Overview

The Company's key priorities for 2009 are:
· Align the Company's cost structure with external economic realities

· Fund core investments

· Transform portions of its product portfolio

· Drive positive cash flow before restructuring

The recessionary trends in the global economy, which began in 2008, continued to significantly affect the Company's revenue during the third quarter of 2009. The Company expects these trends to continue to affect its results for the balance of the year. The Company cannot anticipate with precision the duration and severity of the current economic downturn or when the economy may improve. However, the Company believes that the actions being taken, as described below, are helping to mitigate the impacts to its results in 2009 and position it well for the future when the global economy does begin to rebound. The demand for the Company's consumer products was very weak in the first three quarters of 2009 as a result of the drop-off of consumer discretionary spending, consistent with trends that emerged in the fourth quarter of 2008. In addition, as it did in late 2008, the weak economic environment continued to affect global print demand, which is a key driver of the Company's GCG business. The GCG equipment businesses also continue to be affected by the lack of credit availability in the financial markets. In anticipation of the continuation of the recession in 2009, the Company began to formulate and implement in the fourth quarter of 2008, and continues to implement, a number of actions it deems necessary in order to successfully accomplish the key priorities listed above.

Specifically, the Company has implemented actions to focus business investments in certain areas that are core to the Company's strategy (see below), while also maintaining an intense focus on cash generation and conservation in 2009. On April 30, 2009, the Company announced that its Board of Directors decided to suspend future cash dividends on its common stock effective immediately. Further, the Company also implemented temporary compensation-related actions, which reduced compensation for the chief executive officer and several other senior executives, as well as the Board of Directors, of the Company for the rest of 2009. In addition, U.S. based employees of the Company are required to take one week of unpaid leave during 2009. These actions are in addition to a targeted cost reduction program announced earlier this year (the 2009 Program). This 2009 cost reduction program is designed to more appropriately size the organization's cost structure with its expected revenue reductions as a result of the current economic environment. The program involves the rationalization of selling, marketing, administrative, research and development, supply chain and other business resources in certain areas and the consolidation of certain facilities. Also, the Company has initiated other actions to curb discretionary expenditures and employment-related costs, as well as to reduce capital expenditures where possible.

As previously disclosed, the Company also made a decision in late 2008 to focus its investments on businesses at the core of its strategy, which are consumer inkjet, commercial inkjet (including Stream technology) and enterprise workflow. The Company will continue to build upon its other cash generating businesses and reposition certain other businesses to generate maximum value.

On March 31, 2009, the Company and its Canadian subsidiary entered into an Amended and Restated Credit Agreement (the "Amended Credit Agreement") with its lenders, which provides for an asset-based revolving credit facility of up to $500 million, under certain

conditions, including up to $250 million of availability for letters of credit. In September of 2009, the Company issued $300 million of Senior Secured Notes due 2017 with detachable warrants, and $400 million of Convertible Senior Notes due 2017. The combined net proceeds of the two transactions, after transaction costs, discounts and fees, of approximately $650 million, are being used to repurchase the Company's existing $575 million Convertible Senior Notes Due 2033, as well as for general corporate purposes. The holders of the 2033 Convertible Notes have the right to require the Company to purchase their Notes for cash at 100% of the principal amount, plus accrued and unpaid interest in October 2010. The Company believes it is probable that all, or nearly all, of the 2033 Convertible Notes would have been redeemed by the security holders at that time. Therefore, the new debt issuances serve as a refinancing of the debt structure of the Company. In October 2009 the Company repurchased approximately $563 million of the 2033 Convertible Notes. These actions provide continued financial flexibility for the Company in this challenging economic environment.

Kodak Operating Model and Reporting Structure

The Company has three reportable segments: Consumer Digital Imaging Group ("CDG"), Film, Photofinishing and Entertainment Group ("FPEG"), and Graphic Communications Group ("GCG"). Within each of the Company's reportable segments are various components, or Strategic Product Groups ("SPGs"). Throughout the remainder of this document, references to the segments' SPGs are indicated in italics. The balance of the Company's continuing operations, which individually and in the aggregate do not meet the criteria of a reportable segment, are reported in All Other. A description of the segments is as follows:

Consumer Digital Imaging Group Segment ("CDG"): CDG encompasses digital still and video cameras, digital devices such as picture frames, kiosks and related media, APEX drylab systems, consumer inkjet printing systems, Kodak Gallery products and services, and imaging sensors. CDG also includes the licensing activities related to the Company's intellectual property in digital imaging products.

Film, Photofinishing and Entertainment Group Segment ("FPEG"): FPEG encompasses consumer and professional film, one-time-use cameras, graphic arts film, aerial and industrial film, and entertainment imaging products and services. In addition, this segment also includes paper and output systems, and photofinishing services. This segment provides consumers, professionals, cinematographers, and other entertainment imaging customers with film-related products and services and also provides graphic arts film to the graphics industry. As previously announced, the Company closed its Qualex central lab operations in the U.S. and Canada at the end of March 2009.

Graphic Communications Group Segment ("GCG"): GCG serves a variety of customers in the creative, in-plant, data center, commercial printing, packaging, newspaper and digital service bureau market segments with a range of software, media and hardware products that provide customers with a variety of solutions for prepress equipment, workflow software, analog and digital printing, and document scanning. Products and related services includeworkflow software and digital controllers; digital printing, which includes commercial inkjet and electrophotographic products, including equipment, consumables and service; prepress consumables; prepress equipment; and document scanners.

All Other: All Other is composed of the Company's display business and other small, miscellaneous businesses.

Net Sales from Continuing Operations by Reportable Segment and All Other

                                      Three Months Ended September 30,                                     Nine Months Ended September 30,
(in millions)                                                        Foreign Currency                                                    Foreign Currency
                         2009             2008         Change            Impact*              2009            2008         Change            Impact*
Consumer Digital
Imaging Group
 Inside the U.S.      $      279       $      476           -41 %                    0 %   $      750       $   1,168           -36 %                    0 %
 Outside the U.S.            256              344           -26                     -6            657             962           -32                     -8
Total Consumer
Digital Imaging
Group                        535              820           -35                     -2          1,407           2,130           -34                     -4

Film,
Photofinishing and
Entertainment Group
 Inside the U.S.             131              211           -38                      0            377             647           -42                      0
 Outside the U.S.            441              553           -20                     -3          1,291           1,688           -24                     -6
Total Film,
Photofinishing
and Entertainment
Group                        572              764           -25                     -2          1,668           2,335           -29                     -5

Graphic
Communications
Group
 Inside the U.S.             207              243           -15                      0            617             783           -21                      0
 Outside the U.S.            467              578           -19                     -2          1,330           1,730           -23                     -6
Total Graphic
Communications
Group                        674              821           -18                     -2          1,947           2,513           -23                     -4

All Other
 Inside the U.S.              (1 )              1             -                      -              3               6             -                      -
 Outside the U.S.              1               (1 )           -                      -             (1 )            (1 )           -                      -
Total All Other                -                -             -                      -              2               5             -                      -

Consolidated
 Inside the U.S.             616              931           -34                      0          1,747           2,604           -33                      0
 Outside the U.S.          1,165            1,474           -21                     -3          3,277           4,379           -25                     -7
Consolidated Total    $    1,781       $    2,405           -26 %                   -2 %   $    5,024       $   6,983           -28 %                   -4 %

* Represents the percentage point change in segment net sales for the period that is attributable to foreign currency fluctuations

(Loss) Earnings from Continuing Operations Before Interest Expense, Other Income (Charges), Net and Income Taxes by Reportable Segment and All Other

                                  Three Months Ended                          Nine Months Ended
                                     September 30,                               September 30,
(in millions)             2009           2008          Change         2009           2008         Change

Consumer Digital
Imaging Group           $     (89 )    $      24           -471 %   $    (345 )    $    (136 )        -154 %
Film, Photofinishing
and Entertainment
Group                          47             77            -39 %         106            157           -32 %
Graphic
Communications
Group                          10             22            -55 %         (78 )           34          -329 %
All Other                      (4 )           (5 )          +20 %         (10 )          (13 )         +23 %
Total of segments       $     (36 )    $     118           -131 %   $    (327 )    $      42          -879 %
 Percent of Sales              (2 )%           5 %                         (7 )%           1 %

Restructuring costs,
rationalization and
other                         (35 )          (52 )                       (197 )          (46 )
Postemployment
benefit changes                 -             94                            -             94
Other operating
income (expenses),
net                           (10 )           (3 )                        (13 )           14
Legal contingencies
and settlements                 -            (10 )                         (6 )          (20 )
Negative goodwill
reversal                        -              -                            7              -
Interest expense              (27 )          (26 )                        (75 )          (80 )
Other income
(charges), net                  9              8                            8             38
Consolidated (loss)
earnings from
continuing
operations before
income
taxes                   $     (99 )    $     129           -177 %   $    (603 )    $      42         -1536 %

2009 COMPARED WITH 2008

Third Quarter

RESULTS OF OPERATIONS - CONTINUING OPERATIONS

CONSOLIDATED

(dollars in millions)                       Three Months Ended
                                               September 30,
                                                                                          Increase
                            2009        % of Sales        2008        % of Sales        / (Decrease)        % Change

Net sales                 $   1,781                     $   2,405                     $           (624 )          -26 %
Cost of goods sold            1,420                         1,743                                 (323 )          -19 %
  Gross profit                  361            20.3 %         662            27.5 %               (301 )          -45 %
Selling, general and
administrative expenses         318              18 %         369              15 %                (51 )          -14 %
Research and
development costs                81               5 %          95               4 %                (14 )          -15 %
Restructuring costs,
rationalization and
other                            33                            48                                  (15 )          -31 %
Other operating
expenses (income), net           10                             3                                    7            233 %
(Loss) earnings from
continuing operations
before interest
expense, other income
(charges), net
and income taxes                (81 )            -5 %         147               6 %               (228 )         -155 %
Interest expense                 27                            26                                    1              4 %
Other income (charges),
net                               9                             8                                    1             13 %
(Loss) earnings from
continuing operations
before income taxes             (99 )                         129                                 (228 )         -177 %
Provision for income
taxes                            12                            28                                  (16 )          -57 %
(Loss) earnings from
continuing
operations                     (111 )            -6 %         101               4 %               (212 )         -210 %
Loss from discontinued
operations, net
of income taxes                   -                            (5 )                                  5            100 %
NET (LOSS) EARNINGS
ATTRIBUTABLE TO EASTMAN
KODAK COMPANY             $    (111 )                   $      96                     $           (207 )         -216 %





                              Three Months Ended
                                September 30,                                   Percent Change vs. 2008
                                           Change vs.                                      Foreign         Manufacturing and

Net sales $ 1,781 -25.9 % -15.4 % -8.4 % -2.1 % n/a

Gross profit margin 20.3 % -7.2pp n/a -10.9pp -1.4pp 5.1pp

Executive Summary

The Company's operating results in the third quarter of 2009 continued to be negatively impacted by the decline in demand as a result of the global economic slowdown which began in 2008. While the rate of decline has slowed from previous quarters, the current economic climate continues to have a significant negative impact on the Company's revenues. The demand for the Company's consumer products is largely discretionary in nature, and sales and earnings of the Company's consumer businesses are linked to the timing of holidays, vacations, and other leisure or gifting seasons. Continued declines in consumer spending have had significant impacts in the Company's digital camera and digital picture frame businesses in the CDG segment. In addition, intellectual property royalty revenue within CDG has decreased versus the prior year. (See Gross Profit discussion below.) In the GCG segment, lack of credit availability, combined with the weak economy, has resulted in lower capital spending by businesses, negatively impacting sales. The reduction of global print demand has also had a negative impact on the GCG business. The Entertainment Imaging business within the FPEG segment continued to be negatively impacted by delays in the creation of feature films related to the current economic climate. Also, the secular decline of Film Capture continues to impact the traditional businesses. In response to the global economic slowdown, the Company implemented a targeted cost-reduction program and other measures as discussed in the Overview above.

Revenues

For the three months ended September 30, 2009, net sales decreased compared with the same period in 2008 primarily due to volume declines within all three segments driven by lower demand as a result of the global economic slowdown, particularly within Digital Capture and Devices in the CDG segment, and Prepress Solutions in the GCG segment, as well as continuing secular declines in Traditional Photofinishing and Film Capture in the FPEG segment. Unfavorable price/mix was primarily driven by Digital Capture and Devices within CDG, due in large part to lower intellectual property royalty revenues. Foreign exchange negatively impacted sales across all three segments, due to strengthening of the U.S. dollar.

Gross Profit

Gross profit declined in the third quarter of 2009 in dollars and as a percentage of sales, primarily due to unfavorable price/mix, which impacted all segments but was most prominent in CDG, lower sales volumes as discussed above, and unfavorable foreign exchange. These items were partially offset by cost improvements within Consumer Inkjet Systems in the CDG segment.

The current quarter results also include a decline of approximately $157 million in intellectual property royalty revenues as compared with the prior year quarter, reflected in price/mix above, related to a non-recurring arrangement in the prior year and certain other arrangements under which the Company fulfilled its continuing obligations as of the end of 2008, as well as overall volume declines in the digital capture and device market. This decline in intellectual property licensing was considered in the Company's plans for the three months ending September 30, 2009. The Company expects to secure future licensing arrangements, the timing and amounts of which are difficult to predict. These types of arrangements provide the Company with a return on portions of historical research and development investments.

Selling, General and Administrative Expenses

The decrease in consolidated selling, general and administrative expenses (SG&A) was a result of company-wide cost reduction actions in response to current economic conditions.

Research and Development Costs

The decrease in consolidated research and development (R&D) costs was a result of focused cost reduction efforts.

Restructuring Costs, Rationalization and Other

These costs, as well as the restructuring and rationalization-related costs reported in cost of goods sold, are discussed under the "RESTRUCTURING COSTS, RATIONALIZATION AND OTHER" section.

Other Operating Expenses (Income), Net

The other operating expenses (income), net category includes gains and losses on sales of capital assets and businesses and certain impairment charges. The year-over-year change in other operating expenses (income), net was primarily driven by a loss recognized on a property sale outside the U.S. during the three months ended September 30, 2009.

Income Tax Provision (Benefit)


(dollars in millions)                                                Three Months Ended
                                                                       September 30,
                                                                    2009            2008
(Loss) earnings from continuing operations before income taxes   $      (99 )     $     129
Provision for income taxes                                       $       12       $      28
Effective tax rate                                                    (12.1 )%         21.7 %

The change in the Company's effective tax rate from continuing operations is primarily attributable to: (1) losses generated in the U.S. and in certain jurisdictions outside the U.S. that were not benefited due to management's conclusion that it was not more likely than not that the tax benefits would be realized; (2) the impact of previously established valuation allowances in jurisdictions with current earnings; and (3) changes to the mix of earnings from operations in certain lower-taxed jurisdictions outside the U.S.

CONSUMER DIGITAL IMAGING GROUP

(dollars in millions)                     Three Months Ended
                                             September 30,
                                                                                        Increase
                          2009        % of Sales        2008        % of Sales        / (Decrease)        % Change

Net sales               $     535                     $     820                     $           (285 )          -35 %
Cost of goods sold            467                           604                                 (137 )          -23 %
  Gross profit                 68            12.7 %         216            26.3 %               (148 )          -69 %
Selling, general and
administrative
expenses                      124              23 %         143              17 %                (19 )          -13 %
Research and
development costs              33               6 %          49               6 %                (16 )          -33 %
(Loss) earnings from
continuing operations
before interest
expense, other
income(charges), net
and income taxes        $     (89 )           -17 %   $      24               3 %   $           (113 )         -471 %




                              Three Months Ended
                                 September 30,                                   Percent Change vs. 2008
                                            Change vs.                                      Foreign         Manufacturing and

Net sales $ 535 -34.8 % -12.4 % -20.1 % -2.3 % n/a

Gross profit margin 12.7 % -13.6pp n/a -33.3pp -3.3pp 23.0pp

Revenues

CDG's third quarter performance reflects the continued weakness in the global economy, combined with lower intellectual property royalty revenues. The demand for many of the consumer products within the CDG portfolio is discretionary in nature and consumer discretionary spending remains weak, leading to declines in CDG revenues in the third quarter.

The decrease in net sales for CDG was primarily driven by Digital Capture and Devices. Net sales of Digital Capture and Devices, which includes consumer digital still and video cameras, digital picture frames, accessories, memory products, and intellectual property royalties, decreased 49% in the third quarter of 2009 as compared with the prior year quarter, primarily reflecting lower intellectual property royalties (see gross profit discussion below), and lower volumes of digital cameras and digital picture frames as a result of continuing weakness in consumer demand.

Net sales of Retail Systems Solutions, which includes kiosks and related media and APEX drylab systems, decreased 3% in the third quarter of 2009, largely due to unfavorable foreign exchange. The Company and one of its significant Retail Systems Solutions customers will not renew a contract that expired on September 30, 2009. The Company plans to replace a significant portion of this volume of business, although the timing and extent is uncertain. The Company believes this will not have a material impact on its future cash flows or liquidity.

Net sales of Consumer Inkjet Systems, which includes inkjet printers and related consumables, increased 92% due to higher volumes for printers and ink cartridges, as well as favorable price/mix, partially offset by media volume declines. The volume increases experienced by the Company during the current economic situation, despite overall declines in the consumer printing industry, are reflective of favorable consumer response to the Company's unique value proposition.

Gross Profit

The decrease in gross profit, both in dollars and as a percentage of sales, for CDG was primarily the result of lower intellectual property royalty revenues included in unfavorable price/mix within Digital Capture and Devices, and unfavorable foreign exchange. In addition, the decrease in gross profit dollars for CDG was due to lower sales volumes as discussed above. Partially offsetting these unfavorable factors was the benefit of lower product costs versus prior year, particularly in Consumer Inkjet Systems.

The current quarter results include a decline of approximately $157 million in intellectual property royalty revenues as compared with the prior year quarter reflected in price/mix above related to a non-recurring arrangement in the prior year and certain other arrangements under which the Company fulfilled its continuing obligations as of the end of 2008, as well as overall volume declines in the digital capture device market. The Company expects to secure future licensing arrangements, the timing and amounts of which are difficult to predict. These types of arrangements provide the Company with a return on portions of historical research and development investments.

Selling, General and Administrative Expenses

The decrease in SG&A expenses for CDG was primarily driven by focused cost reduction actions to respond to the current economic conditions, partially offset by increased advertising expense related to Consumer Inkjet Systems.

Research and Development Costs

The decrease in R&D costs for CDG was primarily attributable to portfolio rationalization within Digital Capture and Devices, and Imaging Sensor Solutions. Also contributing to the decline was lower spending within Consumer Inkjet Systems resulting from the movement of product offerings from the development phase into the market introduction and growth phases.

. . .