SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 4, 2006
Eastman Kodak Company
(Exact name of registrant as specified in charter)
New Jersey 1-87 16-0417150
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
343 State Street,
Rochester, New York 14650
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (585) 724-4000
-------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
- ---------------------------------------------------------
On May 4, 2006, Eastman Kodak Company issued a press release describing its
financial results for its first fiscal quarter ended March 31, 2006. A copy of
the press release is attached to this report as Exhibit 99.1.
Within the Company's first quarter 2006 press release, the Company makes
reference to certain non-GAAP financial measures including "Digital revenue",
"Digital revenue growth", "Digital earnings", "Digital earnings by segment",
"Free cash flow", "Operating cash flow", and "Investable cash flow", which have
directly comparable GAAP financial measures. The Company believes that these
measures represent important internal measures of performance. Accordingly,
where these non-GAAP measures are provided, it is done so that investors have
the same financial data that management uses with the belief that it will assist
the investment community in properly assessing the underlying performance of the
Company on a year-over-year basis. 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, in addition to the reasons
described above, why the Company's management believes that the presentation of
the non-GAAP financial measures provides useful information to investors
regarding Kodak's financial condition, results of operations and cash flows are
as follows:
Digital revenue / Digital revenue growth / Digital earnings / Digital earnings
by segment - In the Company's earnings release for the second quarter of 2005
that was issued on July 20, 2005, the Company indicated that, due to the ongoing
digital transformation, management would view the Company's performance based on
the following three key metrics: digital revenue growth, digital earnings growth
and the generation of cash. These three key metrics were reemphasized in the
Company's investor presentation on September 28, 2005 and in the attached
earnings release for the first quarter of 2006. These digital measures form the
basis of internal management performance expectations and certain incentive
compensation. Accordingly, these digital measures are presented so that
investors have the same financial data that management uses with the belief that
it will assist the investment community in properly assessing the underlying
performance of the Company against its key metrics on a year-over-year and
quarter-sequential basis, as the Company undergoes this digital transformation.
Free cash flow / Operating cash flow / Investable cash flow - The Company
believes that the presentation of free cash flow, operating cash flow and
investable cash flow is useful information to investors as it facilitates the
comparison of cash flows between reporting periods. In addition, management
utilizes these measures as tools to assess the Company's ability to repay debt
and repurchase its own common stock, after it has satisfied its working capital
needs, dividends, capital expenditures, acquisitions and investments. The free
cash flow measure equals net cash provided by operating activities from
continuing operations, as determined under Generally Accepted Accounting
Principles in the U.S. (U.S. GAAP) minus capital expenditures. The operating
cash flow measure equals free cash flow plus proceeds from the sale of assets,
minus acquisitions, debt assumed in acquisitions, investments in unconsolidated
affiliates, and dividends. The investable cash flow measure equals operating
cash flow excluding the impact of acquisitions and debt assumed in acquisitions,
and forms the basis of internal management performance expectations (it is one
of the Company's three key metrics) and certain incentive compensation.
Accordingly, the Company believes that the presentation of this information is
useful to investors as it provides them with the same data as management uses to
facilitate their assessment of the Company's cash position.
Item 9.01. Financial Statements and Exhibits
- ---------------------------------------------
(c) Exhibits
--------
Exhibit 99.1 Press release issued May 4, 2006 Furnished with
regarding financial results this document
for the first quarter of 2006
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTMAN KODAK COMPANY
By: /s/ Richard G. Brown, Jr.
-----------------------------
Name: Richard G. Brown, Jr.
Title: Controller
Date: May 4, 2006
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
99.1 Press release issued May 4, 2006 regarding financial results
for the first quarter of 2006
Exhibit 99.1
Kodak Reports 1st-Quarter Sales of $2.889 Billion; Digital Sales Increase 29%;
1st-Qtr GAAP Net Loss Totals $298 Million ($1.04 Per Share); Company Ends
Quarter with $1.077 Billion in Cash
ROCHESTER, N.Y.--(BUSINESS WIRE)--May 4, 2006--
Company Reaffirms 2006 Performance Targets in Three Key Areas:
Digital Earnings Growth, Digital Revenue Growth, and Cash Generation
Eastman Kodak Company reported that revenue rose 2% in the first
quarter, led by a 29% increase in the sale of digital products and
services.
On the basis of generally accepted accounting principles in the
U.S. (GAAP), the company reported a first-quarter loss of $298
million, or $1.04 per share, largely stemming from restructuring
charges ($197 million after taxes) and rising silver and oil costs.
"Our first quarter results continue to show the expected strong
seasonality of our business. Our results are essentially on plan, with
some units ahead and some behind," said Antonio M. Perez, Chairman and
Chief Executive Officer, Eastman Kodak Company. "My expectations for
Kodak's financial performance this year are essentially unchanged. We
expect to achieve our 2006 performance targets in the areas of digital
earnings growth, digital revenue growth, and cash generation.
"We ended the quarter with more than $1 billion in cash on our
balance sheet, and our cash consumption was essentially on plan," said
Perez. "Digital earnings improved, compared to the same period last
year, and that improvement accelerated during March, which increases
our confidence for a solid full-year performance. We now expect to
achieve profitability in our entire digital portfolio during the third
quarter, a full quarter sooner than last year."
In separate announcements, the company also said that it is
exploring strategic alternatives for its Health Group and unveiled
organizational changes aimed at improving its ability to compete in
digital markets.
"These are all important steps toward completing the creation of
the new Kodak," Perez said. "These planned actions are part of our
broader digital transformation and will help us to better manage our
digital and traditional businesses, achieve our digital business
model, and reduce administrative costs company-wide for sustained
success."
For the first quarter of 2006:
-- Sales totaled $2.889 billion, an increase of 2% from $2.832
billion in the first quarter of 2005. This includes a negative
foreign exchange impact of 2 percentage points. Digital
revenue totaled $1.616 billion, a 29% increase from $1.250
billion. Traditional revenue totaled $1.257 billion, a 20%
decline from $1.573 billion. New Technologies contributed an
additional $16 million in the first quarter, compared with $9
million in the year-ago quarter.
-- The company's loss from continuing operations in the quarter,
before income taxes, interest, and net of other income and
charges, was $259 million, compared with a loss of $201
million in the year-ago quarter.
-- The GAAP net loss was $298 million, or $1.04 per share,
compared with a GAAP net loss of $146 million, or $0.51 per
share, in the year-ago period.
-- Digital earnings were a negative $37 million, compared with a
negative $51 million in the year-ago quarter.
Other first-quarter 2006 details:
-- For the quarter, net cash from operating activities was a
negative $481 million, compared with a negative $223 million
in the year-ago quarter. Investable cash flow for the quarter
was negative $576 million, compared with negative $258 million
in the year-ago quarter.
-- Gross Profit was 23.5%, down from 24.4%, primarily because of
the negative impact of foreign exchange and lower volumes and
prices. Gross Profit was also negatively impacted by the
increased depreciation charges due to the asset useful life
changes made in the third quarter of 2005.
-- Selling, General and Administrative expenses were 21% of
sales, consistent with the year-ago quarter, and attributable
to cost reductions in the Film and Photofinishing Group offset
by the acquisitions of Kodak Polychrome Graphics and Creo,
plus higher spending levels in the Consumer Digital Imaging
group.
-- Debt decreased $18 million from the fourth-quarter level, to
$3.565 billion as of March 31.
-- Kodak held $1.077 billion in cash on its balance sheet as of
March 31, compared with $1.031 billion on March 31, 2005, and
$1.665 billion on December 31, 2005. This is consistent with
the company's stated desire to maintain approximately $1
billion of cash on hand.
"The success of our digital products in the marketplace is more
evidence of Kodak's digital prowess," said Perez. "At the recent
worldwide IPEX printing tradeshow in England, our Graphic
Communications Group showcased numerous well-received products and
services aimed at helping print providers drive greater revenue and
operational efficiencies. Our sales at the show were twice what we
expected. Our Health Group is driving improved performance in the
areas of healthcare information systems, computed radiography, and
medical and dental digital radiography. On the consumer side, our
EASYSHARE system just marked its fifth anniversary and continues to
set the standard for ease of use and imaging innovation. In January,
we brought to market the world's first dual-lens digital camera, which
has been very positively received by technology experts and consumers
worldwide."
Segment sales and results from continuing operations, before
interest, taxes, and other income and charges (earnings from
operations), are as follows:
-- Graphic Communications Group sales were $870 million, up 136%,
reflecting the acquisition of KPG and Creo. Earnings from
operations increased by $65 million, from a loss of $34
million last year to earnings of $31 million in the first
quarter of 2006. This improvement was largely driven by
contributions from acquired businesses and strong
year-over-year earnings improvement from NexPress. Digital
earnings increased by $67 million, from a loss of $24 million
last year to earnings of $43 million in the first quarter of
2006.
-- Consumer Digital sales totaled $498 million, down 10%. Loss
from operations for the segment was $94 million, compared with
a year-ago loss of $58 million. This primarily reflects higher
retailer inventory on an industry-wide basis, previously
announced price reductions for thermal media, and increased
depreciation charges due to the asset useful life changes made
in the third quarter of 2005, partially offset by a
year-over-year improvement in digital capture earnings.
-- Film and Photofinishing System sales were $916 million, down
from $1.268 billion in the year-ago quarter. Earnings from
operations were $29 million, compared with $71 million in the
year-ago quarter. The increased non-cash charges for
depreciation, due to the asset useful life changes made in the
third quarter of 2005, account for more than half of this
decline.
-- Health Group sales were $585 million, down 7%. Earnings from
operations for the segment were $46 million, compared with $78
million a year ago. This is primarily the result of lower
earnings from traditional radiography film and digital output
and higher silver costs, which affect the Health Group more
than any other Kodak business because of the higher silver
content of its products. This was partially offset by improved
earnings in computed radiography, healthcare information
systems and digital radiography. Digital earnings were $17
million, down from $33 million in the year-ago quarter.
-- All Other sales were $20 million, up 18% from the year-ago
quarter. The loss from operations totaled $43 million,
compared with a loss of $52 million a year ago. Digital loss
for this segment was $3 million, compared with a $2 million
loss in the year-ago quarter. The All Other category includes
displays, consumer inkjet, and other miscellaneous businesses.
Outlook for 2006:
Kodak continues to expect that it will increase digital earnings
to a range of $350 million to $450 million, with digital revenue
growth expected to be between 16% and 22%. The company also expects
investable cash flow to be between $400 million and $600 million, with
net cash provided by operating activities from continued operations of
$800 million to $1.0 billion.
Form 10-Q and Conference Call Information:
The Management Discussion & Analysis document that typically is
filed with the company's earnings news release is included as part of
the company's Form 10-Q filing. You may access this document one of
three ways:
1. Click on the following link: http://www.sec.gov/Archives/edgar/
data/31235/000120677406001025/ek125908.htm (Due to its length, this
URL may need to be copied/pasted into your Internet browser's
address field. Remove the extra space if one exists.)
2. Visit Kodak's Investor Center page at:
http://www.kodak.com/go/invest and click on SEC Filings.
3. Visit the U.S. Securities and Exchange Commission EDGAR website at:
http://www.sec.gov/edgar.shtml and access Eastman Kodak under
Company Filings.
In addition, Antonio Perez and Robert Brust, Chief Financial
Officer, 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: 913-981-5591, access code 9167403. There is no need to
pre-register.
For those wishing to participate via an Internet Broadcast, please
access our Kodak Investor Center 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 9167403. The
playback number will be active until Wednesday, May 11, at 5:00 p.m.
eastern time.
Safe Harbor Statement:
Digital and traditional revenues, digital revenue growth, digital
earnings, and investable cash flow are non-GAAP financial measures as
defined by the Securities and Exchange Commission's final rules under
"Conditions for Use of Non-GAAP Financial Measures." Reconciliations
of these measures included in this press release to the most directly
comparable GAAP financial measures can be found in the GAAP
reconciliation document attached to this press release.
Certain statements in this press release 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, digital
revenue growth, seasonality of the business, profitability of the
digital portfolio, cash and cash flow are forward-looking statements.
Actual results may differ from those expressed or implied in
forward-looking statements. In addition, any forward-looking
statements represent our estimates only as of the date they are made,
and should not be relied upon as representing our estimates as of any
subsequent date. While we may elect to update forward-looking
statements at some point in the future, we specifically disclaim any
obligation to do so, even if our estimates change. The forward-looking
statements contained in this press release are subject to a number of
factors and uncertainties, including the successful:
-- Execution of our digital growth and profitability strategies,
business model, and cash plan;
-- Implementation of a changed segment structure;
-- Implementation of our cost reduction program, including asset
rationalization and monetization, reduction in sales, general
and administrative costs and personnel reductions;
-- Transition of certain financial processes and administrative
functions to a global shared services model and outsourcing of
certain functions to third parties;
-- Implementation of, and performance under, our debt management
program including compliance with our debt covenants;
-- Protection, enforcement and defense of our intellectual
property;
-- Implementation of product strategies (including category
expansion, digitization, organic light emitting diode (OLED)
displays, and digital products) and go-to-market strategies;
-- Implementation of intellectual property licensing and other
strategies;
-- Development and implementation of e-commerce strategies;
-- Completion of information systems upgrades, including SAP, our
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;
-- Implementation of our strategies designed to address the
decline in our traditional businesses; and
-- Performance of our business in emerging markets like China,
India, Brazil, Mexico and Russia;
Forward-looking statements contained in this press release 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 our debt credit ratings and our 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 our effective tax rate in the future;
-- General economic, business, geopolitical, regulatory and
public health conditions;
-- Market growth predictions;
-- Continued effectiveness of internal controls, and
-- Other factors and uncertainties disclosed from time to time in
our filings with the Securities and Exchange Commission;
Any forward-looking statements in this press release should be
evaluated in light of these important factors and uncertainties.
Eastman Kodak Company
First Quarter 2006 Results
Non-GAAP Reconciliations
Within the Company's first quarter 2006 press release, the Company
makes reference to certain non-GAAP financial measures including
"digital revenues", "traditional revenues", "new technologies
revenues", total Company "digital earnings", "digital earnings" by
segment, and "investable cash flow". 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 revenue, traditional
revenue, and new technologies revenue amounts and growth rates from
prior year as presented to the most directly comparable GAAP measure
of total consolidated net sales (dollar amounts in millions):
Change from
Q1 2006 Q1 2005 prior year
------- ------- -----------
Digital revenue, as presented $ 1,616 $ 1,250 +29%
Traditional revenue, as presented 1,257 1,573 -20%
New Technologies revenue, as presented 16 9 +78%
------- ------- -------
Total consolidated net sales (GAAP basis) $ 2,889 $ 2,832 + 2%
======= ======= =======
The following table reconciles digital (loss) earnings, both by
segment and in total, to the most directly comparable GAAP measure of
consolidated (loss) from continuing operations before interest, other
income (charges), net and income taxes (dollar amounts in millions):
Q1 2006 Q1 2005
------- -------
Digital (loss) earnings by segment, as presented:
Consumer Digital Imaging Group $ (94) $ (58)
Graphic Communications Group 43 (24)
Health Group 17 33
All Other (3) (2)
------- -------
Total Company digital loss, as presented (37) (51)
Traditional earnings 46 105
New Technologies loss (40) (49)
Restructuring costs and other (228) (206)
------- -------
Loss from continuing operations before
interest, other income (charges), net and
income taxes (GAAP basis) $ (259) $ (201)
======= =======
The following table reconciles the net cash used in 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:
1st Quarter
- ---------------------------------------------------------------------
($ millions) 2006 2005
-----------------
Net cash used in continuing operations relating to
operating activities: ($481) ($223)
Additions to properties (93) (99)
-----------------
Free Cash Flow (continuing operations) (574) (322)
Net proceeds from sales of businesses/assets 6 1
Distributions from/(investments in) unconsolidated
affiliates (8) 63
Acquisitions, net of cash acquired 0 (47)
-----------------
Operating Cash Flow (continuing operations) (576) (305)
Acquisitions, net of cash acquired 0 47
-----------------
Investable Cash Flow (continuing operations) ($576) ($258)
- ---------------------------------------------------------------------
The following table reconciles projected full year 2006 digital
earnings to the most comparable GAAP measure of projected full year
2006 total Company loss from continuing operations before interest,
other income (charges), net and income taxes (dollar amounts in
millions):
Digital earnings, as presented $350-$450
Traditional earnings, New Technologies earnings
and Restructuring costs, net (1,200)-(950)
-------------
Total Consolidated loss from continuing operations
before interest, other income (charges), net and
income taxes (GAAP basis) $ (850)-$(500)
=============
The following table reconciles projected full year 2006 digital
revenue growth to the most comparable GAAP measure of projected full
year 2006 total Company revenue growth:
Digital revenue growth (including New Technologies),
as presented 16%-22%
Traditional revenue decline (22)%-(16)%
Total Company revenue (decline) growth (GAAP basis) (2)%-4%
The following table reconciles projected full year 2006 investable
cash flow to the most directly comparable GAAP measure of projected
full year 2006 net cash provided by operating activities from
continued operations (dollar amounts in millions):
Investable cash flow, as presented $400-$600
Additions to properties, net proceeds from sales of
businesses/assets, distributions from/(investments in)
unconsolidated affiliates and dividends 400
-------------
Net cash provided by operating activities
from continued operations (GAAP basis) $800-$1,000
=============
As previously announced, the Company will only report its results
from continuing operations on a GAAP basis, which will be accompanied
by a description of the non-operational items affecting its GAAP
quarterly results by line item in the statement of operations. 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 first quarter of 2006 and 2005,
respectively.
1st Quarter
-----------------------------------
2006 2005
(in millions, except per share
data) $ EPS $ EPS
--------------- ---------------
Loss from continuing
operations - GAAP $(298) $(1.04) $(147) $(0.51)
COGS
- - Charges for accelerated
depreciation in connection with
the focused cost reduction
actions 82 81
- - Charges for inventory
writedowns in connection with
focused cost reduction actions 1 10
--------------- ---------------
Subtotal 83 0.29 91 $0.32
--------------- ---------------
Restructuring
- - Charges for focused cost
reduction actions 145 115
--------------- ---------------
Subtotal 145 0.51 115 $0.40
--------------- ---------------
Other Income/(Charges)
- - Impairment of property
related to focused cost
reduction actions 4 -
--------------- ---------------
Subtotal 4 0.01 - $-
--------------- ---------------
Taxes
- - Tax impacts of the above-
mentioned items (33) (57)
--------------- ---------------
Subtotal (33) (0.11) (57) $(0.20)
--------------- ---------------
CONTACT: Eastman Kodak Company
Media:
David Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
David Kassnoff, 585-724-2137
david.kassnoff@kodak.com
or
Investor Relations:
Don Flick, 585-724-4352
donald.flick@kodak.com
or
Carol Wilke, 585-724-4683
carol.wilke@kodak.com