January 30, 2003 -- Kodak Corporation (NYSE:EK) announced their fourth quarter earnings Wednesday, January 22. The conference was held at 10:00 a.m. EST to discuss the financial results, 2003 expectations, and to provide a Q&A opportunity for interested analysts and investors. 1. Conference presenter was Dan Carp, Chairman & CEO of Kodak. He reviewed the 2002 highlights and 2003 forecasts. Overall mission of Kodak is to “drive and brand output in all forms.” Strategy of the company is clearly focused on InfoImaging: * Expand the benefits of film * Driving outputs in all forms * Making digital easier * Developing new businesses in new markets 2. Fourth Quarter financial results showed revenues of $3.4 billion (up 2% from 4th Qtr. 2001), and netted a positive operating cash flow of $761 million. Total revenues for 2002 are $12,835 billion down from $13,229 in 2001. Earnings came in for the year at a loss of $256 million, increasing from a loss of $237 in 2001. However since 12/31/01, debt was reduced by $594 million, cash increased $126 million, debt-to-capital ratio reduced from 52.5% to 48.4%. 3. Kodak expects 2003 to be a difficult operating environment. Revenues and earnings are expected to grow to 2001 levels. Kodak expects EPS to range from $2.35 - $2.95 in 2003 based on three impacts: world economy, internationalism and terrorism, and technology evolution. First quarter of 2003 is expected to remain weak and perform to similar levels as 2001. 4. Analysts questions were focused on clarifying the 2003 earnings forecast. They expressed concerns about overly depressed and conservative forecasts, as well as digital margins given Kodak’s recent productivity gains, capital investment reductions, and general cost cutting. 5. Major initiatives and investments for 2003 will be in retail digital printing programs because of slowing film sales. Estimates by Kodak are that the impact of digital substitution on film sales is expected to decline revenues by 4-5% and an additional 5-6% in 2004. 6. Retail digital printing tests in Atlanta are showing positive results about mass market’s willingness to use the retailers to get their photos printed through Kodak’s digital equipment. However the condition of the retail industry is concerning to analysts, especially since the Kmart bankruptcy was a major hit to Kodak in 2002. 7. Analysts were also concerned about how Kodak defines digital substitution. Kodak claims to know more about picture-taking activities with consumers and commercial businesses than anyone and they have been tracking the number of exposures. One-time use cameras will be the major market for analog photography and once a family goes to a digital camera, the number of pictures printed drops by 60%. Notes on Commercial Imaging Group * U.S. Commercial Imaging segment sales were for the 4th Qtr. were $226 million, an increase of 5% from 4th Qtr., 2001 revenues of $215 million. Earnings from operations of $49 million increased 26% from $39 million, 4th Qtr. 2001. * The 4th Qtr. worldwide sales of graphic arts products to the Kodak Polychrome Graphics (KPG) joint venture declined 8%, primarily reflecting volume declines in Graphic Arts films. This reduction resulted from digital technology substitution and the effect of continuing economic weakness in the commercial printing market. * NexPress has taken orders for more than 200 units. Average consumable consumption for these units is running higher than plan. * The NexPress product is performing as expected (no cost, reliability, or general product issues) however the commercial printing industry is “in the worst slump I’ve ever seen” according to the CEO, which is the reason sales volumes are not meeting expectations.