Kodak Files for Bankruptcy Protection 1/18/2012

[alanrockwood]

Seldom have so many argued so extensively and so speculatively about that of which so little is known.

There is a lot that is not known, especially regarding whether film will continue to be made after the reorganization.

One thing that is known however (from an investment point of view) is that any shareholder who plans to hold on to their shares will lose 100% of their investment because all current shares of common stock will be cancelled when the bankruptcy proceedings are completed.

 

[coigach]

http://www.economist.com/node/21542796

Excellent article, thanks for posting.

Confusing times for the humble Kodak film user(!), let's hope that some kind of deal in the future means we can keep using Koak film in the future. I've come to love Portra...

 

[Rudeofus]

From Kodak's SEC filed AR: [...]

Kodak realize restructuring and rationalization charges across the company, but then weight them towards each of the 3 groups. FPEG's share always exceeds its profits. Always.

That's called accounting for you. Let me explain: If I build a factory to do stuff, I depreciate it over 25 years or more. This neither means that the factory gets worth any less nor that it automatically makes losses. Sure, I have to maintain machinery and whatnot, but what I depreciate every year has little to do with what the factory is worth and more with when do I want tax deductions. It's the same with goodwill. Some rules can be bent, others can be broken.

Kodak's film business has made 70 cents to the dollar 15 years ago, and while their sales declined they had near zero expenses for research and product development lately, much less marketing and they also had a huge decline in work force. In the rich years they built up huge liabilities for pensions and health insurance, and these expenses neither scale with low film sales nor with the minimal profitability of digital business overall. These costs hurt their bottom line exactly until Jan 18, 2012.

For example, the depreciation expenses for FPEG compared to the other segments is 60-100% higher. If you amortize the pension costs across film equitably to the other segments, you find that film's revenues cannot sustain those obligations and operations.

Chapter 11 has relieved them of all these liabilities. What's your point?

Kodak is going bankrupt because film revenues keep falling with no end in sight.

Kodak has filed for chapter 11 protection already. Quit copy&pasting your standard text or at least adapt it with current news events. If you did't read the news, the thread title should have told you.

With Kodak and Fuji drawing less product, the entire emulsion economy of scale becomes a concern as raw material and related costs will rise due to lessened buying power. This will negatively affect Ilford and others, and the spotlight on a declining customer base will no doubt impact their credit, especially since some have already been through bankruptcy precisely due to falling film demand. All this overhead gets passed on to the net consumer, and basic Econ theory says that if prices rise, more customers leave.

And finally we're back to Analog Rapture again. Yawn.

 

[Aristophanes]

That's called accounting for you. Let me explain: If I build a factory to do stuff, I depreciate it over 25 years or more. This neither means that the factory gets worth any less nor that it automatically makes losses. Sure, I have to maintain machinery and whatnot, but what I depreciate every year has little to do with what the factory is worth and more with when do I want tax deductions. It's the same with goodwill. Some rules can be bent, others can be broken.

Kodak's film business has made 70 cents to the dollar 15 years ago, and while their sales declined they had near zero expenses for research and product development lately, much less marketing and they also had a huge decline in work force. In the rich years they built up huge liabilities for pensions and health insurance, and these expenses neither scale with low film sales nor with the minimal profitability of digital business overall. These costs hurt their bottom line exactly until Jan 18, 2012.

Chapter 11 has relieved them of all these liabilities. What's your point?

Kodak has filed for chapter 11 protection already. Quit copy&pasting your standard text or at least adapt it with current news events. If you did't read the news, the thread title should have told you.

And finally we're back to Analog Rapture again. Yawn.

Except for the rapture part, most of that you say is accurate, except depreciation is not restructuring and rationalization. Those are separate GAAP structures.

Kodak was highly profitable in part because its sunk cost assets depreciated but were returning record productivity. There's nothing better than an old piece of equipment paid for a decade ago churning out pure profit.

The problem is the revenues of the FPEG unit in constant decline and the ability in bankruptcy to restructure that business under a shareholder structure. It's not possible. On paper, even with the pension liabilities, Kodak is technically not insolvent. It's prime problem is declining revenues wit FPEG holding the bulk of that. So FPEG declines put Kodak in a paradox of trying to maintain shareholder or creditor equity while 1/3 of its revenue base continues to dwindle, and while its digital products sell OK, but cannot really grow enough to offset the FPEG revenue declines. Personally I think that tactic was always a fantasy but management had to do something and analog has fewer customers than digital because it cannot compete across the board. That's what the market says.

Even if the older emulsion factories can be run on a shoestring, materials in/product out budget, it seems pretty clear that there will come a tipping point in FPEG very soon that even that product cycle cannot continue to suffer the constant loss of customers and real losses will occur. There is only so much Kodak can cut. The film camera market has collapsed by 99.9% and all that film has to go into cameras. Any investor is going to look at that dynamic and see zero new customer growth and all film equipment either eBay salvage or custom built cinema cameras. It's very hard to justify an investment in a film industry when there are no new devices being manufacturers to use your product. Add in the loss of affordable local processing, and this cannot help but rebound straight to Kodak's creditors as a very big problem that Kodak can longer deal with.

That's why I see FPEG getting chopped from Kodak. And this is good for film users because it will allow someone with private equity to consolidate analog, preserve the crown jewels, and bring a new vision to the imaging market. Obviously the #1 producer of film products going bankrupt is going to create speculation; that's the point of threads like this.

 

[isaacc7]

So are you saying that the US Government should have let General Motors, Boeing several other major corporations and half the banks in the US and probably the whole economy to collapse?.

The big corporations should have been allowed to go through chapter 11 so that the profitable parts of the companies could be salvaged and the unviable parts could go away. That is the only sustainable way to allow an economy to change and grow. When you prevent companies like GM from going through chapter 11, you simply prolong the pain. Bankruptcy is a tried and true process of winnowing out what is working and what is not in a company. Nobody has come up with a better way of dealing with assets that are buried in a failed company. The government is incapable of making non politically motivated allocations of assets, forget about most productive use of them.

I can't help but notice that the economy isn't doing all that well despite all of the actions done to stave off bankruptcy actions of those various companies. I'm sure that none of that is due to inefficient allocation of resources (not too dissimilar to any other centrally planned activity really), uncertainty of how to conduct business (will the Feds allow regular bankruptcy proceeding to go on, or will they step in, how much will it cost to hire people due to health insurance requirements, etc.?), and the support of politically connected cronies in the financial sector. No, I'm pretty sure all of the problems were caused by greed... Economies are hopelessly complicated and it is the height of hubris to think that any group of people can direct it well. You have to allow people to experiment and to fail to find out what works. Kodak worked very well for a long time, now it doesn't. The same will hold true for every other company and bank. You have to allow failing companies to fail so that the next thing can come around. At some point, even the most ardent supporters of interventionism have to start wondering if it isn't working, I'm long since past that point.

 

[railwayman3]

isaacc7 - an excellent summary. Not what some people want to hear, though.

 

[Rudeofus]

except depreciation is not restructuring and rationalization. Those are separate GAAP structures.

The same rules apply. A few people try to put a value on something and the only nogoes are what could send someone to club fed later. If the exact value of every asset and opportunity was known at any given time there would be no hedge funds or stock markets.

Kodak was highly profitable in part because its sunk cost assets depreciated but were returning record productivity. There's nothing better than an old piece of equipment paid for a decade ago churning out pure profit.

Kodak was highly profitable mostly because they were a near monopoly in the North American market and could charge whatever they wanted. Fuji arrived about the same time when the film market was already in decline. Some of Kodak's losses might well come from large scale customers not going digital but going Fuji film. I read Bollywood shoots mostly Fuji for example, mostly for cost reasons. Velvia is hugely popular with the lomo crowd, Fuji makes three (!) kinds of it. It's things like these which make me believe that Fuji's analogue product line will be here for a while, especially color.

Even if the older emulsion factories can be run on a shoestring, materials in/product out budget, it seems pretty clear that there will come a tipping point in FPEG very soon that even that product cycle cannot continue to suffer the constant loss of customers and real losses will occur. There is only so much Kodak can cut. The film camera market has collapsed by 99.9% and all that film has to go into cameras. Any investor is going to look at that dynamic and see zero new customer growth and all film equipment either eBay salvage or custom built cinema cameras. It's very hard to justify an investment in a film industry when there are no new devices being manufacturers to use your product. Add in the loss of affordable local processing, and this cannot help but rebound straight to Kodak's creditors as a very big problem that Kodak can longer deal with.

There is still a market for film based cameras, but people looking for them no longer go to B&H, Calumet and Best Buy but instead to KEH, Adorama and Ffordes. Don't downplay the used market, if car makers did the same they'd be out of business very quickly. If consumer digital cameras had changeable sensors we wouldn't argue about this brain damage that a camera is worthless after 3 years. The market has changed, mini labs go out of business but I still get E6 home dev kits in brick&mortar stores.

That's why I see FPEG getting chopped from Kodak. And this is good for film users because it will allow someone with private equity to consolidate analog, preserve the crown jewels, and bring a new vision to the imaging market. Obviously the #1 producer of film products going bankrupt is going to create speculation; that's the point of threads like this.

FPEG may or may not get broken away from Kodak but it won't go away soon. I watched "The Ides of March" yesterday and guess what, it was shot on Kodak Motion Picture Film. "Inception", same thing. Hollywood still needs and uses that stuff and seems to be unwilling to drop Kodak any time soon (Ides of March was shot when Kodak already publicly circled the drain, and more than a decade after the first "expert" declared the end of analogue film). Hollywood will prop up those coating lines at least long enough until they are finally happy with digital or Fuji stock and since the coating lines are not exactly over utilised why shouldn't they also make still film if it costs little extra and adds to the bottom line?

Kill 'em all, let God sort 'em out

Do you know that most UMTS modems are made by two Chinese manufacturers, sometimes claimed to be affiliated with the PLA? Do you know what potential security nightmare this means for the US? Realise that GM doesn't only make Geo Metros and Kodak makes more than snap shot film.

 

[CGW]

The same rules apply. A few people try to put a value on something and the only nogoes are what could send someone to club fed later. If the exact value of every asset and opportunity was known at any given time there would be no hedge funds or stock markets.

Kodak was highly profitable mostly because they were a near monopoly in the North American market and could charge whatever they wanted. Fuji arrived about the same time when the film market was already in decline. Some of Kodak's losses might well come from large scale customers not going digital but going Fuji film. I read Bollywood shoots mostly Fuji for example, mostly for cost reasons. Velvia is hugely popular with the lomo crowd, Fuji makes three (!) kinds of it. It's things like these which make me believe that Fuji's analogue product line will be here for a while, especially color.

There is still a market for film based cameras, but people looking for them no longer go to B&H, Calumet and Best Buy but instead to KEH, Adorama and Ffordes. Don't downplay the used market, if car makers did the same they'd be out of business very quickly. If consumer digital cameras had changeable sensors we wouldn't argue about this brain damage that a camera is worthless after 3 years. The market has changed, mini labs go out of business but I still get E6 home dev kits in brick&mortar stores.

FPEG may or may not get broken away from Kodak but it won't go away soon. I watched "The Ides of March" yesterday and guess what, it was shot on Kodak Motion Picture Film. "Inception", same thing. Hollywood still needs and uses that stuff and seems to be unwilling to drop Kodak any time soon (Ides of March was shot when Kodak already publicly circled the drain, and more than a decade after the first "expert" declared the end of analogue film). Hollywood will prop up those coating lines at least long enough until they are finally happy with digital or Fuji stock and since the coating lines are not exactly over utilised why shouldn't they also make still film if it costs little extra and adds to the bottom line?


Do you know that most UMTS modems are made by two Chinese manufacturers, sometimes claimed to be affiliated with the PLA? Do you know what potential security nightmare this means for the US? Realise that GM doesn't only make Geo Metros and Kodak makes more than snap shot film.

What baffles me, and others I suspect, is your myopic opposition to the fact that demand for film and film cameras has already gone over the falls.Ever hear of a Red Epic?

 

[keithwms]

I believe that it is human nature to try and fill in the blanks to their satisfaction whenever there is a story in which not all the details are known.

Sure. The thing is, the unknown facts could easily turn this whole thing upside down, and then the arguing participants will find that they've lost friends over.. nothing. My advice to all is to appreciate the associations you have here on apug and frickin' let it be. As long as people are clear about what is fact and what is conjecture, there is nothing to argue.

Another thing that baffles me is that some feel compelled to state and restate the same thing ad nauseum, as if others haven't heard it. A good argument need only be stated once and clearly, that suffices. Only poor arguments have to be delivered many times and loudly. So... say your piece and consider it said. Simple. If somebody doesn't buy your argument or their acrylic ball renders the future differently from your crystal then... waaah. Life goes on.

There are many large game changers that are unknowns. Filing for chp 11 is the very first tiny step towards clarity. It'd not surprise me one iota to learn that Kodak has a billion dollar settlement in their favor for some key piece of sensor technology, or that Perez pushed all revenue losses into a category he believed already to be doomed so that he could buy time with his printer project, or that Fuji has already made an ektar-like product a few years ago and decided not to introduce it, or that Castro has actually been dead for a half year etc.

 

[Wayne]

I believe that it is human nature to try and fill in the blanks to their satisfaction whenever there is a story in which not all the details are known.

Another way of putting it is that some people think they have a crystal ball, and they don't. Some people can't stand uncertainty. Me, I'm very comfortable with uncertainty so its not in my nature to fill in the blanks that I can't fill.

Here is what the final outcome will be with Kodak: I don't know, and neither does anyone else.

 

[fotch]

Regarding some of those who think they know it all. If your so darn smart, why ain't you rich?

If your rich, what are you doing here?

JMHO

 

[Wayne]

Regarding some of those who think they know it all. If your so darn smart, why ain't you rich?

If your rich, what are you doing here?

JMHO

Showing us how smart they are.

 

[clayne]

Regarding some of those who think they know it all. If your so darn smart, why ain't you rich?

If your rich, what are you doing here?

JMHO

What's the connection between intellect and income?

 

[tomalophicon]

Regarding some of those who think they know it all. If your so darn smart, why ain't you rich?

If your rich, what are you doing here?

JMHO

Thanks that made me laugh out loud.

 

[benjiboy]

Regarding some of those who think they know it all. If your so darn smart, why ain't you rich?

If your rich, what are you doing here?

JMHO

Slumming

 

[Aristophanes]

Here is what the final outcome will be with Kodak: I don't know, and neither does anyone else.

Shareholders, creditors, and stakeholders are supposed to figure it out.

That's what Ch.11 is all about. That's why it goes in front of a public judge.

There's no mystery to financial numbers just as there is n mystery to film chemistry. If you believe that it is all unknowable, then join the ranks of those who bought Fannie Mae stock (or Kodak stock last year). Or took out a LIAR loan. This list of purposeful, self-destructive and deliberately financial ignorants goes on.

And anyone who thinks rationalization and reconstruction are the same as depreciation might as well be saying that homo sapiens and the Jolly Green Giant are genetically linked.

 

[Photo Engineer]

If you believe that there is no mystery to film chemistry, then why isn't everyone doing it?

PE

 

[smieglitz]

From that BJP article:

"Audrey Jonckheer, Kodak's worldwide director of marketing and public relations, tells BJP.
"We have taken steps to sustain the business as it has declined, and we know that there are hundreds of passionate fans of film for the artistic and quality reasons they cite."

If Kodak's worldwide director of marketing & PR has this mindset, film is already doomed at Kodak. It would be a good thing if the film division can be sold off via the bankruptcy proceedings.

Film, either is, or isn't, here to stay. If it does go away and you still want to play with silver you can, it's called emulsion making, wet plates, and coating.

A few days before the Kodak bankruptcy announcement, I ordered 25 sheets of 12"x12"x 2mm clear glass plate. I plan to stock up on another 100 sheets in a couple days.

 

[Ken Nadvornick]

If you believe that there is no mystery to film chemistry, then why isn't everyone doing it?

Because the gulf between those that can only say, and those that can actually do, is often breathtakingly wide...

Ken

 

[tomalophicon]

So I just looked on the Kodak website and noticed there is no slide film listed at all. There is a gaping hole where it used to be written on the left side of the screen
Also no TMZ.
http://store.kodak.com/store/ekconsus/en_US/list/Film/PROFESSIONAL_Film/categoryID.40677300

 

[Poisson Du Jour]

Kodak is effectively bankrupt, not filing for protection from it, but gone. Oh, and consider the employees who will no doubt lose their Pension entitlements. It's liabilities outstrip its assets and this is why analysts are pulling the plug on it.
Mashable's summary in The Age tells it bluntly, the way it is. If you can get Kodak film get as much of it as you can, right now.

 

[MattKing]

So I just looked on the Kodak website and noticed there is no slide film listed at all. There is a gaping hole where it used to be written on the left side of the screen
Also no TMZ.
http://store.kodak.com/store/ekconsus/en_US/list/Film/PROFESSIONAL_Film/categoryID.40677300

That "Kodak Store" retail web portal isn't actually Kodak - it is a 3rd party retail vendor that no doubt pays to operate linked to the Kodak site.

They only list what they stock, and may not list what is temporarily out of stock.

The Canadian version just offers 35mm print film.

 

[c6h6o3]

I'm getting beautiful prints from HP5+ negatives. Pan F+ has always been my favorite roll film, even before Kodak fell on hard times. Let Kodak's management, stockholders and the bankruptcy trustees worry about their future. Just buy film that's currently in production (Kodak or not) and go out and shoot it. You'll be doing your part to ensure that they remain in production. Chasing after and hoarding lamented, discontinued products will only hasten the demise of the ones left in production.

 

[keithwms]

Because the gulf between those that can only say, and those that can actually do, is often breathtakingly wide...

Ken

+1

 

[Aristophanes]

If you believe that there is no mystery to film chemistry, then why isn't everyone doing it?

PE

Hah!

It's not like you're going to give up charts and measures and start sticking your finger in it for each roll.

It seems like 90% of the chemistry questions on APUG are from those who:

1) Cannot read the instructions
2) Want to go off-book for some fun (all the power to them)

All I am saying is with Kodak's Ch. 11 the "survival" of its crown jewel emulsions and processes will require getting that all away from a shareholder/creditor driven dynamic and into the hands of someone with vision (and capital) to stabilize a falling market.

And that falling market is not just relevant to Kodak—this is not a discrete and isolated "Kodak problem". It's a concern for all the suppliers, especially when #1 goes bankrupt because the small guys benefit from the economy of scale the big guys provide. If anyone thinks that Ilford, Foma, and Efke can survive if raw materials prices triple as Kodak (and Fuji) driven demand withers, then you need a textbook in MiroEcon 101. There are already anecdotes as to how certain film products have been eliminated due to supply/demand imbalances.

What the Ch.11 might do is reveal some data as to how far the film market is forecast to decline and where bottom is. Kodak has certainly polled its customers on that in a way no other company has.