If you haven't already read it...

Ian Grant · Oct 1, 2011

CGW said:
Meanwhile Perez and other exectives should be thoroughly investigated for ther mis-handling of the company and it's assets and their embezzslement of funds.

Right. So Perez from 2003 on singlehandedly convinced millions of consumers to abandon film for digital?

That's your conclusion maybe not mine.

No Perez and other executives took extremely high salaries etc and at the same time had no idea of how to take the company forward succesfully in new ways.

Ian

Tom Kershaw · Oct 1, 2011

I hope the Kodak film products division can be continued as they make some fantastic and in aspects unique products. There is also the issue of the motion picture market ...

Tom

Roger Cole · Oct 1, 2011

aldevo said:
And you are right to be worried. I don't see anybody buying Kodak's film division - at least not with the intent of keeping production in the USA. Their current USA-based production infrastructure is far too large for current (and still-declining) market demand and carries with it potentially massive toxic tort liability.

While I would always like to see jobs kept at home, for photographic purposes it doesn't matter much where it's made, as long as the formula is the same and the QC is good.

lxdude · Oct 1, 2011

Ian Grant said:
Perez and other executives took extremely high salaries etc and at the same time had no idea of how to take the company forward succesfully in new ways.

Ian

If so, that's incompetence, not embezzlement. If anything, those who hired Perez and agreed on his compensation (the Board of Directors) would be the ones to be held ultimately responsible for any lack of results.

And I really don't think this can be all hung on Perez, simply because many bad judgments and resultant problems predated his tenure.

Though if he'd only listened to Terry Mester...

aldevo · Oct 1, 2011

Ian Grant said:
That's your conclusion maybe not mine.

No Perez and other executives took extremely high salaries etc and at the same time had no idea of how to take the company forward succesfully in new ways.

Ian

And if the Board of Directors authorized it - there isn't thing #1 that anybody can do about it.

And guess what? In a Chapter 11 proceeding it is very likely that Perez and other Sr Execs will be first line after the US government to receive compensation because Perez was probably shrewd enough to demand that his severance be fully securitized.

And the bitch of it is that it is entirely, 100% legal.

Bill Gates, himself, has lost quite a bit of money on Eastman Kodak stock and not even he will be able to do anything about it.

aldevo · Oct 1, 2011

Athiril said:
http://online.wsj.com/article/SB10001424052970204138204576603053167627950.html
"As we sit here today, the company has no intention of filing for bankruptcy."

Also from your link

"Perez, who took the helm in 2005, has sharpened Kodak’s focus on the printing business to help revive revenue."

Good decision there..

Don't believe the statement about having no intention of filing for bankruptcy.

Here is why:

The Board of Directors has to vote to authorize a voluntary petition for Ch. 11 bankruptcy in US federal bankruptcy court. Up until which time such a motion is passed by the Board - Kodak's statement is truthful regardless of what might be going on behind the scenes.

Even if, at the time of that statement's issuing, Antonoio Perez as Chairman of the Board of Eastman Kodak corporation had already asked the Clerk of the Corporation to convene the board with the sole purpose of voting on a motion to authorize such a petition and has even recommended to the other board members that they vote to pass that motion - even then the company's statement could not be credibly challenged in a court of law.

wblynch · Oct 1, 2011

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.

Corporate and executive greed think you can have endless a growth model. Even the Earth's human population can not grow forever.

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

Photo Engineer · Oct 1, 2011

There are now 3 threads on this subject. I think the moderators should combine them.

This topic occupied about 1/2 hour on the local news stations with live interviews and a personal message sent to our channel 10 news during the newscast to further explain the Kodak POV. Yes, Perez and the board are mishandling things from our perspective. They are making film pay for the digital conversion. But, the error started back with Carp and Fischer, maybe even earlier. I was there when this big change started and they were investing heavily in projects they should not have been investing in at all at that time. I saw the handwriting on the wall and left before the landslide. Now, many of the good people are just leaving.

However, the film division on its own is quite profitable if much smaller than it used to be! This is due to the market. Its profit is not easily seen due to the fact that all revenue goes into digital and digital advertizing. Also, Motion Picture product sales still remain in a slump.

If the Kodak film division split out (something called for by a major investor this week BTW), they would be in an excellent position and perhaps one even stronger than Ilford's! 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.

But, the bottom line is that this is a huge deal in Rochester. They even had an interview with the Mayor to get his comments on this "fiasco".

And yes, the retired community is reacting to this and I have had a number of messages from friends on this topic.

PE

aldevo · Oct 1, 2011

wblynch said:
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.

Corporate and executive greed think you can have endless a growth model. Even the Earth's human population can not grow forever.

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

You are wrong in so many ways.

Kodak cut its film production capacity by 95+% by 2004-2005. And even then it wasn't enough to avoid the decline in demand. Even now worldwide film demand is still slipping at about 15-20% per year with no real end in sight.

Kodak's film division was never what you would call healthy after 2001. Of course, it produced "profits from continuing operations" but those profits required billions of dollars of restructuring charges to achieve. These showed up as "exceptional charges" or "one time charges" on their income statement.

Ilford and Efke (which have both already been in bankruptcy in the last decade, mind you) were able to survive only because they were very, very small to start with. And let's also be clear - nobody knows what Efke's financial condition is or isn't because they have no public financial reporting obligations.

Film sales in the 1940s and 1950s far, far exceeded those of today in terms of the volume of film sold. Gosh, it isn't even close. And raw materials were a heck of a lot cheaper. For example, in 1950 the market price of silver was $0.75/oz!

It's an inconvenient truth for most of us - but truly large-scale film production just isn't commercially-viable any more and, if you aren't sufficently "small scale" already, nobody is going to give you the financing you need to right-size yourself for the market.

Ian Grant · Oct 1, 2011

lxdude said:
If so, that's incompetence, not embezzlement. If anything, those who hired Perez and agreed on his compensation (the Board of Directors) would be the ones to be held ultimately responsible for any lack of results.

From what I've read there's some that think it's embezzlement. They've profited from their decisions. Just look at how much they earn.

Ian

aldevo · Oct 1, 2011

Photo Engineer said:
There are now 3 threads on this subject. I think the moderators should combine them.

This topic occupied about 1/2 hour on the local news stations with live interviews and a personal message sent to our channel 10 news during the newscast to further explain the Kodak POV. Yes, Perez and the board are mishandling things from our perspective. They are making film pay for the digital conversion. But, the error started back with Carp and Fischer, maybe even earlier. I was there when this big change started and they were investing heavily in projects they should not have been investing in at all at that time. I saw the handwriting on the wall and left before the landslide. Now, many of the good people are just leaving.

However, the film division on its own is quite profitable if much smaller than it used to be! This is due to the market. Its profit is not easily seen due to the fact that all revenue goes into digital and digital advertizing. Also, Motion Picture product sales still remain in a slump.

If the Kodak film division split out (something called for by a major investor this week BTW), they would be in an excellent position and perhaps one even stronger than Ilford's! 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.

But, the bottom line is that this is a huge deal in Rochester. They even had an interview with the Mayor to get his comments on this "fiasco".

And yes, the retired community is reacting to this and I have had a number of messages from friends on this topic.

PE

Thanks for the information. Of course, this has a substantial impact on Rochester, too.

I'd like to say that the film division is strong but it posted a loss in Q1 and only a very small profit ($2 million) in Q2. So I am afraid that if the profit is "not easily seen" it is because it is so small.

A spin-off of the film division with a dedicated management team in place would be the best possible outcome for all of us. And I sure hope it happens. I suspect there is still enough of a market to make it work if the right people are running it.

As always, however, this will likely come down to a matter of somebody willing to provide the finance to make it happen. And I think that the outlook for that sort of thing has been steadily souring over the past 6 months.

CGW · Oct 1, 2011

aldevo said:
You are wrong in so many ways.

Kodak cut its film production capacity by 95+% by 2004-2005. And even then it wasn't enough to avoid the decline in demand. Even now worldwide film demand is still slipping at about 15-20% per year with no real end in sight.

Kodak's film division was never what you would call healthy after 2001. Of course, it produced "profits from continuing operations" but those profits required billions of dollars of restructuring charges to achieve. These showed up as "exceptional charges" or "one time charges" on their income statement.

Ilford and Efke (which have both already been in bankruptcy in the last decade, mind you) were able to survive only because they were very, very small to start with. And let's also be clear - nobody knows what Efke's financial condition is or isn't because they have no public financial reporting obligations.

Film sales in the 1940s and 1950s far, far exceeded those of today in terms of the volume of film sold. Gosh, it isn't even close. And raw materials were a heck of a lot cheaper. For example, in 1950 the market price of silver was $0.75/oz!

It's an inconvenient truth for most of us - but truly large-scale film production just isn't commercially-viable any more and, if you aren't sufficently "small scale" already, nobody is going to give you the financing you need to right-size yourself for the market.

Amen. The extent of "magical thinking" elsewhere in these threads is disturbing. Where have these posters been for the past decade?

lxdude · Oct 1, 2011

Thanks for that PE, which lends a voice more knowledgeable than mine to what I've thought for some time now.

In the event of bankruptcy, what happens to retirement funding?

I'm wondering what would happen to environmental liabilities in the event of a liquidation?

lxdude · Oct 1, 2011

Ian Grant said:
From what I've read there's some that think it's embezzlement. They've profited from their decisions. Just look at how much they earn.

Ian

Salary, incentives and perquisites are compensation, not profit. We frequently see someone do a poor job at a company and walk away with huge severance packages regardless. Michael Ovitz at Disney is one famous example.

A very recent example is Leo Apothecker, who was in charge of HP for 11 months. He is receiving:
$7.2 million severance pay, paid over 18 months.
$3.56 million worth of restricted stock.
424,000 performance-based restricted stock units, the value of which will depend on H-P's performance.
A $2.4 million bonus, of all things, under H-P's "Pay-For-Performance" program.
Relocation expenses.
Reimbursement of any loss on the sale of his house, up to $300,000.
Payment of his legal fees related to negotiating his severance package.
Health and dental coverage for 18 months.
Coverage under H-P's standard expatriate tax-equalization program if he moves to France or Belgium.
And if he does move back to France or Belgium, airfare.

All that, for getting fired after 11 months, during which time H-P's stock value declined 45%. And it's legal.
Is he an embezzler, or is the Board just stupid?

Photo Engineer · Oct 1, 2011

Kodak's film division profit is down for 3 major reasons, poor overall economy, lower Motion Picture consumption and the transferring of some of the profit to the writeoff of the digital division!

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!

Kodak pensions are secure. The news reports and my own e-mail exchanges give that a complete bill of health. That only holds true for current retirees. For employees, their status depends on what plan they selected for their retirement. There are (and were) several options that we could pick from.

Scaling down is not a very good option. The best option is to run on demand at full speed. This cuts costs and improves quality. One thing is sure, keeping excess production facilities closed down costs in taxes. But, Kodak has one spare facility in mothballs just in case.

Anyone who says they know what is going on right now inside Kodak is dead wrong, including me! I KNEW what went on, but I don't currently KNOW what is going on. I think that my educated guesses and opinions are better than most, but I won't give out many of my thoughts as I prefer to keep them out of the fray. Just be assured that Monday morning at 8:00AM, Kodak Park will get to work making film for that week according to a schedule made months ago!!!!!! YAY!

PE

zsas · Oct 1, 2011

Here is some info that I posted a while ago re the film division

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

zsas said:
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
http://investor.kodak.com/phoenix.zhtml?c=115911&p=irol-newsArticle&ID=1588842&highlight=

CGW · Oct 1, 2011

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 · Oct 1, 2011

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.

PE

Uncle Bill · Oct 1, 2011

wblynch said:
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?

+1

lxdude · Oct 1, 2011

Photo Engineer said:
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 · Oct 1, 2011

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.

PE

Aristophanes · Oct 1, 2011

wblynch said:
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.

lns · Oct 1, 2011

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.

-Laura

Sal Santamaura · Oct 2, 2011

Photo Engineer said:
...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.

BrianL · Oct 2, 2011

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.

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