Eastman Kodak Co. (EK), the world's biggest film manufacturer, posted a preliminary $12 million loss in the fourth quarter, mainly because of one-time costs to cover job cuts, but its results still handily beat Wall Street forecasts and reflected strong gains in digital photography.

The company also cautioned Wednesday that it found errors related to its income taxes in 2004 that might require a restatement.

Kodak, which is navigating a tough transition to filmless photography, said it expects digital sales to exceed chemical-based photography sales in 2005 for the first time.

"It's going to be another year of significant progress on becoming a digital company," Chief Executive Dan Carp said at an investors' meeting in New York.

"Obviously, a big part of this strategy, and one that is also working very well, is staying ahead of the decline that we saw in our traditional portfolio," he added.

In the October-December period, Kodak lost the equivalent of 4 cents a share, compared with a profit of $19 million, or 7 cents a share, a year ago.

Excluding restructuring costs totaling $395 million, or $1.07 a share, plus 3 cents a share to pay for legal settlements, profits were $236 million, or 78 cents a share. Analysts surveyed by Thomson First Call had forecast earnings of 66 cents a share.

Helped by the dollar's weakness abroad, sales edged up 3 percent to $3.765 billion from $3.648 billion a year ago. Excluding foreign-exchange gains, sales rose 1 percent.

The company said it was weighing the magnitude of its accounting errors, which might affect after-tax income.

"The errors are confined to income tax accounting, and as such they do not affect the company's business operations," Kodak's chief financial officer, Bob Brust, said in a statement.

"This situation arises from tax accounting errors, not misconduct. It involves complex tax rules, in many cases relating to our restructuring actions overseas, that vary by country."

An accounting review should be completed in six weeks "at which time we will issue final results for the fourth quarter and for the year," he said.

Kodak shares rose 49 cents to $32.04 on the New York Stock Exchange (search). Its shares are down from a 52-week high of $34.74 in November.

Digital product revenues swelled by 40 percent to $1.78 billion in the fourth quarter, propelled by a nearly 50 percent jump in sales of both digital cameras (search) and photo kiosks.

Health imaging revenues rose 1 percent to $742 million, driven by an 11 percent jump in sales of digital products and services, but operating profits fell 12 percent to $118 million. Commercial imaging sales rose 1 percent to $219 million while operating profits eased to $33 million from $37 million a year ago.

In the digital and film imaging division, revenues fell 3 percent to $2.55 billion but operating profits edged up to $149 million from $141 million.

Kodak grew into an icon on the strength of its film, paper and photofinishing businesses but is now betting its future in digital terrain — from cameras, inkjet paper and online photofinishing to minilabs, X-ray systems and commercial printers.

As its makes the tough transition, Kodak is slashing its payroll. A year ago, when it employed nearly 64,000 people, Kodak announced plans to cut 12,000 to 15,000 jobs by 2007.

In all of 2004, Kodak earned $649 million, or $2.16 a share, up sharply from $265 million, or 92 cents a share, in 2003. Sales rose 5 percent to $13.52 billion from $12.9 billion.

Kodak said it remains on course to boost revenues to $16 billion, or about $3 a share, in 2006. It expects to earn $2.60 to $2.90 a share this year.