Gross profit margin is declining significantly every year and is now below 30%. This is the result of price declines in traditional film products. Kodak has not been able to replace its high-margin film products with comparable margin digital products. One positive area is the increase in gross profit margin in the Graphic Communications segment, a result of acquisitions in 2004.
R&D has been increased each year which is usually a good sign that a firm is trying to innovate; however, careful reading of the Management Discussion and Analysis (MDA) reveals that some of the increase is a result of writing off purchased in-process R&D in prior years compared to the most recent year. Most companies record this item as a separate line on their income statements, but Kodak has hidden this information.
Kodak has many challenges to overcome. Its strategy so far, has not been beneficial in terms of profitability.