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Kodak Announces New Operating Model, Alignment to Build Profitable Growth

Press release from the issuing company

ROCHESTER, N.Y.--Nov. 14, 2001-- Eastman Kodak Company announced today significant changes to its operating model that will improve the company's ability to generate profitable growth. Industry dynamics require Kodak to change its operating model to enable greater sales and earnings growth. The new model, the result of a six-month review by President and Chief Operating Officer Patricia F. Russo, is designed to unlock the company's profit potential by creating a simpler and lower-cost structure that increases accountability, speeds decision-making and enables more aggressive product portfolio management. "These changes will create the foundation for profit improvement and, ultimately, pave the way for growth,'' Russo said. "Over time, we will operate with less complexity, more accountability and more cooperation among businesses. We will manage our strategic product groups for maximum profit, and increase our coverage of the markets we serve. We believe this is how the company must be positioned to achieve profitable growth in an increasingly competitive environment.'' In this new model, resources will flow to those product groups that have the greatest opportunity to generate profitable growth, and businesses will become more vertically integrated, giving them more control over how they spend their money. The changes announced today are the first steps in creating this new model. "This is the mission for which I recruited Pat Russo as President and Chief Operating Officer,'' said Kodak Chairman and Chief Executive Officer Daniel A. Carp. "To compete in today's world, we needed a business model that allows us to make full use of our assets. These changes put us on a path to achieving that goal.'' Specifically, the changes include aggressively managing the business portfolio with an increased focus on product performance; instituting a vertical operating model that reduces complexity and gives businesses more decision-making authority; and realigning Kodak's businesses so that opportunities to accelerate growth and reduce costs are more easily captured. Instead of the varied and complex sharing arrangements of the past, the new model gives business groups and product managers authority for making those decisions that have the biggest influence on generating profitable growth. "This new product- and market-focused model aligns natural teams for addressing customer needs, eliminates organizational silos, and pulls together functions that previously were spread across the businesses,'' Russo said. "All the changes will occur in phases, some immediate, others over time.'' The business groups being created are: Photography, Commercial Imaging, and Components. The Health Imaging and Entertainment Imaging business units will remain as presently structured. All will report to Russo. * The Photography Group is composed of Consumer Imaging, the photographic portion of Kodak Professional, and Digital & Applied Imaging. This group combines traditional and digital photography and photographic services in all its forms - consumer, advanced amateur, and professional. It will be led by Martin M. Coyne II, currently President of the Commercial Business Group and an Executive Vice President of the company, who will become Group Executive. Within the Photography Group, Daniel P. Palumbo continues as President of Consumer Imaging; Willy Shih continues as President of Digital & Applied Imaging; and Karen Smith-Pilkington will remain President of Kodak Professional. * The Commercial Imaging Group is composed of Document Imaging; NexPress; Kodak Polychrome Graphics (KPG); Wide-format Inkjet; and the Commercial & Government Systems business. In addition, this group encompasses all of Kodak's efforts in the graphics and commercial printing markets. It combines commercial scanning, processing, output and services. It will be led by Carl Marchetto, currently President of Commercial & Government Systems and a Senior Vice President of the company, who will become President of the Commercial Imaging Group. Within this group, Candy Obourn continues as President of Document Imaging. * The Components Group is composed of the Kodak Display Business (OLED); the Imaging Sensor Solutions business (ISS); plus an Optics business currently part of Commercial & Government Systems. The unit represents an effort on Kodak's part to diversify into high-growth product areas that are consistent with its historical strengths in image science. The head of this group will be named at a later date. * The Health Imaging business will continue to be led by J. Michael McQuade, who is President of that unit. * The Entertainment Imaging business will continue to be led by Eric Rodli, who is President of that unit. Under this new model, the businesses will be more responsible for managing those activities that affect sales and earnings, such as supply chain management, inventory, administrative spending, marketing and customer-service activities. Previously, businesses shared those responsibilities with the company's Global Operations division and other corporate-wide departments, an arrangement that increased complexity and cost while reducing accountability. In the new model, the Global Operations organization and most of its functions will be integrated into the business groups during the next six months. As part of the transition, a number of the organizations within Global Operations will be distributed into these businesses: Global Integrated Supply Chain and Customer Order Service. Worldwide Manufacturing will report to Russo but work closely with the businesses. Eric L. Steenburgh, Executive Vice President of Global Operations, announced his intention to retire. Until that time, he will assist in the transition of those functions into the businesses. "Over the past three years, Eric has provided exceptional leadership in guiding our global operations through some of the most challenging times in our company's history,'' Carp said. "Eric played a key role in the helping to drive the changes we are announcing today, and we thank him for his contributions.'' Ted G. Lewis, senior vice president and director, Digital Business Development, also announced his intention to leave the company. Kodak remains committed to the venture capital investments it has made and expects to continue investigating investment opportunities in emerging technology. Yet the economic slowdown has reduced activity in the venture capital community, causing Kodak to change the way it approaches this market. James C. Stoffel, Chief Technical Officer and a Senior Vice President, will assume responsibility for Kodak's venture activities. "These operational changes will lead to improved accountability, faster execution and a lower-cost business model that will pave the way for profitable growth,'' Russo said. "We remain as committed as ever to delivering consistent, predictable financial results that will earn shareholders a better return on their investment.''