-- Unless it borrows money or gets a big intellectual property licensing agreement, Eastman Kodak may not be able to pay its bills.
The Rochester, N.Y.-based photo and imaging company reported in a U.S. Securities and Exchange Commission filing Thursday that its "ability to continue its operations" over the next 12 months hinges on selling or licensing the digital imaging patent portfolio it currently is shopping around or "alternative actions," which might include issuing up to $500 million in new debt, or both.
CEO Antonio Perez said "these required 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."
But the filing came as Kodak announced its latest quarterly earnings, which paint a picture of a company that — after years of attempts at a turnaround from a shrinking, film-based company to a growing digital one — is still dangerously far from stopping the bleeding.
Kodak has "to raise more money, or they have to complete the (patent) sale," warned analyst Shannon Cross of Cross Research. "Otherwise, they're not going to be able to continue."
Ulysses Yannas, a Buckman Buckman & Reid broker in New York, countered that "reports of Kodak's death … are premature."
Early this year, Kodak officials told the investment community that 2011 would be a bad year. The company revised its forecast down. Now, Kodak says it expects revenue for the year of $6.3 billion to $6.4 billion, instead of its previous estimates of $6.4 billion to $6.7 billion, and overall losses of $400 million to $600 million, instead of its previous forecast of $200 million to $400 million.
For the three months ending Sept. 30, Kodak had total revenue of $1.5 billion, down 17% from the same quarter a year ago. And after expenses, Kodak had a loss of $222 million, more than five times its loss in the same quarter a year ago.
According to Kodak, the decline in sales is due to its deliberately scaling back its point-and-shoot camera business. Kodak in 2010 also had a one-time windfall of $210 million from patent licensing. Minus that, sales would have been off 5%.
For the third quarter of 2011, Kodak continues to burn through its reserves, ending the quarter with $862 million in cash and cash equivalents, about half of what it had one year ago.
Kodak shares on Sept. 30 closed at 78 cents — a stunning one-day plunge into penny stock territory — when it announced it had borrowed $160 million. Kodak was relatively mum at the time on the reasons. According to Thursday's filing, Kodak said it needed that money because of "higher than forecasted operating losses, delays in completing planned asset sales" and business uncertainty. Shares close Thursday at $1.12, down 8 cents.
Kodak's woes that are necessitating an outside injection of cash are legion, according to the company: "an uncertain business environment and a number of substantial challenges, including the level of investment necessary to support growth in its consumer and commercial inkjet businesses, historically high commodity costs, aggressive price competition, secular decline in the company's traditional film businesses, the cost to restructure the company to enable sustainable profitability, underfunded and unfunded defined benefit and other postretirement benefit plans, and short-term uncertainty."
But Kodak's consumption of its own nest egg may be slowing. The past two consecutive quarters, Kodak used upward of $300 million each quarter. For the third quarter, Kodak used $95 million. And the company is expecting to replenish its cash reserves in the fourth quarter -- traditionally its best quarter of the year -- and end the year with $1.3 billion to $1.4 billion socked away.
That estimate does not include any cash that might come from the digital imaging patent portfolio Kodak current is shopping around. But it is below Kodak's previous expectations that it would end the year with $1.6 billion to $1.7 billion in cash and cash reserves.
There were bright signs in Kodak's latest results. Revenue from the four business lines on which it has staked its future — commercial and home desktop inkjet printing, packaging printing and workflow software — was up 13% over a year ago. In a statement, CEO Perez said Kodak has sold enough of its All-in-One home inkjet printers that the company expects that business to have positive gross profits for the fourth quarter of the year due to ink cartridge sales.
Kodak's film, photofinishing and entertainment group had quarterly revenue of $389 million, down 10% from a year ago.