Is Kodak Finally Nearing the End of Its Journey from Silver Halide to Silver Lining?
By Patrick Henry
Published: March 20, 2013
The loss of $1.38 billon in a single year is a painful thing for any business to acknowledge, and if this were the only number coming out of Kodak in its latest updates on the progress of its emergence from bankruptcy, the company’s stakeholders would have cause for profound alarm.
But Kodak insists that the figure, however daunting it may seem, is far from being the most salient or predictive piece of information in its 2012 Form 10-K filing with the U.S. Securities and Exchange Commission and other reports it has made to the SEC.
What’s important to understand about the number, according to Chris Payne, Kodak director and vice president of commercial marketing, is that the bulk of it represents costs that are “mostly behind us” as the company restructures its way to an anticipated exit from Chapter 11 bankruptcy status in the second or third quarter of this year.
The $1.38 billion operating loss for 2012—80% higher than the $764 million loss posted in 2011—includes $1.07 billion in reorganization and restructuring costs incurred in connection with the fundamental makeover that the company is now undergoing. Without these charges, the operating loss would have been about $308 million—still considerable, but smaller than in prior years. Kodak also has reported an improvement in the operating loss for its Commercial Imaging (CI) segments, the core business on which the future of the company must now be built.
Most germane to the long-term outlook, says Payne, are the company’s forecasts for growth in CI revenue and EBITDA from now through 2017. These are contained in a January 22, 2013 8-K filing with the SEC in which Kodak provides projections for the CI business.
These figures, says Payne, show Kodak going back into the black with a positive EBITDA of $167 million at some point in 2013. By 2017, the company has told the SEC, EBITDA will be $494 million, having improved by more than $800 million since the measurement began climbing out of negative territory in 2011.
The growth in EBITDA is based on cost savings and on a projected $700 million increase in CI revenue from an estimated $2.5 billion in 2013 to $3.2 billion in 2017. In 2012, Kodak’s overall revenues were $4.11 billion, including revenue from lines of business that Kodak will no longer be engaged in after its Chapter 11 restructuring is complete. Revenue in 2012 was down 20% from the previous year.
Cl revenue, which declined from $3.3 billion in 2011 to $2.7 billion last year, is predicted to start trending up again in 2014. The strongest growth, according to Payne, should come from CI’s digital printing and enterprise portfolio segment, which includes production presses, functional printing solutions, and packaging. Within the segment comprising graphics, entertainment, and commercial film, the core business in plates and CtP should be “stable for the next five years,” he said.
Payne says that CI’s performance in digital printing should track general forecasts in that area from NPES, InfoTrends, and other sources of graphic equipment market data. For example, says Payne, InfoTrends has predicted that color page volume will grow by up to 30% annually, driven primarily by a rising demand for production inkjet—a technology that Kodak offers in its Prosper and Versamark systems. Payne currently serves as the chairman of NPES, an equipment suppliers’ trade group.
With the target timeframe for exiting bankruptcy just a handful of months away, Kodak can point to a number of steps successfully taken toward achieving that goal.
It recently received approval to borrow up to $844 million to fund the rest of its Chapter 11 reorganization. The sale of its patent portfolio in digital imaging will bring in $527 million. The company is out from under paying health and welfare benefits to its U.S. retirees, having been freed from that obligation in bankruptcy court.
Remaining to be accomplished is the intended sale of Kodak’s Personalized Imaging and Document Imaging businesses—the final major step in the company’s transformation into a smaller, more tightly focused technology provider.
Despite its bright spots, however, the picture contains no foregone conclusions.
Many of Kodak’s numbers remain conspicuously negative, and reorganization costs will not cease to pile up until after the process is complete. In the wake of deep headcount reductions and aggressive cost cutting across the board, the company could be near the limit of its ability to trim its way back to profitable operation. And, it has yet to demonstrate that it can reenergize sales growth in any of the product categories on which its fortunes now depend.
Still, the case that Kodak makes for what it can be deserves a fair hearing, It certainly will have an attentive audience as the endgame of the company’s historic campaign to reinvent itself is played out.