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Article by DailyStocks_admin    (07-21-08 07:28 AM)

Filed with the SEC from July 10 to July 16:

Eastman Kodak (EK)
Franklin Mutual Advisers asked the maker of cameras and film to expand its recently announced $1 billion stock-repurchase program. Franklin suggested that the company return its cash on hand to shareholders via a $6-per-share special dividend or Dutch auction. Franklin reported owning 15,575,778 shares (5.4%).


Eastman Kodak Company (the Company or Kodak) is the world’s foremost imaging innovator, providing imaging technology products and services to the photographic and graphic communications markets. When used in this report, unless otherwise indicated, “we,” “our,” “us,” the “Company” and “Kodak” refer to Eastman Kodak Company. The Company’s products span:

* Digital cameras and accessories

* Consumer inkjet printers and media

* Digital picture frames

* Retail printing kiosks and related media

* On-line imaging services

* Prepress equipment and consumables

* Workflow software for commercial printing

* Electrophotographic equipment and consumables

* Inkjet printing systems

* Document scanners

* Origination and print films for the entertainment industry

* Consumer and professional photographic film

* Photographic paper and processing chemicals

* Wholesale photofinishing services

Kodak was founded by George Eastman in 1880 and incorporated in 1901 in the State of New Jersey. The Company is headquartered in Rochester, New York.

This year Kodak substantially completed a four-year corporate restructuring and our 2007 results begin to reflect the benefits. We have a traditional business with a sustainable business model as a result of taking costs out ahead of the market decline. We have a strong digital portfolio with differentiated products in growing markets where our unique technology and brand allows us to have leading market positions.

Going forward, we are poised to achieve sustainable, profitable growth through portfolio expansion in our digital capture businesses and significant growth in our output businesses. These businesses will be built by continuing to create competitive solutions from a unique intellectual property portfolio combining materials science and digital image science.

During 2007, all key digital businesses grew and our digital profitability grew faster than total company revenue. We made significant improvement in our digital earnings from operations, and continue to see strong cash flow and earnings from our traditional businesses. We achieved market success with the new product launch of consumer inkjet printers, made great progress on the introduction of CMOS technology and products and drove top-line growth in the Graphic Communications Group through product line extension and entering new markets. We made significant progress toward installing our target cost model by substantially completing the corporate restructuring, reducing costs ahead of the decline in our traditional businesses, improving our go-to-market structure while taking out more than one percentage point of selling, general and administrative expenses (“SG&A”) costs as a percent of sales, and significantly improving our digital portfolio profitability. To ensure our future, we continued to make significant research and development (“R&D”) investments in key focus areas. We completed the sale of the Health Group and ended the year with a strong balance sheet.

For 2008, the Company will focus on the following key metrics:

* Cash generation before dividends

* Growth in revenue from the Consumer Digital Imaging Group and the Graphic Communications Group

* Growth in earnings from operations

In addition, the 2008 Strategic Imperatives include:

* Driving unit growth in digital output businesses for future annuities

* Margin enhancement in our digital capture businesses

* Cash generation from our traditional businesses, utilizing cost efficiencies to address industry demand declines

* Execution excellence to drive productivity gains

As of and for the year ended December 31, 2007, the Company reported financial information for three reportable segments: Consumer Digital Imaging Group (CDG), Film Products Group (FPG), and Graphic Communications Group (GCG). The balance of the Company's operations, which individually and in the aggregate do not meet the criteria of a reportable segment, are reported in All Other.

The following business discussion is based on the three reportable segments and All Other as they were structured as of and for the year ended December 31, 2007. The Company's sales, earnings and assets by reportable segment for these three reportable segments and All Other for each of the past three years are shown in Note 24, “Segment Information.”


Sales from continuing operations of the CDG segment for 2007, 2006 and 2005 were (in millions) $4,631, $4,711, and $5,646, respectively.

The Company is a global leader in providing digital photography products and services for consumer markets. Kodak holds top three market shares in many major categories in which it participates, such as digital still cameras, retail printing, and digital picture frames.

CDG's mission is to enhance people’s lives and social interactions through the capabilities of digital imaging technology, combined with Kodak’s unique consumer knowledge, brand and intellectual property. This focus has led to a full range of product and service offerings to the consumer. CDG’s strategy is to extend picture taking, picture search/organizing, creativity, sharing and printing to bring innovative new experiences to consumers – in ways that extend Kodak’s legendary heritage in ease of use.

Digital Products : Consumer digital products include digital cameras, digital picture frames, home imaging accessory products, and snapshot printers and printer media. These product lines fuel Kodak’s participation in the high revenue growth imaging device and accessory markets. Products are sold directly to retailers or distributors, and are also available to customers through the Internet at the Kodak store (www.kodak.com). Kodak’s full line of camera products and accessories enable the consumer to personalize their digital camera and their photographic experience. In January 2007 Kodak introduced a new line of Digital Picture Frames that play customizable slideshows of pictures and videos that can be set to music.

Retail Printing : In January 2007, the Retail Printing Group was redefined to manage Kodak’s complete set of digital printing hardware, media and infrastructure offerings to retailers. This consolidation enabled a complete set of resources to be applied to bringing innovative service products to retailers, and as such added scale and stability to CDG’s ongoing revenue, cash flows and earnings. Kodak’s product and service offerings to retailers include retail kiosks, color paper, processing chemistry, retail store merchandising and identity programs, after sale service and support, web infrastructure support, and wholesale printing services. Kodak Picture Kiosks and associated media, with approximately 90,000 installations worldwide, are sold directly to major retailers and provide consumers with a flexible array of output products from their digital images. These products include high-quality custom printed products, and the ability to automatically create collages and interactive, picture-movie DVDs set to music.

Online Imaging Services : Kodak Gallery, which has more than 50 million members, is a leading online merchandise and sharing service in the category. The Kodakgallery.com site provides consumers with a secure and easy way to view, store and share their photos with friends and family, and to receive Kodak prints and other creative products from their pictures, such as photo books, frames, calendars, and a host of other personalized merchandise. In 2006, Kodak entered a partnership to develop and sell a line of branded Martha Stewart photo products on Kodak Gallery. Products are distributed directly to consumers’ homes, or through relationships with major retailers. Additionally, the site is a chosen partner for leading companies such as Adobe, Apple, Microsoft, and Amazon.

Kodak also distributes Kodak EasyShare desktop software at no charge to consumers, which provides easy organization and editing tools, and unifies the experience between digital cameras, home printers, and the Kodak Gallery services.

Imaging Sensors : Kodak's line of CCD and CMOS sensors provides an attractive market opportunity, including mobile, automotive, industrial and professional imaging sectors. Kodak has leading sensor architecture intellectual property positions, and operates with an "asset light" manufacturing strategy that includes partnerships with key industry players for large-scale semiconductor manufacturing.

All-in-One Inkjet Printers : In February 2007, Kodak introduced the Kodak All-in-One Inkjet Printing System as a major initiative to drive future revenue growth and earnings. Four key components enable an expected breakthrough market entry: 1) a proprietary high-speed inkjet printing system; 2) nanoparticle pigment-based inks; 3) instant-dry, porous papers; and 4) Kodak’s unique Image Science technologies. Additionally, the system is designed with a permanent print head. This unique offering is targeting the high-volume document and photo printer market with a breakthrough value proposition delivering lower cost per printed page as compared with competitive products. The inkjet operating model leverages Kodak technology and the efficiency of the current industry infrastructure to achieve an “asset light” approach to deliver this unmatched value proposition to the marketplace.

Marketing and Competition : The Company faces competition from other online service companies, consumer electronics and printer companies in the markets in which it competes, generally competing on price and technological advances. Rapid price declines shortly after product introduction are common in this environment, as producers are continually introducing new models with enhanced capabilities, such as improved resolution and/or optical systems in cameras.

The key elements of CDG’s marketing strategy emphasize ease of use, quality and the complete solution offered by Kodak products and services. This is communicated through a combination of in-store presentation, online marketing, and advertising. The Company's advertising programs actively promote the segment’s products and services in its various markets, and its principal trademarks, trade dress, and corporate symbol are widely used and recognized. Kodak is frequently noted by trade and business publications as one of the most recognized and respected brands in the world.

The Company’s strategy to address the decline in the market for color photographic papers is to offer a variety of color paper formulations designed to optimize digital printing workflows in consumer and professional photo processing labs. The Company also offers to professional and commercial labs an industry-leading family of digital workflow software designed to improve their workflows and enhance our position as a leading supplier of consumables.


Sales from continuing operations of the FPG segment for 2007, 2006 and 2005 were (in millions) $1,968, $2,312, and $2,841, respectively.

This segment is composed of traditional photographic products and services used to create motion pictures, and for consumer, professional and industrial imaging applications. The Company manufactures and markets films (motion picture, consumer, professional, industrial and aerial), and one-time-use and re-loadable film cameras.

The market for consumer and professional films and certain industrial and aerial films are in decline and are expected to continue to decline due to digital substitution. The market for motion picture films, however, has remained relatively stable, with any significant impact from digital substitution still expected to evolve sometime into the future. The future impact of digital substitution on the motion picture film market is difficult to predict due to a number of factors, including the pace of digital technology adoption in major world markets, the underlying economic strength or weakness in these markets, the timing of digital infrastructure installation, and the ability to finance the installation of digital systems.

Marketing and Competition: The fundamental elements of the Company’s strategy with respect to the photographic products in this segment are to create a sustainable business model, serving customers for traditional products while aggressively managing our cost structure for those businesses that are in decline. Selective innovation plays a key element in this strategy.

The Company’s strategy for the Entertainment Imaging business is to sustain motion picture film’s position as the pre-eminent capture medium for the creation of motion pictures, television dramas, and commercials. Selective investments to improve film’s superior image capture and quality characteristics are part of this strategy. Kodak has the leading share of the origination film market by a significant margin, led by the widely-acclaimed and Oscar-award-winning VISION2 series of motion picture films and the positive reception of our recently introduced VISION3 motion picture film.

The distribution of motion pictures to theaters on print film is another important element of the business, one in which the Company continues to be widely recognized as the market leader. Price competition is a bigger factor in this segment of the motion picture market, but the Company continues to maintain the leading share position, with several multi-year agreements with the major studios.

Throughout the world, most Entertainment Imaging products are sold directly to studios, laboratories, independent filmmakers or production companies. Quality and availability are important factors for these products, which are sold in a price competitive environment. As the industry moves to digital formats, the Company anticipates that it will face new competitors, including some of its current customers and other electronics manufacturers.

In the consumer and professional film markets, Kodak continues to maintain the leading worldwide share position despite continuing strong competition as the market declines, through ongoing product innovation and customer relations and service. In 2007, product innovations included upgrades to select consumer films, one-time-use cameras, and professional films. These products were introduced worldwide and won significant acclaim and industry awards, especially among professional photographers. The continuing industry consolidation, along with the retailers’ move towards carrying fewer brands on their shelves, has enabled the Company to secure a number of preferred contract renewals with leading retailers in Europe and North America, strengthening our position.

Traditional film products and services for the consumer market are sold throughout the world, both direct to retailers and, increasingly, through distributors. Price competition continues to exist in all marketplaces. To be more cost competitive with its traditional film product offerings, the Company has rationalized capacity and restructured its go-to-market model. Digital substitution has led to substantial declines in film usage throughout most of the world. However, surveys conducted in the U.S. and Europe during 2007 have indicated that the majority of professional photographers will continue to use film, in addition to digital.


Sales from continuing operations of the Graphic Communications Group segment for 2007, 2006 and 2005 were (in millions) $3,590, $3,477, and $2,825, respectively.

The Graphic Communications Group segment serves a variety of customers in the creative, in-plant, data center, commercial printing, packaging, newspaper, and digital service bureau market segments with a range of software, media, and hardware products that provide customers with a variety of solutions for prepress equipment, workflow software, digital and traditional printing, document scanning, and multi-vendor IT services. Products include digital and traditional prepress equipment and consumables, including plates, chemistry, and media; workflow software and digital controller development; color and black and white electrophotographic equipment and consumables; high-speed, high-volume continuous inkjet printing systems; wide-format inkjet inks and media; high-speed production and workgroup document scanners; and micrographic peripherals and media (including micrographic films). GCG also provides maintenance and professional services for Kodak and other manufacturers' products, as well as providing imaging services to customers.

Marketing and Competition: Throughout the world, graphic communications products are sold through a variety of direct and indirect channels. The end users of these products include businesses in the commercial printing, data center, in-plant and digital service provider market segments. While there is price competition, the Company has generally been able to maintain price by adding more attractive features to its products through technological advances. The Company has developed a wide-ranging portfolio of digital products - workflow, equipment, media, and services to meet the needs of customers who are interested in converting from analog to digital technology. Maintenance and professional services for the Company's products are sold either through product distribution channels or directly to the end users. In addition, a range of inkjet products for digital printing and proofing are sold through direct and indirect means. Document scanners are sold primarily through a two-tiered distribution channel to a number of different industries.

The growth in digital solutions has negatively affected revenues from traditional graphic arts films, analog plates and other traditional products. As a result, the Company has become more active in digital printing products, software and services in order to participate in these growth segments. The Company remains competitive by focusing on developing digital solutions based on inkjet, thermal and electrophotographic technologies including comprehensive workflow, training, and service systems.


Sales from continuing operations comprising All Other for 2007, 2006 and 2005 were (in millions) $112, $68, and $83, respectively.

All Other is composed of the Company's display business and other small, miscellaneous businesses.


On April 30, 2007 the Company closed on the sale of its Health Group to Onex Healthcare Holdings, Inc., a subsidiary of Onex Corporation. Approximately 8,100 employees of the Company associated with the Health Group transitioned to Carestream Health Inc. as part of the transaction. Also included in the sale were manufacturing operations focused on the production of health imaging products, as well as an office building in Rochester, NY. The results of the sale and operations for the Health Group are presented as discontinued operations in the Consolidated Statement of Operations. All prior periods have been revised for comparison purposes. See Note 23, “Discontinued Operations” in the Notes to Financial Statements for further discussion.


Financial information by geographic area for the past three years is shown in Note 24, “Segment Information.”


The raw materials used by the Company are many and varied, and are generally readily available. Lithographic aluminum is the primary material used in the manufacture of offset printing plates. The Company procures raw aluminum coils from several suppliers on a spot basis or under contracts generally in place over the next one to three years. Silver is one of the essential materials used in the manufacture of films and papers. The Company purchases silver from numerous suppliers under annual agreements or on a spot basis. Paper base is an essential material in the manufacture of photographic papers. The Company has contracts to acquire paper base from certified photographic paper suppliers over the next several years.


Sales and earnings of the CDG segment are linked to the timing of holidays, vacations and other leisure or gifting seasons. In 2007, sales of digital products were highest in the last four months of the year. Digital capture and consumer inkjet printing products have experienced peak sales in this period as a result of the December holidays. Sales are normally lowest in the first quarter due to the absence of holidays and fewer picture-taking opportunities during that time. These trends are expected to continue as the Company continues to experience growth in sales of digital products.

Sales and earnings of the FPG segment are linked to the timing of holidays, vacations and other leisure activities. Sales and earnings are normally strongest in the second and third quarters as demand is high due to heavy vacation activity, events such as weddings and graduations, and the summer motion picture season.

Sales and earnings of the GCG segment exhibit modestly higher levels in the fourth quarter. This is driven primarily by the sales of continuous inkjet, electrophotographic printing, and document scanner products due to seasonal customer demand linked to commercial year-end advertising processes.


Through the years, the Company has engaged in extensive and productive efforts in research and development.

Research and development is headquartered in Rochester, New York. Other U.S. groups are located in Boston, Massachusetts; New Haven, Connecticut; and San Jose, Emeryville, and San Diego, California. Outside the U.S., groups are located in England, France, Israel, Germany, Japan, China, and Singapore. These groups work in close cooperation with manufacturing units and marketing organizations to develop new products and applications to serve both existing and new markets.

It has been the Company's general practice to protect its investment in research and development and its freedom to use its inventions by obtaining patents. The ownership of these patents contributes to the Company's ability to provide leadership products and to generate revenue from licensing. The Company holds portfolios of patents in several areas important to its business, including digital cameras and image sensors; network photo sharing and fulfillment; flexographic and lithographic printing plates and systems; digital printing workflow and color management proofing systems; color and black and white electrophotographic printing systems; wide-format, continuous, and consumer inkjet printers; inkjet inks and media; thermal dye transfer and dye sublimation printing systems; digital cinema; color negative films, processing and papers; and organic light-emitting diodes. Each of these areas is important to existing and emerging business opportunities that bear directly on the Company's overall business performance.

The Company's major products are not dependent upon one single, material patent. Rather, the technologies that underlie the Company's products are supported by an aggregation of patents having various remaining lives and expiration dates. There is no individual patent or group of patents the expiration of which is expected to have a material impact on the Company's results of operations.


The Company is subject to various laws and governmental regulations concerning environmental matters. The U.S. federal environmental legislation and state regulatory programs having an impact on the Company include the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the NY State Chemical Bulk Storage Regulations and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (the Superfund Law).

It is the Company’s policy to carry out its business activities in a manner consistent with sound health, safety and environmental management practices, and to comply with applicable health, safety and environmental laws and regulations. The Company continues to engage in programs for environmental, health and safety protection and control.

Based upon information presently available, future costs associated with environmental compliance are not expected to have a material effect on the Company's capital expenditures, earnings or competitive position. However, such costs could be material to results of operations in a particular future quarter or year.

Environmental protection is further discussed in Note 11, "Commitments and Contingencies," in the Notes to Financial Statements.


At the end of 2007, the Company employed the full time equivalent of approximately 26,900 people, of whom approximately 14,200 were employed in the U.S. The actual number of employees may be greater because some individuals work part time.


Robert L. Berman

Mr. Berman was appointed to his current position in January 2002 and was elected a Vice President of the Company in February 2002. In March 2005, he was elected a Senior Vice President by the Board of Directors. In this capacity, he is responsible for the design and implementation of all human resources strategies, policies and processes throughout the corporation. He is a member of the Eastman Kodak Company Executive Council, and serves on the Company’s Senior Executive Diversity and Inclusion Council and Ethics Committee. He works closely with Kodak’s CEO, Board of Directors and Executive Compensation and Development Committee on all executive compensation and development processes for the corporation. Prior to this position, Mr. Berman was the Associate Director of Human Resources and the Director and divisional vice president of Human Resources for Global Operations, leading the delivery of strategic and operational human resources services to Kodak’s global manufacturing, supply chain and regional operations around the world. He has held a variety of other key human resources positions for Kodak over his 25 year career, including the Director and divisional vice president of Human Resources for the global Consumer Imaging business and the Human Resources Director for Kodak Colorado Division.

Philip J. Faraci

Philip Faraci was named President and Chief Operating Officer, Eastman Kodak Company, in September 2007. As President and COO, Mr. Faraci is responsible for the day-to-day management of Kodak’s two major digital businesses: the Consumer Digital Imaging Group (CDG) and the Graphic Communications Group (GCG). Mr. Faraci had been President of CDG and a Senior Vice President of the Company. He joined Kodak as Director, Inkjet Systems Program in December 2004. In February 2005 he was elected a Senior Vice President of the Company. In June 2005, he was also named Director, Corporate Strategy & Business Development.

Prior to Kodak, Mr. Faraci served as Chief Operating Officer of Phogenix Imaging and President and General Manager of Gemplus Corporation’s Telecom Business Unit. Prior to these roles, he spent 22 years at Hewlett-Packard, where he served as Vice President and General Manager of the Consumer Business Organization and Senior Vice President and General Manager for the Inkjet Imaging Solutions Group.

Joyce P. Haag

Ms. Haag began her Kodak career in 1981, as a lawyer on the Legal Staff. She was elected Assistant Secretary in December 1991 and elected Corporate Secretary in February 1995. In January 2001, she was appointed to the additional position of Assistant General Counsel. In August 2003, she became Director, Marketing, Antitrust, Trademark & Litigation Legal Staff and in March 2004, she became General Counsel, Europe, Africa and Middle Eastern Region (EAMER). In July 2005, she was promoted to General Counsel and Senior Vice President.

Prior to joining the Kodak Legal Staff, Ms. Haag was an associate with Boylan, Brown, Code, Fowler Vigdor & Wilson LLP in Rochester, New York.

Mary Jane Hellyar

Mary Jane Hellyar joined Eastman Kodak Company in 1982 as a research scientist in the Kodak Research Laboratories and over the next ten years held a variety of positions within R&D, Film Manufacturing, and chemical process development. Following a one-year program at the Sloan School, she joined Consumer Imaging in the Strategic Planning function in 1994.

In 1995 Ms. Hellyar became director of the Color Product Platform, responsible for development and commercialization of all color films, papers and chemicals.

Effective May 1999, Ms. Hellyar was named general manager, Consumer Film Business, Consumer Imaging and was elected a corporate vice president. Subsequently, her responsibilities were expanded to include professional films, photographic paper and chemicals.

In November 2004, Ms. Hellyar was named President, Display and Components Group. In January 2005, the Board of Directors elected her a Senior Vice President.

In September 2005, the Company moved to four vertical businesses. Ms. Hellyar became President, Film & Photofinishing Systems Group, while also continuing responsibility for Kodak’s Display business.

In January 2007, Ms. Hellyar's business was renamed the Film Products Group reflecting its three core businesses: Entertainment Imaging, Film Capture, and Aerial and Industrial Markets. At the same time she assumed the added responsibility of President, Entertainment Imaging. In October 2007, the Board of Directors elected Ms. Hellyar an Executive Vice President.

James T. Langley

Mr. Langley is a Senior Vice President, Eastman Kodak Company. He joined Kodak as President, Commercial Printing, in August 2003. In September 2003, he was elected a Senior Vice President of the Company. The Commercial Printing Group was renamed Graphic Communications Group in May 2004. In September 2007, the Company created the new position of President, Chief Operating Officer, and, as a result, eliminated the position of President for GCG. Mr. Langley will leave Kodak once he completes his work on several special projects, and he remains a Senior Vice President until his departure in mid-2008.

He was vice president of commercial printing at HP from March 2000 to August 2002. Prior to that assignment, Mr. Langley served for three years as vice president of inkjet worldwide office printers, responsible for expanding the presence of HP’s inkjet products in new, higher-end markets. From August 1993 to June 1997, Mr. Langley served as the general manager of HP’s Vancouver Printer Division.

William J. Lloyd

Mr. Lloyd joined Kodak in June 2003 as director, Portfolio Planning and Analysis. In October 2003, he was named director, Inkjet Systems Program, and was elected Vice President of the Company. In February 2005, he was elected a Senior Vice President. He assumed his current position as Chief Technical Officer in March 2005.

Prior to Kodak, Mr. Lloyd was president of the consulting firm, Inwit, Inc. focused on imaging technology. From November 2000 until March 2002, he served as executive vice president and chief technology officer of Gemplus International, the leading provider of Smart Card-based secure solutions for the wireless and financial markets.

In 2000, Mr. Lloyd served as the Co-CEO during the startup phase of Phogenix Imaging, a joint venture between Eastman Kodak and Hewlett-Packard.

Mr. Lloyd has extensive expertise in imaging and printing technologies, stemming from his 31-year career at Hewlett-Packard Company where he was group vice president and CTO for consumer imaging and printing. In his career at HP, Mr. Lloyd held a variety of positions in product development and research both in the U.S. and Japan. During his tenure in Japan (from 1990 until 1993) he directed the establishment of a branch of HP Laboratories.

Prior to joining Hewlett-Packard, he spent 7-years in the aerospace industry, where, among other things, he served as the project manager for the communications antenna on the Apollo Command and Service Module used in the lunar landing program.

Antonio M. Perez

Since joining the Company in April 2003, Kodak’s Chairman and Chief Executive Officer, Antonio M. Perez, has led the worldwide transformation of Kodak from a business based on film to one based primarily on digital technologies. In the past three years, Kodak introduced an array of new disruptive digital technologies and products for consumers, from inkjet printers to CMOS sensors for digital cameras and mobile phones. During this same period, Kodak built a new profitable commercial printer business with $3.6 billion in revenue. As a result, in 2006, a new Kodak began to emerge – for the first time in history more than 50 percent of Kodak revenue came from digital products, and the growth of Kodak’s digital earnings exceeded the decline of traditional earnings.

Mr. Perez brings to the task his experience from a 25-year career at Hewlett-Packard Company, where he was a corporate vice president and a member of the company’s Executive Council. As President of H-P’s Consumer Business, Mr. Perez spearheaded the Company’s efforts to build a business in digital imaging and electronic publishing, generating worldwide revenue of more than $16 billion.

Prior to that assignment, Mr. Perez served as President and CEO of H-P’s inkjet imaging business for five years. During that time, the installed base of H-P's inkjet printers grew from 17 million to 100 million worldwide, with revenue totaling more than $10 billion.

After H-P, Mr. Perez was President and CEO of Gemplus International, where he led the effort to take the company public. While at Gemplus, he transformed the company into the leading Smart Card-based solution provider in the fast-growing wireless and financial markets. In the first fiscal year, revenue at Gemplus grew 70 percent, from $700 million to $1.2 billion.

Frank S. Sklarsky

Mr. Sklarsky joined Kodak on October 30, 2006 as Executive Vice President, and became the Chief Financial Officer effective November 13, 2006.

Mr. Sklarsky is responsible for worldwide financial operations, including Financial Planning and Analysis, Treasury, Audit, Controllership, Tax, Investor Relations, Aviation, and Corporate Mergers & Acquisitions. He is also responsible for the Global Shared Services organization and the Worldwide Information Systems organization.

Prior to joining Kodak, Mr. Sklarsky was Executive Vice President and Chief Financial Officer of ConAgra Foods Inc., one of North America's leading packaged food companies. At ConAgra, he implemented a new financial organization, significantly strengthened the balance sheet, and played a major role in building credibility with the investment community. He also helped expand profit margins at the $14 billion company. In his 26-year career, he has developed a reputation for improving the financial operations, as well as the overall financial performance, of the companies he has served.

Prior to joining ConAgra in 2004, Mr. Sklarsky was Vice President, Product Finance, at DaimlerChrysler, a position he held between 2001 and 2004. He returned to DaimlerChrysler to assist with the company's turnaround efforts after spending more than one year as Vice President, Corporate Finance, and Vice President of Dell’s $5 billion consumer business. He first joined DaimlerChrysler in 1983 and held a series of increasingly responsible finance positions before leaving for Dell in 2000. At the time of his departure for Dell, he was DaimlerChrysler’s Vice President, Corporate Financial Activities, and also had financial responsibility for procurement, product quality, cost management and worldwide manufacturing during his tenure. Prior to DaimlerChrysler, Mr. Sklarsky, a certified public accountant, served as a Senior Accountant with Ernst & Young International from 1978 to 1981.

Diane E. Wilfong

Ms. Wilfong was appointed Corporate Controller and Chief Accounting Officer, Eastman Kodak Company in September 2006. She began her Kodak career in July 1999, as Director – Finance and Vice President, Kodak Professional Division. In late 2000, she was named Assistant to the Chairman and President and Chief Executive Officer, where she served the Chairman’s office in an executive capacity until early 2003. At that time, she took an operating line position as General Manager, Graphics and Printing Systems SPG, in the Commercial Imaging Group (now Graphic Communications Group). In mid-2005, Ms. Wilfong was appointed Director, Corporate Audit.

Prior to joining Kodak, Ms. Wilfong was Chief Financial Officer of Corning Asahi Video Products of Corning Incorporated, in Corning, New York. Ms. Wilfong joined Corning in 1990 and held a variety of management positions in its finance organization. She began her career at Price Waterhouse, where she was an audit manager in the Charlotte, North Carolina office of the firm.



Kodak is the world’s foremost imaging innovator and generates revenue and profits from the sale of products, technology, solutions and services to consumers, businesses and creative professionals. The Company’s portfolio is broad, including image capture and output devices, consumables and systems and solutions for consumer, business, and commercial printing applications. Kodak has three reportable business segments, which are more fully described later in this discussion in “Kodak Operating Model and Reporting Structure.” The three business segments are: Consumer Digital Imaging Group (“CDG”), Film Products Group (“FPG”) and Graphic Communications Group (“GCG”).

During 2007, the Company met or exceeded each of its strategic objectives established for the year:

* Net cash generation

* Earnings growth from digital products and services

* Revenue growth from digital products and services

The Company’s 2007 performance was the result of a series of actions taken and business model changes deployed over the last several years to dramatically transform the Company. Over this time period, the Company divested of businesses that were not strategic to the core value proposition of the new Kodak, while investing in targeted acquisitions which built critical capability, scale and portfolio breadth in high value-creating segments. The Company has also been keenly focused on reducing manufacturing capacity in the traditional imaging businesses ahead of demand reduction and rationalizing its go-to-market and administrative infrastructure through its 2004-2007 Restructuring Program, while concurrently investing in people, technology and capabilities in the growing digital businesses. These actions have led to a more sustainable global business model for Kodak. The Company’s 2007 financial results begin to reflect this improved business model.


The accompanying consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to management’s discussion and analysis of the financial condition and results of operations. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities.

The Company believes that the critical accounting policies and estimates discussed below involve the most complex management judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. Specific risks associated with these critical accounting policies are discussed throughout this MD&A, where such policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, refer to the Notes to Financial Statements.


The Company's revenue transactions include sales of the following: products; equipment; software; services; equipment bundled with products and/or services and/or software; integrated solutions, and intellectual property licensing. The Company recognizes revenue when it is realized or realizable and earned. For the sale of multiple-element arrangements whereby equipment is combined with services, including maintenance and training, and other elements, including software and products, the Company allocates to, and recognizes revenue from, the various elements based on their fair value.

At the time revenue is recognized, the Company also records reductions to revenue for customer incentive programs in accordance with the provisions of Emerging Issues Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given from a Vendor to a Customer (Including a Reseller of the Vendor's Products)." Such incentive programs include cash and volume discounts, price protection, promotional, cooperative and other advertising allowances and coupons. For those incentives that require the estimation of sales volumes or redemption rates, such as for volume rebates or coupons, the Company uses historical experience and internal and customer data to estimate the sales incentive at the time revenue is recognized. In the event that the actual results of these items differ from the estimates, adjustments to the sales incentive accruals would be recorded.

Incremental direct costs of a customer contract in a transaction that results in the deferral of revenue are deferred and netted against revenue in proportion to the related revenue recognized in each period if: (1) an enforceable contract for the remaining deliverable items exists; and (2) delivery of the remaining items in the arrangement is expected to generate positive margins allowing realization of the deferred costs. Incremental direct costs are defined as costs that vary with and are directly related to the acquisition of a contract, which would not have been incurred but for the acquisition of the contract.


The Company reviews the carrying value of its long-lived assets, including goodwill and purchased intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company’s assessments of impairment of long-lived assets, including goodwill and purchased intangible assets, and its periodic review of the remaining useful lives of its long-lived assets are an integral part of the Company's ongoing strategic review of the business and operations, and are also performed in conjunction with the Company’s restructuring actions. Therefore, changes in the Company’s strategy, the Company's digital transformation and other changes in the operations of the Company could impact the projected future operating results that are inherent in the Company’s estimates of fair value, resulting in impairments in the future. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact the assessments of impairment in the future.


The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" and Financial Accounting Standards Board (FASB) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). The asset and liability approach underlying SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the Company’s assets and liabilities. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure.

The Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. The Company has considered forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which the Company operates and prudent and feasible tax planning strategies in determining the need for these valuation allowances. If Kodak were to determine that it would not be able to realize a portion of its net deferred tax assets in the future, for which there is currently no valuation allowance, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made. Conversely, if the Company were to make a determination that it is more likely than not that the deferred tax assets, for which there is currently a valuation allowance, would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.

The Company’s effective tax rate considers the impact of undistributed earnings of subsidiary companies outside of the U.S. Deferred taxes have not been provided for the potential remittance of such undistributed earnings, as it is the Company’s policy to indefinitely reinvest its retained earnings. However, from time to time and to the extent that the Company can repatriate overseas earnings on essentially a tax-free basis, the Company's foreign subsidiaries will pay dividends to the U.S. Material changes in the Company’s working capital and long-term investment requirements could impact the decisions made by management with respect to the level and source of future remittances and, as a result, the Company’s effective tax rate.

The Company operates within multiple taxing jurisdictions worldwide and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Although management believes that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the earnings of the Company. Conversely, if these issues are resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings.

Worldwide Revenues
For the year ended December 31, 2007, net sales from traditional products (“traditional revenues” or “traditional net sales”) declined, driven by significant industry-related volume declines in the traditional businesses within all three segments. Partially offsetting this decrease was growth in revenues from digital product sales (“digital revenues” or “digital net sales”) in CDG and GCG. In addition, foreign exchange resulted in a positive impact to net sales during the period. The volume declines presented above were primarily driven by Film Capture within FPG, and the traditional portion of Retail Printing within CDG. Negative price/mix was primarily driven by the product portfolio shifts within Digital Capture and Devices and by Retail Printing within CDG. These items were partially offset by increases in intellectual property royalties.

Gross Profit
Gross profit improved in the year ended December 31, 2007 in both dollars and as a percentage of sales, due largely to reduced manufacturing and other costs as a result of a number of factors, as well as increased intellectual property royalties within CDG. In addition, foreign exchange was a positive contributor to gross profit as a result of the weak U.S. dollar’s net impact on revenues and costs. The decreases in manufacturing and other costs were due to a combination of the impact of the Company's cost reduction initiatives, strategic manufacturing and supply chain initiatives within CDG, lower restructuring-related charges, and lower depreciation expense, partially offset by increased silver and aluminum costs. The unfavorable price/mix was driven by product portfolio shifts in Digital Capture and Devices within CDG, and across the businesses within FPG.

Included in gross profit for the year are a non-recurring extension and amendment of an existing license arrangement and new non-recurring license arrangements. The impact of these licensing arrangements contributed approximately 2.3% of revenue to consolidated gross profit dollars in the current year, as compared with 1.7% of revenue to consolidated gross profit dollars for similar arrangements in the prior year. These types of arrangements provide the Company with a return on portions of historical R&D investments and similar opportunities are expected to have a continuing impact on the results of operations.

Selling, General and Administrative Expenses
The year-over-year decrease in consolidated SG&A in dollars and as a percent of sales was primarily attributable to significant Company-wide cost reduction actions, partially offset by increased advertising costs related to Consumer Inkjet Systems and the impacts of foreign exchange.

Research and Development Costs
The decrease in R&D costs was primarily driven by the continuing realignment of resources, as well as the timing of development of new products.

Restructuring Costs and Other
The most significant charge within restructuring costs was a $238 million impairment charge related to the sale of the Company's Xiamen, China facility in the second quarter. These costs, as well as the restructuring-related costs reported in cost of goods sold, are discussed in further detail under "RESTRUCTURING COSTS AND OTHER" below.

Other Operating (Income) Expenses, Net
The other operating (income) expenses, net category includes gains and losses on sales of capital assets and certain asset impairment charges. The year-over-year increase in other operating (income) expenses, net was largely driven by gains on sales of capital assets in the current year of $158 million, partially offset by asset impairments including the impairment of an intangible asset of $46 million in connection with the Company’s plan to dispose of its stake in Lucky Film Co. Ltd.

Interest Expense
Lower interest expense was primarily due to lower debt levels resulting from the full payoff of the Company's Secured Term Debt in the second quarter of 2007, partially offset by higher interest rates in the current year.

Other Income (Charges), Net
The Other income (charges), net category includes interest income, income and losses from equity investments, and foreign exchange gains and losses. The increase in other income (charges), net as compared with the prior year period was primarily attributable to increased interest income due to higher cash balances resulting from the proceeds on the sale of the Health Group (See Note 23, “Discontinued Operations” in the Notes to Financial Statements) and higher interest rates. This increase was partially offset by an impairment of an equity method investment.

The change in the Company’s annual effective tax rate from continuing operations is primarily attributable to the ability to recognize a tax benefit in continuing operations associated with the realization of current year losses in certain jurisdictions where it has historically had a valuation allowance due to the recognition of the pre-tax gain in discontinued operations and due to the favorable outcome of income tax audits in various jurisdictions around the world.

During the fourth quarter of 2007, based on the Company’s assessment of positive and negative evidence regarding the realization of the net deferred tax assets, the Company recorded a benefit associated with the release of valuation allowances of $20 million in certain jurisdictions outside the U.S.

During 2007, the Company reached a settlement with the Internal Revenue Service covering tax years 1999-2000. As a result, the Company recognized a tax benefit from continuing operations in the U.S. of $17 million, including interest. Also during 2007, the Company reached a settlement with the taxing authorities in two locations outside of the U.S. resulting in a tax benefit of $76 million.

During the second quarter of 2007, the Company identified a deferred tax asset in a recently acquired non-U.S. subsidiary that was overstated at the date of acquisition. Therefore, the Company recorded an increase in the value of goodwill of $24 million in the second quarter of 2007 to appropriately reflect the proper goodwill balance. The Company also recorded a valuation allowance of $20 million, which should have been recorded in 2006, in order to properly reflect the value of the net deferred tax asset. This amount is included in the $51 million tax benefit for the year ended December 31, 2007. The Company has determined that this correction is not material to the current period or to any prior period financial statement amounts.



Worldwide Revenues

For the three months ended March 31, 2008, net sales increased compared with the same period in 2007 due to foreign exchange and volume increases in both CDG and GCG, partly offset by industry-related volume declines within FPEG and unfavorable price/mix within CDG and GCG. Digital cameras, digital picture frames, and Inkjet Systems within CDG experienced significant increases in volume over the prior year period. In addition, within GCG, prepress plates experienced volume increases. Unfavorable price/mix was primarily driven by digital cameras within CDG, and Document Imaging and prepress plates within GCG.

Gross Profit

Gross profit declined in the first quarter of 2008 in both dollars and as a percentage of sales, due largely to unfavorable price/mix and the sale of inkjet printers during 2008, partially offset by favorable manufacturing and other costs, and favorable foreign exchange as a result of the weak U.S. dollar. The improvements in manufacturing and other costs were driven by lower restructuring-related charges, partially offset by increased silver and aluminum costs. The unfavorable price/mix was primarily driven by Digital Capture and Devices within CDG, and Prepress Solutions within GCG.

In the first quarter of 2008, the Company performed an analysis of expected industry-wide declines in the traditional film and paper businesses and its useful lives on related assets. This analysis indicated that the assets will continue to be used in these businesses for a longer period than previously anticipated. Based on this analysis, the Company revised the useful lives of certain existing production machinery and equipment, and manufacturing-related buildings effective January 1, 2008. These assets, which were previously set to fully depreciate by mid-2010, are now being depreciated with estimated useful lives ending from 2011 to 2015. The change in useful lives reflects the Company’s estimate of future periods to be benefited from the use of the property, plant, and equipment. As a result of these changes, the Company expects that depreciation expense will be reduced by approximately $108 million of which approximately $96 million will benefit pretax earnings from continuing operations in 2008. Refer to Note 1, “Basis of Presentation.”

The effect of this change in estimate for the three months ended March 31, 2008 was a reduction in depreciation expense of $28 million, $16 million of which has been recognized in cost of goods sold and is a benefit to loss from continuing operations, and $12 million of which is capitalized as a reduction in inventories at March 31, 2008. The net impact of this change is a decrease in fully-diluted loss per share of $.06.

Selling, General and Administrative Expenses

The year-over-year decrease in consolidated selling, general and administrative expenses (SG&A) was primarily attributable to Company-wide cost reduction actions, partially offset by unfavorable foreign exchange.

Restructuring Costs (Curtailment Gains) and Other

These costs, as well as the restructuring-related costs reported in cost of goods sold, are discussed under "RESTRUCTURING COSTS (CURTAILMENT GAINS) AND OTHER" below.


Other Operating Expenses (Income), Net

The other operating expenses (income), net category includes gains and losses on sales of capital assets and businesses and certain asset impairment charges. The year-over-year change in other operating expenses (income), net was largely driven by higher gains on sales of capital assets and businesses in the first quarter of 2008, as compared with 2007.

Other Income (Charges), Net

The other income (charges), net category includes interest income, income and losses from equity investments, and foreign exchange gains and losses. The increase in other income (charges), net was primarily attributable to higher interest income due to higher year-over-year cash balances resulting from the proceeds on the sale of the Health Group completed in the second quarter of 2007, and was also impacted by higher gains on foreign exchange transactions than in the prior year.

The change in the Company’s effective tax rate from continuing operations is primarily attributable to: (1) changes in the amount of losses generated within the U.S. and in certain jurisdictions outside the U.S., which were not benefited, resulting from previously established valuation allowances, (2) changes to the mix of earnings from operations in certain lower-taxed jurisdictions outside the U.S., (3) a benefit recognized during the first quarter of 2007 as a result of the Company reaching a settlement with a taxing authority in a location outside the U.S., and (4) discrete tax charges relating to the impacts from ongoing tax audits with respect to open tax years.

Worldwide Revenues

Net sales in CDG increased 20% primarily due to increases in Digital Capture and Devices and Consumer Inkjet Systems . Volume increases were primarily attributable to digital cameras, digital picture frames and inkjet systems, partially offset by negative price/mix within those product lines.

Net worldwide sales of Digital Capture and Devices , which includes consumer digital cameras, digital picture frames, accessories, memory products, snapshot printers and related media, and intellectual property royalties, increased 30% in the first quarter of 2008 as compared with the prior year quarter, primarily reflecting higher digital camera volumes, sales of digital picture frames, which were introduced at the end of the first quarter of 2007, and favorable exchange, partially offset by negative price/mix.

Net worldwide sales of Consumer Inkjet Systems , which includes inkjet printers and related consumables, increased significantly, reflecting the launch of the product line at the end of the first quarter of 2007.

Gross Profit

The decrease in gross profit margin for CDG was primarily attributable to the sale of inkjet printers during 2008 , partially offset by favorable foreign exchange.

Intellectual property royalties were flat compared with prior year. The current quarter results include approximately $32 million related to intellectual property licensing arrangements under which the Company’s continuing obligations are expected to be fulfilled by the end of 2008. The Company expects to secure other new licensing arrangements, the timing and amounts of which are difficult to predict.

As of March 31, 2008, the Company has approximately $481 million in deferred revenue related to intellectual property licenses. Of this amount, approximately $131 million is expected to be recognized in the Consolidated Statement of Operations through the remainder of 2008. The remaining portion of this deferred revenue is being recognized through 2015.

Selling, General and Administrative Expenses

The increase in SG&A expenses for CDG was primarily driven by increased selling expenses to support the inkjet printing category, and unfavorable foreign exchange.

Research and Development Costs

The decrease in R&D costs for CDG was attributable to decreases in spending related to Consumer Inkjet Systems .


Ann McCorvey

Good morning and welcome to our discussion of the first quarter sales and earnings. I am here this morning with Antonio Perez, Kodak’s Chairman and CEO, as well as Chief Financial Officer Frank Sklarsky. Antonio will begin this morning with his observations on the quarter and then Frank will provide a review of the quarterly financial performance.

As usual, before we get started I have some housekeeping activities to complete. Certain statements in this presentation may be forward-looking in nature or forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995.

For example, references to the company’s expectations for investment in consumer inkjet, distribution expansion, impact of commodity and raw material costs, newspaper production rationalization charges, depreciation, taxes, cash, segment and total company revenue, revenue growth, earnings and earnings growth are forward-looking statements.

These forward-looking statements are subject to a number of important risk factors and uncertainties which are fully enumerated in our press release this morning. Listeners are advised to read these important cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important factors and uncertainties.

Also, Kodak has significantly reduced its references to non-GAAP measures. In those instances where they are used, they are fully reconciled to the nearest GAAP equivalent in the documentation released this morning, which can also be found on the website.

Now I will turn the conference call over to Antonio Perez.

Antonio M. Perez

Thanks Ann and good morning everyone. 2008 is off to a good start and is a proof point that Kodak has returned to growth. Overall revenues grew 1% year over year and our digital businesses grew 10%. I am satisfied with our first quarter earnings and cash performance as they are right within our expectations given our seasonality and that gives me confidence for the full 2008.

Let me put the $119 million improvement in loss from continuing operations before taxes into perspective. The biggest driver of the improvement was lower restructuring charges of $161 million. Operationally, our losses increased as we had a full quarters’ investment in the placement of the consumer inkjet printer line and we experienced higher raw material cost. We were also negatively impacted by the Hollywood writers’ strike, which is over now.

The operational loss was partially offset by earnings growth in both our digital cameras and digital picture frames, where we continue to see the positive financial impact from our world-class supply chain and our improved product design capability. I am comfortable we are making the right investments across the company to fuel profitable growth.

In the first quarter, much of the cash used was related to planned investments in new products and revenue growth for the year. As a result, Kodak’s first quarter net cash usage of $764 million was higher than last year’s first quarter. However, we remain confident in our plans and our seasonality to deliver our full year net cash generation.

Frank will cover cash in more detail during his remarks. Now I will discuss the businesses.

The Film, Photofinishing, and Entertainment Group, FPEG, was slightly ahead of plan and delivered another quarter of solid earnings. While FPEG’s results include a number of positive and negative factors, it is important to highlight the negative impact of the Hollywood writers’ strike and higher raw material cost plus the positive impact of a traditional asset useful life change.

Our film business continues to be an important contributor to Kodak’s success with a sustainable business model and continued product innovation. In particular, I am pleased with the significant customer acceptance of our VISION 3 films during its first full quarter of sales. When combined with our first quarter performance, it gives me confidence that FPEG will achieve their full year goals.

Graphic Communications Group, GCG -- GCG’s revenue for the quarter was up 4% driven by growth in annuities across all of the product lines, with double-digit growth in plates, workflow and consumables for digital printing. However, our equipment sales declined year-over-year, as we are seeing the typical first quarter slowdown in orders in anticipation of DRUPA.

DRUPA is the graphic communication industry’s major trade show, which takes place every four years in Dusseldorf, Germany and will begin this year at the end of May. DRUPA will be a catalyst for revenue growth in the second half. It is a great opportunity to showcase Kodak as the only supplier with both conventional and digital solutions within a unified workflow. We will be highlighting over 25 new products from our prepress solutions, workflow and digital printing product lines, with new offerings that bring offset class quality, reliability, speed and cost.

GCG’s earnings from operations were slightly below plan, down $10 million versus the prior year first quarter, as the growth in revenue was not enough to offset the increased R&D investment in commercial inkjet and the unfavorable effect of raw materials.

We will continue to monitor raw material pricing and will raise prices where appropriate, taking into account customer and competitive situations. We are maintaining full year revenue and earnings growth targets for GCG. Consistent with the 2007 seasonality, amplified this year by the DRUPA effect, we expect to see accelerating revenue growth in GCG as we move through the year.

Now, the Consumer Digital Imaging Group, CDG -- CDG led the way in Kodak’s return to growth with revenues up 20% year over year. CDG’s growth in the first quarter was driven by digital cameras, digital picture frames and consumer inkjet products. The comparison will become less favorable as we reach the anniversary dates of the introduction of consumer inkjet and digital picture frames but, as we forecasted in February, we expect double-digit growth for CDG products for full year 2008.

CDG ended the quarter ahead of plan for earnings from operations with a loss of $111 million. Within CDG, digital cameras and digital picture frames had solid earnings improvement partially offsetting the year-over-year increase in the investment in consumer inkjet. However, for the full year we continue to expect our investment in inkjet to be less than 2007, as we complete full ramp up of this important product line.

We are pleased with the demand for our consumer inkjet products. As we announced last week, we are adding new products from our lower cost platform introduced in January and increasing our channel presence both geographically and with new retailers. We are on track to achieve our full year earnings target for CDG.

Now I will turn it over to Frank.

Frank S. Sklarsky

Thanks, Antonio and good morning everyone. I will provide a bit more information around our first quarter financial results and then Antonio and I will be happy to take your questions.

As Antonio indicated, we are pleased with the company’s performance in the first quarter, which included total revenue growth of 1% and digital revenue growth of 10%. Our overall financial results reflect a few key dynamics: the impact of timing shifts in our digital printing equipment placements in GCG, much of which is related to the anticipation of products to be shown at Drupa.

In addition, we experienced some headwinds associated with commodity cost and other raw material increases and we were also impacted by the Hollywood writer’s strike in our Entertainment Imaging group within FPEG.

Our cash usage, consistent with our internal expectations, was higher than the prior year due to a number of factors that I will speak to in a few moments. That said, we are confident in achieving our full year revenue, earnings and cash commitments we shared at our February investor meeting.

For the first quarter, consolidated revenue grew by 1% including a favorable foreign exchange impact of five percentage points. Importantly, we continued to experience double-digit revenue growth in our digital businesses. It is important to note that approximately 60% of our business is outside of the U.S. and although our revenues are favorably impacted by foreign exchange, we have a substantial international cost base so the impact of foreign exchange on the gross profit line is less than 1%.

In the quarter, the company’s gross profit margin decreased slightly to about 20.3% from about 20.6% in the prior year. This change is attributable largely to the mix impact of substantially increased units of Consumer Inkjet printers as compared to the prior year when the product was first introduced, the impact of the Hollywood writer’s strike in FPEG, along with continued unfavorable impacts of increased commodities and other raw material costs.

These effects were partially offset by continued improvements in digital cameras and digital picture frames and the impact of lower depreciation expense resulting from a change in useful lives. As it looks today, higher commodity and other raw material costs will continue to impact the company throughout the year. This area remains volatile and only a portion of the impact can be mitigated through hedging strategies.

Our SG&A decreased $9 million or 2%, and improved about a half point as a percent of sales to 18.4%. We continue to build on the substantial structural cost reductions achieved in prior periods.

We had consolidated first quarter GAAP pre-tax losses from continuing operations of $74 million versus $193 million in the year ago quarter, an improvement of $119 million, mostly attributable to lower year-over-year restructuring charges and continued reductions in SG&A.

As for restructuring, the company had minimal restructuring charges in the first quarter, which were more than offset by a $10 million net curtailment credit. We do anticipate some level of rationalization charges for the remainder of the year consistent with our guidance in February. Our corporate cash payments related to restructuring for the quarter were approximately $60 million.

On a segment basis, our Consumer Digital Imaging Group’s revenue grew by 20%, from $462 million to $554 million for the quarter, an increase of $92 million dollars. This was achieved on the strength of digital cameras, digital picture frames, and our Consumer Inkjet products.

The loss from operations increased by $36 million from $75 million in last year’s first quarter to a $111 million loss this year. The year-over-year decline in earnings resulted largely from increased investment in our Consumer Inkjet products, including the launch of the new platform, partially offset by improvements in profitability in digital cameras and digital picture frames.

Taking a look at Graphic Communications, our GCG business grew revenue by $29 million or 4% for the first quarter. This growth was a bit lower than our full year growth target but in line with our seasonal pattern and we also saw some softness due to our customers anticipating new product offerings to be rolled out at Drupa.

On the earnings side, GCG posted a $1 million loss in the first quarter, a decline of $10 million from the year ago quarter, largely attributable to R&D and related investments in our commercial inkjet business and the negative impact of aluminum cost.

Before I review the first quarter results for FPEG, I would like to share with you a few details associated with an accounting change in estimate, which we implemented this quarter.

As some of you know, in mid-year 2005 the company shortened the useful life assumptions on most of its traditional manufacturing assets to reflect the anticipated decline in the company’s traditional film and paper businesses. This operating assessment resulted in the useful lives of these assets ending in mid-2010 for accounting purposes.

Based upon the performance of the business and our latest projection of market trends, we have now concluded that to varying degrees, the estimated useful lives on these assets will be longer than previously anticipated. This has resulted in a decrease in depreciation expense for the company effective January 1, 2008.

As Antonio indicated, other factors aside, this decrease in expense favorably impacted earnings for the first quarter of 2008 by approximately $16 million. This accounting change will result in a favorable impact on earnings for the entire year of about $96 million dollars.

With respect to results in FPEG, revenue declined by about 13% to $724 million. This reduction was due to the anticipated declines in Film Capture, Paper and Photofinishing, along with the impact of the Hollywood writers strike on Entertainment Imaging.

Year over year earnings declined slightly by $4 million. This decline was largely due to lower volumes in our consumer film business and the impact of the writer’s strike along with the negative impact of higher silver and other raw material costs. This was partially offset by continued cost reduction efforts and the previously mentioned benefit associated with the change in useful lives.

As a result, Kodak reported a GAAP loss from continuing operations of $114 million or $0.40 per share, an improvement of $61 million or $0.21 per share from the prior year loss of $175 million or $0.61 per share. This improvement is largely attributable to lower year on year restructuring costs, offset by a higher tax provision in the current year quarter.

I would like to add a few additional comments on the tax provision for the quarter. The company booked a net tax provision of $40 million in the first quarter. This is due primarily to losses in the U.S., which are not benefited, as well as taxes provided on earnings in many of our international operations.

We are still anticipating a book tax rate of between 25% and 30% for the year and cash taxes in the range of approximately $150 million, including the taxes due on gains from the sale of Health Group and HPA from the prior year.

First quarter net cash generation reflected a use of $764 million, compared to a use of $453 million in the year-ago quarter, an increase of $311 million. The year-over-year change is primarily attributable to higher working capital, including payments to suppliers related to fourth quarter 2007 revenue growth, and increased inventory build in the first quarter in anticipation of revenue growth in the second quarter and beyond.

In addition, increases in performance based employee compensation and cash payments associated with a number of previously accrued tax items, contractual obligations and legal settlements impacted the year-over-year change for the quarter.

Looking forward, we remain committed to achieving our previous guidance for full year 2008 cash goals.

We ended the first quarter with about $2.2 billion in cash and cash equivalents. Our debt stands at about $1.6 billion and we will pay about $250 million in debt that is due in May. We continue to be pleased with our strong balance sheet and the significant liquidity position it provides us. And in recognition of the progress we have made, S&P recently improved its outlook on the company to stable.

In summary, we will continue to drive toward achieving our financial performance targets for the year including revenue, earnings from operations, and cash. As we continue to place more digital equipment on both the consumer and commercial side, we are building a strong foundation for an increasing annuities business for the future. While we will continue to be challenged with higher commodity and other raw material costs, we will be aggressive in our efforts to maintain a lean cost model, drive working capital efficiency, and evaluate product and pricing opportunities.

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