WXXI AM News

Kodak's top executive talks about that controversial federal loan

Aug 11, 2020

Kodak’s top official is talking about the status of the company’s potential federal loan, a deal which has created a lot of controversy in recent days.

Executive Chairman Jim Continenza made a few brief comments about the potential loan during the company’s second-quarter earnings conference call on Tuesday.

The $765 million loan, announced two weeks ago, would help Kodak gear up to make ingredients used in generic drugs.

The loan has been touted by the Trump Administration as a way to help bring back more pharmaceutical production to the U.S.  But, the deal has since been mired in controversy, with questions raised about the timing of the announcement and stock options granted to some top Kodak executives.

The agency providing the loan, the U.S. International Development Finance Corporation (DFC), said that it would not proceed with the loan unless the company is cleared of allegations of wrongdoing. 

Continenza said he understands the need for the DFC to fully look into issues surrounding the deal.

“We appreciate the DFC’s decision to await clarification before moving forward with the loan process," Continenza said. "The proposed expansion of our chemical manufacturing operations to supply pharmaceutical needs does not affect our existing business."

During the conference call, Continenza stressed that the announcement made a couple of weeks ago was only about a letter of interest and said more work is necessary for the loan to move forward.

Last week Kodak said that a special committee made up of independent members of its board of directors will look into recent activity surrounding the federal loan. The Wall Street Journal reported that the Securities and Exchange Commission is investigating the circumstances surrounding the announcement of the potential loan.

That was confirmed in a regular quarterly filing with the SEC by Kodak on Tuesday, in which it said "Congressional investigations and an SEC investigation have been commenced which could affect the likelihood of the consummation of the DFC Loan. "

The statement also noted "the potential DFC Loan has sparked intense media interest and coverage. If the DFC Loan is not made or if the findings of the investigations are unfavorable, Kodak’s reputation could be damaged and its existing business could be adversely affected."

In the filing, Kodak also acknowledged the competition it would face if the federal loan moves forward and the company does try to market ingredients used in pharmaceuticals.

"The economic success of the Pharmaceutical Initiative will depend in large part on products produced by the Pharmaceutical Initiative being able to successfully compete with pharmaceutical ingredients supplied by low-cost countries such as China and India through manufacturing and operating efficiencies, “buy American” initiatives or mandates, or otherwise," the filing said.

As with a number of companies, Kodak’s second-quarter earnings and sales were impacted by the COVID-19 pandemic, with revenues falling to $213 million, a $94 million drop year-over-year. After certain one-time charges, Kodak saw a loss of $2 million, an improvement over the adjusted net loss of $11 million a year ago.