PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 7, 2008
Eastman Kodak Company
(Exact name of registrant as specified in its
charter)
| New Jersey | 1-87 | 16-0417150 |
| (State or Other Jurisdiction | (Commission | (IRS Employer |
| of Incorporation) | File Number) | Identification No.) |
343 State Street,
Rochester, New York
14650
(Address of Principal Executive Office)
(Zip Code)
| Registrant's telephone number, including area code | (585) 724-4000 |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12) | |||
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c)under the Exchange Act (17 CFR 240.13e-4(c)) | |||
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ITEM 8.01 Other Events
On February 7, 2008, Eastman Kodak Company issued a press release regarding its annual strategy review meeting in New York City. The press release is attached as exhibit (99.1). In addition, the presentation materials that will be distributed at the meeting are also attached as exhibit (99.2) and exhibit (99.3).
ITEM 9.01 Financial Statements and Exhibits
(d) Exhibits
| (99.1) | Eastman Kodak Company press release dated February 7, 2008, announcing the Company’s annual strategy review meeting held in New York City. | |
| (99.2) | Eastman Kodak Company annual strategy review meeting presentation materials. | |
| (99.3) | Eastman Kodak Company annual strategy review meeting Non-GAAP measures reconciliations. | |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| EASTMAN KODAK COMPANY | |||
| By: | /s/ Laurence L. Hickey | ||
| Laurence L. Hickey | |||
| Corporate Secretary | |||
Date: February 7, 2008
PAGE 4
EASTMAN KODAK COMPANY
INDEX TO EXHIBITS
Exhibit No.
| (99.1) | Eastman Kodak Company press release dated February 7, 2008, announcing the Company’s annual strategy review meeting held in New York City. | |
| (99.2) | Eastman Kodak Company annual strategy review meeting presentation materials. | |
| (99.3) | Eastman Kodak Company annual strategy review meeting Non-GAAP measures reconciliations. | |
Exhibit (99.1)
| Media Contacts: | ||||
| David Lanzillo | 585-781-5481 | david.lanzillo@kodak.com | ||
| Barbara Pierce | 585-724-5036 | barbara.pierce@kodak.com | ||
| Investor Relations Contacts: | ||||
| Ann McCorvey | 585-724-5096 | antoinette.mccorvey@kodak.com | ||
| Angela Nash | 585-724-0982 | angela.nash@kodak.com | ||
Kodak Poised to Accelerate Profitable Growth
Company Forecasts Continued Digital Revenue Expansion, Strong Earnings Growth and Cash Flow in 2008 and Beyond
Traditional Business Offers Sustainable Source of Cash
Continued Product Innovation Focused on Kodak’s Strength -- the Intersection of Materials Science and Digital Image Science
NEW YORK CITY, Feb. 7 – Eastman Kodak Company (NYSE:EK) today will unveil to investors a new company that is poised to accelerate profitable growth on the strength of its unmatched expertise in materials science and digital image science.
Over the next four years, this new Kodak will leverage its leading portfolio of digital businesses, a highly profitable traditional business, and a relentless focus on operational effectiveness to deliver increased revenue, along with strong earnings growth and cash flow.
For 2008, on a continuing operations basis, Kodak expects:
- Earnings from operations of 4% to 5% of revenue on total
company revenue growth of 0% to 2%;
- Digital revenue growth of 7% to 10%, with 60% of revenues
generated by output businesses and 40% from capture
businesses;
- 2008 GAAP earnings from continuing operations of $250 million
to $275 million, including pre-tax charges of $60 million to $80 million for
rationalization and carryover restructuring costs;
- On a GAAP basis, cash provided by operating activities from
continuing operations of $575 million to $625 million;
- Cash generation of $400 million to $500 million before dividend payments and after taking into account payments for carryover restructuring and other rationalization costs of approximately $150 million.
“It is with great pride that I introduce the new Kodak, a company with a new spirit and winning attitude,” said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. “While completing a difficult and unprecedented business transformation, we also created breakthrough products and services that feature Kodak’s hallmark innovation, winning customer acceptance and critical praise for a brand renowned for its smart use of technology. In 2008 and beyond, we will leverage the innovative thinking of Kodak people to deliver on our commitments to shareholders and increase the value of this great company.”
At today’s annual strategy meeting in New York City, Perez and his management team will detail why Kodak is well positioned to excel in every market in which it competes.
Kodak’s Traditional Business: A Sustainable Model
Starting this year, the company has consolidated all of its silver-halide products within the newly created Film, Photofinishing and Entertainment Group (FPEG) in order to maximize the performance of the business. In addition to consumer, professional, entertainment and industrial films, the business unit now includes responsibility for graphics films, silver-halide photographic paper and chemistry, and traditional retail and wholesale photofinishing product lines.
In the wake of the four-year restructuring, FPEG now enjoys a sustainable business model and is well positioned to weather additional declines while maintaining a strong market position in all of its key product categories. For 2008, the company expects FPEG to deliver another year of strong cash generation, reflecting earnings from operations of 6% to 8% of revenue on a revenue decline of 12% to 14%.
2
Kodak’s Digital Business: Built to Grow
Both of the company’s digital business units – the Consumer Digital Imaging Group (CDG) and the Graphic Communications Group (GCG) – are poised to outpace the market by bringing to customers groundbreaking advances in imaging technology.
For 2008, the company expects revenues from its digital portfolio to grow by 7% to 10%, resulting in earnings from operations of 3% to 4% of revenue. This growth will be driven on the consumer side (CDG) by two to three times the unit sales of the company’s revolutionary consumer inkjet printers as compared to 2007, retail deployment of the innovative KODAK APEX thermal dry lab photofinishing system, global expansion of its photo kiosks, and new product introductions in digital cameras, digital frames, and next-generation image sensors. On the commercial side, GCG growth will be fueled by increased sales of workflow software, document scanners, digital plates and presses, and new product introductions, including the KODAK VERSAMARK VL2000 Printing System, a drop-on-demand digital production press. At drupa 2008, the company will introduce KODAK STREAM technology, a next-generation approach to continuous inkjet printing that provides offset-class quality.
GCG’s success reflects the hybrid nature of the commercial printing industry as it shifts from traditional to digital technology. Kodak is uniquely positioned because the company offers the broadest range of digital and traditional solutions to assist printers through each stage of their transition.
The Growth Model
Kodak enters 2008 with a strong balance sheet and the financial flexibility to make the necessary investments to achieve greater scale in its growing digital businesses.
On average, the company expects to grow total revenue by a compound annual growth rate of 5% per year from 2008 to 2011, with a compound annual growth rate of digital revenues of 10% to 12% per year during that period.
Kodak is targeting gross profit margins of 28% to 30% and earnings from operations of 8% to 10% of revenues by 2011. The company is also targeting cash generation before dividends to surpass $1.0 billion annually by the end of the planning period.
3
“Kodak is now a company with a broad portfolio of digital businesses with diverse sources of revenue, and earnings powered by an unmatched intellectual property position and a sustainable traditional business model,” Perez said. “I am confident that we will continue to achieve success in digital markets and create value for our shareholders in 2008 and beyond.”
Webcast of Today’s Meeting
For those unable to attend in person, today’s meeting will be available via a live webcast. To access the webcast please go to: http://www.kodak.com/go/invest
The meeting will also be teleconferenced in listen-only mode. To listen please call 913-312-1386, access code 1981483 or ask for the Kodak Investor Meeting.
An audio replay of the meeting will be available beginning Friday, February 8th at 8:00 a.m. Eastern Time and will run until 5:00 p.m. Eastern Time on Friday, February 15th. The replay phone number is 719-457-0820, and the access code is 1981483.
#
Reconciliation of non-GAAP measures
Within this press release Kodak references certain non-GAAP financial measures, such as: Digital revenue growth and cash generation.
Kodak has prepared a reconciliation of these non-GAAP measures to the comparable GAAP measures. This additional information is posted in the Investor Center of Kodak’s web site at: http://www.kodak.com.
4
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this press release may be forward-looking in nature, or "forward-looking statements" as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the Company's expectations regarding its revenue, revenue growth, revenue mix, rate of change in revenue, gross profit margin, earnings, cash, cash plan, target business model, rationalization and carryover restructuring costs, new product introductions, and inkjet unit growth are forward-looking statements.
Actual results may differ from those expressed or implied in forward-looking statements. In addition, any forward-looking statements represent the Company's estimates only as of the date they are made, and should not be relied upon as representing the Company's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so, even if its estimates change. The forward-looking statements contained in this report are subject to a number of factors and uncertainties, including the successful:
- execution of the digital growth and profitability
strategies, business model and cash plan;
- implementation of the cost reduction
programs;
- transition of certain financial processes and
administrative functions to a global shared services model and the outsourcing
of certain functions to third parties;
- implementation of, and performance under, the debt
management program, including compliance with the Company's debt
covenants;
- development and implementation of product
go-to-market and e-commerce strategies;
- protection, enforcement and defense of the
Company's intellectual property, including defense of its products against the
intellectual property challenges of others;
- execution of intellectual property licensing
programs and other strategies;
- integration of the Company's businesses to SAP,
the Company's enterprise system software;
- completion of various portfolio
actions;
- reduction of inventories;
- integration of acquired businesses and
consolidation of the Company's subsidiary structure;
- improvement in manufacturing productivity and
techniques;
- improvement in working capital management and cash
conversion cycle;
- continued availability of essential components and services
from concentrated sources of supply;
- improvement in supply chain efficiency and
dependability;and
- implementation of the strategies designed to address the decline in the Company's traditional businesses.
5
The forward-looking statements contained in this press release are subject to the following additional risk factors:
- inherent unpredictability of currency
fluctuations, commodity prices and raw material costs;
- competitive actions, including
pricing;
- the Company's ability
to access capital markets;
- the nature and pace
of technology evolution;
- changes to accounting rules and tax laws, as well
as other factors which could impact the Company's reported financial position
or effective tax rate;
- pension and other postretirement benefit cost
factors such as actuarial assumptions, market performance, and employee
retirement decisions;
- general economic, business, geo-political and
regulatory conditions or unanticipated environmental liabilities or
costs;
- changes in market growth;
- continued effectiveness of internal controls;
and
- other factors and uncertainties disclosed from time to time in the Company's filings with the Securities and Exchange Commission.
Any forward-looking statements in this report should be evaluated in light of these important factors and uncertainties.
#
6
The New Kodak
February 7, 2008
| 1 |
| The New Kodak | 2 |
| The New Kodak | 3 |
The New Kodak
Antonio Perez
Chairman and CEO
| 4 |
Program of Events
| The New Kodak | 5 |
Key Messages of the New Kodak
| The New Kodak | 6 |
2007: Every Metric Met or Exceeded
| The New Kodak | 7 |
Successfully Delivered 2007 Strategic Imperatives
| The New Kodak | 8 |
New Reporting Structure: Leverage Traditional Assets
| The New Kodak | 10 |
2008 Digital Portfolio: Built to Grow
| The New Kodak | 11 |
2011 Digital Portfolio
Corporate average gross profit improves over the planning period
| The New Kodak | 12 |
2011 Traditional Portfolio: Viable Mid-Term
#1 market positions, smaller size, good cash generation
| The New Kodak | 13 |
The New Kodak: 2008 Revenue
| The New Kodak | 14 |
Digital Business: Critical Mass and Healthy Growth
| The New Kodak | 15 |
Geographic Balance: Global Stability and Growth
| The New Kodak | 16 |
Balancing the Returns from IP Remains a Priority
| The New Kodak | 17 |
Surplus Cash Allocation 2008-2011
| The New Kodak | 18 |
2008 Key Strategic Imperatives
| The New Kodak | 19 |
This is the New Kodak: 2008 Financial Targets
| The New Kodak | 20 |
2008-2011: Target Business Model
| The New Kodak | Excludes restructuring/rationalization | 21 |
A Shift Towards Annuities Enhances Gross Profit
| The New Kodak | 22 |
The Future of the New Kodak
| The New Kodak | 23 |
Traditional’s Staying Power
Mary Jane Hellyar
President, Film, Photofinishing & Entertainment Group
Executive Vice President, Eastman Kodak Company
24
FPEG Key Messages
| The New Kodak | 25 |
FPEG Key Accomplishments
| The New Kodak | 26 |
The FPEG Portfolio
| The New Kodak | 27 |
Revenue
Decline Rate
Stabilizes,
Driven by Shift in
Portfolio
Mix
| The New Kodak | 28 |
FPEG Target Business Model
| The New Kodak | 29 |
Traditional
Photofinishing:
Focus on
Margin
Expansion
| The New Kodak | 30 |
Entertainment Imaging:
A
Year of Solid Results for
Kodak
| The New Kodak | 31 |
Cinema Screens are Broadly Distributed & Growing
| The New Kodak | 2007 Estimated WW First-Run Screens = 88,000 | 32 |
D-Cinema Adoption Still in Early Stages
| The New Kodak | SOURCE: Screen Digest 2007 Forecast | 33 |
Origination Film Transitioning at Measured Pace
| The New Kodak | 34 |
FPEG 2008 Operational Goals
| The New Kodak | 35 |
FPEG Key Messages
| The New Kodak | 36 |
Digital Growth
Phil Faraci
President & Chief Operating Officer
| 37 |
Progress to Date with the Digital Businesses
| The New Kodak | 38 |
Graphic Communications
Group
Growth to Outpace the Market
| 39 |
| The New Kodak | 40 |
2007 Performance: GCG
| The New Kodak | 41 |
Kodak Participates in Strong & Growing Markets
| The New Kodak | 42 |
| The New Kodak | 43 |
Market Drivers Fueling Kodak’s Profitable Growth
| The New Kodak | 44 |
GCG Portfolio
Large,
profitable position in
Capture & Prepress,
growth in Digital Print & Enterprise Solutions
| The New Kodak | 45 |
KODAK STREAM Breakthrough Technology
Introduction at Drupa ‘08
| The New Kodak | 46 |
KODAK STREAM Breakthrough Technology
Introduction at Drupa ‘08
| The New Kodak | 47 |
KODAK STREAM Continuous Inkjet Printing
| The New Kodak | 48 |
Making Progress Toward Target Model
| The New Kodak | 49 |
Solid Business Model
| The New Kodak | 50 |
| The New Kodak | 51 |
Consumer Digital Group
Growth to Outpace the Market
| 52 |
Key Messages
Strong performance in 2007
| The New Kodak | 53 |
2007 Performance: CDG
| The New Kodak | 54 |
Well Positioned in Higher Growth Digital Markets
| The New Kodak | 55 |
Market Drivers of Kodak’s Growth
| The New Kodak | 56 |
Well Positioned in
“Connected Imaging”
Connecting personal content to the TV,
mobile device, PC and retail commercial hubs
| The New Kodak | 57 |
CDG
Portfolio
Broad footprint with Cameras & Kiosks, high growth
with CMOS, Inkjet printers & Connected Imaging
| The New Kodak | 58 |
Kodak CMOS Redefines
Mobile Quality
5 mp, ¼”
CMOS Sensor
| The New Kodak | 59 |
Inkjet’s Breakthrough Value Broadly Accepted
| The New Kodak | * SOURCE: NPD, does not include Mass, Direct | 60 |
| channels |
Making Progress Toward Target Model
| The New Kodak | 61 |
Solid Business Model
| The New Kodak | 62 |
| The New Kodak | 63 |
The Growth Model
Frank Sklarsky
Chief Financial Officer
64
Agenda
| The New Kodak | 65 |
2007 Financial Results
66
“Mission Accomplished”
| The New Kodak | 67 |
Achieved All 2007 Key Metrics
| The New Kodak | 68 |
Our Corporate Restructuring is Complete
| The New Kodak | 69 |
Exceeded Cash Goals
| The New Kodak | 70 |
Bridging the Change
71
Building Transparency
into our Digital Businesses
The New Reporting Structure
(effective 1/1/08)
| The New Kodak | 72 |
New Operating Structure – 2007 Breakdown
| The New Kodak | 73 |
2008 Priorities & Financial Model
74
2008 Priorities
| The New Kodak | 75 |
Review of Key Trends Under New Structure
| The New Kodak | 76 |
2008 Business Model
| The New Kodak | 77 |
2008 Financial Targets
| The New Kodak | 78 |
How Should We Think About
Net Earnings for
2008?
| The New Kodak | 79 |
2008 Cash Generation
| The New Kodak | 80 |
Significant Improvement in
Operating Cash Flow
2008 Cash Flow
Plan
| The New Kodak | 81 |
Outlook for 2008 Taxes
| The New Kodak | 82 |
Ample Liquidity Provides Significant Flexibility
| The New Kodak | 83 |
| The New Kodak | 84 |
Looking
Forward …
Target Business
Model
| 85 |
Driving
Digital Businesses Drives
Overall Revenue Growth
| The New Kodak | 86 |
2011 Business Model
| The New Kodak | 87 |
Target Business Model
| The New Kodak | 88 |
Ramping Cash Flow
| The New Kodak | 89 |
Capital Allocation and
Value Creation
| 90 |
Capital Allocation Philosophy
| The New Kodak | 91 |
| The New Kodak | 92 |
Key Criteria for Inorganic Investments
| The New Kodak | 93 |
Key Takeaways
| The New Kodak | 94 |
| 95 |
APPENDIX
Reconciliation of Non-GAAP Financial Measures
to the Most Directly
Comparable GAAP Measures
In its February 7, 2008 Investor Meeting presentation, Eastman Kodak Company (“The Company”) referenced certain non-GAAP financial measures, "Digital Revenue Growth", “Digital Earnings”, “Digital EFO", “Digital EFO Improvement”, “Gross Profit excluding Restructuring”, “ Pro Forma Revenue Change”, “EFO excluding Restructuring”, “EBITDA”, Total Company and Segment: “Pro Forma Revenue”, “Pro Forma Gross Profit”, “Pro Forma SG&A” as a percent of sales, “Pro Forma R&D” as a percent of sales, and “Pro Forma Earnings from Operations excluding Restructuring” as a percent of sales. Additional non-GAAP financial measures presented include “CDG and GCG Segment Digital Revenue Growth", “CDG Pro Forma EFO Improvement”, “GCG Pro Forma EFO”, “Pro Forma Digital EFO”, “Pro Forma Digital Revenue”, “Net Cash Generation”, “Cash Generation before Dividends”, and "Cash Generation Excluding Carryover Restructuring/Rationalization".
The Company believes that these non-GAAP measures represent important internal measures of performance. Accordingly, where they are provided, it is to give investors the same financial data management uses with the belief that this information will assist the investment community in properly assessing the underlying performance of the Company, its financial condition, results of operations and cash flow on a year-over-year basis.
The following reconciliations are provided with respect to terms used in the February 7, 2008 presentations of Kodak’s Chief Executive Officer Antonio Perez, Chief Financial Officer Frank Sklarsky and other Company Officers.
1. The following table reconciles 2007 net cash generation to the most directly comparable GAAP measure of net cash provided by continuing operations from operating activities (amounts in millions):
| 2007 | 2007 | |||
| Goal | Actual | |||
| Net cash generation, as presented | ~$100 | $ | 333 | |
| Additions to properties, net proceeds from the sales of | ||||
| businesses/assets, distributions from (investments in) | ||||
| unconsolidated affiliates and dividends, net | 150-300 | 19 | ||
| Net cash provided by continuing operations from | ||||
| operating activities (GAAP basis) | $250-$400 | $ | 352 | |
2. The following table reconciles the 2007 digital revenue growth for CDG, GCG and Total Company to the most directly comparable GAAP measure of consolidated total revenue decline:
| 2007 | 2007 | ||
| Goal | Actuals | ||
| CDG Digital revenue growth, as presented | 2%-4% | 8% | |
| GCG Digital revenue growth, as presented | 6%-9% | 7% | |
| Total Digital revenue growth, as presented | 3%-5% | 8% | |
| Total Traditional and New Technologies revenue decline | (18)% | (15)% | |
| Total Company revenue decline (GAAP basis) | (7)%-(4)% | (3)% |
1
3. The following table reconciles 2007 digital earnings to the most directly comparable GAAP measure of loss from continuing operations before interest, other income (charges), net and income taxes (amounts in millions):
| 2007 | 2007 | ||||
| Goal | Actual | ||||
| Digital earnings, as presented | $150-$250 | $ | 176 | ||
| Traditional earnings and New Technologies loss | ~$150 | 167 | |||
| Total EFO, as presented | $300-$400 | $ | 343 | ||
| Restructuring and items of comparability | $(725)-$(925) | (573 | ) | ||
| Loss from continuing operations before interest, other | |||||
| income (charges), net and income taxes (GAAP basis) | $(425)-$(525) | $ | (230 | ) | |
4. The following table reconciles 2006 and 2007 digital earnings from operations to the most directly comparable GAAP measure of loss from continuing operations before interest, other income (charges), net and income taxes (amounts in millions):
| 2007 | 2006 | Increase | ||||||||
| Actual | Actual | (Decrease) | ||||||||
| Digital Earnings from Operations, as presented | $ | 176 | $ | (13 | ) | $ | 189 | |||
| Traditional earnings, New Technologies loss, restructuring | ||||||||||
| costs and items of comparability | (406 | ) | (463 | ) | $ | 57 | ||||
| Loss from continuing operations before interest, other | ||||||||||
| income (charges), net and income taxes (GAAP basis) | $ | (230 | ) | $ | (476 | ) | $ | 246 | ||
5. The following table reconciles 2008 EBITDA goal to the most directly comparable GAAP measure of earnings from continuing operations before interest, other income (charges), net and income taxes (amounts in millions):
| 2008 | |
| Goal | |
| EBITDA, as presented | $1,000-$1,100 |
| Depreciation and Amortization | ~$(675) |
| Earnings from continuing operations before interest, other income | |
| (charges), net and income taxes (GAAP basis) | $360-$400 |
2
6. The following table reconciles 2008 cash generation excluding carryover restructuring/rationalization to the most directly comparable GAAP measure of net cash provided by continuing operations from operating activities (amounts in millions):
| 2008 | |
| Goal | |
| Cash generation excluding carryover restructuring/rationalization, as | |
| presented | $550-$650 |
| Projected restructuring payments | ~$150 |
| Cash generation before dividend payments | $400-$500 |
| Additions to properties, net proceeds from the sales of businesses/assets, | |
| distributions from (investments in) unconsolidated affiliates and dividends | $125-$175 |
| Net cash provided by continuing operations from operating activities | |
| (GAAP basis), as presented | $575-$625 |
3
7. The following table reconciles 2006 and 2007 Pro Forma Revenue, Gross Profit and SG&A, R&D, and EFO segment as a percent of sales for CDG, GCG and FPEG to the most directly comparable GAAP measures based on previously reported 2006 and 2007 actual segment results:
| ($ in millions) | Impact of 2008 | GAAP basis | Impact of 2008 | GAAP basis | ||||||||||||||||||||
| 2006 | structure realignment | 2006 | 2007 | structure realignment | 2007 | |||||||||||||||||||
| FPEG (previously FPG) | Pro Forma | and cost reallocations | Actual | Pro Forma | and cost reallocations | Actual | ||||||||||||||||||
| Revenue | $ | 4,271 | $ | (1,959 | ) | $ | 2,312 | $ | 3,638 | $ | (1,670 | ) | $ | 1,968 | ||||||||||
| Gross Profit | 25 | % | 12 | % | 37 | % | 24 | % | 13 | % | 37 | % | ||||||||||||
| SG&A | 15 | % | 5 | % | 20 | % | 14 | % | 3 | % | 17 | % | ||||||||||||
| R&D | 2 | % | (1 | )% | 1 | % | 2 | % | (1 | )% | 1 | % | ||||||||||||
| EFO | 8 | % | 8 | % | 16 | % | 8 | % | 11 | % | 19 | % | ||||||||||||
| Impact of 2008 | GAAP basis | Impact of 2008 | GAAP basis | |||||||||||||||||||||
| 2006 | structure realignment | 2006 | 2007 | structure realignment | 2007 | |||||||||||||||||||
| CDG | Pro Forma | and cost reallocations | Actual | Pro Forma | and cost reallocations | Actual | ||||||||||||||||||
| Revenue | $ | 2,995 | $ | 1,716 | $ | 4,711 | $ | 3,241 | $ | 1,390 | $ | 4,631 | ||||||||||||
| Gross Profit | 21 | % | (3 | )% | 18 | % | 26 | % | (6 | )% | 20 | % | ||||||||||||
| SG&A | 19 | % | (2 | )% | 17 | % | 18 | % | (1 | )% | 17 | % | ||||||||||||
| R&D | 10 | % | (4 | )% | 6 | % | 8 | % | (3 | )% | 5 | % | ||||||||||||
| EFO | (7 | )% | 2 | % | (5 | )% | 0 | % | (2 | )% | (2 | )% | ||||||||||||
| Impact of 2008 | GAAP basis | Impact of 2008 | GAAP basis | |||||||||||||||||||||
| 2006 | structure realignment | 2006 | 2007 | structure realignment | 2007 | |||||||||||||||||||
| GCG | Pro Forma | and cost reallocations | Actual | Pro Forma | and cost reallocations | Actual | ||||||||||||||||||
| Revenue | $ | 3,287 | $ | 190 | $ | 3,477 | $ | 3,413 | $ | 177 | $ | 3,590 | ||||||||||||
| Gross Profit | 31 | % | (2 | )% | 29 | % | 28 | % | (1 | )% | 27 | % | ||||||||||||
| SG&A | 23 | % | (3 | )% | 20 | % | 19 | % | (1 | )% | 18 | % | ||||||||||||
| R&D | 6 | % | 0 | % | 6 | % | 6 | % | 0 | % | 6 | % | ||||||||||||
| EFO | 2 | % | 1 | % | 3 | % | 3 | % | 0 | % | 3 | % | ||||||||||||
8. The following table reconciles 2006 and 2007 total company Pro Forma Gross Profit excluding restructuring and SG&A, R&D, and EFO excluding restructuring as a percent of sales to the most directly comparable GAAP measures of Gross Profit, SG&A as a percent of sales, R&D as a percent of sales, and loss from continuing operations before interest, other income (charges), net and income taxes as a percent of sales (“GAAP basis”), as previously reported:
| Impacts of 2008 | Impacts of 2008 | |||||||||||||||||||||||
| ($ in millions) | structure realignment | structure realignment | ||||||||||||||||||||||
| cost reallocations, | GAAP basis | cost reallocations, | GAAP basis | |||||||||||||||||||||
| 2006 | restructuring and items | 2006 | 2007 | restructuring and items | 2007 | |||||||||||||||||||
| Total Company | Pro Forma | of comparability | Actual | Pro Forma | of comparability | Actual | ||||||||||||||||||
| Revenue | $ | 10,568 | $ | - | $ | 10,568 | $ | 10,301 | $ | - | $ | 10,301 | ||||||||||||
| Gross Profit | 26 | %* | (3 | )% | 23 | % | 26 | %* | (2 | )% | 24 | % | ||||||||||||
| SG&A | 19 | % | (1 | )% | 18 | % | 17 | % | 0 | % | 17 | % | ||||||||||||
| R&D | 6 | % | (1 | )% | 5 | % | 5 | % | 0 | % | 5 | % | ||||||||||||
| EFO | 2 | %* | (7 | )% | (5 | )% | 3 | %* | (5 | )% | (2 | )% | ||||||||||||
* excluding restructuring and items of comparability
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9. The following table reconciles 2007 CDG Pro Forma EFO improvement to the most directly comparable GAAP measure of CDG improvement in loss from continuing operations before interest, other income (charges), net and income taxes:
| 2007 | |||
| (in millions) | Actual | ||
| CDG Pro Forma EFO improvement, as presented | $ | 198 | |
| Impact of 2008 structure realignment and cost | |||
| reallocations | $ | (50 | ) |
| CDG improvement in loss from continuing | |||
| operations before interest, other income | |||
| (charges), net and income taxes (GAAP basis) | $ | 148 | |
10. The following table reconciles 2006 and 2007 Pro Forma digital revenue to the most directly comparable GAAP measures of total revenue:
| 2007 | 2006 | Growth/ | ||||||||
| ($ in billions) | Actual | Actual | (Decline) | |||||||
| Pro Forma digital revenue, as presented | $ | 6.6 | $ | 6.3 | 6 | % | ||||
| Impact of 2008 structure realignment | (0.2 | ) | (0.4 | ) | -50 | % | ||||
| Digital Revenue as previously reported | $ | 6.4 | $ | 5.9 | 8 | % | ||||
| Traditional and New Technologies revenue | 3.9 | 4.7 | -17 | % | ||||||
| Total revenue (GAAP basis), as presented | $ | 10.3 | $ | 10.6 | -3 | % | ||||
11. The following table reconciles 2006 and 2007 Pro Forma digital EFO to the most directly comparable GAAP measures of loss from continuing operations before interest, other income (charges), net and income taxes:
| 2007 | 2006 | Growth/ | ||||||||
| ($ in millions) | Actual | Actual | (Decline) | |||||||
| Pro Forma digital EFO, as presented | $ | 83 | $ | (152 | ) | -155 | % | |||
| Impact of 2008 structure realignment | 93 | 139 | -33 | % | ||||||
| Digital EFO as previously reported | $ | 176 | $ | (13 | ) | 100 | % | |||
| Traditional and New Technologies earnings, restructuring | ||||||||||
| costs and items of comparability | (406 | ) | (463 | ) | -12 | % | ||||
| Loss from continuing operations before interest, other | ||||||||||
| income (charges), net and income taxes (GAAP basis) | $ | (230 | ) | $ | (476 | ) | -52 | % | ||
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12. The following table reconciles 2006 and 2007 GCG Pro Forma EFO to the most directly comparable GAAP measure of GCG earnings from continuing operations before interest, other income (charges), net and income taxes:
| 2007 | 2006 | |||||||||
| Actual | Actual | Improvement | ||||||||
| GCG Pro Forma EFO, as presented | $ | 100 | $ | 64 | $ | 36 | ||||
| Impact of 2008 structure realignment and cost reallocations | 16 | 36 | (20 | ) | ||||||
| 2007 GCG earnings from continuing operations before | ||||||||||
| interest, other income (charges), net and income taxes | ||||||||||
| (GAAP basis) | $ | 116 | $ | 100 | $ | 16 | ||||
13. The following table reconciles 2007 total company Gross Profit excluding restructuring costs to total company Gross Profit on a GAAP basis:
| 2007 | 2007 | ||
| Goal | Actual | ||
| Gross Profit excluding restructuring, as presented | 25%-26% | 26% | |
| Restructuring and items of comparability | (1)% | (2)% | |
| Gross Profit (GAAP basis) | 24%-25% | 24% |
14. The following table reconciles 2007 earnings from operations excluding restructuring as a percent of sales to the most directly comparable GAAP measure of loss from continuing operations before interest, other income (charges), net and income taxes as a percent of sales:
| 2007 | 2007 | |||
| Goal | Actual | |||
| Earnings from operations excluding restructuring as a percent of sales, as presented | 3%-4% | 3% | ||
| Restructuring costs and items of comparability | (7)%-(9)% | (5)% | ||
| Loss from continuing operations before interest, other income (charges), net and | ||||
| income taxes as a percent of sales (GAAP basis) | (4)%-(5)% | (2)% | ||
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