Kodak’s Cash May Have Shrunk in Third Quarter as Perez Attempts Turnaround

Eastman Kodak Co. (EK)’s cash balance may have dwindled further in the third quarter as the 131-year-old camera maker works to transform itself into a digital printing- equipment company.

Kodak may say its $957 million cash pile at the end of June shrank to $850 million when it reports third-quarter results tomorrow, Cross Research’s Shannon Cross and Deutsche Bank AG’s Chris Whitmore estimated. Mark Kaufman, a Rafferty Capital Markets LLC analyst, said Kodak may post $890 million in cash.

Chief Executive Officer Antonio Perez is counting on the sale of more than 1,100 patents announced in July, which investment bank MDB Capital Group estimated may fetch as much as $3 billion, to fund the company’s revival. Kodak has projected the consumer and commercial printing equipment units will post operating profits by 2013.

“They’re trying to break out of this cash-burn scenario,” said Jody Lurie, an analyst at Janney Montgomery Scott LLC. She estimates Kodak ended the quarter with “meaningfully less” cash, without providing an exact estimate. “They say they should be able to survive until they reach profitability, but bondholders are wondering, ‘Will you really?’”

Kodak, based in Rochester, New York, plunged on Sept. 26 after tapping $160 million from a bank line of credit. The drawdown probably was meant to hold Kodak over as it awaits retailers’ payments for equipment shipped in the third quarter, said Kaufman, who’s based in New York. The company also may be working toward additional outside funding, he said.

Loan Funding

“The question is, ‘Have they started to repay that $160 million?’” Kaufman said in an interview. “The bigger question is, ‘Is there going to be a loan from a private-equity fund to provide liquidity past the holiday season to bridge the consummation of their patent-portfolio sale?’”

Kodak, which is being advised by Lazard Ltd. (LAZ) and Jones Day on the patent sale and restructuring options, has contacted distressed-debt funds about arranging as much as $1 billion in rescue financing, people familiar with the matter said last week.

Perez, 65, declined to be interviewed before the third- quarter release, said Gerard Meuchner, a Kodak spokesman.

Kodak “is committed to optimizing our cash position,” Meuchner said today by e-mail. The company won’t disclose its cash balance until tomorrow, he said.

The average estimate of four analysts surveyed by Bloomberg was that the company will report a quarterly loss of 44 cents a share, excluding some items. That would be the company’s sixth straight loss by that measure.

Stock Losses

The losses and concerns about Kodak’s cash position have taken a toll on its shares. The stock has plunged 78 percent this year and was the worst performer in the Standard & Poor’s MidCap 400 Index before it was removed from the group after the close of trading Oct. 31.

It was also the most volatile stock in its last 90 days on the index. Kodak’s 90-day historical volatility is 203, higher than every other company in the S&P MidCap 400, according to data compiled by Bloomberg. The stock gained gained 3.9 percent to $1.21 at 11:59 a.m. in New York.

Credit-default swaps on Kodak were trading yesterday at 62.7 percent upfront, meaning it would cost $6.27 million initially and $500,000 annually to protect $10 million of its debt for five years, according to prices from data provider CMA. It also suggests that traders have priced in a more than 88 percent chance the company will default within the next five years, based on an assumption bondholders could recover 21 percent of the bonds’ face value if it were to default, CMA data show.

Kodak Forecast

Kodak said in July it may have $1.6 billion to $1.7 billion in cash at the end of the year, $100 million less than it previously projected. The company said then that its 2011 loss from continuing operations may be as much as $400 million, wider than a February forecast of as much as $300 million, because of higher spending on raw materials and start-up costs for its commercial inkjet printing business.

“The question on everybody’s mind is cash,” Lurie said. “That’s going to be the big question of the day, why they drew down cash and then what’s the next step for the company.”

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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