Eastman Kodak's Flash Goes Dark: What It Means for You

It's now official -- Antonio Perez has effectively driven Eastman Kodak (NYS: EK) , the once-iconic photography company, into bankruptcy.

Eastman Kodak officially sought Chapter 11 bankruptcy protection early this morning, citing years of falling sales and a deterioration in its film business as the reason for its failure. The company has obtained a $950 million bridge loan from Citigroup (NYS: C) to run its operations during its restructuring period.

Today's filing seemed inevitable to many, including myself. I've maintained a CAPScall of underperform on Kodak for quite some time, and while today's actions are bittersweet, it's the right move by management. Questions still remain, though, as to whether Kodak can, even after restructuring its debts and adapting its business strategy, keep up with its larger foes or if it will, like many others of late, wind up right back in bankruptcy court in a few years' time. Here are a few questions that have to be on everyone's minds.

Will Antonio Perez keep his job as the head of Eastman Kodak?
Personally, I think shareholders should have shown up with pitchforks years ago and ousted the stubborn leader of this once-proud company. Under Perez's leadership (though I deign to call it that) Kodak lost money in all but two years, and fiscal 2011 was on pace to become the sixth consecutive year of revenue declines. Perez pigheadedly drove Kodak into the printing business, alluding back to his days as corporate vice president at Hewlett-Packard (NYS: HPQ) , and attempted to defeat Hewlett at its own low-margin, highly competitive game. Needless to say, it failed.

Can Kodak compete on price?
I'm not even sure that Kodak can reasonably make enough of a profit on its cameras to make a dent in its debt even after it's restructured. It's clearly too early to speculate on what a debt restructuring will entail, but the heavily commoditized pricing of Kodak's digital technologies will make it increasingly difficult for the company to turn any sort of profit.

Will it sell any of its digital imaging patents?
I think this is on everyone's mind right now and it'll remain the hot-button issue throughout Kodak's bankruptcy proceedings. In October, Kodak agreed to license 50 of its imaging patents to IMAX (NAS: IMAX) for a $10 million upfront payment and possible royalties of up to $50 million over time. This is, however, just a teaser -- Kodak's 1,100-plus patents could be worth well over $1 billion. Now that Kodak has sought the protection of bankruptcy, I wouldn't be surprised to see cash-rich Microsoft (NAS: MSFT) or revenue-hungry Sony step up to the plate and attempt to make a bid for some of Kodak's patent portfolio.

Will the current shares be worth anything?
This is the only answer I can give you with near certainty -- NO! There is rarely any value left for common shareholders during bankruptcy proceedings, and I don't see Kodak as being an exception to this rule. As of its most recently reported results, Kodak boasted $900 million in cash and $1.57 billion in debt, leaving the company decisively negative in the shareholder equity column and wiping out any chance for the common shareholder to get any value for his or her shares.

What to do now
Now is the time to watch and wait to see what Kodak will do to come back as a leaner form of itself and attempt to regain at least some of its old glory. If you are a shareholder I see no reason to continue to hold your shares, and if you're an outsider looking in, keep your money far, far away from Kodak shares. I suspect they will soon be delisted, and are what I would deem worthless.

Do you have an old Kodak memory you'd like to share? Post it or any other thoughts you have about this once-great company in the comments section below.

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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He wonders: If a picture is worth 1,000 words, how much then is a picture of CEO Antonio Perez in bankruptcy court worth? You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Citigroup and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft and IMAX, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always there for you in a flash.

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Eric

Over 50 years ago, Kodak maintained a "customer service-public relations" facility in Grand Central Station in NYC.
The facility was located just under the famous Kodak image (transparency) on the east wall of the terminal. They didn't sell product here; they just provided assistance with existing photo cameras, film useage, consumer questions about taking better pictures. I was about 11 years old when I discovered this terrific, free, service. Whenever I got the opportunity, I would take my new 35mm camera to these customer service reps and, more often than not, was able to persuade them to give me a free roll of Kodachrome. They were all well versed on Kodak products and always helpful in assisting a young photographer in taking better pictures. I always looked for that new Kodachrome transparency displayed up on the wall of the terminal. To an 11 year old, it looked the size of a football field. The scene changed every quarter, in relation to the changing season. You can't put a price on the positive public relations generated by Kodak during the 1950's. The company was as American as the flag and apple pie. It's the end of an American Experience...

January 20 2012 at 2:12 PM Report abuse rate up rate down Reply
Alan

-btw those "profit" years were not profitable on operations, only via divestiture did they generate enough cash to get into the black. That is not really profit, that is illusion.

January 19 2012 at 2:24 PM Report abuse rate up rate down Reply
Alan

I have been saying Kodak is dead for quite a long time as well. WIlliams is spot on. What went wrong here? It is a classic case of the Agency problem. A string of leaders only focused on their personal wealth, earning multi-million dollar pay checks and providing nothing in return.

There is no way for shareholders to prevent or stop this - Kodak or anywhere else. When executives are paid bonuses on financial performance, they cheat since they control the books. When they are paid stock options, they cheat because they can manage the stock price by issuing or buying back shares.

A firm is better off with a less experienced CEO working for a fixed amount than an incentivized manager who will cheat the system and ruin the firm to maximize his own pay. An executive will work no harder to earn $ 500,000 than $5,000,000.

January 19 2012 at 2:22 PM Report abuse rate up rate down Reply
zippedup

Worked for them for 32 years as a sales and marketing excutive and retired in 1999. It was obvious even then to anyone working there that this would be where Kodak would end up. I was so sure of it I took my retirement lumpsum thank god. I hope others who didnt make out ok thru the pension guarantee corp. The company has been lead by a solid string of losers starting in about 1980. But Perez was the worst of them all. One of the most arrogant individuals I have ever known. And guess what He is on the President Obama economic development council. Figures!

January 19 2012 at 11:16 AM Report abuse rate up rate down Reply