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This year, I managed to attend the EK annual meeting, as my schedule allowed it, and it was held a couple hundred feet from where I work. Though there was nothing earth shaking, as you might expect, I thought I'd submit a report.

Please note that I was scribbling furiously, so I may have gotten a fact or two wrong. If this has happened, I apologize.

Report on the Company: Highlights
Here are a few of the factoids I picked up during CEO Dan Carp's report on the state of the company, in no particular order

* Company had revenues on digital products and services in 1999 of $2.3 billion, up from $0 in 1993.
* Coming soon: "album pages", ability to arrange a collection of photos on a virtual page on the web, then have it printed on high-quality paper. Consumer surveys indicate hot market for the product.
* Digital cameras will continue to get smaller, better, better integrated with other technologies. Working on better ways of getting pictures out of camera without messing with cables and computers (wireless).
* Digital cameras are still too complicated. Need to make them easier to use; customers care about pictures, not technology.
* Digital camera sales up 70%, CD Media up 25%, inkjet paper up 100%
* #1 in market share in China
* Have a top-notch R&D organization. Example is organic LED technology, which will be used in digital displays in PDA's, cell phones, etc. Licensed to many companies, joint development venture with Sanyo.
* Continuing to drive growth of high margin Max and Advantix films; now accounts for >50% of US(?) revenues
* Driving penetration of Advantix cameras; sales up 50% in US, up 30% in Europe. (Carp mentioned that in 1993 one analyst predicted that Advantix would flop.)
* Branded photofinishing, with DuraLife paper (near impossible to scratch or tear)
* Working with retailers to improve product placement
* Getting new consumers (emerging markets, teens)
* Lead in digitization services (PictureCD, AOL You've Got Pictures). 60 million images were scanned in the first quarter of 2000.
* will soon roll out B2B services, improve B2C part of site.
* Document Imaging provided the scanners for the 2000 Census. Government contracts should supply $750 million in revenue over next three(?) years.
* Kodak #1 in mid-volume, high-volume scanners, microfilm, microfilm-to-digital scanning
* Health Imaging leader in laser dry-imaging systems (bought from Imation, which turned a profit its first year)
* All 45 1999 Oscar-nominated movies were shot on Kodak film. 11 of those used special effects done at Cinesite, a Kodak subsidiary.

Summary of strengths
* $700M of free cash flow to invest
* Core business are strong
* Global presence
* Improving cost structure
* "A brand name any dot-com would love to have"

The "only" weakness is the stock price. More below in shareholder questions.

Vote results
* All nominees for board of directors approved
* 99% of votes for PriceWaterhouseCooper as accountants
* Shareholder resolution 1 not voted on, because sponsor didn't show up, and didn't send a representative (I think it was related to management compensation)
* Resolution 2, to elect board annually rather than staggered three-year terms: Got 60% of votes cast, but failed because bylaws require 80% of all outstanding shares. Chairman George Fisher promised board would look at this issue.
* Resolution 3, to request environmental disclosure, lost with 8% of vote
* Resolution 4, to request management compensation review, lost with 10% of vote

Shareholder Q&A
The following questions and answers are paraphrased and summarized.

I'm a retiree, retired in 1976 before all the lucrative buyouts. Our pension hasn't been raised in a while. Any prospects for a raise?
We look at compensation every year. (Editor's note: Boy, am I glad I took the cash balance plan when it was offered, instead of sticking with the old pension plan. I'd hate to be retired 25 years and still have to ask the boss for a raise.)

How come the stock price hasn't gone up?
We feel stock is worth at least double its current price. Company is strong, management team is strong. We believe it's fear of digital imaging, and fear that EK will not be able to transition to digital. Interesting, since we are often the leader in digital products and services. One of CFO Bob Brust's main jobs is to explain to Wall Street. Confident investors will eventually catch on.

Consumables are the profit in traditional photography. Where's the profit in digital?
In cameras - eventually. (Nobody in the business today is making money on cameras.) Also consumables, especially inkjet and silver halide papers. Finally services.

Kodak sold camcorders for a while in the early '90's, then stopped. Why? Any chance of getting back into that business?
That decision was made before I (Fisher) got here, but I would probably have made the same decision. There's something special about still pictures that can't be replicated in a video, it's a different market segment, and the players (e.g. Sony, JVC) are so entrenched it's not worth the cost to get into that business.

If you won't raise the pension, how about increasing the stock dividend?
We want to invest most of the cash in the future, plus we are increasing shareholder value with stock buybacks.

I follow insider trading. I notice that most of the stock holdings of senior management, as listed in the proxy, is in options - not "real" stock. Why don't you put your money where your mouth is and buy some stock out of your own pockets?
I (Fisher) have bought $8M of EK stock. I was probably the largest single holder of EK, until that Arabian prince bought $100M. Kodak does require minimum levels of holdings of its senior management, and is comparable to other companies.

Explain your poor environmental record: A $775M fine paid to the NY State DEC, millions of pounds of methylene chloride - a known carcinogen - dumped into the air, an incinerator upgraded to standards under coercion. What are you doing to improve?
First, we reported the event that led to the fine. We turned ourselves in. We have 400 professionals in our Health, Safety and Environment division working on improving our record all the time. We have reduced emissions significantly, and there is disagreement over whether methylene chloride is a carcinogen at the levels being released. We are committed, as a company and as individuals, to high standards. And we live here too. (Editor's note: George Fisher mused on how it bothers him that so-called "environmental activists" set these discussions as an "us versus them" issue. I felt the same way. The sad part was, I mostly agreed with the substance of what this fellow was saying. I'll have more on this later on the Water Cooler board.)

How fast do you think digital movies will replace film?
Penetration of digital into movies will probably the slowest of all the businesses. First, film is still much better than digital to capture the full range of effects most filmmakers want. Second, the intellectual property issue will keep movies on harder-to-copy film. Look at what MP3 has done to the music world. On this second point, we are working with Qualcomm on an encryption scheme for digital movies.

Kodak was late to the Internet. Shouldn't we be more innovative?
Bill Gates was late too, as were most people. And we are innovative. Kodak is always in the top ten in US patents. #1 last year, as measured by patents per R&D dollar spent.

Who works at the plants in China? Slave labor?
We own the plants. All our plants have the same labor and environmental policies around the world.

I heard on CNBC that Kodak might be taken off the Dow 30. Any truth to that?
First I (Fisher) heard of it. I'll be on CNBC tomorrow, I'll have to ask.

So there you have it. Not very exciting, and now that I've done one I probably won't bother again. But it was interesting to do once.

-- Earble
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