As posted in the Wall Street Journal:
Even as Eastman Kodak Co. tried to reassure investors it has the cash and products needed to remain viable, the photography icon offered more evidence that its business is deteriorating.
Executives' presentations were greeted skeptically Wednesday at an investors conference, with some attendees questioning Kodak's strategy and whether the 130-year-old company can maintain its dividend, which costs $135 million a year.
The company disclosed Wednesday it anticipates a loss from continuing operations of $200 million to $400 million this year, and plans to spend up to $275 million on additional restructurings as it continues to shrink its business.
Shares fell nearly 7% in 4 p.m. trading on the New York Stock Exchange.
Executives also laid out plans to sell or seek partners for once-promising technologies, including its Kodak Gallery online photo site, prompting investor Joan Lappen of Gramercy Capital to ask where the company's underlying value was.
Chief Executive Antonio Perez responded, "I didn't want to be in this situation but we are."
Executives predicted sales would fall at least 12% this year and said the company won't achieve last year's revenue level until 2012 at the earliest. Shannon Cross, an investment analyst who follows the imaging industry, said "2012 is a long time for investors to have to wait."
Kodak has undergone a rocky transformation over the past five years as its highly-profitable film franchise withered and it built a digital-photo and printing business, closed many operations and laid off tens of thousands of workers.
Mr. Perez said through the first nine months of last year he was "very happy with the performance of digital." But the economic downturn in the fourth quarter crushed consumer sales and forced Kodak to revamp its strategic plan. Last week, Kodak said it will lay off up to 4,500 more people this year.
Now Kodak says it can't afford to keep such businesses as Kodak Gallery and its high-end digital press business, NexPress. It plans to seek partners to share the costs or possibly sell the businesses. It will also limit investment in semiconductor image-sensors and seek a partner.
Frank Sklarsky, chief financial officer, said despite big cash outlays this year, Kodak is "very comfortable" with its debt and cash position. It has $2.1 billion in cash from the sale of its medical-imaging business two years ago, and anticipates having $1.76 billion at year end -- above the $1 billion it needs for operations.
Kodak faces $620 million in debt repayments in October 2010, which Mr. Sklarsky called "very manageable." Mr. Perez said Kodak is evaluating buying back some of the debt this year because it trades at a discount. Perhaps a buy back of cash positions through surety bonds is in order.
Last week, Fitch ratings downgraded Kodak's debt to B- from B citing its deteriorating liquidity and negative free cash flow. Fitch estimated that in case of a liquidation, secured debt would be repaid but senior unsecured debt would recover less than 50 cents on the dollar.
Kodak plans to continue using profits from its declining consumer-film business to develop consumer inkjet printers and a high-speed inkjet printer for catalogs and direct mailers expected to go on sale in 2010.
Mr. Perez said Kodak's outlook will be brighter by 2012, thanks to its inkjet printing innovations.
The strategy is risky because "there's too big a dichotomy," between its current business situation and longer-term plans, said Robert Sethre of research firm Woodford Group, Warwick, N.Y.
