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Executives

Antoinette P. McCorvey - Chief Financial Officer and Senior Vice President

Antonio M. Perez - Chairman, Chief Executive Officer and Chairman of Executive Committee

Sandra E. Rowland - Vice President of Corporate Finance Group and Director of Investor Relations

Analysts

Mark Kaufman - Rafferty Capital Markets, LLC, Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Eastman Kodak (EK) Q3 2011 Earnings Call November 3, 2011 11:00 AM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Eastman Kodak's Third Quarter 2011 Sales and Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, November 3, 2011. I would now like to turn the conference over to Ms. Sandy Rowland, Director of Investor Relations. Please go ahead, ma'am.

Sandra E. Rowland

Good morning, and thank you for joining us today for Kodak's third quarter 2011 sales and earnings conference call. Here with me today are Antonio M. Perez, Kodak's Chairman and CEO; as well as Ann McCorvey, Kodak's Chief Financial Officer. Antonio will begin this morning with his observations on the quarter, and then Ann will provide a review of the quarterly financial performance.

Certain statements during this conference call and question-and-answer session may be forward-looking in nature or forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the company's expectations regarding the following are forward-looking statements: revenue; revenue growth; gross margins; cost improvements; earnings; earnings from operations; cash generation and usage; seasonality of cash flow and sales; gross profit; product pricing; raw materials; demand for our products including Commercial Inkjet, Consumer Inkjet, Workflow Software and Packaging; potential revenue; cash and earnings from intellectual property licensing and the potential outcome of intellectual property infringement litigation; liquidity; balance on our credit facility; potential proceeds from asset sales and from the potential sale of our Digital Imaging Patent portfolio.

These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully described in our 10-Q that we issued this morning. Listeners are advised to read these important cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important risk factors and uncertainties.

And now, I will turn the call over to Antonio Perez.

Antonio M. Perez

Thank you, Sandy, and good morning, everyone. Before I share with you my observations on the third quarter, I would like to spend a few minutes to address several points relating to our liquidity position and the status of our sale of our Digital Imaging Patent portfolios, and I'll start by making some comments about the statements included in the Liquidity section of our 10-Q.

A few things on this. First, as you know, under SEC rules, companies are required to identify all potential risks that could impact business performance and results and to communicate various scenarios. This requirement statements shouldn't be misunderstood in any way as dampening my optimism in our ability to complete the sale of our Digital Imaging Patent portfolio, which is very high. We have been successfully monetizing our IP portfolio for 7 years and we have both the value in the portfolio and the expertise in our team to execute this well.

Second, to be clear, we outlined several things that we can fund our operations, including continuing our successful IP licensing strategy that we have had in place for years, the sales of assets and other actions. We are an asset-rich company, and we have many tools in our kit. Keep in mind that our expected year-end cash position does not contemplate a new financing or the sale of our IP portfolio. We expect to reach this range by executing our operational plans and generating full year sales of nonstrategic assets of approximately $200 million and intellectual property licensing transactions between $250 million and $350 million.

Now, as you are aware, on September 23, we borrowed $160 million from our U.S. revolver credit facility. We withdrew these funds to bridge timing differences between our cash outflows and our cash inflows. As we have said before, our cash flow pattern is highly seasonal, and our use of cash in the third quarter was higher than anticipated, primarily due to the delay in the timing of certain nonstrategic asset sales. In fact, today, we expect to close on the sale of one nonstrategic asset. In addition, so far in the fourth quarter -- has not been reported yet, but in the fourth quarter already, we have received cash proceeds from 2 nonrecurring intellectual property licensing transactions. These 3 transactions will contribute in the aggregate about $120 million to our fourth quarter cash generation. We expect to complete additional transactions in the next 2 months, and it is usual that these transactions tend to be completed in the fourth quarter every year.

In line with our seasonal cash flow patterns, we expect to generate a significant amount of cash in the fourth quarter. As you know, the fourth quarter historically has been, by far, our largest cash-producing quarter, and we expect to finish the year with $1.3 billion to $1.4 billion in cash. When we complete the sale of our Digital Imaging Patent portfolio, which I will discuss in more detail shortly, our cash position will be substantially stronger than that.

Our full year cash forecast is predicated on executing our operational plans and assumes full year sales of nonstrategic assets of approximately $200 million and intellectual property licensing transaction between $250 million and $350 million. When you take into account our intellectual property licensing revenue and asset sales for the first 3 quarters of the year, combined with the transactions that I just referenced to you a minute ago, we have approximately $225 million remaining to complete in the next 2 months.

In relation to the recent speculation in the marketplace about the future of Kodak, I want to note that I have a high degree of confidence in our ability to execute this plan. We continue to be highly focused in completing our transformation to a digital, profitable and sustainable company. I want to emphasize as well that we recognize the importance of all of our stakeholders, including our customers and our suppliers. Importantly, we have fulfilled and remain committed to fulfilling all of our obligations.

And now an update on our sale of our Digital Imaging Patent portfolio. As the company has previously discussed, Kodak intellectual property strategy has 3 goals: Number one, to provide the company with design freedom to develop and introduce innovative new products; number two, to provide access to new markets and partnerships; and number three, to generate income and cash.

In recent years, in keeping with that strategy, we have actively monetized our intellectual property through a series of individual transactions in a way to fund our digital transformation. We are building a new Kodak based on our technology advantages at the intersection of material science and digital imaging science. Based on these technology advantages, we have introduced differentiated product lines that are growing very rapidly. They will be the nucleus of the new Kodak.

As I have said several times in the past few years, and I'm sure you will remember, we have contemplated shifting our IP monetization approach at an appropriate time, which I've repetitively said it was about 2012. Given the recent trends in the IP marketplace and the heightened demand for premier intellectual property portfolios, that time has arrived. We announced in July our intention to explore strategic alternatives for approximately 1,100 U.S. digital imaging patents. These patents represent approximately 10% of our patent portfolio and are not strategic to the new company that we're building. We are very pleased with the progress that we have made with this project and with the level of interest in the portfolios.

Now some of you have been asked repetitively for a timeline and a number. The company has not and will not provide neither a schedule or a timeline, nor a number. We are committed to optimizing the value of these assets. In order to do so, we believe it's best and believe it's best for our own interest and for the interest of our investors as you not to commit to a timeline and not to share all the details of this process. This is a well-known best practice in any transaction of this magnitude. While we will not comment on the bidding, I can tell you that we are pleased with the process and the level of interest in the portfolio.

It is important to recognize in that respect that for the most part, our licensing efforts up to this time have focused on digital still cameras and camera phones. A number of other devices, systems and services, including tablets, generally have not been yet licensed under our Digital Imaging Patent portfolios. Therefore, given the broad applications of our patents, we are confident that these assets will be of considerable value to a number of companies. Imaging has become fundamental to essentially all wireless devices.

And now, I would like to highlight the key elements of our third quarter performance. I will start with an update of our digital growth initiatives, which is the heart of the new Kodak. These businesses are all based on differentiated value propositions in our long-term sustainable businesses. Our 4 digital growth businesses, Consumer and Commercial Inkjet, Workflow Software and Service and Packaging Solutions [indiscernible] combined 13% in the third quarter, putting our year-to-date growth at 19%. While below our previous forecast, 19% growth is a very strong growth overall, considering the marketing conditions we are facing. Furthermore, we expect to finish the year with 25% growth overall on these segments.

Now let me break them down for you. The momentum that we saw in the first half for Consumer Inkjet and Packaging Solution businesses continued in the third quarter. These businesses together grew 45% this quarter and 51% year-to-date and are now demonstrating that building an installed base of equipment drives higher-margin annuity growth.

Our Consumer Inkjet printer growth continued to significantly outpace the market. We continued to increase our market share in all of the markets where we are participating in. Year-to-date, we have increased our printer shipments by more than 50%, far exceeding the overall industry growth in this very large market. While most of our growth during the back-to-school season came from our existing platform, I also want to highlight that in September, we launched our most innovative printer portfolio to date with our Hero line app. In addition to all the new features, the Hero printers are Google Cloud print-ready and Kodak Email print-ready, allowing our customers to easily send photos and documents, including any attachments, to their printer from anywhere in the world using any Internet-connected device. This award-winning innovation now give our customers effortless connectivity on top of Kodak's unique combination of high-quality output, with premium ink at affordable prices. The exceptional feature set of these printers would allowed us to maintain our price premium in a highly competitive printer market.

Most importantly, as we have said before, ink gross profit is the metric that best measures the progress that we're making in this market and that best forecasts our future profitability. Our ink gross profit dollars continue to grow as we increase our installed base by selling to customers who print the most. We double our ink gross profit dollars in the third quarter as we have for the first 9 months of the year, contributing to the earnings improvements in the Consumer Digital Imaging Group. I am very encouraged by our ink results.

When we look at the fourth quarter, we expect that our Consumer Inkjet product line as a whole will have a positive gross profit for the first time since we launched the product line. This is a very important key milestone for this business.

In Packaging Solutions, our differentiated FLEXCEL NX System continues to gain traction. When compared to the prior year, revenues increased by 89% in the third quarter. We continued to expand the installed base and our sales of the related consumables that are used with our new NX System installations.

In the third quarter, we introduced the FLEXCEL NX Wide System, which provides all of the features and benefits of the current FLEXCEL NX System but in a larger format. In addition to delivering a printed package with maximum shelf impact and efficiency, the FLEXCEL NX Wide System allowed us to penetrate higher-volume printers. Our FLEXCEL NX solutions service a broader range of applications, including tags and labels, folding cartons and flexible packages.

On top of the more than 150 FLEXCEL NX Systems that we have already placed, North American Graphics was the first trade house in the United States to install the FLEXCEL NX Wide System. After testing our product, North American Graphics concluded that the Kodak product is superior in quality, in color gamut, in capabilities, in consistency and in repeatability. We have great expectations from this new offering.

Let's now cover our other 2 digital growth initiatives. Our Commercial Inkjet and Workflow Software & Services businesses together were down 7% in the third quarter of 2011 compared to the prior year. But our PROSPER product lines, which is the most important and the most relevant for our future, grew 40% in the quarter, while our legacy product line declined 18%, resulting in an overall decline in our Commercial Inkjet revenue.

While the majority of future growth will come from our PROSPER solutions, our direct on-demand presses are important for us too, and are an ideal digital solution for many other applications. We have recently introduced a new family of Versamark systems, which will strengthen the portfolio. The new family of presses has a 40% smaller footprint when compared to competitive systems. This is an exciting opportunity for transactionals, newsletter, direct mail and newspaper printers, especially when space is at a premium.

Now taking a look at our PROSPER product line. As I already said, our PROSPER revenue grew 40% in the quarter, as our press revenue, annuity revenue and service revenue all grew in the quarter. We continued, though, to incur higher-than-planned startup costs and associated delays in recognitions of revenue as we have worked with customers to ensure that the earliest adopters of this breakthrough technology achieve all of its benefits. In the past couple of months, though, several of our earliest placements became full-scale production-ready. Several additional units will be production-ready later in this fourth quarter, allowing us to recognize this fourth quarter revenue on those transactions. This is another very important milestone for the PROSPER product line and for the company.

We continue to be very pleased with the traction that we're getting from our PROSPER printheads. Customers are recognizing more and more the benefits of this hybrid printing solution. Our hybrid printing solution is a significant growth opportunity for the company, as the enormous print market gradually converts from analog to full digital. As of the end of the third quarter, we already exceeded the full year 2010 head placement forecasted for the year. The PROSPER press's combination of image quality and productivity is superior to any digital press in the market, and our sales funnel continues to be very strong in both developed and emerging regions. This is especially important while the economy of U.S. and Europe continues to be soft.

For example, after evaluating Digital Printing Solutions from a variety of suppliers, DaeMyung ITS, a pioneer in the Korean print market, just selected a color PROSPER press, additional imprinting systems and the NexPress Photo Press to enhance its direct mail offerings. Also, Phoenix Publishing and Media Group, the largest and strongest publishing group in China, has selected a black-and-white PROSPER Press to help grow its short-run book printing operations. Together with that, we have already 3 color presses working on a leading commercial printing operation in Japan whose name I'm not able to say today but I will as soon as they allowed us to say so. Those 3 presses are working already perfectly there.

These are just examples, but these are very important examples. They're very significant examples of customers in Asia Pacific who have recently chosen to grow their businesses with Kodak breakthrough Stream Technology. And those markets are growing markets.

Taking into account our performance during the first quarter of the year and our outlook for the fourth quarter, we now expect a 25% full year revenue growth rate from our 4 digital growth businesses. Our fourth quarter revenue growth rate will accelerate significantly as all 4 of our digital growth businesses will expand in the fourth quarter. These 4 growth initiatives are very promising and have tremendous power to create very significant value for our shareholders. They are a central part for the transformation to a digital, profitable and sustainable company. As a group, not only we grew but we improved the operating performance of these businesses compared to the prior year and this strength will continue in the fourth quarter and in 2012.

Now, I would like to take a look at our cash performance in our largest cash-generating businesses. Revenues in our Film Photofinishing and Entertainment Group declined 10% compared to the prior year, which was better than our plan due to the price actions that we have implemented through the year to mitigate the historically high silver costs. These pricing actions, combined with our hedging program, are benefiting our bottom line results as well. FPEG generated a profit again in the third quarter, demonstrating that the business will continue to be profitable even in a high-cost silver environment. We will continue to aggressively manage this business for cash.

Revenues in our Prepress Solution business grew 5% compared to the third quarter of 2010, fueled by strong growth from both digital plates and computer-to-plate equipment in the emerging markets. However, the profitability of the business was impacted this quarter by higher aluminum and raw material cost and the portfolio mix.

Now moving to our Digital Capture and Devices. The implementation of our transformative strategy that we announced at the beginning of the year to focus on earnings and cash generation rather than on top line is continuing to pay off. Revenues in our Digital Capture and Devices business, excluding nonrecurring intellectual property revenues, were down 25% in the third quarter, in line with our strategy. However, the participation choices we have made allowed us to increase the gross profit percentage while substantially reducing the operating expenses of this business. The third quarter results in Digital Capture and Devices demonstrate that the participation choices that we have been making are the right ones and that the operating improvements that we have been making as well will continue in the fourth quarter. We believe that we are much better positioned with our customer portfolio this year as we head into the holiday season, the peak season for our consumer products.

Together, the improvements in Consumer Inkjet and Digital Capture and Devices resulted in a $53 million improvement in CDG earnings from operations, excluding nonrecurring intellectual property revenue. This is on top of a $31 million year-over-year improvement in CDG earnings from operations improvement in the second quarter. This improvement is both structural and recurring. We have a large installed base of printers, we have a more selective participation in Digital Capture and Devices, and we have a lower operating cost structure, all of which give us confidence that the year-over-year improvement will be even greater in the upcoming quarter.

Retail Systems Solutions and Document Image, 2 of our important digital cash-generating business, continue to perform well. Their results in the quarter contributed to our overall digital earnings improvement, excluding nonrecurring intellectual property.

Excluding financing activities, we used approximately $205 million in cash this quarter, about $50 million more than in 2010 when you adjust for the approximately $270 million of cash that we received from nonrecurring intellectual property licensing revenue in the third quarter of 2010. We finished the third quarter with $862 million in cash, and our forecast for the whole year is now $1.3 billion to $1.4 billion.

It is important to recognize that the cash performance of the company in 2012 will not be the same as in 2011. In 2012, our cash performance from our digital businesses will be much stronger. Our growth initiatives will be further along the product life cycle curve and getting closer to profitability. As planned, we have been implementing a transformational strategy in Digital Capture and Devices which will significantly reduce its cash requirements as I just described to you. All of that will improve our cash performance in 2012 notably.

I will now turn the call to Ann, who will provide more details on our financial performance. Ann?

Antoinette P. McCorvey

Thanks, António, and good morning, everyone. I'd like to spend some time discussing our third quarter financial results, and then Antônio and I will take your questions. Third quarter consolidated revenues were $1.462 billion, a 17% decrease versus the prior year. This year-over-year decrease is primarily due to the onetime benefit of a $210 million nonrecurring IP transaction recognized in the third quarter of 2010, lower volumes from digital cameras, and continued industry-related volume declines for our Film and Paper businesses. This decline was partially offset by a 13% increase for our 4 digital growth businesses and favorable foreign exchange. Looking forward, we now expect our full year revenue to be in the range of $6.3 billion to $6.4 billion, reflecting our year-to-date performance and the uncertainties surrounding the fourth quarter global economic environment.

Our third quarter gross profit margin improved 3 percentage points, driven by the doubling of ink gross profit dollars in our Consumer Inkjet business when we exclude the benefit of nonrecurring IP in the third quarter of 2010 and the $56 million year-over-year gross profit impact due to higher silver and aluminum costs. These improvements were partially offset by the competitive pricing pressures for our digital plate, in line with our expectations, and the continued higher startup costs associated with our commercial inkjet PROSPER platform, resulting in a third quarter segment gross profit margin of 15% versus 27% in the year-ago quarter.

Segment SG&A and R&D expense decreased by $64 million for the third quarter as we continued to adjust our structural costs and lower our advertising spend, primarily in digital cameras. The company recorded $18 million in restructuring charges for the quarter and $89 million year-to-date. Restructuring-related payments for the corporate cash were $16 million for the quarter and $52 million year-to-date.

Turning to segment results. Starting with the digital businesses. For the fourth quarter, reflecting the strategic decision this year to focus on earnings and digital camera markets, Consumer Digital Imaging Group's revenue was $408 million as compared to $664 million in the prior year quarter. This decline in revenue was primarily due to the onetime benefit of a $210 million nonrecurring IP transaction from the third quarter of 2010 and lower volumes for our digital cameras, partially offset by strong growth in the Consumer Inkjet business.

CDG segment earnings from operations decreased by $157 million to compare to the last year's third quarter segment earnings from operating. Excluding the onetime benefit of the IP transaction from the prior year-ago quarter, CDG's earnings improved by $53 million. This improvement was largely attributable to our participation choices and operational cost reduction for our digital cameras and device business, as well as the realization of ink gross profit benefit from our growing installed base of consumer inkjet printers. It is important to note that Retail Systems Solutions and Kodak Gallery also had year-over-year earnings improvement.

Moving on to the Graphic Communications Group. GCG's third quarter revenue was $665 million, essentially flat with the prior year quarter. GCG's third quarter segment loss from operation was $55 million compared to a loss of $35 million in the prior year quarter. This increase in GCG's loss from operation was primarily due to continued placement of PROSPER printing presses, where the higher than previously forecasted startup costs, as well as unfavorable price mix for digital plates and higher aluminum costs, negatively impacted earnings. GCG's segment loss was partially offset by reduction in operating costs across all businesses.

On to our traditional business. Film, Photofinishing and Entertainment Group, FPEG, revenues declined at a rate of 10%, and they delivered $389 million in revenue. FPEG posted another quarter of positive earnings from operation in spite of significantly higher commodity cost. The higher commodity cost was mitigated by the pricing [ph] actions taken throughout the year. In addition, FPEG continued to verbalize costs in line with industry-related volume declines, and when combined, these actions enabled FPEG to generate $15 million in segment earnings.

For the third quarter, the total company segment loss was $131 million as compared to a segment loss of $59 million in the prior year quarter. The increased loss was largely driven by factors previously described in each of the segments. As we look forward to the fourth quarter, we're expecting our Consumer Inkjet business to deliver positive growth profit driven by higher ink, a significant increase in revenue from PROSPER product line as a number of installed units will be revenue recognized, to build upon the demonstrated operational cost improvements in digital cameras as we execute our ongoing IP licensing program.

Also in the fourth quarter, FPEG segment earnings will benefit from the licensing agreement for Kodak's Digital Cinema technology, as well as actions taken to mitigate the increased raw material costs and lower industry-related volume decline. However, we will not be able to offset the higher than planned start-up costs associated with our PROSPER platform for the third quarter. Additionally, based on the uncertainty in the global economic environment, we're expecting to continue to experience lower demand across our entire consumer product line and digital plates. Therefore, our 4-year segment loss is now forecasted to be closer to $300 million, within the previously stated range, which was a loss of $300 million to $100 million.

Turning to cash. Let me walk you through the year-to-date cash flow statement. Year-to-date, net cash used in continuing operations from operating activities was approximately $1 billion, $500 million more than the prior year period. Excluding the onetime IP cash receipts and the change in timing of a planned annual contribution to the U.K. pension plan, when combined totaling approximately $520 million, cash used in operations, from operating activities, improved by $20 million. Year-to-date, net cash used from investing activity was $40 million, a $24 million improvement from the prior year period. This decrease in cash use was primarily due to the sale of nonstrategic assets, $94 million year-to-date, partially offset by acquisition of the TOK business in Japan for our Packaging business.

Year-to-date, net cash provided from financing activity was approximately $364 million, higher than the prior year period, due to the bond transaction from the first quarter this year and the recent borrowing from our credit facility in the third quarter of 2011.

In response to questions regarding the company's drawdown on the credit facility in September, I'd like to provide my perspective on our year-to-date cash usage, particularly as it relates to cash within the U.S. We started the year with approximately $1.6 billion of cash with a little more than 1/3 of it in the U.S. We typically consume cash in the U.S. to fund our global research and development expenses, to satisfy the interest costs associated with the company debt, to pay U.S. post-employment benefits and corporate overhead. Additionally, the U.S. is a large market for our growth initiatives.

Throughout our transformation, the source of liquidity for the U.S. has been our ongoing intellectual property program, cash from our cash-generating businesses, the sale of nonstrategic assets, securing new debt and repatriation of cash from foreign operations.

At the end of the third quarter, the cash held at most of the foreign operations, with the exception of China, was required to support local country operations. Specifically for China, once various government requirements are met, we expect to be able to make cash available to other jurisdictions during 2012.

Going forward, we will continue to utilize a variety of tax planning and financial strategies to move cash, available cash, to where it is needed. We ended the quarter with $862 million in cash, and $230 million of cash was held within the U.S. We typically generate significant cash from working capital in the fourth quarter, and this year will be no different. We anticipate reducing the outstanding balance on our credit facility in the fourth quarter.

We remain committed to optimizing our cash position as a matter of course. We're always assessing the financing strategies available to us. To this end, we have been exploring first lien financing arrangements to supplement or replace our existing first lien facility. That would result into -- up to approximately $500 million in incremental liquidity. I emphasize that this is simply one of a number of options under consideration. No decision has been reached on whether to pursue any particular financing strategy.

With respect to our key financial metrics, which is cash generation before restructuring payments, year-to-date we've used $970 million of cash. We are now forecasting our 4-year cash usage before restructuring will be approximately $350 million. This change in our cash forecast is largely due to lower-than-planned proceeds from nonstrategic assets sales, lower earnings as previously discussed, and slightly less forecasted cash provided from working capital. This revised cash forecast includes the typical strong cash-generation fourth quarter, ongoing IP licensing programs and planned nonstrategic asset sales. As Antonio indicated, we've been experiencing delays in completing the planned nonstrategic asset sales, and now we're expecting 4-year proceeds from the sale of nonstrategic assets to be approximately $200 million. As a result, we now expect to end the year with cash balance of $1.3 billion to $1.4 billion, excluding the proceeds from the sale of the Digital Imaging Patent portfolio.

We fully understand our challenges, and we are focused on creating a sustainable, profitable, digital Kodak. The installed base we've been creating for our Consumer Inkjet business is paying off. The increase in ink gross profit is impressive. During the fourth quarter, we expect to accelerate the growth in our PROSPER product lines, both through revenue recognition of presses and continued growth in annuities and services. We are making the hard [ph] participation choices in our digital cameras businesses and managing price declines in digital plates in line with our plan. Controlling costs and driving growth are key to creating the new Kodak. Thank you very much, and now Antonio and I will take your questions. Operator, we're ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Shannon Cross with Cross Research.

Shannon S. Cross

My first question is can you talk a little bit -- given all the commentary out there and news reports and all of that, can you talk about how -- what the conversations have been like with some of the vendors, the manufacturing partners you have, your channel partners, et cetera, about payment terms, about where Kodak stands? Just can you give us some -- has anything changed with your relationships with those? Or how are those progressing?

Antonio M. Perez

Well, there were calls, Shannon, there were calls. They were reading articles. And some people call and we explain with many of them we have NDAs, so they understand. We have no issue with suppliers, and we have nothing to report.

Shannon S. Cross

So just to make sure, be clear, because clearly payables is a big deal in fourth quarter. There is no change to sort of how you view your working capital metrics this year versus prior years.

Antonio M. Perez

No.

Shannon S. Cross

Okay. And then my next question is for Ann. Can you talk a little bit about the $310 million that you repatriated which you had a $4 million tax payment on? Was that NOLs? Like how was that -- or were they done as loans? How are you able to bring the cash back with only a cash -- tax across the $4 million [ph]?

Antoinette P. McCorvey

So as you said, Shannon, the $310 million was a combination of repatriation of cash and loans, and the $4 million was the -- recognized the withholding tax that we had associated with that.

Shannon S. Cross

And was it more NOLs or loans, or how should we sort of think about how you brought it back?

Antoinette P. McCorvey

You should think about it as a combination of both.

Shannon S. Cross

Okay. And then my final question is just on asset sales and IP licensing. It appears that, I think you'll have to do an additional $150 million to $200 million of the combination of IP licensing and asset sales this quarter. Is that kind of the correct number to come up with?

Antonio M. Perez

That's correct, yes.

Shannon S. Cross

Okay. And I'm curious, how much of that has sort of been signed? I know you tend to sign the IP licensing in fourth quarter, so that's fine, but just given that you need to sort of collect the cash and have everything closed in the next 8 weeks or so, how confident are you in that number?

Antonio M. Perez

Well, we're not starting now with the process, Shannon, you know that, so a bunch of cases in which we've been negotiating and we have not agreed, and one term is not the right term, and this has been our life since I've been here. And then in the fourth quarter we tend to resolve those issues one way or another. So there is a list of candidates for that money, and we have contingencies to deal with those. And it is true that the market conditions haven't been ideal for us at sales, and we have refused, and we stay away from certain asset sales because we didn't think it was the appropriate value for our shareholders, and we did that. It's a combination of things. There's nothing special about this year that hasn't happened in the last 7 years. We always end up in the fourth quarter with a variety of options in a variety of companies that we've been working with, and with some we close, and with some we don't close, but I don't see any difference than any other year.

Antoinette P. McCorvey

And Shannon, I think it's also important to remind you that when Antonio gave his prepared remarks, he talked about the fact that we expect to close on the sale of one strategic asset, actually today, and that we've already received cash from 2 nonintellectual -- nonrecurring intellectual property licensing already in the fourth quarter. In aggregate, that was about $120 million. So we've already had progress that we've made in the fourth quarter, and we have plans to complete those.

Shannon S. Cross

Correct. But just to clarify, you -- it's -- I think with those numbers it's still $150 million to $200 million total between asset and IP that you need to close in the next -- before the end of the quarter.

Antonio M. Perez

Not [ph] close, yes. What I was telling you is we know that this one is going to close anytime today. I don't know. Anytime today. So the number will go down. But we still have to work for the other $120 million, and we have a list of candidates and we have to work them hard, and we realize there's only 2 months. We're fully aware there's only 2 months, but at the same time, it's been our life every single year.

Shannon S. Cross

Right. Okay. Antonio, could you just talk -- one more sort of business question in terms of demand, because clearly, there's been a lot of concern about demand from the consumer, and Europe has been just -- the channel has been saying, not about Kodak per se, but about other companies, has had some questions. So I'm curious as to what you're seeing in terms of European demand as you go sort of in the holiday season, or what you're hearing from your channel partners.

Antonio M. Perez

We're really only present in the U.K., in Germany, and we just started Spain. We are -- our value proposition is so differentiated that we expect a very good fourth quarter.

Operator

And our next question is from the line of Ananda Baruah with Brean Murray.

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

A couple, if I could. Antonio, is there -- at this point, with the sale of the IP asset portfolio exercise, sort of -- and the ongoing, I guess, sort of waiting game with the Apple-RIM litigation, are they having an impact on each other? I guess not so much Apple-RIM on the sale of the IP asset portfolio, but is the IP asset portfolio exercise having an impact on Apple-RIM? Just wanted to get your thoughts there. And if it is, do you think it's positive impact? Could it have a -- I mean, is it a negative impact? Or does it have a positive impact? Or is it just sort of just a waiting game at this point?

Antonio M. Perez

Yes, it's a hard question to answer. We have 3 different activities that are working in parallel. I couldn't tell you they are completely isolated, but they're very much isolated. We do have licensing efforts that in many cases have absolutely nothing to do with what's going on in the ITC. An example will be IMAX and others, and we will continue with those. Then we have the ITC case. We -- let me give you my recollection of the case. We don't comment on things that are in trial, but this is my recollection of the case, which gives me confidence for the future. We have a valuable portfolio that has been tested more than 30x by 30 of the best companies in the world that produce products and services very similar to the ones that are in test in this case. And in any -- in each one of those cases, those 30 or 32 companies have settled with us, either before the litigation, during the litigation or after the litigation. But they all have done that. Then the patenting case has been tested several times. The U.S. Patent Office has tested that patent several time. It's been challenged logically by some of the people that we were in litigation with, and every single time the U.S. Patent Office has come out and say, "This is a valid patent," okay? And this has happened for 7 years, 8 years. I mean, the last time that this patent was challenged was in December, the -- actually it was December 2010. The U.S. Patent Office confirmed that this is a valid patent, okay? Now in 2011, we have a negative opinion by one judge. Following that, the commission decided to -- remanded the case under certain conditions, conditions that we view, from ourselves, as very positive for Kodak. Now unfortunately, the judge had to retire, and so we lost time because the ITC needed to find a new judge. The good news is there is a new judge. There is a new judge. There is a new date. In fact, the new judge announced, Judge Fender [ph] issued his first order, scheduling a conference among the parties on November 9. We are happy with all of this. The case is back in court. We have a judge. We have a history of winning again and again and again. We have the U.S. Patent Office saying that this is a valid patent. This is what we've got. Now this is a complex system, but what I can tell you is that we have faith in our portfolio and we have faith in the system and we just have to go through the process. That's as much as I can say as far as the ITC. And then we have the sale of the portfolio. Everything that I just told you is public information. This is my recollection, but it's all completely public. Everybody to whom we are talking about our patent portfolio knows everything that I just said. So they apply a value to all of those things that I just said. Selling a patent portfolio is similar to doing an IPO. As I did one, I can tell you that it was the closest thing that I've seen in my life. You go through your roadshow, which is painful, all around the world, make all your presentations, answer all your questions. That's the marketing part of the IPO. Then there's a due diligence part. All these parties, they come and they check and recheck, and they go to the data room and everything else and then they start to put bids. And then you start to negotiate. The process is going well. The patent portfolio is very valuable. We have one of the best, I said publicly, the best IP team in the industry, and we have a portfolio completely proven that applies to a variety of products and a variety of companies they haven't been licensed to this portfolio yet. So we run into 3 things at the same time. We're very confident in our portfolio. We're confident in the system. We're confident in the sale of the patent portfolio.

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Got it. And it sounds like you don't have a sense that either process is impacting the other process in any significant way, or if it is you can't tell.

Antonio M. Perez

I can't really answer that question. I don't know. I'm sure some people would have liked -- well, some people probably are happy that the decision of the ITC didn't come yet because they might be able to get a portfolio a little cheaper. Some others, they may want it to -- I don't know. I mean, you can speculate for 3 hours about what. All I know is that key, fundamental, very important companies all over the world have a true, strong interest in this portfolio for very obvious reasons. Imaging is a fundamental part of any wireless device. I remember the time when we were negotiating with one of our partners, and we kept arguing and arguing. And all we said is, "Listen, we don't have to argue about this. Just take the camera away and we go away. You're free to go." Well, no one is going to take the camera away from a wireless device, whatever wireless device you're talking about. So even though our patents are not wireless patents, are a very intrinsical, fundamental part of the wireless ecosystem. They're very valuable, and we expect to get a fair value for our shareholders from that.

Operator

And ladies and gentlemen we have time for one more question. And our final question is from the line of Mark Kaufman with Rafferty Capital Markets.

Mark Kaufman - Rafferty Capital Markets, LLC, Research Division

If we could shift the conversation to the digital presses at this time. I was wondering if you could comment on numbers that are out in the field, specifically, let's say, on the printheads that you've started selling, I guess, really last year. What's the installed base of the 1000 XL, the black-and-white printers that you have? And probably more importantly, if you can discuss as you have in the past, backlogs on the PROSPER presses that you have out there? And also, if you could comment about the digital camera business, the digital video cameras as well. You've got the sales down or the inventories down as well, because what I have found in the last few years, one of the biggest issues -- or one of the big issues of your cash flow in the first quarter of the following year is liquidation of inventory, that has weighed heavily on the operating results. So if you could comment on that, I'd appreciate it.

Antonio M. Perez

Okay, that was a short question.

Mark Kaufman - Rafferty Capital Markets, LLC, Research Division

Well, I only got one so...

Antonio M. Perez

We don't disclose the number of heads, but there are many, many, many hundreds. There are many hundreds. And we don't want to disclose because the key for that business for us is that there are a lot of customers. They have offset presses. They are good customers for us, for our digital plates, but they're not ready to move to full digital and they won't be for years. But they find this hybrid system fantastic. And it's fantastic for us because we sell the heads and we sell the ink and the service that is associated with it. So we are, say, 1,000 heads that are out there working perfectly, and there are many, many more to come. And what was the other question, Mark? I lost you with the...

Mark Kaufman - Rafferty Capital Markets, LLC, Research Division

If you could comment on the installs on the 1000 and also backlog for the 1000 and the 5000?

Antonio M. Perez

[Indiscernible] Biggest secret in the world because -- I will if you tell me the installs of HP and Océ and all the others, then I will tell you mine. But it's just -- it's -- we have a very strong funnel. I specifically mentioned 3 very important leading printers in Asia Pacific because a lot of the growth is going to come from over there. Many of the institutions in Europe and in the U.S., they're going to have a tendency to do hybrid first, try to utilize the assets that they have, because their volumes are soft. I mean, not all. We are selling black-and-white presses and color presses in the U.S. and in Europe, but we can see the demand clearly outside the U.S. a lot stronger. And the names that I put there are very, very important names in the industry. I realize I didn't name one of them in Japan because we're not allowed yet, but as soon as I can, I will tell you. But they're all leading institutions that will be great showcases for the rest of those geographies. PROSPER, I don't -- I am disappointed with the results of our legacy inkjet, Commercial Inkjet, because the new products I wish we would have been a little earlier. But I'm very pleased with PROSPER. 40% growth in a market like this is just extraordinary, and you can only get that with something that is truly different and differentiated, even with the problems we have in installations, which by the way, we're done with. You will see that we will have -- I mean, a lot of growth in the fourth quarter comes from installations that are already there. We don't have to sell anything. We just have to get paid for them because it's been -- it's complex technology, it's different than the technology they had before, and getting adapted to the usage of this new technology has been more difficult than we were hoping for. But we are at the end of that process, and the results of the fourth quarter will show that we're going to get paid for those, which means that they're fully working to the specification that they love. And we're getting now repetitive orders, too. The same customers now are placing the second order and the third order of this, and that is the best sign for us. So PROSPER, I'm extremely happy with. It's this working very well, except for the cost that we finally have under control. Then Consumer Inkjet, I couldn't be happier. Our plan was to have gross profit positive for the second half. We only did it for the fourth quarter, but it wasn't because of the number of printers and it wasn't because of the type of ink that we're selling. It was basically because the price of the printers had gone down dramatically, in part because of the industry's tough, and in part to compete with us. So we -- and that's why we came with new products and all that.

Operator

And that does conclude the question-and-answer session. I would now like to turn the call back over to Mr. Perez for closing remarks.

Antonio M. Perez

Well, first of all, thank you, all. This was a especially important meeting for us. Given all the speculation, I will encourage everybody to pay a lot of attentions of the details of our reports. And the unnamed sources that -- they may mean something, they may mean nothing, right, at least in my view. Our fourth quarter is our largest cash generation. I'm confident that we are going to execute on plan, and I want to emphasize again that our 2012 cash performance from our digital business will be significantly better than this year. 2011 was the peak of our cash usage. It was there in the plan, because as you all know, I kept saying that by the end of 2012, we're going to get to this self-standing digital company. So we're ready for the fourth quarter and we're ready for 2012. Thank you very much.

Operator

Ladies and gentlemen, this concludes Eastman Kodak's Third Quarter 2011 Sales and Earnings Conference Call. If you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325 or (303) 590-3030, with the access code of 4474312. ACT would like to thank you for your participation. You may now disconnect.

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