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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): November 1, 2007
Eastman Kodak Company
(Exact name of registrant as specified in charter)
New Jersey 1-87 16-0417150
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(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 November 1, 2007, Eastman Kodak Company issued a press release describing its
financial results for its third fiscal quarter ended September 30, 2007. A copy
of the press release is attached as Exhibit 99.1 to this report.
Within the Company's third quarter 2007 press release, the Company makes
reference to certain non-GAAP financial measures including "Digital earnings",
"Digital revenue", "Traditional revenue", "Net cash generation", "CDG revenue
from digital products growth", "GCG revenue from digital products growth", "Net
cash generation goal", "Digital earnings from operations goal", "Total earnings
from operations goal", and "Digital revenue growth forecast", 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 earnings / Digital revenue / Traditional revenue / CDG revenue from
digital products growth / GCG revenue from digital products growth / Digital
earnings from operations goal / Total earnings from operations goal / Digital
revenue growth forecast - Due to the Company's ongoing digital transformation,
management views the Company's performance based on the following three key
metrics: digital revenue growth, digital earnings growth and net cash
generation. These three key metrics are emphasized in the Company's attached
earnings release for the third quarter of 2007. 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.
Net cash generation / Net cash generation goal - The Company believes that the
presentation of net cash generation 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 (including restructuring-related payments), dividends,
capital expenditures, acquisitions and investments. The net cash generation
measure equals net cash provided by continuing operations from operating
activities, as determined under Generally Accepted Accounting Principles in the
U.S. (GAAP), minus capital expenditures, plus proceeds from the sale of assets,
plus investments in unconsolidated affiliates, and minus dividends. Net cash
generation 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
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(c) Exhibits
--------
Exhibit 99.1 Press release issued November 1, Furnished with
2007 regarding financial results this document
for the third quarter of 2007
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/ Diane E. Wilfong
-----------------------------
Name: Diane E. Wilfong
Title: Chief Accounting Officer
and Controller
Date: November 1, 2007
EXHIBIT INDEX
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Exhibit No. Description
- ---------- ------------
99.1 Press release issued November 1, 2007 regarding financial results
for the third quarter of 2007
Exhibit 99.1
Kodak Reports 3rd Quarter Profit on Sales of $2.581 Billion
3rd Quarter Net Earnings From Continuing Operations of $34
Million, up $117 Million
Digital Revenues Grow 12%, Driven by Digital Plates, NEXPRESS,
Consumer Digital Capture, and Kiosk Sales
3rd Quarter Digital Earnings Nearly Triple From Year-Ago Quarter
ROCHESTER, N.Y.--(BUSINESS WIRE)--Nov. 1, 2007--Eastman Kodak
Company (NYSE:EK) today reported $34 million in earnings from
continuing operations, or $0.12 per share, reflecting continued
operational improvements, higher revenues in key business segments,
and improved profit margins.
"I am very pleased with our third-quarter performance, which
represents a milestone in the emergence of the new Kodak," said
Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak
Company. "We delivered solid, value-creating digital growth, powered
by a 12% increase in digital revenue, as well as expanded gross
margins and positive net earnings. This increases my confidence in
achieving our full-year goals and positions us well as we enter 2008."
On the basis of generally accepted accounting principles in the
U.S. (GAAP), the company reported third-quarter earnings from
continuing operations of $29 million pre-tax, $34 million after tax,
or $0.12 per share, compared with a loss of $53 million pre-tax, $83
million after tax, or a loss of $0.29 per share in the year-ago
period. This represents an improvement of $82 million pre-tax and $117
million after-tax. Items of net expense impacting comparability in the
third quarter of 2007 totaled $94 million after tax, or $0.33 per
share. The most significant item was restructuring costs of $127
million before tax and $96 million after tax, or $0.33 per share. In
the third quarter of 2006, items of net expense impacting
comparability totaled $137 million after tax, or $0.48 per share,
primarily reflecting restructuring costs.
For the third quarter of 2007:
-- Sales totaled $2.581 billion, a decrease of 1% from $2.595
billion in the third quarter of 2006. Digital revenue totaled
$1.589 billion, a 12% increase from $1.417 billion.
Traditional revenue totaled $986 million, a 16% decline from
$1.169 billion in the year-ago quarter.
-- The company's third-quarter earnings from continuing
operations, before interest, other income (charges), net, and
income taxes were $20 million, compared with a loss of $11
million in the year-ago quarter.
-- Digital earnings for the third quarter improved by $54
million, to $82 million this quarter, from $28 million in the
year-ago quarter.
Other financial details:
-- Gross Profit margin was 26.4% for the quarter, up from 25.1%
in the prior year, primarily attributable to lower costs from
manufacturing footprint reductions, offset by adverse silver
and aluminum costs.
-- Selling, General and Administrative expenses decreased $37
million from the year-ago quarter, reflecting the company's
cost reduction activities. SG&A as a percentage of revenue was
17%, down from 18% in the year-ago quarter.
-- Net Cash Generation for the third quarter represented a use of
$95 million, compared with positive cash flow of $151 million
in the year-ago quarter. This corresponds to net cash provided
by operating activities from continuing operations of $1
million for the third quarter, compared with $237 million in
the year-ago quarter.
-- The company's debt level stood at $1.626 billion as of
September 30, 2007. This is a $1.152 billion reduction from
the 2006 year-end debt level of $2.778 billion.
-- Kodak held $1.847 billion in cash and cash equivalents as of
September 30, 2007, an increase of $745 million from the
year-ago period. This was primarily the result of proceeds
from the company's sale of its Health Group, which was
completed in the second quarter of 2007.
Segment sales and results from continuing operations, before
interest, taxes, and other income and charges (earnings from
operations), are as follows:
-- Consumer Digital Imaging Group earnings from operations
improved by $13 million to $10 million, compared with a
year-ago loss of $3 million. This improvement was driven by
changes in product portfolio, partially offset by costs
associated with increased manufacturing and new product
introduction activities in the Inkjet Systems business. Sales
for the third quarter were $1.123 billion, a 1% increase from
the year-ago quarter. Revenues from digital products grew by
16% for the quarter versus the prior year, driven by growth in
digital capture, kiosks and related media.
The company continues to expand retail distribution for its new
consumer inkjet printer line as it increases manufacturing capacity,
most recently with Circuit City and Sam's Club in the U.S. and
Wal-Mart in Canada. The company's consumer inkjet products are now
available at more than 7,600 retail outlets worldwide. Kodak remains
focused on selling 500,000 units this year and achieving $1 billion in
sales in 2010.
-- Graphic Communications Group earnings from operations were $42
million, compared with $26 million in the year-ago quarter.
The 62% earnings increase was primarily driven by increased
sales and lower SG&A expenses, partially offset by higher
aluminum costs. Sales for the third quarter were $928 million,
a 5% increase from the year-ago quarter. Revenues from digital
products grew by 9% for the quarter versus the prior year,
driven by increased sales of digital plates, NEXPRESS digital
color printing presses, and digital printing consumables.
-- Film Products Group earnings from operations were $122
million, compared with $115 million in the year-ago quarter,
representing continuing operational improvement in the face of
declining revenue. During the third quarter of 2007, the group
achieved a 25% operating margin, as compared with 19% in the
year-ago quarter. The operating margin performance resulted
from the company's continued focus on reducing manufacturing
and SG&A costs ahead of anticipated revenue declines. Film
Products Group sales were $488 million, down from $593 million
in the year-ago quarter, representing a decrease of 18%, in
line with expectations.
"Our relentless focus on digital business model innovation and the
dramatic operational improvements we have achieved over the past four
years have created a solid foundation for our future," said Perez. "We
have the right talent, business structure, technology, brand, and
growing product portfolio to generate sustainable, profitable growth
and significant value for our shareholders."
2007 Outlook
Kodak remains focused for the remainder of this year on three
financial metrics as it continues to transform its business: net cash
generation, digital earnings from operations, and digital revenue
growth.
The company today provided an updated outlook for 2007 performance
against these metrics, as a result of lower-than-previously estimated
restructuring charges.
The company previously indicated that it expected total
restructuring charges for the year to be in the range of $900 million
to $1 billion. Based upon the company's most recent analysis, Kodak
now believes that these charges are more likely to be in the range of
$750 million to $850 million. Despite the potentially lower
restructuring charges, the company remains confident in its ability to
complete major restructuring this year and make significant progress
toward achieving its target cost model, as previously communicated.
The company's goal for net cash generation this year remains $100
million after payments for restructuring. This goal now corresponds to
net cash provided by continuing operations from operating activities,
on a GAAP basis, in the range of $250 million to $400 million.
Additionally, the company's goal for 2007 full-year digital
earnings from operations remains $150 million to $250 million, and its
goal for total earnings from operations is $300 million to $400
million, both of which correspond to a GAAP loss from continuing
operations before interest, other income (charges), net, and income
taxes for the full year of $425 million to $525 million.
Finally, the company is forecasting 2007 digital revenue growth to
be at the high end of the previously communicated range of 3% to 5%,
with the total 2007 revenue decline expected to be at the low end of
the range of 4% and 7%.
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/31235/000120677407002504/
kodak_10q.htm (Due to its length, this URL may need to be
copied/pasted into your Internet browser's address field. Please
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.
Antonio Perez and Kodak Chief Financial Officer Frank Sklarsky
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 3241240. There is no need to pre-register.
The call will be recorded and available for playback by 2:00 p.m.
Eastern Time today by dialing 719-457-0820, access code 3241240. The
playback number will be active until Thursday, November 8, at 5:00
p.m. Eastern Time.
For those wishing to participate via an Internet Broadcast, please
access our Kodak Investor Center web page at:
http://www.kodak.com/go/invest.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 the Company's expectations for consumer inkjet sales,
restructuring charges, target cost model, revenue, net cash
generation, cash from continuing operations, digital earnings and
total earnings from operations and digital revenue growth 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 the cost reduction programs;
-- 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;
-- development and implementation of product go-to-market and
e-commerce strategies;
-- protection, enforcement and defense of the Company's
intellectual property, including defense of its products
against the intellectual property challenges of others;
-- execution of intellectual property licensing programs and
other strategies;
-- integration of the Company's businesses to SAP, the Company's
enterprise system software;
-- completion of various portfolio actions;
-- reduction of inventories;
-- integration of acquired businesses and consolidation of the
Company's subsidiary structure;
-- improvement in manufacturing productivity and techniques;
-- improvement in working capital management and cash conversion
cycle;
-- continued availability of essential components and services
from concentrated sources of supply;
-- improvement in supply chain efficiency and dependability; and
-- implementation of the strategies designed to address the
decline in the Company's traditional businesses.
The 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;
-- the Company's ability to access capital markets;
-- the nature and pace of technology evolution;
-- changes to accounting rules and tax laws, as well as other
factors which could impact the Company's reported financial
position or effective tax rate;
-- pension and other postretirement benefit cost factors such as
actuarial assumptions, market performance, and employee
retirement decisions;
-- general economic, business, geo-political and regulatory
conditions or unanticipated environmental liabilities or
costs;
-- changes in market growth;
-- 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 2007 Results
Non-GAAP Reconciliations
Within the Company's third quarter 2007 earnings release,
reference is made to certain non-GAAP financial measures, including
"digital earnings", "digital revenue", "traditional revenue", "net
cash generation", "CDG revenue from digital products growth", "GCG
revenue from digital products growth", "net cash generation goal",
"digital earnings from operations goal", "total earnings from
operations goal" and "digital revenue growth forecast". 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
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 as 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 earnings (loss) from continuing
operations before interest, other income (charges), net and income
taxes (amounts in millions):
Improvement/
Q3 2007 Q3 2006 (Decline)
------- ------- ------------
Digital earnings, as presented $ 82 $ 28 $ 54
Traditional earnings 91 110 (19)
New technologies loss (8) (16) 8
Restructuring costs and other items (145) (133) (12)
------- ------- ------------
Earnings (loss) from continuing
operations before interest, other income
(charges), net and income taxes (GAAP
basis), as presented $ 20 $ (11) $ 31
======= ======= ============
The following table reconciles digital revenue and traditional
revenue to the most directly comparable GAAP measure of consolidated
revenue (dollar amounts in millions):
Growth/
Q3 2007 Q3 2006 (Decline)
------- ------- ---------
Digital revenue, as presented $1,589 $1,417 12%
Traditional revenue, as presented 986 1,169 -16%
New technologies revenue 6 9 -33%
------- -------
Consolidated revenue (GAAP basis), as
presented $2,581 $2,595 -1%
======= =======
The following table reconciles net cash generation to the most
directly comparable GAAP measure of net cash provided by continuing
operations from operating activities (amounts in millions):
Q3 2007 Q3 2006
------- -------
Net cash generation, as presented $ (95) $ 151
Additions to properties 54 92
Net proceeds from sales of businesses/assets (30) (79)
Investments in unconsolidated affiliates - 1
Dividend payments 72 72
------- -------
Net cash provided by continuing operations from
operating activities (GAAP basis), as presented $ 1 $ 237
======= =======
The following table reconciles CDG revenue from digital products
growth to the most directly comparable GAAP measure of CDG total
revenue growth:
Growth/
(Decline)
---------
CDG revenue from digital products growth, as presented 16%
CDG revenue from traditional products decline -20%
CDG total revenue growth, as presented 1%
The following table reconciles GCG revenue from digital products
growth to the most directly comparable GAAP measure of GCG total
revenue growth:
Growth/
(Decline)
---------
GCG revenue from digital products growth, as presented 9%
GCG revenue from traditional products decline -15%
GCG total revenue growth, as presented 5%
The following table reconciles the net cash generation goal to the
most directly comparable GAAP measure of net cash provided by
continuing operations from operating activities goal (amounts in
millions):
2007
Goal
---------
Net cash generation goal, as presented $100
Additions to properties, net proceeds from the sales of
businesses/assets, distributions from (investments in)
unconsolidated affiliates and dividends 150-300
---------
Net cash provided by continuing operations from operating
activities (GAAP basis), as presented $250-$400
=========
The following table reconciles the digital earnings from
operations goal to the most directly comparable GAAP measure of loss
from continuing operations before interest, other income (charges),
net and income taxes goal (amounts in millions):
2007
Goal
---------------
Digital earnings from operations goal, as presented $150 - $250
Traditional earnings, new technologies earnings,
restructuring costs and other discrete items (575) - (775)
---------------
Loss from continuing operations before interest, other
income (charges), net and income taxes (GAAP basis),
as presented $(425) - $(525)
===============
The following table reconciles the total earnings from operations
goal to the most directly comparable GAAP measure of loss from
continuing operations before interest, other income (charges), net and
income taxes goal (amounts in millions):
2007
Goal
---------------
Total earnings from operations goal, as presented $300 - $400
Restructuring costs and other discrete items (725) - (925)
---------------
Loss from continuing operations before interest, other
income (charges), net and income taxes (GAAP basis),
as presented $(425) - $(525)
===============
The digital revenue growth forecast for 2007, as presented, of 3%
to 5% corresponds to the most directly comparable GAAP measure of
expected total company revenue decline for 2007, as presented, of 4%
to 7%. Items to reconcile from the digital revenue growth forecast to
expected total company revenue decline are expected traditional and
new technologies revenue declines of 13% to 22%.
As previously announced, the Company will only report its results
on a GAAP basis, which will be accompanied by a description of items
impacting comparability (formerly non-operational items) affecting its
GAAP quarterly results by line item in the statement of operations.
The Company defines items impacting comparability as restructuring and
related charges, gains and losses on sales of assets, certain asset
impairments, the related tax effects of those items and certain other
significant pre-tax and tax items not related to the Company's core
operations. Items impacting comparability, as defined, are specific to
the Company and other companies may define the term differently. The
following table presents a description of the items impacting
comparability affecting the Company's quarterly results by line item
in the statement of operations for the third quarter of 2007 and 2006,
respectively.
3rd Quarter
---------------------------
2007 2006
(in millions, except per share data)
$ EPS $ EPS
------------- -------------
Earnings (loss) from continuing operations
- GAAP $ 34 $ 0.12 $(83) $(0.29)
Items of Comparability - Expense/(Income):
- ------------------------------------------
COGS
- Charges for accelerated depreciation
in connection with the focused cost
reduction actions 23 73
- Legal Reserve 12
- Charges for inventory writedowns in
connection with focused cost reduction
actions 4 -
----- ------- ----- -------
Subtotal 39 0.14 73 0.25
----- ------- ----- -------
Restructuring
- Charges for focused cost reduction
actions 100 108
----- ------- ----- -------
Subtotal 100 0.35 108 0.38
----- ------- ----- -------
Other Operating Income/(Charges), Net
- Gains on sale of property related to
focused cost reduction actions, net 6 (46)
- Impairment of property related to
focused cost reduction actions - (2)
----- ------- ----- -------
Subtotal 6 0.02 (48) (0.16)
----- ------- ----- -------
Taxes
- Audit settlement, establishment of
foreign valuation allowances and
adjustments of uncertain tax positions (18)
- Tax impacts of the above-mentioned
pre-tax items (33) 4
----- ------- ----- -------
Subtotal (51) (0.18) 4 0.01
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CONTACT: Eastman Kodak Company
Media:
David Lanzillo, 585-781-5481
david.lanzillo@kodak.com
or
Investor Relations:
Ann McCorvey, 585-724-5096
antoinette.mccorvey@kodak.com
or
Angela Nash, 585-724-0982
angela.nash@kodak.com