide variety of photo gifts, including among others, photobooks, posters and custom cards, all instantly and around the corner at a KODAK kiosk.
The DL2100 printer, which retailers can connect directly to a kiosk or Adaptive Picture Exchange ("APEX") drylab system, enables customers to make double-sided photobooks, calendars and greeting cards, almost instantly in-store. This high-quality printer enables consumers to personalize their products with sentiments and captions and then take home a finished, personalized product. Other popular Kodak premium products available quickly and easily in many of the world’s largest retailers include the KODAK Picture-Movie DVD, which combines original artist music with the consumer’s own pictures and creates a powerful multimedia show playable on any DVD player, along with posters, collages and more.
Consumer Inkjet Systems: Since the introduction of the KODAK All-in-One Inkjet printers in 2007, the portfolio has expanded through the introduction of a printer designed for the small office/home office market, the introduction of new ink cartridge options, and expansion into more markets. As of January 2009, our newest wireless printers have a unique application that allows consumers to print photos in multiple sizes with the free KODAK Pic Flick App from an IPHONE or IPOD TOUCH, or photos and documents from a wifi enabled smartphone. During 2009, we once again doubled the national installed base for our consumer inkjet printers – to more than two million units.
Online Imaging Services: KODAK Gallery is a leading online merchandise and photo sharing service. The Kodakgallery.com site provides consumers with a secure and easy way to view, store and share their images with friends and family, and to receive Kodak prints and other creative products from their pictures, such as photo books, frames, calendars, and a host of other personalized merchandise. Personalized photo cards are also available with original designs by popular designers including Martha Stewart, Simon and Kubuki and world-renown children’s author Eric Carle. Products are distributed directly to consumers’ homes, or through major retailers. The site is a chosen partner for leading companies such as ADOBE, MICROSOFT, and AMAZON. In addition to Kodakgallery.com in the U.S., we operate seven sites across Europe.
Kodak also distributes KODAK EasyShare desktop software at no charge to consumers, which provides easy organization and editing tools, and unifies the experience between digital cameras, printers, and the KODAK Gallery services.
Imaging Sensors: Kodak's line of CCD sensors provides an attractive market opportunity, including mobile, automotive, industrial and professional imaging sectors. Kodak has leading sensor architecture intellectual property positions.
Marketing and Competition: The Company faces competition from other online service companies, consumer electronics and printer companies in the markets in which it competes, generally competing on price, features, and technological advances.
The key elements of CDG’s marketing strategy emphasize ease of use, quality and the complete solution offered by KODAK Products and Services. This is communicated through a combination of in-store presentation, an aggressive social media strategy; online marketing, advertising, customer relationship marketing and public relations. The Company's advertising programs actively promote the segment’s products and services in its various markets, and its principal trademarks, trade dress, and corporate symbol are widely used and recognized. Kodak is frequently noted by trade and business publications as one of the most recognized and respected brands in the world.
FILM, PHOTOFINISHING AND ENTERTAINMENT GROUP (“FPEG”) SEGMENT
This segment is composed of traditional photographic products and services including paper, film and chemistry used for consumer, professional and industrial imaging applications and those products and services used in the creation and exhibition of motion pictures. The Company manufactures and markets films (motion picture, consumer, professional, industrial and aerial), one-time-use cameras, photographic paper and photo chemicals, and industrial components.
The market for consumer and professional films, traditional photofinishing and certain industrial and aerial films are in decline and expected to continue to decline due to digital substitution.
Motion picture and television production activities were impacted throughout most of 2009 by industry-specific labor issues, the overall economic impact on global advertising spend (broadcast commercials) and the availability of financing for independent feature filmmakers. These factors resulted in lower film production and the use of digital technology, as expected. However, Kodak motion picture print film showed slightly increased volumes despite a number of new digital cinema installations feeding the 3D pipeline. Print volumes have remained strong because the exhibition market returned to growth in 2009. Kodak benefited from this growth and gained market share due to a higher proportion of major studio release activity.
Marketing and Competition: The fundamental elements of the Company’s strategy with respect to the photographic products in this segment are to maintain a profitable and sustainable business model, serving customers for traditional products while aggressively managing our cost structure for those businesses in decline.
As our silver halide business continues to mature, we are also looking at different ways to leverage these core capabilities outside of our traditional business applications. Opportunities exist to grow existing, nascent businesses and develop new businesses utilizing Kodak’s existing capabilities in materials science, coating technology and base manufacture. Segments on which we are currently focusing for these opportunities include gelatin, silver and chemical components, industrial films, motion picture special effects services and event imaging services.
The Company’s strategy for the Entertainment Imaging business is to sustain motion picture film’s position as the pre-eminent capture medium for the creation of feature films, television dramas and commercials. Selective investments to improve film’s superior image capture and quality characteristics are part of this strategy. Kodak has the leading share of the origination film market led by the new VISION3 family of color negative films, and the widely acclaimed OSCAR-award-winning VISION2 series.
The distribution of motion pictures to theaters on print film is another important element of the business, one in which the Company continues to be widely recognized as the market leader. Price competition is a bigger factor in this segment of the motion picture market, but the Company continues to maintain the leading share position, largely due to several multi-year agreements with the major studios.
Throughout the world, most Entertainment Imaging products are sold directly to studios, laboratories, independent filmmakers or production companies. Quality and availability are important factors for these products, which are sold in a price-competitive environment. As the industry moves to digital formats, the Company anticipates that it will face new competitors, including some of its current customers and other electronics manufacturers.
Film products and services for the consumer and professional markets and traditional photofinishing are sold throughout the world, both directly to retailers, and increasingly through distributors. Price competition continues to exist in all marketplaces. To be more cost competitive with its traditional photofinishing and film offerings, and to shift towards a variable cost model, the Company has rationalized capacity and restructured its go-to-market models in many of its traditional segments. The Company will continue to manage this business to focus on cash flow and earnings performance in this period of ongoing revenue decline.
GRAPHIC COMMUNICATIONS GROUP (“GCG”) SEGMENT
The Graphic Communications Group segment of Kodak is committed to helping its customers grow their businesses by offering innovative, powerful solutions that enhance production efficiency, open new revenue opportunities, and improve return on marketing investment. The Graphic Communications Group segment serves a variety of customers in the creative, in-plant, data center, commercial printing, packaging, newspaper, and digital prepress market segments with a range of software, media, and hardware products. Representing one of the broadest portfolios in the industry, product categories range from prepress equipment, workflow software, and digital and traditional printing to document scanning and multi-vendor services. Products include digital and traditional prepress equipment and consumables, including plates, chemistry, and media; workflow software and controller software for driving digital output devices; color and black-and-white electrophotographic printing equipment and consumables; high-speed, high-volume commercial inkjet printing systems; high-speed production and workgroup document scanners; and micrographic peripherals and media (including micrographic films). GCG also provides maintenance and professional services for Kodak and other manufacturers' products, as well as providing imaging services to customers.
In the third quarter of 2009, the Company acquired the scanner division of BÖWE BELL + HOWELL, which markets a portfolio of production document scanners that complements the products currently offered within the GCG segment. Through this acquisition, Kodak expects to expand customer value by providing a wider choice of production scanners. As Kodak has provided field service to BÖWE BELL + HOWELL scanners since 2001, this acquisition is also expected to enhance global access to service and support for channel partners and end-user customers worldwide.
Marketing and Competition: Around the world, graphic communications products are sold through a variety of direct and indirect channels. The end users of these products include businesses in the prepress, commercial printing, data center, in-plant, newspaper and packaging market segments. The Company has developed a wide-ranging portfolio of digital products - workflow, equipment, media, and services - that combine to create a value-added complete solution to customers. Maintenance and professional services for the Company's products are sold either through product distribution channels or directly to the end users. In addition, a range of inkjet products for digital printing and proofing are sold through direct and indirect means. Document scanners are sold primarily through a two-tiered distribution channel to a number of different industries.
At the end of 2009, the Company employed the full time equivalent of approximately 20,250 people, of whom approximately 10,630 were employed in the U.S. The actual number of employees may be greater because some individuals work part time.