Kodak photo-quality inkjet papers showed strong growth over 2002, and were tied for No. 1 in U.S. market share in this category. To build on this momentum, the Company introduced new Kodak ultima picture paper with ColorLast technology, providing long-lasting prints.

The Kodak network. During the year, we made significant progress in assembling the components of the Kodak digital imaging network, which enables consumers to enjoy their picture experience anytime, anywhere — at home, on the go and at retail. A key component includes our Ofoto online picture service. Its sales grew more than 50 percent as picture uploads increased 98 percent year-over-year. Ofoto online membership now totals more than 11 million users, and during the year it expanded services to the UK, France and Germany. In the future, an agreement with Microsoft Corporation will enable consumers to access their Ofoto picture albums from their living rooms.

Also integral to the network are retailers offering digital printing services, including many of the 50,000 Kodak picture maker kiosks sold worldwide since the product was launched. The new Kodak film processing station introduced in early 2004 is the only self-service kiosk that lets consumers develop and print in minutes photo-quality Kodak pictures from 35mm film. This service includes a Kodak picture CD, which serves as a digital negative of the processed images.

Home printing with the Kodak EasyShare digital camera system provides a fun and easy way to enjoy and share images through the Kodak network. And now wireless camera phone users have access to the network through Kodak agreements with major U.S. service providers such as Verizon and Cingular.

Participants in the Kodak network also include professional photographers and laboratories that serve customers through Kodak digital workflow solutions and components like the new Kodak photo printer 6800.

Enthusiastic acceptance of new Kodak Vision2 500T motion picture film drove increased sales of color negative origination films for feature movies, offsetting softness in the TV and advertising segments. A continuing trend toward worldwide releases of blockbuster movies such as Finding Nemo and Matrix Revolutions led to strong sales of print distribution films, despite slightly lower industry box office sales compared to 2002. The new Kodak digital cinema pre-show system is currently operational on more than 200 theater screens nationwide. And services for film restoration, preservation, mastering and post-production had solid revenue growth. A key acquisition, Laser-Pacific Media Corp., will help Kodak build a presence in television post-production services.

Health Imaging
Our Health Imaging business continued to be one of the strongest contributors to Kodak sales and earnings during 2003.

Digital output such as Kodak DryView film continues to grow. Our share leadership and Kodak brand strength in traditional x-ray diagnostics provides a solid launching pad for Kodak's aggressive expansion into digital and computed radiography, as well as information solutions such as picture archiving and communications systems (PACS).

Strong growth in digital applications bolstered the unit's performance for the year. Computed (CR) and digital (DR) radiography had solid doubledigit growth. Also delivering a double-digit year-over-year growth was the increasingly important health services business. Our information systems business ended the year with strong momentum.

Silver halide x-ray film continues to be the radiologist's choice for diagnostic images, especially for applications such as oncology and mammography. Specialty film volumes grew, while overall analog film volumes were down slightly.

Numerous acquisitions made in 2003 are key to the expansion of our health markets participation. PracticeWorks strengthens our dental business. MiraMedica helps us move forward in computer-aided detection solutions. FrontPorch DIVArchive Medical Software and Algotec helped expand our offerings for PACS.

Commercial Imaging
The fourth quarter 2003 realignment distributed Kodak's commercial strategic product groups among three businesses: Commercial & Government Systems, Commercial Printing, and Display and Components. Overall, revenues from these businesses showed good growth on increased volumes and favorable foreign exchange.

In Commercial & Government Systems, strong year-over-year growth was achieved in the unit's remote sensing systems business, which includes satellite imaging. Early in 2004, the Company agreed to sell its Remote Sensing Systems operation to ITT Industries, Inc. Imaging services to commercial and government customers also showed strong growth. Kodak high-speed document scanners are the No. 1 seller, and in January 2004 the Company introduced its newest addition, the Kodak i280 scanner.