And that is going to be the problem with Kodak. Their operations are scaled for producing a specific (and pretty large) volume of film. When the movie industry no longer distributes movies on film, Kodak (and Fuji) are going to have too large of a fixed plant investment to justify keeping it open for such a small niche market. Thankfully Ilford rationalized their physical plant a few years back and appear to be profitable at their current production volume.
Originally Posted by David Foy
My take on this is that the "consumer" and "commercial" divisions are defined by market and sales channel - they have many products, using different techologies, that are sold in similar markets through the same sales channels. The old "film" group was defined by technology - it had products that sold in different markets, through different sales channels, but which shared the same technology base. This suggests to me that the are "end of lifeing" film - i.e. they will continue to sell existing products as long as they are profitable enough to cover the overheads and expenses and retain mindshare from the execs in charge of their respective divisions. However they aren't planning any further development. Cost savings will result from elimination of R&D expenses (if there are any left) and unprofitable product lines, reduction of marketing and sales related expenses since these will be shared with other "consumer" and "commercial" products, consolidation of administration and reduction in overheads. The danger is that if "consumer" film sales (probably all still film, as another poster suggested) without support from "commercial" (movie) film does not contribute meaningfully to the bottom line of the consumer division in the eyes of a non-film exec (since the head of film is moving to the commercial products division which leaves consumer products with a non-film head) it may be terminated. I may be reading too much into the shifting of some deck chairs, though.
The whole restructuring thing looks very confusing from the outside. It feels to me like Kodak based its restructuring more on some internal kodak management needs rather than external market needs. But who knows? It is really hard to make sense of it because it appears that some of the same production facilities will be producing stock for two different divisions. This is a recipe for trouble as the division heads try to lay off their costs on the other divisions. Seen it many times in good old corporate america.
Given the fact that many of the problems we encounter with Kodak seem to be related to distribution inefficiencies, I am guardedly hopeful that the restructuring will result in an improvement in the distribution channels.
There may be good reasons, but one thing it will do is make it no longer possible to see that the Film side is the only one making a profit.
Gee, I wonder why.
Let's hope they provide profit loss by each segment within the Comm. and Consumer divs
Film was not making a profit. Look at the Q3 2011 AR. Go back a decade reading them and their "film and entertainment" side bleeds red ink, writedowns, and asset sales, mostly of depreciated capital.
Originally Posted by lxdude
As a summary, for every $100 Kodak invested in a film asset hoping to make $400 over a 10 year period, they actually only made $60, and had to sell (or destroy) the asset for pennies on the dollar. Kodak sold factory land, and some think that made Kodak a " profit". Capital destruction on the balance sheet is not revenue.
This is just funny accounting which in theory shows whether a corporation earns money but in practice ends up drawing a misleading picture. Look at the US$ 626 million goodwill depreciation: Kodak made some investments 10 or 20 years ago when things were running smoothly for them, then film sales tanked and in the year 2010 they finally decided to clean up their books for a little tax gain. So what does this mean? Did their buildings and investments just happen to depreciate that much in 2010? And not at all in the year before? Does this reflect in anyway whether they earned money from making and selling film in 2010?
Originally Posted by Aristophanes
If PE (whom you like to quote fully when he seems to confirm your doom&gloom view) states repeatedly that film made Kodak a profit, he might state this based insights from former colleges inside Kodak which don't make it into corporate fiction literature written for the SEC and professional AAA raters. Also consider that a sizeable amount of their stated losses come from commitments Kodak made when they were a highly profitable near monopoly, and these losses will evaporate together with their debt when they go into chapter 11.
Kodak's film operations accounted for the vast majority of its legacy equity and revenues,a s well as its liabilities.
Those pensions and medical commitments, plus land taxes, decommissioning, etc. are also liabilities of the film operations.
Yet film demand has fallen by 10%+ YOY with a severe acceleration in the last 5 quarters, especially for motion picture film.
Revenues continue to decline but those obligations, especially the deferred HR ones, remain a liability against vastly smaller revenues.
It is mathematically impossible for film to have been profitable when outstanding obligations remain high but revenues decline by such staggering amounts. Kodak's rearguard action has been to focus on motion picture film and sell patents.
The concept that film's decline for Kodak being caused by a resource shift to digital is pure fantasy. What resources? The consumer has been abandoning film depriving the company of revenues.
In theory, the only way one can shift film into the black side is to remove those obligations through internal division mapping. This is not GAAP and no one buys that concept, which is one reason why EK is now a penny stock. Flailing about with pensions and patents is management desperation.
EK's debt obligations look to have replaced losses from the film revenues, as well as re-tooled the company for its digital efforts. Digital has growth potential so that could be termed "good" debt, but we'll see because the gamble on the consumer printer market is just that...a gamble. But no one realistically expects film to make a popular comeback so any debt applied to covering lost revenues there can only be "bad" debt because there's no ROI.
As much as we malign Kodak's management, they seem to have been quite good and managing film's decline, buying time and keeping as much loyalty as possible through consolidating products (Portra) and rationalizing their output. Very few companies could have taken a 90%+ collapse of demand, frankly, especially the loss of the pro market. It's their inability to maximize their early digital lead that is the corporate tragedy because it has robbed the company of options and a Ch. 11 will put a huge squeeze on the material supply, distribution, and credit of the whole rump film industry.
Kodak.ca folded in 2005 and demolished once-busy cine and specialty film coating alleys in Toronto. Why?
Informed reading of Kodak's published financial statements is about as close to clairvoyance as anyone will get here, Rudeofus. Counterfactual arguments don't cut it.