The company says that the rise in sales primarily reflects strong demand for the market-leading offerings from the company’s Graphic Communications and consumer digital portfolio.
On the basis of generally accepted accounting principles in the U.S. (GAAP), the company reported a third-quarter loss of $1.029 billion, or $3.58 per share, largely stemming from a $900 million ($3.13 per share) non-cash charge to record a valuation allowance against the net deferred tax assets in the U.S. This reserve was an accounting requirement resulting from the company’s continuing losses in the U.S. created by the accelerated and extensive restructuring activity required by the decline in the traditional business.
For the third quarter of 2005:
• Sales totaled $3.553 billion, an increase of 5 per cent from $3.374 billion in the third quarter of 2004. Digital revenue totaled $1.888 billion, a 47 per cent increase from $1.283 billion. Traditional revenue totaled $1.661 billion, a 20 per cent decline from $2.085 billion.
• The GAAP net loss was $1.029 billion, or $3.58 per share, compared with GAAP earnings of $458 million, or $1.60 per share, in the year-ago period.
• The company’s loss from continuing operations in the quarter, before income taxes, interest, and the net of other income and charges, was $103 million, compared with earnings from operations of $3 million in the year-ago quarter.
• Digital earnings were $10 million, compared with $6 million in the year-ago quarter. This includes the favorable impact of $18 million in the third quarter of reallocating certain costs from the digital business to the traditional business, as well as a $5 million charge for reducing the useful life of certain digital assets.
To calculate a common basis of comparison with the company’s full-year digital earnings projection, as adjusted for the two accounting changes cited, requires the exclusion of $44 million of costs associated with Creo’s operating results and purchase accounting for the KPG and Creo acquisitions, as well as the exclusion of $12 million of in-process research and development credits. On this basis, digital earnings in the third quarter were $42 million, and they were greatly improved in September versus the first two months of the quarter. This supports the company’s previously expressed view that the bulk of Kodak’s digital earnings in 2005 will be generated in the last four months of the year.
“In the third quarter, our digital revenue exceeded our traditional revenue for the first time on a quarterly basis, representing another milestone in our digital transformation,” said Antonio M. Perez, Chief Executive Officer and President, Eastman Kodak Company . “As importantly, on the basis outlined above, our digital earnings were 3.5 times greater than in the year-ago quarter, and September’s significant improvement increases our confidence for strong digital earnings in the fourth quarter.
“We remain committed to the 2005 cash flow target presented at our Sept. 28 investor meeting,” Perez said. “For the quarter, our cash flow performance was consistent with our expectations, our cash balance increased, and our debt decreased sequentially from the second quarter. We are delivering on the three key metrics by which we are managing the company: digital revenue growth, digital earnings growth and the generation of cash.
“Within the business units, we continue to see widespread evidence of the success of our digital transformation,” Perez said. “Our Graphic Communications Group continues to demonstrate strong growth, coming off a very successful Print 05 trade show in September.”
