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Kodak Announces Third-Quarter Results

November 5, 2007

Eastman Kodak Company (NYSE:EK) reported $34 million in earnings from continuing operations, or $0.12 per share, reflecting continued operational improvements, higher revenues in key business segments, and improved profit margins.

“I am very pleased with our third-quarter performance, which represents a milestone in the emergence of the new Kodak,” said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. “We delivered solid, value-creating digital growth, powered by a 12% increase in digital revenue, as well as expanded gross margins and positive net earnings. This increases my confidence in achieving our full-year goals and positions us well as we enter 2008.”

On the basis of generally accepted accounting principles in the U.S. (GAAP), the company reported third-quarter earnings from continuing operations of $29 million pre-tax, $34 million after tax, or $0.12 per share, compared with a loss of $53 million pre-tax, $83 million after tax, or a loss of $0.29 per share in the year-ago period. This represents an improvement of $82 million pre-tax and $117 million after-tax. Items of net expense impacting comparability in the third quarter of 2007 totaled $94 million after tax, or $0.33 per share. The most significant item was restructuring costs of $127 million before tax and $96 million after tax, or $0.33 per share.In the third quarter of 2006, items of net expense impacting comparability totaled $137 million after tax, or $0.48 per share, primarily reflecting restructuring costs.

For the third quarter of 2007:

• Sales totaled $2.581 billion, a decrease of 1% from $2.595 billion in the third quarter of 2006. Digital revenue totaled $1.589 billion, a 12% increase from $1.417 billion. Traditional revenue totaled $986 million, a 16% decline from $1.169 billion in the year-ago quarter.
• The company’s third-quarter earnings from continuing operations, before interest, other income (charges), net, and income taxes were $20 million, compared with a loss of $11 million in the year-ago quarter.
• Digital earnings for the third quarter improved by $54 million, to $82 million this quarter, from $28 million in the year-ago quarter.

Other financial details:

• Gross Profit margin was 26.4% for the quarter, up from 25.1% in the prior year, primarily attributable to lower costs from manufacturing footprint reductions, offset by adverse silver and aluminum costs.
• Selling, General and Administrative expenses decreased $37 million from the year-ago quarter, reflecting the company’s cost reduction activities. SG&A as a percentage of revenue was 17%, down from 18% in the year-ago quarter.
• Net Cash Generation for the third quarter represented a use of $95 million, compared with positive cash flow of $151 million in the year-ago quarter. This corresponds to net cash provided by operating activities from continuing operations of $1 million for the third quarter, compared with $237 million in the year-ago quarter.
• The company’s debt level stood at $1.626 billion as of September 30, 2007. This is a $1.152 billion reduction from the 2006 year-end debt level of $2.778 billion.
• Kodak held $1.847 billion in cash and cash equivalents as of September 30, 2007, an increase of $745 million from the year-ago period. This was primarily the result of proceeds from the company’s sale of its Health Group, which was completed in the second quarter of 2007.

Segment sales and results from continuing operations, before interest, taxes, and other income and charges (earnings from operations), are as follows:

• Consumer Digital Imaging Group earnings from operations improved by $13 million to $10 million, compared with a year-ago loss of $3 million. This improvement was driven by changes in product portfolio, partially offset by costs associated with increased manufacturing and new product introduction activities in the Inkjet Systems business. Sales for the third quarter were $1.123 billion, a 1% increase from the year-ago quarter. Revenues from digital products grew by 16% for the quarter versus the prior year, driven by growth in digital capture, kiosks and related media.

The company continues to expand retail distribution for its new consumer inkjet printer line as it increases manufacturing capacity, most recently with Circuit City and Sam’s Club in the U.S. and Wal-Mart in Canada. The company’s consumer inkjet products are now available at more than 7,600 retail outlets worldwide. Kodak remains focused on selling 500,000 units this year and achieving $1 billion in sales in 2010.

• Graphic Communications Group earnings from operations were $42 million, compared with $26 million in the year-ago quarter. The 62% earnings increase was primarily driven by increased sales and lower SG&A expenses, partially offset by higher aluminum costs. Sales for the third quarter were $928 million, a 5% increase from the year-ago quarter. Revenues from digital products grew by 9% for the quarter versus the prior year, driven by increased sales of digital plates, NEXPRESS digital color printing presses, and digital printing consumables.
• Film Products Group earnings from operations were $122 million, compared with $115 million in the year-ago quarter, representing continuing operational improvement in the face of declining revenue. During the third quarter of 2007, the group achieved a 25% operating margin, as compared with 19% in the year-ago quarter. The operating margin performance resulted from the company’s continued focus on reducing manufacturing and SG&A costs ahead of anticipated revenue declines. Film Products Group sales were $488 million, down from $593 million in the year-ago quarter, representing a decrease of 18%, in line with expectations.

      “Our relentless focus on digital business model innovation and the dramatic operational improvements we have achieved over the past four years have created a solid foundation for our future,” said Perez. “We have the right talent, business structure, technology, brand, and growing product portfolio to generate sustainable, profitable growth and significant value for our shareholders.”