Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Eastman Kodak Second Quarter 2011 Sales and Earnings Conference Call. [Operator Instructions] This conference is being recorded today, July 26, 2011. I would now like to turn the conference over to Sandy Rowland, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for Kodak's second quarter 2011 sales and earnings conference call. Here with me today are Antonio M. Perez, Kodak's Chairman and CEO; as well as Ann McCorvey, Kodak's Chief Financial Officer. Antonio will begin this morning with his observations on the quarter, and then Ann will provide a review of the quarterly financial performance. Certain statements during this conference call and question-and-answer session may be forward-looking in nature or forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the company's expectations regarding the following are forward-looking statements: revenue, revenue growth, gross margins, cost savings, SG&A and R&D cost reductions, earnings, cash generation and usage, increased demand, revenue and profitability for our products, including Commercial Inkjet, Consumer Inkjet, Workflow Software and Packaging, potential revenue, cash and earnings of intellectual property licensing and the potential outcome of intellectual property infringement litigation, liquidity, potential proceeds from asset sales and actions to mitigate the effect of commodity cost increases. These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our 10-Q, which we issued this morning. Listeners are advised to read these important cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important risk factors. Now, I will turn the call over to Antonio Perez.

Thank you, Sandy, and good morning, everyone. Before I share with you my observations on the second quarter, I would like to spend a few minutes giving you my perspective on the last Wednesday announcement about the fact that we are exploring strategic alternatives for our digital imaging patent portfolios, which consist of approximately 1,100 patents, which are approximately 10% of our total patent portfolio. This action does not change our intellectual property litigation strategy at the international rate commission or in the district courts. And we remain confident that the patents being litigated will be found to be valid and infringed. One of the great strengths of this company has always been our intellectual property. We were one of the first companies to invest in digital imaging technologies and, in fact, we invented the digital camera in 1975. We continue to innovate and pioneer many of the major advances in digital imaging devices, systems and services. It is also important to recognize that we continue to invest and innovate in several other areas, including material science, device physics and computational sciences. We expect to maintain significant patent portfolios in all of these areas and, therefore, our business in the Graphic Communications Group and in the Consumer Digital Group will continue to be well positioned from an intellectual-property perspective. We will build our intellectual property portfolio in a manner that will provide technology platforms for future growth. Examples of those will be functional materials, microfluidics and the intelligent management of digital assets. We always have 3 fundamental objectives surrounding our intellectual property strategy, which are and have always been design freedom, gaining access to new markets and partnerships and generation of cash and earnings. The announcement on Wednesday falls within that strategy. Given the heightened demand in the marketplace for…

Thanks, Antonio, and good morning, everyone. I'd like to spend some time discussing our second quarter financial results, and then Antonio and I will take your questions. Second quarter consolidated revenues were $1.485 billion, a 5% decrease versus the prior year. This decline was largely attributable to the continued industry-related volumes decline for our traditional businesses, lower volumes for digital cameras and negative price mix across all business segments. This decline was partially offset by increased demand for our 4 digital businesses and favorable foreign exchange. While our digital revenues for the quarter were approximately $1.1 billion, essentially flat with the prior year, there are a number of important dynamics to highlight. Our digital growth businesses grew 22% and continued to outpace the market. Revenues from our digital cameras decreased 30% as the business continues to trade top line growth for improved profitability. And the remaining digital cash generators combined grew 4%. Our second quarter segment gross profit margin was approximately 15%, an improvement of 5 percentage points from the first quarter of 2011. When you compare the second quarter to the prior year ago quarter, our gross profit margins declined by 5 percentage points. This decline was largely due to the competitive pricing pressures for our digital cameras and digital plates, higher silver and aluminum costs impacting our year-over-year gross profit by $56 million or 3.8 percentage points, and the higher startup costs associated with our Commercial Inkjet PROSPER platform. These factors were partially offset by cost improvements in digital cameras and device and Consumer Inkjet Systems and favorable foreign exchange across all business segments. It is important to note that we saw improvement in gross profit margins for our Digital Cameras and Device business, along with double-digit margin improvement for our Consumer Inkjet business, largely driven by ink.…

[Operator Instructions] And our first question is from the line of Ananda Baruah with Brean Murray, Carret & Company. Ananda Baruah - Brean Murray, Carret & Co., LLC: I guess, just Antonio, I had a follow-up on the patent sale exercise that you guys are undertaking. Can you give us any sense of what, if any, kind of overlap might exist with sort of the patents that in the future might have fallen into, I guess the IP portfolio that you would traditionally monetize? And if we should think of sort of the sale activity having any impact on the potential to sort of monetizing the future, the IP, the way that you traditionally have?

Well we have a number of portfolios. What we have announced is the analysis of -- for strategic options for our digital imaging portfolio. This is obviously -- it's a very powerful portfolio that has a lot of life still in front of it. You need to remember that when we license a company, the choice that most of the companies elect is normally get a license for a category of products. Like for example, a company will choose to get a license for a digital camera. That's their choice. Obviously, it's a lower-cost choice. That company will have to come back and get a license for a cell phone that has a camera. Again, all of these are choices, but most -- but the majority of the companies, they get licensed for particular product categories. The same company will have to come back and get a license, let's say, for a tablet that has a digital capturer component, and on and on or again. So what we're trying to do here -- and we haven't decided because we don't know how this exercise is going to go. We know how valuable this portfolio is. And we're just investigating what is the appetite of the market to have access to those patents. Obviously, we will remain licensed to all of those patents. And we continue to generate new patents every year as you know. Then if the result of this is that someone will buy this patent, which is one of the possibilities, but not the only one, that company then will have the possibility to exercise the rights of those patents in manner that I described before. What it will mean for us, if that is the result, is that, well instead of getting a certain amount of money,…

I really can't speculate, but I do want to answer the first question. The only reason why we're doing this now is because we've seen an amazing appetite in the market for these kind of assets. This is the only reason why we're doing this. We were perfectly happy going year after year, getting 1 or 2 deals and continue to this. And we had a funnel for many years to come, and we were doing very well. We believe that we will continue to do very well, and that was one option. Now what we've seen in the market is something extraordinary, that I think it begged the question for us and for our shareholders to see is there any other way of getting value out of this. And this is what we are investigating. But I won't speculate about amounts or anything. You have to understand that. Ananda Baruah - Brean Murray, Carret & Co., LLC: Okay, and just one quick one for me on inkjet pricing. It feels pretty evident that Consumer Inkjet pricing has gotten incrementally aggressive as we've moved through this year and again in the second quarter. Can you just give us some sense of, do you think that the Consumer Inkjet pricing mosaic has been kind of permanently reset, given that consumer spending -- unemployment remains high and consumer spending still is pretty soft. Do you think we're sort of reset permanently and maybe even sort of, from a percent change perspective, from this point forward? And then just with regards to your business, are you having to do anything different on the cost side? And does the pricing environment and anything subsequently you may have to do on the cost side, does that change the time to break even in your guys' minds that you've been talking about?

No, it's not going to change the time to break even. What we might change is the aggressiveness with which we go about getting new units, because we will not deviate from the fundamentals of our business model, which is higher printer price and lower ink replacement. This is our business model. This is what our customers love. This is why we are getting the biggest users with us. We're not going to change that. I believe that more than anything this is a competitive reaction, and I don't think it can go much further, honestly. I think it's been going down to a point in which, if people continue to reduce the price of the printer, they're going to be getting to prices that are -- that won't be considered legal because they will be selling well below the variable cost. So I think this is -- we expected this. We didn't expect it to be as aggressive. I think the aggressiveness, I think in part it was caused by our incredible success. We don't like it, obviously. It affects our ability to grow the top line as fast as we want it, but it's not affecting our ability -- and this is the most important thing. It's not affecting our ability to double year-after-year our ink gross profit, which is really, at the end of the day, the only thing that is going to matter for the profitability of the business. This business is tracking extremely well for the goal that we have to be breakeven or better in 2012.

Our next question comes from the line of Chris Whitmore with Deutsche Bank.

I wanted to ask about your cash flow target for year end at $1.6 billion to $1.7 billion. Seems very dependent on asset sales and IP settlements. Can you give us maybe some more clarity around both of those drivers, how you see them shaking out over the next 6 months?

Yes, those progress have been -- we didn't launch these programs at the beginning of the year, Chris. These programs have been running before. And we said from the beginning that the majority of those deals will be closed in the second half and mostly towards the fourth quarter. It's not just one big program. They're a variety of small programs, so the risks in that way I think is less. Is there a risk? Of course, there is a risk, but I think it's less. Will we get them all through? Maybe not, that's why we grew 300 to 400. We might get more to 300, more closer to 400. But there are a variety of deals; there are $20 million, $35 million. So we're aiming to get them all through, but -- you know, that's why we put that number 300 to 400. That's -- they're all in progress. We review them regularly, the board. Our board reviews them regularly. They just reviewed them a few days ago. We are satisfied with the progress.

Antonio, you mentioned you're confident in your pursuit in the ITC case against RIM and Apple in your prepared comments. I want to try to understand where you're getting that confidence. Why do you think the ALJ will reverse his previously made decision?

Well I really don't want to go a lot of deep into this because -- but let me give you the answer to your question, why I feel so confident, is because when we asked, and we did ask, litigation experts, our own team of course, our external legal firm of course, individuals of high caliber that used to work in the ITC, we did all of that research, and every one of those, without exceptions, without exception, understands that the opinion that was given by the Commission in the new construction is very, very favorable to the Kodak case. That's all I can say. This is -- these are complex issues, hard to understand, difficult for regular people to read one of those documents and get a fair conclusion. And the expert of the -- in the opinion of the experts and, believe me, we talked to many of them and they're neutral and qualified, they confirmed what our team view is that the opinion of the Commission and the -- lead into the new constructions is very favorable to Kodak.

Last question for me is the underlying rate of cash flow burn for the business. First half free cash flow is about negative $900 million. Your guidance seems to imply no material improvement, excluding asset sales and IP in terms of cash generation by year end. So your burn rate's approaching $1 billion per year in operations. I guess my question is, do you think you need to take more aggressive action to reduce that rate of burn or reduce that rate of investment? And if so, what would be -- or if not, what's the trigger? What would be the catalyst to make you change the strategy?

We have a lot of tools to do that, if that will be the case. It's not our plan. So far, with the best data we have, we feel very comfortable with the level of cash we have, and we feel very comfortable with the level we will have at the end of the year. But if your question is a theoretical question, what if things don't go or if things go very badly? What can you do? We have a lot of tools in our hand. One will be, obviously, reduce the level of investment. It will be -- as I said before, Consumer Inkjet could start making money this quarter if we want it. All we have to do is slow down the growth of printers. Is that the best thing for our shareholders long term? Probably not. That's why we're not doing it. We have all our modeling that looks at what is the ideal balancing of investing and getting return, and that's what we're following. But will we do it differently? Of course we can do it differently. We can do that with any of the investments we have. But our ink gross profit has doubled from last year. Next year, it's going to be a huge amount of money. And in fact, we're going to disclose that amount of money in February when we go and see you. So you guys start to make modeling because when I see those numbers, we haven't done it in the past, we will do it in February. It's a huge number. You will see that, that business is going to be a gorgeous business for this company. But yes, we have those tools. Do we have any other tools? Yes, we have other tools as well. They are -- some of the businesses that they are on the periphery of our strategy that they could be kept or could be sold, and those businesses are very valuable. If the choice will be not to slow investing -- I mean if the choice is -- you're putting me into this situation where nothing works, you can't sell those things, you can't get your money, you get -- I mean you're speculating, right? So under that speculation, which I don't believe is going to happen, we still have a lot of tools. We still have a lot of tools.

Our next question comes from the line of Shannon Cross with Cross Research. Shannon Cross - Weeden & Co., LP: My first question is just with regards to the patent sale. Perhaps you can provide some clarity. I think some of those patents are considered basically collateral for your bonds. So can you discuss what you think you can do with use of proceeds from a sale? Will the cash be available for shareholders?

Well Shannon, we don't actually know yet what the transaction's going to look like, so I don't want to speculate too far about what we would do or would not do with the use of proceeds at this point.

We have enough freedom, Shannon. There might be obligations that we might have to have. We might have to buy the debt of 2013, we don't know. But until we have the transactions that we have at hand, we can't speculate with that. But we have enough freedom. Shannon Cross - Weeden & Co., LP: Okay and then Ann, maybe you could talk -- I mean, clearly there are concerns with the cash burn that you've had, as Chris mentioned, and where your CDS is hurting. And a lot of things around the business right now. Can you talk a bit about liquidity? I know you're expecting to get more cash in, in the second half, for your asset sales and the IT settlements and all of that. But maybe if you talked a bit about all the liquidity that's available to you from a revolver standpoint and other things, that would help to -- help investors think about where you're at right now. And then also sort of where you're at since things have changed in terms of how much cash you need to run the business? Just any of those metrics you could provide would probably be very helpful.

I'll let Ann make some comments about that, but Shannon, you have to compare fairly the usage versus last year. Again, it was a significant amount of money, was the U.K. pension plan that last year was paid in the fourth quarter now appear in the second quarter. You can't compare without taking that away. There was -- there were IP money, as well, in the second quarter last year, that was in this -- when you look at the business by itself, it's exactly -- it's the same. So it's not that we have increased the burn even though we have been increasing the growth in the -- in the growth initiatives. So we've been able to improve the business performance and use it to increase the rate of growth in the businesses. You can talk about the revolver.

Thanks, Antonio. Shannon, just a few additional comments to what Antonio has already said. First of all, as we think about the back half of this year compared to the back half of last year, we're expecting -- because we're already seeing significant improvement in what we call the cash generators, being led specifically by what's going on in digital cameras. So we're not expecting the cash pattern to be the same as it was last year because we've made some changes there, and we're expecting to see improvements there. We've also talked specifically about some of the things we're doing with some of the other cash generators as it relates to like Prepress and the price increases that we've announced there that will allow those businesses and, of course, FPEG as well, to continue to improve cash in the back half of the year. So as it relates to the cash generators, we've done some things that can -- that leads us to believe that we'll have improved cash from them in the back half of the year. So now we'll move to the growth initiatives and what the expectations are there. So as you think about the growth initiatives for the back half of the year, we've talked about the units that we've placed in Consumer Inkjet that's driving ink. So that's going to help, too, improve cash usage in the back half of the year. We've talked about what's going on as it relates to the PROSPER Press and the start-up -- the higher start-up costs than we planned in the first half, but we've done some things that are going to allow us to move forward with improved cash performance and improved performance with the PROSPER Press in the back half of the year. The only other thing that I would point out is as it relates to working capital and the seasonality of our working capital, we do use working capital in the first half of the year and generate working capital in the back half of the year, and we expect to continue to do that. As it relates to the revolver itself, we do have the ability to use the revolver and, as we had noted in the 10-Q, we have about $235 million worth of availability under the revolver. Shannon Cross - Weeden & Co., LP: And then how much cash do you need to run the business? Do you think, sort of on an ongoing basis, the cash balance you're comfortable with?

We expect we'll end the year with about $1.6 billion to $1.7 billion, and we're comfortable with that. Shannon Cross - Weeden & Co., LP: Okay, but I mean usually -- I think it used to be about $1 billion that you -- sort of a minimum cash balance. Again I'm just trying to get numbers out there so that, with your CDS trading where it's at, I think people need to understand what your liquidity position is versus what they've seen just in terms of cash burn in the first half, so...

I mean we're comfortable with where we think our cash balance is going to be at the end of the year and comfortable with what that means for what will be necessary for the first half of 2012, because some of the things we've talked about that are going to improve the back half of 2011, of course will already be in place for the first half of 2012. Shannon Cross - Weeden & Co., LP: Okay, great. And then just one last question sort of on fundamentals more than all the minutiae of the cash. But how are -- what are you hearing from customers, I'm curious, from a geographic standpoint? I mean there's a lot of questions about the strength of the consumer, the weakness of the consumer. So maybe, Antonio, if you can talk about both from a consumer standpoint and also the commercial print side of things, what geographies are seeing stronger demand and improvement or where things are weaker? Just if you can give us some color there.

Well, Latin America, Asia, Eastern Europe are great places to be. And in fact, most of my trips these days are to those places. Unfortunately for me, because they're so far and so hard to get there. There is a lot of growth there, we're growing strongly there. U.S. and Europe, they're kind of flattish. There is a lot less activity, a lot more price pressure. There's overcapacity to serve U.S. and Europe. So -- but luckily, the rest of the world, which is 83% of the world, that is as far as population -- so funny to call it the rest of the world because I believe that we are the rest of the world -- but it's doing very well. And right now at the latest data, 73%, I believe 73% -- correct me if I'm wrong. 73% of our revenue is outside the U.S. So more and more we see ourselves competing and enjoying growth outside the U.S.

Our next question comes from the line of Mark Kaufman from Rafferty Capital markets.

I have a question pertaining to the Commercial Inkjet printers. Would you say that the additional costs this year, additional costs versus your plan in that segment is ultimately, was ultimately larger than the start-up costs for the business a year ago? And in addition to that, were some of the first half delays -- and maybe delay's not the right word -- had any effect on your backlog or customer demand? If you could comment on that?

No, the customer demand is extremely strong. The issues that we had, they were 80% driven by the customer environment and 20% driven by ourselves. At the end, we're responsible for everything so we have to fix both. But this technology is a very different technology than the ones that they used to have. It requires very different training for the people to have there. The environment has to be different. They have to control the temperature and the cleanliness of the space when they put this. There's a variety of things. They have applications with very different substrate media that we did not know that they were going to use, and that created all this complex installation process. It wasn't so much that our technology didn't work in that sense, which -- because it works beautifully. It's that adapting the technology to all of these different elements and training the people that were going to use it and doing all of this. Of course, this is not going to be forever. This is learning. It's unfortunate that we didn't figure that out before. We're probably very difficult to figure out because we have customers all over the world with different applications. But, obviously, it's getting behind us. And the most important thing is that the customers that actually bought 1 unit or 2 units, now they own the lease for the third unit, and we have huge demand. This is the -- when you combine the cost of printing with the speed and the quality of printing, there's nothing in the market as good as this technology, and they know it.

Are you seeing more demand from emerging markets, basically just making a jump to this type of printing, or demand for replacement in developed markets where they're trying to offer the flexibility to advertisers?

That's correct. I think we've seen a lot from outside the U.S. and Europe because they're jumping, they're jumping into this. At the same time, there are some leaders in the U.S. and in Europe that they want to take advantage from the -- maybe sometimes the bigger guys. Some of the printers, they have very large installations with all the equipment, they have financial difficulties transforming all of that. So yes, it's a combination of elements.

If I could ask one more question, just a little switch. As it pertains to the patent portfolio, the digital imaging patent portfolio, I was thinking about the Nortel auction and really the company had already been -- had disbanded and you had what would be maybe, for a lack of a better word, a static portfolio, whereas you allude to your portfolio still developing patents. Would that lead you to consider a joint venture per se, with, let's say, a consumer electronics company or a consumer service company, as it were, out there to move the portfolio ahead, so to speak?

So I'm sure you don't expect me to answer that question, right? Really the transaction, we really don't know what it is. I can tell you that we got a lot of attention. That I can tell you. My IP team didn't want me to tell you, but we got a lot of attention. We got a lot of calls from a lot of people with all sorts of things to say.

If I could ask one other question related to that, I've have these questions come up about the portfolio. And really it doesn't have anything to do with basically operating a mobile communications system, but it really has to do with applications within a system or on a system in that sense, or on a product.

Well it has more than that. This portfolio has as well transmission and manipulation of images through the web. This is a very vast -- I mean, the patents are public. You can go read them, Mark. There are only 1,100, so good luck.

I don't have enough time before 5:00 to do that.

And ladies and gentlemen, that is all the time that we have for questions. At this time, I'd like to turn the call back over to Mr. Perez for any closing remarks.

Thank you very much for attending. I guess we are very pleased with our digital growth, business growth, and we're going to focus very heavily obviously, as you can imagine, in cash generation in the second half in order to finish with the $1.6 billion, $1.7 billion. And we feel that we have what is needed to continue with our strategy. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's call, please dial (303) 590-3030 or 1 (800) 406-7325 and enter the access code, 4452235. We'd like to thank you for your participation, and you may now disconnect.