Eastman Kodak

1. Evaluate the current financial condition of Eastman Kodak based on its most recent quarterly report, which can be located at http://www.Kodak.com. Based on your evaluation, discuss the most significant “red flags” for its public accounting firm to consider.

Eastman Kodak Company (Kodak) is a picture and printing company. The Company operates in three segments: Consumer Digital Imaging Group, Graphic Communications Group, and Film, Photofinishing and Entertainment Group. In terms of sales Kodak is a major player in the graphics communication industry with annual sales in excess of $5 billion. That is larger than companies like Heidelberg, the world’s largest press manufacturer. The debt has come about in the switch away from being a film-based business. Since 2003 Kodak has had to close down 13 film manufacturing plants and 130 processing laboratories around the world and reduce its workforce by 47,000 people. This generated massive redundancy costs and huge pensions liabilities. (Tribute, 2012) Also, the company has $632 million stored in China, which would be hard to repatriate. Kodak is losing money and burning cash, and their problems could lead to bankruptcy. Let's look at some numbers from the company's financial statements. (Table 1).

Table 1. Financial Performances.

  | 2012 | Change,% | 2011 | Change,% | 2010 |

Net Sales from Continuing Operations | 4,114 | (20) | 5,148 | (14) | 5,993 |

Cost of sales | 3,523 | (19) | 4,350 | 4 | 4,170 |

Gross Margin | 14% | | 16% | | 30% |

Loss from continuing operations before

income taxes | (1,560) | (123) | (699) | (64) | (425) |

| 2012 | Change,% | 2011 | Change,% | 2010 |

Net cash used in operating activities | (262) |   | (966) |   | (665) |

Net cash provided by (used in) investing

activities | 25 |   | (25) |   | 50 |

Net cash provided by financing activities | 508 |   | 246 |   | 262 |

Net increase (decrease) in cash and cash

equivalents | 274 |   | (763) |  ...