Kodak Reports Revenue Decline for Quarter, Digital Profits Improve

ROCHESTER, NY—July 28, 2010—Eastman Kodak Co. (NYSE:EK) reported second-quarter results that reflect continued acceleration of the company’s major growth businesses in commercial and consumer inkjet, unit growth in the company’s largest digital businesses, the continued decline of its traditional business, and operational improvements.

Revenue from the company’s digital commercial printing businesses grew 9% in the second quarter, including 18% growth in commercial inkjet printing. Consumer inkjet printer and ink revenue grew by 50% in the second quarter. Profits from the company’s digital portfolio showed year-over-year improvement for the third consecutive quarter.

Second-quarter sales totaled $1.569 billion, an 11% decrease from $1.766 billion in the second quarter of 2009. Revenue from digital businesses totaled $1.103 billion, a 6% decrease from $1.173 billion in the prior-year quarter. Film, Photofinishing and Entertainment Group revenue totaled $466 million, a 21% decline from $593 million in the second quarter of 2009.

On the basis of U.S. generally accepted accounting principles (GAAP), the company reported a second-quarter loss from continuing operations of $167 million, or $0.62 per share, compared with a loss from continuing operations on the same basis of $191 million, or $0.71 per share, in the year-ago period. Items of net expense that impacted comparability in the second quarter of 2010 totaled $31 million after tax, or $0.11 per share, primarily due to legal contingencies and restructuring charges. Items of net expense that impacted comparability in the second quarter of 2009 totaled $75 million after tax, or $0.28 per share, due primarily to restructuring charges and tax related items. (Please refer to the attached Items of Comparability table for more information.)

“We continue to gain share in our growth businesses, maintain cost discipline, and drive improved profitability,” said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. “Our new digital businesses, particularly consumer and commercial inkjet, continue to gain traction, with sales growth outpacing the competition. Digital commercial printing revenue, for example, grew 9% in the second quarter, consumer inkjet printer and ink revenue grew 50%, and operating margins improved in the majority of our digital product lines and for our digital business in total. We remain focused on building a leaner, more competitive company powered by innovative products that compete in large, new markets. Given the solid digital unit growth that we saw in the first half of the year, we continue to target full-year revenue of $7.5 billion to $7.7 billion, reflecting the increasing strength of our digital portfolio."

Other second-quarter 2010 details:

• The company’s second-quarter loss from continuing operations, before interest expense, other income (charges), net, and income taxes was $100 million, a $19 million improvement as compared to a $119 million loss in the year-ago quarter. This was driven by operational improvements, including productivity gains, and lower restructuring charges.

• Gross Profit improved to 19.3% of sales, as compared to 18.5% in the year-ago period. This increase in margin was driven by continued productivity improvements.

• Selling, General and Administrative (SG&A) expenses were $313 million in the second quarter, down 3%, from $324 million in the year-ago quarter.

• Research and Development expenses were $81 million in the second quarter, as compared to $84 million in the year-ago quarter, as the company focuses research dollars on its core growth businesses.

• Second-quarter 2010 cash generation, before restructuring payments, reflected a use of $170 million. This compared with cash usage on the same basis of $136 million in the year-ago quarter. This corresponds to net cash used in continuing operations from operating activities on a GAAP basis of $173 million in the second quarter, compared with net cash used of $161 million in the second quarter of 2009. As has been the case in previous years, the company expects to generate the majority of its cash flow during the second half of the year, consistent with its historic seasonal pattern.

• Kodak held $1.3 billion in cash and cash equivalents as of June 30, 2010, compared with $1.1 billion as of June 30, 2009.

• The carrying value of the company’s debt stood at $1.3 billion as of June 30, 2010, with total debt maturities of approximately $1.4 billion, including amounts classified as equity.

Segment sales and earnings from continuing operations before interest, taxes, and other income and charges (segment earnings from operations), are as follows:

• Graphic Communications Group second-quarter 2010 sales were $656 million, compared with $670 million in the prior-year quarter. Second-quarter earnings from operations for the segment improved by $28 million to break-even, compared with a loss in the year-ago quarter. This earnings improvement was primarily driven by lower raw material costs, increased volumes of digital plates, and improved operational performance, particularly within Digital Printing and Prepress Solutions, partially offset by negative price/mix.

• Consumer Digital Imaging Group second-quarter sales were $447 million, compared with $503 million in the prior-year quarter. Second-quarter loss from operations for the segment was $110 million, compared with a loss of $99 million in the year-ago quarter. This decrease in earnings was largely driven by the expiration of a significant Retail Systems Solutions customer contract and increased advertising investment, partially offset by improved profitability in Consumer Inkjet Systems and Digital Cameras and Devices.

• Film, Photofinishing and Entertainment Group second-quarter sales were $466 million, a 21% decline from the year-ago quarter, driven by continuing industry-related declines. Second-quarter earnings from operations for the segment were $29 million, compared with earnings of $51 million in the year-ago period. This decrease in earnings was primarily driven by industry-related declines in volumes and increased raw material costs, partially offset by cost reductions across the segment.

2010 Outlook

For 2010, Kodak remains focused on three key financial goals, which the company first announced at its February investor meeting: digital revenue growth, earnings from operations, and cash generation. The company today provided an updated outlook for 2010 performance against these metrics, recognizing the uncertainty created by the global economic environment. Kodak’s ability to achieve its full-year 2010 goals is predicated upon modest improvement in the global economy, stabilization of foreign exchange values, the introduction of new, higher-margin digital cameras and devices, and continued execution of the company’s intellectual property licensing program.

• For 2010, Kodak continues to target total company revenue of $7.5 billion to $7.7 billion.

• The company expects full-year digital revenue at the high end of its previous forecast and full-year traditional revenue slightly below the previous forecast.

• Kodak is targeting 2010 segment earnings from operations that will be within the previously communicated range of $350 million to $450 million. This equates to GAAP earnings from continuing operations before interest expense, other income (charges), net and income taxes of $275 million to $375 million.

• Kodak continues to forecast 2010 GAAP loss from continuing operations in the range of $50 million to $150 million, including the impact of the $102 million net charge for early extinguishment of debt, related to the company’s financing transactions in the first quarter of 2010.

• For full-year 2010, the company remains focused on its goal of achieving positive cash generation before restructuring payments. On a GAAP basis, the company is targeting net cash provided by continuing operations from operating activities in the range of $50 million to $150 million.

• The company continues to target a year-end cash balance of $1.8 billion to $2.0 billion, after taking into account all cash actions, including modest debt payments due during 2010.