updated 10/19/2005 8:03:38 AM ET 2005-10-19T12:03:38

Eastman Kodak Co., stung by a sharp drop in film sales midway through its painful shift from traditional photography to digital imaging, posted a $1.03 billion third-quarter loss largely because of one-time tax charges related to its massive restructuring.

Kodak said Wednesday it lost the equivalent of $3.58 a share in the July-to-September quarter, compared with a profit of $458 million, or $1.60 a share, a year ago.

Sales rose 5 percent to $3.55 billion, up from $3.37 billion in last year’s third quarter.

The quarter included a non-cash charge of $900 million, or $3.13 a share, for a valuation allowance against net-deferred U.S. tax assets. The reserve was an accounting requirement resulting from continuing losses created by its accelerated restructuring.

Kodak warned last month that a sluggish economy and shortfalls in its health-imaging business would likely crimp its digital profits in 2005, forcing it to build fewer digital cameras and home printers for the end-of-year holiday season. It had projected profits of around $275 million to $325 million.

Kodak is battling a steep drop in demand for photographic film and paper. In July, it disclosed plans to lay off 10,000 employees on top of 12,000 to 15,000 job cuts targeted in January 2004.

Two years ago, Kodak acknowledged that its chemical-based businesses were in irreversible decline and outlined an ambitious strategy to become a digital heavyweight in photography, medical imaging and commercial printing by 2007.

The transition triggered nearly $3 billion in acquisitions but has carried a high cost. The shutdown of film and other manufacturing operations around the world looks likely to drop its global work force below 50,000, down from 75,100 in 2001 and a peak of 145,300 in 1988.

Sales of conventional silver-halide film — Kodak’s cash cow for the last century — look set to drop by more than 30 percent in the United States this year.

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