Eastman Kodak Company

Kodak Announces Milestones in Implementing Growth Strategy Company Plans Three-Year Program to Enhance Competitive Position

ROCHESTER, N.Y., Jan. 22 -- Eastman Kodak Company, which announced in September a digitally oriented strategy to accelerate earnings growth, said today it has achieved a series of milestones in pursuit of that goal.

They include:

  • Strong revenue growth across a number of digital markets, including digital cameras as well as computed radiography and digital radiography systems, and improving economic performance across the digital products portfolio, including the KODAK DIRECTVIEW PACS System 5 for radiologists, and the KODAK EASYSHARE line of consumer digital cameras and printer docks;

  • The acquisition of PracticeWorks, the world's leader in digital dental imaging; the acquisition of Algotec Systems, a leading developer of advanced picture archiving and communications systems (PACS); and the purchase of Scitex Digital Printing (now operating as Kodak Versamark, Inc.), the leader in high-speed, variable-data inkjet printing, moves that bolster Kodak's position in digital markets and complement our existing operations;

  • The planned investment in Lucky Film Co. Ltd., which will strengthen Kodak's position in the emerging markets of Asia, where demand is growing for traditional products and services.

Additionally, Kodak expects to generate enough cash flow in 2004 to pay down debt while maintaining the required level of investment to pursue its strategic objectives.

These achievements reinforce the company's confidence in its business strategy. As discussed in September, the new digital businesses are already doing well and offer significant growth opportunities, while portions of the company's traditional business are in decline. Therefore, Kodak will devote additional resources to digital growth opportunities and maximize the traditional businesses, including through selective investments. As part of this strategy, Kodak is determined to be the lowest-cost provider of traditional and digital products and services.

The company will continue to improve its competitiveness in traditional markets, and it is committed to success in digital markets, which are characterized by faster growth, tighter profit margins, aggressive pricing and swift product turnover.

Consistent with that strategy, Kodak plans to develop and implement a new, lower-cost business model for its silver-halide based film and paper products, which will allow the company to claim a larger manufacturing share of the traditional industry. This will create a flexible business model whose cost structure enables the company to compete aggressively in the traditional business and stay ahead of declining demand in developed markets.

"We are at the dawning of a new, more competitive Kodak, one that is growing profitably, that has a more balanced earnings stream, and that will have a dramatically lower cost structure," said Daniel A. Carp, Chairman and Chief Executive Officer, Eastman Kodak Company. "We're seeing success today from years of investments in digital that Kodak has made. To compete in digital markets, we must have a business model that lets us move even faster to take full advantage of the profitable growth that digital promises. Today's announcement signals that we will make the most of our leadership, our technology and of the opportunities presented by the traditional and digital businesses."

While continuing to make selective investments in the traditional business, Kodak will use a portion of the cash generated to fund investments required to accelerate its transition to a profitable digital business, reinforcing Kodak's century-long position as the leader in bringing imaging innovations to the world.

Kodak is preparing plans that would achieve full-year continuing savings of $800 million to $1 billion by 2007 through the following:

  • reducing total facility square footage by about one-third, building on current initiatives to consolidate operations and dispose of surplus assets resulting from the consolidation;

  • and, to implement these changes, reducing worldwide employment by about 20 percent, or 12,000 to 15,000, during the next three years. This reflects targeted reductions in global manufacturing, selected traditional businesses, corporate administrative staff, and other areas.

To pay for these plans, Kodak may incur cash and non-cash charges totaling approximately $1.3 billion to $1.7 billion during the next three years. Of that, Kodak expects to spend about $700 million to $900 million on severance-related costs and about $600 million to $800 million for the disposal of buildings and equipment.

Since these plans will be developed and implemented over a three-year period, company units will provide affected employees with more information as details are developed. In keeping with past practice and consistent with requirements in various countries, the company will offer severance packages and outplacement services to those affected.

"These plans are the consequence of market realities, and they will help us to fund a future for Kodak of sustainable, profitable growth," said Antonio Perez, President and Chief Operating Officer, Eastman Kodak Company. "They are absolutely required for Kodak to succeed in traditional markets as well as the digital markets to which our businesses are rapidly shifting. As we said in September, we are committed to being the low-cost manufacturer and provider in all the markets we serve. To succeed, we must make our business model more competitive with what the markets and our customers demand."

"The plans announced today will allow Kodak to strengthen its already solid position in digital markets," Perez said. "For example, during the 2003 holiday sales season, Kodak's data indicates that our EASYSHARE cameras were the best-selling digital cameras in the U.S."

Kodak also is the No. 1 provider of online photofinishing services through its Ofoto subsidiary; the No. 1 seller of photo kiosks found at retailers worldwide; tied for the leading share in the U.S. market for photo-quality inkjet paper; the leader in medical laser printers; and the No. 1 seller of high-speed document scanners.

This success reflects in part the ongoing shift of resources to digital products and services, mirroring increased customer preference for digital. As the company said in September, about 78% of Kodak's research and development dollars will be spent on digital equipment, services and media by 2006, compared with about 66% currently. The balance will be invested in traditional imaging products and services.

"Make no mistake we remain committed to film and printed output, which are, and will continue to be, great businesses," Carp said. "We will continue to invest appropriately in these media for consumers, cinematographers, professional photographers, the health-care industry and others. We will enter new markets with film and other media, and introduce new products consistent with market demand. We will be the industry's most competitive participant in traditional products and services."

With the cash generated from the continuing operation of the traditional business, Kodak will have more resources to build on its market-leading digital products and services, such as the KODAK Picture Maker kiosks, KODAK inkjet papers, and the KODAK DRYVIEW laser printers for radiologists.

"As we have said for many months, Kodak will be a leaner, stronger, more competitive and more diversified company in the years ahead," Carp said. "The actions we've reported on today support that vision, and position Kodak to remain the leader in providing customers with the products and services they need to capture, share, store, use, print and enjoy pictures. Kodak will thrive precisely because we have the leadership, technology and brand to do so. By continuing to act swiftly, we are creating a business model that will allow us to compete more effectively in all the markets we serve."

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 cash flow, costs and charges incurred as the result of restructuring and savings from restructuring 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 implementation of our recently announced digitally-oriented growth strategy;

  • Implementation of product strategies (including category expansion, digitization, organic light emitting diode (OLED), and digital products);

  • Implementation of intellectual property licensing 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 newly acquired businesses;

  • Improvement in manufacturing productivity and techniques;

  • Improvement in receivables performance;

  • Reduction in capital expenditures;

  • Improvement in supply chain efficiency;

  • Implementation of future focused cost reductions, including personnel reductions;

  • Development of our business in emerging markets like China, India, Brazil, Mexico and Russia;

  • Inherent unpredictability of currency fluctuations and raw material costs;

  • Competitive actions, including pricing;

  • The nature and pace of technology evolution, including the analog-to-digital transition;

  • Continuing customer consolidation and buying power;

  • General economic, business, geopolitical and public health conditions; 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.

2004