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  • 1. Integrated Company Analysis Fall, 2009 For over one hundred years, Eastman Kodak Company has provided imaging products to consumers, earning brand equity through innovation. Today, Kodak struggles with declining revenue and steep restructuring costs as it transitions to the digital imaging market. Alejandro Castano Joe Czechowicz Troy Golden Matt Johnson Lindsay Kruger Wisconsin School of Business 975 University Ave Madison, WI 53706 608-262-1550
  • 2. ContentsContents .................................................................................................................................................................................. 2Executive Summary ................................................................................................................................................................ 4Company Analysis .................................................................................................................................................................. 5 Organizational Structure ..................................................................................................................................................... 5 Financial Analysis ............................................................................................................................................................... 5 Performance Indicators ................................................................................................................................................... 5 Quality of Financial Statements ...................................................................................................................................... 6 Financing and Capital Structure ...................................................................................................................................... 7 Valuation ......................................................................................................................................................................... 7 Kodak‘s Current Marketing Strategy .................................................................................................................................. 8 Consumer ........................................................................................................................................................................ 8 Positioning ...................................................................................................................................................................... 8 Product ............................................................................................................................................................................ 9 Price ................................................................................................................................................................................ 9 Placement ...................................................................................................................................................................... 10 Promotion ...................................................................................................................................................................... 10Recommendations ................................................................................................................................................................. 12Appendix ............................................................................................................................................................................... 14 Exhibit 1 – Products Analysis ........................................................................................................................................... 14 Digital Cameras............................................................................................................................................................. 14 Printers .......................................................................................................................................................................... 15 Digital Picture Frames .................................................................................................................................................. 16 Photo Storage ................................................................................................................................................................ 16 Exhibit 2 – ―It‘s time to smile‖ Campaign ........................................................................................................................ 18 Exhibit 3 – Competitor Endorsements .............................................................................................................................. 22 Exhibit 4 – Economic Value Pricing................................................................................................................................. 22 Exhibit 5 – Kodak Product Pricing ................................................................................................................................... 22 Exhibit 6 ............................................................................................................................................................................ 23 Point And Shoot Models: Rankings And Price ............................................................................................................. 23 Compiled from ConsumerReports.org .......................................................................................................................... 23 Exhibit 7 – Competitor Business Descriptions ................................................................................................................. 25 Canon Inc. ..................................................................................................................................................................... 25 2
  • 3. Fujifilm Holdings Corp. ................................................................................................................................................ 25 Hewlett-Packard Co. ..................................................................................................................................................... 25 Ricoh Co. Ltd. ............................................................................................................................................................... 25 Sony Corp. .................................................................................................................................................................... 26 Xerox Corp.................................................................................................................................................................... 26 Nikon Corp.................................................................................................................................................................... 26 Olympus Corp. .............................................................................................................................................................. 27 Lexmark International Inc. ............................................................................................................................................ 27 Seiko Epson Corp.......................................................................................................................................................... 27 Exhibit 8 – Profitability Scenario Analysis....................................................................................................................... 28 Exhibit 9: Comparison of accounting methods ................................................................................................................. 30 Exhibit 10: Operating cost breakdown............................................................................................................................. 31 Exhibit 11 - Cash Conversion Cycle ................................................................................................................................ 32 Exhibit 12 – EK Pro Forma Financial Statements ............................................................................................................ 34 Exhibit 13 – CDG Pro Forma Financial Statements ......................................................................................................... 35 Exhibit 14 – FPEG Pro Forma Financial Statements ........................................................................................................ 36 Exhibit 15 – GCG Pro Forma Financial Statements ......................................................................................................... 37 Exhibit 16 – Segment Valuations and Key Assumptions ................................................................................................. 38 Exhibit 17 – Regression Analysis of Traditional Sales Lines ........................................................................................... 39 Exhibit 18 – Sensitivity Analysis of Stock Price .............................................................................................................. 43 Exhibit 19 – Cash Benefit of Financing Transactions ...................................................................................................... 44Works Cited .......................................................................................................................................................................... 45 3
  • 4. Executive Summary Eastman Kodak Co. was founded in 1892 by George Eastman and offers imaging products for leisure,commercial, entertainment, and scientific purposes. Traded on the New York Stock Exchange (symbol: EK), thecompany reported over $9 billion in revenue and $9 billion in assets in FY08. Kodak is organized along three segments:the Graphic Communications Group (GCG); the Film, Photofinishing, and Entertainment Group (FPEG); and theConsumer Digital Imaging Group (CDG). Kodak‘s history is one of innovation, but the company was slow to react to thedigital revolution. Kodak has struggled to overcome this legacy ever since. Through our due diligence, we have uncovered that Kodak must improve gross margins to become profitable in2010. Our sensitivity analysis shows that sales growth alone will not lead to profitability. We have identified a targetgross margin of 27.5% to become profitable in 2010. Kodak entered into two financing transactions over the past two months involving convertible debt and warrants.These transactions allowed Kodak to raise almost $700 million in cash, while saving around $35 million per year ininterest. In exchange for the savings, existing shareholders will potentially give up 25% of the equity value. Kodak alsocontinues to sell significant assets and intellectual property rights, including its OLED business, a potential next-generation flat-panel display technology that Kodak pioneered over the last couple of decades (Kodak, 2009). Kodak positions itself as the user-friendly choice for amateur users of imaging products. The company‘s productattributes detract from this position. In general, Kodak products are priced below the competition. Kodak‘s lower price,though offering a benefit to some consumers, signals inferior quality to the market. Kodak‘s placement strategy employswide market coverage, ensuring easy access for consumers. Presently, Kodak does not direct consumers to preferredchannels. Kodak recently launched an integrated, multi-media marketing campaign. The campaign touches on multipleproduct lines, rather than emphasizing an ‗energizer‘ product. The following are our key recommendations: (1) redesign Kodak‘s marketing communication message to positionit as the premier provider of imaging solutions that connects the consumer with their loved ones; (2) through marketingcommunications, walk the consumer from image capturing, through storage, to sharing, allowing them to process each ofKodak‘s product offerings; (3) increase marketing focus on digital cameras to leverage brand equity (reposition); (4)increase prices on digital cameras. 4
  • 5. Company AnalysisOrganizational Structure Eastman Kodak is an international corporation with over 24,000 employees, over $9 billion in annual sales(FY08), and over $9 billion in assets (FY08). The company is organized along three segments: the Graphic Communications Group (GCG); the Film,Photofinishing, Entertainment Group (FPEG); and the Consumer Digital Imaging Group (CDG). Thirty-nine percent ofKodak‘s revenue comes from the GCG segment, which provides products and services to businesses with large scaleprinting operations. Thirty-one percent of Kodak‘s revenue comes from the FPEG segment, which provides traditionalphotographic products and services to consumer, professional, and industrial markets. Thirty percent of Kodak‘s revenuecomes from the CDG segment, which provides digital consumer products. Kodak began in the late nineteenth century with George Eastman‘s advance in dry plate technology, whichallowed photography to become an amateur pursuit. Since then, Kodak has continued to excel in technologicalinnovation. The company issued over 19,000 U.S. patents between 1900 and 1999. In 1935, Kodak introducedKodachrome film, the first commercially successful amateur color film. NASA relied on a Kodak camera to take photoson the moon and transmit them to earth. Also, Kodak invented the first digital camera in 1975 (Kodak, 2009). Kodak reacted slowly to the digital revolution. Since the takeoff of digital cameras, Kodak has seen revenuesplummet from $15 billion to $9.4 billion (Butcher, 2009). Kodak has cut 40,000 jobs over the last five years, and plans toeliminate 3,500 to 4,500 in 2009 (Dobbin, 2009). Since 2003, Kodak has sought to meet this challenge with robustrestructuring programs. Approximately 80% of Kodak revenue is from new products and services developed within thelast five years (Butcher, 2009). Approximately 60% of Kodak employees have been there less than four years (Butcher,2009).Financial AnalysisPerformance Indicators Kodak faces the challenge of high restructuring costs and declining demand for its digital products, while tryingto redefine its organizational structure and brand name. On top of company-specific problems, Kodak faces a stiff macro-economic headwind, as consumers continue to watch their spending on luxury items. To combat these problems, Kodakhas cut costs via layoffs and reductions in R&D expenditures, removed dividend payments to common stockholders and 5
  • 6. targeted its cash conversion cycle. In the near term, Kodak appears to be poorly positioned to handle an extendedeconomic contraction, and must act immediately to generate additional revenues and profits.Negatives for FY08 vs. Competitors Revenues: Kodak experienced revenue growth (pro-forma) of -2.5% and -8.6% in FY07 and FY08, respectively.The median competitor revenue growth was 6.7% and -8.6% in FY07 and FY08, respectively. We attribute the quickerrevenue decline to the company‘s inability to resonate with consumers. Rapidly declining gross margins. Since Kodak introduced its ―digital plan‖ in 2003, gross margins have declinedsharply from a high of 36% to the current low of around 20% (23% FY08 vs. competitor median of 36%). The decline inmargins is a pressing issue. We believe our marketing recommendations give Kodak the best chance of survival. Return-on-Equity (Dupont): Kodak has seen its ROE go from 24.5% in FY02 (vs. 6.6% for competitors) to -44.4% in FY05 (vs. 10.4% for competitors), to -36.4% (vs. 0.6% for competitors) in FY08. One of the distinguishingdetractors comes from Kodak‘s above median equity multiplier at 5.4x (vs. 2.7x for competitors). As the industry andeconomy deteriorated, Kodak suffered from higher financial leverage relative to its peers (3-yr average of 6.4x vs. 2.7xfor competitors) that accelerated the decline of profitability.Positives for FY08 vs. Competitors Cash Conversion Cycle (CCC): Kodak has reduced its cash conversion cycle to -5 days for FY08, versus acompetitor median of 82 days (FactSet Research Systems, 2009). Kodak accomplished the improvement in CCC throughextensions of terms on accounts payable, while maintaining steady inventory and days of sales outstanding. Lean operating costs: Kodak has been successful in cutting SG&A costs as a percentage of sales. By reducing itsworkforce, Kodak expects future cost savings of over $300 million. Current operating costs (ex-restructuring and goodwillwrite-offs) of 22% are well below Canon (35%), Fujifilm (35%) and Nikon (31%). If Kodak can survive the economiccontraction and continue to operate at current levels in comparison to its competitors, we believe the company can surviveand return to profitability.Quality of Financial Statements Kodak reports under US GAAP (Exhibit 9). Inconsistency in Kodak‘s financial reports inhibits the ability toserially compare and forecast financial performance. Through our due diligence process, we discovered that Kodak ismore aggressive (8%) than Canon in respect to estimating expected returns on assets (6.5%) of pension plan obligations. 6
  • 7. Restatements: Kodak restated financial statements in 2003 and 2004 due to mistakes in reporting income taxes,accruals for pensions and other post-retirement benefits due to the rapid turnover (firing) of 15,000 workers. Therestatement reduced reported earnings by $85 million (effect from income tax error - $56 million, effect from pensionerrors – $29 million), decreased retained earnings and decreased cash flow from operations. Reclassifications: Continuous restructuring of the company prevents proper historical comparisons beyond threeyears. The reclassifications also introduce discrepancies between segment breakdowns and total firm numbers. Change in useful life of assets: In the first quarter of 2008, the company performed an updated analysis ofexpected useful lives on its traditional film and paper business. This analysis resulted in an increase in useful lives, whichin turn will result in decreasing depreciation expenses ($107 million), increasing net income, increasing retained earningsand increasing assets in the future. Impairment of goodwill: In 4Q08, Kodak re-evaluated all of its business segments with an increased WACCbetween 18.5% and 23.0% to reflect the rapidly deteriorating environment. Due to the estimated future cash flows beingless than the overall cost of the GCG segment, Kodak reported a pre-tax, non-cash $785 million impairment charge.Financing and Capital Structure Many of Kodak‘s financing decisions are being dictated by its weak financial position. The company is relying onconvertible securities and warrants in order to secure debt financing at bearable costs (around 8.5%, Exhibit 19) whilegiving up significant upside of around 25% of common stock if the company recovers. Equity financing is not an optiondue to the low market value of Kodak‘s common stock relative to its operating and financing cash needs. It has decided tocut its dividend and discontinue stock repurchases after spending over $450 million of needed cash in 2008.ValuationDiscounted Cash Flow Analysis We valuate Kodak‘s stock at $5.32. This makes the share price of $4.40 as of 12/11/09 slightly undervalued. TheDCF analysis was performed using a two-stage model in which we estimated the cash flows for Kodak‘s three businesssegments, CDG, FPEG and GCG, through 2018, and then calculated a terminal value based on assumed long-term growthrates (Exhibits 15). Kodak has re-organized its business segments repeatedly, making it difficult to compare revenues and costs over along period and establish any significant trend at the segment level. Second, the business is undergoing rapid changes as aresult of the technological shift to digital products, which has increased volatility and made it very difficult to establish 7
  • 8. any kind of even a short-term trend. We ended up using a regression model of Kodak‘s overall revenues with severalfactors related to their traditional business segments to predict revenues going forward for GCG and FPEG, which mostclosely resemble Kodak‘s traditional combined business lines since 1990 (Exhibit 16). Finally, we believe that our WACCcalculation could be undervaluing Kodak‘s risk based on management expectations for the cost of capital (Kodak, 2009).Exhibit 17 contains a sensitivity table of the stock value based on WACC and long-term growth rates.WACC We estimated a weighted average cost of capital (WACC) of 15.1% for the overall company based on a risk-freerate of 3.2%, and a market risk premium of 7.4%1 (Kavajecz, 2009, p. 19). We calculated Kodak‘s equity beta of 1.68from September 2002 through November 2009. We chose this time period to accurately reflect the increased volatility ofKodak‘s share price relative to the market based on the company‘s digital transition. We also used industry comparablesto estimate the cost of capital for each of Kodak‘s business units, and then increased them by a factor based on thecompany WACC, which we assume reflects significant additional risk of bankruptcy as indicated by the stock volatilityrelative to the S&P 500 (Exhibit 15).Kodak’s Current Marketing StrategyConsumer Kodak is likely targeting a segment of the consumer market that meets the following criteria: (1) adult, post-baccalaureate, 25-40 years old; (2) active/ involved; (3) caring about relationships (friends & family); (4) non-professional, sub-standard skills in photography; (5) high interest in capturing images of life (freeze in time) and sharingthose images in digital or printed form.Positioning Kodak‘s marketing decisions (explained below) imply the following positioning statement: Kodak is preferred byadults who are active, busy and care about meaningful relationships and want to encapsulate and share importantmoments in their lives, because Kodak’s products enable them to capture, share, display, and store pictures and createkeepsakes, with more ease than competitors like Canon, Nikon, and Fujifilm.1 Risk premium over government bonds: 13.0% - 5.6% = 7.4% 8
  • 9. Product Kodak fails to offer clear, distinguishing benefits to consumers. The company attempts to position itself as aprovider of ‗user-friendly‘ products, typically offering products whose names include the word ‗easy‘. However, some ofKodak‘s product attributes detract from the credibility of this position (Exhibit 2). Other than a long battery life, theKodak EasyShare M1033 digital camera features few differentiating attributes that appeal to the user-friendly consumer.The Kodak EasyShare 5300 printer has a cumbersome interface and PC Loader tray that lacks built-in networkingcapability. Kodak‘s ‗user-friendly‘ position is undermined with products that do not deliver the promised benefit. Kodak develops products quickly due to its competitive environment. A comprehensive program designed toinclude all desirable features is nearly impossible due to the speed at which the industry evolves. Product types face different risk scenarios depending on their newness to the company and their newness to themarket. Digital cameras are familiar to the market and to Kodak. Thus, a line extension of Kodak‘s digital camerascreates a risk of cannibalization and a lack of incremental sales. Kodak‘s new approach to printers, with higher upfrontcosts and lower ink costs, presents different risks. The product type is new to the market and new to the company,representing a new to the world concept. Thus, the product introduction is at risk of a lack of company-market fit.Price Using the economic pricing model (Exhibit 5), a firm strives to deliver products that demand a price premiumover its competitors. Based on this, we compared the pricing of Kodak‘s core consumer products (digital cameras andinkjet printers), and its secondary consumer products (digital picture frames and Kodak Gallery), to the pricing of itsdirect competitors in each category. In the compact digital camera segment, Kodak‘s products are generally priced belowthe products of its most direct competitors of Canon, Nikon, and Fujifilm. For example, Kodak cameras sell in the rangeof $80 to $160, while cameras offered by the competitors sell in the range of $110 to $500 (Consumers Union of U.S.,2009). This price differential implies that Kodak is suffering from negative price differentiation. While a lower pricemay offer the benefit of capturing a large portion of the price sensitive consumer, we believe that the lower price signalslower quality to the consumer, when in actuality Kodak‘s cameras deliver comparable quality to that of its competitors.According to ConsumerReports.org, Kodak holds four of the top twenty-six spots in the point and shoot digital cameracategory, only behind Canon, which dominates the rankings with nine of the top spots—Fujifilm has two cameras rankedin the top twenty-six, while Nikon has zero (Consumers Union of U.S., 2009). As a result, we believe that there is anopportunity for Kodak to raise its prices in this segment. The other consumer products do not suffer from negative price 9
  • 10. differentiation, and thus we do not believe an opportunity exists to change the pricing of these products (see Exhibit 6 forfurther discussion on pricing of printers, digital frames, and Kodak Gallery products).Placement Overall, Kodak‘s placement strategy is similar to that of its competitors, in each of the main consumer productcategories. Digital cameras, inkjet printers, and digital picture frames, are typically sold through each company‘s website,and through all major retailers such as Best Buy, Target, and Wal-Mart, both in stores and online. The photo storageproducts are all offered exclusively online. Kodak‘s placement employs wide market coverage because its products areeasily accessible to all consumers. It is difficult for Kodak to differentiate itself within the placement component of themarketing framework; however, it is important that it monitors the retailers to ensure both consistency across channelsand alignment of objectives between itself and the retailers.PromotionUnderstanding the consumer Kodak‘s target consumers have lower levels of expertise than an amateur photographer. They are typically moreconcerned about the moments captured in pictures and video rather than the art or technical skills required to do so. Theseconsumers will likely look to an expert (or perceived expert) in the field of photography for advice if any questions arise.Thus, the level of involvement of Kodak‘s consumer tends to be low. While in some cases, consumers may do someresearch to learn about the product they‘re seeking, this type of research is typically shallow in technicalities or details.Once these consumers have learned what brands are reliable, where the best deals are, and how to obtain the product, theyare ready to purchase. This is when Kodak must be ready to sell.Marketing objectives Increased sales is the ultimate marketing objective for Kodak. At the same time, Kodak‘s promotional strategyseems to have more specific goals depending on where the consumer is within the buying process. Prior to purchasing,Kodak wants to represent ‗peace of mind‘, fun, and overall inspiration (Exhibit 3, figure 8). The following historic tag-lines are indicative of such intentions: ―you press the button, we do the rest‖ in 1888 (Kodak, 2009), ―the Kodakmoment‖, ―Share Moments, Share Life‖ in 2001, and its most recent campaign ―It‘s time to smile‖ (Exhibit 3), which willrun for at least one year. These campaigns fit Kodak‘s aim to offer an easy way for consumers to capture the bestmoments of their lives. Kodak also appeals to creative consumers who are interested in creating picture books, cards, t- 10
  • 11. shirts, and the like. These additional, creative options entice the consumer to invest more in Kodak products (Exhibit 3,figure 3). Hence, after the first purchase, Kodak‘s goal is to create a repeat customer.Reseller Analysis The availability of products is vital to Kodak‘s success. Therefore, Kodak must ensure the consumer is directlyconnected to preferred retailers whenever they are ready to buy. Unfortunately, that is not always the case in Kodak‘scurrent marketing campaign. While Kodak is improving its presence amongst consumers by using several digitalinitiatives, it is not always clear what is the best way to obtain the products. There is not always a link or message thatdirects consumers to retailers Kodak prefers. Consequently, consumers interested in purchasing Kodak products may findinconsistent messages while searching for a channel (e.g. prices far lower than Kodak recommends, Exhibit 3, fig. 9).Marketing Communications Kodak‘s marketing communications today are focused on triggering emotions and presenting an argument infavor of some of its product attributes. The company‘s latest campaign, ―It‘s time to smile,‖ stems from the consumerinsight that today‘s work-life balance and the economic situation have negatively impacted relationships (Exhibit 3); eventhough, consumers perceive it is easier to connect with friends and family today than it was 5 years ago (thanks to e-mail,cell phones, and social networks) (Kodak, 2009). Kodak seeks to connect with the consumer at an emotional level andencourage them to smile and make others smile – all while capturing and sharing their newfound happy moments withKodak products. However, the company fails to deliver a clear and differentiating promise that resonates with ameaningful number of consumers. Even though Kodak‘s new integrated marketing campaign is present in all major social media channels(Facebook, Twitter, YouTube) the company‘s number of followers is significantly lower when compared with those ofcompetitors and other successful brands. On Facebook, as of December 12, 2009, Kodak has 47,342 fans, while Canonand Nikon have 119,165 and 117,574 respectively. The #1 brand on Facebook, Coca-Cola, dwarfs these numbers withover four million fans. Kodak cannot afford to lose in the digital space as social media has the powerful effect of creatingcommunities of ever-growing fans who evangelize the brand – all at a relatively low and fixed cost. Without fans, the success of the social media initiative is in danger. For example, assume aggressively that theideal Kodak consumer spends $200 per year for 20 years in a variety of products totaling $4,000. Also, assume Kodak‘scontribution margin stays at nearly 25% so each customer is worth $1000 to the company. If an integrated digital 11
  • 12. campaign of the magnitude that Kodak is implementing costs nearly $10 million per year to maintain, the company willneed 10,000 of these consumers to break even (Charlene Li., 2008). At less than 50,000 fans, the conversion rate needed(20%) is quite high, considering that Facebook claims a conversion rate of only 10% for its advertising (Facebook, 2009).Even at a more aggressive conversion rate of 15%, Kodak needs much higher numbers to succeed and be profitable. Currently Kodak does not utilize the services of a celebrity spokesperson. This reduces any risks of brandconfusion or poor representation, commonly associated with endorsements. However, Kodak is betting too much on thestrength of its brand alone, while competitors enlist the help of famous characters like Ashton Kutcher (Nikon), and MariaSharapova (Canon) to energize its brand.Promotion Conclusion Overall, there seems to be a lack of buzz, energy, top-of-mind awareness, or fuel behind the Kodak brand. Thecurrent marketing campaigns are not driving the number of customers necessary to create the sense of community thatKodak is expecting, nor generating the revenues the company needs to survive.Recommendations Kodak fails to position itself as the indisputable solution between today‘s consumers and their need forconnection. Therefore, Kodak must focus on delivering a clearer message, a differentiating promise, and products thatmeet such a promise. For example: Kodak is the premier provider of imaging solutions that bring your loved ones withinarm’s reach. Additionally, Kodak‘s marketing campaign should present one path within the imaging process that allows theconsumer to process the company‘s offerings. For instance, prioritize marketing efforts according to the following process(1 = highest priority): (1) take great pictures with Kodak digital cameras, (2) print quality pictures for less with Kodakphoto printers (3) store your pictures at the KodakGallery, where you can create unique keepsakes (4) display yourpictures in our industry-leading Kodak digital frames. Instead of overwhelming the consumer with all the options Kodakhas to offer, focusing the message on one product at a time can be more effective for Kodak‘s target consumer. We feel that additional emphasis should be placed on digital cameras, with the other products—printers, frames,and Kodak Gallery—supporting digital cameras as complementary products that round-out the digital imaging experience.Kodak‘s 120-year history as the premier provider of photography products lends itself to this strategy of emphasizingdigital cameras. This focused strategy can be accomplished through changes in each of the components of the marketingframework, while keeping in mind the desired positioning for Kodak‘s product-line. 12
  • 13. Because Kodak is targeting the novice photographer segment, it is important that its products incorporate easy-to-use attributes and automatic features that deliver high-quality photos. Currently, Kodak‘s digital cameras compete wellon the number of functions offered yet do not necessarily differentiate themselves. The same holds true for the printercategory with complaints of complicated interfaces, cumbersome loader trays, and a lack of built-in networkingcapabilities. Kodak should strive to simplify its products across its entire product line and further educate customers ofthe easy-to-use features through its marketing campaign. Kodak prices its camera products well below the products of its main competitors. On average, Kodak camerascost 31%, 132%, and 80% less than products of similar quality in the super-zoom, compact, and subcompact categories,respectively (Exhibit 6) (Consumers Union of U.S., 2009). Kodak‘s products are consistently ranked comparably to thoseof the competition. Thus, Kodak should demand similar prices for its products. Kodak should be able to increase itsprices by at least 20% on the competitively ranked cameras to signal quality to the consumer without decreasing volumes,thus increasing profitability. This price increase will address the problem Kodak faces with poor gross margins in theCDG segment, and lead this segment towards profitability in the future. Success with an increased pricing strategy isdependent on Kodak effectively communicating the brand quality to the consumer. Kodak is dependent on its resellers to increase awareness and educate the consumers about its products. Kodakshould work closely with its main retailers to encourage promotion of its digital product suite consisting of cameras,printers, frames, and Kodak Gallery. Kodak must first educate the retail sales representatives on the features of itsproducts, namely the differentiating features that will focus on the ease-of-use theme. In addition, the products should beplaced strategically within the stores, to encourage bundling of the Kodak product-line. In promotions, Kodak needs to improve the level of energy behind the Kodak brand. For this purpose, a celebrityspokesperson could be highly effective. Because Kodak‘s consumer is relatively low involvement and the market isalready cluttered with many reasonable options (Canon, Nikon, Sony, Casio, etc.), a credible spokesperson should serve tohold the consumer‘s hand and guide them to buy Kodak products. The current advertising budget may need to be revised, but an increase is not automatically necessary. Kodakshould continue leveraging and improving its presence on the Internet through various digital initiatives. Kodak implementing these recommendations will lead to increased sales and margins and ultimately allow thecompany to regain its position as a world leader in its industry. 13
  • 14. AppendixExhibit 1 – Products AnalysisDigital Cameras Key Kodak Canon Meaningfulness to Point of Attributes EasyShare Powershot Market/Consumer Differentiation M1033 A1100 IS Price $140 $140 Consumers value quality n/a products at an affordable price Mega 10 12 Consumers value digital cameras Negative Pixels which capture quality images Zoom 3x 4x Consumers value digital cameras Negative which capture quality images Video Yes, with sound Yes, with Consumers value digital cameras n/a sound which capture quality video Battery 220 140 shots Longer battery life lowers cost Positive Life and adds convenience, creating value for the consumer Image Yes Yes Consumers value digital cameras n/a Stabilizer which capture quality images Face Yes Yes Consumers value digital cameras n/a Detection which are easy to use Wide No No Consumers value digital cameras n/a Angle which capture quality images Manual No No Consumers value digital cameras n/a Controls which are easy to use Manual No No Consumers value digital cameras n/a Focus which are easy to use 14
  • 15. Printers Key Kodak HP Meaningfulness to Point of Attributes EasyShare Photosmart Market/Consumer Differentiation 5300 C6180 Price $199.99 300 Consumers value printers which Positive are affordable Cheaper $9.99 for black, Presently, Consumers value affordable Positive Ink $14.99 for ink costs printer ink color double or more; newly introduced ink costs $14.99 for black, $17.99 for color Printing Marginally Consumers value fast printers Negative Speed Faster Built in No Yes Consumers value printers which Negative Networking are easy to use User Better Consumers value printers which Negative Interface are easy to use Paper Consumers value high quality n/a printing printers quality Photo newer photos older Consumers value high quality n/a printing better photos printers quality better Hardware- worse Consumers value printers which Negative paper tray are easy to use 15
  • 16. Digital Picture FramesProducts Compared: Kodak Easyshare 10‖ W1020 Wireless Digital Frame vs. Sony 10.2‖ Widescreen LCD Digital Frame Does Kodak Meaningfulness to Point of Attribute: Kodak Sony have Market/Consumer Differentiation Credibility? Yes, because Kodak is Built-In Important because makes the Not known for its Wi-Fi Included product more functional and Positive included innovation and Technology easier to use excellence in technology. This is an important attribute of digital frames, 1024 x 600 Higher resolution is perceived as and therefore, Resolution 800x480 Negative (better) higher quality Kodak should likely address the deficiency vs. the competitionSource: www.Kodak.com; www.bestbuy.comPhoto Storage Key Attributes Kodak Flickr Meaningfulness to Point of Credibility Gallery Market/Consumer Differentiation Price Purchase of Free Customers value the ability to Negative services store photos in a safe and necessary secure way, with ease and at minimum or no cost. Requirements yearly None "" Negative purchase 16
  • 17. Storage Limit No Yes Customers want the ability to Positive Kodak is a store as many pictures as trusted possible so they dont have to company so delete or move photos customers believe that they have the ability to offer unlimited storage with no problems Join No Yes Consumers enjoy connecting Negative Clubs/Groups with others whom share similar interests; provides a sense of community Video Clips Yes No Consumers increasingly use Positive Kodak is digital camera devices to take known for its videos in addition to photos, excellence in so the ability to store videos photography is valued so customers have Albums/Flipbooks Yes No This allows customers to Positive confidence in creatively store and share its ability to their photos as keepsakes deliver on these Prints and Editing Yes No This feature delivers Positive attributes. convenience by allowing users to store, edit, and print photos in one central placeSource: www.kodakgallery.com; 17
  • 18. Exhibit 2 – “It’s time to smile” CampaignFigure 1 - Reason for campaign. Source: Kodak.comFigure 2 - Consumer Insight. Source: Kodak.com 18
  • 19. Figure 3 - Product Portfolio. Source: Kodak.comFigure 4 - People in need to connect. Source: Kodak.com 19
  • 20. Figure 5 - Connecting with digital camera. Source: Kodak.comFigure 6 – Use of social media Figure 7 – Viral Campaign 20
  • 21. Figure 8 - Video ads for YouTube and TV. Source: YouTube/KodakFigure 9 – sample banner, no link to purchase. Source: tweetPhoto.com Figure 10 – price advertised on Kodak.com Figure 11 - Prices of other online retailers 21
  • 22. Exhibit 3 – Competitor Endorsements Figure 12 – Ashton Kutche, Nikon Figure 13 – Maria SharapovaExhibit 4 – Economic Value PricingAccording to the economic value-pricing model, a firm‘s product price is a sum of its reference value and itsdifferentiation value. As such, the reference value for Kodak‘s products is the price of its competitor‘s comparableproducts, while differentiation value is the price premium (or discount) captured by Kodak‘s products due to additional(or fewer) benefits offered, as perceived by the consumer.Figure 14 - Economic Value PricingExhibit 5 – Kodak Product PricingWithin the all-in-one inkjet printer category, Kodak‘s prices are slightly higher than those of Hewlett Packard (HP) andCanon, which is consistent with its current campaign to charge a small premium for the printer, while offering the ink atsignificantly lower prices. In addition, to offset the price premium, Kodak is partnering with retailers such as Best Buy tooffer a $50 discount on a printer, when a customer recycles an old printer. The digital picture frame market is highlyfragmented with 15 different brands ranked in the top 20 by Consumer Reports (add works cited). Kodak‘s price range of$60-$230 is consistent with the pricing of other brands. An exception to this is the pricing of Kodak‘s recently releasedwireless OLED frame, which demands an extreme price premium, at a price of $999, because it is the only frame offered 22
  • 23. to the consumer market, using this advanced technology. Kodak‘s position in the high-end digital frame market is asignificant opportunity for the company going forward. Finally, within the photo storage product market, Kodak‘s pricesare consistent with competitors such as Shutterfly and Flickr, with all three offering unlimited storage and 4x6 prints inthe $.10-$.15 range. However, Kodak is unique in requiring members to make a minimum annual purchase, depending onthe size of their photo storage.Exhibit 6Point And Shoot Models: Rankings And PriceCompiled from ConsumerReports.org Super Zoom Models Price Overall Relative Rank Brand Line Model Family Price Score to Kodak 1 Canon PowerShot SX10 IS Super zoom 390 78 56.00% 2 Canon PowerShot SX1 IS Super zoom 550 75 120.00% 4 Casio Exilim EX-H10 Super zoom 300 73 20.00% 5 Casio Exilim EX-FH20 Super zoom 400 73 60.00% 6 Fujifilm Finepix F70 EXR Super zoom 240 72 -4.00% 7 Kodak EasyShare Z950 Super zoom 250 72 0.00% 8 Sony Cyber-shot DSC-H20 Super zoom 280 72 12.00% 16 Samsung HZ10W Super zoom 230 69 -8.00% 21 Olympus Stylus 9000 Super zoom 230 68 -8.00% Max -8.00% Min 120.00% Range 128.00% Avg 31.00% Compact Models Price Overall Relative Rank Brand Line Model Family Price Score to Kodak 3 Canon PowerShot G10 Compact 480 74 242.86% 9 Canon PowerShot A1000 IS Compact 170 71 21.43% 13 Panasonic Lumix DMC-TS1 Compact 350 70 150.00% 18 Kodak EasyShare M1033 Compact 140 68 0.00% 20 Canon PowerShot D10 Compact 300 68 114.29% Min 21.43% Max 242.86% Range 221.43% Avg 132.14% 23
  • 24. Subcompact Models PriceOverall RelativeRank Brand Line Model Family Price Score to Kodak SD1200 IS 10 Canon PowerShot ELPH Subcompact 200 71 53.85% 11 Panasonic Lumix DMC-ZR1 Subcompact 240 71 84.62% 12 Fujifilm Finepix F200EXR Subcompact 320 70 146.15% Exilim 14 Casio Card EX-S12 Subcompact 200 69 53.85% 15 Canon PowerShot SX110 IS Subcompact 250 69 0.00% 17 Sony Cyber-shot DSC-G3 Subcompact 420 68 223.08% 19 Canon PowerShot SD780 IS ELPH Subcompact 220 68 69.23% 22 Canon PowerShot SD980 IS ELPH Subcompact 330 68 153.85% 23 Sony Cyber-shot DSC-T90 Subcompact 250 67 92.31% 24 Samsung SL102 Subcompact 100 67 -23.08% 25 Kodak EasyShare C160 Subcompact 90 65 -30.77% 26 GE E1250TW Subcompact 160 65 23.08% 27 Kodak EasyShare M320 Subcompact 130 65 0.00% Min -23.08% Max 223.08% Range 246.15% Avg 79.72% 24
  • 25. Exhibit 7 – Competitor Business Descriptions2We chose the following companies as competitors because of the similarities in product type and customer focus. Thefollowing ten companies make up the ―competitor median‖ referenced in the analysis section.Canon Inc.Canon Inc. is a manufacturer of business machines, cameras, and optical and other products. Canon offers businessmachines including office imaging products, such as office network digital multifunction devices (MFDs), color networkdigital MFDs, office copying machines and personal-use copying machines; computer peripherals, including laser beamprinters, inkjet printers and scanners and business information products, such as personal computers, servers, documentscanners, calculators and micrographic equipment. Canon also manufactures and markets digital cameras, film cameras,digital video camcorders, lenses and various camera accessories. Canons optical and other products mainly includesemiconductor production equipment, mirror projection mask aligners for liquid crystal display (LCD) panels,broadcasting equipment, medical equipment, large format printers, and electronic components. On March 31, 2008, itacquired a 24.9% stake in Hitachi Displays, Ltd. For the nine months ended 30 September 2009, CANON INC.s revenuesdecreased 27% to Y2.255T. The Companys net income decreased 76% to Y70.08B. Revenues reflect lower sales volumefrom business machines, cameras and optical & other products business segments. Lower net income also suffers fromhigher percentage of cost of sales and SGA expense, as well as significantly decreased interest & dividend income.Fujifilm Holdings Corp.FUJIFILM Holdings Corporation is a Japan-based company mainly engaged in the provision of imaging, information anddocument solutions. The Company operates in three business segments. The Imaging Solution segment offers color films,digital cameras, photo-finishing machines, and color papers, chemical and services for instant printing. The informationSolution segment offers medical systems, life-science machinery, graphic system machinery, front panel displaymaterials, recording media, optical devices, electronic components and inkjet materials. The Document Solution segmentoffers printers, copy machines, production service-related products, paper, consumer goods and others. For the six monthsended 30 September 2009, FUJIFILM Holdings Corp.s revenues decreased 22% to Y1.043T. Net loss totaled Y5.41B, vs.an income of Y45.38B. Revenues reflect decreased sales from all its business segments. The companys net loss alsosuffers from higher percentage of cost of sales and selling, general & administrative expense, decreases interest &dividend income as well as higher exchange loss.Hewlett-Packard Co.Hewlett-Packard Company is a provider of products, technologies, software, solutions and services to individualconsumers, small- and medium-sized businesses (SMBs) and large enterprises, including the public and education sectors.Its offerings span personal computing and other access devices; imaging and printing-related products and services;enterprise information technology infrastructure, including enterprise storage and server technology and software thatoptimizes business technology investments, and multi-vendor customer services, including technology support andmaintenance, consulting and integration and outsourcing services, as well as application services and business processoutsourcing. During the fiscal year ended October 31, 2008, its operations were organized into seven business segments:Enterprise Storage and Servers, HP Services, HP Software, the Personal Systems Group, the Imaging and Printing Group,HP Financial Services and Corporate Investments. For the fiscal year ended 31 October 2009, Hewlett- PackardCompanys revenues fell 3% to $114.40B. Revenues reflect a decrease in income from Companys Products & Services.Hewlett-Packard Company is a provider of Products, technologies, software, solutions & services to individualconsumers, small & medium-sized businesses & large enterprises, including the public and education sectors.Ricoh Co. Ltd.Ricoh Company, Ltd. (Ricoh) is engaged in the manufacturing of office automation equipment. Ricohs principal productsinclude copiers (such as plain paper copiers (PPCs)), printers (multi-functional printers (MFPs), laser printers and2 Source: Reuters 25
  • 26. GELJET printers), production printing products and facsimile machines. Ricoh is also a manufacturer of digital andadvanced electronic devices such as semiconductor devices. Ricoh supports its office and production printing equipmentbusinesses by offering customers various solution systems that work with personal computers (PC) and servers, andrelated product support and after-sales services to assist customers in utilizing the Ricoh products that they purchase.Ricoh also offers various supplies and peripheral products to be used with its products and systems. Ricoh operates inthree segments: Imaging and Solutions, Industrial Products and Other. In August 2008, Ricoh Elemex Corporationbecomes a wholly owned subsidiary of the Company. For the six months ended 30 September 2009, RICOHCOMPANY,LTD.s revenues decreased 7% to Y988.79B. The Companys net income decreased 95% to Y1.81B.Revenues reflect lower sales from image & solution, industrial and other business segments due to unfavorable businessenvironment. Net income also suffers from higher percentage of selling, general & admin expenses, as well as increasedinterest expenses.Sony Corp.Sony Corporation (Sony) is engaged in the development, design, manufacture and sale of various kinds of electronicequipment, instruments and devices. Sony operates in five segments: Electronics, which develops, designs, manufacturesand sells electronic equipment, instruments and devices for consumer and professional markets; Games, in which SonyComputer Entertainment Inc. (SCEI) develops, produces, markets and distributes PlayStation 2 (PS2), PSP (PlayStationPortable) (PSP) and PLAYSTATION 3 (PS3) hardware and related software; Pictures, which encompasses motion pictureproduction and distribution, television production and distribution, and digital content creation and distribution; FinancialServices, which includes the activities of Sony Financial Holdings Inc. (SFH), and All Other, which comprises SonyMusic Entertainment (SME) and Sony Music Entertainment (Japan) Inc. (SMEJ). On October 1, 2008, it acquiredBertelsmanns 50% interest in SONY BMG MUSIC ENTERTAINMENT (SONY BMG). For the six months ended 30September 2009, SONY CORPORATIONs revenues decreased 20% to Y3.261T. Net loss totaled Y63.40B, vs. anincome of Y55.79B. Revenues reflect decreased sales volume from United States and Europe markets. The Companys netloss also suffers from higher percentage of selling, general and administration expenses, increased interest expenses, aswell as decreased interest & dividend income.Xerox Corp.Xerox Corporation (Xerox) is engaged in developing, manufacturing, marketing, servicing and financing a range ofdocument equipments, software, solutions and services. Digital systems include printing and publishing systems; digitalpresses, advanced and basic multifunctional devices (MFDs), which can print, copy, scan and fax; digital copiers; laserand solid ink printers, and fax machines. The Company provides software and workflow solutions with which businessescan print books, create personalized documents for their customers, and scan and route digital information. Xerox alsooffers software, support and supplies, such as toner, paper and ink. The Company operates in three business segments:production, office and other. During the year ended December 31, 2008, the Company completed the acquisition ofVeenman B.V. (Veenman) and Global Imaging Systems, Inc. (GIS). For the nine months ended 30 September 2009,Xerox Corporations revenues decreased 17% to $10.96B. Net income increased 33% to $305M. Revenue reflects adecrease in revenues from production, office and other segments. Net income reflects a decrease in cost of sales &services, lower equipment financing interest, a decrease in selling, administrative & general expenses and lower litigationcharges.Nikon Corp.NIKON CORPORATION is a Japan-based company mainly engaged in the manufacture and sale of optical products. TheCompany is active in four business segments. The Precision Apparatus segment offers semiconductor exposure apparatusand liquid crystal (LC) exposure apparatus. The image segment provides digital cameras, film cameras andinterchangeable lens. The Instruments segment offers microscopes, measuring machines and semiconductor inspectionequipment. The Others segment provides glass materials, telescopes, glasses and survey airplanes. The Company has 65subsidiaries and 10 associated companies in the country and overseas markets. As of August 19, 2009, the Company held 26
  • 27. a 92.17% stake in Metis NV. For the six months ended 30 September 2009, NIKON CORPORATIONs revenuesdecreased 24% to Y368.09B. The Companys net loss totaled Y17.67B, vs. an income of Y33.62B. Revenues reflect lowersales from precision equipment business and imaging product business. Net loss also suffers from higher percentage ofcost of sales and SGA expense, significantly increased exchange loss, as well as the presence of Y1.35B loss on businessreorganization.Olympus Corp.OLYMPUS CORPORATION is a Japan-based manufacturer engaged in five main business segments. Its Imagingsegment offers digital cameras, film cameras and voice recorders. The Medical segment offers medical endoscopes,surgical endoscopes, endoscope disposal equipment and ultrasonic endoscopes. The Life Science segment offers clinicalhemanalysis systems, biological microscopes and industrial microscopes. The Information Communication segment sellssemiconductor-related equipment, electronic machines, network systems an d mobile terminals, such as cellular phones,as well as provides mobile solutions and mobile contents services. The Others segment offers industrial endoscopes,nondestructive inspection equipment, printers and bar code scanners, as well as develops systems. In August 2009, theCompany transferred its analytical instrumentation business to its wholly owned subsidiary, which has been engaged inthe manufacturing and sale of clinical laboratory examination equipment. For the six months ended 30 September 2009,OLYMPUS CORPORATIONs revenues decreased 19% to Y435.42B. The Companys net income totaled Y36.19B, upfrom Y3.60B. Revenues reflect lower sales from imaging, medical and life science business segments. Net incomebenefits from a lower percentage of SG&A expenses, decreased foreign exchange losses, and the presence of Y46.27Bgains on transfer of business.Lexmark International Inc.Lexmark International, Inc.(Lexmark) is engaged in developing, manufacturing and supplying printing and imagingsolutions for offices and homes. Its products include laser printers, inkjet printers, multifunction devices, and associatedsupplies, services and solutions. Lexmark develops and owns the technology for its laser and inkjet products and relatedsolutions. Lexmark also sells dot matrix printers for printing single and multi-part forms by business users. The Companyoperates in the office products industry. The Company is primarily managed along divisional lines: the Printing Solutionsand Services Division and the Imaging Solutions Division. Lexmarks products are sold in more than 150 countries inNorth and South America, Europe, the Middle East, Africa, Asia, the Pacific Rim and the Caribbean. For the nine monthsended 30 September 2009, Lexmark International, Inc.s revenues decreased 19% to $2.81B. Net income decreased 61%to $86.2M. Revenues reflect a decrease in income from sales volume of the Company. Net income also reflects decreasedoperating margin, an increase in restructuring & related charges, the presence of net impairment losses on securities andthe presence of interest expense net vs. an interest income net.Seiko Epson Corp.SEIKO EPSON CORPORATION is a Japan-based company primarily involved in the development, manufacture and saleof information equipment, electronic devices and precision equipment. The Company operates in four business segments.The Information Equipment segment offers printers, liquid crystal display (LCD) projectors and personal computers,among others. The Electronic Devices segment provides thin-film transistor (TFT) LCD panels, crystal devices andsemiconductors. The Precision Equipment segment offers watches and plastic lens under the brand name Seiko, as well asfactory automation (FA) equipment. The Others segment is engaged in the distribution and transportation services, theprovision of maintenance services for facilities, as well as the insurance agency and travel agency businesses. For the sixmonths ended 30 September 2009, Seiko Epson Corporations revenues decreased 27% to Y449.63B. The Companys netloss totaled Y29.19B, vs. an income of Y11.72B. Revenues reflect lower sales especially from electronic device businesssegment. Net loss also suffers from a higher percentage of selling, general & administrative expenses, as well as thepresence of Y2.42B impairment losses. 27
  • 28. Exhibit 8 – Profitability Scenario Analysis 28
  • 29. 29
  • 30. Exhibit 9: Comparison of accounting methods International Comparison of Accounting Standards-Overview of Major Japanese GAAP, IAS/IFRS, and US GAAP Accounting Standards Items Japanese GAAP IAS/IFRS US GAAP Fair value or amortized cost (bonds) Fair value or amortized cost (bonds) Fair value or amortized cost (bonds) Measurement of securities depending on category depending on category depending on category Estimating potential credit Discounted future cash flows Discounted future cash flows Discounted future cash flows losses/impairment Financial Instruments Legal isolation required (financial- Legal isolation not required (primarily risks Legal isolation required (financial- Derecognition of financial assets component approach) and rewards approach) component approach) Measurement of derivatives Fair value Fair value Fair value Hedge accounting When hedging criteria are met When hedging criteria are met When hedging criteria are met Basic method Purchase method Purchase method Purchase method Exceptionally used only when strict criteria Business Combinations Pooling of interests method Purchase method only Purchase method only are met Goodwill Strictly amortized with impairment Not amortized, impairment only Not amortized, impairment only Lowest level (smallest identifiable group of Lowest level (smallest identifiable group of Lowest level (smallest identifiable group of Grouping assets) for which cash flows are largely assets) for which cash flows are largely assets) for which cash flows are largely independent of cash flows of other assets independent of cash flows of other assets independent of cash flows of other assets Indication of impairment Assessed Assessed Assessed Impairment of Assets Recoverable amount (higher of net selling Recognition test Undiscounted future cash flows Undiscounted future cash flows price and value in use) Recoverable amount (higher of net selling Recoverable amount (higher of net selling Measurement Fair value price and value in use) price and value in use) Reversal of impairment losses Prohibited Reversed (excluding goodwill) Prohibited Retirement benefit obligation adjusted for Retirement benefit obligation adjusted for Retirement benefit obligation adjusted for Recognition of liability unrecognized actuarial gains/losses and past unrecognized actuarial gains/losses and past unrecognized actuarial gains/losses and past service cost, minus plan assets service cost, minus plan assets service cost, minus plan assets Retirement benefits Actuarial gains/losses Strictly amortized without corridor Corridor amortization Corridor amortization Recognition of additional minimum Not recognized Not recognized Unfunded accumulated benefit obligations liability Basic method Asset liability method Asset liability method Asset liability method Income Taxes Recording of deferred tax assets Based on recoverability/realizability Based on recoverability/realizability Based on recoverability/realizability Research & Development Development costs Expensed when incurred Capitalized Expensed when incurred Scope of subsidiaries Based on control Based on control Based on majority voting interest Consolidated Financial Statements Between liability and equity (under Presentation of minority interests Between liability and equity Equity deliberation to change to equity Investment Property Measurement Cost Fair value or cost Generally cost Indicates inconsistencySource: IASplus.com 30
  • 31. Exhibit 10: Operating cost breakdown Operating costs as % of sales (ex-restructuring/other) FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Kodak 22% 22% 23% 24% 25% 25% 25% 25% Canon 35% 33% 33% 33% 34% 36% 36% 34% FujiFilm 35% 32% 32% 33% 32% 33% 33% 32% Nikon 31% 28% 27% 27% 28% 31% 34% SG&A (ex-advertising) as % of sales FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Kodak 13.1% 13.3% 15.0% 15.1% 14.7% 14.9% 14.5% 14.5% Canon 23.3% 22.1% 22.3% 22.5% 22.6% 24.9% 25.5% 24.5% FujiFilm 26.6% 24.7% 24.8% 24.6% 23.6% 24.0% 24.3% 24.2% Nikon 15.2% 14.2% 14.7% 15.3% 16.1% 18.7% 20.6% Advertising costs as % of sales FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Kodak 3.7% 3.8% 3.0% 3.4% 3.8% 4.5% 4.9% 4.8% Canon 2.8% 3.0% 2.8% 2.8% 3.2% 3.1% 2.4% 2.3% FujiFilm 1.0% 1.0% 1.3% 1.5% 1.9% 1.8% 2.1% 2.2% Nikon 8.5% 7.9% 7.0% 6.4% 6.7% 6.1% 7.1% R/D costs as % of sales FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Kodak 5.3% 5.2% 5.3% 5.9% 6.3% 5.6% 5.9% 5.9% Canon 9.1% 8.2% 7.4% 7.6% 7.9% 8.1% 7.9% 7.5% FujiFilm 7.9% 6.6% 6.4% 6.8% 6.6% 6.8% 6.3% 6.1% Nikon 7.0% 6.1% 5.7% 5.1% 5.3% 6.0% 5.9% Restructuring costs as % of sales FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Kodak 1.5% 5.3% 3.5% 4.8% 5.1% 3.6% 0.8% 5.0% Canon 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FujiFilm 0.0% 0.0% 3.4% 3.2% 0.0% 0.0% 0.0% 0.0% Nikon 0.0% 0.1% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%Source: Company reports, Factset Fundamentals 31
  • 32. Exhibit 11 - Cash Conversion CycleDays of Sales Outstanding (DSO) 3 Yr Avg FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Eastman Kodak Co. 72 days 71 days 82 days 75 days 68 days 67 days 63 days 65 days 69 days Canon Inc. 63 days 62 days 64 days 62 days 63 days 62 days 61 days 59 days 59 days FUJIFILM Holdings Corp. 77 days 80 days 77 days 77 days 75 days 77 days 75 days 77 days 85 days Hewlett-Packard Co. 73 days 72 days 70 days 72 days 74 days 78 days 70 days 60 days 61 days Ricoh Co. Ltd. 115 days 120 days 114 days 117 days 120 days 105 days 86 days 90 days 93 days Sony Corp. 51 days 48 days 53 days 51 days 50 days 53 days 50 days 53 days 59 days Xerox Corp. 117 days 108 days 112 days 116 days 120 days 128 days 132 days 133 days 142 days Nikon Corp. 62 days 56 days 58 days 62 days 64 days 69 days 79 days 79 days 90 days Olympus Corp. 61 days 64 days 61 days 61 days 58 days 59 days 62 days 63 days 62 days Lexmark International Inc. 45 days 41 days 43 days 44 days 49 days 47 days 47 days 55 days 57 days Seiko Epson Corp. 56 days 51 days 54 days 59 days 58 days 57 days 54 days 62 days - Mean 72 days 70 days 72 days 72 days 73 days 73 days 71 days 72 days 78 days EK (+/-) 0 days 0 days 10 days 2 days -5 days -6 days -7 days -7 days -9 days Median 63 days 64 days 64 days 62 days 64 days 67 days 63 days 63 days 66 days EK (+/-) 10 days 6 days 17 days 12 days 4 days 0 days 0 days 2 days 3 daysDays of Inventory on Hand (DIO) 3 Yr Avg FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Eastman Kodak Co. 48 days 48 days 50 days 50 days 47 days 43 days 44 days 49 days 60 days Canon Inc. 94 days 92 days 92 days 89 days 95 days 100 days 103 days 104 days 106 days FUJIFILM Holdings Corp. 89 days 95 days 87 days 87 days 87 days 87 days 85 days 88 days 93 days Hewlett-Packard Co. 37 days 32 days 36 days 38 days 38 days 39 days 40 days 48 days 59 days Ricoh Co. Ltd. 54 days 57 days 53 days 53 days 55 days 54 days 52 days 57 days 64 days Sony Corp. 55 days 60 days 60 days 54 days 51 days 48 days 47 days 46 days 55 days Xerox Corp. 46 days 44 days 44 days 46 days 47 days 46 days 49 days 54 days 73 days Nikon Corp. 183 days 172 days 169 days 179 days 189 days 205 days 244 days 258 days 243 days Olympus Corp. 61 days 68 days 59 days 54 days 58 days 68 days 91 days 103 days 118 days Lexmark International Inc. 48 days 55 days 50 days 46 days 44 days 47 days 48 days 53 days 56 days Seiko Epson Corp. 64 days 71 days 66 days 66 days 59 days 60 days 61 days 68 days - Mean 71 days 72 days 70 days 69 days 70 days 73 days 79 days 84 days 92 days EK (+/-) -23 days -24 days -19 days -19 days -23 days -29 days -35 days -35 days -32 days Median 55 days 60 days 59 days 54 days 55 days 54 days 52 days 57 days 68 days EK (+/-) -7 days -12 days -9 days -3 days -8 days -10 days -9 days -8 days -8 daysDays of Payables Outstanding (DPO) 3 Yr Avg FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Eastman Kodak Co. 67 days 123 days 108 days 38 days 33 days 33 days 32 days 31 days 31 days Canon Inc. 86 days 79 days 84 days 85 days 92 days 91 days 94 days 90 days 90 days FUJIFILM Holdings Corp. 74 days 68 days 73 days 72 days 75 days 84 days 81 days 74 days 71 days Hewlett-Packard Co. 55 days 52 days 55 days 58 days 53 days 56 days 55 days 47 days 48 days Ricoh Co. Ltd. 105 days 95 days 103 days 107 days 111 days 109 days 104 days 103 days 107 days Sony Corp. 116 days 111 days 120 days 117 days 116 days 117 days 113 days 112 days 113 days Xerox Corp. 43 days 48 days 45 days 43 days 42 days 39 days 36 days 32 days 32 days Nikon Corp. 110 days 99 days 110 days 110 days 112 days 118 days 126 days 105 days 115 days Olympus Corp. 55 days 50 days 54 days 55 days 53 days 61 days 76 days 75 days 78 days Lexmark International Inc. 65 days 73 days 67 days 62 days 63 days 59 days 48 days 47 days 52 days Seiko Epson Corp. 44 days 39 days 43 days 44 days 44 days 50 days 47 days 47 days - Mean 75 days 76 days 78 days 72 days 72 days 74 days 74 days 69 days 74 days EK (+/-) -7 days 47 days 30 days -34 days -39 days -41 days -42 days -38 days -42 days Median 67 days 73 days 73 days 62 days 63 days 61 days 76 days 74 days 74 days EK (+/-) 0 days 50 days 35 days -24 days -30 days -28 days -45 days -43 days -43 daysCash Conversion Cycle 3 Yr Avg FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 Eastman Kodak Co. 53 days -5 days 24 days 87 days 81 days 77 days 75 days 83 days 98 days Canon Inc. 70 days 76 days 72 days 67 days 66 days 70 days 70 days 73 days 74 days FUJIFILM Holdings Corp. 91 days 107 days 91 days 92 days 87 days 80 days 79 days 91 days 107 days Hewlett-Packard Co. 55 days 52 days 52 days 51 days 59 days 61 days 55 days 61 days 73 days Ricoh Co. Ltd. 65 days 82 days 65 days 63 days 64 days 50 days 34 days 44 days 50 days 32
  • 33. Sony Corp. -11 days -4 days -7 days -12 days -14 days -16 days -17 days -14 days 1 daysXerox Corp. 119 days 103 days 112 days 119 days 125 days 135 days 145 days 155 days 183 daysNikon Corp. 135 days 129 days 117 days 132 days 141 days 156 days 197 days 231 days 218 daysOlympus Corp. 68 days 83 days 66 days 60 days 63 days 65 days 77 days 90 days 102 daysLexmark International Inc. 28 days 23 days 26 days 28 days 30 days 35 days 47 days 61 days 61 daysSeiko Epson Corp. 76 days 83 days 78 days 81 days 73 days 67 days 69 days 83 daysMean 68 days 66 days 63 days 70 days 70 days 71 days 76 days 87 days 97 daysEK (+/-) -15 days -71 days -39 days 17 days 11 days 6 days 0 days -4 days 1 daysMedian 68 days 82 days 66 days 67 days 66 days 67 days 70 days 83 days 86 daysEK (+/-) -15 days -86 days -42 days 20 days 15 days 10 days 5 days 0 days 12 days 33
  • 34. Exhibit 12 – EK Pro Forma Financial Statements EK Financial Statement projections - Continuing Operations (Fiscal year ends 12/31) 2006 2007 2008 2009E* 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Revenue $10,568.0 $10,301.0 $9,416.0 $7,434.2 $8,125.1 $8,133.3 $7,912.6 $7,622.6 $7,314.5 $7,001.6 $6,706.0 $6,430.5 $6,179.0 COGS 7,825.0 7,628.0 7,275.0 6,037.3 6,221.7 6,128.4 5,964.2 5,725.9 5,470.4 5,207.4 4,953.4 4,709.9 4,479.6 Gross Profit 2,743.0 2,673.0 2,141.0 1,396.8 1,903.4 2,005.0 1,948.4 1,896.7 1,844.1 1,794.2 1,752.6 1,720.6 1,699.4 SG&A (excl. Advertising) 1,567.0 1,378.0 1,236.0 970.3 1,063.0 1,059.4 1,023.3 977.2 928.5 879.1 831.9 787.3 745.9 Advertising 366.0 394.0 350.0 254.8 273.9 283.1 289.2 294.7 300.1 305.3 311.4 318.2 325.8 R&D 578.0 549.0 501.0 364.0 395.2 400.7 397.9 392.5 386.7 380.6 375.4 371.3 368.4 EBIT 232.0 352.0 54.0 (192.3) 171.3 261.8 238.0 232.3 228.9 229.1 233.9 243.8 259.4 D&A 1,195.0 785.0 500.0 470.2 448.1 430.2 416.2 407.2 399.7 393.5 388.5 384.6 381.7 EBITDA 1,427.0 1,137.0 554.0 277.9 619.4 692.0 654.2 639.5 628.6 622.6 622.4 628.3 641.1 NOPAT (EBIT * (1-tax)) 191.4 290.4 44.6 (158.6) 141.3 216.0 196.4 191.6 188.8 189.0 193.0 201.1 214.0 D&A 1,195.0 785.0 500.0 470.2 448.1 430.2 416.2 407.2 399.7 393.5 388.5 384.6 381.7 Restructuring (after tax) 618.8 547.0 122.9 133.4 121.9 116.7 114.2 113.0 112.4 112.1 112.0 111.9 111.9 Cap-Ex 335.0 259.0 254.0 254.0 254.0 254.0 254.0 254.0 254.0 254.0 254.0 254.0 254.0 Free Cash Flow (excl dividends) $432.7 $269.4 $167.6 ($75.8) $213.5 $275.5 $244.3 $231.8 $222.1 $216.4 $215.5 $219.8 $229.8 Margin Analysis Gross Margin 26.0% 25.9% 22.7% 18.8% 23.4% 24.7% 24.6% 24.9% 25.2% 25.6% 26.1% 26.8% 27.5% SG&A margin 18.3% 17.2% 16.8% 16.5% 16.5% 16.5% 16.6% 16.7% 16.8% 16.9% 17.0% 17.2% 17.3% R&D margin 5.5% 5.3% 5.3% 4.9% 4.9% 4.9% 5.0% 5.1% 5.3% 5.4% 5.6% 5.8% 6.0% EBIT margin 2.2% 3.4% 0.6% -2.6% 2.1% 3.2% 3.0% 3.0% 3.1% 3.3% 3.5% 3.8% 4.2% EBITDA margin 11.3% 7.6% 5.3% 6.3% 5.5% 5.3% 5.3% 5.3% 5.5% 5.6% 5.8% 6.0% 6.2%Key Assumptions:* 2009 assumptions are based on results through Q3 2009 with a seasonality uptick for the fourth quarter.Key cash flow assumptions stated for segments below. Note that these are pro forma numbers and there might be immaterial differences with the aggregatedsegments due to slightly different treatment of ―Other‖ income and expense items. 34
  • 35. Exhibit 13 – CDG Pro Forma Financial Statements Consumer Digital Imaging Group (CDG) - Continuing Operations (Fiscal year ends 12/31) 2006 2007 2008 2009E* 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Revenue 3,013.0 3,247.0 3,088.0 2,390.1 2,525.1 2,695.9 2,886.2 3,085.4 3,289.9 3,493.0 3,705.3 3,926.4 4,153.6 COGS 2,491.2 2,419.0 2,495.0 2,007.7 2,020.1 2,048.8 2,193.5 2,322.7 2,452.2 2,576.9 2,704.4 2,834.0 2,963.3 Gross Profit 521.8 828.0 593.0 382.4 505.0 647.0 692.7 762.7 837.7 916.0 1,000.9 1,092.4 1,190.3 SG&A (excl. Advertising) 378.8 358.6 345.0 267.0 282.1 301.2 322.5 344.7 367.6 390.2 414.0 438.7 464.1 Advertising 219.6 236.4 210.0 167.3 176.8 188.7 202.0 216.0 230.3 244.5 259.4 274.9 290.8 R&D 281.0 250.0 215.0 166.4 175.8 187.7 200.9 214.8 229.1 243.2 258.0 273.4 289.2 EBIT (357.6) (17.0) (177.0) (218.3) (129.7) (30.6) (32.8) (12.8) 10.8 38.1 69.6 105.5 146.3 D&A 188.0 92.0 105.0 94.5 89.8 87.5 87.5 91.3 95.1 99.2 103.4 107.8 112.4 EBITDA (169.6) 75.0 (72.0) (123.8) (39.9) 56.9 54.8 78.5 105.9 137.3 173.0 213.3 258.7 NOPAT (EBIT * (1-tax)) (295.1) (14.0) (146.0) (180.1) (107.0) (25.2) (27.0) (10.6) 8.9 31.4 57.4 87.1 120.7 D&A 188.0 92.0 105.0 94.5 89.8 87.5 87.5 91.3 95.1 99.2 103.4 107.8 112.4 Restructuring (after tax) 82.7 53.6 34.7 38.1 34.3 32.6 31.8 31.4 31.2 31.1 31.0 31.0 31.0 Cap-Ex 102.0 94.0 96.0 100.1 104.3 108.8 113.4 118.2 123.3 128.5 134.0 139.7 145.6 Free Cash Flow (291.7) (69.7) (171.7) (223.8) (155.8) (79.1) (84.7) (68.9) (50.4) (29.0) (4.2) 24.2 56.5 Margin Analysis Gross Margin 17.3% 25.5% 19.2% 16.0% 20.0% 24.0% 24.0% 24.7% 25.5% 26.2% 27.0% 27.8% 28.7% SG&A margin (incl. Advertising) 19.9% 18.3% 18.0% 18.2% 18.2% 18.2% 18.2% 18.2% 18.2% 18.2% 18.2% 18.2% 18.2% R&D margin 9.3% 7.7% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% EBIT margin -11.9% -0.5% -5.7% -9.1% -5.1% -1.1% -1.1% -0.4% 0.3% 1.1% 1.9% 2.7% 3.5% EBITDA margin -5.6% 2.3% -2.3% -5.2% -1.6% 2.1% 1.9% 2.5% 3.2% 3.9% 4.7% 5.4% 6.2%Key Assumptions:Sales for CDG follow are 1.5x CBO GDP projections. (Congressional Budget Office) 35
  • 36. Exhibit 14 – FPEG Pro Forma Financial StatementsFilm, Photofinishing and Entertainment Group (FPEG) - Continuing Operations(Fiscal year ends 12/31) 2006 2007 2008 2009E* 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018ERevenue 4,254.0 3,632.0 2,987.0 2,456.5 2,727.7 2,648.4 2,448.0 2,209.3 1,959.4 1,707.7 1,460.0 1,217.8 984.4 COGS 2,853.8 2,771.0 2,335.0 1,965.2 2,100.3 2,039.3 1,884.9 1,701.2 1,508.7 1,314.9 1,124.2 937.7 758.0Gross Profit 1,400.2 861.0 652.0 491.3 627.4 609.1 563.0 508.1 450.7 392.8 335.8 280.1 226.4 SG&A (excl. Advertising) 509.5 382.1 281.5 231.5 257.1 249.6 230.7 208.2 184.7 160.9 137.6 114.8 92.8 Advertising 128.1 137.9 122.5 74.0 82.1 79.8 73.7 66.5 59.0 51.4 44.0 36.7 29.6 R&D 33.0 60.0 52.0 42.8 47.5 46.1 42.6 38.5 34.1 29.7 25.4 21.2 17.1EBIT 729.6 281.0 196.0 143.1 240.7 233.7 216.0 194.9 172.9 150.7 128.8 107.5 86.9 D&A 498.0 379.0 193.0 173.7 156.3 140.7 126.6 114.0 102.6 92.3 83.1 74.8 67.3EBITDA 1,227.6 660.0 389.0 316.8 397.0 374.4 342.6 308.9 275.5 243.0 211.9 182.2 154.2NOPAT (EBIT * (1-tax)) 602.0 231.8 161.7 118.0 198.6 192.8 178.2 160.8 142.6 124.3 106.3 88.7 71.7 D&A 1,195.0 785.0 500.0 470.2 448.1 430.2 416.2 407.2 399.7 393.5 388.5 384.6 381.7 Restructuring (after tax) 70.0 45.4 29.7 32.7 29.4 27.9 27.2 26.9 26.7 26.6 26.6 26.6 26.6 Cap-Ex 56.0 65.0 40.0 36.4 38.5 37.9 36.5 34.7 32.7 30.6 28.4 26.0 23.6FCF 974.0 500.5 285.0 222.6 287.0 267.7 241.1 213.2 185.7 159.4 134.4 110.8 88.8Margin AnalysisGross Margin 32.9% 23.7% 21.8% 20.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0%SG&A margin (incl. Advertising) 15.0% 14.3% 13.5% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4%R&D margin 0.8% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%EBIT margin 17.2% 7.7% 6.6% 5.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8%EBITDA margin 28.9% 18.2% 13.0% 12.9% 14.6% 14.1% 14.0% 14.0% 14.1% 14.2% 14.5% 15.0% 15.7% 36
  • 37. Exhibit 15 – GCG Pro Forma Financial StatementsGraphic Communications Group (GCG) - Continuing Operations(Fiscal year ends 12/31) 2006 2007 2008 2009E* 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018ERevenue 3,287.0 3,413.0 3,334.0 2,580.5 2,865.3 2,782.1 2,571.5 2,320.8 2,058.3 1,793.9 1,533.7 1,279.3 1,034.0 COGS 2,480.0 2,438.0 2,445.0 2,064.4 2,101.3 2,040.2 1,885.8 1,702.0 1,509.4 1,315.6 1,124.7 938.2 758.3Gross Profit 807.0 975.0 889.0 516.1 764.0 741.8 685.7 618.8 548.8 478.3 409.0 341.1 275.7 SG&A (excl. Advertising) 678.7 637.3 609.5 471.8 523.8 508.6 470.1 424.3 376.3 327.9 280.4 233.9 189.0 Advertising 18.3 19.7 17.5 13.5 15.0 14.6 13.5 12.2 10.8 9.4 8.1 6.7 5.4 R&D 200.0 214.0 231.0 154.8 171.9 166.9 154.3 139.2 123.5 107.6 92.0 76.8 62.0EBIT (90.0) 104.0 31.0 (124.0) 53.2 51.7 47.8 43.1 38.3 33.3 28.5 23.8 19.2 D&A 221.0 195.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0EBITDA 131.0 299.0 224.0 69.0 246.2 244.7 240.8 236.1 231.3 226.3 221.5 216.8 212.2NOPAT (EBIT * (1-tax)) (74.3) 85.8 25.6 (102.3) 43.9 42.7 39.4 35.6 31.6 27.5 23.5 19.6 15.9 D&A 221.0 195.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 193.0 Restructuring (after tax) 31.4 47.9 40.4 44.5 40.0 38.0 37.1 36.6 36.4 36.3 36.2 36.2 36.2 Cap-Ex 142.0 98.0 118.0 104.7 104.7 104.7 100.7 95.8 90.4 84.6 78.4 71.9 65.0FCF (26.6) 135.0 60.2 (58.5) 92.2 93.0 94.7 96.2 97.8 99.7 101.9 104.5 107.7Margin AnalysisGross Margin 24.6% 28.6% 26.7% 20.0% 26.7% 26.7% 26.7% 26.7% 26.7% 26.7% 26.7% 26.7% 26.7%SG&A margin (incl. Advertising) 21.2% 19.2% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8%R&D margin 6.1% 6.3% 6.9% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%EBIT margin -2.7% 3.0% 0.9% -4.8% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9%EBITDA margin 4.0% 8.8% 6.7% 2.7% 8.6% 8.8% 9.4% 10.2% 11.2% 12.6% 14.4% 16.9% 20.5% 37
  • 38. Exhibit 16 – Segment Valuations and Key AssumptionsBusiness Segment CDG FPEG GCG CombinedLong-term growth rate 2.5% 0.0% 2.5% 1.50% Grows slightly less than overall Traditional business slowly being There will always be a need for Weighted average based economy. Reflects transition to digital replaced by digital filming commercial printing, but the business on current assets. products and increased adoption of techniques. Kodak is involved in these should grow at a slower rate than the cell phones as primary cameras. business lines because they make overall economy, which we areReasoning sensors for cameras, but long-term we assuming to grow at a long-term rate do not believe there will be any of 3% growth in this business.Total Shares Outstanding for EK 268.19 268.19 268.19 268.19Scenario 1 - No restructuring, gross debtWACC (levered) 15.8% 12.5% 12.8% 13.5%Value (148.0) 1,508.1 952.2 2,312.3Value per Share ($0.55) $5.62 $3.55 $8.62Scenario 2 - No restructuring, net debtWACC (levered) 17.7% 14.0% 14.4% 15.1%Value (149.9) 1,392.4 847.7 2,090.2Value per Share ($0.56) $5.19 $3.16 $7.79Scenario 3 - Restructuring, gross debtWACC (levered) 15.8% 12.5% 12.8% 13.5%Value (324.9) 1,265.9 649.2 1,590.2Value per Share ($1.21) $4.72 $2.42 $5.93Scenario 4 - Restructuring, net debtWACC (levered) 17.7% 14.0% 14.4% 15.1%Value (312.5) 1,167.3 571.7 1,426.5Value per Share ($1.17) $4.35 $2.13 $5.32 A5 stock valuationScenario 5 - Management Guidance WACCWACC (levered) 23.0% 18.2% 18.7% 19.6%Value (293.8) 959.2 423.0 1,088.4Value per Share ($1.10) $3.58 $1.58 $4.06 38
  • 39. Exhibit 17 – Regression Analysis of Traditional Sales LinesWe performed a regression analysis of Kodak using data on magazine and newspaper circulation, internet users, and GDP. We were not able to generate anymeaningful regression results by looking at individual segments because of Kodak‘s continuous reorganizations. The data sets were chosen because they showclear trends that can be projected forward and relate directly to Kodak‘s customers, except for internet users, which we picked as a general proxy for the transitionfrom traditional imaging and media to digital. People do not buy printers and digital cameras unless they have a computer. Magazines 400 350 300 250 Millions 200 Subscription 150 Single Copy 100 Total 50 0 1985 1990 1995 2000 2005 2010 Year(Magazine Publishers of America) 39
  • 40. U.S. Newspaper Circulation (000s) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1990 1995 2000 2005(Newspaper Association of America) Total Newspapers 920 918 916 914 912 910 908 906 904 902 900 1998 2000 2002 2004 2006 2008 2010(Newspaper Association of America) 40
  • 41. Internet Users 1800.0 1600.0 1400.0 1200.0 Millions 1000.0 800.0 600.0 400.0 200.0 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year(Miniwatts Marketing Group)The regression output shows that Newspapers, Circulation, and the natural log of Internet users are all significant predictors of Kodak‘s consolidated revenues.Sales should roughly follow the following equation:113566.3 - 159.535 *(Newspapers) + 666.5 *(Circulation) + 977.8 *LN(Internet_Users)We used this along with simple projections based on newspaper circulation and internet user data to predict revenues going forward. SUMMARY OUTPUT Regression Statistics Multiple R 0.93 R Square 0.86 Adjusted R Square 0.83 Standard Error 913.95 Observations 19 41
  • 42. ANOVA df SS MS F Significance FRegression 3 74772215.47 24924071.82 29.83807635 1.43957E-06Residual 15 12529664.21 835310.9475Total 18 87301879.68 Standard Coefficients Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept 113,566.3 26,499.0 4.2857 0.0007 57,085.1 170,047.5 57,085.1 170,047.5Newspapers -159.5 32.7 -4.8780 0.0002 -229.2 -89.8 -229.2 -89.8Circulation 666.5 97.1 6.8663 0.0000 459.6 873.4 459.6 873.4LN(Internet users) 977.8 231.8 4.2180 0.0007 483.7 1,471.9 483.7 1,471.9 42
  • 43. Exhibit 18 – Sensitivity Analysis of Stock PriceWe performed multiple sensitivity analyses to give an idea of what the company is worth under different assumptions. The first one looks at the WACC sensitivitywith and without estimated restructuring charges reflected in free cash flows. Diluted Values reflect complete conversion of KKR warrants and convertible debteven though effective strike prices are $5.50 and $7.41, respectively. With Restructuring Charges WACC 13% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0% Stock Value $6.06 $5.69 $5.34 $5.03 $4.73 $4.46 $4.20 $3.97 $3.74 $3.54 $3.35 Diluted Value $4.54 $4.27 $4.01 $3.77 $3.55 $3.34 $3.15 $2.97 $2.81 $2.65 $2.51 WACC using gross debt WACC using net debt WACC using management (not conservative) (A5’s choice) guidance Without Restructuring Charges WACC 13% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0% Stock Value $8.81 $8.30 $7.83 $7.39 $6.99 $6.61 $6.26 $5.94 $5.64 $5.35 $5.09 Diluted Value $6.61 $6.23 $5.87 $5.54 $5.24 $4.96 $4.70 $4.45 $4.23 $4.01 $3.82This second sensitivity analysis looks at the weighted-average terminal growth rate of the three business segments vs. the company WACC. WACC $5.32 13% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0% Growth 0.50% $5.88 $5.52 $5.19 $4.89 $4.60 $4.34 $4.09 $3.86 $3.65 $3.45 $3.27 1.00% $5.96 $5.60 $5.26 $4.95 $4.66 $4.39 $4.14 $3.91 $3.70 $3.49 $3.30 1.50% $6.06 $5.69 $5.34 $5.03 $4.73 $4.46 $4.20 $3.96 $3.74 $3.54 $3.35 2.00% $6.17 $5.79 $5.43 $5.11 $4.81 $4.53 $4.27 $4.02 $3.80 $3.59 $3.39 2.50% $6.29 $5.90 $5.54 $5.20 $4.90 $4.61 $4.34 $4.09 $3.86 $3.65 $3.45 3.00% $6.43 $6.03 $5.66 $5.31 $5.00 $4.70 $4.43 $4.17 $3.93 $3.71 $3.51 3.50% $6.60 $6.18 $5.80 $5.44 $5.11 $4.81 $4.53 $4.26 $4.02 $3.79 $3.58 4.00% $6.80 $6.36 $5.96 $5.60 $5.25 $4.94 $4.64 $4.37 $4.12 $3.88 $3.66 A5 Valuation Current Stock Price $4.40 (12/11/09) 43
  • 44. Exhibit 19 – Cash Benefit of Financing TransactionsKodak cost of debt 13.85%Private Placement of Convertible DebtFace Value $400.0Discount 0%Coupon 7%Principle Accrual 0.00%Due Date 2017KKR Debt w/ WarrantsFace Value $300.0KKR Fee from EK $15.0Discount 4%Coupon 10%Principle Accrual 0.50%Due Date 2017Year 2010 2011 2012 2013 2014 2015 2016 2017KKR transactionInterest 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0Interest payments at cost of debt 41.5 41.5 41.5 41.5 41.5 41.5 41.5 41.5$ Saved 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5PV 10.1 8.9 7.8 6.9 6.0 5.3 4.7 4.1NPV of Savings 53.8PP of Convertible DebtInterest 28.0 28.0 28.0 28.0 28.0 28.0 28.0 28.0Interest payments at cost of debt 55.4 55.4 55.4 55.4 55.4 55.4 55.4 55.4$ Saved 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4PV 24.1 21.1 18.6 16.3 14.3 12.6 11.0 9.7NPV of Savings 127.7Cash payments saved 38.9 38.9 38.9 38.9 38.9 38.9 38.9 38.9Combined NPV 181.5 44
  • 45. Works CitedBureau of Economic Analysis. (n.d.). National Economic Accounts. Retrieved November 30, 2009, from bea.gov:http://www.bea.gov/national/index.htm#gdpButcher, D. (2009, June 3). Retrieved December 12, 2009, from Mobile Marketer:http://www.mobilemarketer.com/cms/news/advertising/3393.htmlCharlene Li., J. B. (2008). Talking with the Groundswell. In J. B. Charlene Li., Groundswell. Boston, MA: HarvardBusiness School Publishing Corporation.Congressional Budget Office. (n.d.). Appendix A - CBOs Economic Projections for 2009 to 2019. Retrieved November30, 2009, from cbo.gov: http://www.cbo.gov/ftpdocs/100xx/doc10014/AppendixA.7.2.shtmlConsumers Union of U.S., I. (2009). Retrieved December 12, 2009, from ConsumerReports.org:http://www.consumerreports.orgDobbin, B. (2009, January 29). Retrieved December 12, 2009, from The Huffington Post:http://www.huffingtonpost.com/2009/01/29/kodak-to-slash-up-to-4500_n_162133.htmlEastman Kodak. (2009, February 27). Filings and Annual Reports. Retrieved October 6, 2009, from Capital IQ:https://www.capitaliq.comFacebook. (2009). Facebook. Retrieved December 12, 2009, from http://www.facebook.comFactSet Research Systems. (2009). FactSet Fundamentals 2009.4A.Google. (n.d.). Eastman Kodak Company Financials. Retrieved November 3, 2009, from Google Finance:http://www.google.com/finance?q=NYSE:EK&fstype=iiKavajecz, K. (2009). Module 5, Risk, Returns and the Capital Asset Pricing Model. Madison, WI.Kodak, E. (2009, December). About Kodak. Retrieved October 20, 2009, from Kodak.com: www.kodak.comMagazine Publishers of America. (n.d.). Retrieved November 30, 2009, from magazine.org:http://www.magazine.org/consumer_marketing/circ_trends/1318.aspxMiniwatts Marketing Group. (n.d.). Internet World Stats. Retrieved November 30, 2009, from Internet Growth Statistics:http://www.internetworldstats.com/emarketing.htmNewspaper Association of America. (n.d.). Total Paid Circulation. Retrieved November 30, 2009, from NewspaperAssociation of America: http://www.naa.org/TrendsandNumbers/Total-Paid-Circulation.aspx