Kodak is not a tech story but a pension one

The probable bankruptcy of Kodak is all over the web, with everybody apparently concluding they failed, as a technology driven company, to adapt to the digital era.

From a cursory look at their product portfolio, it seems quite okay, well diversified with lots of speciality products in niche markets, especially on the professional side, most of which are probably stable businesses. The consumer products may not often be class leaders but seems to have some unique qualities, seems middling but not obviously failing.

The surprise came when I had a look at the balance sheet. It’s limpid. A company with 6 billions of assets has a 2.5 billions unfunded pension liability, gross, all of which nets to 1 billion negative equity. So it seems there’s a perfectly fine and viable business were it not for the legacy pension issue. The lesson is the rather obvious: a large business can’t scale down in size when it has an open ended pension liability that, as here, might prove underfunded, at least from an accounting or regulatory viewpoint, if the market or regulations go against the supporting portfolio at an inconvenient time.

So a GM-like restructuring or outright dismantlement seems necessary, hard to see how shareholders (for what little equity there is left) or bondholders could get something back, but once the process of cleaning them out is done, I suspect a large part of the product lines will survive, either sold off separately, or together.

The question is why so few people are mentioning that — I must not be alone but it’s silly that I had to rediscover this independently. The summary balance sheet on financial websites may not itemise the “pension benefits – underfunded” line, but it doesn’t take much to find out.

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