Kodak to Use Tax Refund for Buyback

By WILLIAM M. BULKELEY


Eastman Kodak Co. received a $581 million windfall from the Internal Revenue Service and said it will use it to help fund a stock buyback of as much as $1 billion, spurring a rebound in its long-depressed stock.

The tax refund covered taxes paid on the 1994 sale of its Sterling Winthrop subsidiary and $300 million in interest since then. Kodak's claim of losses on the sale was initially disallowed, but it had appealed. It said subsequent IRS regulations provided the basis for its refund.
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Kodak stock, which had been trading near 40-year lows, jumped 14%, or $1.69, to $14.03 in 4 p.m. New York Stock Exchange composite trading Tuesday. Kodak's market value had fallen Monday to $3.7 billion, and it said the buyback could potentially reduce its shares outstanding by about 25%.

Kodak's sales last year fell 2.5% to $10.3 billion, and it posted a loss of $205 million from continuing operations after restructuring charges. The company's stock has fallen steadily over the past six months. Analysts said some large institutions that have held the stock in hopes of a turnaround have been selling steadily.

Ulysses Yannas, a broker with Buckman, Buckman & Reid Inc., a longtime Kodak follower, called the buyback, coming when the stock was trading just 30% above book value, "masterful" -- and "it's half with money the government gave them." Mr. Yannas says that if Kodak's printers for consumers and commercial printers take off as he expects, Kodak could have earnings of as much as $3 a share by 2011. However, he said Kodak is unlikely to buy shares aggressively if the stock rises.

Some analysts weren't so ebullient. "The share repurchase will provide some support," said Shannon Cross of Cross Research Group, Livingston, N.J. But she said, "At the end of the day, they need to improve fundamental results to bring in new shareholders."

Kodak has remade its business in recent years as its highly profitable film business was hammered by consumers' shift to digital photography. Kodak makes a successful line of digital cameras, but they are much less profitable than film sales. An ink-jet-printer business started last year doesn't have enough of an installed base to generate profitable ink-cartridge sales in large volume.

Kodak also took on heavy debt to build a new graphics-communications business by buying companies that make presses and supplies for commercial printers. It paid off much of that debt last year with the proceeds of the sale of its health-care imaging business, and at the end of the first quarter it reported $2.2 billion in cash.

This year, Kodak has been forced to raise prices of its aluminum plates for printers and consumer and movie film by up to 20% because of soaring prices of aluminum and silver. It has also spent heavily on promoting its consumer printers.