STRATEGIC OVERVIEW
As the digital evolution impacted traditional imaging industry-wide, we aligned the Company in the fourth quarter to focus aggressively on three market sectors with major growth potential:

• In Commercial, we'll expand our participation in on-demand printing, develop commercial services and invest intelligently in products and services for our Entertainment Imaging and Professional markets.
• In Consumer, we'll expand services for online mobile imaging, grow the digital capture business, leverage our leadership in imaging kiosks and extend our presence in home printing. We will continue to invest selectively in our critical film and paper franchises.
• In Health, we will lead the transition to information services, win in digital capture and efficiently manage our leadership in media-based diagnostics imaging.

This transformation represents a great opportunity. One of the keys to success is staying competitive in our traditional businesses. To that end, we will innovate smartly, invest selectively, and keep costs down in a manner that reduces fixed costs ahead of the volume decline in film.

Aggressive cost actions. Aggressive management of costs and margins are required for all our businesses in order to generate the cash to support the financing and expansion of our digital initiatives. Over the next three years, we will reduce worldwide employment by an estimated 12,000- 15,000 people and shrink the total real estate "footprint" of our worldwide operations by approximately one-third.

BUSINESS/MARKET HIGHLIGHTS
Kodak's market successes in 2003 ranged across all of our core businesses. In consumer markets, we achieved leading share positions in digital cameras, retail print kiosks, inkjet photo paper and online print fulfillment. We maintained our year-over-year blended U.S. consumer film share in the face of industry-wide volume declines. Our high-speed document scanners for commercial markets are perennial leaders. And in health markets, our digital printing systems lead the market and we have strengthening positions in digital radiography and picture archiving systems for image and information management.

Emerging markets include China, India, Hong Kong, Taiwan, Russia, Brazil and Mexico. As a group, these markets achieved good growth and now represent 19% of Kodak worldwide sales. Significant growth was experienced in China (12%), India (17%) and Russia (26%) during 2003. SARS impacted sales in Hong Kong and Taiwan. Economic factors slowed sales in Brazil and Mexico.

The following reflect the financial reporting segments used by the Company in 2003:

Photography
A major restructuring of Photography was completed in the fourth quarter of 2003. The new Digital and Film Imaging Systems (DFIS) organization combines our consumer, professional, entertainment and digital imaging units to create a flatter, more focused and more accountable business organization. DFIS generates about 70% of Kodak's worldwide sales.

Digital camera sales showed very strong growth with the introduction of new Kodak EasyShare digital cameras and the EasyShare printer dock 6000 for home printing. Sales were particularly strong during the holiday season, achieving significant gains in market share. Sales of consumer digital cameras grew 130% in the second half of the year. Outside of the U.S., for the full year, Kodak digital cameras have a Top 4 market share in the United Kingdom, Germany, Canada, China and Australia. The Kodak Professional DCS Pro 14n digital camera had an enthusiastic reception in the professional market. Delivering 14 megapixel image resolution, the 14n earned high praise from the industry.