Kodak Stock Dives After Credit Line Is Tapped

Kodak’s unexpected decision to tap its credit line for $160 million last Friday reinforced concerns about the viability of the company’s turnaround strategy, which relies on selling inkjet printers, commercial printing and company patents, and on Monday, its shares lost a quarter of their value, closing at $1.74.

Kodak’s stock price has declined nearly 70 percent since the start of the year.

“We didn’t anticipate them having to use it in the third quarter going into the fourth quarter,” said Shannon Cross, of Cross Research in Livingston, N.J. “It just shows that the core business continues to burn cash.”

Chris Whitmore, an analyst at Deutsche Bank Securities, said that Kodak had $957 million in cash at the end of its most recent quarter, and it announced that it would have as much as $1.7 billion by the end of the year. As a result, he said, investors were expecting Kodak to be selling assets to generate cash, not borrowing.

“Most people didn’t expect them to be drawing down their credit facility at this point,” he said.

But Kodak officials and some analysts played down the significance of the decision. One reason is that most of the company’s money is generated overseas and bringing it back into this country creates a steep tax liability.

“The purpose of the revolving credit facility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations,” according to a company statement. “As we have said in the past, our cash flow is highly seasonal. This is a tool to help manage that seasonality.”

It later added, “For global cash management reasons, we elected to draw down on our revolver.”

Mark Kaufman, an analyst at Rafferty Capital Markets, said it was no surprise that Kodak tapped its credit line, given the seasonality of its cash flow. But he said the manner in which it was handled — being disclosed after markets closed on Friday — made investors worry that something was amiss.

“It wasn’t handled well,” he said. “It certainly spooked investors.”

Created in 1888 by George Eastman, Kodak became known for its iconic yellow packages of film, which dominated the industry and helped its New York hometown, Rochester, thrive. But Kodak’s fortunes were undone by the proliferation of the digital camera, which Kodak itself invented in 1975 only to have other companies, like Canon and Nikon, end up dominating the market.

A succession of chief executives has tried various turnaround strategies, but they were often slow to adapt to changes in the marketplace and often met internal resistance when they did.

Mr. Perez, who long worked at Hewlett-Packard, was hired in April 2003, and he has tried to move Kodak away from film and toward digital businesses like inkjet printers. He also has generated cash by licensing the company’s portfolio of patents, which has helped pay for his turnaround efforts. Kodak is trying to sell 1,100 digital imaging patents.

But Kodak’s cash flow has been steadily eroding for more than a decade, and many wonder if the company has enough cash to finance its turnaround efforts.

“The problem is, they are running out of time effectively to move their core business into a profitable situation,” Ms. Cross said.

Mr. Whitmore, of Deutsche Bank, said Kodak’s history was a perfect case study for business schools.

“These guys invented this thing that is going to put them under,” he said. “What did they do with that invention? What do you do? It’s a big challenge.”

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