Eastman Kodak Co (KODK) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Eastman Kodak Company fourth quarter 2009 sales and earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference call is being recorded today, January 28th, 2010.

I would like to turn the call over to Ann McCorvey.

Good morning and welcome to our discussion of the 2009 fourth quarter sales and earnings.

I'm here with Antonio M.

Perez, Kodak's Chairman and CEO, as well as Chief Financial Officer, Frank Sklarsky.

Antonio will begin with his observation on the quarter, and then Frank will provide a review of the quarterly financial performance.

Before we get started I have some housekeeping activities to complete.

Certain statements during this conference call may be forward-looking statements in nature or forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995.

For example, references to the Company's expectations recording the following are forward-lookings statements.

Revenue, revenue growth, earnings, cash generation, increased demand for Kodak's products and commercial printing equipment and consumables, consumer inkjet products, motion film, picture films, potential revenue, cash and earnings from intellectual property licenses and potential economic growth.

These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our press release issued this morning.

Listeners are advised to read these cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important factors and uncertainties.

Now I will turn the conference over to Antonio M.

Perez.

Thank you Ann, and good morning, everyone.

I'm pleased to report that our strategy is working.

While the global economy has not fully recovered, the level of business activity increased in the fourth quarter, and the momentum that began in the economy and for Kodak in the third quarter continues during the fourth quarter.

We gained market share with our core digital businesses and we enter 2010 with our most competitive digital portfolio ever and a leaner cost structure that will leverage to drive profitable growth.

During the fourth quarter we saw substantially improved operating results.

Arising from our traction in new markets, a quarter sequential improvement in demand, and the benefits derived from improved productivity.

In fact, if you exclude nonrecurring intellectual property royalties from both 2008 and 2009 results, our gross margin improved by 6% year-over-year, using about $100 million in increased profitability.

This margin improvement was primarily driven by productivity gains in consumer inkjet and in digital camera and devices, as well as in improved demand for kiosk media within retail systems solutions, and digital plates.

Retail systems solutions was especially strong outside of the United States where revenue grew 12% at local currency rates.

We continue to gain strong traction with investments we are making for future growth in consumer inkjet, commercial inkjet, enterprise software and digital plates.

We are very pleased with the market share trends we're seeing in these businesses and these positive trends are specially rewarding in this very tough economy.

In 2009 consumer inkjet doubled it's install base, maintained a free enterprise premium and sustained an ink burn rate that continues to be significantly higher than the industry average, for us it's about eight cartridges a year.

We continue to offer consumers a compelling value proposition, and we are expanding the portfolio.

We recently introduced the Kodak ESP Office Printer, designed for the small office segment.

We believe our value proposition of a lower cost print per page combined with our high quality, high permanence inks is ideal for this market.

Our presence in commercial inkjet continued to grow as well.

During the fourth quarter, and in a tough environment, our ZL 2000 digital press installations grew 33% over the fourth quarter of 2008.

We continue to launch our stream printing technology with installations of additional Prosper S-10 imprinting systems in all region of the world and we will soon install the first Prosper 1000 XL digital press as per planned.

The demand for enterprise software improved in the fourth quarter and was especially strong in December.

We saw also a positive trend in digital plate with modest year-over-year growth.

This increase in demand across most businesses, combined with new and improved cost structure, positioned us well to drive earnings improvement as the top line of returns as shown in the fourth quarter.

As a result of the strength of our key businesses, the focusing on our expanding in our core investments, the improved productivity in our streamlined administrative improved cost structure, we delivered full year segment earnings of $139 million, achieving our target of between break-even and $200 million.

I'm also pleased that we ended the year with over $2 billion in cash and have positive cash integration before restructuring for the full year, consistent with our goals.

Now let me turn to the segment discussion.

I will start with FPEG, Film Photofinishing and Entertainment Group.

The fourth quarter moderation of FPEG's decline rate was primarily driven by quarterly sequential increase in the demand for entertainment image in films.

Entertainment imaging was down 4% when compared with the fourth quarter of 2008 versus 18% for the full year.

This indicates that the demand for entertainment image in films has stabilized after a difficult start in 2009.

FPEG's fourth quarter year-over-year earnings improvement of $14 million was primarily driven by continued variblization of costs, especially in traditional photofinishing where the business delivered another quarter of positive earnings in cash.

Turning to the Consumer Digital Imaging Group, CDG, CDG's revenue was up 27% when compared to the fourth quarter of 2008.

This increase was driven by the combination of higher nonrecurring intellectual property royalties, market share gains in consumer inkjet, and growth in the demand for media partially offset by the lower industry demand for digital picture frames and a modest decline in digital cameras.

We received very positive retailer reaction and technical reviews for the new products we introduced at the consumer electronics show earlier this month and now we have a consumer digital portfolio that is poised for growth and higher margins in 2010.

I am pleased as well that we achieved the goals we set for our intellectual property portfolio by reaching mutually beneficial arrangements that advanced the interest of all parties involved.

These arrangements are in line with the three key objectives we have for our intellectual property program.

These are first achieving design freedom, second gaining access to new markets and partnerships and third the continued generation of cash and income.

Our IP portfolio is well positioned for continued success.

The $421 million increase in CDG fourth quarter segment earnings versus the fourth quarter of 2008 is a result of a combination of a year-over-year improvement in nonrecurring intellectual property royalties, significant productivity gains in both consumer inkjet and digital commerce and devices, as well as increased demand for kiosk media

Now I will focus on GCG, Graphic Communications Group.

GCG fourth quarter revenue performance represents a 16% quarter sequential improvement.

This is a good sign that the industry is recovering.

The improvement was across all product lines with enterprise software, electro photographic printing solutions and inkjet each having quarterly sequential growth of more than 30%.

The $40 million year-over-year improvement in GCG's fourth quarter segment earnings was primarily driven by electrophotographic printing solutions, lower effective commodity costs and an increased demand for digital plates and enterprise software.

I am very pleased with our performance in the fourth quarter with our product portfolio, with our cost structure, and with the positive momentum with which we are entering 2010.

Now let me turn it to Frank to provide you with more details.

Thanks, Antonio, and good morning, everyone.

I'd like to spend some time discussing our fourth quarter financial results, summarizing our total year 2009 performance and then Antonio and I will be happy to take your questions.

As Antonio indicated, we are pleased with the company's improved performance in the fourth quarter and for the full year.

Our strategy is working, and we're gaining momentum.

The turbulent market and economic events that began in 2008 and continued through much of 2009 impacted most companies.

While the decline in economic activity has abated, and our businesses are showing signs of stabilizing, the economy still has a way to go until the level of activity turns to prerecession levels.

As we stated previously, we continue to focus on the areas under our control.

We've improved the competitiveness of our portfolio and have maintained investigates in our core strategic categories, including consumer and commercial inkjet and workflow software.

We've aligned our costs to be consistent with top line realities and created lean cost structure.

This positions us well to accelerate our profitable growth initiatives and take full advantage of the economic recovery that is beginning to materialize.

We continue to see signs of stabilization for our large key businesses, and we continue to gain traction in our core investment categories.

We doubled our installed base of consumer inkjet printers and our growth outpaced the market and it's clear our value proposition continues to resonate with consumers.

We grew market share on our commercial inkjet business through increased hardware placements for our VL2000 digital print presses and Prosper S-10 ink printing systems.

With the actions we put into place beginning in the fourth quarter of 2008, the company has improved its cost structure and we entered 2010 with significantly improved operating leverage.

In addition, we've amended and extended our revolving credit agreement, successfully rescheduled the company's debt maturities and have no significant debt due until 2013.

This gives us the financial flexibility to focus on our core investments and aggressively pursue profitable growth.

Most importantly, for 2009, while revenues declined, largely as a result of difficult recessionary conditions, we attained our goals of achieving improved segment earnings from operations, along with positive cash generation before restructuring.

We also ended the year with over $2 billion in cash which was achieved during an extremely tough economic environment.

Now let's turn to fourth quarter results.

Consolidated revenues for the quarter were $2.582 billion, an increase of 6% versus the prior year.

Foreign exchange provided 4 percentage points of benefit to the revenue line.

Our digital revenues for the quarter grew by 12 percentage points to $1.991 billion from the prior quarter.

This growth is a result of a combination of higher nonrecurring intellectual property licensing revenues, which were reflected in our plans and increased demand for our consumer inkjet printer systems, kiosk media and digital plates.

Revenues for FPEG were $589 million, a 10% decline from the prior year quarter, representing a significant moderation in the decline rate across most of these businesses when compared to the first three quarters of the year.

For the full year 2009, total consolidated revenues were $7.606 billion, a decrease of 19% from the prior year, with foreign exchange representing a 2 percentage point total negative year impact.

Fourth quarter gross margin increased from 20.4% to 34.4%, this improvement was a result of a combination of factors, including operational improvements in our digital camera and devices, consumer inkjet and pre-press businesses and a significant contribution related to the completion of a nonrecurring intellectual property licensing transaction as previously mentioned.

Excluding non-recurring IP licensing from the results, gross profit margin improved by approximately 6 percentage points year-over-year for the quarter.

In addition, aside from the operational improvements which included platform and supply chain efficiencies, we saw a benefit of about $28 million from commodity costs, along with benefits associated with favorable foreign exchange.

For the full year, gross margin margin improved slightly to 23.2% from the prior year's gross profit margin of 23%.

During the fourth quarter, the company reduced SG&A costs by $61 million or 15% and by $304 million or 19% for the full year.

In addition, the company has intensely focused its R&D spend on core investment categories, key to our future success.

This is has allowed us to reduce total R&D spend by $28 million or 25% in the fourth quarter, versus the prior year and $122 million or 26% for the full year.

For the quarter, our pretax restructuring charges totaled $61 million, as compared to $103 million in the year-ago quarter, for the total year 2009, pretax restructuring charges totaled $258 million, compared with $149 million last year.

Restructuring related payments from corporate cash were approximately $34 million for the quarter, and $177 million for the full year.

This was slightly lower than the previous guidance, due to the efficiency with which we were able to achieve our cost reduction targets, and also reflects certain amounts that will now be paid during 2010.

We will provide an update of 2010 financial estimates at our investor meeting in New York City next week.

For the fourth quarter, GAAP earnings per share from continuing operations were $1.36, compared to a GAAP loss per share of $3.40 in the fourth quarter of 2008.

This increase in earnings of $1.4 billion or $4.76 per share was from the prior year quarter is primarily due to the absence in 2009 of a noncash goodwill impairment charge of $785 million recorded in the fourth quarter of 2008.

Along with all of the operational improvements and higher IP royalties achieved this year.

For the full year GAAP loss from continuing operations was $232 million, an improvement of $495 million.

Now let's take a look at results by segment.

The FPEG group had segment earnings of $53 million in the current quarter versus $39 million in the year-ago quarter.

These improved results reflect continued operational progress in the traditional photofinishing business including paper and output systems, along with favorable foreign exchange, partially offset by the continued industry wide volume declines in consumer film and paper businesses.

In the quarter, the revenue decline rate for entertainment imaging moderated to low single-digit due to sequential improvement for various EI film products.

Full year segment earnings were 7% of revenue, a rate consistent with the prior year and better than our original forecast.

During the fourth quarter, our Consumer Digital Imaging Group improved their overall segment earnings by $421 million to $380 million.

CDG's segment earnings for the full year improved by $212 million to $35 million.

In the fourth quarter, CDG experienced benefits from numerous operational improvements, these took place primarily in digital cameras and devices, consumer inkjet and retail system solutions and we benefited from completion of a nonrecurring IP transaction.

CDG also saw margin improvements related to newer more profitable products based on fewer, more efficient product platforms introduced in the third quarter of 2009.

In addition, the segment made progress in reducing inventory levels as compared to the year-ago period.

These factors placed the consumer digital group in a good position as we enter 2010.

Segment earnings in the Graphic Communications Group for the current quarter were $36 million, a $40 million increase from the year quarter.

That was due to significant operational improvements and a significant transformation in the electrophotographic printing solutions, increased demand for digital plates, improved performance in enterprise solutions, lower aluminum and other costs, reductions in G&A and more focused R&D spend with an emphasis on bringing to market our new line of Prosper products, which are based on Kodak's stream continuous inkjet technology.

For the full year, GCG earnings declined from $30 million of earning in the prior year to a loss of $42 million this year.

This decline, which is attributable to business results in the first half the year, was driven by volume declines in pre-press and associated work flow software along with lower equipment sales across the segment, due to industry weakness in commercial print demand.

The significant improvement in performance in the fourth quarter validates our view that markets are stabilizing and recovering.

Turning to cash, the company achieved cash generation before restructuring for the quarter of $909 million and $45 million for the full year, thereby allowing us to achieve our previously stated goal of positive cash generation before restructuring for all of 2009.

We achieved this goal as a result of improvements across our operations and product lines by maintaining a focus on capital spending efficiency and achieving improvements in working capital in the back half of the year.

We're pleased that inventory levels are in much better shape than they were at the end of the last year's fourth quarter, both within the Company and in the channels.

We also benefited from IP transactions and by further reducing our structural cost.

Additionally, in December 2009 the company received a non-refundable payment in the amount of $100 million before applicable withholding taxes as a result of a royalty bearing cross license agreement.

The license, which is subject to International Trade Commission approval, also calls for additional payments totaling $450 million, to be received during 2010, which will also be reduced by applicable withholding taxes.

Our 2009 cash taxes of $166 million included withholding taxes associated with nonrecurring licensing transactions.

With respect to liquidity, we ended the fourth quarter with over $2 billion in cash and the carrying value of our debt stands at just over $1.1 billion.

This debt amount equates to total maturity values of $1.4 billion, when combined with debt, which is classified as equity on the balance sheet for accounting purposes.

We're very pleased with our solid liquidity and strong cash balance as we exit a difficult economic period and enter what we anticipate to be an improving operating environment.

The company closed the year with solid revenue momentum in our key digital businesses and a more efficient cost structure.

While 2009 was a challenging year, we're pleased with the overall performance for the year and where we are positioned as we look forward into 2010.

We'll provide more details on the Company's plan for 2010 and beyond next week at our conference with the investment community in New York City.

Thanks very much and now Antonio and would be happy to take your questions.

Thank you, sir.

We will now begin the question-and-answer session.

(Operator Instructions).

And our first question is from the line of Richard Gardner with Citigroup.

Please go ahead.

Okay great.

Thank you.

You did a great job of completing the IP licensing negotiations.

I did want to ask some questions on that though, regarding 2010.

First of all, are you changing your 250 to 350 guidance.

I realize that was a multi year target but given the $450 million you're talking about receiving from Samsung alone in 2010, it seems like that number may be too low at this point.

And then on LG, did they entirely complete their obligation with the $414 million payment IP licensing payment in Q4 or will there be on going payments related to that as well in 2010 and then I have a quick follow-up as well.

No, LG has been completed and Samsung is what you heard.

As far as the average, that was an average.

And if you remember, Richard, I kept saying that at least we're very confident in this program, but we know that on many times we're not only looking for cash but we're looking for partnerships and other things, and so our objective continues to be the same for the period, get at least 250 to 350 for -- as an average for the year, but obviously 2010 will be higher than that.

Okay.

Great.

And then the quick follow-up, Frank could answer this, is what is the withholding tax rate on IP licensing revenue, and what was the payment from Samsung net of withholding taxes in the fourth quarter?

So we received 100 before the withholding and the withholding is approximately 16.5% rate.

And that's the same rate on a go-forward basis, Frank?

Yes.

It's roughly the same rate.

About 16.5.

So it would have been $83.5 million net of the withholding tax in the fourth quarter and it's -- again it's a Korean withholding tax.

Okay.

Great.

Thank you so much.

Sure.

Thank you.

And our next question is from the line of Ananda Baruah with Brean Murray.

Please go ahead.

Hi, thanks guys.

Just real quickly on the plate business and then on entertainment imaging, I'm sure you'll go into this in great detail next week, but to get in your thought it's seems like things have been more stable in the last couple of quarters in those businesses and is there anything structurally in place because I know that business is split international, pretty representatively that is going on there that has you think that maybe there could be some stability or even some growth over the intermediate term.

And if you could go over structurally your thoughts on the entertainment film business as well that would be helpful.

Yes, as far as plates, we believe they are a growth opportunity for us.

We believe a good growth opportunity.

Not only for the commercial digital plates, but specifically for one area of plates, which is about almost a third of the size of digital plates which is packaging where we basically only enter basically this year.

So we have a very unique solution that is going incredibly well except that we are -- we are incredibly happy with the way our digital plates for packaging have been accepted.

We believe we have a low cost architecture with a very, very high quality that compares with gravure and we believe we'll got a lot of share from that and that's is the largest opportunity for growth in this space of digital plates.

But the digital plate market for commercial printing has stayed light.

The signs of the fourth quarter are very encouraging.

Our impression we had and very strong and we just announced two or three days ago where we opened a second line in China because the demand is growing.

So we feel that there is a very good momentum for the industry and for us in that space.

Yes, EI had a very difficult year.

The combination of lack of credit, availability plus the strike that they had to deal with, it caused havoc with that industry.

So we felt that very much along the year.

And then later on in the year, the latest part of the year we saw an improvement.

We looked into this year in a much more positive way.

The only thing that has compensated for us is the fact that our paper business continues to do better than expected.

So that's how SPG was starting a very difficult year.

Then with the recovery of the EI films at the end of the year plus the great performance in paper photofinishing, they ended up with a very busy year.

We look at the year with optimism.

Great.

That's helpful.

And then if I could just ask you a follow-up on the IP.

On the Samsung, the $450 million that you've disclosed, is there any help you can give us, Antonio, in terms of timing recognition of that income through 2010?

Yes.

It will be all disclosed completely.

So yes, Frank will tell you exactly how it is going to come.

Once everything is approved by the International Trade Commission, the revenue associated with the entire deal, which is the $550 million, which includes the $100 million from last year and the $450 million from this year, that entire amount will be recognized in the revenue of the quarter of the approval.

We're looking to see that in the first quarter but it is all dependent upon ITC's timing so we do have to live with that.

And then on the cash side of things, that's expected to be received throughout the year, roughly ratably each quarter.

That's very helpful.

And then just one last one.

Just a point of clarification, Frank, the tax rate, the 16.5%, that's the tax rate on this particular stream of IP income and I guess that also coincidentally is what your effective tax rate was for the Company for the entire quarter, is that correct?

That is coincidental in terms of the tax rate for the Company, but that is a statutory Korean withholding rate.

Fantastic.

Thanks a lot.

And our next question is from the line of Shannon Cross with Cross Research.

Thank you very much.

I just had a couple of questions.

My first one for Antonio, you can talk about your comments you would like to do partnerships in other things with some of the IP licensing contract that's you're signing?

It doesn't sound like you necessarily have them for Samsung and LG but please correct me if I'm wrong on that.

So how are you thinking about the ability to do partnerships?

I know you had one with Motorola that ended but any clarification would help.

Thanks very much.

I can't give much clarification.

But any time we have these discussions we do -- there is always some kind of collabortion and time will tell how affective or how significant those collarborations are.

But I have nothing to disclose now.

Okay.

And then any thoughts on sort of restructuring programs of where you stand, where you might look to cut more going forward, perhaps you're going to address this next Thursday, I'm not sure.

But just any thoughts on restructuring.

Yes, Shannon, it's Frank.

We certainly will give some updated guidance for 2010 at that time.

What I can say is going forward, 2010 will certainly be a number that is significantly lower than 2009.

So we have the vast majority of the major restructuring behind us.

We always have a carry over amount that carries into the ensuing year once we take actions in the current year and 09-010 is no different and in terms of new charges for 2010 we'll talk about that next week but it will certainly be at a far lower level than 2009.

And then Antonio you can talk a little bit been -- I know you can't talk about the ongoing litigation but can you address historically or -- I don't know if it is the litigation.

But with Apple and RIM, what you've put out there, and specifically with Apple where you have gone to the US District Court in New York and can you talk about what went on with Sun and your settlement there and your thought process in what we should think about in terms of going after this IP stream.

Well you know that I cannot talk about the litigations that are on going.

So I will not do that.

All I can say is that we have a great appreciation for inventions.

There is an IP system in most part of the world that protects innovation.

We as a Company spend billions of dollars over many, many years and all we want to people to respect our rights.

I can name one of the companies and we have more than 30 now with which we have made these deals in which we ended up in a bad relationship.

We have an excellent relationship with all of them.

Not that we do not have very complicated discussions, as it should be.

But we're aiming to -- we say we have these rights and we have to defend these rights for our shareholders.

Okay.

And then my final question is sort of a strategic one on the cash side because you're getting it and you have received and you will be receiving significant cash.

Clearly unfortunate that you didn't know about this before you did the convert.

But since you've done the convert and you have the stock out there and so how should we think about the use of cash?

Would you consider sort of a one-time dividend payment back to your investors since this was bigger than expected?

Would you think about share repurchase?

I realize we're coming out of a tough period of time, but just sort of how are you thinking about the cash relative to some of the financing that you had to put in place earlier this year?

Well let me restate from my point of view some of your comments.

We actually think it's very fortunate that we did We actually think it's very fortunate that we did what we did, not unfortunate.

We look at that transaction as a very positive transaction for the Company.

And it had a lot of very good implications that you should not forget.

As far as cash, we have the amount of cash we want to have.

We don't have any intention to do anything else but invest in the strategy that we've been touting again and again and that's what we're going to do with cash.

Okay.

Thank you.

Thank you.

And our next question is from the line of Ulysses Yannas from Buckman, Buckman & Reid

There was mention that you are dealing again with Heidelberg on Nexpress.

And you can give us some ideas what is going on.

I don't know where you hear those things.

See we talk to the whole industry all of the time.

The Nexpress is a very specialized, very successful product in a very high volume color printing.

And there are a lot of companies that on and off that have interest in distributing this product.

We carefully choose with which one we have those relationships.

That's all I should say about this.

So it's a question of not your selling it back to them, just a question of distribution?

Oh, that's what you meant?

Oh, absolutely.

I meant --

No, we're very pleased with the results of our electrophotography.

We restructured the business.

If you remember, we decided not to continue to invest in the mid-volume and the reason for that was two-fold.

One, we had the biggest opportunity in the very high end and we have to defend and improve on that.

The second thing is we have other alternatives, other technology alternatives for other volumes that we need to explore.

But we are very pleased with EPS.

As far as video camera, your video camera relative to the Flip, how is that doing?

Well, we -- we're gaining share.

We're gaining share.

I'm not aware of the numbers of other companies so I cannot tell you.

But this category has been an incredible success for us.

It's being touted at the best in the industry.

The best price performance, the best quality, we come in with new models and we're very happy with the category and our plan is to continue to gain share.

Is it fair to assume that your gross margin is better on the video camera than it is on the regular camera?

To do that, you have to do a excruciating exercise of our locations that you could do -- that we do not do.

We look at the business.

It's the same engineers and same marketing guys and it's very hard to do this and it doesn't make much sense.

And it depends with digital cameras.

There are models with higher margins than others so I cannot really answer the question accurately.

It is a very good contributor to the gross margin in our business.

And finally with regard to inkjet profitability, improved profitability in consumer inkjet systems on page three of your press release, so your basically profitable now on consumer inkjet systems.

No, it's just a significant improvement of the losses.

Okay.

Which is exactly the plan.

Remember we keep saying that sometime during 2011 we'll be break-even.

We're going at a very high speed and very solid lead to -- towards that by doubling this installed base, it will -- and we'll talk next week -- in February in New York about this.

The effect of doubling that installed base is an accelerated exponential affect of the number of cartridges and the revenue of ink that we're going to sell next year especially with our business proposition that calls and attracts high burners.

So we're very excited with our business.

We think we have a tremendous solution, unique in the market.

We see the customer accepting this.

We are expanding the portfolio.

Now that we settle with our platforms we just introduced a product to the office, to the small office and that is critically important for us.

We think we're going to be very successful.

We have a value proposition that we believe is ideal for that, low cost printer page and high quality and ink permanence that others do not have.

It's just an accumulation, of very positive factors that make me feel very confident about the plan of breaking even through 2010 and 2011 and very rapidly making very significant returns with the business after that.

You didn't expect to double your placements this year compared to last year?

You will attend the meeting in New York?

Yes, sir.

Why do not you --

Would not miss it.

We have a very aggressive plan for next year.

What is going to matter once you get to certain volume is how to increase your ink revenue.

That's the best proxy for a successful business model.

And we would like to take you through that.

We have an aggressive plan for next year for sure.

And as I understand it, what you are essentially doing is replacing film sales with ink sales.

That's an interesting way of doing it.

But I don't want to replace film sales, I want to continue with that as much as I can.

Thank you very much, Antonio.

Thank you.

And our next question is from the line of Chris Whitmore with Deutsche Bank.

Please go ahead.

I wanted to follow-up with some of those inkjet questions.

First you can give us total unit shipments for the year in inkjets?

Can we do that?

I think we have the number.

We shipped approximately between 1 and 1.5 million units for the year.

And what do you think your total installed base is currently in terms of number of units out in the field?

Well you have to add -- well we do not disclose as in our case was the rate of retirement and all of that.

We believe those are very competitive data so you're going to have to ask what we did the first year, the 500 and then the $1.5 million so it's around $2 million.

That's what we disclose.

And when we think about your unit growth heading into next year, what are you expecting from a competitive sponsor competitive environment in inkjet and do you think the inkjet market as a whole grows in 2010?

Well, you're asking all of the questions that we're going to answer next week.

And I think -- I mean I don't want to not respond to you, but we will be -- you will be much better served when we talk about it next week.

We'll describe the whole industry, we'll describe what our position is and what our plans are.

I think it will be better.

I don't want to upset you, but that will be the right time for those questions.

Okay.

Can I try just one more and this kind of goes back to Shannon's questions around uses of cash.

Given the settlement and increase cash balance should we expect you to get incrementally driving inkjet and are you able to increase your level of income in inkjet to drive units currently?

No.

Not really.

We already have an aggressive plan.

I think having that amount of cash, I think it's a proven thing to have.

We still don't know how the economy is going to behave this year.

We will continue with our plans.

We believe our plans are very aggressive anyway in gaining share and getting the business to profitability rapidly.

Not just the consumer inkjet, but as well commercial inkjet, enterprise software and digital plates, especially in the packaging area.

All of those four areas are very important areas of growth for us.

And we'll continue to drive them.

We think this level of caution is a healthy level of caution for us to have.

Especially in this economy.

Okay.

Thank you very much.

Thank you.

And our next question is from the line of Jake Kemeny with Morgan Stanley.

Please go ahead.

Hi.

The last couple of years the cash decline or the cash usage from Q4 to Q1 is normally around $800 million.

Is there any reason why from Q4 to Q1 2010 that would be meaningfully different.

Yes, it will be less.

We're not disclosing right now how much less it will be but it will be less.

And the reason is when we saw the dip in last year's first quarter, with the revenue dropping off as precipitously as it did in the fourth quarter of 2008 and having procured the goods and services for materials of what was thought to be a higher level of economic activity in that quarter, we were left with a significant amount of payables that had to be discharged in Q1 of 2009 and it was a pretty sizable dip, particularly from that payables category.

We do not see the same dynamic going from Q4 2009 to Q1 2010.

The business was much more stabilized in Q4 as you just heard and in addition to that there was a much more modest level of planning for the supply chain throughout the business, across all of the segments, beginning this past summer.

So what we have now is a significantly reduced leaned out supply chain and inventory both in the Company and in the channel as we stated and a much lower we'll call payables flow over into 2010.

So that usage will be down significantly.

Again, cannot give you an exact number right now but it won't be in the $800 million range.

Okay.

Thanks.

And then in terms of the IP license revenues that you recorded in the fourth quarter, was the majority of that from LG and does that kind of take care of them for 2010 or do you expect to get more in 2010?

No.

We do not expect to get royalties from related to that particular deal in 2010.

Okay.

And then just one last one, you can just give us what the total cost reductions in 2010 will be?

Like what do you expect to achieve versus year end 2009 kind of as a baseline.

Yes, we're going to disclose all of that modeling next week at the investor meeting.

We'll show you the structure of the income statement and what it means for the P&L and for the cash flow.

Clearly, we're looking to continue to exhibit a little -- a very strong discipline over the cost structure, but we'll lay out the numbers next week.

You'll see that.

Okay.

I guess I was just referring to page 10 of the MD&A because it said you will get $47 million and another $245 million and I was wondering how much of that is incremental to what is already reported or how much of that was already -- some of that might have been achieved already in 2009.

We want to show you the overall model for next year, but I think what you'll see is a very nice cost structure for the Company going forward.

So with the restructuring tailing off you'll see the continuation of a run rate in 2009 but we would rather get to next week and show you the structure and have everybody see that at the same time.

Okay.

Thank you.

Thank you.

And our next question is from the line of Mark Kaufman with Rafferty Capital Markets.

Please go ahead.

Good morning, nice job, gentlemen.

Frank, I have a question for you, if you could help me out with the long-term debt position.

I know you raised money this past year and some of your bonds are still trading below par.

So a couple of questions.

Did you pay off the US and German senior notes this past year or is the number appears to be below par reflective of just the market prices of the bonds?

I think what you're seeing is the market price of the bonds.

The amount we paid off this year is amortizing $50 million per year.

That's associated with the prior acquisition of KPG.

There is about $200 million of that debt being paid off, $50 million a year through 2013.

Each September we pay off $50 million.

But aside from that what we were trying to get to in the script is the fact that what you see in the balance sheet on debt does not include the number that is included in the equity section dictated by the accounting rules and how the converts and the KKR debt has to be recorded so we have total maturity of about $1.4 billion, $200 million is the KPG debt, $500 million is the 7.25% coupon get due in 2013 and then the remainder is the debt from the converts and the KKR debt due in 2017.

Okay.

And so a portion of that is actually rolled over into the equity you're saying?

Yes.

For accounting reasons.

Because of the convert and the warrants, some of that is required to be reclassified as equity.

That's correct.

Okay.

Thanks.

We'll see you next week.

Thank you.

And our next question is from the line of Ee Lin See with Sirios Capital Management.

Hi.

I have a few questions.

First one is why was there such a huge increase in printers and cartridges of 35% over increase.

Is some of that timing or is that a real improvement?

Maybe you could get closer to the microphone.

We couldn't hear the first part of the question.

Oh, sorry.

Regarding consumer inkjet, why was there such a huge increase, 55% from printers ink cartridges.

Is that a real improvement or just a timing issue?

No.

This was part of the plan -- it was the plan that this is a real improvement.

A very significant improvement and one that we actually predicted at the beginning of the year, it was a combination of the increased installed base of the printers so you're now getting cartridges for the previous installed base plus the new installed base plus maintenance of the very high run rate of cartridges that Antonio talked about.

In fact there was an 80% increase in just hardware and ink as a total of the 55%.

Okay.

And second question.

There is still $100 million of the credit facility due in October of 2010.

That's been renewed as well?

The credit -- we have a $500 million revolving credit facility.

Yes.

And of that, approximately 3 quarters of that is -- I understand to be agreed to extend through March of 2012.

And how about the 25%?

25% have elected not to extend the time we removed the revolving credit agreement but we still have time for them to opt into the extension.

So as of today, that 25% is still due in October of 2010?

No.

There is nothing due.

We do not have anything -- we do not have any debt drawn on that credit facility.

The only thing that is -- that is covered right now under the facility is some letters of credit and some foreign exchange lines but we have no cash drawn or debt due under the facility.

Right.

I understand there is nothing drawn.

But is the expiration date still October of 2010?

No.

The facility, the facility including extending lenders is extended through March of 2012.

Yes.

So three quarters of the lenders agreed to extend beyond.

That's right.

And then the 25% that did not extend.

It just -- they just -- it falls off.

But keep in mind, the amount -- it's a $500 million facility and it's always governed by the number of assets beyond the facility.

And what can we expect for tax rates in 2010?

We're going to talk about that next week.

I think what you'll see is what -- what you have seen is our tax rates for P&L purposes tend to be a little lumpy because of the different valuation allowances going on and coming off in different parts of the world so we try not to focus on the tax rate.

2010 will be no different in that respect.

When you think about cash taxes we'll be talking about the estimate for that number but keep in mind the cash taxes for 2010 will include the withholding tax on the amounts to be received under the intellectual property licensing arrangement, and so the cash taxes will be more consistent with 2009 than what is a normalized rate, which would not include the IP licensing withholding tax.

Okay.

And in the fourth quarter you benefited from lower commodity cost you can go into detail which commodities in particular and your outlook for 2010 commodity costs and whether you're hedging any of it.

Yes, we're going to talk about our outlook of 2010 next week.

We typically have some hedges in place.

We do not disclose how much because that is competitive information, but for 2009 we did benefit by $28 million in the fourth quarter and that was primarily silver and aluminum.

Yes, thank you very much.

Thank you.

And our next question is a follow-up question from the line of Ulysses Yannas from buck pan, buck man and Reid.

It's been answered.

Thank you very much.

All right.

And our next question is a follow-up question from the line of Shannon Cross, with Cross Research.

Please go ahead.

Yes.

Just a quick question on the cash that you received from settlements.

Is that still or in Korea or have you repatriated the cash?

We keep cash where we need it when we need it and do not deal with repatriation and typically those settlements will come into the US.

So I just want to confirm the 16.5% tax includes any applicable US tax.

There is no US tax given our NOL position right now.

So you're just using NOL on that.

Yes.

Withholding tax is a Korean tax.

Okay, thank you.

Thank you.

And our next question is from the line of Anupum Khaitan with Scarsdale Equities.

Please go ahead.

I just have a quick question to make sure I understood this correctly.

You said without the recurring IP revenue or money that you still would have had positive earnings during fourth quarter?

Is that correct?

What we said is without the recurring -- without the nonrecurring intellectual property licensing we still have an improvement in gross margin which contributed approximately 6 percentage points or $100 million.

And then do you foresee this improvement consistent with what you can predict for 2010 as well?

We believe the elements of that improvement, they are sustainable.

And let me correct that.

We did have profitability in the fourth quarter excluding licensing arrangements.

Okay.

Thank you very much.

Thank you.

And there are no further questions at this time.

I would like to turn the call back to Mr.

Perez for any closing comments.

Well, thank you very much.

I do have a closing remark somewhere.

In the second half of last year, we began to see some improvement on the economy.

And really what that did was helping to highlight interest strength of our digital portfolio.

We believe we entered 2010 with very positive momentum.

We know we have the most competitive portfolio we ever had, and we believe we are very well positioned for improved performance in 2010 and we look forward to going into a little more detail in all of this with you in our investor meeting in New York City and thank you very much for joining the call.

Thank you.

Ladies and gentlemen, this concludes the Eastman Kodak Company fourth quarter 2009 sales and earnings conference call.

Thank you for your participation.

You may now disconnect.