Kodak Future in Troubled Waters

Eastman Kodak ( ) , a multinational imaging and photographic equipment, materials and services company, struggles to survive as one of the costliest problems hails from overseas. The company’s promise of pensions and other benefits to thousands of retirees, especially in the UK, are in troubled waters today. In this backdrop, a bankruptcy scenario cannot be totally evaded.

Pension has been an alarming issue for Kodak since long. The company had promised to offer extensive medical benefits and pension payouts to workers with standard perks in its best of times. Earlier, Kodak had promised to spend about $800 million over the next decade to shore up its UK pension fund. However, five consecutive years of annual net losses alongside a consistent cash drain on new businesses raised plights. Since then, Kodak's overseas benefit obligations have been underfunded for most of the past decade and is been confirmed by the company’s annual reports for that time period.

UK pension fund trustees and regulators have increasingly tried, with some success, to maneuver U.S. companies into paying more into underfunded UK pension plans in the recent years. As troubles cloud over the issue further and bankruptcy glares bright, possible legal exercise under the UK Pensions Regulator seems underway. Moreover, substantial pension claims from the UK alongside the claims from Kodak’s creditor may not be overlooked in such a scenario.

Based in Rochester, New York, Kodak, in such circumstance, is presently engaged in financing negotiations with its lenders, as part of its effort to raise cash. The company has also started reorganizing into two business units - commercial and consumer, down from three.

The pension trouble spiked, not much later than the company ‘s recent filing of a lawsuit against Apple Inc. ( AAPL - Analyst Report ) and HTC Corp.These technology giantsare sued by Kodak on the ground of patent infringement allegation in digital photography.

As per the company, Apple and HTC used Kodak’s image transmission technology covered under four patents. It accused HTC of infringing on a fifth patent covering image previews, which was also part of a U.S. International Trade Commission case against Apple and Blackberry maker Research in Motion Ltd. ( ) .

Kodak hopes to use its patent portfolio to help fund a turnaround as it strives to avoid seeking of bankruptcy protection.

Bankruptcy rumors concerning Eastman Kodak began to emerge in late 2011, which have gained traction entering 2012. Within the past year, shares of the once-dominant camera player have tumbled by 90% and the New York Stock Exchange has threatened to de-list the stock. As the company aims to restructure its operations in order to avoid bankruptcy, the risk of running out of money gains ground.

However, we believe successful efforts to sell patents or increase in borrowing may combat such forces and avoid bankruptcy at this moment.

The company directly competes with its peers such as Canon Inc. ( CAJ - Snapshot Report ) , Sony Corporation ( SNE - Snapshot Report ) and FUJIFILM Holdings Corporation.

We currently maintain a long-term Neutral recommendation on the stock. Kodak has a Zacks #2 Rank, which translates into a short-term Buy rating (1-3 months).