The end for Kodak?

[Hatchetman]

So Aristophanes, do you have a record of these write-downs we can analyze? I see they wrote-down $627MM in goodwill (imaginary money) early this year. What else have they done in the past five years or so.

 

[Photo Engineer]

With all due respect PE, there are no "film profits" at EK. That division has lost money every Q for almost a decade now. When the losses narrow, it is because of asset sales, which are then patriated to the mothership to fund areas of potential growth. That growth is not in analog for the same reason there are almost no film cameras still in manufacture on an industrial scale. The legacy costs of film manufacturing are still evident in the pensions (deferred earnings).

No matter how one measures it, the balance sheets show continuous declining revenues with liabilities still exceeding assets. Even if all non vested pension/medical obligations are wiped by Ch. 11, EK film still bleeds red ink. It's hard to operate and amortize a major industrial system part-time.

The fact that the film dividsion has made a profit, and the fact that the profit has been rolled over to digital has been discussed ad nauseum on APUG in several threads with references to the WST and to Kodak annual reports.

In fact, Kodak has shored up their bottom line via these profits. I don't feel that I need to justify my comments in any way due to the widespread knowledge of this very fact.

PE

 

[BrianShaw]

The fact that the film dividsion has made a profit, and the fact that the profit has been rolled over to digital has been discussed ad nauseum on APUG in several threads with references to the WST and to Kodak annual reports.

I seem to recall seeing that in their annual report.

 

[Aristophanes]

So Aristophanes, do you have a record of these write-downs we can analyze? I see they wrote-down $627MM in goodwill (imaginary money) early this year. What else have they done in the past five years or so.

Not imaginary.

Borrowed.

Hardly goodwill when issued as secure debt. More going out than coming in.

http://investor.kodak.com/phoenix.zhtml?c=115911&p=irol-reportsannual

 

[h.v.]

So does anyone know of a good equivalent in Fuji (or something else, I suppose) to Kodak's Ektar? I would miss Tri-X and a few other films, but I can find something similar/better in Fuji or Ilford. But not Ektar, which is my go to colour negative film. For that, I hope Kodak's film division doesn't go the way of the dodo (among other reasons).

 

[Hatchetman]

It's imaginary to the creditors because they are never going to see it.

All these past bad decisions and sunk costs; debt, pension obligations, etc. are irrelevant if somebody can can take the assets for nothing and make film profitably. That is all I am interested in.

 

[keithwms]

So does anyone know of a good equivalent in Fuji (or something else, I suppose) to Kodak's Ektar?

I am still a big fan of reala, which available in 120 size.

 

[Neanderman]

I am still a big fan of reala, which available in 120 size.

Ditto. Reala is great.

Ed

 

[Aristophanes]

It's imaginary to the creditors because they are never going to see it.

All these past bad decisions and sunk costs; debt, pension obligations, etc. are irrelevant if somebody can can take the assets for nothing and make film profitably. That is all I am interested in.

Read the reports. The IP has value, the offset commercial print makes money, and there are considerable real assets (property). What is losing money is film and entertainment (cinema) production and distribution, digital cameras (of which Kodak is shuttering some lines), and consumer printers.

But the film revenues are in freefall, declining faster that overhead can be cut. Film revenues can no longer pay the pensions of the people that created the products in the first place. That's a liability accrued by film, not paid because customers left film for digital.

 

[tomalophicon]

Oh awesome, I was under the impression that Reala was gone. Great news.

 

[Hatchetman]

Film & entertainment revenues are still dropping, but should be about $1.5 billion this year. That's still a big company. What was Ilford? less than $50 million? There will be a bottom somewhere. Maybe the business is viable at $500MM assuming no debt.

 

[Neanderman]

Here then are my takes on your post..

Thanks for the clarification. I guess it was 2007 when they moved all of the production to the 'new' facility and closed whatever remained (at least at the Park).

I've read comments from a few ex-Kodak employees who have opined as did PE on the MANY big management mistakes that have been made, including passing on the electostatic photocopy process (Xerox). So the problems probably predate the advent of digital photography.

Of course, there is also the case of Agfa (and Ilford, who appears to have recovered) -- Kodak is not the only company that has suffered from this technology change.

Ed

 

[Malibucompany]

I would thing this would be a big bonus for Illford. Will we have film and paper to use. That is all I want

 

[keithwms]

I would thing this would be a big bonus for Ilford.

That is my take as well. I suspect that a lot of Kodak's business has already migrated to Ilford and Fuji. I expect that those two will see a wave of interest in various products, and with very little competition, they will be able to raise prices.

I have been continuously puzzled how EK got to this point. I would guess that most companies anticipating a monotonic decrease in demand for their product will immediately set a firm timeline to discontinue it. Perhaps let somebody else make the product if they'll pay a healthy fee, or raise the price right up to the point that it starts to choke off the demand (watch Fuji, they do get it). But then announce that it's being discontinued, take that last bit of profit from the final run on the product, and move on to another product with growing demand.

The absolute last thing any company wants is an excess of workers and dormant facilities and a lot of expiring inventory- that is certain death. In that case, you just take on more and more debt. So it's *far* better to err on the side of undersupply and high prices. But Kodak has not been anywhere close to that, as far as I can tell.

I guess the best explanation for what happened is that demand dried up much faster than they could scale down. But when you are in the business of designing the successor to your product, when you are cannibalizing your own market, you should know exactly how quickly the demand for one product is going down as the other goes up....

I guess they also assumed that their print business was going to take off. That also mystifies me, it's such an obvious mistake. Wasn't it obvious what the net and social networking were doing to print sales? Sharing kills print demand. Polaroid was already getting hammered by the same thing. People were already talking about megapixels on their phones... and digital pictures frames, for crying out loud. The appreciation for fine prints was very clearly being replaced by the desire to share low res images with everybody on earth via facebook and myspace (and now twitter). A lot more shots being taken, a lot fewer being printed.

Just a lot of really poor anticipation. Sad.

 

[Photo Engineer]

Guys;

Kodak estimated 30% for the year and got 30% in a quarter. That is 4x the decline in sales!!!!!

Ed;

The new facility was in use before ten end of the 90s.

PE

 

[keithwms]

-30% in a quarter is death for sure. Especially in a business that, like a bakery, has to keep pumping out fresh product.

 

[Hatchetman]

How much more can demand really fall? I mean, I saw one person shooting film in the past 12 months and thousands shooting digital. Anyone in the US, Europe, or Japan that is shooting film now is likely to continue doing so. I don't know about Hollywood, maybe that could fall much further yet.

 

[keithwms]

How much more can demand really fall? I mean, I saw one person shooting film in the past 12 months and thousands shooting digital. Anyone in the US, Europe, or Japan that is shooting film now is likely to continue doing so. I don't know about Hollywood, maybe that could fall much further yet.

I think it indicates two things: (1) demand for Kodak products really is falling unmanageably, and (2) that people are swiftly changing allegiance to Kodak's competitors.

Whether it's more of (1) or (2) we can't say, without seeing Fuji and Ilford's numbers. That we haven't seen much price change in Fuji/Ilford suggests to me that it's more of (2) than (1).

 

[Steve Smith]

Most company failures are due to trying to remain the same with the same products in a changing market. There is usually a lot of complacency with companies and they are very slow to adapt to new markets and methods.

Kodak's situation is strange as they saw change coming and tried to adapt to it but unfortunately, it hasn't worked out as well as planned. Ironically, if they had stuck to what they knew best, they might be in a better position now. Smaller perhaps, but without so many loss making divisions to support.


Steve.

 

[Photo Engineer]

Kodak is seeing huge drops due to the economy, the shift to digital and the shift of loyal customers to Ilford and Fuji. This latter has been due to the clumsy management of the analog sales and distribution system! It is a confusing mess.

Today, it got worse: http://www.bloomberg.com/news/2012-...s-with-citigroup-on-bankruptcy-financing.html

So, things continue their downward spiral.

PE

 

[bobwysiwyg]

Just a real shame. I've always been a Kodak fan and supporter. One would be hard pressed to find better products of such consistent quality. Just a shame.

 

[Aristophanes]

Kodak is seeing huge drops due to the economy, the shift to digital and the shift of loyal customers to Ilford and Fuji. This latter has been due to the clumsy management of the analog sales and distribution system! It is a confusing mess.

Today, it got worse: http://www.bloomberg.com/news/2012-...s-with-citigroup-on-bankruptcy-financing.html

So, things continue their downward spiral.

PE

Actually, that's not too bad as without debtor-in-possession financing everything stops suddenly.

The share price is irrelevant, just a reflex action by the biz newswires.

Kodak may file their January results, then go Ch. 11 very shortly thereafter, ending the speculation.

 

[keithwms]

Just a real shame. I've always been a Kodak fan and supporter. One would be hard pressed to find better products of such consistent quality. Just a shame.

Agreed. And what Kodak should be doing is cashing in on that reputation. Rather than spending to try to make a new one based on products that could take a decade to get a foothold.

Seems to me the best way to put the film brand to rest is to make a formal commitment to provide certain products for 5 years. This is not a commitment to keep prices constant, on the contrary. But it is a reaffirmation that they see need for their product and they will stand by it. That would stop the migration to other brands and raise funds for more orderly scaledown.

Probably too late for this approach though

Longer term, Kodak needs a company like Apple or RIM to help them get into the social network arena, they are going to be absolutely screwed if they keep throwing investment into print-at-home media.

Very short term, I don't see why they couldn't land a big fat contract to provide printers to public schools or such. I am a card-carrying free-market Libertarian, but when it comes down to keeping people's jobs and preserving our competitiveness, this is what it takes. This is now an issue of national defense, the way I see it.

 

[MaximusM3]

I would thing this would be a big bonus for Illford. Will we have film and paper to use. That is all I want

I wouldn't be so sure. It could also put a negative spin on the whole film and accelerate the exodus. Paper is also a problem with very few coating facilities around the world and any pressure will be felt there too, with less choices as the result (and it's pretty grim already).

 

[keithwms]

I wouldn't be so sure. It could also put a negative spin on the whole film and accelerate the exodus.

Our best look at that, since Fuji and Ilford reps probably won't come on here and level with us about long-term strategy, is the product price increases that we see. I would expect huge bumps in price if indeed the end is near (for reasons I mentioned above). For the most part, we're not seeing that.

(There are some weird, off-scale prices in Australia, but I am guessing that has more to do with distribution inside the country than supply from the companies.)

If total demand is relatively stable then I expect that prices will also be fairly stable. If the -30% Kodak number were also being felt by Ilford and Fuji then their prices should go up sharply and very soon.

That we haven't see this yet suggests to me that this is mostly an issue with Kodak. Let's see.