Carp Says Changes To Create Far More Competitive Kodak.

NEW YORK--(BUSINESS WIRE)--November 11, 1997--Eastman Kodak Company is changing its business model to become a far more competitive company, one capable of achieving profitable growth in pricing environments that may generate periods of lower top line growth and lower gross margins, said Kodak President and Chief Operating Officer Daniel A. Carp.

In meetings here today with investors and the news media, Carp outlined measures the company will take to reduce costs and address competitive marketplace issues.

On the cost front, Carp said the company will:

- spend $100- to $150-million less in research and development in 1998 by focusing investments on a narrower range of more promising opportunities;

- significantly change its approach to equipment manufacturing -- under consideration are outsourcing activities, partnerships with successful companies, and consolidation of vertical production activities;

- revamp its sensitized goods manufacturing by moving to a worldwide flow organization aimed at improving inventory turns, cost-of-quality, and other cost reductions expected to add $200 million per year to the bottom line; and

- refine and reduce capital investments in plants and machinery.

"In addition to the actions I've mentioned, we are scrutinizing value- consuming activities within Kodak," Carp said. "Business unit managers who have value-consuming products or operations are working through their portfolios and are taking appropriate action consistent with marketplace needs.

"Our current analysis says our overall cost reduction activities will result in 10,000 positions eliminated across all areas of the company worldwide," Carp noted. "We will notify people affected by these actions, worldwide, as quickly as we can. Again, timing must be consistent with operational realities."

While acknowledging that its principal competitor gained share in the U.S. this summer, Carp underscored that Kodak is responding to the marketplace from a position of strength. "We remain the clear market leader in the U.S. and the world for consumer film," Carp said. "We actually gained worldwide share through 1996 and the first half of this year. We will not stand and lose share in any principal market."

Carp outlined in broad terms how Kodak intends to respond to the price pressures in consumer film and come back from the share loss of this past summer. "We are narrowing the value gap with our principal competitor to levels consistent with our brand equity," he said.

This will include delivering value to consumers across a number of fronts beyond price, including advertising, merchandising, distribution, and more. "In 1998, consumers will see more presence, better value, and less confusion," Carp said. Kodak will work with retailers to strengthen its retail presence, reduce the number of stock-keeping units, and reset its merchandisers with key retailers so consumers see higher-value, leadership products. This initiative will be fueled by a significant increase in advertising spending across television, radio and print media.

Carp also warned that while Kodak does not intend to lead prices downward in the U.S., it will not allow the value gap to rise to the levels of this past summer.

Kodak also intends to continue to support its re-launch for the Advantix line of advanced photo system products. "Photo retailers who offer on-site processing tell us they're seeing volumes increase," Carp said. "In some cases, where acceptance by dealers is high, the system is accounting for as much as 25% of photofinishing sales."

To underscore that Advantix is moving in the right direction, Carp noted that Advantix film and cameras were not material contributors to the widening earnings loss for the third quarter and that the company sees Advantix diminishing as a drag on earnings.

Kodak also is confronting major challenges in its commercial businesses such as Health Imaging and Kodak Professional.

Health Imaging, an important and profitable business, is undergoing systemic, industry-wide consolidation and change among health care providers. In specialty markets such as cardiology, oncology, mammography, and dental films, high performance products offer more value.

However, in the general medical area, industry changes are creating a fundamentally different operating environment for all participants. Carp said Kodak must significantly reduce its cost structure in a market which has grown increasingly price sensitive.

With an eye toward the business model for Health Imaging, Carp said, "While we continue our internal efforts, we have the flexibility to operate either as a buyer, seller, or partner, especially in light of industry consolidation trends."

Carp pointed to Kodak's recent joint venture with Sun Chemical as evidence that management is willing to do what is necessary to close strategic gaps in a value-creating way for shareholders.

Carp described this agreement, which combined Kodak Professional's graphics business with that of Sun Chemical to create Kodak Polychrome Graphics, as a perfect example of the company's determination to partner to extend its reach and capabilities. "For a business under heavy competitive pressure, we found a strong partner to complement our strengths in the plate business and provide access to new markets in Europe," Carp said.

Carp pointed out that with some 40% of its business now in a joint venture, Kodak Professional will invest in selected graphics technologies for growth. They include color demand printing, laser thermal printing, output technologies such as large-format ink jet, and digital capture.

In addition, Kodak will continue to invest in silver halide products to sustain its leadership in commercial, and portrait and social markets.

Beyond this, Kodak Professional will extend its business strategies by focusing on market segments, not individual products. For example, the company will target specific areas such as law enforcement and offer a full array of professional imaging solutions. -0- Editor's Note: For additional information about Kodak, visit our web site on the Internet at: www.kodak.com/

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