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Kodak has today said it would cut as many as 15,000 jobs and take charges of up to $1.7 billion over the next three years as it works through a painful shift toward digital products and away from the waning film market. Kodak has shed some 22,000 jobs in the last five years, cutting its work force to about 64,000 in 2003 from 86,000 in 1998. Another story from Kodak today is that that are buying the remaining 41% of Chinon Industries to take full control. Chinon Industries, established in 1948, is engaged in research, development, and manufacturing of digital cameras.
NEW YORK (Reuters) - Eastman Kodak Co. Thursday said it would cut as many as 15,000 jobs and take charges of up to $1.7 billion over the next three years as it works through a painful shift toward digital products and away from the waning film market.
The photography company, whose shares soared to their highest level in seven months in early trading, also announced an 83 percent decline in fourth-quarter net income. However, excluding one-time charges, the profit beat Wall Street views.
"Previous administrations have had problems with carrying out plans, but this is the first time that there is a level of seriousness that merits attention," said Chris Carosa, whose firm advises the Bullfinch Western New York Series Fund.
However, after an investors meeting in New York, some analysts were more guarded. With Kodak set to write off so many costs -- including up to $400 million this year -- before its transformation ends in 2006, they say it will be hard to accurately judge Kodak's performance.
During the meeting, Kodak's executives voiced optimism about digital markets such as medical imaging, production printing imaging and high-end cameras, but spelled out few specific products it plans to introduce, or which of its many tough rivals it will target to gain market share.
"This is a 3-year plan that is not well detailed," said analyst Shannon Cross of Cross Research. "It makes you wonder what's going on with the fundamental company from an earnings standpoint. It's hard to track."
On Thursday, the Rochester, New York-based Kodak said it would cut 12,000 to 15,000 jobs worldwide, or about 20 percent of its work force, including 2,500 to 3,500 this year. It expects related savings of $800 million to $1 billion by 2007.
Investors welcomed the news. Kodak shares rose to $31.07, up $3.61, or 13 percent, in active afternoon trade on the New York Stock Exchange, where it was the highest percentage gainer among blue chips. Earlier in the session they jumped as much as 14 percent to their highest level since June 17.
Kodak has shed some 22,000 jobs in the last five years, cutting its work force to about 64,000 in 2003 from 86,000 in 1998. The cuts will be offset somewhat by new employees that join the company via acquisition.
Shrinking its structure is seen as key to creating a more profitable operation focused on high-growth products. But Kodak must make changes even as film sales, its chief revenue source, slip.
On Thursday, Kodak said global industry sales of consumer film fell about 8 percent in 2003, and could fall 7 percent to 9 percent in 2004. Moreover, the price of silver, which is used to make traditional film, remain high, forcing Kodak to spend more on materials.
For the fourth quarter of 2003, Kodak posted net income of $19 million, or 7 cents a share, down sharply from $113 million, or 39 cents a share, a year earlier.
Excluding one-time items, Kodak earned $199 million, or 70 cents a share. Analysts on average had expected 52 cents a share, according to Reuters Research, a unit of Reuters Group PLC.
Sales totaled $3.78 billion, up 10 percent from $3.44 billion a year earlier. Excluding the positive effect of the weak dollar, which boosts the value of overseas sales when they are converted into dollars, sales increased 4 percent.
Kodak reported revenue growth in many of its digital units, including digital cameras and online photofinishing.
While film still provides ample revenue for Kodak, its traditional consumer film business has eroded under competition from rivals such as Japan's Fuji Photo Film Co Ltd. and, more recently, from digital photography.
Eastman Kodak Company (Kodak) today said that it will launch a tender offer, through its Japanese subsidiary, to purchase all the common shares of Chinon Industries, Inc. that Kodak's subsidiary doesn't already own. The move will help Kodak increase its worldwide design and manufacturing capability for consumer digital cameras and accessories, another advance in the digitally oriented growth strategy that Kodak announced in September. If successful, the total cost to Kodak will be roughly $35M for Chinon's outstanding equity and associated costs.
Chinon Industries, established in 1948, is engaged in research, development, and manufacturing of digital cameras. Kodak is Chinon's largest customer, accounting for nearly 100 percent of Chinon's revenue for its fiscal year ending March 31, 2003, which was Y29,892M or about $280M at current exchange rates. The tender offer is expected to be followed by a complete privatization of Chinon Industries pursuant to the Industrial Revitalization law under the Japan Commercial Code.
Upon completion of the tender offer and privatization process, which is being conducted through the company's Japanese subsidiary, Kodak will merge its Digital Camera Research and Development center in Yokohama, Japan, with Chinon to form a unified Kodak Digital Product Development Center. The center will allow Kodak to improve its overall operating and manufacturing efficiency related to consumer digital cameras.
"As consumer demand increases for digital cameras, building a nimble, smart organization that can meet market needs makes good business sense and helps drive our growth strategy," said Bernard Masson, President, Digital & Film Imaging Systems, and a Senior Vice President, Eastman Kodak Company. "The purchase of the remainder of Chinon enables Kodak to develop one organization in Japan that is stronger, more efficient and more effective than what we currently have. In turn, we expect to use this strength to build our presence in the world's second-largest market for consumer digital cameras."
Kodak intends to purchase, through its indirect subsidiary, the remaining 41 percent (9,306,161 shares) of the outstanding common shares of Chinon not currently held by its subsidiary. Kodak said the offer is being made with the full agreement and support of the Chinon board of directors, which passed a resolution of support for the tender.
The tender offer process is scheduled to begin on January 23, 2004, and will continue for a period of 24 working days, closing on February 26, 2004. Kodak will offer to buy all remaining outstanding common shares of Chinon at a price of 350 yen per share. Based on the closing price on January 20, 2004, this price represents a 25 percent premium to the average closing price of the previous three months and a 37 percent premium over the average closing price of the last month. Kodak, which currently owns, through its subsidiary, 59 percent of Chinon, expects to announce the results of the tender offer by the end of February.
Kodak concurrently announced that its Japanese subsidiary has been granted approval by the Japanese Ministry of Economy, Trade and Industry pursuant to the Law on Special Measures for Industrial Revitalization (LSMIR) under the Japan Commercial Code in order to complete the conversion of Chinon to a wholly owned subsidiary. It is therefore expected that all shareholders who continue to hold shares after completion of the tender offer will receive cash for their shares in the cash for stock swap process, which will be conducted under the LSMIR, and Chinon will, at the close of this process, no longer be listed on the Tokyo Stock Exchange.
Through this tender offer and subsequent cash for stock swap under the LSMIR, it is the intention of Kodak to merge its subsidiary's Digital Camera Research and Development center in Yokohama, Japan, with Chinon to form a unified Kodak Digital Product Development Center.
"Our highly successful collaboration with Chinon began nearly 10 years ago and has evolved over time in response to the growing market for digital products," said Yusuke Kojima, General Manager, Worldwide Digital Camera and System Development, Digital & Film Imaging Systems, and Vice President, Eastman Kodak Company. "Today's announcement is a result of the natural evolution of the relationship between the two companies and the changing conditions in both the Japanese and global digital imaging markets."
"The successful completion of this tender offer and cash for stock swap process will allow Chinon and Kodak to further enhance their position in the Japanese market, while simultaneously strengthening their position worldwide," he added.
Susumu Cho, president of Chinon, and the Chinon board of directors expressed their support for the tender offer by noting that Chinon would be able to enhance its well-developed capabilities in research and development, engineering, operations, and manufacturing.
"As a result of the full acquisition, both Chinon and Kodak will be in stronger and more competitive positions, with an increased ability to bring innovative products to customers in Japan and around the world," Cho said.