Exhibit 99.1
Kodak Reports 3rd-Quarter Sales of $3.204 Billion and Improved
Earnings
Digital Earnings Grow by $98 million, Led by Graphic Communications
and Consumer Portfolio; Company Ends Quarter with $1.102 Billion in
Cash; Reduces Debt by $192 Million
Kodak on Track to Achieve 2006 Cash and Digital Earnings Goals
ROCHESTER, N.Y.--(BUSINESS WIRE)--Oct. 31, 2006--Eastman Kodak
Company (NYSE:EK) today reported a GAAP earnings improvement of $877
million for the third quarter of 2006, on sales of $3.204 billion,
largely as the result of the recording of a tax valuation charge in
the year-ago quarter of $778 million. The company also delivered a $98
million increase in digital earnings, driven by wider gross profit
margins, from strong earnings performance in the Graphic
Communications and Consumer Digital businesses, and the result of the
company's global cost-reduction initiatives.
Based on its third-quarter 2006 performance, the company is
confident of achieving its 2006 cash and digital earnings goals, and
expects digital revenue growth somewhat below its 10% target, as a
result of the company's focus on margin expansion. This corresponds to
a total revenue decline of approximately 6%.
"Our business transformation is on track," said Antonio M. Perez,
Chairman and Chief Executive Officer, Eastman Kodak Company. "I am
encouraged by our third-quarter results, especially because they
reinforce our confidence in our full-year performance, which is the
basis on which I manage the company.
"We measure our progress against three important metrics - cash
generation, digital earnings, and digital revenue. Our year-over-year
digital revenues were down slightly during the quarter, reflecting our
strong focus on margin expansion and willingness to pursue more
profitable sales, the universe of which expands as our cost structure
improves. Our digital earnings were vastly improved this quarter and
our cash balance continues to exceed $1 billion. While I am fully
aware of the challenges to largely complete our restructuring by the
end of next year, this performance represents clear progress toward
our goals and gives us good momentum to carry into the fourth quarter
and 2007."
For the third quarter of 2006:
-- Sales totaled $3.204 billion, a decrease of 10% from $3.553
billion in the third quarter of 2005, largely attributable to
a 19% decline in traditional sales. Third-quarter traditional
revenue totaled $1.402 billion, compared to $1.725 billion in
the year-ago quarter, while digital revenue totaled $1.793
billion, as compared to $1.814 billion in the year-ago
quarter.
-- The company's earnings from continuing operations in the
quarter, before interest, other income (charges), net, and
income taxes, were $2 million, compared with a loss from
operations of $123 million in the year-ago quarter.
-- On the basis of generally accepted accounting principles in
the U.S. (GAAP), the company reported a third-quarter net loss
of $37 million, or $0.13 per share, which includes after-tax
restructuring costs of $202 million, or $0.70 per share. By
comparison, the third quarter 2005 GAAP net loss was $914
million, or $3.18 per share. The difference is largely driven
by the inclusion in last year's third quarter of a $778
million, or $2.71 per share, non-cash charge to record a
valuation allowance against the net deferred tax assets in the
U.S.
-- Digital earnings were $105 million, compared with $7 million
in the year-ago quarter, marking the first time that the
company's quarterly digital earnings growth exceeded the
quarterly decline in traditional earnings. This performance
was primarily due to operational improvements throughout the
digital portfolio, the impact of a non-recurring licensing
arrangement within the Consumer Digital Group, and strong
results in the Graphic Communications Group.
Other third-quarter 2006 details:
-- For the quarter, net cash provided by operating activities on
a GAAP basis was $329 million, compared with $370 million in
the year-ago quarter. Investable cash flow for the quarter was
$237 million, compared with $216 million in the year-ago
quarter.
-- Kodak held $1.102 billion in cash on its balance sheet as of
September 30, 2006, compared with $610 million on September
30, 2005. This is consistent with the company's stated desire
to maintain approximately $1.0 billion of cash on hand.
-- Debt decreased $192 million from the second-quarter level, to
$3.339 billion as of September 30, 2006, and was down $244
million from the December 31, 2005 level of $3.583 billion.
The company intends to reduce debt by approximately $800
million in 2006.
-- Gross Profit was 27.3% in the current quarter, up from 25.9%
in the prior year quarter, primarily because of reductions in
manufacturing costs and the favorable impact of the previously
noted licensing arrangement, offset by volume declines in
traditional product sales.
-- Selling, General and Administrative expenses declined by $105
million in the third quarter, to $565 million, compared with
$670 million for the prior-year quarter. As a percentage of
sales, SG&A decreased from 18.9% in the prior-year quarter to
17.6% in the third quarter of 2006.
Third-quarter segment sales and results from continuing
operations, before interest, other income (charges), net, and income
taxes (earnings from operations), are as follows:
-- Graphic Communications Group sales were $880 million, compared
with $886 million in the year-ago quarter. Strong digital
revenue growth from digital plates, commercial inkjet,
NexPress color and document scanners during the quarter was
offset by expected declines in the traditional product
portfolio. Earnings from operations were $31 million, compared
with $7 million in the year-ago quarter. This improvement was
largely driven by contributions from the group's core digital
businesses and cost reductions from business integration
activities.
-- Consumer Digital Group sales totaled $640 million, down 3%.
Earnings from operations increased by $85 million, from a loss
of $61 million in the year-ago period, to earnings of $24
million in the current quarter. The earnings results reflect
improvements across virtually the entire digital portfolio.
-- Film and Photofinishing System sales were $1.074 billion, down
from $1.353 billion in the year-ago quarter. Earnings from
operations were $139 million, compared with $174 million in
the year-ago quarter. This decrease was primarily driven by an
expected decline in revenue and higher silver prices. During
the third quarter of 2006, the group achieved a 12.9%
operating margin, maintaining the performance from the
year-ago quarter.
-- Health Group sales were $597 million, down 6%. Earnings from
operations for the segment were $68 million, compared with $96
million a year ago. This is primarily due to higher silver
prices, and costs associated with the company's exploration of
strategic alternatives for its Health Group. Despite these
challenges, the Health Group maintained operating margins of
11.4%.
-- All Other sales were $13 million, compared with $20 million in
the year-ago quarter. For the third quarter, the loss from
operations was $48 million, compared with a loss of $61
million in the year-ago quarter. The All Other category
includes the Display & Components operation and other
miscellaneous businesses.
2006 Goals
Kodak continues to expect net cash provided by operating
activities this year of $800 million to $1.0 billion, which
corresponds with investable cash flow of $400 million to $600 million.
Accordingly, the company expects a GAAP loss from continuing
operations before interest, other income (charges), net, and income
taxes for the full year of $400 million to $600 million, which
includes approximately $1.0 billion in pre-tax restructuring charges.
This corresponds to digital earnings from operations this year in a
range of $350 million to $450 million. The company forecasts 2006
digital revenue growth somewhat below 10%, reflecting the company's
focus on targeted participation in the consumer digital market. Total
2006 revenue is expected to be down approximately 6%.
Conference Call Information
Antonio Perez and Kodak Chief Financial Officer Robert Brust will
host a conference call with investors at 11:00 a.m. eastern time
today. To access the call, please use the direct dial-in number:
913-981-5542, access code 9443954. There is no need to pre-register.
For those wishing to participate via an Internet Broadcast, please
access our Kodak Investor Relations web page at:
http://www.kodak.com/go/invest.
The call will be recorded and available for playback by 2:00 p.m.
eastern time today by dialing 719-457-0820, access code 9443954. The
playback number will be active until Tuesday, November 7th at 5:00
p.m. eastern time.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report 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 expectations for the Company's digital earnings,
revenue, digital revenue growth, losses, cash, cash flow,
restructuring charges, and debt reduction plans are forward-looking
statements.
Actual results may differ from those expressed or implied in
forward-looking statements. In addition, any forward-looking
statements represent the Company's estimates only as of the date they
are made, and should not be relied upon as representing the Company's
estimates as of any subsequent date. While the Company may elect to
update forward-looking statements at some point in the future, the
Company specifically disclaims any obligation to do so, even if its
estimates change. The forward-looking statements contained in this
report are subject to a number of factors and uncertainties, including
the successful:
-- execution of the digital growth and profitability strategies,
business model and cash plan;
-- implementation of a changed segment structure;
-- implementation of the cost reduction program, including asset
rationalization and monetization, reduction in selling,
general and administrative costs and personnel reductions;
-- transition of certain financial processes and administrative
functions to a global shared services model and the
outsourcing of certain functions to third parties;
-- implementation of, and performance under, the debt management
program, including compliance with the Company's debt
covenants;
-- implementation of product strategies (including category
expansion and digital products) and go-to-market strategies;
-- protection, enforcement and defense of the Company's
intellectual property, including defense of our products
against the intellectual property challenges of others;
-- implementation of intellectual property licensing and other
strategies;
-- development and implementation of e-commerce strategies,
including on line services;
-- completion of information systems upgrades, including SAP, the
Company's enterprise system software;
-- completion of various portfolio actions;
-- reduction of inventories;
-- integration of acquired businesses; improvement in
manufacturing productivity and techniques;
-- improvement in receivables performance; improvement in supply
chain efficiency and management of third-party sourcing
relationships; and
-- implementation of the strategies designed to address the
decline in the Company's traditional businesses.
The forward-looking statements contained in this report are
subject to the following additional risk factors:
-- inherent unpredictability of currency fluctuations, commodity
prices and raw material costs;
-- competitive actions, including pricing;
-- changes in the Company's debt credit ratings and its ability
to access capital markets;
-- the nature and pace of technology evolution, including the
traditional-to-digital transformation;
-- continuing customer consolidation and buying power;
-- current and future proposed changes to accounting rules and to
tax laws, as well as other factors which could adversely
impact the Company's reported financial position, effective
tax rate;
-- general economic, business, geo-political and regulatory
conditions;
-- market growth predictions;
-- continued effectiveness of internal controls; and
-- other factors and uncertainties disclosed from time to time in
the Company's filings with the Securities and Exchange
Commission.
Any forward-looking statements in this report should be evaluated
in light of these important factors and uncertainties.
Eastman Kodak Company
Third Quarter 2006 Results
Non-GAAP Reconciliations
Within the Company's third quarter 2006 press release, the Company
makes reference to certain non-GAAP financial measures including
"digital earnings increase", "digital revenue", "traditional revenue",
"investable cash flow", "expected investable cash flow", "expected
digital earnings from operations", "digital revenue growth", "digital
earnings goals". Whenever such information is presented, the Company
has complied with the provisions of the rules under Regulation G and
Item 2.02 of Form 8-K. The specific reasons why the Company's
management believes that the presentation of each of these non-GAAP
financial measures provides useful information to investors regarding
Kodak's financial condition, results of operations and cash flows has
been provided in the Form 8-K filed in connection with this press
release.
The following table reconciles digital earnings to the most
directly comparable GAAP measure of net loss (dollar amounts in
millions):
Increase/
Q3 2006 Q3 2005 (Decrease)
---------- ---------- ----------
Digital earnings, as presented $ 105 $ 7 $ 98
Traditional and new technologies
earnings 109 148 (39)
Restructuring costs and other
decrease (212) (278) (66)
---------- ---------- ----------
Earnings (loss) from continuing
operations before interest, other
income (charges), net and income
taxes (GAAP basis), as presented 2 (123) 125
Interest expense (74) (57) 17
Other income (charges), net 54 (9) 63
Provision for income taxes 19 726 (707)
---------- ---------- ----------
Net loss (GAAP basis), as presented $ (37) $ (914) $ (877)
========== ========== ==========
The following table reconciles digital revenue, traditional
revenue, and new technologies revenue amounts to the most directly
comparable GAAP measure of consolidated revenue (dollar amounts in
millions):
Q3 2006 Q3 2005 Change from prior year
--------- --------- ----------------------
Digital revenue, as
presented $ 1,793 $ 1,814 - 1%
Traditional revenue, as
presented 1,402 1,725 -19%
New technologies revenue 9 14 -36%
--------- --------- ----------------------
Consolidated revenue (GAAP
basis), as presented $ 3,204 $ 3,553 -10%
========= ========= ======================
The following table reconciles the net cash provided by continuing
operations relating to operating activities under US GAAP, to Kodak's
definition of (1) free cash flow, (2) operating cash flow, and (3)
investable cash flow:
3rd Quarter
- ----------------------------------------------------------------------
($ amounts in millions) 2006 2005
---------- ----------
Net cash provided by continuing operations
relating to operating activities, as presented $ 329 $ 370
Additions to properties (98) (122)
---------- ----------
Free Cash Flow (continuing operations) 231 248
Net proceeds from sales of businesses/assets 79 40
Investments in unconsolidated affiliates (1) -
Acquisitions, net of cash acquired (3) -
Dividends (72) (72)
---------- ----------
Operating Cash Flow (continuing operations) 234 216
Acquisitions, net of cash acquired 3 -
---------- ----------
Investable Cash Flow (continuing operations), as
presented $ 237 $ 216
- ------------------------------------------------ ---------- ----------
The following table reconciles projected full year 2006 expected
investable cash flow to the most directly comparable GAAP measure of
expected full year 2006 net cash provided by operating activities from
continued operations (dollar amounts in millions):
2006 Plan
------------------
Expected investable cash flow, as presented $ 400-$600
Additions to properties, net proceeds from sales of
assets, distributions from/ (investments in)
unconsolidated affiliates and dividends 400
------------------
Net cash provided by operating activities from
continued operations (GAAP basis), as presented $ 800-$1,000
==================
The following table reconciles expected digital earnings from
operations goals to the most comparable GAAP measure of expected loss
from continuing operations before interest, other income (charges),
net and income taxes (dollar amounts in millions):
2006 Plan
------------------
Expected digital earnings from operations goals, as
presented $ 350-$450
Traditional earnings goals, new technologies
earnings goals, restructuring costs and other
discrete items goals (950)-(850)
------------------
Expected loss from continuing operations before
interest, other income (charges), net and income
taxes (GAAP basis), as presented $ (600)-$(400)
==================
The following table reconciles projected full year 2006 digital
revenue growth to the most comparable GAAP measure of total company
revenue (decline) growth:
Forecast
------------------
Digital revenue growth (including New
Technologies), as presented Less than 10%
Traditional revenue decline Greater than (22)%
------------------
Total Company revenue (decline) (GAAP basis), as
presented (6)%
As previously announced, the Company will only report its results
on a GAAP basis, which will be accompanied by a description of
non-operational items affecting its GAAP quarterly results by line
item in the statement of operations. The Company defines
non-operational items as restructuring and related charges, legal
settlements, in-process research and development charges related to
acquisitions, significant gains and losses on sales of assets, asset
impairments, the related tax effects of those items and certain other
significant items not related to the Company's core operations.
Non-operational items, as defined, are specific to the Company and
other companies may define the term differently. The following table
presents a description of the non-operational items affecting the
Company's quarterly results by line item in the statement of
operations for the third quarter of 2006 and 2005, respectively.
3rd Quarter
---------------------------------------
2006 2005
(in millions, except per share
data)
$ EPS $ EPS
--------- --------- --------- ---------
Loss from continuing operations
- GAAP $ (37) $ (0.13) $ (915) $ (3.19)
---------
COGS
- - Charges for accelerated
depreciation in connection
with the focused cost
reduction actions 73 105
- - Charges for inventory
writedowns in connection with
focused cost reduction actions 2 10
--------- --------- --------- ---------
Subtotal 75 0.26 115 0.40
--------- --------- --------- ---------
R&D
- - Adjustment for in-process
research and development for
the Creo acquisition in 2005 - - (12)
--------- --------- --------- ---------
Subtotal - - (12) (0.04)
--------- --------- --------- ---------
Restructuring
- - Charges for focused cost
reduction actions 137 163
--------- --------- --------- ---------
Subtotal 137 0.48 163 0.57
--------- --------- --------- ---------
Other Income/(Charges)
- - Gain on the sale of property
related to focused cost
reduction actions (43) (21)
- - Adjustment of asset
impairment in 2006 and charge
for asset impairment in 2005 (2) 21
--------- --------- --------- ---------
Subtotal (45) (0.16) - -
--------- --------- --------- ---------
Taxes
- - Net tax impacts of the above-
mentioned items - 79
--------- --------- --------- ---------
Subtotal - - 79 $ 0.28
--------- --------- --------- ---------
Impact of Contingent
Convertible Debt on EPS (0.01)
CONTACT: Eastman Kodak Company
Media:
David Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
Barbara Pierce, 585-724-5036
barbara.pierce@kodak.com
or
Investor Relations:
Don Flick, 585-724-4352
donald.flick@kodak.com
or
Patty Yahn-Urlaub, 585-724-4683
patty.yahn-urlaub@kodak.com