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10-01-2011, 03:34 PM
Here is some info that I posted a while ago re the film division

The situation with the film division looks pretty grave...

I think I have an answer to the above questions related to earnings of the Film Division. I found it in the quarterly report. I believe I calculate a 94% decline in earnings ($2 million 2Q11 earnings vs $36 million 2Q10 earnings). I sure hope they can continue to make profits in our Film Division!!!

"Film, Photofinishing and Entertainment Group second-quarter sales were $396 million, a 14% decline from the year-ago quarter, driven by continuing industry-related volume declines. Second-quarter earnings from operations for the segment were $2 million, compared with earnings of $36 million in the year-ago period. This decrease in earnings was primarily driven by significantly increased raw material costs, particularly silver, and industry-related declines in volumes, partially offset by cost reductions and price actions across the segment."

per Kodak's 2nd Quarter 2011 Results

10-01-2011, 03:57 PM
Contrary to some comments here, Kodak's film division remained very strong until the economic downturn and only decreased production due to lower overall film consumption. During that time, they brought out new B&W film products and new color products including EKTAR! So, this showed the health of the operation and those that say otherwise are wrong!

Not sure I'm following this, PE. What about profit series data against the collapse of demand for film after 2000-1? Film sales in 2007-08 weren't exactly robust, recession nothwithstanding. The rollout timing for TMY-2 and Ektar remain puzzling given the ongoing decline in film sales/profits. Great products, awful market. "Health" and "film operation" aren't terms I readily associate in any discussion of Kodak. Guess I'm just wrong...

Photo Engineer
10-01-2011, 04:16 PM
The year that Kodak cut paper production, Ilford went into bankruptcy and Agfa did the same. In that year, overall film consumption fell 35% in one quarter thus exceeding market predictions by about 3 - 5x. Paper consumption fell even more thus leading to Kodak exiting the market for B&W paper. This event triggered the fall of one company and the near fall of another.

NO ONE saw this coming, not the pundits on Wall St. nor the market followers. Right after that we had the recession which is World-Wide in scope and now is in a double dip.

All things considered, to an outsider, this looks disastrous and it actually is, but compared to other sectors the film division is doing pretty good and has brought out new products. After all, if they are in development and ready to go, and the market collapses, do you trash all of the R&D??

No, I think that people on the outside are reading this wrong. And to couple this to other comments, Perez cannot be held responsible for this 35% decline in one quarter! He didn't cause that nor did he cause the current recession. He did however, make many poor decisions regarding the use of revenues from film putting them into digital. Well, this is getting into my opinions and there are several other comments I could make but I will not. Kodak may fail, but the failure that might take place is more complex than the actions of one man.


Uncle Bill
10-01-2011, 04:45 PM
Thank the American MBA. The root of our problems since 1975.

For such an intelligent country how can we continually produce such disastrous business managers?


10-01-2011, 04:49 PM
He did however, make many poor decisions regarding the use of revenues from film putting them into digital.

I agree. We see how it has worked out.

It pained me greatly to see the analog side being milked to keep up the digital side, quarter after quarter. Substantial profit was being made by the film division while Kodak's overall balance sheet was weak or negative, and yet there was much questioning among the pundit class why Kodak was even staying with film.

Still, I have wondered: what would have happened if Perez had decided to concentrate on the analog side, and dump or cut back the digital side? What would have been the response to his strategy on the Board, and among all the many pundits? Could he have done it, given the inevitable accusations of "staying with a dying industry"? Would other CEO's have done things all that differently from Perez?

Photo Engineer
10-01-2011, 06:13 PM
There as Perez' dilemma. He was damned if he did and damned if he didn't and we cannot second guess from the outside. Film is in a slide and the economy is in a severe slump. Where will it end? IDK. All we can do is hope for the best.


10-01-2011, 06:35 PM
Feeding a failing digital strategy from the revenue of a strong film group is bad management. If they had scaled film down it would be nice and healthy. Ilford, Efke, Adox, those companies are doing just fine.

You don't need to sell film at 1980's levels to have a nice happy company with quality products. I'll bet film sales today are just as good as the 1940's or 1950's.

I am praying a little company can keep Kodak film alive.

Public companies cannot do that because of parallel shareholder value declines. Big companies must stay big, and Kodak was a founding company of digital imaging, so it made sense to go where their R&D was invested. Nostalgia for film and a fractional market was a recipe for share value destruction.

Kodak management saw that film would bottom out, but they understated the speed by considerable factors. Kodak was right pursuing digital, but the execution was poor. Kodak completely missed the demise of personal home printing in the face of Flickr etc., for example. They missed the advent of the software driven photobook straight to press (easily the fastest growing hard archive system), and other cues. Their sensor division excelled until about 5 years ago when doubt set in alongside a drive for quarterly results over long term execution. It's a shame, really.

10-01-2011, 10:56 PM
Does everyone understand that Kodak is considering bankruptcy to facilitate the sale of its patents? Would-be buyers of the patents are reportedly concerned that if they purchase the patents, that transaction could be considered a fraudulent conveyance. It could be considered a fraudulent conveyance if Kodak was insolvent at the time, or the transaction rendered Kodak insolvent. Insolvency means Kodak either has liabilities exceeding assets or cannot pay its liabilities as they come due.

These are very savvy financial players. If they are worried that Kodak is insolvent, or near insolvency, you can believe Kodak has serious problems. From the published reports, it seems Kodak is running low on cash. That's pretty much the second prong of insolvency.

Ironically, the sale of the patents must have been a last-ditch effort to save the company -- or at least spin it out a bit longer. They can't sell the film business. Speculate all you want about how profitable it is or could be. They've been trying to sell it for years, and have obviously not found a buyer. So they used it as a cash cow for other business prospects. Those clearly did not work out. I wouldn't defend the management or directors. They have failed to steer the company to health. Their plans have failed, miserably. Now, they are selling what they can -- the patents, which is what they were telling everyone a year ago would be Kodak's new cash cow. They seem inclined to put the company into bankruptcy to accomplish that. That's what the stock market is telling you. Whether the film division, or the films, will survive, is an open question.


Sal Santamaura
10-01-2011, 11:23 PM
...At this point though, the film division could not be bought easily by another firm due to legal issues with the Kodak Park site which has been used for chemical production and storage for over 100 years. They would have to assume the legal burden of the expected cleanup as part of the sale price...How about what HARMAN did? Buy the business but not the real estate? HARMAN leases its site.

10-01-2011, 11:27 PM
The bankruptcy filing is a method of avoiding the fraudulent transfer rules. As part of the plan for reorganization, it then can sell off the IP and the buyers are protected from a claim as the sale happens with the court's stamp of approval. The only risk to the buyer is that another bidder may come forth with an offer the court feels is a bette deal for the creditors. Almost all Chapter 11 cases are file to effect some sort of prearranged plan and to block challenges that could arise it it were to do it outside of the court.

10-02-2011, 12:04 AM

Not understanding your comments that the pensions are fine. My reading of the 10-k is the pension is officially underfunded by 2.6 billion, but the unrealistic return on assets of 8.7% means it could be much worse.

Can you post some specifics on this?

10-02-2011, 12:12 AM
The bankruptcy is just speculation now, but the hiring of C11 experts at the same time as a credit draw says there is some concern about the latest creditor's standing in the queue.

The problem with the film biz is there appears to be no bottom to film's decline in common use. Kodak is not built to serve a hobby industry. It's cinema services are most in peril, so photography's salvation Kodakwise may lie in a motion picture industry purchaser. Problem is that entity may need to burn $$$ to get there, and that may only be accomplished by selling patents not for creditors, but for going concern solvency. That's where the bankruptcy comes in; to protect asset transfer. Shareholders are already written off.

It's going to be interesting. Anyone want to pass the hat?

10-02-2011, 12:20 AM
Thinking about it, I think they could get in a lot of trouble if they went bankrupt right after tapping a line of credit.

10-02-2011, 12:29 AM
To bad it's hard to short penny stocks... likely some money could be made.

The rule of thumb for making money in a bankruptcy is to buy up some of the discounted secured debt. Then, when a company comes out of chapter 11 as a debt free company with a good business the old debt gets converted to new shares and you might make some money if the new shares go up.

This strategy likely won't work in this case because it depends on a strong company coming out of bankruptcy, something that probably won't happen in the case of Kodak. Some kind of company might emerge, but it is questionable if it would be one with good prospects for long term growth.

Photo Engineer
10-02-2011, 10:36 AM

Not understanding your comments that the pensions are fine. My reading of the 10-k is the pension is officially underfunded by 2.6 billion, but the unrealistic return on assets of 8.7% means it could be much worse.

Can you post some specifics on this?

For current retirees, they were allowed either to receive money from the pension plan or to take a lump sum cash distribution. So, those that did the latter have their money in their hands when they leave the gate at Kodak. The more recent retirees get an option to draw only a portion of this as cash. The rest is in the pension plan.

The current pension plan is comprised of the old EK pension plan and newer standard 401 K plans with investments chosen by the employee and thus vary in amount based on their choice of investment.

Now I realize that there are problems with the old Kodak managed investment plan, but I base my comments on what they said locally on TV, and that is that current retired people are safe, but the results for current employees will vary based on their choices of 401K plans as I noted above. An example would be a 401K plan based on Kodak stock, vs a plan based on Apple stock. ;) The straight Kodak plan (not available to new employees since the mid 90s IIRC) is the one in trouble.


Photo Engineer
10-02-2011, 10:38 AM
How about what HARMAN did? Buy the business but not the real estate? HARMAN leases its site.

It is actually a good idea, but there is no person or group of persons at EK who can purchase such a large operation. And, due to the decline in business, I doubt if anyone would take the risk to loan them money.


10-03-2011, 08:13 PM
Originally Posted by wblynch

Thank the American MBA. The root of our problems since 1975.

For such an intelligent country how can we continually produce such disastrous business managers?



At least Kodunk doesn't have Meg Whitman as their new CEO, unload your HP stock boys its going to play submarine.:whistling:

We won't know what is going on until after it happens.
Kodak has the option to sell the film division. there is still money to be made IF managed correctly.

10-03-2011, 08:22 PM
Originally Posted by wblynch


At least Kodunk doesn't have Meg Whitman as their new CEO ...

yeah, she'd nickle+diime all the customers
to death until they went somewhere else .. :munch:
"canisters for the 35mm film or rolls of more than 12 exposures, that's 30 extra
boxes or foil wrapping for 120 film, that's 20 extra nested boxes for sheet film, 40 extra ... " :whistling:
then run for political office ! :munch:

10-03-2011, 08:24 PM
Well, filling the board of directors with butt kissers can certainly do it. Look at Immelt & GE.

Kent in SD

10-04-2011, 04:38 AM
I hope Kodak can come out of it, think I'll go buy some Tri-X.

I voted for Moonbeam, seemed like a good idea at the time. :whistling:

At least he isn't talking business newspeak. "The latest remit is that we need more branding."