Kodak Says Tales Of Its Demise Are Premature

Kodak became the dominant film brand amid a rise in consumer photography (Photo by William F. Campbell/Getty Images)

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Kodak has issued a statement rebutting “misleading media reports” caused by the widespread furore over its future following its Q2 filing, which was interpreted as a warning that it could cease operations.

The group said that this was not the case but rather that it had to include a going concern note with its quarterly update to comply with accounting rules, which prompted a flurry of headlines questioning Kodak’s ability to stay in business.

In fact, accounting rules required Kodak to make the disclosure because it has debts of around $500 million that will fall due within 12 months, and at the present time does not have committed financing in place or available liquidity to meet those obligations.

However, Kodak is in the process of selling off its U.S. pension fund, with a deal expected to be completed by the end of the year, which would allow it to draw on the approximately $300 million in cash that it expects to receive from the reversion and settlement. But because this is not solely within Kodak’s control, U.S. GAAP accounting rules required the addition of a line about its future as a going concern.

In a social media statement, the company responded: “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. The most important things to know are: Kodak has no plans to cease operations, go out of business, or file for bankruptcy protection.”

Kodak Sales Down

But things are not all rosy for Kodak. In the quarter to June 30, Kodak’s sales fell 1% to $263 million and gross profit margins reduced from 22% to 19%. The net loss for the quarter was $26 million, compared with a net profit of $26 million the prior year, in part caused by higher aluminium and manufacturing costs.

Those results and the announcement saw shares dip earlier this week before a partial recovery but the shock was still enough to wipe out small gains in the year-to-date made prior to the SEC filing.

Founded in Rochester, New York in the late 1800s, Kodak became emblematic of the rise in personal photography but as the era of digital technology took over, the company struggled to remain relevant.

Kodak at its peak employed more than 140,000 workers but now has a workforce of about 3,400 and is still struggling to recover from its failure to adapt to digital photography and the decline of film. Despite emerging from bankruptcy protection in 2013 and turning to commercial print, advanced materials and chemicals, the company’s once dominant position in consumer photography seems a world away.

Some Kodak protagonists have likened the company’s struggles to those of Apple, which lost its way against rivals such as Microsoft before reinventing itself as a cool, multi-smart device brand. However, Apple’s slump occurred while the computer industry was still relatively imature, whereas Kodak missed the boat when digital challengers and new technology emerged.

Kodak Brand Remains Strong

That said, in many parts of the world and notably the Gulf Region, Kodak remains a well recognised brand at print and photo stores, with high consumer awareness, while the retro camera trend of the past few years has also prompted a mini resurgence in the U.S.

Kodak produced more than twice as many film rolls in 2019 as in 2015 and at last year’s third quarter earnings call, Kodak CEO Jim Continenza said the company needed to upgrade its Rochester factory because it was experiencing such high demand for film.

That growth has been driven in large part by Gen Z, which has turned to retro tech across genres including music, movies, toys and traditional film as younger people reject instant digital gratification. Using film cameras and developing film also plays into their desire for digital minimalism.

Eastman Kodak bet wrong on the advance of digital photography and, more disastrously, the impact of the huge ascent of the smartphone, but Gen Z’s desire for a simpler, digitally decluttered life could yet see a different picture emerge.