Eastman Kodak Co (KODK) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Eastman Kodak Q3 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. David Bullwinkle.

Thank you. Good afternoon. My name is David Bullwinkle, Director, Global Financial Planning and Analysis and Investor Relations for Kodak. Welcome to the third-quarter Kodak earnings call.

At 4:00 PM this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the third quarter of 2014. You may access the presentation and webcast for today's call on our investor center at investor.Kodak.com.

During today's call, we'll be making certain forward-looking statements as defined by the United States Private Securities Act of 1995. These forward-looking statements are subject to a number of uncertainties or risk factors, which are clearly described in the Company's 10-K and the Company's quarterly filings, and which are qualified by the Safe Harbor provisions in our filings. We advise listeners to read these important cautionary statements in their entirety, as any forward-looking statement needs to be evaluated in light of these important risk factors or uncertainties.

In addition, the release just issued and the presentation provided contains certain measures that are deemed non-GAAP measures. Reconciliation to the most directly comparable GAAP measures have been provided with the release and within the presentation on our website in our investor center at investor.Kodak.com.

Speakers on today's call will be Jeff Clarke, Chief Executive Officer of Kodak, and John McMullen, Chief Financial Officer of Kodak. Jeff will provide some opening remarks and his perspectives on the businesses and the quarter, then John will take you through additional details of our third-quarter results before we open it up to questions.

I will now turn the call over to Kodak's CEO, Jeff Clarke.

Welcome, everyone, and thank for joining the investor call for Kodak's third quarter. We'll begin by summarizing overall performance for the quarter, then we'll give a big-picture overview of the key businesses comprising Kodak's portfolio today, several of which are in different stages in our life cycles. We'll walk you through Kodak's strategic growth businesses, as well as mature businesses and provide both current context and financial performance for each. Next, we'll update you on where we are in our ongoing efforts to reduce cost and optimize our structure to drive the increased efficiency and effectiveness throughout Kodak. Finally, we'll even update on our expectations for the full year.

I'll start with thte overall performance. For the quarter, full company revenue was $564 million, flat year over year. The Company delivered $19 million in net earnings for the quarter, a key milestone for us since our emergence.

Operational EBITDA for the Company was $89 million, a $47 million year-over-year increase. Within our strategic technology businesses, we achieved total revenue of $475 million in the quarter, with solid growth in several areas and overall growth at 8%. Operational EBITDA for the strategic technology businesses of $64 million improved by $67 million year over year, including $51 million of non-recurring brand licensing and intellectual property revenue.

Now, before going more deeply into the numbers, I'd like to provide you with an overarching perspective on where we are with portfolio of businesses so you can understand the progress as well as the challenges we're tackling head-on. Here is the big picture of Kodak today.

Let's start with the graphics business: graphics is Kodak's largest business. It's foundational for us and represents over half our revenue. We have been successful over the course of the year in improving our leadership position with our SONORA offering and the underlying and recurring profitability of this business for the Company. This business is core for Kodak and is healthy.

Our packaging business with the FLEXCEL NX offering was a start-up in 2009. Today, packaging is a significantly profitable business in our portfolio with double-digit market share, proving what are able to do in large markets in relatively short order with our technology innovation.

Our PROSPER inkjet systems business is early in its life cycle, but we're well on our way to building a business of good scale and profitability, placing equipment with direct customers, as well as a growing base of OEM partners. With the scale we're achieving in 2014, we look forward to a growing annuity revenue stream as we enter 2015.

Another really exciting area of Kodak is our functional printing business, where we're developing micro-3D printing capabilities, which will revolutionize how interactive electronics are manufactured. This business is in a start-up phase, where our progress is still harder to forecast than in Kodak's more established businesses.

Kodak is in a unique position to apply our leadership and break-through material science to new market opportunities. We're simultaneously investing in scaling up metallic deposition processes. Despite, or arguably because of, the unprecedented scientific hurdles we're having to overcome, the opportunity here is as huge as our ambition, to reach a $30-billion market for flexible touch screens and other conductive materials.

In the theme of innovation and ambition at Kodak, we formed Kodak technology solutions, which has the mandate to continually ensure advances in material science and digital technologies that Kodak has to offer and make sure that these are being monetized.

Within each of these product lines is a significantly differentiated technology based on our core technology platforms of material science, imaging science, and deposition processes. Kodak has the portfolio of extraordinary businesses at different stages of their life cycle, each with significant market opportunity. We're aggressively innovating to strengthen and broaden this portfolio for sustainable growth and profitability going forward.

Now, let's get into the numbers. Within our graphics business, SONORA plate volume was up approximately 200% year over year, with total plate unit volume up 5% year over year. Additionally, CTP units grew 6% year over year. This represents strong performance for this business, continued acceptance of SONORA technology by our customers, while providing stable earnings.

SONORA plates now represents 9% of our total plates business and provide a higher level of profitability to the Company than our traditional plates products. We expect SONORA volume -- we expect SONORA plate volume will more than triple for the year.

We've also delivered continued growth in our packaging business this quarter. For the third quarter, FLEXCEL plates grew by 34% in revenue. For the full year, we expect to achieve a 25% plus increase in the install base of FLEXCEL systems to more than 400 units. The FLEXCEL NX system uses our proprietary square spot laser imaging technology to produce high-resolution imaging, which reduces waste and ink usage.

In our PROSPER product line, we installed three additional press systems in the quarter. We're now at an install base of 38 PROSPER systems. Page volume continues to increase dramatically as a result of the install base growth in ramping customer volumes.

For the quarter and year to date, total PROSPER page volume increased by more than 50% year over year, providing good momentum for future annuity revenue growth. We continue to expect a year-end install base of PROSPER press systems of greater than 40.

As we've indicated in the past, we see significant opportunities for additional PROSPER growth through OEM partnerships. Two of the systems recognized in the quarter were placed with OEM partners Timsons and [Matty]. We also have announced agreements with additional OEM partners Sentech and [baron] to develop digital printing solutions for Chinese wallpaper and book markets.

Additionally, Kodak continues its partnership activities with Bobst. As previously announced and to date, we have completed and shipped several rating systems which are in various stages of installation and rigorous testing using customer-defined complex corrugated print requirements.

Bobst and Kodak are jointly reaching out to major brands to ensure acceptance of the printed output. Customer response after testing and demonstrating the digital press for corrugated applications continues to be positive. In fact, many test jobs have been sold commercially, and these packages will soon be on store shelves supporting the early market acceptance.

Let me now provide you an update on our start-up functional printing business. We've made progress throughout the year but are delayed in our implementation of touch-screen sensor solution. This is breakthrough micro 3D science and we remain incredibly excited about the growth opportunity touch-screen sensors and functional printing provide to Kodak going forward.

As previously discussed, within this business, we're focused on developing two technologies with our two partners, Kingsbury and UniPixel. I'd like to provide you with an update on where we are with both of these technologies.

Beginning with Kingsbury, the Rochester Kingsbury factory has reached production-quality levels for touch-screen sensors, a significant and exciting milestone. Product-specific samples will begin production in a couple of weeks for products anticipated to be released in the first quarter of 2015.

We announced in January of this year an agreement with JTOUCH Corporation of Taiwan to purchase sensors produced in the Kingsbury manufacturing facility. As a result of these developments, Kodak and another major integrator in the touch-screen industry have signed an LOI to build manufacturing infrastructure in Asia to produce touch-screen sensors utilizing Kodak's silver-halide metal mesh sensor technology. The Asia manufacturing facility is targeted to go online in the second half of 2015.

On a previous call, I shared with you expectation of revenue ramping toward the end of 2014. We now expect recognition of this revenue in 2015.

A few comments on our progress with UniPixel. The new plating technology and chemistry has been successfully transferred to the Kodak production facility in Rochester. We continue to focus on ramping yields in the end-to-end manufacturing processes. For the balance of 2014, we'll continue volume trials with lead integration customer ramping to commercial production levels in 2015.

To summarize, although our expectation for revenue and earnings this year have not been met, we continue to be incredibly excited about our opportunities in the touch-screen sensor market.

I want to highlight areas Kodak technologies solutions is focusing on, which will represent significant opportunities for near- and long-term growth for the Company. Kodak technologies solutions will act as accelerator to the inventive work coming out of Kodak Research by developing the best route to market for these emerging opportunities.

Areas we're focused on include the use of micro-scale3D manufacturing to add functionality beyond text and graphics, onto a variety of substrates, including paper, plastic, and glass. An example would be printed electronic components or a simple device for food product packaging to sense environmental conditions such as time and temperature. This type of functionality will be delivered through Kodak materials printed directly onto a solution, directly into a solution, or added via Kodak proprietary encapsulation processes.

I'll conclude this section with a few comments in performance in the third quarter for our mature businesses. Revenue in our mature businesses, film and consumer inkjet, decreased 29% year over year, while operational EBITDA for these businesses was $25 million for the quarter. We expect mature businesses, in total, to exceed our expectations for the year.

Now let's discuss the progress made in opportunities going forward for optimizing the organization and reducing costs, while continuing to invest in the future success of Kodak. As we discuss the progress made, it is important to note we've maintained a significant investment in R&D this year of approximately $100 million, while funding capital expenditures of $30 million to $40 million. Year to date, we've reduced our operational SG&A by about $40 million, and expect to deliver greater than $50 million reduction for the full year.

As discussed previously, actions taken include headcount reductions, movement of work where appropriate to lower-cost locations, and rigorous review and renegotiation of third-party expenditures as we continue to variabilize our cost structure. It is important to note while we're reducing head count in many areas across the Company, we also continue to hire where we see the need for critical new skills in support of many growth areas we're investing in and focusing on for the future.

As a rough metric, we made one new hire in the area's critical to the Company's success moving forward for every three headcount reductions. We're also implementing changes resulting in savings in global benefits expense in excess of $20 million for 2015.

Finally, we're also improving the cost structure of our manufacturing function within the graphics business. This includes consolidation of manufacturing sites worldwide from five to four, while increasing our manufacturing capacity for SONORA plate production in response to its strong market acceptance and ongoing demand. As a result, we'll realize $4 million of operational savings in 2014 and ongoing annual operational savings of $20 million to $25 million once completed in the third quarter of 2015.

Although we've made good progress in 2014, we clearly see additional opportunities to optimize our organizational structure and further improve processes. As we approach the new year, we'll continue to take actions necessary to drive additional efficiency gains and improve execution and accountability across the Company.

Now let's move to an update for expectations for full-year performance. We continue to expect full-year revenue between $2.1 billion and $2.3 billion, while delivering operational EBITDA of $145 million to $165 million.

While guidance remains unchanged, a significant portion of this year's planned strategic revenue growth was based on estimations of advances we had hoped to make as we pursue inventions in breakthrough technology and the functional printing area. We did not achieve the growth we had planned for this start-up business this year.

While we will improve our strategic technology business by approximately $90 million to $95 million of EBITDA year over year, the delay in revenue ramp of functional printing combined with the second-half negative foreign exchange impact, will likely result in a single-digit percentage miss of our projections for both revenue and operational EBITDA in our strategic technology businesses. These potential misses will be offset by above planned performance in our mature businesses.

As I shared in my earlier remarks, the Kodak of today consists of a diverse portfolio of offerings in very different stages of life cycles, with an innovation engine and structure to add incremental commercialization opportunities and significant value over time. I remain excited about the prospects for our Company as we approach the end of 2014 and prepare for 2015.

I'll now turn the call over to John who will review the financial results for the quarter.

Thanks, Jeff, and good afternoon. Today the Company filed its Form 10-Q for the third quarter of 2014 with the SEC. I recommend that you read that filing in its entirety. I am pleased to share my thoughts and comments on the Company's quarterly results.

On slide 13, you will see a summary of our consolidated results for the quarter. Total Company revenue of $564 million is flat year over year, while gross profit increased $49 million. Gross profit margin was 28%, a 9-percentage-point improvement year over year. This improvement includes the benefit of IP and brand licensing revenue within the quarter of $51 million.

We also continue to drive year-over-year improvements in operating costs. Q3 SG&A expenses decreased by $26 million year over year. These improvements are the results of a number of actions, including headcount reductions and associated overhead costs, savings from global benefit changes, facilities consolidations, and renegotiations of vendor contracts. As Jeff mentioned in his remarks, we will continue to focus on opportunities to further reduce our cost structure and improve organizational effectiveness going forward.

Overall, the Company's operational EBITDA for the quarter was $89 million, a year-over-year improvement of $47 million, versus 2013. On a year-to-date basis, operational EBITDA is $119 million, slightly up from $116 million in 2013. The results of the third quarter represent improvement for the Company in its operations.

As we reported in our earnings release, net earnings for the quarter were $19 million, compared to net earnings of $1.986 billion, as reported in Q3 of 2013. 2013 is a difficult compare, due to the impacts of fresh-start accounting implemented in September 2013.

Looking at slide 14, on a year-to-date basis, when comparing our results for 2014 to the results for 2013 on an apples-to-apples basis, a comparable improvement was $399 million year over year. Applying the same approach to the third quarter yields an improvement of $246 million year over year. This information is taken directly from the Company's consolidated statement of operations in the 10-Q and adjusts for large items in 2013 that are not comparable to results in 2014.

Now, let's focus on cash and key items on the balance sheet. The Company's liquidity remains strong, with ending cash from the third quarter of $744 million. On a year-to-date basis, cash used in operating activities improved by more than $450 million.

As you can see on slide 15, through the first nine months of the year, the Company has used cash primarily for interest expense and debt repayments, reorganization, and legacy payments related to our Chapter 11 and re-emergence process, restructuring employee severance payments, payments related to 2013 incentive compensation paid during 2014, capital expenditures including cash usage associated with our commercial business, and the year-to-date negative impact of foreign exchange rate on cash. The impact of working capital movements on a year-to-date basis were essentially neutral.

For the remainder of the year, we expect cash to be at or modestly above our current levels. We are comfortable with our projected liquidity position as we finish the year and clearly see opportunities to improve our cash-flow performance as we enter 2015.

To summarize the quarter and year-to-date performance, and as Jeff mentioned in his prepared remarks, we have made significant progress throughout the year in a number of our strategic technology businesses and the Company's cost structure. We continue to see opportunities for additional organizational effectiveness and related cost reductions as we enter 2015.

I'll now turn it back to Jeff for closing comments.

Thank you, John. Why don't we move to questions. Dave?

Thanks, Jeff. Andrea, we are ready to open the Q&A session. Please remind callers of the instructions for asking questions.

(Operator Instructions)

Shannon Cross, Cross Research.

Thank you very much, thanks for taking my questions. The first one, can you just talk a bit about how we should think about the trajectory of the legacy businesses? And clearly they've outperformed this year, but is this something that you think will continue to beat expectations as we go into '15, so it provides somewhat of a cushion as you ramp some of your growth businesses? If you can give a little bit more color on what you're seeing on the legacy side, and then I have a couple more questions.

Yes, so it's really a bifurcated performance in legacy side. The consumer inkjet has done modestly better than we had expected, and I think film has done modestly worse than we've expected. I think we fixed the film mid-year when we went out and worked with studios and have come to a position where we're going to continue to manufacture film for the foreseeable future. And we've got some commitments, I hope everyone goes out and sees Interstellar, it is out there on Kodak film and being printed. We'd love to see a payback for those directors that do use film.

In terms of the trajectory, we this year set up the year that the legacy -- the strategic businesses would improve by about $100 million in EBITDA, and the legacy businesses would go down by about $100 million. And we have been modestly less of a reduction than the $100 million in the legacy. But these businesses will, from a film perspective, we expect it to stabilize and continue to provide EBITDA to the Company, and perhaps even as we build some new applications, such as functional printing using film to even grow that over time.

But consumer inkjet business is going to decline and continue to decline, and that is planned, because we don't sell printers any more. So the inkjet cartridges that we sell continue to go into a declining install base. So I would not count on the mature businesses contributing a significant amount of going forward, because whatever improvements we make on the film side, certainly, we're going to see a continued decline in the consumer inkjet side.

Okay. Great, if you can talk a little bit on the FLEXCEL side, market share, where you're seeing demand from a competitive standpoint, where you see the market going, and what you think is driving a substantial growth there, that would be helpful, thanks.

Sure, so this is a really exciting story. Again, this is a business that we just really entered six years ago, and it uses so many of the underlying technologies of our Company, so it's a really a great example of the portfolio of technologies coming together to make a disruptive product in the marketplace.

So we entered the marketplace really six years ago, and we got to about 9% to 10% market share now. So we're quite pleased with where we are. We think that market share is going to continue to grow, as I mentioned. We will be up to about 400 installed FLEX NX systems out there.

We're seeing increased use of the packaging consumables on it. I think you saw the number, 34% growth in the consumables. And so this is a nice business with good momentum in a growing market, and it's doing well.

The difference -- the differentiation is multiple. The primary one is that the resolution and output is visibly better than the competition, and that's why you go from 0 to 9%. This is an example of better technology going in, and we've achieved that through using our square spot technology and a series of other technologies. But on top of it, by having a CTP that is integrated with the plate. And our competitors either sell CTPs or sell plates, but they don't have the integrated systems and it is materially different.

So we think we have got a leg up. We have a competitive advantage, and that advantage is increasing over time as more people see the output of this product. So very excited about FLEXCEL NX.

Great. My last question is on the IP -- not IP licensing, the brand licensing. How should we think about that on an ongoing basis? Clearly, I think there is a lot of opportunity from a Kodak brand standpoint, and I know a lot of it is one time in nature, but it does provide a nice boost of cash and margins. So how do you think about that? I know you've made some new hires.

Are you changing your strategy with it? Are you being more aggressive? Where do you think that tops out?

Yes, thank you for the question, Shannon, and let me go a little bit more into detail because not everyone is -- on the call may be following just as closely as you are. So we have a bucket called brand licensing and intellectual property licensing. The intellectual property licensing, which also includes litigation, supporting our 7,000 patents, that this quarter was a pretty material number, with even $51 million of EBITDA this quarter. That will continue to be lumpy, this intellectual property licensing, as we go out and we find parts of our intellectual property that's good to partner with or license or occasionally even sell a patent. That is part of it.

What Shannon asked is the brand licensing part of the equation. Brand licensing is where we go approve a product like a camera or a batteries, and we then license the Kodak name in exchange for a payment or a stream of payments.

Historically, the Company has done the brand licensing with one -- mostly upfront, one-time payments. And the approach we are taking is we'll look at that occasionally, but we would much rather build annuities and longer-term revenue share-type annuities with our licensing partners. And we have over 12 licensing partners, and we can see that growing into the 20s and 30s.

There is many, many products out there that we believe will be very relevant to the consumer with the Kodak brand on it. It will have to be a product that has great quality, because we're very protective of our brand. And we'll have to have a very good partner that has good manufacturing capability, and so forth.

But you are right, we are investing more on this here; we see it as an untapped opportunity. We've added some resources in this area. This organization is now reporting to Steven Overman, our Chief Marketing Officer. We believe it will have a lot more energy. We have a booth set up at CES in the consumer electronics show in January, and we're excited to roll out some new partnerships for that event.

Great. Thank you very much.

Jen Ganzi of NewMark Capital.

Hi. Thanks so much for taking my questions. Just to clarify, you mentioned I think last quarter that the PROSPER side of the business was ramping up, and I think you expect -- you said at a run rate EBITDA of about $100 million at that point. Is that number still accurate? Is it higher? Is it lower? How should we think about that?

I hope I didn't say that on the last call; we'll check the transcript now. No, we don't have -- PROSPER is a business that is not at EBITDA. It is -- we are -- it is not contributing to EBITDA. It is growing relatively rapidly.

And the way the PROSPER system is, we sell these systems out there. We have two types of products we sell. We sell presses and we noted we'll have 40 presses out as an install base, and then we also sell components.

On the components, they have fairly high margins and pretty good EBITDA. But the presses, we want to get out there in order to sell consumables, which are highly profitable going forward. And so -- and there still is a significant amount of engineering associated with this business.

So this is a business that is not quite a start-up anymore, but it's rolling into the stage where it is going to be a significant contributor. The run rate on the business I would -- I don't know if we have given that number. Dave is shaking his head, so we won't give it now.

But, again, I'll give you a little back of the envelope to help you. We have 40 installed systems out there. The systems range in price between roughly $2 million and $3.5 million apiece. And then we have components that can range between $100,000 and $200,000 per component. And often, our components are sold for hybrid digital printing environments in offset, primarily. Those systems can be sold in multiple units of each.

The annuities, which is the ink, is quite profitable, and that business is growing in double-digits, and that's exciting. And the page growth that I referenced in my remarks is up over 50%, and that bodes well for this increased install base and people using the applications to print more. Okay?

Thank you. Trent Porter, Guggenheim Securities.

Hi, guys. A couple of quick ones, first the $100 million of R&D, does that number come down materially when functional printing -- your two functional printing businesses leave the nest, so to speak? And also, like you said, you still have got some R&D investment in the PROSPER press, or does it simply get replaced with R&D and incremental growth opportunities?

I think the $100 million is a good placeholder at this size of our business to use in your plans going forward. We, of course, are always looking for opportunities to have higher ROI on our R&D, but this is a fundamentally a technology-driven Company, and we see significant additional opportunities beyond the touch-screen sensor implementation in micro 3D printing.

So there are additional micro 3D or functional printing opportunities that we see; I referenced a couple in my remarks. We're also doing a lot of basic science around inks and toners that support our electric photographic business and our inkjet businesses.

And we of course are working on engineering for new applications of PROSPER. So while the 6,000 press has been completed and that is a great writing system, the fact is there are many new applications with new OEM partners that allow for additional R&D to open up this incredible technology to go into new markets.

So net-net I think $100 million is a number that I would use as a rough placeholder for expenditures as long as we remain a Company in the $2-billion range of business. So if you back that out a little bit, about $1 billion of our revenue is around the graphics arts plates business. That business does take R&D around the SONORA implementation and new types of plates and for CTPs, but it typically has more closer to 1% or 2% R&D for that more mature business.

Our more advanced businesses will be more at the 10% of revenue R&D. And so that is the way you get to the $100 million on a $2-billion business. And of course, as we grow further, we will invest more in these opportunities.

Okay. And then I wanted to ask a couple more, if I could. The first one, any chance this -- the new China integrator that you announced, should we be thinking of that as something that would ramp significantly more quickly than Kingsbury? It sounds like it is based on the same technology. So given the fact that you've already had the breakthroughs and the learnings with Kingsbury, does that go to market much quicker once it launches in the second half of 2015?

And then maybe I'll get -- spit the second one out also. The $51 million in non-recurring IP, pre-petition you can almost set your watch by this non-recurring IP settlement. But I assume after that big IP sale that that wouldn't be the case. So do you view this as a potential $51-million headwind that might, if you're lucky, get filled by another, or several more, IP settlements in 2015? Or are you, today, looking at a pipeline of cases, if you will, and that in combination with your visibility into potential growth in brand licensing, could fill this headwind?

Okay, two separate questions. Let me address the first one first. So the Kingsbury process is replicable, and so now that we're at production samples, we now can -- we, with Kingsbury, can sell these machines to other manufacturers, and that has always been the business model.

While Kingsbury here in Rochester will -- we will print touch-screen sensors and sell them to JTouch, as we announced in January, we will also replicate those systems. We can locate those systems in Rochester or anywhere around the world with other partners who want to make touch-screen sensors.

The answer is, this is a scalable business, and it is a vast business. The touch-screen sensor business is very large. I reference a $30-billion annual size to this market, and we're very excited to be in it with -- at production quality and production levels now. It does take a while to make use of these systems. They're very sophisticated, but we're very pleased with the opportunity with our Asian partner.

On your second question around the pipeline, so the $51 million, that -- $42 million of that was related to a settlement associated back with the digital imaging business. That digital imaging business, that was a set-aside, that the Company could still pursue.

That business, we don't expect future licensing for [legal] settlement issues related to the digital imaging set of -- to many of the digital imaging patents and the digital camera patents that were sold as part of the bankruptcy. There are -- there remains 7,000 patents, some of which are a different flavor of digital imaging, but most are of more core technologies around electro-photographic; around the types of toners and material science; and around many, many other broad areas; around inkjet, et cetera.

We don't see significant opportunities in the short term of the $50-million level. We do see, over the medium to long-term many, many opportunities to monetize the invention that is out of our patent portfolio and the invention that is continuing to be put out of our labs, and that is why we created Kodak Technology Solutions, that is being headed by Eric Mahe, a new hire to the Company. We're bullish about the ability to monetize the technology and to go at monetizing it in new ways, whether that be licensing, whether that be working with venture capitalists, whether that be spending it out or selling businesses at different stages of their level, or whether it becomes a business like FLEX NX did or touch-screen sensors will be within Kodak.

I don't look at this as a headwind; $51 million is a tailwind to me. I understand that many people think about, what does that mean year over year for next year? And we're not going to get into guidance for next year. It is non-recurring. But we have several other businesses that are growing, and we have lots of opportunity to improve on this year, based on the cost structure opportunities, running our Company by blocking and tackling better, and by the growth of the several other technology businesses that have good momentum right now.

Okay. And then as my last question, as a segue from that, it occurs to me, I'm almost afraid to ask this question because I think you'll smack me down, but is it possible to somehow ballpark pro forma if the installed base of the PROSPER press and the Flex LNX system if you began the year with the current installed base of those and the PROSPER and printing system, and also began the year with a SONORA being 9% to 10% of digital plate, is it possible to at least at order of magnitude, how much of a swing that would mean for a pro-forma EBITDA?

We're not going to give guidance on --I think this is -- it will be a soft smacked-down. We're not going to give any guidance for next year. I think if you look at my remarks closely, you'll see that there are several factors happening in our portfolio. We have got a very stable graphics [parts] business, plates business, that has an important growing component within it in SONORA. We have several businesses in Flex NX packaging, PROSPER, and touch-screen sensors, that we expect to have solid growth in the future. And we have some businesses that are going to decline, and then you overlay that by the efficiencies we've talked about in our cost structure, and you should be able to tune into a range. But we're not going to give guidance at this stage.

Thank you so much.

(Operator Instructions)

Amer Tiwana, CRT Capital.

Hi, guys, I have a bunch of questions. I'll start with my first one, which is around working capital. How do you see that shaking out for the rest of the year? And, second, I was a little bit surprised when -- I don't know if it's cash guidance that you gave, but you said cash will be around the level that it was at the end of third quarter. If I remember correctly, you had previously said that cash would be roughly, going from 2013 to '14, flat, and if I look at the numbers, it is around $844 million at the end of 2013. So if you could just explain to me what the bridge is, or things didn't work out as planned. That's my first question.

So let's go back for people to the chart that we provided on the bridge. I'm going to let John take you through it again. I think there are a couple -- the only high-level comment I will make is that the Company will continue to pursue good cash uses that will drive recurring profits going forward.

So when we originally gave some guidance around cash, several things have happened since then, including the opportunity that we found to accelerate some reductions in both manufacturing and in our overall cost structure. And those because one-time cash usage with pretty good return. With that, I'll hand it over to John, because he'll take you through inventory, working capital, and everything else.

Thanks, Jeff. First of all, I'll go back a little bit to my prepared remarks and the slide that hopefully you're able to see here that we went through in the earnings presentation. So what we did here is we provided really a bridge of cash usage from the end of last year up to a year-to-date basis.

So you see, obviously interest and debt payments, part of our capital structure. We do have a significant amount of reorganization and legacy payments are coming out of Chapter 11 in the emergence process this year, and we are moving on our restructuring actions and that has a cash inflow -- outflow.

And in terms of prior-year incentives, the way the Company operates, a lot of the incentives, compensation payments from the prior year are paid out in the next year. So we're paying those for 2013. We're spending CapEx investing back into the Company, and we have had some negative impact on the foreign exchange point of view.

Let me talk to you a little bit about the second-half impact and how we get from where we are today to effectively an expectation of flat to modestly up between now and the end of the year. As Jeff mentioned, we are absolutely accelerating in increasing restructuring actions where we see good opportunities that make sense for the Company going forward. And it's an important element of the Company longer-term, and certainly as we enter into 2015.

We're also investing in inventory to support a growing pipeline in the PROSPER space. And two ways really, and Jeff talked about this in his remarks, but both in terms of our direct opportunities, but also in terms of an expanding OEM portfolio for us going forward. So we are definitely investing in inventory in the second half around PROSPER.

Another piece that is important to understand is that versus where we may have begun back towards the beginning of the year and so forth, we have made decisions in the film business. And so as we announced at the film continuance plan, we are carrying, and will carry, into 2015, higher levels of inventory to support the agreements that we've made or are making with folks in film, that are good for this business longer term, and certainly through 2015, and perhaps beyond that. So there's a number of things that are behind that.

Another piece that I would remind you of is that in the last earnings call, I talked about generating positive cash from operating activities. In the third quarter, we were effectively break-even on that. We were effectively flattish.

We still see the opportunity, relative to generating positive cash from operating activities, but to Jeff's point, as we go through now and the end of the year, if we see opportunities to what I would call invest cash, in terms of increasing the actions that we can take to get to the cost structure that's appropriate for the Company sooner, we're going to do that. And from an inventory point of view, if there's opportunities for us in commercial, capital, or what have you, relative to growing the business and growing the install base, particularly in the area of PROSPER, we will do that. And even internally from a CapEx point of view, if there is opportunities from a productivity point of view or otherwise, probably relatively small, but we'll take advantage of those this year to set us up better for 2015.

I hope that gives you more of a rounded full picture story on cash, where we got to where we are today, but also in terms of the comments I made around the end of the year. Let me reiterate one more time is that we feel very comfortable with where we are from a cash-balance point of view. We're very comfortable where we are from a US liquidity point of view. And we're very comfortable in terms of where we expect to end the year and head into 2015.

Sure. That is very helpful. On that question maybe the next question I can ask is around the balance sheet. Obviously I think there is a significant opportunity here to perhaps address the debt structure. What are your plans over there?

Yes, sure. So let me talk a little bit about opportunities in general. Clearly, hey, when it comes to -- when it comes to our debt structure, we are watching the marketplace constantly in terms of overall where the market is and what it means for us. And we are opportunistically looking at that in terms of what it could mean from us down the road, in terms of our financing structure.

But if you think about other things as we move forward, from a cash point of view, I think it's important to carry some of these things forward. And if you look at, heading into 2015, there is a number of things that are going to help us from a cash-flow performance point of view.

Clearly the actions that we've taken from a cost structure and an organization point of view, have a rolling snowball effect as we enter 2015. To the extent that we can accelerate those, we will. And there's a benefit to our performance going forward from doing that.

There will be a material decline in the things that we've highlighted here around reorganization and legacy payments on a year-to-year basis. Doesn't mean that we won't have any residual expenses next year, but we should see a significant decline on that.

I will tell you, as the CFO of approaching four and a half to five months, I see opportunities for us going forward from a working capital point of view, and we will be putting a lot of focus on that. We are now, and moving into 2015. And, hey from a foreign-exchange point of view, hopefully it won't be a negative impact, but that's not something we can plan for.

But that is just to give you a little color on how we think about it as we exit the year and move forward. Hopefully that is helpful.

Yes, that is. I have one more question and then I'll perhaps get back in the queue. In terms of opportunity that we can see here, you have outlined a significant number of things on the cost-save side. Perhaps, and maybe when we talk about the EBITDA, the $51 million of non-recurring EBITDA that is in the numbers, maybe you can talk about what impact of cost saves we can expect relative to 2014 going in 2015 that may offset some of that non-recurring cash, cash flow. So maybe that's one way of asking guidance for 2015.

So, again, let me repeat some of the things we already said, because we are not going to get into guidance on this call. But we did outline that we've got a $50-million reduction this year that we'll realize on the P&L. A portion of that will carry over into next year, because it wasn't all done on the first day of the year.

Second item is we have done a material change to our global benefit for programs, and that will benefit us by $20 million year over year. The third one, we closed the factory and went from five to four factories, this factory in [leads] will have a $20 million to $25 million impact on an annualized basis, $4 million of which will be realized this year. And next year, a portion of it will be realized because it won't be completed until the third quarter.

So those are big swing numbers. And then I also as you're doing your puts and takes on this, as I'm sure you are, we mentioned that we have some mature businesses that will continue to decline and we have businesses that are also going to grow.

Thank you.

Thank you very much. Appreciate it.

I think we have time for maybe one more question, and then we'll wrap up the Q&A session.

Thank you. Jen Ganzi, NewMark Capital.

I think I got cut off before, so apologies for that. Just wanted to follow-up with a few other ones. On the graphics side, is it possible for you to give a breakdown of volume versus price there?

We don't want that -- just assume that (inaudible) Fuji Film are on the call, so let's not go there.

Okay. Fair enough. And just to reconfirm, your EBITDA for the growth businesses, you mentioned was going to be $85 million to $95 million versus I think it was like around $100 million to $110 million?

Yes, so original guidance for the strategic businesses was $100 to $115, and the revised guidance is -- let me double-check and make sure I say the same thing. The revised guidance is $90 million to $95 million.

Okay. $90 million to $95 million.

I'm sorry, I'm sorry. No, that is the year-over-year improvement. So -- okay, so $100 million, $105 million. It will be single-digit decline. Now remember, effectively that was $100 million to $115 million improvement that we had, and now we're saying we're going to have an improvement of $90 million to $95 million. Okay?

Okay. Got it. Thanks. And then just on the -- and I may have missed this, on the PROSPER side, did you give any indications of what your revenue growth rate is there versus the volume growth rate?

We didn't do that. We were really on systems. I think the exciting thing is you have got about 50% page growth on the annuities. We have a mix -- we have a lot of swing factors in there, we didn't give a specific number out. But you can be assured that we're quite excited about continued growth of the PROSPER presses getting up to the 40's and then the increased ability to do the OEM ones as well.

Okay. Great. And then I think it was on the last call you mentioned that you expected to for 2014 quadruple the SONORA volume. Is that still the case?

I think -- we're at the triple over 300%, over 300% is where we are.

And great. Lastly, housekeeping, just to confirm, the US cash balance is $230 million. Correct?

That is correct.

Okay. Great. Thanks so much, guys.

Thanks, Jen. Thank you, everyone, I appreciate people taking the time on the call. As always, Dave Bullwinkle's phone is available if you have any follow-up questions. And let me just, in summary I just want to again thank you. We continue to carefully manage this portfolio for Kodak. We're taking the actions that we believe necessary as well as making the continued investment we see going forward.

I remain bullish about Kodak, and I am very pleased that we hit a milestone this quarter. We're back in the black and very excited about that. So look forward to talking to you if I see any of you out there. If not, I'll see you on the next call sometime next year. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the programming. You may all disconnect. Have a great day, everyone.