A company once synonymous with photography is now telling investors that it doesn’t have enough cash to pay off its debts, raising concerns about its continued presence.
In a Monday second-quarter earnings report, 133-year-old company Eastman Kodak warned investors that it lacked the financial means to make $500 million in upcoming debt payments. The company does not have any committed financing or available cash on hand to pay off its debts, raising “substantial doubt” about its “ability to continue.”
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However, the Rochester, New York-based firm has a plan to raise the cash to meet the payments: ending its retirement pension plan for employees. Kodak is terminating the pension plan altogether, selling assets held by the pension plan, and giving the responsibility to an unnamed insurance company to make future payments instead. Kodak intends to gain between $530 million and $585 million after taxes through these actions, enough to cover its debts.
Kodak’s pension plan covers 35,000 participants, including retirees and about 2,000 current Kodak employees, according to The Wall Street Journal. The camera giant currently has about 4,000 total employees, per WSJ. After terminating the pension plan, Kodak is planning to offer a new retirement plan for current employees.
“The termination of our U.S. Kodak Retirement Income Plan and subsequent reversion of excess funds to pay down debt is progressing as planned,” Kodak CFO David Bullwinkle said in an earnings press release on Monday.
Bullwinkle further stated that by the end of the week, Kodak will better understand how it can fulfill its plan obligations to participants. The company intends to pay down its debt using the retirement funds by December.
Kodak’s latest financial earnings show that for the second quarter ending June 30, Kodak reported that revenue declined by 1% year-over-year to reach $263 million. Net loss for the quarter was $26 million compared to net income of $26 million at the same time last year.
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Kodak’s Executive Chairman and CEO Jim Continenza still painted an optimistic picture in the earnings press release, stating that Kodak “continued to make progress” even faced with “an uncertain business environment.” Continenza noted that Kodak is “committed to U.S. manufacturing” and makes everything from inkjet inks to pharmaceutical starting ingredients in the U.S.
“For the balance of the year, we plan to focus on serving our customers, strengthening our balance sheet, and developing growth businesses for our future,” Continenza stated in the report.
What Happened to Kodak?
Kodak was founded in 1888, when founder George Eastman introduced the $25 Kodak camera, a portable camera that came preloaded with film. Over the next several decades, the company’s influence grew. By the 1950s, Kodak had captured close to 70% of the U.S. film market.
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Kodak was a camera and film powerhouse until the 1990s, when digital technology gained prominence. Though Kodak was the first to invent the digital camera in the 1970s, the company was slow to adapt to the technology, and by 2006 had lagged behind competitors like Canon, Nikon, and Fujifilm in digital camera sales. In the fourth quarter of 2006, Canon raced ahead of Kodak to become the biggest digital camera provider in the world.
Declining revenue and rising competition caused Kodak to file for Chapter 11 bankruptcy in January 2012, with debt of $6.75 billion. In the bankruptcy process, Kodak raised funds by selling patents worth around $525 million to top companies like Apple.
Today, Kodak manufactures commercial printing products, film for the movie industry, and advanced chemicals, in addition to other products. It also offers its recognizable yellow-and-black film cameras for sale. Kodak stock was down over 30% in the past month.
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