$2.5 Billion ($13.3B Total)
No. of Employees: 40,900

Conducting a review of the Kodak Health Group’s 2006 performance in mid-2007 is much like profiling a company’s CEO after he or she already has moved on to another organization. In December, Kodak announced that it would sell its healthcare imaging arm to a subsidiary of Toronto, Canada-based Onex Corp., one of Canada’s largest investment firms.

Under terms of the agreement, Kodak received $2.35 billion, plus up to $200 million in additional future payments if Onex achieves certain returns with respect to its investment. The health imaging business—including medical solutions, dental systems and molecular imaging—had reported two straight years of quarterly losses. Kodak stressed that the 8,100 employees would remain part of they newly spun-off organization. Kevin Hobart, president of Kodak’s Health Group, along with a majority of the company’s management, will remain under the new ownership. On a side note, Kodak said it would be laying off a significant portion of its workforce in 2007 as part of a cost restructuring plan.

Soon after the purchase was announced, the company’s name was changed to Carestream Health, Inc. In 2005, Kodak began using the Carestream name for a line of its digital medical imaging and IT products.

“Kodak’s Health Group is a business with significant market presence and intellectual property assets,” said Antonio Perez, Kodak’s chairman and CEO. “This sale maximizes shareholder value by obtaining a full and fair valuation for this business, and allows Kodak to increase its financial flexibility. We now plan to focus our attention on the significant digital growth opportunities within our businesses in consumer and professional imaging and graphic communications.”

Perez had floated the idea of selling the division in May 2006. The deal with Onex was announced in January and closed on April 30. In addition to refocusing Kodak on its core businesses, Perez also said increasing competition in the medical imaging arena made the divestiture a good move for the company. Competitors in health imaging include GE Healthcare, Siemens AG and Philips Electronics NV.

For fiscal 2006, Kodak’s Health Group reported revenue of $2.5 billion, down from nearly $2.7 billion in 2005. Gross profit for the Health Group was $912 million for 2006 as compared with $1 billion for the year prior, representing a decrease of $109 million, or 11%. Kodak’s overall sales have slipped in recent years as well. Revenue was $13.3 billion in 2006, compared to $14.3 billion in 2005, a 9% decrease. Domestic and international sales slipped 9% and 6%, respectively. Gross profit was $3.4 billion for 2006 as compared with $3.6 billion for 2005, representing a decrease of $250 million, or 7%.

In one of the first product announcements as Carestream, the company rolled out what its calls the first integrated digital medical imaging system featuring a portable X-ray generator and computed radiography system. The device was designed in conjunction with Siemens Medical Solutions and is available in the United States and Europe. The company said more than a dozen customers have placed orders for the KODAK Point-of-Care CR-ITX 560 System since it began shipping in May. The system is scheduled for availability later this year in China and other countries.

According to Carestream, the system is ideal for a wide range of healthcare facilities—including hospitals, trauma units, clinics and nursing homes—where immediate capture and access to patient images at the point of care is a vital part of accurate, time-critical diagnoses.

“Not only does the CR-ITX 560 eliminate the need to carry cassettes to remote CR readers, it also enables technologists to verify image quality at the patient’s bedside,” said Michael Marsh, president, Digital Capture Solutions, Carestream Health.

$2.7 Billion ($41.3B Total)
No. of Employees: 51,100

Over the last several years, parent company Kodak has been restructuring its divisions. As a result, various plants throughout the world have been closed, and the Health Group area might become the next victim as part of the overall restructuring.

In May 2006, the mega-imaging corporate giant retained Goldman, Sachs & Co. of New York, NY to investigate the possible sale of—or changes to—the unit.

Kodak CEO Antonio M. Perez said that it might be an opportune time because of the competitive marketplace environment for the healthcare imaging field.

“Our stated corporate goal is to be among the top three in each of the businesses in which we compete,” Perez said. “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.”

If the unit were sold by the Rochester, NY-based company, it would end a long history of healthcare dating back to the late 1800s, when George Eastman, the founder of Kodak, provided the first x-ray film for William Roentgen, the discoverer of the x-ray.

The Healthcare Group, like the rest of the Kodak units, has been transitioning in the last few years to the digital world.

Kodak Health Group suffered through revenue and earnings reductions in 2005 with flat sales and dwindling profits as the company faces stiffer competition and aggressive pricing tactics.

The company suffered from a 5% reduction in sales in its traditional strategic product groups, which include analog film and equipment, while digital product sales were only up 1%.

Overall, though, Kodak corporation sales increased 6% to $14.3 billion.

In the first quarter of 2006, Health Group sales dropped 7% to $585 million while earnings fell further, 41% to $46 million, as a result of reduced profits from traditional radiography film and digital output along with higher silver costs. Earnings in fiscal 2005 for the Health Group dropped 22% as the company was hit with higher prices for silver and rising competitive pressures.

In response to the drop in earnings, in March the Health Group announced worldwide double-digit increases in prices on all of its medical imaging films and related supplies.

“Staggering silver and petroleum costs began impacting our production expenses early last year,” said Kevin Hobert, president of Kodak’s Health Group.

While the Health Group as a whole resulted in flat sales in fiscal 2005, some bright spots in the group emerged from the PACS, RIS and departmental solutions of mammography and dental lines. Kodak’s Healthcare Information Solutions (HCIS) also jumped 39%, and the company inked its biggest-ever HCIS contract with National Services Scotland.

Digital x-ray revenues rose 15% with the help of the March 2005 acquisition of Yokneum, Israel-based OREX Computed Radiography for $51 million. And the field is expected to grow further in 2006 as the company released the DirectView DR 7500 system, which allows medical facilities to configure a digital X-ray solution that meets space, workflow and budget requirements.

The company also logged increased revenues from its CareStream product lines for digital medical imaging and information management systems and added to that with several orders in the first half of 2006.