Pressure At Kodak , Taps Credit Line For $160M

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Date: Tuesday September 27, 2011 08:31:52 am
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    Pressure At Kodak , Taps Credit Line For $160M
    Kodak Plunges After Company Taps Credit Line
    Eastman Kodak Co. has raised fresh concerns about its ability to pull off a long-running turnaround by borrowing more money at a time when it had told investors it would be generating cash.The move to draw $160 million from its credit line—disclosed late Friday—points to rising financial pressure at the embattled one-time blue chip, which is investing heavily to turn itself into a company focused on printers as its film business shrinks.

    The company, which said only that the funds would be used for general corporate purposes, had $957 million in cash on hand as of June 30 and has told investors it would end the year with $1.6 billion to $1.7 billion. With just one week left in the third quarter, investors appear less convinced that target can be hit."They have to sell some stuff to get there, and quick," said Chris Whitmore, an analyst with Deutsche Bank. Mr. Whitmore currently thinks Kodak will end the year with $1.4 billion in cash. "We’re questioning whether our estimate is even too aggressive," he said.

    Kodak shares lost nearly a quarter of their value Monday, falling to $1.78 midday, near their lowest price in a year. Bond investors also ran for the exits, with one bond that matures in 2017 trading at just 49 cents on the dollar, down from 65 cents on the dollar. Trading in both the shares and bonds was heavy.Kodak spokesman Gerard Meuchner said the company chose to tap its credit line because 70% of its revenue in the first half was generated outside the U.S., and the company chose not to bring it back to the country."We certainly have not consumed $957 million in cash since June 30," he said. The draw leaves the company with $75 million available on the credit line.

    The company’s operations have tended to consume cash in the first half of the year as inventory is built up, and generate cash in the second half as those stockpiles are sold off. This year, Kodak’s operations burned $847 million in the first half.
    Chief Executive Antonio Perez, on a conference call to discuss earnings in late July, expressed confidence that the company’s cash balance would rebound. The company’s "heaviest cash usage periods are already behind us," he said.
    Mr. Perez’s credibility could take a hit if the company’s cash balance doesn’t improve as advertised. Investors are already frustrated with the cost of the shift to printing, where Kodak is subsidizing printer sales to build a base for capitalizing on ink refills.

    Since Mr. Perez became CEO in 2005, the company has only posted one year of profit—in 2007. In 2009, the board renewed his employment contract through 2013. The board remains "reasonably confident" in Mr. Perez, one board member said Monday."There’s no explanation from the company other than, ‘Oh, it’s the normal course of business’? The communication from this company is abysmal," said Ken Luskin, chief executive of Intrinsic Value Asset Management Inc., which owns 3.8 million Kodak shares.

    Mr. Perez has sought to raise cash to fund his turnaround by launching patent suits and cutting deals with companies to use Kodak’s intellectual property. The pipeline of settlements ran dry this year, prompting the company to auction off 1,100 of its digital patents, including some of its most productive.Kodak has also been selling off and leasing pieces of its once-flourishing corporate campus in Rochester in an effort to generate cash."It appears that they burned cash during the quarter, and I had anticipated more of a break-even quarter," said Shannon Cross, an analyst with Cross Research.Mr. Perez, a former Hewlett-Packard Co. executive, has said the company’s consumer printer business would break even this year.

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