Kodak 2006-2007 Annual Report

236 Pages·2007·6.17 MB·English

E
A
S
T
M
A
N
K
O
D
A
K
C
O
M
P
A
N
Y
2
0
0
6
A
N
N
U
A
L
R
E
P
O
R
T
a
n
d
2
0
0
7
P
R
O
X
Y
S
T
A
T
E
M
E
N
T
C
C
5
-0
6
/
0
7
Eastman Kodak Company 343 State Street Rochester, NY 14650
www.kodak.com C
a
t N
o
. 8
This cover was produced using solutions from Kodak’s Graphic Communications Group including; Kodak Prinergy Connect Workfl ow System, 08
Approval XP4 Digital Color Imaging System, Sword Excel Plates, and a Magnus 800 Platesetter. The cover represents artifact-free 8
photographic fi delity in print reproduction made possible by 20 micron Kodak Staccato Screening. 148
KK5599009933__ccoovveerr..iinndddd 11 33//1199//0077 22::4488::0077 PPMM
new new
. .
reconnect. reimagine. redesign. recharge. reconnect. reimagine. redesign. recharge.
Dear Fellow Investors: About Eastman Kodak Company
In 2006, a new Kodak began to emerge.
Kodak is the world’s foremost imaging innovator. With sales of $13.3 billion
For the fi rst time in our history, the full-year growth of our digital earnings
in 2006, the company is committed to a digitally oriented growth strategy
exceeded the decline in earnings from our traditional business. When you
consider where we were three years ago, with few digital prospects to speak focused on helping people better use meaningful images and information in
of and the fi lm industry in rapid decline, this milestone speaks volumes about
our determination to remake and renew Kodak in the digital age. their life and work. Consumers use Kodak’s system of digital and traditional
Our record of innovation and corporate responsibility grew in leaps and products and services to take, print and share their pictures anytime,
bounds. In 2006, we secured 688 new patents, putting us among the world’s
anywhere; Businesses eff ectively communicate with customers worldwide
top-ranked patent recipients, especially measured against dollars spent.
We won dozens of awards for excellence and innovation in product design, using Kodak solutions for prepress, conventional and digital printing and
service, and marketing. We were also recognized for our business ethics,
corporate citizenship, diversity, and environmental stewardship. document imaging; Creative Professionals rely on Kodak technology
Our eff orts to capitalize on our intellectual property accelerated in 2006. We to uniquely tell their story through moving or still images; and leading
now have patent license agreements with more than 20 companies. In addition
Healthcare organizations rely on Kodak’s innovative products, services and
to generating cash and earnings, these agreements increase our ability to enter
new digital markets and reach more people with cutting-edge technology. customized workfl ow solutions to help improve patient care and maximize
We have met unprecedented challenges in the company’s history and we effi ciency and information sharing within and across their enterprise.
are becoming a stronger company in the process. Moreover, we’re within
sight of completing what will be one of the most remarkable turnarounds in
corporate history.
We have a lot of work ahead of us on many fronts—launching our new and More information about Kodak (NYSE: EK) is available at www.kodak.com.
revolutionary consumer inkjet business, capitalizing on the creation of our
graphic communications business, and completing our major restructuring,
to name three. We approach this work with a confi dence reinforced by our
strong position in numerous digital markets, and our proven ability to make
the changes needed for success.
KK5599009933__ccoovveerr..iinndddd 22 33//1199//0077 22::4488::1155 PPMM
resolve. reemerge.
“We’re within sight of
completing what will be
one of the most remarkable
turnarounds in corporate
history.”
Antonio M. Perez
Chairman and Chief Executive Offi cer
Financial Review Business Review
Since we began our transformation, we have measured our progress We can proudly point to examples of growth and revitalization in
against three clear metrics: each of our business areas.
• digital earnings
• digital revenue Graphic Communications Group
• cash generation A strategic pillar in Kodak’s future, in just three years our
Graphic Communications Group (GCG) has gone from a passive
Let’s take a look at our results for 2006. and very modest participation in the industry to a business with
more than 100,000 customers worldwide and revenue of more than
In digital earnings*, we delivered a result of $343 million, nearly fi ve
$3.6 billion. To put our leadership position in perspective, consider
times that of the prior year, representing a $271 million increase.
this: Today, about 40 percent of the world’s commercially printed
This was driven by healthier gross profi t margins, strong earnings
pages are touched by Kodak technology.
improvement in our graphic communications and consumer digital
businesses, and global cost-reduction initiatives.
charge
.
The second metric, digital revenue*, grew by $316 million, but was Just as acquisitions were key to our growth in 2005, our
less than we would have liked. However, this shortfall was partly due performance in 2006 depended on our ability to successfully
to deliberate action on our part as we chose and publicly announced integrate those acquisitions into Kodak. GCG has come together
on January 30, 2006, to forego revenue and market share in certain well; our integration is ahead of plan, our investment in digital
areas of the low-end digital capture category in the interest of technologies has begun to pay off , and we are on track to achieve our
focusing on improving overall digital profi t margins. target business model.
As for cash generation, we fi nished 2006 with nearly $1.5 billion We now off er the industry’s broadest range of prepress equipment,
in cash. Our cash fl ow was exceptionally strong, even after paying workfl ow software, digital printing, variable data printing, and
out $548 million in restructuring costs and reducing our debt by consumables. In 2006, we put our capabilities to good use, achieving
$805 million, to $2.778 billion. We plan to further reduce our debt substantial recognition for our products and industry leadership:
by another $1.15 billion in 2007, predicated upon the anticipated
• NAPL (National Association for Printing Leadership) Industry Award;
closing of the sale of our Health Group to Onex Corporation in the
• Flexographic Prepress Platemakers Association Innovator of the Year;
fi rst half of the year.
• Stevie International Business Award for Service and Support;
Our fi nancial results in 2006 refl ect our determination to become a • AIIM E-Doc Magazine’s Best of Show for the Kodak i1220 scanner;
more profi table company. As we enter 2007 with solid momentum, • Numerous GATF (Graphic Arts Technical Foundation) awards;
we will place a strong emphasis on developing a sustainable, • Prinergy Evo workfl ow system became the fastest-selling workfl ow
profi table growth model, utilizing our talented people and our in the history of the industry;
valuable resources to generate greater value for our shareholders. • First sales of Kodak NexPress 2100 and Kodak Versamark dual
printing systems in Brazil;
• 10th anniversary of our groundbreaking CTP Thermal technology.
* Amounts used that are considered non-GAAP fi nancial measures are defi ned and
With recognition such as this, and a broad and deep portfolio, we
reconciled to the most directly comparable GAAP measures on page 1 of this annual
report to shareholders. GAAP refers to accounting principles generally accepted in are uniquely positioned to serve customers in blended production
the U.S. environments, with technologies and products that support both
conventional off set and digital printing. Consequently, we believe our
prospects for growth, both in revenue and earnings, are strong.
Consumer Digital Imaging Group
This past year was full of critical milestones for our Consumer
Digital Imaging Group (CDG). We are pleased about our progress
and feel confi dent that we will build on this momentum in 2007.
As Kodak transforms we look to the consumer business to bring
profi table digital revenue growth and further carry the Kodak brand
and consumer value proposition.
We continue to be a top market leader in the business segments
where CDG competes, including digital cameras, snapshot printers,
retail photo, kiosks, and online services. For the third year running,
we received the J.D. Power and Associates award for Highest
Customer Satisfaction with Digital Cameras—$200–$399. Kodak’s
EasyShare photo printers also earned high honors from J.D.
Power and Associates for the highest level of overall satisfaction,
signifi cantly outpacing the other top six competitors. And, we earned
numerous innovation and “best in show” awards.
We have made substantial progress in installing our digital business
model and largely have the necessary infrastructure to compete in the
digital world. We saw some important proof points from this eff ort:
improved inventory levels and cash fl ow; a rationalized regional go-to-
market model; a streamlined design, manufacturing and supply chain
model; and a new marketing architecture with product marketing
and integrated team focus. We implemented this business model
with new partnerships and new ways of working and we should see

further benefi ts from leveraging this integration during the next year
and beyond. All of this was achieved while we kept investing in key
technologies and product development for the future.
As we head into 2007, we are well positioned to launch new products
and technologies in new markets, helping us to achieve profi table
growth. We will also continue to exploit our current businesses—
building on the scale that we gained during the past years.
One of those new products is a revolutionary approach to inkjet
printing. The innovative Kodak EasyShare all-in-one inkjet
printers, featuring premium pigment-based inks at half the price
of competing inks, off er customers quality, ease-of-use and value
that’s unprecedented in the industry.
“40 percent of the world’s
Film Products Group
Although our Film Products Group (FPG), formerly the Film and commercially printed pages
Photofi nishing Systems Group, might not be thought of as part
of the digital spotlight at Kodak, it continues to generate an are touched by Kodak
impressive amount of cash to help fund our digital transition.
Showing great leadership, our traditional business has successfully
technology.”
paced its restructuring eff orts ahead of the decline in revenue.
Despite competing in a challenging industry environment, we have
maintained strong market positions and signifi cant profi t margins.
As a result, we are creating a sustainable business model for
customers who use fi lm and paper.
Color negative fi lm still holds a unique space in the motion picture
workfl ow. It remains the medium of choice because its artistic and
archival qualities still diff erentiate it from digital capture. For the
79th consecutive year—ever since the inception of the Academy
Awards—the Oscar for Best Picture went to a movie produced
on Kodak fi lm. Similarly, Kodak distribution fi lm still remains the
medium of choice for distributing and viewing movies.
Studio Photography named Kodak Professional Portra fi lm as the top
choice in fi lm in its fi rst ever Reader’s Choice Awards competition
at Photo Plus Expo, the largest gathering of pro photographers and
advanced amateurs in the U.S.
Internally, much of the Global Manufacturing & Logistics organization Outlook
moved into FPG during the year, integrating the total supply chain
into this unit’s structure. We’ve always worked closely with our We have two key strategic objectives for 2007:
manufacturing partners; now we are together in one organization with
• Achieve market success with our new products—In CDG, this
common goals and leadership, forging an even stronger and more
includes CMOS and our game-changing all-in-one consumer
eff ective partnership.
inkjet printers; In GCG, this includes important product line
FPG is focused more than ever on Kodak’s historic business of fi lm and extensions and exciting new market segment opportunities.
related services. Our mission remains very straightforward: to build a • Aggressively reduce our SG&A expenses, and complete our
sustainable business, serving customers who use fi lm and paper. traditional restructuring.
By achieving those objectives we will have made the necessary
Health Group
progress toward the new digital business model envisioned in our
As this Annual Report goes to print, we have announced that Onex
turnaround plan announced in September 2003. That will allow
Corporation has agreed to purchase our Health business for up to
Kodak to become a strong competitor in the digital world, with
$2.55 billion.
the brand, intellectual property, products, and people to achieve
sustainable, profi table growth and high return on invested capital
Despite the inherent uncertainty that went with such a process, the
for our shareholders.
eHealth Group maintamined double-digit operating profi ts and reemained rge
a worldwide leader in health imaging, including digital x-ray capture,
medical printers, and x-ray fi lm.
.
Technology Review
This has been an exceptional year for research at Kodak. The Kodak There is one additional key to growth and to renewing Kodak’s
Easyshare printers, announced in early 2007, derived their existence leadership, and it’s an important one: our corporate culture and
from early work in our research laboratories. The ground-breaking our people—how we view the world, what we focus on, how
work on MEMS (Micro-Electro-Mechanical Systems) allowed us we make decisions and work with our customers, partners and
to design and manufacture long-life microscopic nozzles on the amongst ourselves.
same silicon wafer as the rest of the printhead. This means that the
As we make all these changes and our culture evolves, I want to
printhead can stay where it belongs, namely in the printer, enabling
emphasize just how important an asset we have in our people.
us to off er consumers replacement ink cartridges at signifi cantly
Kodak people are intelligent and creative. They are steady and
lower prices. Another product of Kodak research is the advanced
strong and resilient. They are proud of this company, proud of their
nanoparticle pigment ink, which yields images that will hold their
own contributions, and their commitment to success is unwavering.
color for more than a century. This is a great example of how Kodak’s
investment in research enables the design, production and marketing
We, all of us at Kodak, have a lot of work, and more rebuilding left
of state-of-the-art products.
to do to complete our transformation. But, together with that, we
have new high value-creating opportunities to be developed this
Another success story has been the Shanghai Product Development
year. The year 2007 will be pivotal. But with a new Kodak coming
Center. What began as a small software development center
into view, we feel optimistic about the year ahead.
nine years ago has grown into an integral player in product
development serving Kodak’s diff erent businesses. Several of
Kodak’s award-winning products have been developed, at least in
part, in the Shanghai Center, working together with the other Kodak
development centers in the U.S. and Europe. These products include
the Kodak picture kiosk, Kodak Professional digital printing software
(DP1), Document Imaging’s Smart Touch, and Entertainment
Imaging’s Kodak look management system (KLMS).
Antonio M. Perez
Lastly, our intellectual property position remains strong, as attested Chairman and Chief Executive Offi cer
by major licensing agreements concluded during the year. Our
research focus has been entirely digital for several years now, and
we are clearly picking up momentum.
new new
. .
reconnect. reimagine. redesign. recharge. reconnect. reimagine. redesign. recharge.
Dear Fellow Investors: About Eastman Kodak Company
In 2006, a new Kodak began to emerge.
Kodak is the world’s foremost imaging innovator. With sales of $13.3 billion
For the fi rst time in our history, the full-year growth of our digital earnings
in 2006, the company is committed to a digitally oriented growth strategy
exceeded the decline in earnings from our traditional business. When you
consider where we were three years ago, with few digital prospects to speak focused on helping people better use meaningful images and information in
of and the fi lm industry in rapid decline, this milestone speaks volumes about
our determination to remake and renew Kodak in the digital age. their life and work. Consumers use Kodak’s system of digital and traditional
Our record of innovation and corporate responsibility grew in leaps and products and services to take, print and share their pictures anytime,
bounds. In 2006, we secured 688 new patents, putting us among the world’s
anywhere; Businesses eff ectively communicate with customers worldwide
top-ranked patent recipients, especially measured against dollars spent.
We won dozens of awards for excellence and innovation in product design, using Kodak solutions for prepress, conventional and digital printing and
service, and marketing. We were also recognized for our business ethics,
corporate citizenship, diversity, and environmental stewardship. document imaging; Creative Professionals rely on Kodak technology
Our eff orts to capitalize on our intellectual property accelerated in 2006. We to uniquely tell their story through moving or still images; and leading
now have patent license agreements with more than 20 companies. In addition
Healthcare organizations rely on Kodak’s innovative products, services and
to generating cash and earnings, these agreements increase our ability to enter
new digital markets and reach more people with cutting-edge technology. customized workfl ow solutions to help improve patient care and maximize
We have met unprecedented challenges in the company’s history and we effi ciency and information sharing within and across their enterprise.
are becoming a stronger company in the process. Moreover, we’re within
sight of completing what will be one of the most remarkable turnarounds in
corporate history.
We have a lot of work ahead of us on many fronts—launching our new and More information about Kodak (NYSE: EK) is available at www.kodak.com.
revolutionary consumer inkjet business, capitalizing on the creation of our
graphic communications business, and completing our major restructuring,
to name three. We approach this work with a confi dence reinforced by our
strong position in numerous digital markets, and our proven ability to make
the changes needed for success.
KK5599009933__ccoovveerr..iinndddd 22 33//1199//0077 22::4488::1155 PPMM
r e c o n c i l i a t i o n a n d s a f e h a r b o r
Digital earnings, Digital earnings growth and Digital revenue growth are non-GAAP financial measures. The reconciliations of those measures to the
respective most comparable GAAP measures follow below:
2006 Digital Earnings and Digital Earnings Growth (in millions) 2006 Digital Revenue Growth (in millions)
Increase/ Digital revenue growth, as presented $ 316
FY 2006 (Decrease)
Traditional revenue decline (1,302)
Digital earnings, as presented $ 343 $ 271
New Technologies revenue decline (8)
Traditional earnings and
Total Company revenue decline
New Technologies loss 221 (214)
(GAAP basis) $ (994)
Legal settlement 2 (23)
Restructuring costs and other items (768) (350)
Loss from continuing operations before
interest, other income (charges),
net and income taxes (GAAP basis) $ (202) $ 430
Certain statements in this report may be forward-looking in nature, or “forward-looking statements” as defined in the United States Private Securities
Litigation Reform Act of 1995. For example, references to expectations for the Company’s revenue and earnings growth, debt, closing of the sale of
the Health Group, business model, digital revenue growth, new products, SGA expenses and restructuring are forward-looking statements.
Actual results may differ from those expressed or implied in forward-looking statements. In addition, any forward-looking statements represent the
Company’s estimates only as of the date they are made, and should not be relied upon as representing the Company’s estimates as of any subsequent
date. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any
obligation to do so, even if its estimates change. The forward-looking statements contained in this report are subject to a number of factors and
uncertainties, including the successful:
• execution of the digital growth and profitability strategies, business model and cash plan;
• implementation of the cost reduction programs;
• transition of certain financial processes and administrative functions to a global shared services model and the outsourcing of certain
functions to third parties;
• implementation of, and performance under, the debt management program, including compliance with the Company's debt covenants;
• development and implementation of product go-to-market and e-commerce strategies;
• protection, enforcement and defense of the Company's intellectual property, including defense of our products against the intellectual property
challenges of others;
• implementation of intellectual property licensing and other strategies;
• completion of information systems upgrades, including SAP, the Company's enterprise system software;
• completion of various portfolio actions;
• reduction of inventories;
• integration of acquired businesses;
• improvement in manufacturing productivity and techniques;
• improvement in receivables performance;
• improvement in supply chain efficiency; and
• implementation of the strategies designed to address the decline in the Company's traditional businesses.
The forward-looking statements contained in this report are subject to the following additional risk factors:
• inherent unpredictability of currency fluctuations, commodity prices and raw material costs;
• competitive actions, including pricing;
• changes in the Company's debt credit ratings and its ability to access capital markets;
• the nature and pace of technology evolution;
• changes to accounting rules and tax laws, as well as other factors which could impact the Company's reported financial position or effective
tax rate;
• general economic, business, geo-political and regulatory conditions;
• market growth predictions;
• continued effectiveness of internal controls; and
• other factors and uncertainties disclosed from time to time in the Company's filings with the Securities and Exchange Commission.
Any forward-looking statements in this report should be evaluated in light of these important factors and uncertainties.

secUrities and eXchanGe coMMission
Washington, D.C. 20549
forM 10-K
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 2006 or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
eastMan KodaK coMPanY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 585-724-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
Common Stock, $2.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ X ] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amend-
ment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last
business day of the registrant’s most recently completed second fiscal quarter, June 30, 2006, was approximately $6.8 billion. The registrant has no
non-voting common stock.
The number of shares outstanding of the registrant’s common stock as of February 21, 2007 was 287,513,753 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF FORM 10-K
The following items in Part III of this Form 10-K incorporate by reference information from the Notice of 2007 Annual Meeting and Proxy Statement:

Item 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11 - EXECUTIVE COMPENSATION

Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Item 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES