Kodak Will Cut 13,000 Jobs; Discloses Profit Picture Has Worsened

Eastman Kodak said Tuesday that it plans to cut its work force by nearly 13,000 this year as part of an “accelerated” cost-cutting program, and it also disclosed that stubborn earnings problems worsened in the fourth quarter.

The Rochester, N.Y.-based photography giant said it will trim expenses by reducing budgets 5%, eliminating 1986 merit raises for its top 130 managers and possibly reducing a “wage dividend” that supplements earnings of all employees. It intends to reduce its worldwide work force of 128,950 by about 10%, the company said.

Kodak said its earnings declined 27% in the first three quarters of 1985 because of unfavorable currency exchange rates and higher costs associated with product development and increasing worldwide competition. Fourth-quarter results, due to be reported next Tuesday, were affected “even more substantially by these factors,” Kodak said in a statement.

A Symbol of Prowess

Confronted by a slow-growing photographic market and increased competition, Kodak has in recent years tried to rekindle its growth by cutting costs and diversifying into an array of high-technology markets. The world’s largest maker of photographic products, Kodak was for decades an international symbol of American technological prowess.

But its diversification moves are still far from paying off, and the company’s plans to cut expenses “just haven’t moved as quickly as we had wanted,” said Henry J. Kaska, a spokesman. “Now we want to accelerate the entire process.”

The company did not provide more specific estimates of quarterly or annual results. In the first three quarters of 1985, Kodak earned $561 million on sales of $7.82 billion.

As a result of an adverse federal court ruling in a decade-old legal battle against Polaroid, Kodak is also now withdrawing from the instant-photography business. In connection with that move, the company will take a hefty charge against earnings in the fourth quarter--a charge analysts say could come to $100 million to $200 million and could cause Kodak to report its first-ever quarterly loss.

‘Significant’ Charge

Kodak has been unwilling to estimate the size of the charge but has said it will be “significant.”

Several Wall Street analysts were cheered by Kodak’s announcement, saying it showed the determination of a company that was long known for its unwillingness to lay off employees. “This will probably turn out to be good news,” said Eugene Glazer, analyst with Dean Witter Reynolds in New York. “They’ve got to get those costs down to make themselves competitive.”

Kodak has about 4,400 employees in California. The company’s Southern California operations include sales and distribution offices, a photo processing lab in Hollywood and a subsidiary called Datatape Inc. in Pasadena.

Kodak said the 1986 staff reductions will affect all parts of the company and will involve some voluntary separation and retirement incentives, attrition and layoffs. About 1,200 jobs will be eliminated at the company’s big headquarters operations in Rochester.

If the 10% staff reduction is achieved, Kodak will have cut its work force 15% from its all-time peak of 136,500 employees in 1983.

Merit pay increases for other employees will not be affected by plans to eliminate such increases for top management. The company said it will consider tying the annual wage dividend to corporate earnings, rather than to the cash dividends paid to shareholders.

Brian Fernandez, director of research with Nomura Securities in New York, said the company will benefit this year from a number of favorable developments, including declining oil prices, lower interest rates and more favorable currency exchange rates. Currency exchange is important to Kodak because about one-third of its sales are overseas; petroleum prices affect its big chemical and plastics businesses.

Still Faces Penalties

At the same time, Fernandez noted that Kodak still faces the payment of penalties to Polaroid for infringing on its instant-photography patents. Such damages could run into the hundreds of millions of dollars.

Kodak also faces “competition that is truly relentless,” he said. Fuji Photo Film, for example, which has a 8% to 10% share of the color negative market to Kodak’s 80%, continues to hold an advantage over Kodak in prices and production costs, analysts said.

Fuji’s annual sales come to about $224,000 per worker, compared to Kodak’s $85,000, according to Fernandez.

Analysts speculated that higher costs mentioned by Kodak might include marketing costs incurred in connection with Kodak’s 8-millimeter video “camcorder,” its videotape and the floppy computer disks made by its Verbatim subsidiary in Sunnyvale, Calif. All three of those businesses have seen intense competition and price cutting.