EASTMAN KODAK

Kodak’s Institutional Investor Meeting February 8, 2007 – New York City

Don Flick: Good Morning. I’m Don Flick, the Director of Investor Relations at Eastman Kodak. And I’d also like to welcome you to the meeting this morning as well as those who are joining via our webcast.

As we get started, as per my custom, I ask if you would take out your cell phones and PDAs and either mute them or turn them off, that way we wont have them off during the meeting, which I would appreciate a great deal.

I’d also like to call your attention to the safe harbor slide that we have on the screen at the moment. There’ll be a short quiz on this later so, a bit of an eye test. But obviously, this morning’s meeting is all about the future, so we certainly are making a number of forward-looking statements which are covered by the private securities and litigation reforms.

All of the risk factors that you need to consider as we go through this are enumerated in the handout in your book this morning, as well as on our press release and on our Web site this morning. And of course, I urge you to carefully look and read those discussion of risk factors.

Lastly, we will be using certain non-GAAP measures in our discussion this morning. And in each and every case where we do use a non-GAAP measure, it is reconciled to the equivalent gap measure, and that’s included in the reconciliation in the back of your handout package this morning, as well as on our Website.

So now I’d like to turn the podium over to Antonio Perez, Kodak’s Chairman and CEO.

Antonio Perez: Thank you, Don. Thank you very much for attending. Very happy to see you here. I feel good. I feel really good. If you’ve ever listen to any of these presentations that I made for the last three years, I don’t recall, starting, anyone this way. Feel good for several reasons. I think we had a great year.

I have a phenomenal team behind me which, you know, by the way they’re going to do all the work today. The first time maybe I’m going to ask as to see you all looking from the top, and they’re going to actually give you everything that you need to know. And we have a great plan for 2007. I’m very happy with introductions that we just made, so I feel really good.

The agenda for today is this. I will make some comments; I will give you some of the strategy of the company, with the key challenges. I will go a little bit through what we’ve done last year in my view, and why is that important. And then the challenges for 2007 and a little further.

And then I have, my key team going through each one of the three businesses. Mary Jane will, tell you about film. James will tell you graphics and Phil will tell you about the consumer business. Frank will close the deal in telling you how are we going to pay for all of this, and how we’re funded. We are in there, and then after that we’ll go through questions and answers.

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So I have a summary of last year. Very strong cash flow, we reduced by $800 million, very happy with that. The equity was very strong. Digital earnings increased almost five times. Remember the numbers. The equivalent numbers were from 72, I recall were the year before, to 343. We were very happy about that.

Our IP program is working very well. We have an excellent IP program. This company has had phenomenal research for 100 years. We are just beginning to capitalize on that potential.

It is not for the year, it is not for a month. This is something that is going to keep going on, and I’ll give you some metrics of that, as much as I can without hurting the progress of the program, though.

GCG, very well, they almost finished with the consolidation of the companies, and they move from minus $41 million last year to plus $141, which is very spectacular, and more to come this year.

Consumer achieve a very, very aggressive goal that we put in their hands, which was to work with their present portfolio, plus investing a tremendous amount of money in new product development, some of it you’ve seen, some of it you haven’t seen yet. They were able to break even, versus minus 131 million last year.

We got what I think is a fair and full price for the health group. That was our strategic decision. We want to be in a market where we feel that we can be number one, maybe number two for a while, but no less than that.

Health was not one of the. Our IP portfolio is a lot stronger in the other two fields, though we have refocused the company. And obviously we will benefit from those proceeds too.

And the film group, under tremendous pressure with their decline, I believe that for the first year we have come to manage this declining business in a fabulous world. Not only they make a lot of cash for the company, but they end up with an 8.6 operating margin. And they will continue in years to come.

We stayed away from the low end of digital cameras. And I really want you to remember that we told you this in January 31, 2006. It’s not that we came with this crazy idea halfway through when we knew that we couldn’t do anything with that.

We told you, and – actually 30th, sorry. January 30, 2006 we told you that we were nowhere, and we decided that because we knew that the holiday season in 2005 for everybody was not nearly as good as we all thought it was going to be.

We realized that there was a lot more stock in the market that we were hoping for, or anybody else was hoping for. We knew there was going to be a price war coming, and it was going to be ugly, and it was going to be bloody, and we had no interest whatsoever to be part of that.

We lost five points of market share, but I have to remind you that at the end of the year we’re still number one in sell through digital cameras in the U.S. We are three in the world in sell through. We look at the data that shows the sell to as well. We’re very careful with the cell to data though, because you know how quickly these cameras lose price when you lose body when you have them in the stock.

So it was our strategy. We executed the strategy. I’m very proud with the team and how they’ve done it. For me this is an excellent year, better than I was hoping for, and one that is going to help us a lot in 2007.

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The other thing that I want you to notice is they looked these markets where we’re in. In every single market, every single promo line we are either at one, or we are one of the top three. And I want to take you through this.

In film you already knew we are number one. I know that it is declining fast. The film capture is declining fast. And today EI film is not declining. You asked me these questions since I came to this company.

Since I came to this company a lot of people have predicted that this was going to go away. This is going digital. This business is very wrong for you. And I did listen to you, and I did investigate when it was going to happen, and we have all these curves, and Mary Jane will take through all those curves.

Well so far I haven’t seen any of this. This is a great business; this is a business that we want to keep. For as long as it’s going like this, this is a great business to have. Digital cameras, we’re in the top three worldwide, number one in the U.S. Snapshot Printer, we’re still number one, although that category is not growing the way we thought it was going to grow. We told you that last year, but it still is, you know, a nice business to be in.

In the Gallery I said that we are top three, I actually think we are the number one, it’s just that we don’t have sufficient third-party data to prove it, so they wouldn’t let me, my legal team wouldn’t let me put number one, so I put, top three. But I think we are number one for every data that I can look at, but there is no third-party data that I can show you to prove it.

In Kiosk, we’re certainly number one. Color negative paper that is now part of our digital business, and I think we went through that before, it is still the halide paper.

But it is happening the system for printing in retail is working very well. You come with your digital files, and the one-hour mini labs are very productive printing devices for that kind of volume, for that kind of quality.

So therefore, from our point of view, the business is part if the digital workflow, and therefore is going to be managed by the same people that sell to the same store, the Kiosk, the paper to the one-hour mini lab, the inkjet printer is all intertwined. It should be managed this way. It’s part of the digital workflow.

And obviously, we have two, you know, new categories. We don’t have any market share there, but our plan it to be number one or number two very quickly. I’ll let Phil tell you when he wants to do that, but quickly.

Digital plates, we are number one worldwide, in workflow, clearly, number one. In the inkjet transaction, actually in the CIG, our technology for the business, we are number one. But there are all these technologies that concede with us in that business. And when we put it with just like, you know, black and white, electrophotograpy in others, when we look at the segment we are in the top three. As far as CIG by itself, we are the only company, well, we are the number one company.

We are in the top three in document scanning. Hardly anybody talks about this. It’s a great business that we have. We are number one in high volume; we are in the top three in the distributors.

What this tells me is that first of all we don’t depend on one promo line or two. We have a variety of promo lines, different technologies here. But in all of them we have a very strong position. That gives me the feeling of very good stability going into 2007.

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So what are the key strategies? You’re going to hear a lot of things from my team, but from my point of view the most important thing, above all, is to complete this transformation. I want to keep the $500, $600 million that we use year after year. It seems like forever.

There will be layoffs; I want that money to remain in our pockets starting 2008. We can generate that money unfortunately or fortunately. Whatever it is we have to use it to do the transformation. I want it to stop this year. It will stop this year. That money will be in our pockets in 2008. Please look in your models for that, OK? That money will not go away from us. After we, you know, generate that money it won’t go away from us.

Now few strategic issues that I’m sure you’re going to be looking very careful at. We have to get traction in inkjet. Of course we do. We’ll talk more about that.

We have to ramp up CMOS. CMOS is going to take a little longer, because even though we have phenomenal technology in IP, we have to get invited to the deals; we have to get a design win. Once you get the design win then you start to manufacture few months later, so it gets three months, six months, nine months. The important thing here is to start to get invited into the deals, and then to get design wins.

And we will keep the market informed about what the size of our design wins. Those design wins, they don’t often refer to a period of time as far as revenue, but they do tell you an idea of the funnel that we are creating in that business.

High margin. Both, 40 percent high margin – gross margin, both low double-digit operating margin. I’m talking about inkjet, and I’m talking about CMOS.

The GCG, that integration is basically 75 percent complete. You already know by now that Jim’s a sandbagger. It’s better than 75 percent. The integration is basically done. It’s time for him to grow. That was the plan.

Last year the plan was to get all those companies together, he did a wonderful job doing this, to get one face to the customer, he’s working with the systems, and not all the systems are now unified, takes a bit longer. But other than that he has one company. Those companies don’t exist anymore. They’ve been converted into market segments. This is time for him to grow, the top line, and the bottom line.

Last year, all we wanted was not to lose customers from the companies that we acquire. That’s all we were aspiring to, and get the cost united. That’s what he did, beautifully. This year we can grow.

And he can grow by expanding into new markets, and by taking advantage of a very long list of customers that he never had before. Now he has the customers of six companies in one customer list, and a lot of, you know, revenues in addition. Plus he’s going to talk to you about how he’s going to expand into. First adjacent markets and other things. .

And the third, and it’s absolutely crucial, and my view, the hardest thing that we have to do. I feel so confident about the first two challenges. I feel very confident about inkjet, I feel great about CMOS. I feel very confident about the GCG team because I’ve seen the momentum of those programs. There are challenges, no doubt, but I feel very confident.

You asked me the hardest challenge I’m going to face this year is the SG&A. And I will go in detail why. So, finish with the transformation, obvious in that cash would allow us to be even more aggressive creating value for the shareholders in 2007.

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This is the plan or record that we have as far as business models. Now remember this shows health out. So you will notice that the gross profit has come down a few points because health is at a high gross profit. Not all has gone out, because the business is that we keep are moving up. But, it’s been going out.

So basically we are aiming to a company that will be around 30 percent, and this is all through portfolio mix. We’re not aiming at making more money than any of our competitors in the markets in which we are participating.

The SG&A is a challenge. We need to finish with a run rate of 16 percent by the end of this year. That will put us in the special place for 2008. Remember the dream was we’re going to wake up in 2008 with a digital company that we want to have. We’re still right on that track.

And you see the rest. R&D will be about the same, five to six percent. I want to note as well that when you look at the number of R&D; let’s make sure that we don’t confuse R&D in accounting terms with product development. We spend a lot more money in R&D particularly in product development. This is the classification, the accounting rules gives us for R&D.

Product development involves a lot more things than a bunch of engineers, as you can imagine, right? There’s a lot of manufacturing there’s a lot of marketing, there’s a lot of research, for markets all sorts of things. They are part of product development. What we want to do is product development. This is what is going to give us success.

The engineer reduction, which is the thing that bothers me the most. We will make changes in the corporate structure. Let me go through this carefully. When you take $2.6 billion out of a company, and we’re going to become a company of $10.5 billion.

Obviously, put it this way, one-fourth of my time was occupied with health, right? So I don’t have health now. Well I do have very good health. I’m in great health. But one- quarter of my time I was dealing with the health business.

So I have this stranded SG&A cost I have to get out. I can’t cut one-quarter of myself, so I have to reorganize the company, because the stranded cost goes to everybody. And we will do that very quickly.

Now this is going to add to the number that you had in mind for our restructuring this year. And I couldn’t put this number there, because I couldn’t tell you that we were going to sell health, OK? So it’s not that we have found, oh my God, we have all this overhang we have to get rid of, it’s just we are a very different company. We’ve taken $2.6 billion out of the company.

And we have to get rid of this stranded cost but the objective is the same. We will finish this year. This will be done this year. My team is committed, I’m committed, this is done. I want the $500 million in our bank in 2008. I think I said that three times already.

Consumer digital has done a lot of this. It’s a little more to do moving from the traditional logistic models. It’s a little more to do, but not much. It will be done this year.

The film group has been moving to our distributor, our indirect sales, which is the logical thing to do when the market is so well defined and is declining. A little more to do, but MaryJane is very well advanced at reducing cost.

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And you probably noticed that last year we did not spend on restructuring as much as we told you that we were hoping for. And we didn’t do it because we could not do it due to logistical and operational issues. But, it will be done during the first quarter.

So all of that is going to add to the restructuring of this year. The restructuring, when you look at the four years, is no different except with the addition of this stranded cost of health. But there is cost in this year that we were hoping to have last year, but we couldn’t get it done.

So you see the numbers here. We have, you know, restructuring charges of about, you know, .9 to $1 billion. Frank is going to take you through excruciating details. So don’t worry about this. And then we’re going to spend about $600 million plus about $100 million or a little more that comes from the special termination benefits. He will take you through that in a lot if detail.

I just want to repeat again, in case I didn’t say it, this is the last year of restructuring. I do that so many times, because with my accent sometimes I’ve been misquoted, so I want to make sure that it’s understood.

We have to create and we don’t any other choice a very highly competitive cost structure, and we have to create it for a gross margin that is going to be right below 30%. That’s where our portfolio will allow us right now. When inkjet gets bigger, the gross margin will be higher. But right now, for the next two years, this is the life we have. This is the portfolio mix we have; this is the cost structure that we’re going to get.

OK, the product portfolio, I wrote there three times breakthrough. Breakthrough, breakthrough, breakthrough. In April and May of 2003 were my “wow” months in this company. I will keep going and see things that this company did for years. And I will go home, and my wife would ask, how was your day? I would say “wow”. And I did that many, many times. That’s when I saw for the first time the MEMS lab this company started in 1980. This company was working on this for a long, long time. OK. This was the month that I saw the ink lab and they showed me the nano-particle pigment based inks that I thought, this is the holy grail of Thermo inkjet, with all due respect for those words. But that’s how I felt. I’ve been dealing with this for about 15 years and you have it here.

What I’m trying to tell you is that what we came up with the other day at the Saturday Night Live Studio, that was fun by the way, it’s a true breakthrough in technology. You’re not going to see a picture of this quality in the inkjet space.

My opinion, but you get a little credit for my opinion, I think; you won’t see this quality in this industry. And you can drink coffee while you’re looking at the quality. You don’t have to worry. It’s going to last for a lifetime. It’s going to have those vivid, beautiful colors for the rest of your life. It’s going to be a professional-like quality or better, and you’re going to save 50 percent on every print that you make.

You’re going to save 50 percent on every print. This is not cheap ink like I read somewhere, cheap ink. Kodak is coming with cheap ink. Not so. This is premium ink. This is the best ink in the industry, and we’re just happy, very happy with a 40 percent gross margin and a low double-digit operating margin. We’re humble people. We’re very happy with the results.

In fact, inkjet we’ll be one of the best product lines in the company. We’re not selling the ink cheap. We’re making a lot of money with the ink. We’re not in a charitable contest here. We’re going to make a lot of money with ink. And it’s the best ink in the market. It will give you the best photograph that you will ever have from an inkjet printer.

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Am I telling you exactly what I think about this product? Do you realize what I feel about this after 15 years? There wasn’t one week in the last 15 years of my life, there hasn’t been one week, not one week, a customer has not complained to me about the price of ink. Somehow they make me responsible.

When I came to Kodak and with the help with a lot of people, some of them are here, Steve Biddle, Gary Allen, Gil Hawkins and many other people in Kodak I can’t name them all. I say we can change this and make a lot of money with this, and actually revolutionize this industry.

And this is what Phil is going to do. And I’ll let him share with you the plans. And I want to talk more about this, but this is a high value creative portfolio. We have to show traction and we’ll show you traction.

By the way, another question they asked me, they say oh, yes, you only have – it looks like only one retailer accepted this. Did I tell you the conversations that I had with the retailers? They’ve been calling me names for not giving them products. OK?

We just can’t make any more. Phil is so lousy they can only make enough the first three months because they’ll just buy once. That’s why we have one retailer. Wait until the summer, and then we’ll talk about something else.

The CMOS portfolio, I just told you we have phenomenal technology. I have known about CMOS for more time than I want to remember. It makes me feel old. This company has phenomenal technology, phenomenal IP. We’re just making it happen in an asset light, which is very possible these days, not before, but right now it’s very possible.

We are getting design wins. Phil will go through that. And I want you to remember this will help us to have those some of you called lousy digital camera business actually a better business, because we’re finally getting one of the key components of the camera will be our components. We’ll have a 40 percent margin component in the camera.

Enough of that, onto GCG. I really went through this, I think. They’re expanding now. They already have one company. They already have the segment, they have a fabulous team. Now they have to expand.

But expect from them, from them, you know, top-line growth and bottom line growth, and at the same time you’re spending a ton of money, more than I want him to, but a ton of money into CIG.

CIG in 2008 continuous inkjet, we told you this before, is going to revolutionize the offset industry in the same way or even more that a drop in demand is doing now with a consumer inkjet. So it’s not reducing these investments in CIG, in fact, as I said it’s spending more money than it should, in my view.

OK, intellectual property program, I got so many requests from many of you that we gave it an honest attempt to disclose as much as we can without ruining the program, because you don’t want us to ruin this program. This is a beautiful program that we have. OK, so it’s an integral part of this business. We consider this an integral part of the business, it affects every part of the company. I affect James’s business and Phil’s business.

The age of opportunity for new partnerships, this is the most important part of this. For us it’s building revenue, generating opportunities for the future. This is how we look at this. We’re talking with very important companies out there.

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We respect those companies and they are great companies. By getting this cross license we get access to their technology and they get access to ours, of course. In many cases that’s all we do. We have our cross license, but that would allow us to enter into new markets that otherwise we wouldn’t have the right to go, and for them too. You know, this goes both ways, and it’s giving us earnings, and it’s giving us revenue.

And because of the nature of the deals, we cannot disclose with whom, and how much. But we can disclose, and we can assure you that with the deals that we have already signed in 2007, I expect to get in excess $250 million in earnings.

And in excess means that I expect from my team to get more than that, OK? And it’s not just 2007, OK, don’t come back to me and say OK, that’s 2007. How about this as an ongoing program? In these deals the payment terms could be three to five years, and they are staggered.

We can’t go up to, we can get all this with a lot of companies at the same time, you know. We do what we can with our legal team, which is excellent, by the way. Hey Joyce, I said you’re team is excellent.

So it is staggered, three to five years, the payment’s coming, next the end of year after, and the year after, and we haven’t finished. And so far we’ve done most of our deals has been about digital capture. We have other areas of technology that are very powerful, that we are beginning to develop relationships too. This is going to be an integral part of this company.

I’m missing something. Oh, and I would like to remind you that we are in the top 25 of companies as far as tied in for new patents in a very restricted field of interest. OK? You compare us to other companies, you say, oh you’re only 25. Twenty-five is a great number to be. We are basically two areas of interest, and we are 25.

This well is not going to be out of water, actually ever. OK? I’ll give you the numbers. You have to go through how we get through this and Frank will take you through this.

But our net cash generation after all those payments, will be 100 to 200 million and this is without health, obviously, without health. Health is going to be a discontinued operation starting the first quarter.

Digital EFO will be 200 to 300 million. Frank will make comparisons with last year. We’re going through digital revenue, you know, growth for the company, three to five percent with GCG delivering six to nine percent and CDG delivering two to four percent. Are we conservative? We’re not aggressive. We think this is a good plan to start with. I feel very comfortable with this plan.

So this is a kind of a summary. Of course structure is coming down, big challenge with SG&A. The big challenge, I’m concerned about those numbers, and we’re going to have to work very hard to get those. We have to get them early, because if we don’t get them early we will have payments that would move into 2008, and I don’t want payments in 2008, as I’ve said 15 times already. So we have to work really hard.

The new portfolio is much better than it was. Not only have we improved the portfolio we had before, but as well we’ve been adding high value creative products. And IP is ongoing and growing and I will keep giving you more data in time about how we’re doing.

So in my view, and I know that we have this year to go through, this company, my view, this company has changed. This company’s not the company that I saw when I came. This company is a different company.

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For me this is the beginning of the new Kodak, today. I’m acknowledging that I have a very difficult year with SG&A, I’m very confident with the other initiatives. So this is the beginning of the new Kodak.

And to prove it to you, I’m going to invite my team here. And Mary Jane?

Mary Jane Hellyar: Good morning. There are two key messages that I want to leave you with today with respect to the FTG business. The first is, and at the risk of being very repetitive, is that the major restructuring for this business will be completed this year. So now you’ve also heard that from me as well as Antonio.

And the second key message is that given the strong performance that we delivered in 2006 and the stability of our entertainment imaging business, that I’m competent we’ll be able to deliver our target model for 2007. So as we spend the next few minutes focused in on this business, I’ll take you through some of the background that we need to on both take aways.

OK, so 2006. What did we do in 2006? If you look at this, I’m really pleased with the performance. At the end of the day, you take it to the bottom line; we were able to deliver an earnings rate that was essentially constant year-on-year. That’s in spite of a 22 percent top line decline. It’s built on driving cost out through the entire business model.

We took hundreds of millions of dollars out of labor and burden and our manufacturing operation, and you can see the SGA performance is another key area that we drove cost out. We took over $330 million out, and in a declining business we were able to take our SGA rate from almost 19 percent down to 16 percent, so very significant work.

The importance around being able to do this is that it really gives us confidence around delivering a sustainable business. And with earnings like this, with the past generation of this business, it really is a business that we want to continue to have in our portfolio.

I know there have been a lot of questions over the last week or so, but that’s the importance of being able to deliver this kind of performance and make sure we’re taking cost out ahead of the revenue decline.

So behind that, one of the key enablers has been our restructuring in the area of our footprints and our head count. In 2004 when we started this program, we talked about our asset values and net quote value of our manufacturing assets. We started out well above $3 billion, and the goal was to get that below $1 billion by 2007. We’re on track to be able to do that. In fact, we’ll end well below $1 billion.

And similarly with headcount, you can see that the goal was to reduce our headcount in the manufacturing and logistics arena by 65 percent. Now we’ve done a number of changes in organization over this time frame, but in terms of reporting that to you today, we’ve worked hard to track this on an apples-to-apples basis here.

So I’m very pleased to report that we are on track, and this is one key element that gives me a lot of confidence to say that we will be able to complete our restructuring – significant restructuring in this area this year in 2007.

Within the course of 2006, one thing that became very clear to us is that the digital work flow really was evolving to a point where color paper was a primary output media increasingly for digital capture.

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And so as we looked at that, we decided that it made a lot of sense in terms of creating the future digital business to move our professional customer output businesses and services into consumer digital. And that was something that we announced at the end of 2006. With that change, about $1.8 billion revenues in 2006 would be moving from a FPG into CDG.

With that then, the new FPG really is even more focused on films and our customers who use film and related services. The three key businesses that we have are entertainment imaging, the origination films, distribution film, and digital services and cinema, film capture; consumer and professional film as well as one time use camera; and the aerial and industrial markets business.

So the largest revenue generator in this new FPG is entertainment imaging. And do you remember in the two takeaways, we are looking to have a stable entertainment imaging business in 2007, and into the foreseeable future. So I wanted to spend just a little bit of time giving you more insights into that business.

First of all, a profile of what that business is. Ninety percent of revenues in entertainment imaging come from film. And of those, about two-thirds are on the distribution side, that is the film that ultimately ends up in the theaters in exhibition. One-third is in the origination side, which is to create the motion pictures or commercials, or television. So there’s three key segments for us in the origination side of the business.

The remaining ten percent of this portfolio is in the digital area – digital services, digital cinema, visual effects in our Cinesite operation, post production and LaserPacific. Another important element to remember in this business, about 75 percent of the revenues for this business are somehow related to feature films. So that’s a really important segment for it.

Now as we talk about this, it’s important really to distinguish the distribution side of this business from the origination, because there’s different trends and different technologies there. So let me first talk about distribution. That is the print film that ultimately is in the theater, and exhibits the movies.

So a couple of key takeaways about this business in 2006, the box office rebounded in 2006. And that was really a big deal. The last couple of years we were seeing box office decline a bit, but we had a strong year in 2006. The digital adoption remains very slow and on the early part of the curve, and Kodak continues to have a very strong market position in this area.

Let me talk a little bit about the slide that’s up here. What I have spotted on the Y axis is digital screen penetration and then time across the X axis. The important thing, the important takeaway is anything in that yellow envelope is really performance that we feel we have contingencies to be able to handle.

OK, we can get – we can manage that in a way that we can take our cost down as the film that says may move to digital in that window. Now within that window, actually we just recently got data from Screen Digest, and that’s really the bottom line there of the hatch marks.

OK, so they’re pretty, in the bottom third, say, of that envelope. And in fact Kodak’s based case projection is at the top of those hatch marks. So we’re being a bit more aggressive than what the industry’s looking at.

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But the message here is not really those specifics. It’s that we feel confident over a very wide envelope that we can handle what’s going to come our way. So we’re not putting our head in the sand by any means. But in the other hand we’re bullish about this business. And in fact, you can see that what we’ve seen historically is there really has been pretty slow penetration of digital.

On the origination side of the business, helping movie production, we have seen some of the origination migrate to digital, especially in TV sitcoms. So you can see that in fact even in 2006 we’re looking at something like a 15 percent penetration of digital, primarily TV sitcoms. Feature films, TV dramas remain very heavily focused on film.

One of the exciting things that I challenge the team around here is, we’re still able to convert television dramas, some sitcoms, from digital back to film. And so that’s one of our key challenges to be out there, to continue to drive the benefits of what still does provide the best performance in this industry in terms of films, to be able to go out and win new business here.

So again, this same principal behind this yellow envelope that we’re prepared to manage, the handle going forward based on the performance we’ve had in 2005 and 2006, we feel confident that we can manage that and take our cost out. But then we anticipate that we’ll be at the very lower end of this range. And in fact that promises for very profitable high-cash generating business in the years to come.

So with that, we do continue to drive this business very hard in terms of profitability. We’re working hard to maximize the earnings on the print film, working cost through that whole supply chain and business model, continue to work at taking cost out of the films themselves in spite of higher silver that we’ve seen in this business over the last year. We continue to work to try to drive cost out.

On origination film we have innovation bringing new film out into the market which continues to drive film into high performance medium going forward and improve the profitability of our digital services business. So when we put all this together we see another solid year of cash generation here and what is a stable business and very good profits for the foreseeable future.

The great performance in 2006 starting to really see the actions that we’ve been taking take hold, great stable business in the entertainment imaging leads me to a high level of confidence that we will be able to deliver this target model.

Now this model is on the new FPG, so it’s on the three businesses that I mentioned to you going forward. And we’re driving to a 13 to 16 percent EFO. Cost reduction, price actions so we can take them and a portfolio shift toward EI are some of the key drivers.

And again I just reinforce a business that can deliver 13 to 16 percent with strong cash generation is clearly a business that we want to be able to maintain in our portfolio and we’re thrilled to be able to have the strong work of me and my team is really to ensure that we can continue to create a sustainable business.

I’d like to turn this over to Jim Langley to talk to you about graphic communications.

James Langley: Thank you Mary Jane. Good morning, what I’m going to do in the next half hour is touch on three topics. First is strategic overview which includes the reasons for believing the GCG will grow going forward. I’m going to talk about how we’re doing to date, and then talk about the next couple of years.

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GCG is one of the strategic pillars of the new digital Kodak going forward. I believe we’re very well positioned in the graphics industry and given the large base of customers we have which exceeds 100,000 as Antonio mentioned, I think we’re in well, good position to drive those and that’s what going to spend the time on over the next few minutes.

The reason I start with the mission and vision statement is that when we had gleam in our eyes to pull this business together several years ago and went out and spent multiple billions of dollars we started with the, what we wanted to deliver to the industry and to our customers. And it was this vision of being the leading supplier of integrated solutions.

We felt that that was what the industry was missing and why the productivity of this industry was hanging back from others. And we felt that if we could then deliver this to our customers, print would return to a level of profitability that was improved over what they had seen the prior decade and they would reward us for that.

So this basic mission and vision was the driving force to actually pull the companies together. We’re now seeing the benefits of that as I go out and talk to customers, they like what we’re doing, they like what we’re putting together. They like how we’re helping them grow their business. And I think that’s where the growth is going to come from.

We are participating, Kodak, in the new integrated GCG is, participates in all the segments that are on the slide. I’m going to talk about a few specific instances where growing our participation and pursuing growth opportunities within the segments. And we’re also doing all around the world, including the emmerging markets.

I alluded to the strategic rationale for this business and the ability to help our customers profitably grow. This is real data that was used in the early formulation of the strategy of GCG. What it shows is that print is an industry that did not benefit from some of the electronic and Internet technologies that became available in the mid 1990’s. Print is an industry lag.

And the reason for that was there was no supplier providing integrated solutions. Most print shops are too small to have a strong IT department and therefore this gap, this productivity gap in terms of output per worker was real. And we felt that if we could help our customers close that gap we’d have a business.

The second rationale for the strategic approach we’ve taken to this business is in this slide. The total spent in the US has been around $260 billion and about half of that spent is in print products. But going forward it’ll look a little differently.

What the model that we’re seeing more and more going forward is the marketers use the broadcast media to grab attention of potential customers, drive them to a Web site and then they want to engage in relationship and a dialogue with their customers and targeted print where each page can be different and you can have a unique dialogue with each of your customers is enabled by digital printing.

So there’s a whole transformation of how advertisers reach their potential customers and their ongoing customers and print will play an integral part of that. And by putting together the kinds of companies we did in building the businesses that we have with GCG we’re able to make that actually, we’ll be able fulfill on that promise.

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So we went out, we made the acquisitions, this is old news. We’ve brought the pieces together and we now a little over a year, a year plus two quarters as one integrated business. So how has it gone? In terms of the integration, I feel very good about what we’ve done. We are ahead of plan as Antonio mentioned. I do say it’s about 75 percent complete.

But the historic companies are gone; we have a new organization, which I will show, which is focused on delivering the benefits that I’ve just talked about. We are seeing the benefits of the digital investments we’ve been making starting to pay off. I’m going to take you through those in a little bit more detail.

And lastly, I believe we are on track for delivering the business model that we first talked years ago when we came together. So how did we look 2006? 2006 was our first full year as an integrated business. Our last acquisition was when we acquired Creo in June of 2005 was when we actually closed.

So 2006 is the first full year and you can see that the revenue growth was primarily driven through the acquisitions; that’s the total number here. The darker brown is the traditional business; this is film and conventional plates. If you look at the margins, we were in the investment mode for the first two years as we put the pieces together. And then in our first full year of operations we have turned positive. Now we have lapped ourselves. I told you that the last acquisition was in June 2005, so if you look at Q3 and Q4 of 2006 you can actually look at apples to apples comparison of business performing a year ago and that same performing in the most recent quarter.

So how does that look. But if you look, I’m focusing on the digital part of the business. I’ll make a few comments about the traditional piece and what we’re doing about that in a moment. But the digital revenue growth in Q3 apples to apples was 1 percent growth, 6 percent growth in Q4, and then the margins were 6 percent and 7.6 percent in Q3 and Q4 respectively.

I said that the historic companies are gone; they’ve taken their place in history. The way we’re organized now is to deliver on that mission/vision I talked about earlier, that is we have some SPGs, that’s Kodak’s speak for product generation divisions and be assured that P&L resides and this is how we manage the business going forward.

We have four of these groups and they are deep in their own respective technology. They understand their customers well and they’re producing either total solutions or components of solutions. We then have a team that actually we go to market by segment, along the lines that I showed you on the first pie chart. So we were able to bundle the integrated solutions together that are appropriate for the industry and the customer that we’re addressing. Then we deliver those solutions to the customers. And the customers like this.

This is not common in this industry, we’ve tended to be an overly box heavy iron eccentric sort of industry and the idea of integrating solutions fully both traditional offset as well as new digital capabilities is something that we’re, I believe unique when bringing to the party.

Now let’s look forward, off into 2007. We’re expecting total growth to be in range of 4 to 5 percent and that total growth is composed of two pieces. There’s the digital piece which is growing, the traditional part of our business which is declining. And in our case we look forward to declining traditional business.

We have very low margins in the traditional business, I’ll show you the full in a minute, we actually lose money on the traditional businesses. And the digital businesses are where we carry good margins.

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So the traditional businesses declining, the reason we still participate in that business, those are the customers who we want to go digital and we know that will and we want to be there to help transition them into digital space either with computer to play machines and digital plates or pull digital work for our digital production devices.

Within the digital arena which we expected to grow at the 6 to 9 percent top line I’m going to focus on this red area which is composed of five of our major product lines. And give you a sense of how we’re doing with those.

And those five products lines are the five that I’ve listed here, Digital Plates, the Nexpress business, the Versamak Ink Jet business, Workflow, unified Workflow and Scanners. The brown chart is how the market is doing in terms of growth. As you can see all of these are fairly high growth markets.

And then the gold bar is the actual Kodak growth in the 2005 to 2006 period and this worldwide data. And you can see Digital Plates, well actually four of the five business product lines we matched the market or actually grew share slightly ahead of the market. And this, these product lines composed about half of our digital business and it’s the one’s we’re looking forward to be an increasing piece of our business pie going forward.

Let me do a little bit of deep dive into each of these five product lines to get sense of what’s happening. In Digital Plates, we do have a leadership position as Antonio mentioned. We’ve done a couple of things over the last year that helped to drive that large growth number that you saw.

The first is the high end printers are largest customers around the world have gone digital. There using CTP and they have for the last ten years. What we have done in the last year is bundled and brought together, brought to market lower cost solutions. So we came with a lower cost Magnus 400 VLF for the computer to plate machine which I’ll call CTP, we can bundle that with thermal direct plates which means there’s no $20,000 processor needed.

And we have lighter version of our Workflow called Prinergy. You can put that whole bundle together in the range of $100,000 to $120,000 which is very attractive to mid- size printers. So we actually had a record growth in terms of units of our CTP business in the entire history of that business starting with origins of Creo about 11 years ago. So we’re seeing good growth there.

Another example of how we’re pushing to broaden our participation there, we introduced a visible, light plate, which is particularly attractive to some commercial applications and especially newspaper applications. So that was the new entry into that market for us.

And in addition, we have always had a good offering with respect to packaging. We have a good Flex plate CTP imaging machine, we’ve had good workflow and just recently in the last month we have now signed supply agreements. We now have a good digital Flex plate in addition to round out that solution. So you will see good growth from us in the packaging industry going forward.

My last comment on the slide is that we are adding capacity. We are bumping up in terms of head room on being able to deliver all of the plates that our customers are asking for. One of the good news is that the factories that produce conventional plates, we are converting those exact same factories with minor but not too major modifications and they can produce the digital plates for us, both single and double layer digital plates.

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Turning to the Nexpress business, electrophotographic digital printing. I think everybody in this audience understands the printing business model. In a large install base run a lot of annuities through base and you have a very good business, that’s exactly what we’re doing with Nexpress. You saw the very high growth rate that we experienced year over year, 50 percent.

I’m very pleased with the placements for making with our Nexpress machines and the end roads we’re making with that machine. But just as important is that the annuities, the pages that are flowing through to that Nexpress installed base is growing very dramatically.

We had growth in 2005 up 41 percent and this is the total number of pages that flowed through the install base of the product. So the install base is getting bigger as we sell more Nexpress machines and then the pages per machine is also increasing so you get an exponential effect.

And the growth of total pages 2005 to 2006 was 53 percent and then I’ve also included what happened in the fourth quarter year over year as a valid compare in the install base produced 63 percent more pages this quarter then a year ago. So that’s a very good story.

We’re finding that as we do have these 100,000 customers, a lot of them are offset customers. Traditional print shops, all of them are at least many of them are considering or thinking about going digital where there were solutions for them. And so that’s helping to drive the high growth rate that you saw in Nexpress numbers.

And then finally, we are all going to offer, introduce products that significantly broadened the Nexpress product line at Ondemand April 15th. Might get some more questions on that today but I would like to kind of discourage those questions, this will be a big splash sort of introduction and I don’t want to kind of just leak it out beforehand because I think it will be significant in the industry. And certainly significant for this Nexpress business, but I am looking forward to it.

Now the only thing if you have more bullets on the slide the news might be a little harder to deliver, if that’s the case then Production Ink Jet you’ve probably noticed was the one of the five categories that did not grow at or above market rates and I’m disappointed in that. And we don’t expect that to continue. Let me tell you a little bit on why I thought that did happen and what we’ve done to address it.

There’s two simple reasons. One, late with new products and that hurt us in this market. And second, the sales force integration was most difficult to bring in the transaction selling capability. It’s least like the commercial print selling capability where we’re quite strong. And then stray to good growth.

So in terms of new products, we’re addressing that, you’ll see products come to market. Most significantly is what we call the 5000, what that product does is bring ink jet printing, continuous ink printing, high volume continuous ink jet printing, we’re talking 500 pages per minute, 500 feet per minute. To the market and we’re selling it this quarter. And what it is, it’s a smaller drop size, so you get much better quality on a wider range of media. So that product is finally to the market.

We successfully beta tested it in the fourth quarter of last year. Another new product is called the CS600, what it allows us to do is hook up ink jet engines into commercial workflows increasing the market available to those ink jet engines. We’ve also re- positioned some of the narrow format heads that are typically mounted on a press to do addressing and other variable data. Printing on a large Web and offset presses.

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So that’s the story around product, the story around selling. Because I would point to the US and Canada region called the US&C up here, it’s one of our major six regions. And in that, that region is most advanced where we started the integration of the sales force first which was a year ago last November and they did indeed out perform the market with the continuous ink jet product line growing the equipment sales 9 percent in the overall business including annuities and service at 17 percent.

Lastly, we are looking forward to a big splash introduction of the technology we’ve called Stream, where we really bring the marriage of the Kodak technology that Antonio was eluding to that it existed in the Kodak labs for a long period time. Marriage with the commercialization capability of Versamark team and you’ll see a product, a set of products introduced at DRUPA, 2008.

So I want to turn to say a few words about Workflow software. As you can see from the numbers on an earlier chart, Workflow is not a particularly large business in terms of total revenue for us, however strategically we said a couple of years ago we believe that that’s the key enabler of this business to introduce two things. Close out productivity gap I talked about and also allow targeted digital print to reach customers and participate in the new advertising ecosystem in a new way.

I still believe that, I’m very pleased that we have the number one position in Workflow in this industry and we’re continuing to invest in it. By way of story, when we closed Creo in June 2005, as I mentioned earlier, the very next day the team was re-directed and started focusing on delivering a unified Workflow to the industry, and this is a first.

We introduced it at Graph Expo in 2005 and it was the big hit of the show and this unified workflow and the ability to support an increasing range of the devices over time you’ll see it all through the product line in ‘07.

Another important aspect of workflow is the ability for the enterprise and CMOs, the Chief Marketing Officers of those enterprises who are deciding how they spend their advertising dollars, that they look at their media mix and how they want to drive response rates for their ad dollars. They need to be able to get to print shops with target messages for their customers. And Workflow is key pipeline to make that happen. And we’re investing in doing that.

Lastly, let me say a few comments about Document Imaging. We started from a position in production scanning which is a fairly flat market. We took some of the technology in the IP that we own from our leadership position and the production scanning space we’ve moved down market.

We started that a little over two years ago, we grew from no presence in distributed scanning to the mid teen market share position that we have today. We’ve got some additional products coming in 2007. We also have a very strong re-seller channel that has successfully moved from production to distributed scanning with us that’s helped to achieve these results.

So what the entire business look like all up all in for 2007. You can see we’re expecting to see revenue growth in the 4 to 5 percent range and that’s including the climb that you’re starting to see really take hold in the traditional business. You can see that the earnings continues to grow both in dollars and in percentage rate from 2006 to 2007.

We do still have a drag on earnings from the traditional business. We’ve put plans in place over the last six months that will come to fruition as we go through 2007. So my goal is to have the earnings from the traditional business in 2008 to be around break even so it quits dragging down the business and taking away, detracting from the digital earnings that we’re enjoying.

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Let me say a few comments about the targeted business model and how we’re progressing. The first two bars on the chart are actuals. This is the performance of the business over the last two year. 2005 is proforma, but 2006 is actual and then what we’re planning to do is 2007 is gross margin maintains itself in the same position as we enjoyed in 2006 and we expect to see earnings continue to rise as we continue through some synergies and SG&A reductions. Our target model for 2008 is shown here and I think we’re on track to achieve that.

So the last slide, we did deliver on our integration plans has been driver to get us to the kind of performance that Antonio talked about with the year over year earnings. But we are driving growth and I included some specific results of how we’re doing and some, in our five key product lines that I hope kind of fill in the story on growth. And then we are on track for the digital business model, we hope to have in place in ‘08.

So with that, I’d like to turn over to Phil Faraci. Thank you.

Philip Faraci: Thank you Jim and glad to be here this evening or this morning. Couple things that are unique and different in the consumer side from Jim and the others. So Jim’s business we went after, let’s go do a series of acquisitions then let’s pull those together and develop the synergies associated with those.

On the consumer side, we very much went after, how do we get to an organic if you will growth and organic business. I think Antonio’s story is that he used about his first experiences going into the labs could be echoed by all of us if you will. The company for years has put lots and lots of dollars into the R&D side developing core technologies and key technologies for any businesses.

As a matter fact, you really cannot take, transmit, share, modify or move around an image without touching Kodak technology in one place or another. And as we got to have a better and better appreciation of that, the key questions is then how we take those key technologies and start to focus them and turn them into actually product strategies, product road maps, go to market assets et cetera so that we can actually turn those into businesses.

And so today, I’m going to go through where we are in that journey. I think a second piece of it is, is that on the consumer side we also had an incredibly strong and very powerful legacy in Mary Jane’s activities.

So as Mary Jane and I looked at the consumer side over the last year or year and a half or so ago, we started going through and defining what’s the right structures, what are the right products and the right capabilities and then what are the things that we’ve gotten huge leverage benefited tailwind from. And trying to make that preservation if you will of taking advantage of the benefits associated with that historic, consumer presence brand value et cetera while putting in place an operating model that basically can work.

So from a vision standpoint for the consumer group, our vision, I won’t read the whole thing to you, but the bottom line, our vision is our belief is that we really understand consumers and what they like to do with images. We understand the photography market and our focus is how do we take that knowledge and extend it. And how do we take that knowledge of photography and expand it into additional categories.

The consumer ink jet launch which was a very fun event as Antonio mentioned earlier in this week. Is one of those examples, where we’re taking the entry into photography by the printing industry which is an area that we know very well. And we’re expanding ourselves into not only a front grade photographs but documents and other uses as well.

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From revenue standpoint or target is double digit growth. We’re going to struggle with that a bit this year as one of our big businesses is still in a struggle, we’re going to still focus on margin expansion and that’s in the digital capture phase.

Our gross profit margin goals are in the 25 percent range. Operating margin is in the 5 percent and we very much are partnering with industry leaders across the manufacturing distribution. Some of the services phases, basically we’re going to be leveraging off the industry ecosystems that have been developed in order to have a very low asset base operating model.

So if you look at it of our way or standpoint it would be pretty attractive. But if you look at the path that we have been on inside the consumer digital group and pre 2005 time frame, again our entire intent was how do we get to scale, how do we become relevant. And very much built that scale in terms of our digital revenues but we also started investments into certain key technologies for the future.

In the 2006, 2007 timeframe what we really concentrated on in the through sect and we’re going to do a, I mean in Jim’s line we’re about 75 percent finished so about 25 percent is more to complete. Really good operating model of that prepared ourselves for what we were investing from a research and development and technology view.

The overall status of that is as I mentioned we did very much get scale on the cameras and digital printing. If you look at us from the kiosk space we’re in a very wonderful position. It’s a very high margin and profitable business.

We made huge improvements in 2006 from an EFO standpoint. Obviously getting to break even was a major thrust. We walked away from many deals in order to be able to do that. We again took a very clean look if you will at where we were.

So from my perspective overall if I go to the revenue on 2006 I wasn’t too happy. I viewed as we dropped off more revenue than I would have liked, but on the other hand we took a very conscience set of decisions in order to be able to drive to that break even point.

From our earnings improvement obviously that had the huge positive effect, from a gross profit standpoint and then again getting to a break even essentially. And I think even more important than that from a cash standpoint where we were a pretty substantial consumer of cash; we’re actually a cash generator in the 2006 timeline.

From an operating model which I mentioned, when we started the year, we went through and did an evaluation of what we had. And how do we separate our consumer digital from traditional realizing that the film based business model was continuing to shrink and how do we put in place a structure. And we identified five initiatives that we worked hard on through the year, basically completing.

There’s still work to be done on numbers four and five a little bit, which I will talk about in a minute. But these are the things that I would of rather not had to put a bunch of energy into on the other hand we’re required for us to put this business into control. And to prepare it for all of the future products that are coming.

The first being integrated P&L. We literally, I’m going to use a story I used in Italy a year and a half ago where I went out and met the General Manager and we’re looking at our cost structure, our account structure, et cetera. And we had decisions being made at a country level without total visibility and awareness to the ramifications on the rest of the team. So we were self optimizing if you will and that’s one of the key pieces that we changed.

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I’m going to go into more detail on four and five just to give you a flavor for the magnitude of changes so that you can kind of think about this in terms of what it will mean from an operating model standpoint. And what I’m going to do is I’m going to use the European regions, where as we went through and started to make changes to the region we saw the associated benefits.

First we had a disperse country business model so we literally rolled out by city, by county to state to country into an operating set of parameters. We moved from that to a pan European model so we now have a single European marketing center that puts together marketing programs and activities that go across the countries.

As we did that we basically pulled out many, many, many FPG assets and changed our model from an account by account by account, city by city, to one of a more broad based regional if you will operating model. Very common in the consumer digital industry, but very different then what we had in the consumer film side.

With that we had to change terms and conditions. We actually had to go through and change all of our agreements and how we operated with re-sellers. In the film space we use to arrive in three days terms, so three day deliveries to any accounts. You can’t afford to run three deliveries, can’t afford to have that much inventory, can’t afford to have many other pieces.

The net result of it was we pulled out over, almost a third of the expense structure associated with the region. So it becomes a much leaner, much tighter if you will operating model. From a supply chain standpoint just massive changes, went to a single distribution center where we identified two forward stacking hubs that were managed from a single distribution center.

And that was moving from 14 complete distribution centers in the first half of the year as we’re going through and doing various write offs and write downs, I mean, imagine how many of you have moved in your lifetime and how many of you have gone through a changing and cleaning out a closet or a garage.

Well you can picture what it’s like going through and moving from 14 distribution centers into a single distribution center in one region. And the associated historical things that you find, so big change.

A number of sold to accounts, we had accounts that we were selling to literally for as little as $500 to $1000 a year. And in some cases we had accounts where we may be selling to accounts that may be $500,000 account, but we were shipping to 50 or 60 different locations.

So substantial changes in terms of leveraging off of existing distribution networks and structure where again in the film space we use to do that as part of our three day service terminology, so big changes in terms of operational effectiveness.

From an inventory management, net result of that was a 49 percent change. And if you look at us from an inventory terms which is really important, not only from the tailwind historic view, but its even more important forward looking.

When you’re in a business that’s running 30 percent annualized price decreases on a certain segment of products. You can’t afford to be holding two months or three months of inventory. In addition to this we also took almost a million units out of the retail channel through the year on world wide basis. In the US it was almost half of that volume.

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So about half a million units out of the US retail channel, so in 2006 again certainly could have pushed a lot more inventory into the channel and that would have given us if you will a more favorable revenue side, but I really needed to start to get us to focus on flow and to focus on velocity and to focus on turn.

And to really deal with some of the asset pieces, and that’s again one of the areas where we made it, clear trade ups, and ten of all that was to prepare and to get us ready for where we’re going. So now I’m going to start talking forward looking and going into 2007 and beyond. Give you an idea as to what’s going on. Specifically going to walk you through my portfolio for 2007 and beyond, and I’m going to highlight and go into some detail in two areas on CMOS sensors and on ink jet.

So how many of you made it or did any of you make it to the ink jet launch activities, a few? So again, kind of a fun event but it handled a number of questions. If you actually go into your brochure, you actually go through and you’ll see there are a number of print samples and information on pamphlet. Those were actually printed by our ink jet printers.

So you can actually look at the photographs, by our ink jet printers and you can look at the documents that basically explain what the products are, also printed on the Kodak Ink Jet Printer.

So from a portfolio expansion, the first area is retail printing, as Mary Jane mentioned, this is a business where we took the color negative paper and what we realized we were going into retailers and we were selling kiosk and film or media et cetera.

A number of those kiosks also, we’re trying to connect up into mini labs to start driving color negative paper. This is a great value proposition from a consumer standpoint. And we’ve started to see that transition to where the digital side is taking off and it’s basically now offsetting the traditional decline.

Color negative paper, silver halide printers are perfectly viable digital printing presses if you will for the consumer experience. What they need is, they need the connections. And so we consequently move it into this group.

Now in the US that transition has occurred, so the predominant source for most prints if you were to go to a Wal-Mart or a Walgreen’s or any of our printers, you would find most of their printing starts with a digital source.

Even our own photo services area, the Qualex facilities where you mail in film. It turns out not only are we getting in film but many times we get mail and SD cards or we even receive one and two gigabyte cards where someone will say can you print all of these for us.

So it’s become a very viable if you will digital printing. And the rest of the world it’s not quite at that point yet. So if I were to go into Asia or Latin America we still have a pretty big head wind there, the transfer business from Mary Jane will actually even though, it’s still dropping a bit in terms of revenue, but we actually believe very much in that business model and the print pouch way and the opportunity for consumers.

So, we’re intending focus more on how do we help grow in that space. The kiosk business is also in this space, it’s growing, and we’re continuing to expand the portfolio of things that we offer a solution to.

The next area of the digital capture and devices, this has been kind of an entry way into the digital wrap if you will. It’s an area where we’ve got a lot key intellectual property. It’s very much a portfolio enabler.

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It’s a good size business, it’s very stressed in terms of margin, and it’s a very competitive and very tight margin and has a lot of the needs for the asset and structure and inventory changes. The next three areas I put all together as a gallery or I think we’ve talked about before.

It’s a good business for us; it’s our direct link and direct relationship with consumers. It provides a number of solutions there. We have tied to that all of our Easy Share software, the shop at Kodak.com so basically all of our direct consumer relationships are now tied together inside of that CIS structure.

And then the next two areas of Ink Jet Systems and Imaging Sensors, again I’m going to talk about those in more detail. From a financial standpoint this gives you kind of a perspective in terms of the magnitude of these businesses and the size. The first two are both over a $2 billion in size, so they’re pretty good size businesses.

From our EFO standpoint, the retail printing including the color negative paper et cetera was a negative. Kiosk was on the positive side last year. Digital capture was on the order of a couple percent so we basically at slightly better than break even. And if I go forward in time the intent is for 2007 just to get the retail printing to be break even or better and to have digital capture and devices businesses get to about 5 percent.

And so if you look at how we exited the year, which was several points better than if you will we began the year. If you look at the amount of inventory we put out into the channel in 2005 that we had to kind of digest through the beginning of 2006. We think we can do that pretty effectively.

If I now go to the other businesses, Consumer Imaging Services where we’re something greater than $100 million it’s still in investment mode, it’s still got pretty growth; we’re growing at the industry growth rate. We think that that’s going to end up with double digit EFO as we get to scale and stabilize. And the Ink Jet Systems and Imaging Sensors again I’m going talk about in more detail. OK.

So to recap from an established, so key focus for us here was really putting in place the digital operating model. The changes that I went through that we did in Europe of moving from 14 distribution centers, thousands of accounts there. We’re at various stages on those as well in Asia and Latin America and North America.

We still have a little bit of work left to do; we actually rolled to two distribution center model for North America last month. So we made that change beginning of this year where it’s still making the change in Latin America, and with regards to Asia, so there’s work still to be done there.

Those 2006 operational benefits you should expect to go forward into 2007. In 2007 we expect to break even again. Only in 2007 we’re going to be breaking even, pulling in the color negative paper as well as photo services activities from Mary Jane. We’re also going to be fully funding the Ink Jet investment which has been in the new technologies categories over the past few years.

So that’s going to be our new direction if you will. So we obviously have to generate positive momentum continuing in the kiosk side, positive momentum in the digital capture and really take advantage of the operational changes that we made in 2006.

And by the way the other piece here for right now, so I feel like I’ve got an operating model or portfolio, a marketing center structure, a business management structure where the focus needs to start to move to how do we get that to grow and how do I, and as I grow, how do I take advantage of that growth, because I’ve got if you will a lean operating structure that should generate more top line as well as bottom line.

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From our Image Sensors, I’m going to go through kind of it quickly. The market opportunities, the Kodak position on that, we’ve got, this is one of the those areas where Antonio mentioned as I went through the lab, as he went through the lab, you start to go, we own these patents and it kind of surprises you that you actually own intellectual properties that is fundamental. I mean that you literally can not be in an Image Sensor business without utilizing these.

The technologies that we haven’t yet brought to market, but again it hasn’t been focused from a commercialization or from a how do you get to market standpoint. And so the changes are how do we take those organic capabilities, focus them and actually grow them into businesses.

From an opportunity standpoint, mobile and DSC dominate if you will the Sensor market opportunity. They’re by far the lion share. There’s a number of other applications, automotive, home security, PC based telecommunication viewing, et cetera. And if you look at it from a technology standpoint the volume is clearly on the CMOS side. So, if you look at the focus for the group, it’s we have to win in CMOS, we have to win in mobile.

And so when you hear things like our Motorola announcement that we did over a year ago, that basically was the start of where we established a set of contracts and operating model and you seen that scenario where you expect to see products from us sometime over the next year.

If you look at us from a technology overall again we’ve been in this business and in this industry for years. Every color filter ray on every sensor in the world pretty much uses buyer pattern that was developed first by Kodak in the mid 1970’s. We came out with the first mega-pixel sensor in the mid-80’s and then we’ve gone through, what we’ve done a number of other things.

And when you start getting into some of the areas that are in this customized, special device concept, these are very fundamental in terms of how do you get higher light performance. How do get better image capture performance. And so if you go really kind of deep into the sensor side, and views are areas that are becoming the standard in the industry in terms of how you capture. And these are all Kodak patents or Kodak technologies.

If you look at where we’re going forward, we actually identified there’s four areas that we think are critical. If you look at the image on the left and right, how many can kind of see the difference? Older people usually have it tough, right? Yes. So that correlates to test patterns that we use. But what it shows, shows sharper edges, sharper colors, and more complete, clear images.

And those correlate to how those technologies actually apply themselves to sensors. So as sensors go up and up in mega pixels and as sensor go to multiple formats like cell phones et cetera. It becomes more and more important if you’re going to be able to capture an image. It also is important in low light condition, hence the reason for the ISO 1600 monitor.

Total available market for sensors is in the CMOS, again this is in the CMOS space associated with the mobile segment, it’s something over $1.5 billion. In 2007 you will see offerings from us going into the one, two, three and five mega pixel offerings.

So you’re going to start to see from us now take those and expand in terms of what customer base and again we’re going to be doing that utilizing an asset light structure. So if you look at the same operating model concept, heavily investing in the technology side.

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We’ve got a substantial number of patents. We’ve got a increasing number of applications. We’ve identified a couple of key operating partners, TSMC and IBM who we’ve talked about in the past.

We have test and assembly partnerships so we basically have been putting in place all the capabilities to run those through a system to deliver to customers utilizing a 15 fab capabilities and then we’ve got a dedicated marketing and sales organization to this activity.

The blended target model we have our CCD business today that we actually have internal fabs we were the first to developed the 40 mega pixel sensors which we provide for full frame image capture devices. But if next to blended margin our expectation is for that blended margin to be in 40 percent plus range.

We’ve got a pretty substantial R&D investment. We’re investing heavily into CMOS base. And we’re expecting the EFO to be in the solid double digit EFO range. Our 2010 goal is to be in top three revenue share in this space. So that’s pretty aggressive goal, but that’s the goal that we have and I’m sticking to it.

From an Inkjet, again we went through this introduction Tuesday, it was really a fun event. Antonio has second career coming I think as a star, some kind of a comedian or something, I’m not exactly sure which one it was. There were a few points during the thing where I thought he was carrying the two professional paid comedians, but on the other hand it was kind of give and take. So I think it was pretty positive.

The market entry and opportunity, I very much believe and Antonio believes it is going to change the industry. I think its going to start to make a very different and to make a big impact on the industry. So I think if you were looking at it from, no matter how you look at it actually from a printing business. No matter whether you look at from just the Kodak name coming into the space in the photo space is going to have some amount of impact.

The disruptive nature in the pricing model on the operating model of what we’re introducing is tremendous value proposition. Antonio’s message for 15 years having consumer side complain prices, it’s really stronger than that.

If you go into and you watch or you have the discussion with a soccer mom about print cartridge prices it’s not just that she is upset about it, you literally get a very emotional, a very visceral, a very powerful response about how surprising to them it is that they bought this printer for maybe $70 or $80 and then it costs them $100 to buy replacement ink cartridges.

And that’s when the sticker shocker hits. That’s when all of a sudden they say, oh my gosh. And if you don’t print very much, if you don’t print at all, I mean if you print a few pages a week or a month, it’s not a big deal.

If you have kids and the kids, one of the samples in your package is actually, a family newsletter, but if you actually have kids that are doing homework and they’re doing school work and 70 percent of homes actually regulate how much printing their kids can do.

How many of you have kids at home, young kids, school kids? How many of you regulate their printing. And we’re in high economic class, right? Relatively, so it’s a huge impact in terms of market size. So I think this is going to be very game changing.

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In terms of market opportunities, the market’s a pretty good size market. It’s projected to be something over $50 billion in 2008; this is revenue at retail so you can take about 20 percent off to get to manufacturer and so on. And as you can see it is very much dominated by the supply side which is ink.

The ink correlates to it’s also going after photography. So this business is coming into space that we know really well. That’s kind of crook and lead in so we can do great photographs.

But it also gives us opportunity to show what we also shine at which is, we can also do great documents. So it gives us kind of an entry into not only a photo space but we view it as also upside in the printing space from a consumer standpoint.

I’m going to now talk about we’re late, so I remember the discussion last summer where we had a discussion with Antonio and said, it’s going to be a pretty tough for us finish testing and to make sure everything works and to make sure we’re in really clean for the fall and end of year, enter it like we had planned.

And he said, he was with the team in San Diego and he’s stands up and he goes, look, we’re 20 years late going into this industry, you think I care about three months, right after a statement very clear and very to the point, on the other hand, being late there are also a number of really key advantages.

I think advantage number one is a market channel on the consumer satisfaction positions are all very clear and understood. And we’re not tied to the previous models. So I do not have to be led if you will to here’s an existing structure. I don’t have a bunch of my position in business at stake or at risk associated with it.

The industry ecosystems evolved so it’s a number of areas there. I’ll walk through these kind of quickly. First on the channel, consumer satisfaction, if you look at what of those satisfiers and unmet needs, the running costs jumps out very clearly is an issue, whether it be the cost of supplies or ink costs too much. So if you go ask customers what are their issues for why do they not print, why do they limit children printing et cetera.

And I think the second one that jumps out is the ease of use and quality concern. So, yes, you know, you can get photographic quality. Right? So, it's not so easy for me. And when consumers actually try and print photographs at home, it's usually a bad experience and so consequently, they haven’t gone to other mechanisms.

The other way of looking at it, is if you're looking at buying a new printer, what are the top characteristics that you are going to be looking for, when you go to make the decision? Number one on it was, you know, ink costs too much. And being able to print for half the cost is a huge driver for a number of customers. Number two was print quality.

You know, I know it has a high dpi, whatever that means, but I can't get a photo out of my printer, that actually looks like the photograph. And number three was the ease of accomplishing those jobs. So again, very tough.

If you go down the rest of the list, we'd basically kill to have the majority of these. One that we don’t do, is we don’t go after the six inks. And the reason is that the whole industry started by going after graphics printing and text printing, and as it grew and started to get images and digital cameras, started to become available, they were really focused on these dye based inks that had, you know, brilliant colors, but they had a problem because you can't print photographs with these really bright inks.

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What you need to do, is you need to now start putting in light cyan and light magenta. Well, the key thing about that nanoparticle pigments in 5100 is that not only do they last a lifetime, but in addition to that we actually have very, very light, very low saturation, if you will, starting inks. We can double dot those or triple dot those and get higher and higher densities. Similar to what they use for National Geographic which is a relatively low dpi process, but it's got a continuous tone.

And that’s basically what the nanoparticle pigments also bring to you. So it solved that problem good. The other thing that happens is, you start looking at the segment in terms of who prints what.

And it's a classic, you know, distribution model, where, you know, 20 percent of the people do, you know, 80 percent. In this case it's about 30 percent of the people do 80 percent of the printing. Or the top 20 percent, they print like ten times as much as the average.

So, it's a huge difference in terms of how many prints people do and we actually can go through and do this by segment, by target, by a number of other categories, but families with kids at home, typically are high printers, people in insurance and real estate and a number of other industries are typically higher printers. So there's a whole set of mechanisms for segmenting these subs.

Now, from an industry ecosystems standpoint, this is really an incredibly fast intro for us. Three and a half years from day one when Antonio said, Go do this, to introduction, and people going, that seems like an awful long time, 3.5 years.

Well, that was 3.5 years, you know, starting from, you know, a sheet of paper and a business plan, that said, OK we think we can do this. Now in the labs we had key technology and we had, you know, single nozzles that could print, you know, single technology capabilities. But there were a lots and lots of choices that needed to be made, incredibly fast and couldn’t have been done without utilizing available base of suppliers on the industry.

We highlighted in our introduction Sigmatel, but Sigmatel had developed chipsets that were very much programmable off the shelf devices. And alternatively, you would have, had to have 50 engineers going through and doing the code and the development for a customized basic. So, it's an enormous if you will, leverage in terms of getting to market.

If you go to our MEMS Lab or where we made our first print heads, you know, being able to focus on the MEMS technology and have all the seamless technology readily available through a variety of semi conductor partners, key advantage in terms of being able to quickly get to, position.

The tools sets, if you actually look at how we actually build print heads, we're easing off the shelf toolsets, and part of that was because of the choice we made of architecturally going after very low cost ink tanks. So we went to permanent printed heads, much lower volume, much more standardized tool sets, so theirs just a number of variables that basically from an ecosystem that were available.

And the other point is that we bring a number of key technologies. We umbrellad a number of those in to the KODACOLOR Technology sub-brand, if you will, but our proprietary print head system is, it's really spectacular.

We've performed as fast as any of the industry leaders that they want. So, you know, 32 page per minute, which we beat by a little bit. Twenty-two page a minute for color, which we beat by a little bit. And 28 second photo printing.

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And the other thing is the 28 second photo printing, that's for Kodak quality prints. We don’t believe in draft photos. So another thing that we're changing here in terms of messaging is there's a lot of like, specs that don’t mean much and we're basically separating ourselves from those. So that's another key part of the messaging, if you will, that we're going out with.

Bottom line here is, we set three goals when we started this project. Number one and the hardest by a lot, was that real Kodak quality. So being able to deliver on the, every time when you turn the machine on, your first printout, at the end of a cartridge, your last printout and everything in between is a Kodak photo quality print, that's hard to do.

The second one of easy to accomplish was a little bit easier actually than we had thought. We sense media. If you load in Kodak media on the back of it, we actually have it bar coded, we sense it. We know exactly what media it is, we know when it was manufactured, we know everything about it and from that we optimize how we print.

If it's a non-Kodak media, we sense the front end of the media, and we actually sense and we can determine from the front end of the media whether it's plain paper or whether it's photo paper, et cetera. And we know it's not Kodak paper because it doesn’t have the back end sensing. So, from that we make a guess as to who's it is.

And the bottom line is that if you load in a photo tray, you push it in, we automatically set up everything else. So we know you're doing a photo because you’ve pushed in the photo tray. So, you don’t have to tell us three more times.

So we went through each of the workflows, each of the designs. Same thing's true for documents. If you load in 8.5 by 11 it comes out as plain paper, we automatically sense it for 8.5 by 11 and we sense it for printing, plain paper printing.

So, that would turn out to be a lot of, kind of, mental thought process, but relatively straight forward on how to do. And then the last one is the real value. Fifty percent off on printing for people that actually print a lot is an incredibly, you know, awesome value proposition. Twenty five bucks to replace a complete set of ink tanks for a printer is an incredibly positive value proposition.

And so it's going to be pretty hard on the printing industry, because what they're going to see is, they're going to see the people that are driving, you know, 50 percent of the printing are going to be highly attracted to this, even though it's a relatively small set of customers, 20 to 30 percent.

And the key technologies as I mentioned before that basically enable it, are all tied in to this, whether it be the poorest medias, that allow us to suck the paper away so that we get 15 millisecond dry times on paper, literally print coming out of the printer, you can grab with your hand and you never smudge. You can, you know, pour coffee on the photographs and they don’t stain. If you take plain paper, it will stain the paper, but you can still see and the ink doesn’t run.

So, photographs, documents that will last a lifetime are key technology pieces. From an overall, kind of a business model, again huge change, we decided to go in to a position where we're charging a small premium from a hardware standpoint. It actually helps us in terms of hole digging as well. And then we're offering a substantially lower cost of printing on a per use basis.

And it's going to be very visible and very clear, as Antonio mentioned. We've decided – actually we're really happy about having a single launch partner especially when they came in and they said, we want to take all of your product that we introduce with three products. And they're taking all at the beginning. And then we basically signed up on all of our volume.

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We're going to be, you know, ramping up as we, you know, kind of prove out all the key manufacturing ramp up pieces. Later this year we're going to be bringing out a second introduction and the beginning of next year we'll bring out another introduction, so we're going to be expanding this in to additional products as well as segments.

From an operating partner, operating model standpoint, back to the point, so very asset light structure, we're leveraging heavily off the industry. We have a number of patents in this base. As a matter of fact, we have more patents on the inkjet materials base, in the last two years than any other company in the industry.

So this is an area where we've got deep technology capabilities. Whether you look at ink or media or the problems associated with printing fast, we're really good at that, and so that's something that we've focused our resources on. And as we commented we chose Best Buy as our lead retail partner.

From an overall target business model, our intent is to get to, and we're going to be getting up to scale so as we grow. We're going to be doing more and more through hardware units or we're going to be making a small margin on hardware, we're not going to be subsidizing, but we're going to be making a small margin on hardware, we'll be getting to high, we'll still be in a very high double-digit operating margin on inks.

So, inks are still going to be a very lucrative, if you will piece of the pie and a reasonable margin for paper. The net result of all this, is we should end up with a double-digit EFO. Positive earnings, contribution, during the third year so in the 2009, 2010 timeframe we're going to be done with the transition.

Our scale objective for2010 is to get to where we're doing ten percent of the consumer print. So, rather than looking at it in terms of hardware, you need to actually start looking at where the profit model is in this industry, which is really on the print side, which is where our focus is.

From a recap strong focus value proposition. Very clear, those three priorities were set, you know, within the first month or so of this project and they never wavered. So, it's kind of a while before the market research, if you will, caught up with what we saw as the opportunity, but very clear, if you will, for the target.

We have very positive initial launch momentum. We're getting substantial traction, 2007 we're going to cover the inkjet investment within CDG. So, we'll cover the new technology transition if you will from the corporate investment to CDG.

In closing I'll just make one last comment, and that is from a target business model for a CDG, we're very much looking for on the order of about a 25 percent blended gross margin structure. The three new business areas are relatively small in size, but we believe they have legs and they have a pretty good margin promise.

Operating expense structure, will end up at five to six percent EFO. And in 2007 on recovery of the inkjet investment inside CDG, and we're going to break even again.

Let me turn it over to Frank Sklarsky.

Frank Sklarsky: Well, thanks Phil and good morning everyone. I just have to tell this really brief personal story. I was going home a few weeks ago. I think I had been here for about three months, going home a few weeks ago and the kids were watching a show in TV. What are you watching, it looks real interesting? A show called Phil of the future.

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Some of you have probably heard about it. So what is it about? He says, it’s about this guy who creates all kinds of interesting things and invents a lot of neat stuff and he brings it back to the present. People get to use it today. You should really watch it with us. I said I don’t have to watch them on TV; I get to work with him.

I get to work with Antonio and Don and Mary Jane and Jim and Joyce and the rest of the team and it's been really, really exciting. And I have to tell you it's a privilege for me and I think it's a privilege for all of us to be part of this historic transformation. So with that let's get started.

What are the key takeaways for the plant's review? The company is well funded. It's got decreasing leverage and it will continue to have even more of a decreasing leverage position, healthy liquidity and it will get healthier in 2007. We will complete and this is probably the seventh time you've heard this. We will complete the major restructuring this year.

We will be installing a lean cost model, particularly in the area of SG&A. There's a follow on to all other restructuring that we've done in the manufacturing footprint and in the area of COGS, and it will be increasingly focused on building for future growth.

Just a brief recap of 2006 revenue, and then by-the-way this includes Health Group in these reported results. So, Health Group, not yet and discontinued operations until 2007. Revenue of $13.2 billion, gross profit steady year-over-year at about 28 percentage points. SG&A a great performance so far, down 10 percent but again, we're going to be going more aggressively at that.

R&D $710 million a reduction from the prior year, but as Antonio pointed out, we're going to continue to spend a substantial amount of R&D both from an accounting standpoint and in all the categories where it resides in the company. On those areas where it's most impactful and where it distressed and emphasized in our core competencies, and that’s in the consumer digital space and in graphic communications.

Restructuring $768 million about $350 less than the prior year, but again, a little bit less, than we had originally anticipated. Some of this is due to some of the deferrals that Antonio talked about and we'll get in to restructuring quite a bit more a little bit later in the presentation.

A $430 million improvement in EFO year-over-year and a below EFO line, these are things, mainly like investment income, interest expense, gain, loss on sale of assets, things like that. Relatively steady year-to-year.

And the bottom line an improvement of over $2 per share from '05 to '06. We were pretty pleased with that. In terms of the key metrics, net cash generation of $592 million at the top end of our range of 400 million to 600 million. A lot of things contributed to that. A lot of discipline over working capital, discipline over CapEx.

Digital EFO, right next to our range at $343 million a year-over-year improvement of $271 million and digital revenue group of four percent. In 2006, as been pointed out we focused on digital margin expansion on improving overall digital profitability for the company. And the source was always an intentional decisions as to why digital revenue growth was not higher and it had to do with the lower end of the digital capture market.

In terms of restructuring charges, $768 million once again for 2006 non-cash of 385 most of that in the areas of asset write-offs and accelerated depreciation. Cash restructuring payments of about 548 a little bit less than anticipated. Keep in mind that 548 includes cash payment items related to some pre 2006 restructuring actions.

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You always have some deferred payment on accident and severance costs that go in to the following year. The 548 was part of that, and we'll see some transparency later on as to how 2007 will be impacted by that impact also.

Position eliminations, about 5500 total accumulative to date of 23,400. Cash and liquidity drivers again, including Health Group a year-over-year improvement and earnings from continuing ops of $430 million.

Working capital improvements, $270 million reduction in inventories. A lot of that due to the business model that's being pursued, the partnership with flex on digital capture that Phil talked about.

Prudent CapEx spend of under $380 million a substantial improvement from the prior year and then asset and real estate sales of $178 million. Those are the key drivers of the cash story for the year.

Let's go forward to 2007. What are our priorities for this year? I think now for the eighth time, complete the transformational restructuring. The final stages of the manufacturing footprint reduction and getting lean on SG&A, getting a lean SG&A cost model in place across the company.

I'll just give you one example. You know, we've got, I think it's OK to say this. We've got over 200 legal entities in the company. We've got a goal to cut that by more than half over the next 18 months.

And you can just imagine the administrative costs associated with something like that. Human resources, finance, tax, legal, it really adds up. So we're looking at the drivers behind SG&A not just the dollars and cents and going after it anywhere we can find it.

Thereby generating fuel for product investment and marketing for all the new initiatives you heard about today. Launching key new products which build muscle for our sustainable profitable growth model going forward.

Just as a reminder, our new segment reporting structure, which is effective as of January 1st, everything the same with the exception of the inkjet systems being formerly part of the other category, now being part of CDG, Phil's group and then paper and photofinishing formally part of FPG moving into CDG also as part of the retail printing solutions.

Just at level set on the latest data on the Health Group divestiture, no surprise here, this is consistent with the story that we talked about a few weeks ago. Expected initial cash proceeds of $2.35 billion with potential additional payments of 200 million for maximum potential transaction proceeds of 2.55 billion.

Uses of cash, we've said we're going to pay down a remaining secured term debt of $1.15 billion upon closing and an estimated tax payments and transaction fees of somewhere between $100 million and $200 million, we're still working through the tax situation, but this is a pretty accurate number at this point.

For net initial surplus proceeds between $1 billion and $1.1 billion. The benefits of this divestiture, we've talked about this quite a bit, now being focused on growing the businesses in our areas of greatest core competence.

Consumer digital space and graphic communications. It will further enhance our balance sheet strength no question about that allows for debt reduction of more than 40 percent versus year-end '06.

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And if you go back to the end of the third quarter, by the time we close and pay down this debt, some time in the first half, is what we're anticipating, we will have reduced the total debt of the company by more than 50 percent versus the end of Q3 of '06. I think that's a great story.

Contributes 45 million to 65 million toward 2007 interest expense reduction, depending upon closing timing, and obviously also improves our interest income year term based on the cash balance that we'll have. Another huge benefit is the sale of the related manufacturing assets for the Health Group thereby getting the footprint down even further.

Just as a reminder, Health Group will be reflected in discontinued operations as of January 1, 2007 and will be reflected as such for all periods presented when you do see our first 10-Q come out the first Quarter following the closing.

Health Group Divestiture earnings impact. We reported earnings of $278 million for 2006, for Health Group at the GAAP EFO line. We'll get that net interest benefit of $65 million to $100 million for the year based on proceeds that pay down a combination of interest income and interest expense for a sub total of 178 to 213, and then the stranded cost overhang that Antonio talked about.

Whenever you divest something this large out of the company, you always have cost allocations that go to that business, and that’s where we're going to be very aggressive on SG&A cost productions as we go forward.

In fact we've all ready started on that because we want to get rid of this overhang as quickly as possible. But if you put the overhang on top of the dilution of the earnings, net of the interest benefit, it's somewhere between 275 to 365 total dilution. And so, the goal is, let's call that G&A back as fast as we can.

The priorities in terms of significantly reduced G&A cost in addressing the stranded cost overhang is focusing on reductions wherever we can, eliminate all non-essential spending, using a zero based approach across the company. And many of these actions are all ready being identified and we hope to have many of them identified in the first half of the year, regardless of what the closing timing is.

An aggressive migration to share the services model will be a huge enabler for SG&A efficiency. The good news for Kodak is that a lot of companies have all ready done this. This represents an upside for us, and we've all ready moved on some of this but we're going to be moving even more aggressively on this and also the legal entity restructuring that I mentioned before.

For FY '07, 16 to 17 percent of revenue is our goal for SG&A and to achieve the lower end of that range by the end of the year. Our '07 priorities in terms of funding the remaining restructuring as you'll see in a minute from some of the numerical summaries, we will have payments of between $575 million and $625 million from corporate cash. This is an outlay that's similar in magnitude to that of 2006.

We'll have a special termination benefit covering an additional $100 million to $150 million from our overfunded U.S. pension plan. The high levels of restructuring once again driven by the stranded cost overhang in the divestiture and the need to get at that as quickly as possible. Our need and desire to adjust to a new margin structure in the post Health Group environment, this will require some additional rationalization not built into our previous estimates.

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Required progress toward our targeted visual business model demands reduced G&A and some action as we pointed out before were deferred from '06 to '07 for logistical and operational reasons. We have regulatory issues, employee notification, things we want to make sure we queue up in sequence.

Total charges, cash and non-cash for the year between 900 and 1 billion including some asset write-offs and I'll show you some of that in a minute. The point is, we're trying to move as quickly as possible and make sure that this year is the last year of major restructuring.

In terms of P&L charges, severance and exit costs, of the 900 to 1 billion, severance and in excess of between 500 million and 550 million including the requirements to eliminate the divestiture overhang and then non-cash charges of 400 to 450 and this includes approximately $300 million for assets right down to the impairments primarily outside the U.S.

In terms of the payments, I want to focus in on this slide for just a minute and make sure that everybody understands this one. If I go back for a minute, check out the severance and exit costs 500 to 550, those are 2007 actions. And those will manifest themselves in a certain cash disbursement in 2007. If you look at the three rows, three 2007 actions will drive about $275 million of cash payments.

So that stuff is coming in from '06 mainly '06 a little bit from prior, but mainly '06, $275 million, 225 from corporate cash, 50 from the special termination benefit. For the $500 million to the $550 million of 2007 actions, about 475 of that on the right hand column will be paid out for severance and exit costs this year and then the remainder of that will spill over, a minor amount less than $100 million spill out in to 2008 and very, very little beyond that, less than $10 million a year.

So, once again, for 2007 current actions, 500 to 550 in charges for exit and severance, manifests itself in $475 million in payments of the 475, 375 from corporate cash, 100 from special termination benefit. And you see the totals below. The 600 million we've been talking about, at the bottom left of the slide, for payments from corporate cash.

The update in terms of cumulative programs, cash payments of 600 million this year out of corporate cash, about 1.9 billion cumulative through the end of 2007, the special termination benefit of 150, total charges, our previous estimate was about $3.0 to $3.4 because of what we're talking about this year, 900 to 1 billion, our new estimate anticipated to be cumulative $3.6 to $3.8.

With position eliminations previously forecast to be 25,000 to 27,000 now forecasted to be 28,000 to 30,000 total program. The business model going forward if you took a look at all the presentations today, how does that roll up? Revenue 10.8 last year, looking at somewhere in the range of 10.0 to 10.4, in 2007 excluding Health Group.

Gross margins holding steady at between 25 and 26 percent SG&A again trying to land in that 16 to 17 percent range for the year but at the lower end of the range by year- end. R&D five to six percent, but again, targeting and focusing, at five to six percent on those areas where it's most impactful, and then earnings from operations three to four percent of revenue.

And so, that translates into the following cash flow plan. We want to make sure to provide you a lot of transparency around this, because this is as best as we see it right now. If you take that earnings from operations of three to four percent on the revenue from the previous slide, and then take off the restructuring that we anticipate, you get to somewhere in the range of $500 million to $600 million negative GAAP pre-tax earnings from continuing operations for 2007.

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Add back depreciation on amortization, that's not restructuring related of 700 million, add back a restructuring charge and for now we've put it at 900 the lower end of the range that we're talking about adding $900 million and that includes the accelerated depreciation that’s restructuring related.

Take off for restructuring cash payments of about 600 million, 575 to 625 about $200 million we're forecasting for working capital improvements. A little bit more on inventories, also some opportunities in past due receivables and Accounts Payable.

CapEx expected to come in at about 300 to 350. Proceeds including asset sales, real estate, some small divestiture activity, perhaps $200 million, to $300 million, dividends of 150 and then taxes and changes in other assets and liabilities that we always have each year of about 325. And that gets you to somewhere between $100 million and $200 million in net cash generations for 2007. We think this is pretty realistic.

And given everything we've got on our platter, for this year, we think this is a really good story. Just the level set on how this relates to last year's cash generation, you know we generated 592 million, 400 million approximately from Health Group about $200 million on an adjusted basis.

So, again, about $100 million to $200 million for this year, but remember this year we're funding a major product and marketing launch for consumer inkjet, we're wrapping up CMOS and we've also got restructuring associated with the stranded cost elimination from the divestiture. We think this is a very realistic target. And again it's the final year of the transformation.

We're adjusting to our new margin structure, reflecting Health Group, so we've got some major restructuring remaining, this year with accompanying significant cash payments that we just outlined.

Launching new products, building muscle and changing the inkjet paradigm and major product marketing launch costs associated with that, along with film declines along the manageable trajectory summary that Mary Jane talked about.

All this going on, still have positive net cash generation; we're pretty pleased with this. And this does not include obviously the $1 billion to $1.1 billion in divestiture proceeds after tax and after debt pay down. So, what's it look like on a net basis?

We start the year with about 1.15 billion in cash, net cash generation of .1 to .2, proceeds from health after tax is 2.2 and then out of that we reduce the debt, the secured-term debt by $1.15 billion, take off our targeted cash on hand we'll maintain that billion dollars cash balance and you have net cash available for generating value for our shareholders of 1.6 billion to 1.8 billion.

Our remaining debt portfolio, we're really comfortable with this, we have no significant near term maturities, in fact the 1.15 billion is coming off of the $1,179M bar you see up there on the right, we'll have about 1.6 billion in remaining debt, once the Health Group deal closes and we pay down that debt. The other benefit is that our average interest rate drops by about 100 basis points on our remaining debt portfolio, from about 6.2 to about 5.2. There's another good story there.

Key metrics again, net cash generation of $100 million to $200 million and digital EFO $200 million to $300 million as Antonio already mentioned and digital revenue growth of three to five percent. You saw the business model before, again three to four percent EFO on 10.0 to 10.4 billion in revenue.

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And going forward if you'll look at the model of where want things to go by FY '09 fiscal '09, achievable run rate of a target model of are 2009 and beyond, again, resetting 2006 on a proforma basis excluding Health Group, you see that on the second column and then gradually growing the gross profit margin up to the high 20s SG&A working toward that 14 to 15 percent model.

R&D still maintaining it at five to six percent and impactful areas and the EFO growing to the eight to nine percent category. So again, it's a muscle building year, it's a year of final restructuring, we're going to be launching some new products, we're able to amply fund and complete the major restructuring. We're driving significant progress this year toward achieving our target cost model.

We intend to maintain liquidity and build muscle for sustainable profitable growth opportunities. This is the year where you're going to see us moving significantly from defense to offense. That’s a really exciting time, and it's exciting for us to be a part of all this.

So with that, I'll turn things back over to Antonio for some final comments before we go to Q&A. Thanks.

Antonio Perez: Thank you, Frank. Really very few comments. I think this summer; I think you’ve seen the consistency on the presentations. This is the last year of the restructuring. Very important year, but you might have noticed, and if you didn’t, I just want to tell you that, while we've been in the transition, you know, very much for the last three years.

You might have noticed that we have changed a little bit the tone. We feel more in power, we feel that this is the beginning of a new company and you're going to see us more and more in the offensive. The new progress that you have seen is not the last one that you're going to see.

I know that we announced in just, you know, three years ago, we felt that we had to, given the fact that we're going to do all the things that we're going to do, we have many other things in our plans that we will be sharing with you when it's time to, you know, share it. So we have a lot of things that we're working on.

When you see the number in R&D I still want you to remember, that we spend a lot more money than that in product development, you can add another, easily another $400 million to that R&D number. That will be a good number, the more we spend it in product development. And that is going to give us a lot of opportunities, you know, very soon.

And with that, let's go for questions and answers, thank you very much.

Don Flick: We're going to be just a few moments; I've all ready noted the first six questions here. We'll get the chairs set up, my microphone attendants are in place, and as always as we go through this, what I'd like to do is ask that as I recognize you, if you will take and wait until the microphone gets to you, and then state your name and identify your firm affiliation and we can go from there.

So, why don’t you come up and start up with Mr. Jay Vleeschhouwer in the front here.

Jay Vleeschhouwer: Good morning, thank you. Jay Vleeschhouwer, Merrill Lynch. The first question regarding home inkjet, three things that would be helpful for you to elaborate on. The first, Frank what do you think the cash disbursement or investment will be for the ramp that you talk about?

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And secondly, for Phil could you talk about the distribution expansion, Best Buy particularly on the retail side and any OEM. There had been some talk two years or so ago about possibly also having OEM there.

And then thirdly, in terms of how the market has changed for home printing, at least on the photo side, home is clearly no longer the majority of the market, it's growing in volume but it is no longer the majority, retail is. Do you think that this entry could perhaps help reverse some of that tide away from the home for photo printing?

Antonio Perez: My name is not Frank but I'm going to answer your question first. The money that we're going to spend to launch this is product is the money we need. So we have it, we're going to make this successful. We have a budget, he has a big budget, I think he has more than he needs, but the point the I'm trying to make is that we're not going to slow down, this is a very high value creating opportunity and we're not going to miss it.

That's the only answer I'm going to give you. I'm not going to give you my budget so HP hears, how many ads I'm going to put or how much I'm going to put in the stores or anything else. We have what we need to make this successful. I'm going to let Phil answer the other two questions.

Philip Faraci: Yes, actually, I think from a magnitude of dollars it would be similar in terms of investment to where you’ve seen from us in the last couple of years in the new technologies base. So, that wouldn’t be too different. In terms of the retail, we'll expand in the channels where consumers want to buy, whether it will be direct or indirect channels.

And you're right we're not making any announcement today about any other direct partnership or OEM type option. In terms of the photo decline, you know, we think, we tracked eight different print pathways for photographs, we also tracked photographs that are stored, displayed and viewed in other methods. You know, this is an area that we have, kind of a high degree of research and we're very sensitive to and we try – we think that all of them offer good opportunities.

But the story analogy I use is, you know, you can cook dinner at home or you can go out to a restaurant and get served, and you can go to a retailer and have them help you with various other printing.

Our goal is to continue to expand the photo finishing capabilities. One of the reasons for the move from Mary Jane to myself on the color negative paper, is we see that as a very viable printing technology. We see it as viable today; we see it viable in the future. And we're starting to put more energy into our kiosks as well as our home solution on how do we enable that print pathway option as well.

So we view both of those as viable options and I think consumers, depending upon their need, if, they're, you know, our snapshot printers are great printers if you have one to five prints. You go into the kitchen you’ve got you're camera, you push a button, you have print.

The thing this space where you not only can print great photographs but you also can print documents and we have the ability to enter in to this space and bring some unique technology to approach that problem very differently.

Jay Vleeschhouwer: Just one follow up for Jim on GCG what is the evidence in terms of ordering that the hybrid product line that is the analog digital combined capability is leading to increasing hybrid multi-product type sales. Therefore your integration approaches the differentiator.

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Jim Langley: We use the term of blended production instead of hybrid. Hybrid implies inkjet heads on a standard press. So, I think you meant what's the blended production environment. The proof points are, I think that the growth you're actually seeing which are coming from our existing installed base, we're just getting more business from that installed base as we bring these solutions to them

It's also heavily anecdotal. When I go in to print shops and I ask how's your digital business doing? We'll be talking about that and then say, by the way how's the offset business doing? and typically I hear that it's up also. So they do seem to go together with the printers who are really engaging with the digital transition and winning with their businesses.

Don Flick: OK, we'll go with Carol Sabbagha. Carol, if you can wave your hand there.

Carol Sabbagha: Thank you, Carol Sabbagha of Lehman Brothers. A couple of quick questions. I was trying to read between the lines on the potential usage for the 1.6 billion investable cash that's going to be available by the end of '07. I don’t think I did a very good job of that but I'm guessing that most will be focused on acquisitions since you kept talking about growth, focusing on growth going forward, so is my read roughly right?

And then, if you would look over the next several years to make acquisitions in what areas would you look?

Antonio Perez: We never said that we're going to make any acquisitions; I don’t know where you're reading that. You must have special glasses. We're going to get the money. First we have to get the money. And we hope we get it before the end of the first half.

When we've paid that debt as we said. We do have options, we do have a board that takes a lot of interest in all those large amounts of money, and we have to discuss with them what the options are.

We have a lot of opportunities within the company to create very high valuable precisions. We have all the opportunities that we can do with the money. We can't really, we're not as, you know, I don’t have the freedom to even tell you what my preference will be, because this is something that we will discuss with the board.

Carol Sabbagha: OK.

Antonio Perez: Sorry.

Carol Sabbagha: That’s OK. On inkjet. You're looking for steady state margins, I think you said to be in the low teens which is a little bit lower than HP currently but a little bit higher than Lexmark.

Is there and you're taking a bigger hit on the consumables, what allows you to get, sort of average margins for the industry even if you're taking a hit on the consumables? Is there something in the technology? Is it your focus on the high usage customer, et cetera?

Antonio Perez: All of those things. I think we went through a whole presentation telling you why we can make this head architecture a lot cheaper than anybody else. That all ready saves a lot of money. The fact that the ink is separated from the head, is another one. The fact that we make our own inks, we don’t buy our inks from somebody else, that’s another differentiation.

The fact that we believe that – I don’t like the expression, you're taking a hit. We're not taking a hit, we're not making any money with that, we're actually going to make ten percent more over a margins of 12 than we were making in the past.

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So, we think it's a very decent margin. What is very important is to go after the customer needs. With them, is to go after the customer needs. All I gave the team is the least you have to do is give this, give our shareholders, you know, double-digit operating margins. And that’s how we came out with it. That’s how the ink is going to go – we have a lower cost, value change to get that. Do you want to say anything else?

Philip Faraci: I think your point is good, again I went through it, but we took a very architectural approach to this and again we also very much targeted, the group that prints a lot. So if you are an above average, if you will, printer, you're going to find this value proposition to be very, very attractive.

And so constantly we would expect that we probably will get some, we'll get self- selection process to occur. Where people look at it and go, oh, you know, for $25 for a complete set of cartridges or ten cents a print photograph printing, at home, I mean for me, I do that a lot, that’s worth it. And so, we expect to self selection to, if you will, give us a little higher than average burn rate.

With this targeting market and those product definition really appeals to about 60 percent or so of the overall industry. And to the top 20 or 30 percent it's very appealing.

Antonio Perez: The margins from the ink are still very high, Carol, very high.

Don Flick: Carol, if you could just hand the microphone back to Laura Starr behind you? Oh we have a follow up? I'm sorry. Thank you.

Laura Starr: Another inkjet question. If you go back and look at the development of the cell phones, when cell phones, when cell phones in the first few years they came out, use wasn’t as high as people expected because they didn’t have bucket plans. The cost per minute was so high.

So if the price of the consumables, is so much lower, what are you building into your models or what are you expecting, consumers to do in changing consumer behaviors for that household that maybe only inference whatever numbers you have.

So it's like doubling the number of prints and then you get more people over into those bigger buckets. Are you assuming that consumer behavior is eventually going to change?

Antonio Perez: We build nothing, but I suspect that it does better than what it's saying that it's going to do because I believe that's going to happen. But we build nothing in to the plan. We assume that people are going to print, what they're printing now, which I don’t think is going to be the case. That’s my personal opinion. I think people are going to print more because we have this old rule in the printing world. Why do people print? Because they can.

Laura Starr: OK, and the launch of the printers. It's just in the U.S. right now and then you're going to take it more worldwide next year?

Antonio Perez: This year.

Laura Starr: The inkjet printer? Yes.

Philip Faraci: Europe's slated for second quarter. Europe is later in the quarter I believe in the April, May timeframe.

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Laura Starr: OK, and then I just want to …

Philip Faraci: And then parts of Asia. So we actually have a rollout that both increases number of accounts as well as increases geography.

Laura Starr: And sort of asking Carol’s question one other way. With all the extra money, wouldn’t it be rational to think that if everything closes on time and you paid on a that big chunk of debt that the board would say that by the end of the year well, gee, maybe we don’t need to carry so much cash on the book at the end of every year, so that it would free up some cash, to do something with? And second what about a debt upgrade, don’t you think that, that should be something we should look forward to in the second half of the year?

Antonio Perez: Are you talking to the board or are you talking to me?

Laura Starr: Want your opinion.

Antonio Perez: I have very strong opinions about what to do with that money. I'm not going to share them with you, Laura, but what we should be doing is whatever we believe in combination with the board that is the highest value creating for our shareholders and that’s what we will do.

And the moment we do it, we will take you through the rationale, why we have decided that choice. We've committed to give the maximum return, to our shareholders that had been so patient, so patient, through all this time.

And we've, you know, absolutely committed to do that. And whenever we do that, we will take you through the rationale, why is this, versus the other option we have. They're all possible options, but, you know …

Laura Starr: On the debt upgrade, have you been having more conversations, more recently given the cash conditions seem to be improvement liquidity improving?

Frank Sklarsky: Yes I can address that one. You know, we have had some very productive conversation, with the rating agencies. It's their decision as to what they do with our rating, and we and they have a common interest in generating sustainable cash flow from operations.

So they're very pleased, obviously as we are on strengthening the balance sheet. But we're going to get the cash flow from operations moving and that will ultimately be the main determinant. The good news is that, our rating as it is, does not really have an impact on our borrowing cost right now. As we are in pay down mode and don’t anticipate any significant new borrowing. So it's not a difficult issue for us at all.

Don Flick: OK, Sam could you hand the mic to Matt Troy please?

Matt Troy: Matt Troy, Citigroup. Antonio or Phil or some combination of the two, I was wondering, I'm trying to reconcile longer term, the new inkjet strategy, initially focused on the home. But the thermal strategy, specifically you're offering ten cent prints of professional level quality in your living room.

You’ve got 85,000 kiosks; average price per print there is 25 to 30 cents obviously professional quality. Over what timeframe do you envision, potentially bringing that valued proposition to the retailer, and I have two follow-ups.

Antonio Perez: I don’t know what we would have to do.

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Philip Faraci: Yes I believe both technologies offer a different shaded value for a period of time. The thermal is a great technology, the walkup performance requirements, the immediacy, the, you know, sitting next to a door with external environmental factors, et cetera. The, kind of, complete simplicity for high volume, but it's also very dedicated for photo only printing.

The thing about the inkjet technology is, it's a great general purpose technology for printing all your documents needs. The other thing on the kiosks is we, actually laminate the material, so they become very tear resistant, and bullet proof in many other areas as well.

So, the technologies both will carry over for some period of time. Do we have or have we thought of the opportunity of expanding the inkjet capability in to other spaces, the answer to that is yes. Right now, we're very much focused on the market segments from what we see that, that’s portfolio expansion and business expanding opportunities. Over time I would expect that technology to become available in other options.

Matt Troy: Follow up on the kiosks business. If I think about the strategy long-term it's to leverage the Kodak brand and to ultimately become the world bank of imaging. So that if I were to establish or extend the comparison, the kind of activity of the kiosks is something we've heard about from folks in the industry for several years. I was wondering if you could talk about the learning curve.

When I go to kiosks at retail, some are networks, some are not, is the goal ultimately to have this be like an ATM network, pictures anytime, anyplace, what are the impediments? What are discussions like, with retailers?

Philip Faraci: Very much we see that as an option we now are at several thousand of our networks, are actually connected. We have something over, or approaching 100,000 kiosks, if you will, on a world wide basis.

It's an infrastructure for the retailers as well as our own capabilities being turned on, if you will, problem set. There are a lot of advantages once you get to where you start having that, with those several thousand that we currently have, one is they have the ability, especially if they high bandwidth connections, have the ability to access images, transmit images, receive images.

But in addition to that, they provide other benefits. We also can pull and see how they’re doing. We can keep track of their performance characteristics, so we can do preventative maintenance scheduling, et cetera, rather than waiting for a repair cycle to occur. So it’s something that we very much understand, we’ve got plans and we do it in concert with the retailer.

Matt Troy: This question would be for Mary, which I meant to ask you one, in terms of base paper, the global manufacturing capacity is consolidated largely it’s now a party of two.

Both of which are rational, economic, sentient beings, the thought process being that as print volume should stabilize through that mini-lab infrastructure over time, that pricing could arguably stabilize. I was wondering if you could just talk about trends you’re seeing growth from buying and price on paper and what the expectations are three to five years, thanks.

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Mary Jane Hellyar: Hi, I can make some comments, but actually that’s, ends up in Phil’s business now so. But anyway, as we look at that, we have some advantage points, rationalize our assets to a point that our factory’s are basically full, at this point, from a paper manufacturing point of view and when we look at the future of digital printing and the growth in that area, geographic differences, obviously, you know, but as we look out over the time horizon, we basically see an environment where we’ll keep those factories full.

So when we look at that, you know, I’m very bullish that we’ll be able to maintain our costs and always work at driving costs down. So from that vantage point, you know, I think we’ll be able to be at or below the costs that we have today for the foreseeable future.

Antonio Perez: And I don’t think the industry is rational, by the way, people get a lot of motivational reasons to get share here and there. So, I don’t know how to answer the question, what prices are going to do, I don’t know, we will fight for our position.

Don Flick: OK and I’m trying to remember the last time I heard the word sentient being, being used at an investor meeting. Just to set the queue we’ll go next to Shannon Cross, then we’ll come over to Jack, and then we’ll come we’ll come back to Sam, and we’ll be set. OK, Shannon.

Shannon Cross: OK, Shannon Cross, Cross Research. A question for Antonio. Your new strategy in inkjet which, you know, is setting a new bar in terms of pricing higher for hardware and pricing lower for ink, you know, there’s a lot skepticism in the industry that it’s going to hold.

I guess my question is if it doesn’t seem like it's holding, so it doesn’t seem like you’re driving unit shipments like you expect, how far down are you willing to price the inkjet hardware? I mean, is this something that you’ll take, I mean, Antonio, you said you’d spend what it takes, obviously that’s more advertising, what have you, but, you know, kind of unproven. We’ll see if it works.

I’m not saying you don’t have a good product because you do, but I’m just curious as to how far you are willing to go and also, you know, what we should think on the components side for how much give there is on that side as we go forward say a year out in the margins to see where, you know, you ultimately adapt.

Antonio Perez: Let me say first that whoever you call the industry, there are a lot of skepticism in the industry, I don’t know who the industry, but every customer that I talk to is absolutely delighted.

It’s not skeptical at all, so I don’t know where this statement comes from, Shannon, maybe some other doesn’t want it to work. Is it skeptical that it’s going to work? I don’t see this skepticism. So I don’t know how to answer this next part of the question now.

Shannon Cross: Well it’s, again, unproven, so how far, if it doesn’t work?

Antonio Perez: OK.

Shannon Cross: If people are not buying your product, I guess the question is how much are you willing to trade off unit shipments versus margin. So if you’re not getting your unit shipments in, are you willing to go down on the hardware price? Or is it something where you say, if they don’t take my $150, $200, $300, you know, tough, we’ll just continue to sound smart.

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Antonio Perez: Shannon, what we’re going to do, Phil announced a new generation of printers coming soon, you can bet they’re going to be a much lower cost for us. These new printers will be announced next year.

So we’ll see what we do with the price, but we are committed as to the double digit return. Now our first printer, undoubtedly, is more expensive than the second. And the second is more expensive, as far as customer is concerned, than the third.

We have a path to deal with that problem with our own means without changing the notion of that, we don’t want to subsidize the agreements. We think that it’s not ruling the industry and that it’s not value in the volume change that we have created, not having to lose a lot of money with the printers and then recover all of that money.

We think, at this point of the industry, that a sufficiency in the industry that is enough efficiency in the way we design this printer to be able not to lose a lot of money with the printers and then having to recover below the shift margin in ink.

Shannon Cross: And then just one other question with regard to the traditional sales business and, Mary Jane, I’m not saying that he should get rid of you tomorrow, but I’m just curious, you know, the health imaging sale had been talked about for years and people have been, you know, thinking that you should do it, I mean, again, this is all about us chatting as opposed to maybe what had went on internally, but as you know we like to chat.

So, I guess, the question is at this point in time, with the health imaging business some people might have thought that you would’ve gotten a higher price had you not been seen with the clients in the laser imagery business and some of the other parts.

So, does it make sense to try to sell entertainment film and maybe the traditional film business before we start to see those decline, so that perhaps the acquirer doesn’t look at it and say, “well, you know, you’re going down ten percent, why should I give you money,” it’s just, you know, is it better to sell now.

Antonio Perez: That’s a good chat, I don’t know, I mean, we can, we obviously, and we’ve been saying this, Shannon, from the beginning, that’s all you’re going get from us and you know it that we every time, every quarter we have all this strategic sessions in the company, like any other company in the world, like every business we have.

And we weighed all the possibilities of those businesses, we look at the decline, we look at how, how earnings have went, we look at how the raw materials rate, and we look at those things and see if there more value doing this now than later?

Should we do it at all? We’re always trying challenge it. We have two sessions every year with the board. With each one of the sessions I know I’ve seen a lot of detail. At this point of time, all we have to say is that we have a stable business with the I, we haven’t seen decline, we understand that it’s a lot of talk about that this is going this or that way.

We don’t want to leave money on the table for our shareholders. It might be a waste or getting more value for the shareholder. Right now what we have is the plan that you heard from us.

We’ve been around that business, it’s very stable, it’s a very good business. We don’t have any urgent signs from that industry that is compelling to us to take any of those assumptions that you have mentioned. But we keep talking about it until we have a lot of chats.

Don Flick: OK, we’ll go with Jack Kelly.

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Jack Kelly: Phil, just a point of clarification, you’re anticipation for investments associated with inkjet printer is, for this year, is the same as last year, so investment last year, this years spending introduced net, it’s not a much different number?

Phillip Faraci: Sure, the amount of investment that we’re making in the year is approximately similar to last year, was the statement I made. And again, we’re going to cover that in terms of overall CDG. So we’ll be able to get to breakeven.

Jack Kelly: And Antonio, just in terms of the overall digital profit objective this year of 200 to 300, at least 250 of that 200 to 300 coming from IP. Last year you did 343, it looks like excluding IP, and I know you don’t necessarily view it this way, but maybe if you could give us a little color. It looks like excluding IP, profits, revenues, things are down a bit, and I know we’ve got a number of individual presentations today that will, might sense that that number should’ve been up by misreading.

Antonio Perez: I don’t agree with hardly any of the statements that you made or the numbers that you put there. So I don’t know how I’m going to answer this, I do my best.

Jack Kelly: OK.

Antonio Perez: First, I cannot suppress IP from the business. I know, I gave it my best try today after you guys have been beating me up for a about a year and a half, this is as well as I can do, because idea is not just to get earnings, I think it’s to get all sorts of things, as I’ve said before.

Now the basic operating structure of digital business improves year-over-year. We are spending more money this year in new product development, and promotions and everything that we did last year.

So I don’t know how you come to that because we don’t disclose that but the basic operating, earnings of each one of the businesses is improving in most of them, I wouldn’t say in all of them, in most of them. And then on top of that we will get more IP than we got last year.

Jack Kelly: So then if we looked at just holistically, 343 to 250, if that’s the middle of the range, say the without the Health divestiture investing more in the businesses.

Antonio Perez: I, well I won’t take that 343, you mean for IP?

Jack Kelly: Well, no, no, last year the total digital profits returned 343 let’s say when it comes to mid-point of your range of 250, so we’re down.

Antonio Perez: You have to take Health out which was 190 or something like that. Was it? 150. So you take 150.

Jack Kelly: And just, Mary Jane, just one question, in terms of the SG&A reduction this year, last year with $300 million or so, do we get to a point where those kind reductions aren’t sustainable any more just because you can only go so far in terms of SG&A?

Mary Jane Hellyar: Well clearly this year one of the key focus that we had was building on what you heard from Phil. We’ve really worked on our traditional consumer and professional film business and, you know, we built over time and infrastructure that basically, you know, delivered some through a direct, relatively direct model, you know. And essentially every country in the world, you know, broadly, and we looked at that and made significant efforts to driving that towards a much more of a indirect leaner model going forward. We continue to have more work that we can do in that area.

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One of the things that we’ve done in that part of the FPG business is to really drive towards having as much costs as possible go to a variable model and clearly if you can get that to a variable and go to market, then there really isn’t a limit to what you can do as that business continues to decline, offset by in EI.

We have a very lean business model in terms of SG&A with the direct models that they have so I don’t yet see, you know, on the horizon, the point that we run out of runway, in terms of SGA.

Antonio Perez: And just, Frank wants to have a number crunching battle with you.

Frank Sklarsky: On the level of apples to apples excluding comments from both sides because that’s going to be in Discontinued Ops, the digital earnings in ’06 would be about 190, so that 200 to 300 compares to that number. If you want to make, compare the 343 to the new number because they exclude Health.

Don Flick: OK, if we can pass the mic to back to Sam Doctor, and then we’ll go to Ulysses next.

Sam Doctor: Sam Doctor with J.P. Morgan. A couple of questions, first of all, on the ink technology, are there any barriers that you have that would protect you with this the generic increases that you can buy in the store.

Antonio Perez: Barriers to what?

Sam Doctor: Protect your inks and your ink sales versus generic inks that you might be able to buy at Staples or Best Buy.

Antonio Perez: The customer can buy any ink that they want in their business, their choice.

Sam Doctor: So there is not differentiation in terms of the ink itself.

Antonio Perez: Oh, I didn’t say that. I said that they can buy any ink that they can want. I just described to you that since 1985 this company has developed what is called nano particle pigment based, technology based, very hard to repeat.

It makes and enormous difference with the quality, the speed, the durability of those things, but you can put in anything that you want, you can make it yourself, put it in there, you know, good luck to you.

Sam Doctor: It might kill the printer.

Antonio Perez: Sure but we’ll never stop a customer using whatever they want, if they buy the printer, it’s different, they can go wherever they want.

Phil Faraci: And by the way, in an approach I might use if I weren’t getting as much traction as I want I might go down on my ink price, rather than going down in hardware price and actually get more aggressive there, since I still make very high margins so.

Antonio Perez: I’ll give you another thought, I guess maybe to go to the question that you really are going to, which is, would it be a market to refuse these cartridges? Well let me think about, there was a market where you have to pay a huge amount of money for those cartridges.

Now when you pay ten bucks, do you know what it takes to create that structure, to create that, I don’t know, I think the umbrella and the wage re-fillers were enjoying themselves shed some light, kind of tough. That would be kind of tough. I don’t know how good a business that would be.

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Phil Faraci: And you know, the Kodak photo quality by the way, don’t underestimate the value of that, you know, the consumer jumps to that prior to jumping to the pricing on the supplies, I mean, the supplies, kind of, is a good.

Antonio Perez: We’re trying to sell and we have to prove it, as Shannon said, we have to prove it, we understand that, but we’re trying to sell the people that print a lot. Those people know what they see when they print.

Sam Doctor: So give me a head count, by my calculations you should exit 2007 at about 27,000 or 28,000 employees. Can you give us a sense of how many of those are being FPG and specifically in entertainment division?

Antonio Perez: Entertainment division?

Sam Doctor: Yes.

Don Flick: Oh no, he misunderstood the number. That 27,000 was overall EK it was not in FPG.

Frank Sklarsky: I don’t know, we’re still working through exactly which divisions, which to use, which global functions we might be looking at positional eliminations, so we don’t have it broken down. Your magnitude of the results and total post health, post structuring is about correct though.

Sam Doctor: Is there some sense of what the numbers might be in FPG?

Don Flick: We don’t normally break out in our operating segments, so.

Frank Sklarsky: And we don’t want to get ahead of employee communications in any way either.

Don Flick: OK, can we pass the mic over to Ulysses please?

Ulysses Yannas: Ulysses Yannas, Buckman, Buckman, & Reid. Antonio, instead of inheriting paper from film imaging but is also inheriting the, a large part of the losses in the so called “other” categories.

Antonio Perez: What do you mean Ulysses?

Ulysses Yannas: With other technologies, as you identified them.

Antonio Perez: Yes, no, no, no, no …

Ulysses Yannas: Paper is moving now to CDG with inkjet moving to CDG consumer health group, isn’t it?

Antonio Perez: No, inkjet is moving to Phil. The rest which is display stays in other and is still managed by Mary Jane.

Ulysses Yannas: No, but basically we understand it to the other category that $214 million in losses last year, a very large chunk of it was inkjet, wasn’t it?

Antonio Perez: I have to say yes. Yes.

Ulysses Yannas: So in essence what you’re talking about is a couple of $100 million in losses is moving to CDG of the inkjet and the couple of $100 million in losses is moving to CDG of the paper.

Antonio Perez: I don’t think we ever disclosed that loss …

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Ulysses Yannas: No you didn’t.

Antonio Perez: I think you’ve been following these conferences too long. You know too much about …

Ulysses Yannas: Time to call it quits, right.

Antonio Perez: No, Phil is inheriting an injured business that doesn’t make any money because we’ve been …

Antonio Perez: OK, so. But it’s inheriting one the highest value creation businesses that this company will ever have. So and as well, he’s made such incredible progress with his value chain that it’s hard to describe today and I don’t know how much you guys figured out that that’s valuable, but he’s going to be able to get another. He’s going to be able to get more than a $100, $150 million out of that, again, that will help him to pay for all this investments that are going to occur. And that’s why he’s here doing the job.

Phil Faraci: I’m comfortable with the point, again, that observed the set of investment areas and I’m going to get to break even this year so.

Ulysses Yannas: Can you also tell us, what was your total product development investment in inkjet? Somewhere in the range of $.5 billion?

Antonio Perez: It’s a lot less than that, it’s a lot less than that, it’s a little more than half, I can’t tell you more. When I go to San Diego and I suggest what to do I don’t charge them for that visit, I don’t have to count my time.

But it is not that amount of money. It was done really as to describe it for using as much as I could, somebody else’s money, somebody else’s profits, because that’s what you can do when you’re 20 years late.

I don’t know if it went in detail, but I do not have to tell this story because if you had a chance to go through one of our labs when we make these cartridges, it’s a pretty complicated and they all have these magnificent functions.

Well for the rest of the industry, they’re all custom made, and I know, custom made, it costs a fortune, and you have to order them like two years in advance because it’s for you and only for you, because your architecture has been designed that way.

The semiconductor industry was not what it is now, because we’re late, we took advantage of the price of the semiconductor. You can buy a semiconductor and it’s so manipulative and so flexible that we could design all of those functions basically with standard equipment.

You know how much money we saved from that? And not only that, he invested half to be sure the volume that he is going to have to have in two years from now. You’ll have to know in three months and you’ll need more volume sectors by then. You know, it is bad to be late, I wont argue with that, obviously, there are good things about being late and we’re taking advantage of all of those.

Ulysses Yannas: Good for you.

Don Flick: OK, let’s go back to where we start quickly and then we’ll have time for one more question after that.

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Female: I don’t know what you’ve disclosed on this but maybe you can give a little guidance, on your direct channel, you know, when you go on your Web site, you can buy the cameras and I’ve looked on your, you can see the printer there now and the picture frame, the digital picture frames which I think will also be another good product, what do you disclose how much your sales are on the Web site and has that number been growing, or if you could give me any information on that?

Phil Faraci: I don’t know if we disclosed this but, yes, it’s growing, it’s growing rapidly, a triply digit, I guess, would be a way of describing the growth rate. Yes, triple digits. That’s more than double digits, less than four digits. It’s so small, I mean, again, it’s more of a service to consumers than it is a major channel to us at this point. I certainly expect over time it will become a percentage of our channel opportunity. But more than that I think it actually is I don’t know if you subscribe to or have registered with us in any way, but we started last year with putting together all of our gallery activities, our Easy Share activities, our Kodak.com activities, so we have a unified position and view to the consumer.

And so if they come in and they are interested in Jim’s activities or if they’re interested in Mary Jane’s or mine, they actually can establish and have a single unified experience within the Kodak sight and that was done by intent so, plus we view it more as a consumer reach.

Now from that we learn a lot, from that we’re able to customize and personalize and create specialty options, so there’s things that we expect to get benefits from that but we’ve used about as much as we do as a store.

Don Flick: OK, now. Barbara, there’s a gentlemen in the back.

Male: I think Phil could answer my question. I had a friend of mine, when he heard about the new ink cartridge, are you going to be able to use that in non-Kodak copiers?

Phil Faraci: No, they’re designed for our complete printing system.

Male: OK. Is the non-Kodak manufacturer going to design his copiers around the Kodak cartridge?

Phil Faraci: I don’t know.

Male: Because what I’m leading up to is why make the printer, just make your cartridge, wouldn’t that be more cost effective?

Antonio Perez: I think you have to have a conversation with an IP lawyer one of these days.

Male: Actually I don’t know all the legalities. I know you have a patent on it that’s good for seven years I believe.

Phil Faraci: Let me see if I can help just a little bit, companies that manufacture printers and their associated supplies, they typically design them in an integrated system to operate together as we did.

For someone else to come in and try to design cartridges that directly plugged into and were used by our products, or for us to do that for somebody else’s would be very difficult because of the intellectual property and customized design attributes that they’ve done.

Antonio Perez: It’s not impossible. It is possible. It just is difficult.

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Male: Excuse me they did it with the film. Remember when we came out with the film and we had a pocket camera, they went ahead and came out with non-Kodak pocket cameras and they used our film. I’m thinking that, is that the same the same line? I’m looking at this cartridge replacing our film.

Don Flick: As the only person here that goes back to the film days…

Male: Good.

Male: You’re into a very different subject of discussion because we’re talking about open standards, in other words, the 110 format was an industry standard and it was adopted in a way that anyone could make a dome or a camera that would play together through C41 processing.

So it’s an entirely different world than what’s being discussed here at the moment. But if I could, we’re out of time and I’d like to thank everyone …

Male: OK, just one more question. Tell my friend that they’re not interchangeable and to non- Kodak. Copier’s right?

Phil Faraci: Right.

Male: OK thank you.

Phil Faraci: Thank you very much. And you can order one of our printers at Best Buy.

Antonio Perez: Well thank you very much.

Don Flick: Thank you and this concludes our Webcast.

END

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