ROCHESTER, N.Y., Jan. 29 --
Eastman Kodak Company (NYSE:EK) today reported preliminary fourth-quarter
2008 results, which reflect the impact of the global recession, the slowdown in
consumer spending and reduced business investment, as well as changes in the
value of the U.S. dollar.
For the fourth quarter, Kodak reported a preliminary loss from continuing
operations of $133 million, or $0.50 per share and preliminary Net Loss of $137
million, or $.51 per share. Fourth-quarter sales were $2.433 billion, a 24%
decline from the year-ago quarter. Digital sales for the fourth quarter were
$1.779 billion, a 23% decline from the year-ago quarter, and traditional
revenues were $652 million, a 27% decline from the year-ago quarter.
For full-year 2008, the company reported preliminary earnings from
continuing operations of $54 million, or $0.19 per share. Full-year revenue
totaled $9.416 billion, a 9% decline from 2007. Full-year digital revenue
totaled $6.422 billion, a 4% decline from 2007, and traditional revenue totaled
$2.987 billion, an 18% decline. The company is currently performing assessments
of goodwill and long-lived assets, consequently 2008 results are preliminary
pending the outcome of those assessments.
“The second half of 2008 will go down in history as one of the most
challenging periods we have seen in decades,” said Antonio M. Perez, Chairman
and Chief Executive Officer, Eastman Kodak Company. “We built significant
momentum following the completion of our corporate transformation and our
business results were on track through most of 2008, with digital revenue up
10% in the first half of the year, following double-digit growth in the
second-half of 2007. However, during the last three months of the year,
we experienced dramatic declines in several of our key businesses due to the
slowdown in consumer spending and significantly reduced demand for capital
equipment. Despite these challenging conditions, we held or improved our market
position in key businesses, maintained a solid balance sheet, and continued to
invest in innovative, differentiated products. We are taking the necessary
steps to address this environment and to position Kodak to recapture the
momentum when the recovery occurs.”
For the fourth quarter of 2008:
- Sales worldwide totaled $2.433 billion, a decrease of 24% from $3.220
billion in the fourth quarter of 2007. Revenue from digital businesses totaled
$1.779 billion, a 23% decline from $2.325 billion in the prior-year quarter.
Revenue from the company’s traditional business decreased 27% to $652 million
as a result of accelerated industry-related declines in Film Capture and
Traditional Photofinishing.
- The company’s preliminary fourth-quarter loss from continuing operations,
before interest expense, other income (charges), net, and income taxes was $120
million, compared with earnings on the same basis of $130 million in the
year-ago quarter.
On the basis of U.S. generally accepted accounting principles (GAAP), the
company reported a preliminary fourth-quarter loss from continuing operations
of $133 million, or $0.50 per share, compared with earnings on the same basis
of $92 million, or $0.31 per share, in the year-ago period. Items of net
expense that impacted comparability in the fourth quarter of 2008 totaled $112
million after tax, or $0.42 per share, including restructuring and
rationalization charges of $96 million after tax, or $0.36 per share, and a
legal contingency of $21 million after tax, or $0.08 per share, partially
offset by tax and other items totaling $5 million, or $0.02 per share. Items of
net expense that impacted comparability in the prior-year quarter totaled $15
million after tax, or $0.05 per share, primarily reflecting restructuring and
impairment costs of $93 million after tax, or $0.30 per share, net gains on
sale of property of $89 million after tax, or $0.29 per share, and various tax
and other items totaling $11 million, or $0.04 per share.
Other fourth-quarter 2008 details:
- Gross Profit margin was 20.5% for the quarter, a decline from 24.7% in the
year-ago period. This margin decline reflects the impact of negative price/mix,
including lower intellectual property royalties, along with unfavorable foreign
exchange, partially offset by continued cost reductions.
- Selling, General and Administrative (SG&A) expenses were $403 million
in the fourth quarter, down 23%, or $122 million, from $525 million in the
year-ago quarter.
- Cash generation before dividends for the fourth-quarter was $472 million,
compared with $1.204 billion in the year-ago quarter. This corresponds to net
cash provided by continuing operations from operating activities on a GAAP
basis of $516 million in the fourth quarter, compared with net cash provided of
$1.045 billion in the fourth quarter of 2007. Cash performance during the
fourth quarter of 2008 reflects the change in earnings, partially offset by
continued improvements in working capital.
- Kodak held $2.145 billion in cash and cash equivalents as of December 31,
2008.
- The company’s debt level stood at $1.303 billion as of December 31, 2008, a
reduction of $294 million as compared to the year-end 2007 debt level of $1.597
billion.
- In the quarter, the company repurchased approximately 6 million shares of
its common stock at a cost of $82 million. While the previously disclosed share
repurchase authorization remains in effect through the end of 2009, Kodak is
not currently repurchasing any of its shares. The company will continue to
provide updates on the program at the end of each quarter.
Segment sales and earnings from continuing operations before interest,
taxes, and other income and charges (segment earnings from operations), are as
follows:
- Consumer Digital Imaging Group full-year sales were $3.088 billion, a 5%
decline from 2007. Sales for the fourth quarter were $958 million, a 30%
decrease from $1.372 billion in the prior-year quarter. Fourth-quarter loss
from operations for the segment was $40 million, compared with earnings of $91
million in the year-ago quarter. The fourth-quarter loss was driven primarily
by lower volume and price/mix impacts, particularly in Digital Capture and
Devices, including lower intellectual property licensing royalties, and
unfavorable foreign exchange, partially offset by cost improvements.
- Graphic Communications Group full-year sales were $3.334 billion, a 2%
decline from 2007. Sales for the fourth quarter were $821 million, a 14%
decrease from $953 million in the year-ago quarter. Fourth-quarter loss from
operations for the segment totaled $4 million, compared with earnings of $30
million in the year-ago quarter. This earnings decline was primarily driven by
lower volume and price/mix across several product lines, along with a negative
impact from foreign exchange, partially offset by reductions in selling,
general and administrative cost.
- Film, Photofinishing and Entertainment Group full-year sales were $2.987
billion, an 18% decline from 2007. Fourth-quarter revenue was $652 million,
down from $894 million in the year-ago quarter, representing a decrease of 27%,
attributable to reduced sales volume of Film Capture and Traditional
Photofinishing products and services. Fourth-quarter earnings from operations
for the segment increased to $39 million from $17 million in the year-ago
quarter. These earnings results were driven by significant cost reductions, and
reflect the impact of previously announced changes in post-employment benefits,
and lower depreciation expense related to the company’s previously announced
change in useful life assumptions. These were partially offset by the effects
of lower consumer film sales volumes, price/mix across several product lines,
increased commodity costs, and foreign exchange impacts.
No Payout for 2008 Executive Performance-Based Compensation
The company has in place compensation programs designed to drive achievement
of key financial goals and to align the interests of Kodak executives with that
of its shareholders. Executive performance-based compensation programs for
2008, including the executive long-term equity program (Leadership Stock) and
the annual cash variable pay program (EXCEL), were based on achievement of
goals related to digital revenue growth, net cash generation, and total
earnings from operations.
As a result of the company’s 2008 performance, Kodak executives worldwide
will receive no payout in 2009 for either the EXCEL variable pay program or the
executive Leadership Stock program. In addition, the company previously
announced that, where permissible by law, its executives will receive no salary
increases in 2009. The company also announced that for non-exempt U.S.
employees, there will be no U.S. Wage Dividend payout in 2009 based on 2008
performance.
Actions Underway to Address Global Economic
Realities
Kodak is taking a number of specific actions to strengthen its operations
and become more competitive in the face of the continuing global economic
downturn. These actions, which the company has already begun, include more
tightly focusing its portfolio of investments, intensifying its emphasis on
cash generation, and further streamlining its cost structure.
Today, Kodak announced that the company expects to reduce its worldwide
employment by between 3,500 and 4,500 positions during 2009, approximately 14%
to 18% of its total workforce. This includes the reduction of 2,000 to 3,000
positions related to the company’s 2009 restructuring program that is being
reported today in a Form 8-K filing with the U.S. Securities and Exchange
Commission, as well as actions that the company took in late 2008 that will be
implemented in 2009. The 2008 actions were included in the rationalization
charges that the company recorded in the fourth quarter.
These reductions, which include executive positions, have commenced and the
company expects to implement the majority of the actions associated with this
program in the first half of 2009. In connection with these restructuring
actions, the company expects to incur charges against earnings in 2009 in the
range of $250 million to $300 million, and make payments from corporate cash in
the range of $225 million to $275 million, including the impact of carryover
actions from 2008.
When combined with rationalization actions the company took in late 2008,
these new 2009 restructuring actions are expected to generate annual savings in
the range of $300 million to $350 million and better align the company’s cost
structure with the new economic environment.
Additionally, the company announced that on a global basis there will be no
salary increases for 2009 except where required by law or local agreements.
“These are extraordinary times,” said Perez. “In the face of this economic
environment we are focusing on those things within our control, and we are
taking aggressive yet prudent action to ensure that Kodak remains a strong and
enduring competitor. Some of the actions we are taking are especially difficult
because they impact our people, whose hard work and continued commitment I
appreciate during these difficult times. Despite the challenges facing the
economy, we remain optimistic that we will rebuild the momentum we had
following our successful strategic transformation. Our future will be driven by
our dedicated employees, our powerful brand, and our unmatched expertise at the
intersection of imaging science and materials science.”
Balance Sheet Considerations
The company's earnings reported today are preliminary, subject to the
completion of long-lived asset and goodwill impairment testing. Given
uncertainty surrounding the external economic conditions and volatility of the
company’s market capitalization, the company is performing impairment testing
as of the end of 2008. It is likely that non-cash impairment charges, which
could be material, will be recorded in 2008 based on these analyses, which will
be completed prior to the filing of the company’s Form 10-K in late February
2009.
At the end of 2008, the company maintained a substantial cash balance and
was in full compliance with all of the financial covenants associated with its
revolving credit agreement. The company maintains this credit arrangement in
order to provide additional financial flexibility and currently has no funds
drawn in connection with this arrangement, other than a modest amount of
outstanding letters of credit issued under the agreement. In the current
environment, the company continues to experience an earnings impact as a result
of the economic downturn and also expects its earnings to be seasonal in
nature, as is typical. The company also expects to incur significant
restructuring charges in the first half of 2009. The combination of these
factors has an impact on the metrics used to determine financial covenant
compliance. For this reason, management is engaged in dialogue with its agent
and other key banks to ensure that the company continues to have access to a
revolving credit agreement.
As previously announced, the company will update the investment community on
its overall strategy and outlook for 2009 during a meeting to be held on
February 4, 2009, in New York City (details follow).
Conference Call Information
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: 913-312-1417, access code 4037636.
There is no need to pre-register.
The call will be recorded and available for playback by 2:00 p.m. Eastern
Time on Thursday, January 29 by dialing 719-457-0820 access code 4037636. The
playback number will be active until Thursday, February 5, at 5:00 p.m. Eastern
Time.
For those wishing to participate via an Internet Broadcast, please access
our kodak.com Investor Relations webpage at: http://www.kodak.com/go/invest.
The conference call audio will be archived and available for replay on this
site approximately one hour following the live broadcast.
Outlook/Investor Meeting
The company will provide a detailed outlook for 2009 at its annual strategy
meeting with the investment community on Wednesday, February 4, in New York
City.
The meeting will be held at TheTimesCenter, located at 242 West
41st Street (between 7th and 8th Avenues).
Registration will begin at 8:15 a.m. Eastern Time. The formal program will
begin promptly at 9:00 a.m. and is expected to conclude by 11:30 a.m.
The program will include presentations by Antonio Perez, Philip Faraci,
President & Chief Operating Officer, Mary Jane Hellyar, President, Film,
Photofinishing and Entertainment Group, and Frank Sklarsky, and will conclude
with a question-and-answer session.
If you wish to attend, please RSVP by contacting Alicia Zona at
585-724-5955, or by email at alicia.zona@kodak.com.
For those unable to attend in person, the meeting will be available via a
live webcast. To access the webcast please go to: http://www.kodak.com/go/invest.
An audio replay of the meeting will be available beginning Thursday,
February 5, at 8:00 a.m. Eastern Time and will run until 5:00 p.m. on Thursday,
February 12. The replay phone number is 719-457-0820 and the access code is
3849872.
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 regarding the following are forward looking statements:
its ability to address the impact of the economic downturn; its employment
reductions, costs, cash payments and savings under its restructuring program
and other rationalization activities; revenue creation and cost synergies
though acquisitions; new product introductions; the seasonality of its
earnings; its expectations regarding the completion of its goodwill and
long-lived asset impairment analysis; and its ability to have continued access
to a secured credit facility.
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 press
release are subject to a number of factors and uncertainties, including our
successful:
- execution of the digital growth and profitability strategies, business
model and cash plan;
- alignment of the Company’s cost structure to the new economic
realities;
- execution of our restructuring and rationalization activities;
- implementation of the Company’s plans to tighten its focus on its portfolio
of investments;
- implementation of, and performance under, the debt management program,
including compliance with the Company's debt covenants and the ability to
obtain amendments to or waivers of these covenants, if necessary;
- 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;
- execution of the Company’s planned process driven productivity gains;
- commercialization of the Company’s breakthrough technologies;
- ability to accurately predict product, customer and geographic sales mix
and seasonal sales trends;
- management of inventories, capital expenditures, working capital and cash
conversion cycle;
- integration of acquired businesses and consolidation of the Company's
subsidiary structure;
- improvement in manufacturing productivity and techniques;
- performance under the Company’s share repurchase program;
- conclusion of the Company’s goodwill and long-lived asset impairment
analyses;
- improvement in supply chain efficiency and continued availability of
essential components and services from concentrated sources of supply; 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;
- uncertainty generated by volatility in the financial markets and the
ability of our customers to obtain financing;
- 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 post-retirement 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;
- the severity of the economic downturn and its effect upon customer
spending;
- changes in market growth;
- ability to maintain adequate liquidity and financing sources and an
appropriate level of debt;
- possible impairment of goodwill and other assets;
- 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 press release should be evaluated in
light of these important factors and uncertainties.
Download an ADOBE Acrobat version of the
Fourth Quarter 2008 Results Non-GAAP Reconciliations (pdf).
Download an ADOBE Acrobat version of the
Financial Discussion Document (pdf).
