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Kodak 3rd-Quarter Reported Net Income $1.15 Per Share

Press release from the issuing company

Operating Cash Flow Year-to-Date Improves by $686 Million Company Plans Additional, Focused Cost Reductions in Fourth Quarter and 2003 ROCHESTER, N.Y.--Oct. 24, 2002-- Eastman Kodak Company today said third-quarter reported net income totaled $1.15 per share and that year-to-date operating cash flow through the third quarter improved by $686 million from the same period of 2001. Earnings excluding one-time items totaled $1.04 per share. For the third quarter of 2002: * Sales totaled $3.354 billion, an increase of 1% from $3.308 billion in the third quarter of 2001. Excluding foreign exchange, sales declined 1%. * The company reported net income of $334 million, or $1.15 per share, compared with reported net income of $96 million, or 33 cents per share, in the third quarter of 2001. On an operational basis, the company had third-quarter earnings of $304 million, or $1.04 per share, excluding a number of one-time items that added 11 cents per share to reported earnings. Those items include the restructuring of Japanese photofinishing operations and a one-time write-down of venture investments, which were more than offset by adjustments related to previously announced restructuring programs and a one-time tax benefit related to the Japanese photofinishing operations. In the third quarter of 2001, earnings on an operational basis, which excluded restructuring charges, other asset write-downs and an income tax credit, and included goodwill amortization of 11 cents, were $152 million, or 52 cents per share. "We are executing on our plan to restore the company's earnings growth this year, as we promised in January," said Kodak Chairman and Chief Executive Officer Daniel A. Carp. "We continue to manage the company for the long term, which means our focus is generating cash, cutting costs, maintaining market share and increasing manufacturing productivity. Throughout this time, we continue to invest in our strategies for growth, including the research that brings innovative new products and services to market." Other third-quarter 2002 highlights: * Kodak recorded strong cash flow for the quarter and through the first nine months of the year. * For the quarter, operating cash flow was $341 million, an improvement of $25 million from the third quarter of 2001. The increase would have been $159 million had it not been for the change in the fourth quarter of last year in the timing of dividend payments, which are now paid semi-annually, not quarterly. Because of that change, Kodak made a $262 million dividend payment in this third quarter, compared with $128 million in the year-ago quarter. (Kodak defines operating cash flow as net cash provided by operating activities, as determined under Generally Accepted Accounting Principles in the U.S. [U.S. GAAP], plus proceeds from the sale of assets minus capital expenditures, acquisitions, investments in unconsolidated affiliates and dividends.) * Through the first nine months of 2002, operating cash flow was $591 million, an improvement of $686 million from the same period of 2001, when operating cash flow was a negative $95 million. Excluding the effect of the change in dividend payment policy discussed above, the improvement was $564 million. Net cash provided by operating activities, as determined under U.S. GAAP, for the nine months ended Sept. 30, 2002 and 2001, respectively, was $1.299 billion and $1.165 billion. * Debt declined $751 million from the year-ago level to $2.742 billion, and the company's debt-to-capital ratio declined to 44.7% from 51.3% a year ago. * Gross Profit rose to 38.4% on an as-reported and operational basis, up from the year-ago level of 34.2% as reported, or 36% on an operational basis, as a result of strong manufacturing productivity. * Selling, General and Administrative expenses were 18.8% of sales, as reported, or 18.5% on an operational basis, down from 20% on an as-reported and operational basis in the year-ago quarter, reflecting excellent cost control. The segment results for the third quarter of 2002 are as follows. * Photography segment sales totaled $2.409 billion, up 1%. Earnings from operations for the segment were $324 million, up from $223 million a year ago, which included goodwill amortization of $27 million. Highlights for the quarter included a slightly higher share of the U.S. consumer film market, as well as strong sales of motion-picture film and consumer digital cameras. * Health Imaging sales were $565 million, up 4%. Earnings from operations for the segment were $126 million, up from $51 million a year ago, which included goodwill amortization of $6 million. Margins based on earnings from operations continue to improve, rising to 22.3% in the third quarter, compared with 19.7% in the second quarter of 2002 and last year's low of 9.4%, which occurred in the third quarter of 2001. * Commercial Imaging sales were $354 million, up 3%. Earnings from operations were $39 million, unchanged from the year-ago quarter, which included goodwill amortization of $4 million. The segment's results reflect the acquisition of Encad Inc. in January and strong sales of the i800 Series high-speed document scanners. * All Other sales were $26 million, up from $24 million. Losses from operations totaled $8 million, compared with losses of $16 million, which included no goodwill amortization. The All Other category includes Sensors, Optics and miscellaneous businesses, as well as the Kodak Display business. Kodak's joint venture with Sanyo, SK Display Corp., continued production scale-up in the quarter with the goal of supplying production-quantity OLED screens to the market in 2003. Earnings Outlook: * Although forecasting is very difficult in the current economic environment, Kodak's current estimate of fourth-quarter operational earnings is 60 to 70 cents per share. This forecast reflects the expectation of flat sales, and a traditional decline in gross profit, which tends to be at its seasonal low in the fourth quarter of each year. Historically, gross profit drops about 4 percentage points from the third quarter to the fourth quarter. As a result, the company expects full-year operational earnings of $2.62 to $2.72 per share. * Operating cash flow for the full year will total at least $700 million, compared with the forecast of $400 million at the start of the year. "As our earnings results this year indicate, we are doing well in positioning Kodak to benefit from the eventual economic rebound," Carp said. "Our employees are working hard to deliver on the company's commitments. Even so, in line with our continuous effort to increase competitiveness, we intend to take focused cost-reduction actions, led globally by the company's various units." These actions relate to reducing assets and employment. Positions eliminated will range from 1,300 to 1,700 - from a year-end worldwide base of about 75,000 employees - with approximately 1,000 of the reductions occurring in the fourth quarter. The company anticipates taking a charge in the range of $130 million to $170 million to cover the costs associated with the actions, with approximately $120 million to $150 million being booked in the fourth quarter, of which half is non-cash. The cost savings from these actions are expected to be about $200 million annually, with about half of that amount realized in 2003. "These actions are required in a world that is increasingly competitive and economically uncertain," Carp said. "In line with our drive to continually evaluate every part of our business for profitability, we will consider additional, focused actions that further Kodak's long-term growth objectives and make sense for our customers and markets. Of course, we will do all we can to help affected employees through outplacement assistance and other means. "Kodak's mission is to continue generating cash, creating innovative products and services, and boosting manufacturing productivity so that the company's earnings are positioned to accelerate upon an economic recovery."