Kodak Pushes Back Strongly Against Bankruptcy Rumours

Kodak has issued a strongly worded statement saying that reports the company is potentially being wound up are inaccurate.

It's been a difficult week for Kodak. Reports here and elsewhere that the company might not be able to service its debt in the forthcoming 12 month period unless it did some fancy footwork involving its pension fund have done unpleasant things to its share price. On Monday night those shares closed at $6.78. As of time of writing that price is $5.83, 14% down for the week.

This actually represents a bit of a recovery as they initially tanked 25% following the quarterly statement that triggered the initial coverage. And Kodak is looking to extend that recovery too by pushing back against the initial reports.

In a strongly worded statement, the company says that "Media reports that Kodak is ceasing operations, going out of business, or filing for bankruptcy are inaccurate and reflect a fundamental misunderstanding of a recent technical disclosure the Company made to the SEC in its recently filed second quarter earnings report. These articles are misleading and missing critical context, and we'd like to set the record straight."

It continues that the most important things to know are:

• Kodak has no plans to cease operations, go out of business, or file for bankruptcy protection.
• To the contrary, Kodak is confident it will repay, extend, or refinance its debt and preferred stock on, or before, its due date.
• When the transactions we have planned are completed, which is expected to be early next year, Kodak will have a stronger balance sheet than we have had in years and will be virtually net debt free.
• The "going concern disclosure" is a technical report that is required by accounting rules.
• We will continue to meet our obligations to all pension fund participants.

The statement goes on to detail its debt position ($477 million of term debt and $100 million of preferred stock outstanding), provides details regarding the pension plan closure which has been planned 'for some time' and will only happen after all obligations have been met, and more. 

So, all's good and it was all a simple misunderstanding? Well not quite. While it is heartening to hear a bit more detail about the plans to service its debt and that the company is bullish about its future, there are definite challenges in its near-term future. Its earnings statement talks of  "lower volumes and higher aluminum and manufacturing costs", and that the company is having to mitigate against these with "price increases and lower spend on investments in information technology systems, organizational structure and costs associated with trade shows."

Some analysts remain unconvinced too, pointing to a long-term decline in earnings that makes servicing fairly hefty levels of debt difficult. "Unfortunately, Eastman Kodak's EBIT (Earnings Before Interest and Taxes) flopped 15% over the last four quarters. If that sort of decline is not arrested, then managing its debt will be harder than selling broccoli flavoured ice-cream for a premium," wrote one. 

Time will tell. Kodak has turned it around before, and it might well do it again. It certainly has a plan in place. And on the plus side, records show that CEO Jim Continenza just spent $287k buying 50,000 shares in the company yesterday at $5.74, so at least the people at the top believe in what the company is doing.