ROCHESTER, N.Y.-- Jan. 31, 2007-- Eastman Kodak Company today reported fourth-quarter net earnings from continuing operations of $17 million, on lower year-over-year revenues, reflecting cost reduction efforts that boosted earnings and an emphasis on pursuing profitable sales. The company achieved $271 million in digital earnings for the fourth quarter, driven by wider gross profit margins and the company's global cost-reduction initiatives, resulting in strong earnings improvement in the company's Consumer Digital and Graphic Communications businesses. The company also delivered a $271 million increase in digital earnings for the full year. Significantly, digital earnings growth for the year exceeded the traditional earnings decline for the first time in the company's history. On the basis of generally accepted accounting principles (GAAP), the company reported fourth-quarter earnings from continuing operations of $17 million, or $0.06 per share. Items of net expense that impacted comparability totaled $152 million, or $0.53 per share. The most significant items included a restructuring charge of $69 million after tax, or $0.24 per share, and $89 million after tax, or $0.31 per share, to record a valuation allowance against deferred tax assets in various international entities. For the fourth quarter of 2006: -- Sales totaled $3.821 billion, a decrease of 9% from $4.197 billion in the fourth quarter of 2005. Digital revenue totaled $2.449 billion, a 5% decrease from $2.587 billion in the prior-year quarter, consistent with the company's focus on improving digital profit margins. Traditional revenue totaled $1.357 billion, a 15% decline from $1.592 billion in the fourth quarter of 2005. -- The GAAP earnings from continuing operations were $17 million, or $0.06 per share, compared with a GAAP loss from continuing operations of $137 million, or $0.48 per share, in the year-ago period. The year-ago results included comparability items of expense totaling $1.02 per share. -- The company's fourth-quarter earnings from continuing operations, before interest, other income (charges), net, and income taxes were $222 million, compared with a loss of $171 million in the year-ago quarter. -- Digital earnings for the fourth quarter were $271 million, an increase of $130 million compared with the year-ago quarter, and benefited from a number of items. The company generated significant earnings growth in its Graphic Communications business and achieved operational improvements in its Consumer Digital Group, including a year-over-year increase in income from licensing arrangements, which reflects the company's continuing progress in generating returns from its intellectual property. "I am extremely pleased with our performance in 2006 and our progress in implementing our digital business model," said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. "Our digital earnings greatly exceeded traditional earnings in the fourth quarter. Profit margins expanded in the sizeable digital businesses that we have assembled, debt declined by more than $800 million in 2006, and the year ended with a strong cash position. We intend to conclude our restructuring this year, as part of the creation of a digital company with sustainable revenue and profit growth." Other fourth-quarter 2006 details: -- Net cash provided by operating activities from continuing operations for the fourth quarter totaled $1.028 billion, compared with $1.240 billion in the year-ago quarter. Net cash generation (formerly investable cash) was $916 million, bringing full-year net cash generation to $592 million, which is at the upper end of the range provided by the company. Full-year net cash provided by operating activities from continuing operations totaled $956 million. -- Kodak held $1.469 billion in cash as of December 31, 2006, compared with $1.665 billion on December 31, 2005. -- Debt decreased $561 million from the third-quarter level, to $2.778 billion as of December 31, 2006. For the full-year 2006, debt decreased $805 million. -- Selling, General and Administrative expenses decreased $172 million from the year-ago quarter, primarily reflecting the company's cost reduction activities. SG&A as a percentage of revenue was 15.6%, down from 18.3% in the year-ago quarter, amplified by seasonally strong fourth-quarter revenue. -- Gross profit margins were 26.4% in the current quarter, up from 23.0% in the prior year quarter. This was driven by operational improvements across the company's business units, most notably KODAK PICTURE kiosks, the KODAK GALLERY, and the favorable impact of the previously noted licensing arrangements. The company also benefited from reduced restructuring costs. Fourth-quarter segment sales and results from continuing operations, before interest, other income (charges), net, and income taxes (earnings from operations), are as follows: -- Consumer Digital Group earnings from operations were $150 million, compared with $40 million a year ago, on sales of $1.154 billion, which were down 13% from the prior-year quarter, consistent with the company's focus on improving digital profit margins. On a full year-over-year basis, earnings from operations improved by $132 million. Highlights for the quarter included a 27% increase in sales of KODAK PICTURE kiosks, of which 52% was a volume increase in related thermal media sales, a significant earnings improvement in the KODAK GALLERY, and an increase in income from licensing arrangements. According to the NPD Group's consumer tracking service, KODAK EASYSHARE digital cameras were number one in unit market share in the U.S. for the fourth quarter and full year of 2006. -- Graphic Communications Group earnings from operations were $57 million, compared with $28 million in the year-ago quarter, on sales of $974 million, which were up 3% from the prior-year quarter. On a full year-over-year basis earnings from operations improved by $182 million. The sales growth largely reflects increased demand for NEXPRESS Color Presses and digital plates, partially offset by a decline in NEXPRESS Black & White Printers and the traditional product portfolio. -- Film and Photofinishing Group earnings from operations were $77 million, compared with $51 million a year ago, on sales of $1.013 billion, which were down 16% from the prior-year quarter. During the fourth quarter of 2006, the group achieved an 8% operating margin, double the rate of the year-ago quarter and in line with company expectations. -- Health Group segment earnings from operations were $86 million, compared with $87 million a year ago, despite substantial costs associated with the divestiture effort and increased costs for silver. Sales for this segment were $660 million, down 6%. Highlights for the quarter included sales increases in Healthcare Information System, digital dental products, and digital capture, offset by declines in traditional radiography and digital output. The company announced on January 10th that it has reached an agreement to sell the Health Group to Onex for as much as $2.55 billion. The transaction is expected to close in the first half of 2007. Other 2006 Highlights: -- The company's net loss narrowed by $754 million, or $2.61 per share, from a negative $1.354 billion, or $4.70 per share, in 2005 to a negative $600 million, or $2.09 per share in 2006. The favorable year-over-year change reflects greatly improved operational performance in the company's Consumer Digital, Graphic Communications, and Film and Photofinishing businesses. It also reflects a year-over-year decrease in restructuring charges, reduced SG&A expenses and lower tax valuation allowances versus the prior year. -- On a full-year basis, the company posted $343 million in digital earnings, a nearly five-fold improvement year-over-year, and close to the company's aggressive target for the year. -- Net cash provided by operating activities from continuing operations totaled $956 million for the year, compared with $1.180 billion in 2005, at the upper end of the company's forecasted range. "I'm proud of my team and their accomplishments in 2006, and our results reflect our progress in becoming a more profitable company," said Perez. "We delivered on every important goal that we set, with the exception of digital revenue growth, where we made a specific decision to focus on overall digital profit margins over revenue growth. "Kodak is now a company with a strong market position in a significant number of digital categories. We enter 2007 with solid momentum, a strong emphasis on sustaining profitable growth, and the talent and resources necessary to generate value for our shareholders."