Dave Bullwinkle - Director, Global Financial Planning and Analysis and Investor Relations Jeff Clarke - Chief Executive Officer John McMullen - Chief Financial Officer.

Shannon Cross - Cross Research Gary Ribe - MACRO Consulting Amer Tiwana - CRT Capital Peter Rabover - Artko Capital John Korver - Bennett Management Craig Carlozzi - Bulwark.

Good day, ladies and gentlemen and welcome to the Eastman Kodak Q2 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 be given at that time. [Operator Instructions] As a reminder, this conference maybe recorded.

I would now like to introduce your host for today’s conference, Mr. Dave Bullwinkle. Sir, you may begin..

Thanks, Earl. Good afternoon. My name is Dave Bullwinkle, Director, Global Financial Planning and Analysis and Investor Relations for Kodak. Welcome to the second quarter 2015 Kodak earnings call. At 4:00 p.m. this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the second quarter of 2015.

You may access the presentation and webcast for today’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 United States Private Securities Act of 1995.

These forward-looking statements are subject to a number of uncertainties or risk factors, which are clearly described in the company’s 10-K and which are qualified by the Safe Harbor provisions in our filings.

We advise listeners 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 or uncertainties. In addition, the release just issued and the presentation provided contains certain measures that are deemed non-GAAP measures.

Reconciliations to the most direct comparable GAAP measures have been provided with the release and within the presentation on our website in our Investor Center at investor.kodak.com. Speakers on today’s call will be Jeff Clarke, Chief Executive Officer of Kodak and John McMullen, Chief Financial Officer of Kodak.

Jeff will provide some opening remarks, his perspectives on the quarterly financial performance, and an update on the outlook for the company. Then John will take you through a cost reduction update, additional details of our second quarter results and cash flow results and outlook before we open it up to questions.

I will now turn this over to Kodak’s CEO, Jeff Clarke..

Thanks, Dave. Welcome, everyone and thank you for joining the Q2 investor call for Kodak. I will start by giving you an overview of the quarter and our outlook for the rest of the year. John McMullen will follow with more details and then of course we welcome your questions. Before we look at Q2, I want to address something I am sure is on your minds.

We are well aware the stock has traded down since the beginning of the year. We obviously do not manage for stock price. However, we are doing the right things to create shareholder value.

We are building the foundation for a profitable future for Kodak by reengineering the organization, reducing the cost structure and investing in key growth opportunities. We have improved transparency with the divisional structure.

We are executing well and we are ahead of our internal plans for the first half and are maintaining the guidance we gave you for 2015. We expect this will help build investor confidence, which over time should also translate into increased value for our shareholders.

We have scheduled an Investor and Analyst Meeting in October to better enable you to understand the company and provide an expanded form for your questions. John will cover this further in his remarks. Now, on to Q2 performance, first, let me say I am pleased with our Q2 results.

We met our expectations for the quarter and came in ahead of our internal plans for the first half of 2015. Go to Slide 5, please. On Slide 5, revenues for Q2 2015 totaled $458 million for the quarter, a 13% decrease in the same period in 2014. More than half of this reduction reflects the impact of foreign exchange.

On a constant currency basis, revenues in Q2 2015 declined by 5% versus Q2 2014. The remaining decrease was driven by the expected continued decline in legacy consumer inkjet printer cartridge sales and non-recurring intellectual property revenues realized in the second quarter of 2014.

Once adjusted for foreign exchange and these items, revenues were essentially flat. Total company operational EBITDA for Q2 was $23 million, or 5% pf revenues. In the same period in 2014, operational EBITDA was $24 million, also 5% of revenues. Slide 6, please. We reiterate our guidance for 2015.

Adjusting for the foreign exchange impact as well as non-recurring IP revenues, our baseline 2014 operational EBITDA was $67 million. As we have guided you previously, we expect 2015 operational EBITDA to be in the range of $100 million to $120 million.

On Slide 7, we present operational EBITDA on a comparable basis in the same way we have provided our guidance for 2015 and our Q1 results. Operational EBIT is essentially flat on a year-over-year basis as reported.

When adjusted for the non-recurring IP revenues of $9 million in Q2 2014 and the foreign exchange impact of $8 million, results represent a comparable improvement of $16 million year-over-year. And on a year-to-date basis, operational EBITDA is $35 million, or 4% of revenues, up from $31 million and 3% in the first half of 2014.

When adjusted for non-recurring IP revenues of $18 million in the first half of 2014 and the adverse foreign exchange impact of $12 million, we show year-over-year improvement of $34 million compared with the first half of 2014.

We are on track to achieve comparable improvement of $33 million to $53 million in operational EBITDA, which we guided to for the full year. As discussed in March, when we provided guidance for 2015, Kodak’s established businesses are typically nonlinear and second half loaded. In addition, we have strategic businesses, which are ramping up.

So, in total, we guided to a split of roughly 25% of operational EBITDA in the first half and roughly 75% in the second half. We have obtained the second half ahead of us and the stronger-than-expected first half performance is helpful.

Within the quarter, year-over-year growth in key product lines included SONORA plate volume growth of 66%; FLEXCEL NX volume growth – excuse me, FLEXCEL NX plate volume growth of 39%; and PROSPER revenue growth of 23%. As I said you before, 2015 is a pivotal year for the company. Kodak is in the midst of a transformation.

We are building new growth businesses based on our technology and the value of the Kodak brand, while at the same time, managing an quarterly decline of our mature businesses.

Enabled by our new divisional organization, we are creating an efficient and entrepreneurial set of operations and reducing our cost structure to be appropriate for our scale and portfolio of businesses. Slide 8, please. Now, let’s look at some highlights of the quarter division by division.

For the Print Systems Division, this is Kodak’s large business representing over half of our revenues and earnings. PSD is a stable, predictable and profitable business. Approximately, 80% of PSD’s revenues are of a recurring or consumable nature. This provides predictable revenues and cash flows for the company.

Q2 was the fifth consecutive quarter of volume growth for overall plates business. PSD revenues for Q2 were $282 million. This represents a 12% decline compared to Q2 2014. Continuing the pattern established in Q1, the vast majority of the decline is due to unfavorable foreign exchange rates with some modest impact from continued competitive pricing.

On a constant currency basis, PSD revenues declined by 2% and operational EBITDA for PSD improved by 15%. PSD’s key growth product is SONORA, our process free plates. We now have more than 2,700 SONORA customers, up 19% sequentially from 2,274 at the end of the first quarter. This technology is being enthusiastically adopted by printers worldwide.

Globally, we expect SONORA growth of be greater than 15% in 2015. In the second quarter, SONORA plate volume increased by 66%. SONORA Process Free Plates reduced the environmental impact of printing processes without sacrificing quality or output.

SONORA plates removed the need for the plate processor, eliminated associated use of chemicals, water and energy and saving time in cost of customers. SONORA’s customer acceptance and growth is a result of significant differentiation versus our plate competitors.

Later this week, Brad Kruchten, President of PSD and I will be in Columbus, Georgia for the opening of our new SONORA production line. We are now producing SONORA Plates in Europe, Asia and the U.S.

The opening of the new manufacturing line in Columbus marks the completion of our plan to improve our manufacturing operation – manufacturing, operational and logistics efficiencies.

The optimization of our plate factories from five to four in regional sourcing of all products will drive cost savings equivalent to two points of gross margin for the division. I am very pleased with the smooth execution of the complex plate manufacturing plant closure in the East U.K.

and transition of our product production lines to our global factories. Another marker of the growth in SONORA during the second quarter was Kodak’s launch of SONORA XJ for the Japanese market last month. We are already setting up new customers for this product.

The Japanese market is exacting, with requirements for extremely high quality print and consistency of plates as well as demand for environmentally responsible applications. These are all great drivers for the SONORA technology capabilities.

As added bonus, the SONORA XT is proven ideal for UV printing, which will enable us to tap into a growing trend of the printing industry in Japan and for use of UV in packaging applications. Also within the print systems division is our electrophotographic digital print business.

In Q2, we saw a 6% increase in the number of NexPress units placed versus a year ago. Next, I will discuss the enterprise inkjet systems division. As you know, the lead growth product of this division is the Kodak PROSPER system. For Q2, EISD revenues totaled $45 million, down 4% from the same period a year ago.

On a constant currency basis, EISD’s revenues improved 4% versus last year. Operational EBITDA was a negative $5 million compared with the negative $12 million in Q2 of 2014 for improvement year-over-year of $7 million. On a constant currency basis, operational EBITDA improved $9 million.

While we saw strong momentum with our PROSPER systems, we saw faster than expected decline in the sales of the legacy Versamark product, where we expect rising PROSPER revenues to equal or overtake legacy Versamark revenues in the second half of 2015.

PROSPER continues to gain momentum in the marketplace, with five new systems placed during the quarter for a total of 10 system so far this year. We are well on our way towards hitting our goal of 25 systems placed this year. PROSPER is also bringing in more annuity revenues.

In Q2, we surpassed 1,000 for PROSPER printhead installations with the sale of 52 during the quarter. In the second quarter, total PROSPER consumables increased by 17%. The value of PROSPER technology was recently recognized by the Printing Industries of America with the prestigious Intertech Technology Award.

In fact, Kodak was the only recipient to win multiple 2015 Intertech Technology awards, with the new FLEXCEL NX advantage features also being recognized for the industry-leading technology.

Now let’s talk about the Micro 3D Printing and Packaging division, which includes FLEXCEL NX systems in plates and touch sensor films with silver mesh and copper mesh technologies. For the division, revenues for the quarter were $34 million, up 3% versus Q2 of last year. On a constant currency basis, MPPD revenues improved by 15%.

Operational EBITDA turned positive at $4 million compared to zero in the same period a year ago. On a constant currency basis, operational EBITDA improved by $5 million year-over-year. We saw strong growth in our packaging business with the FLEXCEL NX offering during the quarter. With 21 systems installed during Q2, our NX base grew over 440 units.

We continue to focus on placing larger format units, which provide more than double the consumables revenue of the smaller format units. In May, we launched a new set of features for FLEXCEL called the NX advantage. Switching now to micro 3D printing, we are developing touch screen solutions in two technologies, silver mesh and copper mesh.

The silver mesh technology is now producing some modest revenues on test products sold to potential high-volume customers. We are in negotiations with these customers and expect to see additional revenue in Q3. We are adding production lines in our facility in Xiamen, China, which will be on line by the end of 2015.

We are excited to grow this business and are adding sales and business development resources in anticipation of ramping our growth. Kodak is also moving ahead with the development of copper mesh technologies. And I am pleased to say we have achieved technical and manufacturing milestones over the last 90 days.

We are now achieving consistent production yields in the 80% to 90% range. We are also encouraged by early feedback on optimal performance of our copper mesh technologies from leading customers in the industrial, automotive, point of sale and all-in-one segments.

Over the next year, we will continue to improve our optical features in order to expand our reach into the tablet market. We are building a pipeline of opportunities which we expect to realize in 2016 and ‘17. Continuing on the Software & Solutions division, which include Kodak Unified Workflow Solutions.

Q2 revenues of $27 million were flat versus the same period of last year and operational EBITDA of $1 million was up from zero last year. On the constant currency basis, revenues improved by 7% and operational EBITDA improved by $2 million year-over-year.

The increase is largely attributed to Unified Workflow Solutions’ performance in the North America markets, which is boosted by the launch of new products Printer G7 and Insight 7, both software solutions designed to automate production sites and increase efficiencies.

Next is the Consumer and Film division, which includes consumer inkjet solutions, motion picture and commercial sales, including synthetic chemicals and brand licensing. For Q2, revenues for CFD were $66 million, down 24% in the same period a year ago. Operational EBITDA declined to $8 million from $15 million.

The consumer inkjet business serves the existing installed base of Kodak’s consumer inkjet printers by providing replacement ink cartridges to those consumers. We expect continued reduction in revenues and earnings from this highly profitable annuity business.

Our entertainment imaging and commercial films business is also declining, but sales volume is above our expectations. In addition, the second quarter in a row, our film business has been profitable.

In the brand licensing sector, during the quarter Funai, a new Kodak brand licensing partner introduced a low-price printer and inkjet cartridge package, which is now being sold at Walmart in the U.S. and Tesco in the UK. Kodak will receive royalties from these sales, but there is no working capital risk with this partnership.

The Intellectual Property Solutions division, we continue to actively explore multiple opportunities for IP sales or licensing transactions. In Q2 2014, we had non-recurring revenues of $9 million from IP transactions. There were no licensing transactions in the Q2 2015 and R&D expenses were $7 million.

Eastman Business Park, which is focused on the development of the 1,250-acre park encompassing more than 100 buildings, 16 million square feet of space and over $50 million – excuse me, 50 miles of integrated roads and rail here in Rochester, with more than 58 companies now operating in the park, its profit contribution to the company has improved year-over-year.

Q2 revenues were $4 million with an improvement of $2 million in operational EBITDA compared to the same period last year. Highlight of the quarters for EBP was the signing of the Collaboration Agreement with Oak Ridge National Laboratory, that largest science and energy laboratories for the U.S. Department of Energy.

We will work with Oakridge to accelerate commercialization and manufacturing of next generation battery and energy storage devices and materials. The collaboration is potentially to make EBP a centerpiece in domestic development of clean energy technologies. I am going to now hand it over to John.

John?.

Thanks Jeff and good afternoon. Today, the company filed its Form 10-Q for the quarter ended June 30, 2015, with the SEC. I recommend that you read this filing in its entirety. As Jeff’s noted in his opening remarks, we are pleased with our second quarter results and the overall first half performance for the company.

I will now provide a little more detail on several areas of our second quarter performance.

As we reported in our earnings release, the net loss for the quarter on a GAAP basis was $23 million compared to a net loss of $62 million in Q2 of 2014, an improvement of $39 million, which reflects the continued progress we are making with the company’s overall financial performance.

This information is taken directly from the company’s consolidated statement of operations in the 10-Q. We are pleased with the year-over-year improvement. Next, let me provide an update on our cost reduction programs.

As we shared with you on our May call, we expect greater than $100 million in operational SG&A and R&D cost reductions for the full year 2015. As you can see on Slide 10, we have made significant progress in the first and second quarters towards this objective.

Based on actions taken through the end of the second quarter, the reduction in operational SG&A and R&D was $35 million year-over-year. On a year-to-date basis, operational SG&A and R&D have declined $70 million year-over-year.

And finally, on a run rate basis, the reductions made and actions taken year-to-date would yield a full year savings of approximately $95 million with no further actions. As you can see, we have made great progress in achieving our goal of greater than $100 million in operating expense cost reductions, with two quarters of our fiscal year remaining.

Key drivers of these difficult, but necessary cost improvements are company headcount, which has been reduced by approximately 18% year-over-year and benefit reductions effective at the beginning of 2015, which provide approximately $20 million in annual operating expense savings.

We continue to focus on opportunities to further reduce our cost structure going forward by driving a simpler, more efficient and more execution-oriented organization consistent with our new divisional structure.

We have made significant progress to-date and we will continue to take actions as appropriate based on the business model needs of each of our divisions. Now, let’s focus on cash. As shown on Slide 11, the company’s liquidity remained strong with ending cash for the quarter of $576 million. This reflects a $33 million decrease in cash from Q1 of 2015.

During the quarter, the company used cash primarily for interest expense and debt repayments, capital expenditures, employee severance payments, working capital, funding of planned cash tax payments and pension grants, the negative impact of foreign exchange and reorganization and legacy payments related to our Chapter 11 and reemergence process.

It’s important to note within our cash results we continue to face an unplanned headwind from foreign exchange impacts. Year-to-date, our cash position has been reduced by $9 million as a result of negative foreign exchange impact.

To summarize, second quarter cash results were as expected versus our internal plans and reflects solid first half operational EBITDA performance and good cash management.

It’s also important to note that second quarter ending cash balance is consistent with the linearity built into our 2015 plan and we continue to expect positive cash flow from operations for the second half of 2015 and the year end cash balance between $630 million and $650 million.

Where we land within this range could be affected by full year foreign exchange impact, which we will provide updates on in the third and fourth quarter results. In summary for the quarter, we are pleased with the company’s continued progress.

We are executing very well within the new divisional structure and we are making the progress necessary in our key businesses to drive future growth. We are also bringing our cost structure to where it needs to be to provide the capacity to invest for growth while returning the company to sustained profitability and cash generation going forward.

As Jeff mentioned in his remarks, we are excited to be hosting an Investor and Analyst Event in October. At this event, here are some of the topics we intend to include. First, the company’s view of our current and future business models both at the company level and individually for each division.

The growth engines of the company today as well as future growth opportunities, our overall earnings and cash flow potential on a longer term basis, a view of what we believe to be the optimal capital structure for the company going forward, our capital allocation priorities, and an overview of both existing technology in our pipeline as well as future technology opportunities.

We look forward to sharing more details of this event in the very near future. I will now turn it back to Jeff for closing comments..

Thank you, John. In summary, I am pleased with the second quarter performance. Kodak’s business is nonlinear and heavily weighted to the second half of the year.

We are ahead of our internal plans and well-positioned to meet the 2015 guidance we have provided to in March, revenues of $1.8 million to $2 million and operational EBITDA of $100 million to $120 million. Looking forward, we continue to be on track for meeting our goal of operational EBITDA of $175 million for 2016.

We will now be happy to take your questions.

Dave?.

Thank you, Jeff. Earl, we are now ready to open the Q&A session. Please remind callers of the instructions for asking questions..

Okay, thank you. [Operator Instructions] Our first question comes from Shannon Cross from Cross Research. Your question please..

Thank you very much. I have a couple of questions. The first is on PROSPER, I am curious as to what you are seeing in the pipeline, you said you are confident in the 25 this year.

Where are they going? How many are involved? And just any more color you can give us on what you are seeing in terms of the end demand for PROSPER?.

Sure, Shannon. So, first of all, the 25 that you referred to is our goal for the year. We believe we will meet that. It is – those are just the presses for the OEM and the commercial presence.

The rest of the PROSPER business is of course the imprinting systems are printheads that go into hybrid systems and we are well on track to a very strong year on that as well. As I mentioned, we have over 1,000 in-plates today and then the service and consumables part of the PROSPER business.

But in terms of the presses, again, in context in the first four years of this program, we sold 39 presses. So, I am very pleased that in the last six months, we sold 10. For the remaining ‘15, we have [indiscernible] of well over 35 machines as a [indiscernible] pipeline.

And it’s really a matter now of those executing on those from a sales perspective over the second half of the year. As you might expect, most of those – most of the remaining ‘15 will be more in the fourth quarter timeframe, but we are off to a very good start this year.

In terms of application, the vast majority of these are into traditional print markets. The Bobst machines that we have, have been recognized within the 10 and there is a possibility of one or two more OEMs in that ‘15 number. But think of it though pretty much, 13 of those being traditional commercial presses.

In terms of application, primary applications continue to be distributed newspaper, printing for direct mail and traditional commercial inkjet printing for books and pamphlets, etcetera, so kind of down the middle for commercial printing..

Great. And then John, maybe you want to talk a little bit about the cash flow expectations for second half in terms of living a positive cash flow? And what are the key drivers? I mean, clearly, EBITDA improvement, but there is something that we should look for on working capital or what are you looking for there? Thanks..

Yes, sure, Shannon. Thanks. So, I think as we move into the third quarter, first of all, I just want to reiterate that where we are from a cash point of you through the first half is very consistent with the way we planned the ramp of cash throughout the quarters of the year. So, we are on track vis-à-vis our plans for the first half.

As we move into the third quarter, we will begin to approach positive cash flow from operations, I would rule out our possibility to get there from a cash flow from operations point of view, but we will also, in the third quarter, have what will be probably our largest outflow from a non-operating point of view in terms of reorganization and legacy items that we identified in the overall cash outlook for 2015.

So, once we get that behind us, along with the operational EBITDA ramp that we have in the second half and working capital improvements that we are driving through the organization this year and through the first half of the second half and also at some level, a declining outflow from a restructuring point of view in terms of restructuring dollars going out versus where we have been maybe over the last 12 months.

These are the things that turn us back to positive cash flow and put us in a position to begin to generate cash by the end of the year and going forward..

Yes. Just to give you a sense also, I mean, to drill on that working capital, I mean, our inventories ended at a net inventory balance about $380 million and that build really is in support of the sequential growth into the third quarter and a sequential growth into the second half of the fourth quarter, traditional seasonal drive there.

And also the building of the 15 machines for PROSPER, the continued growth in the packaging space. So, I think if you look at the balance sheet, you will see that we are building inventory, which uses cash and that we should recognize that in a normal seasonal fashion in the second half of the year.

And just to put a number on what John talked about, this one-time which was always in our plan, but this one-time organization element for really to finalize a split of our China Alaris business is about $12 million to $15 million, right, John?.

That’s correct..

And so that’s expected, but that will be cash used in the third quarter based on current timing..

Great, thank you very much..

Thank you..

Thank you. Our next question comes from Gary Ribe from MACRO Consulting. Your question please..

Yes, hi. Thanks guys for taking my question.

I guess, I will start, you guys had announced some price increases in graphics, I was just wondering if that was plates and that sort of thing and what drove that was that aluminum or something else?.

Yes. So we continue to face significant pricing pressure in the plates business. The price pressure this year is about 3.5% down. So overall, when you look at our mix of our business, we are down about 3.5% on plates.

When you would just out the SONORA mix, because we priced SONORA higher, because it delivers more for the customer, we have about 4% headwind on pricing. So net-net, graphics plates are down 4% at a level the customer receives them.

Any of the price increases that you have seen are on particular flavors of plates, because there were a lot of plates in different periods in their life cycle.

And at certain times, it makes sense to increase prices to try and encourage customers to move to newer technologies and different competitive pressures in different segments against our major competitors. So in general, the overall pricing is down, 3% to 4% is consistent with prior years.

This is the kind of the year-on-year improvement that we pass on to the customer, which we offset by strong manufacturing efficiencies, etcetera..

Okay, great and I appreciate that.

And I guess just a follow-up question, unrelated, I don’t know if you guys are thinking about refinancing or – some of the debt, do you guys view the market as open to you, are you waiting to show a little bit more progress in your plan, do you guys have any color on that?.

Of course, I think we have shown a pretty good progress in our plan. We are ahead of our plans on apples-to-apples basis, significant improvements year-on-year. And so we are very pleased with our execution relative to our plan. We will be opportunistic around the capital structure and that’s really the appropriate thing to say..

Its okay, I think that’s it for me. Thanks..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Amer Tiwana from CRT Capital..

Good evening.

On the first question I have is around your strategic businesses, if you could just go through the PROSPER business and the packaging business and just in terms of your competitive landscape similar to what you talked about in your plates business, can you talk about pricing and can you talk about how the competitive landscape is, is it similar to what you saw at the start of the year or has it changed?.

Sure. So let’s go piece by piece, let’s start with SONORA. So we really view the growth of the company coming today out of our SONORA business within our plates business, our FLEXCEL NX plates business within our packaging business and our PROSPER business within our Inkjet business.

On top of that, Micro 3D printing will be a significant opportunity for us in the coming years. So we really have four core growth engines within Kodak. So let’s take them one at a time. So on SONORA, again 66% growth continued significant differentiation in the marketplace.

We have – we charge a pricing premium to our plates and our competitor plates because of the robustness of the product and because of the product’s cost savings to the printer when they can eliminate chemicals, labor, energy, etcetera. So with a very strong ROI sales and it allows us to charge a premium for Sonora.

We continue to pass that premium into the marketplace. We will be selective in areas, where we think we can unseat a competitor. And we might bring that SONORA price down in that case.

But for the most part, we will price on SONORA because it is a significant ROI head-to-head versus the competition and even against our existing installed base of plates.

So that’s one where we don’t mind impingement against our base business because we move into a system that has very high renewal rates and significant differentiation, so very pleased with SONORA. As we mentioned, there are some new products. We haven’t been able in the past to participate in the Japanese market, which is well-suited for SONORA.

And with the XJ version, this opens up a significant market for us. And on the top of it, we can take that XJ version and we can sell it around the world for packaging applications, as I mentioned in my remarks. I also – the dynamics of this growth business has been improved because of our regional strategy.

So we make the XJ out of our Xiamen, China plant, which is lower cost than our Tokyo plant and lower cost than our other plants around the world.

So our ability to manufacture SONORA continued – new versions of SONORA in China and expand SONORA to the North American markets are really important for us because they lower our distribution cost and that allows us to earn more and hold price. Moving to FLEXCEL NX, this product is just doing extraordinarily. We are talking 39% growth year-over-year.

Again, strong growth against CTP as well, a very differentiated product. I mean this is a business – this is the market that grows somewhere between 4% and 7% packaging grows faster than traditional print.

And when we are growing consistently in kind of the 30% to 40% range in our plates with 39% this year, we are very pleased with how that business is doing. In terms of PROSPER, PROSPER is up 23%. This business is differentiated. We are at the crossover point. It’s been many years of losses in PROSPER.

The product is significantly differentiated and it is faster and has more – can provide more volume from a scale perspective, so it can really change the way a printer runs its business. It can allow printers to get into new businesses by direct mail or virtual or localized print of demand-sensitive things like newspapers.

So we are very pleased with the growth of this, it’s on track. And again, starting out with 39 systems over 4 years to be on track for 25 this year is a significant, achievement. So we are very pleased with how our growth engines are going. Thank you for the question..

Sure. In terms of your page growth for PROSPER, can you talk about what it was.

And secondly, in terms of your heads – what is sort of the growth that you expect there?.

Yes. So you saw a little over 50 heads sold this quarter – on a base coming into the quarter, about 9.50. So when you are getting that kind of growth, it shows that we are on track to a similar or better number than the 200 range that we did last year. And so when these head go in, they go in at a nice gross margin, very profitable gross margin.

There is annuities, the replacement of the hedge over time, it’s in the components of the head as they get refurbished. And then there is obviously ink that we jet through the heads. So we are very pleased with that portion of the business because every element of that portion of the business is profitable from the get-go.

Obviously, as we talked about before at the PROSPER systems, we will often take a lot selling a system with an ROI in the next couple of years based on the closed system that has ink and a service of these investigating systems also coming from Kodak. So that part of the business is doing well..

Understood.

If I can ask one more follow-up question, in terms of – I know you have said that you will talk about this at your Analyst or Investor Day, but just broad brush strokes, if we think about your – take the midpoint of your EBITDA this year at 1.10 and the sort of expectation for next year is 1.75, can you give us some sort of a bridge, not precise numbers, but maybe buckets of where that incremental improvement is going to come from, whether it’s – what percentage of cost saves and what percentage is coming from the growth businesses.

And lastly, what’s the sort of impact from the businesses that are slowing down. So if you could help us there, I think that will greatly be appreciated..

Okay. Again, we are not giving guidance into 2016, so I will keep this at high-level remarks. Some of the things we have said in the past is as you go through our detailed disclosures, we share with you the contribution before core corporate cost breach of our divisions and then the corporate costs, the infrastructure cost of the company.

And we have had a very good progress driving that cost down from a little over $120 million in 2014 to what will be somewhere between, somewhere under 100, around 98ish million in 2015. We expect that number to go down another 20 million roughly.

And so from a cost perspective, we will continue to find opportunities to drive additional efficiencies at our company and another 20% out of the overhead structure of the company is in the cards for us based on both the momentum we have now and plans in programming that we are doing around reengineering our operations for simplicity and finding the right level of corporate structure with our divisions.

So that’s one. The next point is that we expect, going into next year, we say each of our business is to improve. The PSD business will improve, because it will have additional SONORA mix, aluminum prices will be less of a headwind and perhaps a tailwind for us if they stay at the levels we are at now, continued progress on our NexPress business.

So, we think we can see a nice improvement in the PSD business. The biggest – one of the biggest shifts will be obviously in our inkjet business. Because PROSPER as we guide – as we shared with you this year, we expect PROSPER to come in roughly, PROSPER and diversified business, our EISD business, to come in roughly breakeven before corporate costs.

And that’s a material move. In fact, if you look year-over-year this quarter, the biggest improvement we had of $9 million year-over-year for the quarter was in the EISD business. And as PROSPER continues to grow and those placements continue to print, both for the OEM and for the new presses, we see that business moving into solid profitability.

And then the packaging business continues to have strong momentum as does – and we expect at some point soon start getting contribution from the Micro 3D Printing. So, that’s as much detail as we are going to give on that and obviously we look forward to talking more to you on October..

Sure, I appreciate the answer.

One just housekeeping question, I see that $7 million from the IP business, but you said it was R&D, if I heard it correctly, what is it for? And is that recurring, non-recurring, how should we think about that?.

Yes. So, when we took last quarter – when we took all the analysts or all the people in the call through the divisional structure, we shared with you that we have an intellectual property division. And that division last year, for example, had $70 million of realized intellectual property revenues.

We had about a little over $30 million of research and development that offset that for kind of a net roughly of about $40 million. We are running at a run-rate of about $7 million to $7.5 million a quarter of corporate research and development. And that supports – and that is recurring and that is in this line.

And so every quarter, you will see that and then will be offset in certain quarters should we have intellectual property licenses, etcetera, or sales of those technologies and so forth.

And that goes for our current research labs, but it’s also applied significantly in areas like Micro 3D Printing, extensions of Micro 3D Printing, work around developing new inks, around developing new toners, and around some of the core research that we will share with you in October that we believe will drive growth of the next two to five years..

Thank you very much. I really appreciate it..

You’re welcome..

Thank you. Our next question comes from Peter Rabover from Artko Capital. Your question please..

Hey, guys. Thanks for taking my call. I appreciate it. Could you guys maybe talk a little bit about your building, I guess the business park and how you view that as part of the company and I guess the occupancy costs? I think I saw an article that said it had a 125 megawatt power plant in there as well? I guess a color on that will be great. Thanks..

Yes, sure. This is John. So, we are really excited about the park. There is a real opportunity for us to grow our tenancy in the park. It’s a great fit for the types of opportunities that certainly Rochester would like to bring in to the state. You are talking about a 1,250-acre technology park. You are talking about 16 million square feet of space.

Jeff mentioned the pure miles of rail and road race. But I think we have the building structures. We have the tools. We have our Kodak Research Lab resident there.

All the things that you would want to provide the opportunity for the kind of businesses that we see coming into the park, clean energy, clean battery type businesses, biotech, things that will be great opportunities going forward for the park. So, as you know, we have taken a very different position over the last three to six months.

We are running this business as a division. We are running it as P&L. You will note that on the results that we have provided in the second quarter that we are showing operational EBITDA profit for the park. We have a great pipeline of tenant opportunities coming forward.

We have a great support structure in the local community that the government has been very helpful for the park for many years. So, we have a lot of people behind us for the future success of the park. So, it’s an asset of the company and we see a lot of opportunity going forward for it. And we are going to run it like a business..

Okay.

I mean, I saw the 60 million square feet of what’s the occupancy now?.

Yes. So, Kodak operates about 4 million of those square feet, primarily in our vast film, synthetic chemicals, toner manufacturing, ink manufacturing businesses. There is also a series of recovery businesses, solvent recoveries, etcetera, that Kodak runs. So, that’s about $4 million of the $16 million.

The 58 other companies that operate within the park use a little bit of – a pretty much similar amount, about $4 million and then there is about $8 million – 8 million square feet of space. Some of these retrofit, some can be moved into today.

Lot of leasehold improvements would be provided by investors and/or government agencies, but we, this week have signed – finalized a 200,000 square foot lease. We – I talked about the opportunities of Oakridge.

You may have seen if you follow New York state politics or science politics that there is a photonics center that has been awarded to Rochester, and certainly, there will be many opportunities for either spin-off companies or part of the photonics infrastructure such as the labs and clean rooms and so forth to be in Eastman Business Park.

Those details are still being finalized. So, we are very excited about the upside of this park. It has effectively been under-managed. A lot of the people who are working on the park, when the company went into the organization, many of the people on the park were left or terminated and the park was for sale from a long time.

And as such, there wasn’t as much effort on rebuilding the park into a profitable entity. And if you ever want to sell it, it would be much easier to do if it’s showing up lot of cash. So, we are pleased with the park and thank you for the questions..

Okay.

Maybe can you – I just wanted to follow-up, did I touch that, right that there was 125 megawatt power plant on the parks?.

So, there is a company called RED that prior to bankruptcy order and bankruptcy, I wasn’t here at the time. There was a partnership formed with them and the assets of the power plants along to a third-party entity called RED. And there is lots of details, you can look them up on the website, it’s kind of co-op model.

Kodak is an existing user of that power. The tenants will be the second largest user. And that is a separate entity from Kodak from an ownership perspective. There is some variable accounting associated with it, but it’s de minimis for the operational things that we talk about..

Okay.

I just want to make sure you guys don’t own a 125 power megaplant that we don’t know about?.

No..

Okay.

Can I just follow-up with one more question on the pension? So – just wait, do you want me to go back to the park? Is there – what do you guys see that as part of your capital structure, is it potential to maybe refinance your debt level, mortgage the park at lower interest rates, any thoughts around that, I mean I know maybe bigger…?.

Right now, the park is a significant set of assets. Most of those assets have been – are well under their replacement cost or well under their initial cost.

And the plan for park is to get it operate profitable to fill it up, to realize that there are significant economies of scale in the park that accrued to all of our businesses there and our tenant businesses. So right now, we have got an utilization issue.

We are still throwing off positive EBITDA, as you can see, because of some of the important reengineering cost actions we have taken, as well as new tenants. So I wouldn’t expect until we get the park more attractive to an outside party that we will be able to refinance off it..

Okay, that’s fine. I appreciate all the color on this. And so I guess my follow-up will be on pension, so I saw a reduction, I assume that has to do with the severance, letting go of headcount and maybe you guys can comment on what is – you guys are planning on doing anything with that.

And then a housekeeping question on what the current asset value is versus the 10-K, if you can provide that, it’s not a big deal?.

Yes. So we have small outflows from the U.S. pension plan in terms of severance. They were not material in the last one to two quarters. So I am not exactly sure of what numbers you are looking at. But maybe I can come at it from a little bit of a different angle for you. In terms of – when you look at the U.S.

pension plan from the funded status, we are well into the mid to high-90s depending on when you look at this in terms of funded status. So from a pension plan point of view, we are in excellent shape.

The disbursements that we noted and you may see on the slides in the deck that we went through in the scripts, you see a small amount related to pension funding, that’s primarily due to requirements we have from an international pension point of view, because the U.S. pension plan is not a cash used for us and hasn’t been a long time..

Right, okay.

Like I said, I was just going to ask what the – if you can provide the asset value today versus the 10-K time, if that’s possible?.

We will do that..

Okay, great. Thank you so much. I appreciate your time..

Thank you..

Thank you. Our next question comes from [indiscernible] from HSH Private Equity. Your question please..

Yes. My question has been answered already. Thank you. Probably I ask question has got the business park, I appreciate it. And congratulations on the continuing improvement on the earnings, congratulations..

Thank you very much..

Thank you. Our next question comes from John Korver from Bennett Management, your question please..

Congratulations on the quarter. I hear the growth in the four segments that you highlighted, I am a little concerned and I would like you to comment about the fall off that’s embedded in your projections in Consumer and Film, the inkjet and the film business, how does that shape in the second half of the year versus the first half.

And when you talk about doing better than your internal projections in the first half, are you – is some of that in this segment?.

Yes. So consumer inkjet is – I will remind you, works it’s not all the colors are properly – fully up to speed on the history of it.

So Kodak had a very large investment placing inkjet printers, consumer inkjet printers and then realize that, that business was not going to be profitable in the model of selling consumer inkjet printers at a loss and making it up on the cartridges.

So the company today is in a very lucrative position of having very high margin inkjet cartridges to sell into a base, but without having the cost of selling new printers out in the marketplace. So on the roughly $40 million of first half consumer inkjet revenue, the operational EBITDA, that is quite high, well over 50%.

And so the challenge of that business, while we certainly love the operational EBITDA, the challenge of it is that business is declining about 40% a year and we will continue to do so.

And it may even have a stair step decline because at some point, while the product is available on Amazon and they will carry it, I think as long as there is the last printer out there, certain retail stores may not will have want to devote their shelf space to it. At some point when the business goes down to the next level.

So this business is going to decline, it will actually decline to zero. But in the first of the year, it was significant contribution. But as you see on the segment information, let’s go back to the slide and so you can see the year-over-year on it. It’s quite a decline on a year-over-year basis and that is the same as we have had for some period here.

And so that business, the volumes are declining at the rate we had expected. We mentioned that we are seeing better than our internal plans is on the film side, so the company made a decision to stay in the film business. We have hired some new sales people and we are getting good return on those sales people.

And we see opportunities to continue to sell origination film. Print film for projection, that continues to be down quite significantly because of the digital transformation of movie theaters. We think like adjacent technologies like vinyl for audio.

We think at some point, that will flatten out and will end up being a series of theaters that will continue to project film, but that will be nowhere near the business that it was a long time ago. But origination film, we think is a business that can grow again because of the unique differentiation of origination film.

And on the top of it, we are revitalizing consumer filmmaking, such as the Super 8 products, and Super 16, and it’s the 50th anniversary of Super 8 this year and we are pounding that to young professionals. So the film business, we think can be profitable, but it will not be a significant contributor to a company the size of Kodak.

There are lots of advantages of how it helps other businesses because of the use of shared assets such as the film used for touch screen sensors. But it won’t be – this is not going to be a centerpiece of the company like it was for a century..

Okay.

The other question I had was you touched briefly on the Micro 3D and that’s really a segment for 2016, but you are continuing to explore both silver and copper solutions in this technology, is there – can Kodak afford to do both?.

We can. And one of the reasons is that most of the investment is stock. The equipment has been bought to manufacture these. The technology, after many years of investment, the technology is effectively paid for.

There is – there are some manufacturing yield improvement activities and modest investments to continue to try and evaluate engineer and cost drives manufacturing down. But the significant capital expenditures are pretty much behind us and the technology works.

The other reason why it’s important is, copper as you guys know, it’s a lot less expensive than silver. And so we believe that copper will have a unique opportunity for low-cost applications. Today, we are getting higher transmission levels, higher resolution and a result of that, better battery life for devices using the silver technology.

But the trade off is you pay a little bit for that, still attractive versus the technical – the incumbent ITO in the [indiscernible] side. But silver today has the high transmission levels. We are – on the copper, we have lower transmission levels, in other words, it doesn’t work as well on mobile devices, because the batteries discharge faster.

And that’s why at this stage, we are focusing on the very large markets of all-in-one computer screens, things that are plugged in kiosks, industrial and automotive. So, those are the applications for copper.

And by Q1 of next year, we expect to get transmission levels where we could enter the tablet market with copper solution, and that is a significant technological advancement. So, we believe both technologies address different markets at this time and will address them for a long time. The investments are made.

And now it’s really around business development, a little bit of continued engineering and tracking in our sales pipeline out there to execute..

Alright, thank you..

Thank you..

Thanks. I think we have time for one more question from the next caller..

Okay, thank you. Our last question comes from Craig Carlozzi from Bulwark. Your question please..

Hi, thank you for squeezing me in. So, when I hear about the various parts of your business and congratulations on the performance and thank you for reiterating guidance.

Although when I compare that to your liquidity and what your stock price has done, really, in the last kind of 20 trading days, are there any covenants in your debt agreements that prohibit you from buying back stock? And if not, have you considered a buyback program to some extent?.

Yes. So, the answer is yes, we do have restrictions around share repurchase in our covenant structures today..

Okay. And in the term loan or the revolver, both or....

In both..

Yes, okay. Okay, great. Thank you very much..

You are welcome..

Thank you. I appreciate everyone’s time today. We look forward to seeing you in October at the Analyst Meeting. We are excited about the second half of the year. We are confident around what we are doing. We are pleased with our execution and look forward to seeing you in October. Thank you very much, everyone..

Thank you..

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day..