Eastman Kodak Co (KODK) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the third quarter 2010 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 is being recorded today, Thursday, October 28, 2010.

I would now like to turn the conference over to Angela Nash, Manager of Investor Relations.

Please go ahead maam.

Thank you.

Good morning and thank you for joining us for today's Kodak third quarter 2010 sales and earnings conference call.

Here with me today are Antonio M.

Perez, Kodak's Chairman and CEO, as well as Chief Financial Officers, Frank Sklarsky and Ann McCorvey.

Antonio will begin this morning with his observations on the quarter and then Frank will provide a review of the quarterly financial performance.

During this conference call, in the question and answer session, we will make 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 the company's expectations regarding the filing of our forward-looking statements, economic conditions, currency exchange rates, revenue, revenue growth, costs of goods sold, savings from restructuring and rationalization, product pricing, gross margin, earnings, earnings growth, cash generation.

Demand for our product, consumables, and services, including Commercial Ink Jet, Consumer Ink Jet, workable software, pre press and packaging solution.

Commodity costs, potential revenue cash and earnings from intellectual property licensing, liquidity and debt.

These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our quarterly report on form 10Q for the quarter ended September 30, 2010, issued this morning.

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

Now I will turn the conference call over to Antonio M.

Perez.

Thank you, Angela.

And good morning, everyone.

Before I begin our discussion of the company's third quarter performance, I want to take a moment to thank Frank for his valuable contributions to the company.

Frank has a strong operational background and he has provided the focus in cash generation and cost discipline we needed here in his four years as CFO.

I wish Frank all the best as he moves to his new role.

Frank is leaving us in good hands as he passes the baton to Ann McCorvey, who will become our new CFO on November 5.

Ann needs no introduction to most of you as she is the current Director of Investor Relations for the Company.

She has a deep understanding of our business models, our customers, and our shareholders.

She has been an important part of our management team for years, and I look forward to her continued strategic contributions.

Ann would like to make a brief comment before we begin.

Thanks, Antonio.

I'm honored to have the opportunity to lead Kodak's finance organization as we complete the digital transformation and begin a new era of sustainable profitable growth.

This company has the potential to achieve greater things, and I look forward to doing my part to help Kodak achieve its goals in conjunction with an exceptional corporate finance team.

Thank you, Ann.

Now to our third quarter earnings discussion.

The third quarter results are evidence of our accelerated progress and the transformation of Kodak.

We continue to see excellent results from our four growth initiatives, Consumer Inkjet, Commercial Inkjet, packaging solutions, and work flow software and services.

In the third quarter, the combined revenue for these businesses grew 23%.

Year-to-date revenue for this businesses is up 15% when compared to the same period last year, and we expect even stronger growth for these businesses in the fourth quarter.

During the third quarter, Consumer Inkjet growth continued to outpace the market as it has done since introduction.

Printer and ink revenue grew by 26% when compared to the same period last year.

The fourth quarter will be our largest revenue quarter for Consumer Inkjet.

We continue to build our install base and drive consumables growth.

We are on track to achieve our goal this year to double our ink revenue and to break even during 2011.

And we are committed to providing customers with high quality printing at fair prices, tailored to suit their printing needs.

The products and services we are developing in our graphic communications group are based on our focus of being the best partner to help our customers grow their business.

The industry is transforming at an accelerated pace and our customers know they can count on Kodak to lead the way.

For the third consecutive quarter, commercial inkjet has had double digit revenue growth.

This quarter, revenue grew 23% when compared to the same period a year ago.

This revenue growth was driven by the increased demand for our Kodak PROSPER S-series imprinting systems which offer the highest quality hybrid digital printing with speeds matching those of offsets, giving commercial printers the ability to capitalize on new business opportunities.

We also double, again this quarter, the installations of our Versamark VL inket printing systems.

The industry understands that we intend to bring the right technology for each application.

And more and more applications are becoming available to Kodak as we continue to make progress with introduction of the PROSPER presses based on our breakthrough stream technology.

We have now PROSPER press installations in all regions of the world.

For example, in the Americas region, one of the world's largest manufacturers of mass market paperback books is currently publishing books using one of our PROSPER presses.

This publisher has produced as many as 1.7 million pages in a day.

This is a significant accomplishment for this technology and this is just the beginning.

Our FLEXEL NX systems installations and revenues within packaging solutions more than doubled in the third quarter.

FLEXEL NX offers exceptional print quality as well as cost efficiencies and allows brand owners to design packaging for maximum shelf impact and brand equity.

We expect Kodak participation in packaging to grow by $150 million over the next two years.

Our work flow software and services business, which integrates all of our commercial print product offerings, grew 20% when compared to the year ago quarter.

This growth is the result of the strong demand for our work flow software products, and the ongoing revenue from business process services contracts.

I am very pleased with the performance of this four growth initiatives.

The continued slow recovery of print demand, a weak consumer discretionary spend in Europe and in the 'US' continues to cause pricing pressures on our two largest digital businesses, Digital Capture and Devices and pre press Solutions.

For the third quarter, digital capture and devices revenue declined 13% when you exclude the impact of the nonrecurring intellectual property license agreement.

This decline was driven primarily by the very competitive pricing environment for digital cameras, as well as the negative impact on mix as consumer opted for cameras at lower price points.

Nonetheless, by our continued focus on the bottom line, our gross profits percent was slightly better year-over-year.

We will remain focused on improving the profitability of the digital capture and device business during the big season in front of us by providing our customers with innovative products to satisfy their needs.

While negative price mix continues to impact our Digital Capture and Devices business, we more than offset that impact by the successful completion of a digital still camera intellectual property licensing agreement during the third quarter.

As we have done for the last few years, we will continue to increase the portfolio size by generating new innovative patents and maximizing the value of our IP portfolio for our shareholders.

Print Press Solutions revenue declined 10% in the third quarter when compared to the year ago quarter.

We are maintaining our leading market share in this business.

This quarter's decline was primarily due to the competitive prices environment, especially in Europe where industry over-capacity continues to have the most negative impact.

However, as with previous quarters, we continue to see very strong demand for our pre press output devices with third quarter revenue growth of 26%.

This is a very positive sign since we know that this increase in our install base of CPT's, computer to plate devices, will use consumable growth going forward.

On the fourth quarter, we expect digital plates to be positively impacted by typical seasonal trends and increased demand for new products.

When we combine the improvement in digital plates with the ongoing annuities for our business service contract and the continued strong demand for digital printing equipment, we expect overall revenue and earnings growth in the graphic communications group in the fourth quarter.

In our traditional business, we continue to see the industry related volume declines.

FPEG's operating margins were 5% for the third quarter, down 3 percentage points when compared to the same year ago period.

The decline was primarily the result of increase in silver costs.

The business continues to take actions to reduce costs ahead of this anticipated revenue decline, as well as mitigating the revenue decline by extending into adjacent markets, and these efforts are on track.

Altogether these factors resulted in the achievement of solid tax performance for the quarter.

During the third quarter, the company delivered net cash generation before restructuring of $123 million and ended the quarter with $1.4 billion of cash on the balance sheet.

I want to look at yesterday's results.

Even in this difficult economy, our year-to-date digital gross profit is 34%, up 18 points, without one-time IP Gross Profit is 19%, up two points versus last year.

For the full year, we continue to target revenue of $7.5 billion to $7.7 billion.

Segment earnings from operations saw $350 million to $450 million in positive cash generations before restructure and payments.

For the fourth quarter, we have a strong product portfolio supported by a new advertising campaign, stable annuities businesses, and a strong order final for our products and our services.

All of these factors give me confidence that we are on track for a strong fourth quarter performance.

Now I will turn the call over to Frank who will provide more details on our financial performance.

Frank?

Thanks, Antonio.

And thanks for the very kind words.

I'd like to say, it's certainly been an honor and a privilege to work with you and this remarkable Kodak team.

I would also like to offer my sincere congratulations to Ann.

We all know she will do an outstanding job as Kodak's new CFO.

Now on to our third quarter financial results, and then Antonio and I will be happy to take your questions.

While the overall global economic environment remains one of slow growth and caution, we continue to gain traction in our core strategic investment categories.

Revenues for digital printing equipment in our commercial businesses, particularly inkjet, as well as hardware and ink revenue in our consumer inkjet business continue to demonstrate strong growth.

In addition, there's a much greater optimism and confidence from our customers in the emerging markets, most notably in the greater Asia region.

This has translated into increases in our digital revenue in that area of the world in the third quarter.

In that region, our overall graphic communications business grew for the third consecutive quarter, providing us significant momentum as the overall global economy continues to recover.

Turning to our third quarter results, consolidated revenues for the quarter were $1.758 billion, a decline of 1% from the third quarter of 2009.

Foreign exchange negatively impacted third quarter revenue by approximately 2 percentage points as compared to the year ago quarter.

This resulted in revenues being up slightly in local currency terms.

Revenue was favorably impacted by the increased demand for the company's commercial digital printing equipment, document imaging production scanners, the strength of our pocket video cameras, and higher volumes for our consumer inkjet printer hardware and ink.

The company was also successful in completing a nonrecurring intellectual property agreement.

Revenue in the third quarter was negatively impacted by continued secular declines in the traditional consumer film and paper businesses, as well as volume declines in our entertainment imaging business.

Results were also impacted by unfavorable price mix in both digital cameras and digital plates along with the more difficult compare for kiosk media.

In the quarter, the company's gross profit margin improved to 27.1% versus 20.3% last year, an increase of 6.8 percentage points.

This improvement in gross profit margin was due to continued platform and manufacturing cost efficiencies in our digital camera and devices business, and the nonrecurring intellectual property transaction, as previously mentioned.

Partially offsetting this improvement was negative price mix for our digital cameras within our digital capture and device business, and for digital plates within our pre press solutions business, along with the volume-related impact from kiosk media, and modestly unfavorable foreign exchange effects across all businesses.

Our gross profit margin also reflected a net reduction in aluminum costs, partially offset by increased silver costs, which together contributed a net benefit of $4 million from these two commodities for the quarter.

It is important to note that recent increases in silver prices, if they are sustained, will negatively impact the FPEG business going forward.

We will, however, continue to implement various operational and financial counter-measures to mitigate the adverse impact to earnings.

Regarding restructuring, the company recorded approximately $29 million in restructuring charges for the third quarter and $54 million year to date.

Restructuring-related payments from corporate cash were $12 million for the quarter and $71 million year to date.

Given our continued progress on cost efficiencies, we're confident that we will meet our cost targets for the year and are very pleased with the operating leverage this will provide the company as business conditions improve.

As we've previously stated, some of the structural savings we are achieving are being redeployed toward product, advertising, and other initiatives which will enable the company to grow profitably over time.

Interest expense was $38 million in the third quarter, an increase of $11 million from the $27 million in the year ago quarter.

This change is largely a result of our financing initiatives during 2009 and the first quarter of 2010, and reflects modestly higher average interest rates along with the impact of the gradual accretion to maturity value of certain amounts of indebtedness that have been classified as equity for accounting purposes.

Third quarter GAAP loss from continuing operations was $43 million, or $0.16 per share, a $68 million improvement year-over-year, largely due to the benefit from the continued productivity improvements and the nonrecurring IP transaction partially offset by higher interest expense and increased taxes associated with the IP transaction.

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

Consumer digital imaging groups revenue was $670 million, an increase of 25% from the prior year quarter.

This includes the dramatically improved sales of the company's pocket video cameras, higher volume for our consumer inkjet printer hardware and ink, and the benefit of a nonrecurring IP transaction.

These revenue improvements were partially offset by price mix in our digital capture and devices business.

This resulted from a highly competitive pricing environment and increased sales of lower priced digital cameras.

CDG's revenue was also impacted by reduced volumes for kiosk media related to the previously communicated expiration of a contract with a significant 'US' retailer in the prior year.

On the earnings side, CDG's segment earnings from operations increased by $171 million to $82 million as compared to last year's third quarter segment loss from operations.

This increase in earnings was driven by the benefit from the nonrecurring IP transaction partially offset by lower kiosk media volumes as previously discussed, and the continuation of investments in our Consumer inkjet business as we continue to drive higher ink revenue through placement of hardware units.

Moving on to graphic communications group, GCG's revenue was $657 million, a decrease of $17 million, or about 2.5% versus the prior year quarter.

Foreign exchange headwinds drove over 2 percentage points of this change, so overall GCG revenue was relatively flat in local currency terms.

Revenue was also impacted by negative price mix for digital plates within our pre press Solutions business, which is resulting primarily from the industry's current overcapacity for digital plates.

This negative impact was partially offset by increased placement of computer to plate output devices in the third quarter, and further growth is also expected in the fourth quarter.

GCG also continued to see increases in the number of placements for PROSPER S10 Imprinting Systems, VL drop on demand digital inkjet printers and document imaging production scanners.

All of this bodes well for the growth of annuities in upcoming quarters.

In addition, our color page volume for Nexpress grew 25% due to the higher installed base of equipment in that category.

Also as Antonio indicated, our service solutions business experienced increased revenue in the third quarter from the strong pipeline established in the first half of the year.

GCG's segment loss from operations was $19 million compared to the positive earnings of $10 million in the prior year quarter.

This decline is primarily due to continued investments in commercial inkjet, most significantly PROSPER to support continued commercialization of the technology and implementation of go to market initiatives.

The business also continues to invest in packaging and other business solutions.

In addition, the earnings changes is also reflective of the previously mentioned price mix issues for digital plates within pre press Solutions.

Taking a look at the film, photofinishing and entertainment group, FPEG revenue declined 25% to $431 million.

This reduction in revenue reflects industry-related volume declines in film capture, traditional photo finishing, and entertainment imaging which declined 19% versus the prior year.

Earnings from operations for FPEG were $20 million, as compared to $47 million in the year ago quarter.

FPEG's earnings were impacted by lower volume across each of the businesses, as well as higher silver and petroleum based raw material costs.

These factors were partially offset by improvements in SG&A and other costs.

Going forward, we will continue to aggressively manage both the revenue and cost side of the equation in FPEG, in ways that will enable the business to continue as a valuable cash generator.

With respect to cash and liquidity, the company's cash position remains solid.

Cash and cash equivalents at the end of the third quarter were approximately $1.4 billion.

Cash generation before restructuring for the third quarter was $123, million an increase of $94 million over the prior year quarter.

This was primarily driven by the one-time benefit from the IP transaction, along with lower restructuring cash payments and reduced need for capital expenditures partially offset by decreased proceeds from asset sales and slightly higher working capital in the form of inventory for certain product groups.

The Company continues to target full-year revenue of $7.5 billion to $7.7 billion along with the corresponding earnings and cash targets as communicated in our earnings release.

Achieving these targets is predicated up strong demand for the company's product and services, successful implementation of the company's new product and marketing programs, continued realization of productivity and efficiency gains, and the ongoing execution of the company's intellectual property licensing program.

Overall, the Company has a strong cash balance and solid liquidity, thereby giving us the financial flexibility to pursue our core strategy and profitable growth initiatives.

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

Thank you, sir.

(Operator Instructions) And our first question comes from the line of Richard Gardner with Citi.

Please go ahead.

Okay, thank you.

Good morning.

And Frank, best wishes in your next career and Ann, congratulations.

I was hoping to get more detail on the IP licenses transaction.

First of all, to confirm that the size of the transaction was around $210 million?

And then could you talk about whether it's related to either the Apple or the RIM cases that are currently pending?

And then how much did this contribute to the cash flow in the third quarter?

And when will the rest of the cash be received?

Thank you.

Well, it has nothing to do with RIM and Apple.

And, that is the number.

That is correct.

And the cash is a little bit less due to some tax impacts, but we're not publicly disclosing the exact amount of the cash numbers, but there were some tax impacts.

Okay, but all the cash from the transaction on a net basis was received in the quarter, Frank?

That's correct.

Okay.

All right.

Thank you.

Thank you.

Our next question comes from the line of Shannon Cross with Cross Research.

Please go ahead.

Thank you very much.

Also like to echo the congrats to Frank.

We'll miss you and Ann we look forward to continuing to work with you.

So with that, I do have a few questions.

The first is just with regards to the IP licensing that you did get in this quarter, the $209 million, $210 million level.

Why not take up estimates for the full year?

And I guess my question, which we come up with all the time, right?

We always ask this among the group, but how do we sort of think about IP licensing on an annual basis?

How does this amount fit into what you were sort of expecting when you gave us your guidance earlier this year?

And so, how should we sort of think about the conservativeness with which you approached fourth quarter?

So, I will try to do a better job, I guess, next year in February when we go, to give you as much data as we can possibly find useful, and allow you to give it away.

It is a tough thing to predict something that is, -- we have a long funnel.

We have a lot of context.

We have a lot of companies.

We're not allowed to disclose them.

They're a lot of movements in these negotiations.

The best way that we could certainly represent this to our investors, in the past is, after a couple of years doing this and, 2004, 2005, we did an exercise that, concluded with that number, and at least $250 million to $350 million, you know, for the period for the next four years.

We've been saying this all along.

Obviously, we are beating this number this year, clearly, and we'll try to do the best we can for next year.

But it is, we don't want to overstate anything, obviously.

We have to go by the size of the funnel.

We have to go by the probability that we have to get certain numbers.

We know the probability numbers of all these parties but we know there are negotiations that could end up reducing their probability because we get something else in return.

But we'll try to do a better job, Shannon.

I don't know what else to say.

Okay.

So I guess, one question would be, Antonio, as you look at the performance of your core business.

So net out IP licensing this year.

Yes.

How is it tracked relative to your expectations?

I'm sure there are puts and takes.

Higher silver costs toward the end of this quarter.

What have you, there's different things.

But, I think probably entertainment still may be down a little bit more than you'd anticipated.

So just in general, how would you characterize the net of IP licensing part of the business?

Okay.

We knew that, you know, consumer inkjet, commercial inkjet, work flow services, you know, packaging, doing slightly better than what we planned.

We were concerned about the economy and our ability to maintain those value propositions.

Those things are working really well.

We're very pleased with that.

We were expecting a -- less of a price pressure in digital plates.

It has not happened yet.

We believe that might still begin to happen in the fourth quarter, but it didn't happen in the third quarter the way that we were hoping for.

The only good news there is that we're selling so many CTPs that it's inevitable that we're going to have the better performance in place simply because of the huge increase in CTPs worldwide.

As far as digital cameras, we knew that the market was going to be, very competitive because there's not enough demand.

So we focus intensely and, making the margins equal or better with it.

Slightly better as a percentage.

Not significantly better but slightly better.

We -- the rest of the businesses very much aligned with what we expected.

Those -- our, theirs, you know, all of the other businesses very much align.

So, you know, that would be my quick summary, I guess that is what you were asking.

The FX, with the FX, we think they might be slightly helpful in the fourth quarter, although who knows?

It has a ways trending.

Okay.

Great.

And then just my final question, Antonio, is on inkjet and consumer inkjet.

And I'm just curious as to your thoughts on some of HP's moves more towards driverless printing, mobile printing.

They've integrated e-print with Apple's air print technology, Lexmark also has come out with apps for their inkjet printing business.

So I'm curious as to your thoughts on how that business is going to develop.

We -- you know, Our growth is so spectacular.

I mean, those applications are interesting and we can have them any day we want to.

They're not -- I don't think they're breakthroughs in any way.

I think what works in this business is the value proposition and I think it's working incredibly well for us.

I feel very strong about how this business is going to perform in the fourth quarter and next year.

I mean, all the signs that we have from retailers, from customers, now moving into small office, which just started.

All of that's playing very well for us.

Great.

Thank you.

Thank you.

Our next question comes from the line of Ananda Baruah with Brean Murray.

Please go ahead.

Thanks, guys for taking the question.

And Frank and Ann, congrats as well.

And Frank, we'll miss working with you.

Ann, we look forward to working with you in your new capacity.

I guess the first one on IP as well.

Antonio if you could, anything anecdotal, that you can tell us that you guys feel comfortable, I guess given your feel for.

Do you feel as we moved sort of through, I guess, the first three months of the year, when you look at the pipeline, anything good that -- you guys feel better about sort of being able to monetize within the pipeline, not near term but as you look forward?

Is there anything about the landscape, business landscape that is allowing some deals to get done?

I guess that maybe you didn't think were going to happen before?

Anything anecdotal that could be helpful about IP?

I can only, I mean, I think for me, I know that, that's not the way you guys look at this, but for me, I look at IP the way we look at the rest of the businesses.

We have an asset.

We look at the forecast.

We look at the size of the opportunity, and in that way I look at the list of companies that we're in touch with, and we will be in touch with.

And it's a good list.

It's a solid panel.

Just like I look at the funnel that we have for continuous inkjet, PROSPER presses, commercial inkjet and, its everything else.

We have a funnel list of this business.

And we have a track record of how many of those we get and we have a valid proposition that we judge to be better or not as good as our competitors.

Based on all of that, we make an assumption.

It is obvious now looking back that maybe we were, too conservative with the numbers we gave you in IP, but honestly, that was our best read of what was going on.

All I can tell you is that we do have a strong panel.

We have a good track record.

And, you know, we're going to monetize this the best we way can.

That's all I've got.

Yes, no, that's helpful.

So I guess it's safe to say you don't feel any worse about your ability to monetize IP?

No, certainly no.

No worse.

You know, the track record is nothing less than spectacular, but it is -- it has to happen.

And I guess on the camera business, when we think about what you guys can do or what you are doing to improve profitability there, can you give us some insight into you know, some of the things you guys are looking at?

What's the likelihood that you might be able to execute some initiatives to get the business, kind of close to the profitability?

We will do that in February.

We do have different business models in mind that we've been testing that we would present to all of you in February.

For now this fourth quarter is about execution, execution and execution.

The deals are out there.

And you know this is the time to do that.

We are -- our margins are already improving, although not as much as I wanted to, but they are improving.

Then we have been more aggressive with advertising as we speak, which is just an important part of that.

And you have to look at that, combining all the products that we have, the portable video cameras, they are just going through the roof.

We can't build enough.

To have actually better margins that we have with digital cameras, we're very pleased with that.

And obviously we're going to go as fast as we can with that product line.

But in February, we talk more about all of the business models that we see in the offering that will be, an opportunity for us as a Company.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from the line of Arun Seshadri with Credit Suisse.

Please go ahead.

Hello, everyone.

Thanks for taking my question.

Congrats, Frank and Ann.

Just wanted to ask you on just your total full-year guidance revenue, you're still wording targets, I guess it's not guidance of $7.5 billion to $7.7 billion.

I just wanted to first ask you, do you have IP revenue that you have already recognized in 4Q that you haven't discussed yet, but it's already recognized for 4Q?

And, basically wanted to understand your assumptions on IP in terms of the context of your guidance.

It looks like without IP, you would need some pretty strong growth in consumer digital to meet your guidance.

So any comments there?

I think what we would say, Arun, is that, number one, there is nothing that's quote unquote recognized from IP, but I think we want to stick with the wording that we used in our release and then our 4Q is typically our largest quarter for both revenue and cash.

We've said that achievement of these goals, which was very definitely committed to, is predicated upon the implementation of some of our new product and marketing programs.

And we've got a lot of activity going on that Antonio discussed.

Continued growth in our four digital growth initiatives, and we're very confident in that because we've got a great track record so far this year, and particularly in the third quarter.

Continued productivity and other operational improvements.

And then, fourth, ongoing execution of our IP licensing program.

So there's nothing else in the bag for the fourth quarter, to your first question.

But all four of those elements do play a part in achieving the revenue and the cash goals for -- and the earnings goals for the year.

And a lot happens in the fourth quarter.

There's always some puts and takes.

But I think, that's where we stand right now.

We'll stick to that guidance of that wording.

Okay.

That's fair.

On the graphic communications business, if you compare the first couple of quarters, first quarter up 1%, second quarter down 2%, third quarter down 2.5% Just wanted to get your general sense, Antonio, about the health of that business, broadly.

Companies seem to be opening up wallets and enterprise spending seems to be picking up.

So are you expecting a return to growth in the fourth quarter in the near term there or should we see similar trends that we've seen the last couple of quarters continuing?

We see growth both in the top line and in earnings for the fourth quarter.

It is so driven, I mean when you look at GCG, every business in GCG actually has grown with the exception of digital plates this quarter.

We don't disclose -- we don't go to each one of them, but every one is doing better, which is a good sign for the industry.

The case in digital plates is not even a number of units, either.

It's the problem that in Europe especially, there is a lot of capacity and the European market is soft.

And there is a very intense price pressure and no one is giving away capacity because everybody expects that this is going to come around.

If you look at the data from the national association of the United States in this industry, they actually predicting that next year there's going to be a growth of, I believe it's about 11% in the number of units, and they expect the overall business revenue to grow about 10% in 2012.

So the -- we look at our customers, but we listen as well to these associations.

And that's one of the reasons why no one is giving away capacities and now we have that , you know the pricing pressure.

I feel very strong about the business.

I think that we just introduced new products.

We have a better value proposition, one in which it has a large cost of operation of the industry.

That is going to help us, hopefully to, raise the prices.

But at least to maintain the price, the pricing average because it is a better value proposition than the rest of our competitors.

Those products out on the market out of the last month, month and a half.

The other thing that is very positive as well, is the very significant growth with our CTP devices.

CTP is the device in which you basically print the image in the page -- in the plate so to speak.

And that's the beginning of the process.

And that is an indication that obviously many customers are going to buy a lot of our plates since we have such growth.

We are getting a very significant leadership in market share in CTPs worldwide.

And that is going to bode very well for us for the future.

So, yes we expect growth both top line and bottom line for our business in the fourth

Okay, great.

Thank you for that.

Finally on GCG, you want to just focus on gross margins for a second, 2Q to 3Q?

It looks like revenue remained flat on a sequential basis but gross margins declined more than 200 basis points.

Just wanted to get an understanding for what type of mix issues, or how we should be thinking about the reasons for the gross margin sequential decline.

Yes, and I don't know that it was a full 200 basis points.

There was a modest decline in margins quarter to quarter.

I think what you'll see is number one, we talked about some of the pricing pressures in digital plates.

Some of that was offset with productivity and some favorability from aluminum.

And then, also, some of the investments we're making in product, whether it's packaging, whether it's PROSPER streams that are hitting the cause line.

So, Those are really the primary drivers behind that.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Ulysses Yannas with Buckman Reid.

Please go ahead.

Besides congratulating Ann, I would wish her to be as straight and not spinning the result as she's always been.

I want to congratulate Angela for taking over Investor Relations.

I have a question for -- two questions.

But one them for Antonio.

Antonio, how on earth can you show improved bottom line in the fourth quarter considering that last year you had, what, $425 million, if my memory serves me right from LG?

We're talking about -- you guys always exclude IP, now you're going to put it in.

You have to take a position of this.

You keep asking us all the time to exclude IP, so, I was talking about the performance of the businesses in the fourth quarter.

I expect all of the operations of the businesses to be better, yes.

Okay.

So you're not talking IP?

I didn't say that we're not going to get any IP, either.

I'm just -- I was talking about the, you know, basic business operations are going to the funnels that we have and --

Okay, great.

Is going to be better, yes.

The IP that you had in the third quarter, is that a new source or is that a continuation of where you've been getting your IP from up to now?

It's one of the companies that was in the funnel list that I never shared with you, because we cannot.

But I mean it's the same thing --for example the money you got from LG.

I know exactly what you're asking and you're going to get the same answer all the time.

This is a digital camera business, yes.

I mean, I can say that, we've said it already.

It is a digital camera deal, yes.

Okay.

Because you have other areas in your IP that don't have to do with digital cameras, right?

That's right.

That's right.

No, this one was a digital camera.

It was not a digital phone, it was a digital camera.

It wasn't anything else of the other things, yes.

Can you -- does that say its a gain next year in inkjet for consumer?

You were here in February.

But, we are very optimistic about how that business is going.

We're tracking really solid lead for break even during the year, and you know, come February, we'll give you some metric which will be probably around ink growth, which is the best metric that we can give you because it combines the number of units, the burn of the units, the whole thing is based on that.

Our break-even and our profit, is based on getting you know, the burn numbers that we are expecting.

So -- but I feel very positive about -- .

Both those burn numbers.

Are your burn numbers going up with the home office type of thing?

They're about the same.

They're about the same.

There is --

Around the eight you've been talking about.

Yes.

We have to -- there are a lot of issues that you have to count into that.

You know, We have now, you know, bigger cartridges with more ink.

Yes.

We have come out because to go into the home office and into the mid -- and to the office, we needed to do -- we needed to provide less intervention and then.

So we can count that a number anymore the same way we used to because there's going to be more ink but less cartridges.

Right.

Not quite -- ink revenue is the thing that matters.

At the end of the day, the only thing that matters is the ink revenue.

If we're going to increase significantly our ink revenue, it has to be through a combination of factors.

It has to be the number of printers, the burn of the printers, all of those things together, and that's the best metric that we use for ourselves, and that's the one that we're going to give you.

Is it fair to assume that at some point ink is going to be as profitable as consumer film?

Ink by itself, yes but --.

Yes, but printers won't be.

No, but you commented you are never making money anyway.

That's right but we used to sell very few cameras.

Kodak wasn't the typical camera manufacturer.

It would come out with a camera to introduce a new film, and many other camera manufacturers that would come with that and the business was film, yes.

But yes, ink by itself, it's a lovely business.

Is it fair to assume that your consumer film sales by 2012 will be below $100 million?

Consumer film?

Consumer film?

Yes.

It will be about that number, I think, very small, yes.

As long as you buy a lot from now through the end of the year.

Thanks very much, Antonio.

Thank you.

Thank you.

Our next question comes from the line of Mark Kaufman with Rafferty Capital Markets.

Please go ahead.

Thank you.

It's Mark Kaufman.

Just wondering, Antonio, if you could update me on where the company stands with getting the XL5000's out into the field?

If the letters of intent, ectera, are still there?

We already have color PROSPER installations.

We're -- they're already in the market.

Now we are -- they haven't been recognized as far as revenue, but they're already in the market.

As I said before, we have now PROSPER presses all over the world.

In all the regions of the world.

The majority are black and white because a lot of the applications are working wide and because this is how we started it best.

We already have color presses, color PROSPER presses working with customers.

There are better sized, though.

Thank you.

Thank you.

Our next question comes from the line of Phillip Brown with PSAM Please go ahead.

Yes, good morning.

Thanks for taking the call.

Just a quick question.

You know, again, and I know all of the investors that call like to do this -- but talking about the business excluding IP income and excluding the pension income, you know, it looks like the business lost about $70 million of EBITDA during the quarter.

I'm just wondering if there is another layer of cost or aggressive restructuring action that you can take to kind of stop that hemorrhage?

Or whether it's just a growth story and we should think about the new products filling the hole?

No, I think it's both.

You will see us next year continue to improve our productivity, and that has two forms or two, you know, two root causes, so to speak.

One, growth in the 'US' and in Europe is not coming back the way we were hoping for.

Therefore, our resources both in Europe and in the US, they have to be aligned with the top line that we expect.

At the same time, you're going to see us you know, investing in go to market individuals an assets in Asia and other developing nations because there's been high growth there.

But overall, you will see better productivity from the company next year.

That, and then obviously the growth.

We have to keep on with the growth of our new businesses in digital.

Those two things we're going to continue to do both.

And to add to Antonio's comments, is that as we stated before, of course we won't have any guidance for 2011 until February, but as we go through time in our strategic growth businesses, particularly inkjet, the investment levels of those businesses will decline as they turn to profitability along that path that we previously communicated.

And that will be significant over the next couple of years.

Yes.

That's a huge change in both inkjet businesses that they become -- in 2012, they're both making money.

In 2011, sometime during 2011, our consumer inkjet will break even.

So, yes, you have to put the growth of the top line that helps with the whole cost environment on the company.

Productivity gains that we will continue to go after aggressively, and then the fact that the biggest investments of the company in the next year and a half, they turn from investments to you know, accruing profits.

Great.

Thanks.

And then the other thing, congratulations, I noticed that you reached a deal with the UK pension trustees which we understand is never an easy task to do.

But, would you anticipate next year the cash funding of your legacy liabilities to increase from the $300 million level or did you reach a deal that allowed you to continue current funding levels?

We're very happy with the arrangement that we've been able to negotiate on a very amicable basis.

It took some time but I think we've landed at a good place.

And if you look -- going forward, the total cash expenditures for our legacy costs world wide will continue to decline modestly over time.

So next year will not be as high as it was this year.

The number you stated was both for pension plans and for other post employment benefits around the world.

That will continue to decline modestly over time.

Great.

Thanks.

And they didn't impose any limitations on your ability to move cash around?

No, they did not.

Okay.

Great.

Thanks a lot.

Thank you.

This does conclude the question and answer session.

I would like to turn the call back over to Antonio Perez for any closing remarks.

Thank you all for joining the call.

And I just want to close with three points.

One, we are making significant progress with our growth initiatives and with our professional improvements.

We have strong cash performance, second, and we feel we are very well positioned for a strong fourth quarter performance.

Thank you very much.

Thank you, ladies and gentlemen.

This concludes the third quarter 2010 sales and earnings conference call.

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