Don Flick - Director and VP of IR Antonio Perez - Chairman and CEO Bob Brust - CFO Frank Sklarsky - EVP

Jay Vleeschhouwer - Merrill Lynch Matthew Troy - Citigroup Carol Sabbagha - Lehman Brothers Ulysses Yannas - Buckman & Reid Shannon Cross - Cross Research Eli Lap - Dillon Reed AJ Criswall - Goldman Sachs Sam Doctor - J.P. Morgan Adam Comora - EnTrust Capital

Good day, everyone and welcome to the Eastman Kodak Third Quarter Sales and Earnings Call. Today's conference is being recorded. At this time for opening remarks and introductions, I'd like to turn the conference over to the Director and Vice President of Investor Relations, Mr. Don Flick. Please go ahead, sir.

Good morning, and welcome to our discussion of third quarter earnings. I'm here this morning with Antonio Perez, Kodak's Chairman and CEO; Bob Brust, our Chief Financial Officer, and Frank Sklarsky, who has just joined our senior management team as Bob's successor. Antonio will begin this morning with his observations on the quarter, and then Bob will provide a review of the quarterly financial performance. As usual, before we get started, I have some housekeeping activities to complete. First, certain statements during this conference call 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 expectations for the company's earnings, revenue and cash, would be such forward-looking statements. These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our press release this morning. Listeners are advised to read these important cautionary statements in their entirety. Lastly, although Kodak has significantly reduced its references to non-GAAP measures, in those instances where they are used, they are fully reconciled to the nearest GAAP equivalent in the documentation released this morning, which can also be found on our website. Now, I would like to turn the conference call over to Antonio Perez.

Thanks, Don. Good morning to all and thanks for joining us for our discussion of third quarter earnings. This morning, I have the pleasant job of introducing Frank Sklarsky, who is marking his second day at Kodak and will assume the CFO title on November 13. Frank, would you care to say a few words before we start?

Thanks, Antonio. Obviously with something on the order of about 10 hours on the job, I have got a lot of work to do, to come up to speed where I can continue and extend the progress that Bob has made before me. I am excited to join this management team. I'm very enthusiastic about the opportunities ahead for Kodak and I look forward to working with the investment community as we go forward.

Thank you, Frank, and once again welcome to the Kodak family. I will also like to recognize that this is Bob Brust's last quarterly conference call with investors, bringing to an end, seven years of invaluable contributions to Eastman Kodak. Bob arrived when Kodak was truly a traditional imaging products company and played a key role in moving us to the positions we are in today, ready to complete the final phases of our transition. Bob has been a key strategic partner for me, and I thank him for both his tangible contributions and his counsel during these very challenging times. We wish Bob and his wife Judy well in their -- in their future activities. Now let's move to discuss our third quarter performance. I am pleased with the quarterly results we posted this morning as they show the continued momentum we need to achieve our goals for the year. Some of the highlights for the quarter include the following. We achieved year-over-year earnings improvements of $85 million in our Consumer Digital Group. Resulting from our progress in implementing the digital operation model, as well as continued contributions from our key portfolio, which are part of our full year plan for 2006 and in years to come. On the operating side, we saw year-over-year earnings improvement in essentially every element of our consumer products portfolio, digital capture, image sensors, home printing and kiosks. Going forward, we'll see an increasing flow of benefits from that improved operating model. Media (inaudible) that will continue to build in our kiosks and dock printers, new products such as CMOS image censors, new generation of cell cams and inkjet as they enter our portfolio. As part of the CDG story, we will continue to create value through a variety of intellectual property agreements, that will accelerate the creation of new businesses, provide access to markets previously unavailable to us, create advantageous business arrangement and important partnerships with key industry leaders, as well as, providing returns on our R&D investments. Intellectual properties are ongoing multifaceted element of our business model, and we will continue to manage it that way. Depending upon the timing of the deals and the accounting treatment, which is very much deal dependent, there might be a noticeable impact in any given quarter. However, our annual plans incorporate monetization of IT in a variety of forms, and this is part of how we run the business. Again, our strategies to create long-term value through IP, while managing IP completions on a full-year basis. I remain confident we should get through essentially full-year breakeven performance for consumer digital, as we work to continuously improve the earnings performance of our key consumer digital businesses. We maintain double-digit operating margins of 11% in our Health Group despite the burden of additional costs associated with our strategic alternatives -- initiative and significantly higher year-over-year silver prices. We see a satisfying order book for both our digital radiology product and healthcare information systems, as new product offerings are well received by the market. It remains my objective to announce the conclusion of this strategic alternative study by the end of this year. We continue to post early improvements in the Graphic Communications Group and achieved a 6% digital operating margin in the quarter, enabled by continuing integration savings and a strong growth in digital plates, NexPress color products, commercial inkjet printing solutions and document scanners. As per results, the total GCG earnings increased by $24 million from the last year's third quarter, despite higher raw material costs from silver and aluminum. Our Film and Photofinishing Groups performed better than expected, posting a 13% operating margin, as we continue to benefit from the effective cost reduction actions that we have been undertaking for the last three years. As you have heard me say before, our objective is to take costs out faster than revenues decline, and the results show that we are getting that done. Within the balance of the FPG portfolio, our entertainment film business grew 3% during this quarter, with no significant changes occurring in the industry. We achieved another milestone in this year third quarter, as it marks the first time the digital earnings growth exceeded the traditional earnings decline with digital earnings increasing $98 million from last year and traditional earnings declining $48 million. This follows another milestone, we achieved during the third quarter of 2005, when digital revenues exceeded traditional revenues for the first time in our company. This accomplishments are key indicators for me of the success of our strategy and key milestones on our part to complete the transformations of the business. We achieved our cash goals ending the quarter with more than $1.1 billion of cash on hand, which is almost double last year's result, while reducing debt by 129 million in the third quarter. During the quarter, revenue was a bit softer than planned, although I am comfortable where we came out. We are making choices, and a time will come with our improving cost structure and the introduction of new product categories, when our focus would be realigned. As we indicated earlier this year, the Consumer Digital Group began to realize the benefit of trading and profitable revenue growth for margin expansion especially, in the area of digital cameras and in printer docks. However, consistent with our long-term objectives, we were able to maintain the number three market share position both in the U.S. and worldwide for consumer digital cameras on a year-to-date basis through August. On the same basis, we continue to be the market share leader for our printer dock products in the U.S. As you know, this is a year of significant transition for GCG. Last year, we completed our major acquisition program in this space aiming at a revenue growth in 2006, including acquisitions in the high 20s. We're on track to achieve that. This year, though, we are concentrating on effectively integrating the acquired business -- businesses into our Korean single entity, so we can focus on growth next year. The principle drivers of growth include digital plates, workflow software, commercial inkjet solutions, NexPress color products and document scanners, which are all posting strong growth. Offsetting this growth this year are expected revenue declines, primarily from analog plates and graphic films. Beginning in 2007, we expect the growth engines to more than offset the declines from the other elements of the portfolio, and move us toward our expected top-line growth rate in this business. One more -- as one more good point along this path, we were very pleased with our success at the recent Graph Expo tradeshow in Chicago, where we booked strong sales. Particularly in the areas of digital prepress and digital printing, reflecting customer interest in expanding the digital print services. As you know, our portfolio of digital businesses is very seasonal, with more than 50% of consumer digital sales and greater than 40% of total corporate digital sales occurring during the last four months of the year. So, obviously, we'll need to work effectively to bring the year to a successful conclusion. The key piece of our strategy this year will remain our focus on margin expansion. As I said, in January, we have achieved scale. Now, we must achieve the earnings and cash needed to pay to complete our transformation and invest aggressively on expanding our product portfolio, so we can achieve sustainable growth going forward. The logical next step in this transition plan and the plan is working for us. As I think about digital revenues for the fourth quarter, we will continue to focus on cash and digital earnings at the expense of revenue growth in route to our year-over-year earnings turnaround in [CDG], as I conform this strategy and look ahead to market forecast and last year comparison for the fourth quarter, while I'm not ruling out the possibility of 10% revenue growth, we could come up somewhat short of that goal, as we will continue to choose earnings performance over revenue growth. In line with that, I continue to remain confident in our ability to achieve our digital earnings target for the year in the $350 million to $450 million range, and our investable cash target of $400 million to $600 million. Now, I would like to turn the call over to Bob, who will review the financial results in more detail.

Thanks, Antonio. I would also like to add my welcome to Frank, who has Antonio mentioned will assume the role of CFO shortly after we sign-off in the third quarter of 10-Q. As Antonio indicated, the third quarter represented continued progress in the past achieving our full year and transformational goals. The third quarter gross profit margin was 27.3% versus 25.9% last year, an improvement of 1.4 percentage points in clear progress toward our targeted model of approximately 30% gross profit as a percent of sales. A number of items impact the gross profit. On the positive side, these were manufacturing cost reductions and non-recurring licensing agreement and foreign exchange, which together improved margin by approximately 4 percentage points. These were partially offset by lower volumes and about $40 million of adverse silver price impact on a year-over-year basis, which together reduce gross margins by about 2.6 percentage points. In the quarter, SG&A decreased $105 million or 16%. And declined as a percent of sales to 17.6% from 18.9% in the year-ago quarter. SG&A represents the critical last part of our business transformation as we need to reduce SG&A as a percent of sales by approximately 3 percentage points to achieve our target SG&A level of 14% to 15% of sales. We will be working hard on this task going forward as we plan to essentially complete all of our restructuring efforts during 2007. R&D declined $42 million or 20% lead by reductions in the traditional product area. With R&D running at about 5.3% of sales level, we have essentially achieved our spending targets in this area. Our restructuring efforts continue throughout the quarter with the third quarter pre-tax charges totaling $212 million, and on an after-tax basis $202 million or $0.70 per share versus $363 million or $1.26 per share in the year ago quarter. These charges included severance, accelerated depreciation, exit costs, and asset and inventory write downs. Year-to-date through the third quarter, total after-tax restructuring charges totaled $613 million, compared with $752 million for the first three quarters of last year. As we approach the end of the year, we can now better estimate our total restructuring charges for this year. Our previous estimate had been between $1.2 billion and $1.4 billion pre-tax, and our current estimates for full year restructuring charges is now approximately $1 billion pre-tax as we find some actions less costly than anticipated and some planned actions moving into next year. We now expect full year cash restructuring payments will be approximately $600 million. Approximately, 1,650 positions were eliminated during the third quarter, bringing the program total to date to more than 22,200 positions. Consolidated third quarter digital earnings from operations were $105 million, an improvement of $98 million from last year's third quarter -- quarter's nearly break even performance. As Antonio has indicated we are very focused this year on driving digital margin expansion and the quarter shows we're making some good progress. The Consumer Digital Group crossed over in the profitability during the quarter with earnings of $24 million versus a loss of $61 million in last year's third quarter. Consumer digital gross profit improved across virtually all of the major product lines as the result of a lower cost go-to-market model, improved portfolio participation strategies and proceeds from the non-recurring licensing arrangement. Digital earnings in the Health Group decreased from $50 million last year to $35 million this year, primarily as a result of costs associated with exploration of strategic alternatives, and a lower contribution from the digital output product portfolio, which continues to be impacted by increased silver pricing, and the growing industry shift through soft copy diagnosis. This decline was partially offset by increasing earnings contributions from digital capture, healthcare information systems, and digital dental products. Digital earnings in the Graphic Communications Group increased $27 million, driven by a strong demand for digital plates, excellent acceptance of a new low-end document scanner product, and strong performance in commercial inkjet printing systems and service. As a result, GCG's quarterly operating margin improved from less than 1% to 3.5% on a year-over-year basis, with digital operating margin running at 6%. On a total company basis, traditional earnings were $157 million for the third quarter versus $205 million in last year's third quarter. The FPG segment, which is the largest contributor to traditional earnings achieved an operating margin of 13% for the third quarter, which is unchanged from the year-ago quarter. As the result of a strong focus on cost reduction, FPG was able to maintain flat year-over-year operating margins, while revenues declined 21%. The other income and charges category had a positive year-over-year swing of $53 million. The largest single item was the gain on a sale of property made surplus by our restructuring actions. As you know, our restructuring programs have created excess property which we will continue to monetize. We achieved our cash goals in the quarter through a number of factors. These included holding inventory flat on a quarter sequential basis, as opposed to the historical tendency to rise sharply -- excuse me -- from the second quarter level, as well as aptly managing receivables and capital expenditures. This improved inventory discipline should position us well for meeting our full year inventory goals as we move into the important fourth quarter. As expected, cash received from IP and asset sales totaled more than $100 million. Through three quarters, our cash -- our year-to-date investable cash performance is slightly ahead of last year's pace, and we ended the quarter with $1.1 billion of cash on the balance sheet, nearly double of the $610 million of cash we had a year ago. Year-to-date, we have paid out $408 million in restructuring cash, compared with $417 million for the first three quarters of last year. We paid a $200 million debt obligation in September, and subsequently in October we retired an additional $100 million of debt. We remain confident that we will be able to achieve our goal of reducing debt by approximately $800 million this year. Interest expense was $74 million in the current quarter, an increase of 17 million from the third quarter of last year, largely as the result of a non-recurring charge relating to a non-U.S. tax claim, as well as higher interest rates associated with the company's secured debt facility. The company reported a GAAP loss of $37 million or $0.13 per share on a continuing operations basis in the third quarter compared with the loss in the year-ago quarter of $915 million or $3.19 per share when we recorded the large valuation allowance of $2.71 per share. It is important to note that the third quarter results included $0.70 per share of restructuring costs. Lastly, we have received some questions regarding recently enacted pension legislation. As we review these laws, we see no impact on the required or the expected funding levels for our U.S. pension plans. In summary, we are very confident the company will achieve it's cash flow, debt reduction, and digital earning goals for the year. And now Antonio and I would be happy to take your questions.

(Operator Instructions). And we'll take our first question from Jay Vleeschhouwer with Merrill Lynch. Jay Vleeschhouwer - Merrill Lynch: Yeah, thanks. Good morning. Antonio, I think it was two conference calls ago, where you talked about some changes you were making in your global logistics and management structure and you've since announced the Flextronics arrangement for instance. Can you quantify the impact thus far in terms of your operational or logistical systems in terms of any financial or efficiency benefits that you’ve implemented including Flex or other parts of the company? Secondly, with respect to the consumer business, or the consumer digital, excluding IP sales, can you foresee that the operating gross margin of that business could sustainably get to the mid-20s or better?

The Flextronics impact I think is certainly to give you a number. But I think in February or January, when we do the conference call, I think we will make an attempt to give you a number of the financial impact. Obviously the impact is a lot more than simply financial. There are a lot of other positive reasons, why we did this. But we will make an impact --we will make an attempt to give you the financial impact. It's too early, we're still working together with them. We haven't passed along all the responsibilities the way it will be done within the next -- within the next few months. It will be a positive impact for sure, but it's too early to say. First of all, I don't know why you want to separate the impact of IP from the rest, because I think is -- for me it's an integral part of the business. Obviously, you can use your IP portfolio in many ways. You go to an extreme, you could ask people not to manufacture the products, which will obviously help with the sale of your products. That's not a path that we have taken, and not a path that we will ever take. But, what we're trying to use is that capital, that know-how, that position, and negotiate deals that will end up being revenue generating deals, and as well because we need those partnerships in the future. We are talking to all sorts of companies, many of them are key partners for us in the future and now. But having said that about IP, yes, we are managing the rest of the business to be standing by itself. We are looking for the present portfolio, our goal is to be in the single digits operating margins. With the new portfolio that would include CMOS and some of the cell cam work that we are doing, and inkjet in the future will raise that number. Obviously, we have to build a scale on those business for them to be impactful. Jay Vleeschhouwer - Merrill Lynch: The two final questions, last year and again year-to-date, in '06, you have had some good leverage in terms of improving your inventory turns as a source of cash. Looking into next year, do you think that you would have as much leverage or opportunity to improve turns as a component of improving cash flow again? And finally, this year, as you say, you have been willing to forgo some revenue in favor of cash and profitability. Do you think as you now get closer to the end of the restructuring tunnel that in '07, you could resume more of a focus on driving growth having established a better base of profitability?

Let me answer the last part of the question then I'll ask Bob to talk about cash. The answer is yes, as Bob mentioned before that the last leg -- the most important part of the last leg of our restructuring is the reduction of our SG&A and we have aggressive plans, we always did for this part of the transition to allow that SG&A. That will improve our cost structure. And that together with the Flextronics deal will help us to be more aggressive in that market. Remember that the deviation, and the top line from the numbers that we have originally to the numbers that we have now is by and large mostly due to our selective approach to the digital camera business. And that was done because with the cost structure we have, we couldn't make money in those markets, and I didn't think it was appropriate to continue to grow that way. The first thing we have to do is put the cost structure where it should be, get the supply change where it should be. That will affect the cost of this products too. And then I'll go back to revenue growth. Together with again new product categories that, that growth will start to have available starting sometime next year.

Yeah Jay on the inventories we have been able to work the inventories good, and we have that opportunity next year as the traditional business still remains a multi-billion dollars business, so the answer to your question is yes. There's a few hundred million dollars any way available next year. Also going into next year, as we said we should really start winding down the restructuring, both the charges, and we should see a lowering in the cash requirements as we move through the quarters next year. So these things should phase in nicely for us to continue to have a pretty good cash performance in the company. Jay Vleeschhouwer - Merrill Lynch: Thank you.

You're welcome.

We'll go next to Matthew Troy with Citigroup. Matthew Troy - Citigroup: Good afternoon guys. I just wanted to start off and say, Bob, I know it's your last call. Thank you very much for all your help, and always navigating the muddied waters with a smile and a positive attitude. But I’m sure it's been a difficult job. So I just wanted to thank you again.

My pleasure. Matthew Troy - Citigroup: I wanted to ask Antonio, on the Graphic Communications Group revenues declined for the first time a little bit going about a percent year-over-year, and a little bit down sequentially. I realize a lot of things are going well at GCG, particularly on the cost side, which I will be happy to hear about. But also was wondering if you put some more detail around what may have come in late relative to your expectations?

Yeah. Matthew Troy - Citigroup: And how we should think about top-line growth going forward now that it is an organic franchise?

First of all, Matt if you go back to the beginning of the year, if you remember what I have been saying is that the plans that we had for GCG top line were to grow with acquisitions included in the high 20s. Matthew Troy - Citigroup: Right.

And this is what we are doing. We are right in the high 20s. We have another quarter to go, of course, and our plans are to continue to be there. So I feel that the top line is just what we thought it was going to be. Having said that, we did say as well that the most important objective that we have for this year, for this fresh year was to take this six companies, four that we acquired from outside and the two that we had inside and make them one which was not -- is not an easy task and some of you, I think you too, remind me, how difficult this is, and I agree. So, the focus has been -- let's make sure that we have one company. Let's make sure that we as soon as we can go after the cost synergies, which as you can see, they are coming out, and then get ready for growth next year, which the second part of your question we expect that will be within the high single-digits for that group next year. Matthew Troy - Citigroup: Okay. I guess turning my attention, I think when we were up in there in the summer, I kind of delineated my -- the chapters of our legacy. You have certainly done an excellent job of being more of a pit bull, Antonio, for Kodak on monetizing IP, certainly seeing that this quarter. I think a second issue which you have been able to pursue very well has been the ability to partner with external parties. If I look at the GCG group, particularly on the revenue side, a question that I ask, I think every call, and I will just reiterate now is, you have got some strong products at the high end, but potentially in some of those products you lack breadth to compete with folks like Xerox and Canon and others, Canon being a partner at the same time, is there a thought process? Are we any closer to potentially seeing a partnership between a Kodak and perhaps a Japanese OEM, just to scale the product line whereby you share some technology, potentially re-batch, but just to flush out that product line more definitively in '07? Thanks.

The statement that -- our product line is in the low end is weak, I fully agree, and our team is working to solve that. And I think we are -- we have an opportunity for revenue growth, if we fill that gap. We have a partnership with Canon, and we're looking for other partnerships to build that. We don't have anyone that I can announce, but we couldn't agree more that there is an opportunity for us in the low-end of the electrophotography-based presses. We don't have a solution today, and we want to have one, and we have some internal work that that is too early to disclose, but we have as well. So, we have been evaluating partnerships. We don't have anything yet, but we have knowledge that this is an opportunity and an issue for us. Matthew Troy - Citigroup: Okay. I appreciate that and there's one last quick one. The stream technology, with a high industrial inkjet, very promising asset in the Kodak portfolio, should we be thinking that -- thinking of that as a -- kind of a -- announcement at the next drupa show in terms of timeframe, I think we have originally talked about '08, '09, and 2010. Are we still on that track?

Yeah. We're still on that track. I certainly -- our ambition will be to make an important statement at drupa in 2008, and start to get revenue in 2009. Fully develop the technology in a larger portfolio in 2010. But I still want to agree with what you said. That will be a very significant, disrupting and very valuable insulation for this company. At the same time, it's pretty complex technology, where we were still doing the right things in my view and we have work to do. But the plan is to be in drupa showing where we can do [with stream] in 2008. Matthew Troy - Citigroup: Thanks, Antonio. And Bob, thank you again for all of the help.

You're welcome.

We'll go next to Carol Sabbagha of Lehman Brothers. Carol Sabbagha - Lehman Brothers: Thank you very much. Just a couple of questions, sticking with the graphics business for a second. You talked in the MD&A about pricing hurting in the quarter, which seemed like pricing may have gotten a little bit more aggressive, especially on the digital side. Can you talk a little bit more about that and give us color on what you are looking for going forward?

Not much, Carol. I think the thing that bothered me the most -- of that thing was actually the price of silver and the price of aluminum. That hurt us the most. Especially silver, aluminum kind of quite down for a little bit and hopefully it will go down. If it goes down, we'll have a great opportunity next year. I don't think pricing was -- pricing is always an issue, but I don't recall being a -- of any magnitude this quarter. And if I'm wrong, someone here -- but I don't recall that was very significant, Carol. Carol Sabbagha - Lehman Brothers: Okay. And then moving on to consumer digital. Given that the fourth quarter as you have pointed out many times in the past, is a huge quarter for that business. What would make you -- what would you like to see next quarter on the revenue side or on the performance of the three main businesses there in the fourth quarter? And you don't have to give exact numbers, but some way to measure what would make you happy?

The biggest goal -- I mean, you know this. We've talked about this so many times. The biggest goal, I really want that group to be breakeven by the end of the year. And this is very, very important strategically for us, because we're getting now ready to introduce new products. And we don't want to carry P&Ls that are at a loss. And we're going to have enough cash and stamina to put into the development of the new product line. So the most important goal for that group is to be a breakeven. Now, we are growing in every single P&L that I remember, except for digital cameras and printer docks. And if I missed any of the little ones, let me know. But -- I mean out of the big ones, those are the two and fundamentally is digital cameras and that was the decision that we made at about this time last year, when I -- when we saw that there was no way with the cost structure we had that we could make that business an attractive business for us in the [borderline]. And we didn’t do something different and so we decided to do something different. When we -- so this -- so going back to your question, the objective for this quarter for Phil and for his team is to get to breakeven, and I -- if we have to sacrifice top-line, we will. I don't expect anything very different than what you have seen from the rest of the year so far. I would expect, because we are focusing in that middle range of cameras, where we are doing so well, and they work well for us, and we have been very timid and very tentative in the low end, because of reasons that I said and I don't expect any change. Carol Sabbagha - Lehman Brothers: Antonio, is it still important -- and I applaud you for focusing on the cost side, but is it still very important to be top 3 in consumer digital cameras? Or would you be willing to sacrifice that goal too?

Long-term, it will be less important Carol because digital capture is what we're after. And I again, we talked about this before, as digital capture what we're after, and as you can see there is going to be many more instruments doing digital capture that are not pure digital cameras than digital cameras next year. So, we have to be the leaders in digital capture, and that's the stated objective and that's what we're going after. Now, digital cameras will still be an important part of our contribution because of our own cameras, and because what they represent for the brand. So, we need to make digital cameras, say a good contributor to the company. But -- so, longer term I care less about what the digital cameras by itself, our market share over there will be. Although, I expect it to be similar to what it is now. [Either not if you said of course] the most important is to have enough size that you can buy from your suppliers at a price that is relatively competitive to your competitors; that you have enough volume and enough presence that the retailers will sit with you to talk about what they are going to do next year, and they give you space; and as well as that you have enough of a portfolios that you can design platforms, and therefore, you can have the same high cost and the important parts of the camera, as you can buy them in a way that you can use for six or seven products, and therefore, to justify the cost you lower the cost, you can play with the platform a lot better. I don't know if it's number 3 or if it's number 4 or if it's number 2, but it's out there and I think as long as we are within digital cameras, we will aspire to have those volumes. One more thing, this is a seasonal business. There are companies that could come like we used to do in the past and go after market share and they go after market share, so you'll see one quarter that we might be number 2, or we might number 4, but we have to be out there if we're going to stay in that business and make money. Carol Sabbagha - Lehman Brothers: Okay. Very helpful. One last quick question on inkjet, I think the last official word from the company if I am not wrong is that you want to have an inkjet product out I don't know what that means but by year end, where do we stand now and when we're going to see something either in the market or a prototype, however you want to answer it?

We have very good technology. We are obviously very late, like 20 years late into this market. So, I'm not going to bother about a month or two about this, as you can imagine. The plan was always to have an effect on our financials in 2007, and we still debating when we're going to make an announcement. My plan will be to do something -- announce something before the end of the year, and at this point I can't say any more yet. But financially the effect was always going to be of any significance, in 2007; we're still on that track. Carol Sabbagha - Lehman Brothers: Okay. Thank you very much.

We'll take our next question from Ulysses Yannas with Buckman & Reid. Ulysses Yannas - Buckman & Reid: Bob, we shall miss you.

Well, thank you. Ulysses Yannas - Buckman & Reid: A question, if I may. As I understand your pension plan is overfunded, right?

Correct. The U.S. pension plan which is about 82% of the whole obligation is well overfunded. Ulysses Yannas - Buckman & Reid: I heard some place that you might be using the overfund to pay for severance costs. Is that true?

No -- let me go through this. What we -- I saw your name in an article too and thank you for your kind words about the company, by the way. What we have announced is that for the restructuring actions announced after October 18th through most of 2007, the termination benefits for the majority of the impacted U.S. employees will be provided in the form of special retirement benefits payable from the Kodak's overfunded U.S. pension plan. And, yes, one effect of this change will be to increase the amount of cash that is available for the company in 2007. Ulysses Yannas - Buckman & Reid: Is the number that I calculated over $700 million correct, available?

At the end of last year, the -- we had approximately $6.5 billion in asset, and it was overfunded by about 12%, so your calculation is about correct. Yes, at that time. It's actually a little better now. Ulysses Yannas - Buckman & Reid: Thanks very much.

We'll go next to Shannon Cross with Cross Research. Shannon Cross - Cross Research: Hi, good afternoon, question for you on just, can you provide more details -- I know you said health imaging remains on track, you are going to close by the end of the year, just in terms of the results that have been coming through in the business versus what the expectations are of the companies that you are talking to that might acquire? I'm curious as to how things are tracking?

I think they are tracking fine, Shannon. We -- there is a cost associated with announcing something like this in two ways. One, as obviously you're going to have consultants. They tend to be very expensive. I hope they are not listening, but they are very expensive, and that is a cost that you have to incur and there's no way out, out of that. The other thing is that you do affect somehow sales. They are customers and we know them by name and everything that they have decided to delay some purchases or they are still waiting to see what we do. And that is a cost that we evaluated when we made the announcement. We even knowing all of that, we thought it was fair to our customers and it was fair to our employees, and I think that it was the best thing for our shareholders anyway to be open about what we were doing. So, those costs we have to be dealing with though. And those plus the silver, those are the two big differences that you see from the plans they have and the ones that came out -- our result. I think the -- whoever is looking at this business, whether to form a partnership with us, or to buy the business, they understand that and we obviously explained that with incredible detail to them. So, I think the progress is doing fine, Shannon. It's a complex progress. There is a very complex carve-out, even though we have cleaned up the company very significantly, in my view, and it has cost us a lot of money in the last three years. Even with all of that, the carve-out of health is pretty complicated and all of that influences evaluation of the group, the way you do the carve-out. So, we're doing that very consciously and we are on track. We have options that we can choose, and we'll have a couple meetings with the board, you know, to decide what part we're going to take, and I -- and, you know, my hope is that we'll make that announcement before the end of the year. Shannon Cross - Cross Research: Okay. And can you talk a little bit about from a manufacturing standpoint on the analog side. I think you're at six sensitizing facilities, is that correct? Or maybe five? And just where you're running in terms of usage rates on the facilities, just trying to get and idea of, you know, as you start to step down and shut down facilities where we stand in terms of manufacturing leverage?

We have less sensitizing sites, I think we have four if I count well. Four of any significance, not six, and we will have less and next year, so, -- and obviously they, you know, utilization for those facilities have gone up. That's why FPG is doing so well apart from other things is that, you know, the utilization of the factories is obviously better than it was before as we were aiming at, because we are concentrating -- certain products, certain product categories only in one place. So, we have some issues with inventory and supply chain, because we're only produced one place, but the balance is positive for us. I don’t have a number specifically to give you. I haven’t disclosed by plan, but I could try to -- when you call next time, probably I could try to give you a magnitude of the improvement for the company, but I know per plan, I don't think I would like to offer a platform at these stage, but -- because things change anyway. But yes, there's an improvement in productivity, and that was part of the restructuring plan. Shannon Cross - Cross Research: Okay, and then just one last question on your CMOS opportunity, I believe last time on the conference call you've talked about -- I'm not sure how the cell phone carriers refer to it, but sort of beta testing, or you had some sensors out for evaluation, can you give us an update on where you stand?

As you know in the semiconductor business what you do is you kind of work with the possible customer for a design and you create something, and then the customer evaluates that together with some other competitors, and then they will choose you or they would not. This is what is called a design win. We have a portfolio of design wins that are in the -- well, I'm going to say it anyway -- more than $100 million at this point. So, and this is the beginning. I mean, that doesn't mean that that is the number we're going to get. You are still lose those orders if you don't produce well, but I'm trying to give you a sense of what we have with the business. This is a new business for us. So we are building the expertise to gain those design, you know, design wins and we've been involved with those in the last four -- you know, three or four months, and more during the rest of the quarter, and we're building a portfolio of design wins with which I'm very happy with. Shannon Cross - Cross Research: Okay. Thank you.

We'll go next to [Eli Lap], [Dillon Reed]. Eli Lap - Dillon Reed: Yeah, thank you. On the health imaging business, I was wondering if you could break out for us -- because you attribute the lower earnings to higher silver prices, and the strategic alternatives, I was wondering if you could break those two down for us in terms of how they contributed to that decline?

Hey, Eli, this is Bob, we don't disclose that amount of detail on how we do that. The silver for the company was about $40 million, and they are a large user on X-ray films, so that hurts, and we also have the biggest -- the biggest issue is the film decline and the silver on the film. Eli Lap - Dillon Reed: Okay. All right. Thank you.

You're welcome.

We'll go next to [AJ Criswall] with Goldman Sachs. AJ Criswall - Goldman Sachs: Thank you. Just one further question on IP, Antonio, you mentioned IP as an integral part of the operating performance, but could you quantify how much was income from IP in the first half, it looked like it was approximately $60 million in the quarter, and also if you could compare the first nine months this year with full year last year? And secondly, in terms of your digital earnings quote for this year, the 350 to 450, how much of IP income is baked into that number?

We can't do that. I don't even know how to calculate -- I mean, this, you know, $57 million or $60 million that you just calculated is fine if you want to calculate it like that, but, the truth is, you make that calculation without no SG&A whatsoever associated to that number, right? This is just -- and that is just not real. It's not real for me. I mean those are the same engineers that are making the digital cameras and the same old sensors, the same one. So I don't know how to split fairly what it is IP, and what it is pricing that you put into our product, plus the IP acquisition we have that are actually a lot more than that cash, that in this case we had to disclose because of the nature of the deal. The IP deals are much more complicated than that. We get [pro designs], we get, you know, component supplies, we can get sharing of the revenue of sample deals this product. I can't possibly take all of that and create a new P&L in which I have to arbitrarily put some SG&A into it. I can't do that. That's why it's an integral part, and its not because we don't want to give you a number, this is because it is an integral part of the business, and I don't know how to split it unless we do something completely artificial. AJ Criswall - Goldman Sachs: Alright, just following-up on that, so the breakeven target for the Consumer Digital Group for the end of the year, does that include IP, or is that more in operational, or --

It including everything that has to do with that group. So within the P&L that we call digital capture, that has the IP associated with digital capture. And then, yes, I mean, the answer to your question in a simple way is yes. It's actually part of the digital captured P&L. AJ Criswall - Goldman Sachs: Great. Thank you.

We'll go next to Sam Doctor, J.P. Morgan. Sam Doctor - J.P. Morgan: Thank you. A couple of questions you need to follow-up on some of them asked already. In terms of the 100 million in design wins that you have for image sensors, can we expect that to consider into revenue in 2007, or would it extend out beyond that?

No, I won't even go, Sam into that, the revenue for 2007. You know, design wins are -- I was trying to show you -- I was trying to give a sense for Shannon, what kind of a business we are building. Within -- and, you know, design wins there are different project, some of them are for three months, some of them will come out in a year and a half, others in nine months. We don't have a projection for next year. We will do more in February 8, and we will dig more into that. We'll give you our best shot about what the influence of the new broad portfolio could be, so you can work it with us. Right now, I was just trying to show to Shannon that we are building a decent business with that, but I don't have a number for 2007. Sam Doctor - J.P. Morgan: All right. And on SG&A you did a great job reducing numbers this quarter. How much of the reduction came from advertising? And what would be the new sort of target advertising expense within the 14 to 15% target model?

I don't know the answer to that. But as advertising we have been running around what we wanted to do for the year. Our biggest concentration in SG&A is about -- honestly individuals and processes. That's what we're after. Advertising is going to be with us for the rest of our life, so we're not going to save anything out of that. It might be in different shapes and forms. We're doing a lot more web advertising than we used to do. In the past, we do less TV than we used to do in the past. We do a lot more at the store level because mostly the battle for this product is that the store level rather than in the mass advertising that we used to do with film, but we're still doing advertising. Sam Doctor - J.P. Morgan: Okay. And finally, could you comment on shared manufacturing facilities that you might have between the X-ray and the photo film and how would that impact the ability to spin out the health business to private equity or any other buyer?

No health is very concentrated in Colorado, but you are assuming that we are going to sell it, and we haven't said that we're going to sell it. But we do in the carve out. Colorado is the key facility for that and -- obviously we use it for a few other things but it's mostly health. Sam Doctor - J.P. Morgan: Okay. Thank you.

We'll take our final question from Adam Comora, EnTrust Capital. Adam Comora - EnTrust Capital: Hey, hi, great. Just wanted to get your quick thoughts on what is happening out there in the motion picture industry? If you could give us a ballpark on how big that business is, that would be great, and just what your thoughts are?

It's little more of a 1 billion. The business is very stable this quarter we happened to grow 3%, but we expect the business to be flattish for the year. There is a transition going on to digital. So far it hasn't had any influence whatsoever in our numbers, but we are following that, we are a part of that as a matter of fact. We collaborate very intensely with the industry in that transition. We have one part of our business, although small that is dedicated to digital pulse processing. We have two companies working on that as well on special effects, which is all digital. So we are part of that transformation, but it didn't effect our business. We have obviously a path to deal with it -- with time, but so far this is a flat business with good margins and about $1 billion in revenue. Adam Comora - EnTrust Capital: When do you see the impact starting to effect you guys or when do you see that digital transformation happening?

Digital transformation I guess started many years ago, it's just the speed in which it's developing, is not steady. For also some reasons there are business models. They have to be effective in the side of print, which is the copies that they have been sold to theaters, and then as well in the originating film; the quality of film still is far superior there any digital camera that exist in the market. So there are two different parts of the market. One could argue that technology has been existing for the transformation of the projection and distribution -- technology has been there for years. The business model doesn't fit well, and I think is going to take some time. And the case of originating I think there's more -- the technology is not -- and the methodology of dealing with all the different elements of getting the look and feel of a movie, that's just so different that I think it will take longer for that to happen. We have been saying in the past that we don't expect significant changes in the next two years. I said that two years ago. I'm saying it again, although it's one year later. I don't expect significant changes in the next two years for the overall business. I would expect to see the print to go down a little bit first. And I said as well as I have been saying that as long as this last for another two years, we will be very happy. The plan is that part of the business is crucial for the transformation because it generates a lot of cash, and we have been in need of a lot of cash for the transformation. We'll have one more year as Bob said. We're going to start seeing after the second quarter of next year that the cash that we need for the transformation is a lot less. Therefore, I hope the business lasts for a long time, and I think there are many signs that will indicate that but they know when it'd be crucial for us. They are not going to be an impediment for us to build a digital company. Adam Comora - EnTrust Capital: Okay. Thanks.

And Mr., Perez at this time I would like to turn the call back over to you for any additional or closing remarks?

Well thank you very much for attending. And we are very committed to the fourth quarter. We are fully aware of the challenges we have. I have full confidence that we're going to have a good year and have a good trick-or-treating tonight.

And this does conclude today's conference. Thank you for your participation.