Good day, ladies and gentlemen and welcome to the Eastman Kodak Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference may be recorded. I would like to introduce your host for today's conference, Mr. Bill Love. Sir, please go ahead.

Thank you, Michelle, and good afternoon, everyone. My name is Bill Love, and I'm Treasurer of Eastman Kodak Company and Director of Investor Relations. Welcome to our third quarter 2016 Kodak earnings call. At 4:15 PM this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the third quarter 2016. You may access the presentation and webcast for Kodak's call on our Investor Center at investor.kodak.com. During today's call, we will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. All forward-looking statements are based on Kodak's expectations and various assumptions. Future events or results may differ from those anticipated or expressed in the forward-looking statements. Important factors that could cause actual events or results to differ materially from these forward-looking statements include, among others, the risks, uncertainties and other factors described in more detail in Kodak’s filings with the U.S. Securities and Exchange Commission from time to time. There may be other factors that may cause Kodak's actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in this presentation. In addition, the release just issued and the presentation provided contains certain measures that are deemed non-GAAP measures. Reconciliations to the most directly comparable GAAP measures have been provided with the release and within the presentation on our Web site in our Investor Center at investor.kodak.com. Speakers on today's call will be Jeff Clarke, Chief Executive Officer of Kodak; and David Bullwinkle, Chief Financial Officer of Kodak. Jeff will provide some opening remarks, his perspectives on Kodak's financial performance, and then update on the outlook for the company. And then, Dave will summarize recent capital structure developments, take you through year-to-date September 30, 2016 results, our cost reduction update and cash performance before we open it up to questions. I will now turn the call over to Kodak's CEO, Jeff Clarke.

Thanks Bill. Welcome everyone and thank you for joining the Q3 investor call for Kodak. Today, I'm pleased to share details of the company's improving performance. Kodak delivered net earnings in Q3 of $12 million an improvement of $33 million year-over-year. Net income for the first nine months of 2016 improved by $103 million driven by improved operations. After excluding lower depreciation and amortization expense of $31 million, an increased pension income of $29 million; operating performance improved by $43 million year-over-year. In the third quarter, we delivered $35 million of operational EBITDA. For the first nine months of 2016, we delivered $98 million of operational EBITDA, which positions us well to meet our full year guidance. In addition, in the first nine months we reduced cash usage by 70% from $191 million in 2015 to $57 million this year, which includes cash of $20 million to repay debt. On the call today, I'll talk about the company and divisional results for the third quarter of 2016. Dave will then follow with the year-to-date 2016 results, a cost reduction update, and cash flow performance, after which we will welcome your questions. Before we move on to our financial results, I'd like to take a few minutes to discuss the Series A preferred stock issuance which we announced on November 7. We have signed a purchase agreement with Southeastern Asset Management, Incorporated for the issuance of $200 million of Series A convertible preferred stock, with a 5.5% dividend per annum and a maturity of five years. The preferred shares are convertible into shares of common stock at a price of $17.40, which represents a premium of 20% to our closing share price of $14.50 per share on November 4, 2016. We intend to utilize the proceeds of the issuance, along with…

Thanks Jeff, and good afternoon. Today the company filed its Form 10-Q for the quarter ended September 30, 2016, with the Securities and Exchange Commission. I recommend you read this filing in its entirety. Before I continue with our financial results, I'd like to discuss two additional items. First, the registration statement on Form S-3 discussed on our last call, which was filed in August with the SEC to register an aggregate of $1.2 billion in debt and equity securities, has been declared effective by the SEC. The filing is available on the SEC Web site for your reference. Second, on Monday, November 7, 2016, we signed a purchase agreement with Southeastern Asset Management Incorporated and funds managed by Southeastern, for the sale of $200 million of Series A convertible preferred stock of the company. As presented on Slide 12, the preferred shares are convertible into common stock at a price of $17.40 and have an annual dividend of 5.5% paid on a quarterly basis. The preferred has a mandatory redemption in cash at par on its fifth anniversary. It also includes a mandatory conversion option at the company's election if shares trade above $21.75 for 45 days in a period of 60 consecutive trading days after two years from its issuance. The holders of the preferred stock are entitled to vote on all matters common shareholders vote on. In addition, the initial holders of the preferred stock have a non-transferable right to nominate Kodak Board members proportional to their shareholding on an as-converted basis. With proceeds from this issuance and existing cash, we will repay in full the $262 million of senior secured second lien term loans. The repayment of this expensive debt will save the company $17 million in cash on an annual basis. This investment will improve…

Thank you. [Operator Instructions] Our first question comes from the line of Shannon Cross with Cross Research. Your line is open. Please go ahead.

Good evening, Shannon.

Thank you. Hi, how are you?

Great.

Good. So, I'm curious. You've cut a ton of costs, obviously, and you went over of 30% headcount and 50% of operating costs. How much further do you think you can shrink the business? Clearly PROSPER will go and that will be some -- obviously it's discontinued now. But just in general, at what point do you think you hit the bottom and then can start focusing more on stabilizing in growth over time, at least on a constant currency basis? Or do you think 2017 will be another year of pruning?

Well, I think first of all, I want to remind you that the costs that we've taken out has been almost all productivity improvement. The portfolio is pretty much the same. And so it really is a series of reengineering the way we were doing business, becoming more competitive in each of our businesses. Obviously closing a factory and delivering the same amount of plates, from a volume perspective effectively, with four factories rather than five factories, running our administrative operations more efficiently, et cetera. The piece that has declined the most rapidly is the one we talk about a lot, which is our consumer inkjet business. And before the bankruptcy, that decision was made to stop selling the printers. So that's been a very lucrative runoff of cartridges, but there's not much cost associated with it. So, effectively, what you're seeing is a significant improvement in the quality of recurring revenues and earnings at a time when some of our businesses are legacy business -- what we call Digimaster, which is a black-and-white electrophotographic product; our legacy business VERSAMARK; and most notably, the CIJ business. As they go through their normal declines, we have to get our cost structure ahead of it. And that's why the year-over-year improvements look so good, is we've gotten -- we've taken costs out faster than those declines have happened. We see the opportunity to continue to take more cost out, but not at the same rates. Obviously in really 2.5 years, we've taken about a third of the population out. This year it's an additional 7%, as Dave noted. And we do see opportunities, going forward, to improve productivity in every one of our businesses. But we're also seeing growth. And I think that's the fundamental, underlying point of your question. In our packaging business, in the green and new product sector within our graphic arts business, in our CTP business, and in some of our new technologies that are coming out of IPSD, including the touchscreen sensors, we're seeing growth. And over time you'll see that curve. We illustrate that to you today with the quality of earnings page; but, over time, you will see more as we go into 2017 and 2018.

And can you talk a little bit about the FLEXCEL business, because it's clearly doing fairly well? Just in terms of -- I don't know, opportunity, what you are seeing in competition, what you are hearing through your customers, how we should think about maybe what would make it accelerate, or what you worry about in the business. Just if you could give us an update? Thank you.

Thank you. No, it's a terrific business; and it is, as I mentioned, our highest performing business. It's one of our most differentiated products. What it does is it has a -- it's a system that has a very high technology CTP which uses our SQUARESPOT technology, which took years and years to engineer and to create. And it's unique in the industry. That get us a much better image that we put on the FLEXCEL plate. And then a lot of FLEXCEL plates that our competitors put out our pretty commoditized. In our case, we put a thermal imaging layer, a very sophisticated thermal imaging layer, on top of the rubber plates. And that gets you significant savings on across many elements. First of all, it gets you better resolution, less waste, cleaner lines. But most importantly for the printer, even better than that, it uses less ink, less electricity, less water and improves the efficiency of the operation. So it's not only a product that gives you a better printing on packaging, a visually distinctive, better product; but it does it at lower cost. And that's why the business is getting such share. We think the FLEXCEL market is a good market, growing about 5% a year. As I mentioned, we grew 17% in revenue this past quarter. Our plate volume grew 13%. So, we're growing at least 2x to 3x the market. And the reason is it's a much better product. We also have new innovations. As you remember, at drupa, we announced a water wash, a solvent-free plate, that is going to be -- add additional differentiation to a product that, frankly, our competitors have not yet come up to. So, we're optimistic about the business. We see continued growth. The business has solid year-over-year performance in both EBITDA and in revenue. And in terms of growing faster, I think some of these new products could help and also lapping some seasonal weakness that we've had in certain areas also could help.

Great. Thank you. And then just for Dave, on the working capital side, or generally speaking I guess cash flow, clearly you'll need to see an improvement in inventories in fourth quarter, which you are talking about. What other key areas should we watch, from a cash flow perspective, for fourth quarter in order for you to hit your targets?

Yes, it's primarily going to be in inventory. We expect to see less reduction in receivables in the fourth quarter. Again, it's the seasonal highest quarter of the year, so we will probably build some receivables. At least, that's what our projections would suggest. And the other area we need to make solid progress, which we've made throughout the year, is in AP from a DPO perspective. We need a little bit of improvement in the fourth quarter, and we expect to see that.

Great. Thank you.

Thank you. And our next question comes from the line of Peter Rabover with Artko Capital. Your line is open. Please go ahead.

Hey, guys. Congratulations on improving the capital structure. Pretty happy about that. Dave, quick question for you. You guys have $37 million of restricted cash on the balance sheet. Is that part of your $470 million to $490 million guidance? Or is that used to pay down second lien at all? Can you talk about that a little?

Yes, sure. On a year-to-date basis, we released I think right around $13 million on a net restricted cash. Most of that was due to the ABL amendment which we completed in May, or in the second quarter. The cash guidance does not anticipate any significant release of that restricted cash.

Okay. Great. And I guess about a year ago, during your Analyst Day, you guys gave guidance for 2017, or I guess different phrase that you guys used. Do you guys have any update on that number?

Yes. We called it a direction. And, no, we're not going to give 2017 guidance or direction today. We're going to talk about the quarter. We're going to go execute on Q4 and we'll be giving you guidance at some point early in 2017.

Okay. Jeff, so I guess one of my first investments ever was 16 years ago when you were the CFO of Compaq, and that deal -- $25 billion deal -- took six months to close. And when you were the CEO of Cendant, then the Travelport deal took about 60 days to close. So, maybe from the backward perspective, can you tell us why it's taking so long to close the PROSPER deal?

Well, thank you for the compliment on fast closing of the Compaq deal. But just so you're clear, that was one of the largest proxy fights in history. It actually took about a year and a half to close, but we negotiated it very well and got a definitive deal done pretty fast. But it's been deeply in my memory as well. Again, I stated I wasn't going to talk about it, so I'm going to be circumspect in my comments because we are in a competitive sale process. But I remind you of some of the things I said earlier, which -- if you remember, in May, we had the largest trade show in industry. Every four years, there's a trade show called drupa. And one of the things we talked about was that we were going to have a working PROSPER model there that people who were interested in the technology could look at. And there was a lot of interest that came out of drupa. And so, while we announced that this was for sale a little bit earlier, the fact is, is a lot of the attention and the buyer profiles for this came out of that show, which is about four months ago. So I said we were going to have an answer by the end of the year, so I think I'm going to hopefully to go -- maybe, and I might miss the Compaq thing by one month, using your calculation -- using my calculation, a year early.

Okay. Fair enough. And I guess just more of a bigger question, now that you guys have a little bit better of a balance sheet and your Board is going to be comprised of sophisticated investors who are usually looking for asset sales and some sort of realization, maybe can you talk about your strategic vision for the company or direction you guys have, a lot of different assets and some of them don't really make sense to keep holding. So I'm just curious what your vision is.

Yes, of course. So, obviously our vision is to be a leader using science as a differentiator in the printing and packaging and imaging businesses. And we have two great examples of that. One is PROSPER, which is the fastest press made, which we hope to have a significant realization on. And the other is the packaging business I just talked about before. Both are significantly differentiated in the marketplace because of our underlying science that has created truly differentiated products on both an environmental perspective, a visual output perspective, as well as efficiency for the printers. We also, as part of that vision, believe that we can provide deeper solutions than anyone else in the industry. And that's part of our software strategy with PRINERGY. And when you put these together, no one can compete with Kodak in terms of bringing significantly differentiated products out and the underlying software to run the operations. So that's what we want to do. And we made the decision that we have enough in our portfolio that we can drive good growth and improvement in profitability without PROSPER. And so that is why that product is up for sale. The derivative of that means that we are very committed to the print business. And in that print business, the fastest-growing part of that is our printing on packaging. The second fastest part of that will be -- call us sometimes if you recall back last fall at the analyst meeting, we called at our growth engines, the second fastest growing area is our environmentally sensitive differentiated plates we call SONORA. And the third part is our software and services strategy. So that's the core of what we do. We also, because of this great brand and history of Kodak, have the ability to go prosecute significant profits off of our consumer and film business. And that business has had nice year-over-year improvements. We continue to see good opportunities. And we're investing modestly in that area. And then the last piece that's core to the vision and again one of the reasons we feel it's all right to give up such a product that's growing as fast, and is doing as well as PROSPER, is our micro 3D printing area. In micro 3D printing, again, significant differentiation using our research and science for differentiation. So, I think what you're seeing here is you're seeing a company that is working through a portfolio to make it better in recurring revenue to attack the printing and imaging industry with differentiation and being investor-friendly. When we feel that there's a product that we can sell and use that either to pay down debt or to reinvest in other areas, we are positioned to do that.

Okay. So you think your current -- thank you for that answer. So you think your current portfolio is a good, strategic fit for the company. And you are not seeing any potential assets that you need to jettison, aside from maybe Eastman business card. But I'm not even sure how that fits in.

Jettison is such a pejorative term.

I apologize, yes.

We believe that we have some very strong assets of value. You saw a couple things on the edges earlier this year. We had a partnership with Alibaba Corporation, creating a new company of which we are part owner and they are part owner, called eApeiron. And eApeiron is a partnership of which we have taken cash in, taken some equity, had a long-term brand license and other benefits to Kodak for our security printing business that helps them with some of the brand protection services that they need for counterfeiting, and so forth. We also exited a small software business. So we are going to, on the edges, look to divest things. And we're significantly divesting one of the fastest-growing and most strategic parts of the portfolio, from a year ago, called PROSPER. So I think we are exercising the portfolio management opportunities in the company. We do believe that the rest of the portfolio are keepers and that there's new things coming in the pipeline through our research and micro 3D printing. But as always, we are open to strategic opportunities. And we evaluate them all the time. And when we have another one on the list, we will let you know.

Okay. I guess maybe the last one. You talk about it a lot, like the Kodak camera and the -- I hope I'm saying it right, the eApeiron partnership. Do you guys have any financial comments around those actions any guidance on how much you are looking to get out of those, long-term?

Yes. So, no, we are not providing guidance on those, but I will give you a ballpark. So, relative to eApeiron -- sometimes e-appearin, so as I had to get there and a lot of people struggle with our name -- it is, again, a partnership between Alibaba and Kodak that is strategic at many levels. The first implementation of that is around security printing. We also have a research partnership, a brand licensing partnership, and a distribution partnership that we are prosecuting. As you know, Alibaba is a very strong company with great footprint and we're very pleased with that opportunity. So, that is -- in that case, that will -- that started out with $6 million of cash coming into our company, of which we used to repay debt. And going forward, as that business builds, we see other opportunities. I'm not going to quantify it, at this point, because it's early. But a partnership between Kodak and as big a company as Alibaba, with that many different initiatives, can be a significant opportunity. The second partnership that you didn't mention, but I will, is the one with Carbon, sometimes known as Carbon3D. They are one of the leading companies in 3D printing. And with them, we have a strategic relationship and a supply relationship with them where we research products for them, and then we build materials and chemicals for them. And I won't go into the details of that. But that -- as Carbon grows -- Carbon today has very small revenues, but a significant valuation in the private markets and significant momentum in the space, we will be one of their closest scientific and partners. This is a bit of a Kodak inside strategy in 3D printing. And then we talked about the cameras. So, you may have seen, this fall, we came out with a phone that has a -- one of the best camera. That's a brand licensing opportunity. So this is one where there's no investment from Kodak, very minimal investment with ad -- and as such, we get a royalty when those phones are sold. And so, it depends how many phones are sold, but it could be meaningful if this becomes -- it gets even a small portion of the very large market for smartphones. And in terms of Super 8 camera, we view that as an opportunity to continue to sell film into small -- into schools, and to develop a new set of filmmakers. Again, it's a modest investment. And it's one that -- when we come out with the camera next year, we expect to make money on the camera and obviously have annuities as well on the film. So again, these are relatively small now. But they leverage our brand; they don't take a lot of capital and they are pretty much all upside.

Okay. Well, thank you. I appreciate the color. I'll let somebody else take more questions. I look forward to the PROSPER deal announcement.

Thank you. [Operator Instructions] Our next question comes from the line of Gary Ribe with MACRO Consulting. Your line is open. Please go ahead.

Hi, Jeff. Hi, Dave.

Hi, Gary. How are you?

Good. Just curious, on the packaging division, I know that you are running the expenses through 3D through there. Can you give us just a sense of year-to-date what that is?

Yes. So, I believe I had it for the quarter. Dave, do you have it for the year?

Yes, I can -- I do; I've just got to find it.

Okay.

On a before SG&A basis, we're showing $13 million of operational EBITDA. And that would equate to being about $20 million of packaging operational EBITDA, before corporate costs and about an investment of $7 million year-to-date in micro 3D printing.

Got it. Okay.

Just to add, the revenue you see is all packaging revenue, just to reiterate that. So, roughly $20 million on the revenue you are seeing on a year-to-date basis.

Okay, great. I know that you don't want to comment too much on the PROSPER stuff. But would you just the willing to, I'm not going to ask for any details, but would you describe it as competitive, at this point?

I would.

Okay, good. And first priority for cash that might come in, is that a debt repayment? Is it still a first lien?

Yes. I expect that, should we get a sale of PROSPER; we will use that to pay down debt. Let's leave our options open. But that is currently -- as long as nothing else comes into the view that would be what we would be doing.

Okay. That's great. I don't have any more questions. I don't want to take up any more time. Thanks, guys.

Thank you, Gary.

Thank you. And our next question comes from Amer Tiwana with Cowen & Company. Your line is open. Please go ahead.

Hi, guys. I just had a quick question on the cost side. In terms of your raw materials, what are you seeing, if you can give us some color?

So, in terms of our supply, without question, the biggest material we buy is aluminum. And we have a year over -- this quarter, for example, the year-over-year benefit to our business was about $5 million on aluminum price, on a year-over-year basis. And so recently we've seen a little bit of an up-tick after what had been a fairly nice reduction in that. And then there is multiple components of the aluminum. There's the raw aluminum and then there is the -- effectively a series of financial overheads associated with the buying process. Those financial overheads, which we are in litigation with some banks on -- those have dissipated quite significantly. So we're trading much -- you can really look more at the classic litho aluminum market for that. In terms of other commodities, there aren't significant other commodities that impact us. Obviously, we still buy some silver for the film business. We have chemicals associated with our chemical business that supports both our overall customer business, but also some of the partnerships and supply arrangements we have with Alaris and CareStream, former parts of Kodak. But the big one for us is aluminum and I think I described that.

Understood. And in terms of the potential proceeds, you said one of the priorities could be debt repayment. Just in terms of the landscape, is there something that you think you could use the capital for, in terms of any interesting areas that you would potentially look to deploy capital, if you don't use it for debt repayment?

Yes. There's none in the bailiwick right now. We have been very disciplined on getting this company fixed. As I mentioned, we've got a lot of products that we're prosecuting today. We have the PSD business in both CTPs and in the traditional plates, with two new offerings of plates that have come out. In electrophotographic, we continue to have the NEXPRESS platform, which is a solid product. We have the software businesses. We have some internal growth and expansion in new products there. So, we don't see the need for a lot of acquisitions. That doesn't mean that we won't always scan and look. And we are aware of things that happen in the market. We've got a good biz dev people and bankers aren't shy to call us. So, we'll continue to look at it. But we're pretty comfortable with our portfolio now. And as such, one of our priorities has been to pay down debt and to get recurring cash back into the company, and get out of what is a fairly expensive debt structure. Obviously, the investment from Southeastern is pivotal to us being able to pay down the second lien. But that first lien is still expensive. And so we'd like to opportunistically look at market opportunities to change that vehicle, but also pay it down as we can.

Thank you very much.

Thank you. And I'm showing no further questions at this time.

Well, thank you, everyone. I appreciate you joining the call. Just to summarize, the company was profitable on a GAAP basis in the third quarter. The company's performance represents improved quality of earnings. We continue to execute well on the PROSPER business and continue to be very focused on that process. And the cash flow performance of the company has improved significantly this year, along with the quality of earnings. We continue to expect the guidance that I gave you before overcoming some of the currency headwinds. Thank you for your time. Appreciate it.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.