Equality at Eastman Kodak

Yesterday we learned that the bankrupt Eastman Kodak Company has reached agreement with the court-appointed “1114” retiree group (named after a bankruptcy code clause covering retiree benefits) to terminate health care benefits for all retirees effective December 31^st of this year.  No, this wasn’t a shock for anyone, particularly not for retirees who have been expecting to lose some or all of their benefits even before Kodak filed for Chapter 11.  Everyone knows that this sadly mismanaged company can no longer afford to deliver on its promises.  As usual, CEO Perez once again hailed a wonderful management achievement, saying: “With this proposed resolution to our U.S. retiree benefit legacy liabilities, Kodak takes a major step forward toward our successful emergence. (The) agreement is a decisive accomplishment toward one of our fundamental objectives in our restructuring.”  Every time I hear him use the word successful I say “huh?”

Here’s what we know:

Kodak has reached agreement with the 1114 committee (court approved retirees committee, unrelated to EKRA) to terminate retiree non-ERISA benefits at year end. This will include health, dental, life insurance, and survivor benefit (SIB).

The company will pay to the retiree committee:

1. $7.5 million cash
2. $635 million unsecured bankruptcy claim
3. $15 million administrative claim

What’s all that worth?

Depends on what creditors get out of the bankruptcy, but I would not expect them to get more than about 20 cents on the dollar on those claims, in total. That would mean the whole package is worth, in my estimate, about $137 million.  The current health benefits are estimated at a total of $1.2 billion, and cost Kodak $10 million a month.  So $137 million will not go far.

What should retirees expect?

Those over 65 now get Medicare plus an enhancement.  The enhancement will no longer be funded by Kodak.  Those under 65 have the most exposure, particularly if they are no longer working and may have to scramble for healthcare at considerable expense.  Benefits will terminate at year end, but the bulk of the promised payments to the retirement committee consist of bankruptcy claims, which will get paid at the end of bankruptcy, and that won’t come until March of 2013 at the earliest (and probably May or June).  Thus retirees face an almost certain gap in their coverage. There may be some recompense for some or all retirees, but based on the amount the committee can expect to realize vs the current cost of benefits, that recompense will likely not be much.

And about that word, Equality: 

Kodak has thousands of shareholders, creditors, and retirees.  With this news the retirees will get equal treatment with the shareholders and creditors.  The message to all: stand in line and hope for something from the bankruptcy of this once-great company.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

A Difference of Opinion

There is no more common thing in any market: for every share of stock, for every bond, every option, for everything that someone sells, someone else buys.  It is the ultimate difference of opinion: one person wants something enough to buy it while another thinks they’re better off without that same thing. Experienced market participants take this in stride. After all, we know that when we buy or sell, we could be the one on the wrong side of the transaction.  In an industry where opinions differ to the point of a buy or a sell, I understand that somewhere close to half of the universe of investment professionals disagrees with me at any moment.  My colleagues and competitors know this too – it comes with the territory.

Yesterday, business editor Steve Sink of the Democrat & Chronicle published an article about the Eastman Kodak bankruptcy that mentions two scenarios for Kodak stockholders: a bonanza or a bust. In an illustration of the yawning chasm that sometimes separates opinions in the financial world, a California-based analyst claims that Kodak shareholders could see $10/share if the patent auction is successful. On the other side is my prediction that common shareholder will be wiped out in the bankruptcy.

Then I received this:

Not content with lecturing me via e-mail, Mr. Luskin also left voicemails for me and for my assistant in which he not-so-patiently explains that he knows “the facts” and will share them with me if I call. He also mentions that he “do(es) this for a living” by which I suppose he means investment analysis and not making crank calls on Sunday mornings.  I agree with Mr. Luskin that facts are important, so let’s take a look at a recent fact. Last week Kodak proposed paying its senior management bonuses if the company emerges from bankruptcy and pays off creditors.  Writing for USA Today, Rochester-based reporter Matt Daneman notes that CEO Antonio Perez gets a $2 million bonus if creditors get back 30 cents on the dollar.  It’s a fact that a 30% recovery for creditors leaves little room for shareholders to get anything.  Other important facts are that Kodak owes far more than it can pay for pension obligations, among other debts.  If the patent sale goes well, Kodak’s position would improve. But today’s news casts the sale in a difficult light.

Regardless of my opinion or anyone else’s, Kodak’s bankruptcy will be done in less than 12 months.  We’ll know then how everything turns out, and whether shareholders walk away with wealth or lament their losses. Stay tuned.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Another “Are You Kidding Me?”

So please let me think out loud here, I need to try and get this Eastman Kodak situation straight.  Mr. Antonio Perez was named as President and CEO in 2005 (he was named President in 2003) at which time the company had revenue of about $14.5 billion.  Currently the revenue is about $5.6 billion.  So roughly 1/3 of the revenue and in bankruptcy. The organizational change  here is that many of the same management team that was at the helm prior to and when Eastman Kodak filed bankruptcy, has for the second time in 6 months reorganized its structure and according to Mr. Perez, the CEO, this new organizational chart is the best structure to effectively lead Kodak out of the bankruptcy and toward a new profitable and sustainable business for the future. If my memory serves me, I seem to remember a similar statement when they split the company into 2 businesses earlier this year.  There’s an old cliché about the Titanic and deck chairs that comes to…..oh never mind.

Is it just me or does it feel like Mr. Perez may be making this up on the fly?  The old structure has been in place for merely 6 months.  Furthermore, it occurs to me if you were the same person in charge when the company entered bankruptcy you really have an uphill battle trying to convince investors and the public that you are the right person to lead the company out of bankruptcy.

Moving along now to the management team’s entitlement to a bonus for leading the company out of bankruptcy. WOW!!!!   Where do I even begin with this?  Let me try and be diplomatic.  I certainly question the logic of paying bonuses to the same management team that brought you into bankruptcy for bringing you out of it.  Talk about your “heads I win, tails you lose” scenarios.   From a personal standpoint, I find it shameful that anyone in this management teams position would even consider themselves entitled to any type of bonus after the level of compensation they were already paid for the failures leading up to the bankruptcy filing.  But like I said, that’s just me.

Doug Hendee, CFP^®

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

When Kodak Listens

You can’t live in Rochester without knowing Kodak employees and retirees, and those of us who have never worked there draw a lot of our picture of what happens inside the Big Yellow Box from what we hear from family and friends.  But an image of Kodak created by secondhand accounts is a little like a portrait painted by listening to someone describe the subject instead of seeing it for yourself.  After all, like the blind men and the elephant, most Kodak employees see a small piece of the operation, and we’re getting a small story from them.

But over the last year as Kodak slid toward, then into, bankruptcy, I have heard a consistent story from a variety of smart, skilled people from different parts of Kodak’s operation: the story of the consumer inkjet business.  In February 2007, I traveled to Manhattan to attend Kodak’s investor briefing and the rollout of the new inkjet printers.  The appealing pitch: high-quality ink at very low cost, designed to broaden the market by letting consumers print as much as they wanted without worrying about cost. Attendees received sample photos and they looked great.

The only problem is that 5 years later, the consumer inkjet business is still not yet profitable, and much of Kodak’s Consumer Digital Group (CDG) is being dismantled. This is where the listening part comes in.  I can’t reasonably paint that picture from a story I hear from one or two people. But over many months I’ve pieced together an image from different parts of the company. Like the Kodak market researcher who reported that their group told management that the inkjet business had a major entrenched competitor (Hewlett-Packard), thin profit margins, and a shrinking market (people just don’t print many photos).  Like the two senior researchers in Corporate Research & Engineering who report that their group told management that the inexpensive ink was ruining the printer heads and needed more work before going to market. Like the members of the finance staff who report that Kodak has been losing money on each printer sold, with no change in sight.  In each case, current and former employees say, warnings were ignored by senior management and the printers were rushed to market. Result: overwhelming number of defective printers (one source says 100% in the first months), loss of retailer support, and a business that 5 years later loses $50 on each printer Kodak sells.

Kodak didn’t listen to its own employees: skilled, dedicated, hardworking people. So who is Kodak listening to now? Bankruptcy consultants and lawyers, at a cost of tens of millions of dollars and counting.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Kodak’s Apple Problem is Apple’s Kodak Problem

• George Eastman was attacking apples before Steve Jobs was born. 
• However, George grew up in apple country (I don’t mean Cupertino) and must have had an appreciation for NY State’s delicious varietals. 
• There’s a very good argument that Kodak was the Apple of its day.

So, why is today’s American technology behemoth trying so hard to beat the tar out of yesterday’s?  The longer answer has to do with competition, technology, and imaging, but in the end only the short answer matters: money.  Both Kodak and Apple think they own the same very lucrative idea and they want the matter settled so that they can continue (or in Kodak’s case, start again at) making money.

Yesterday, Judge Allan Gropper ruled that he would not “unfreeze” the lawsuit Apple has brought against Kodak over patent infringement.  Since Apple thinks it owns one of those patents, it would prefer to get a court ruling saying so before the patents get sold as it will be more difficult for Apple to regain the rights to that patent if they get sold to a third party.  Yesterday made that a whole lot harder.

How does this matter to Rochester?  The patent sale is an enormous factor in Kodak’s ability to fund its pension, the Kodak Retirement Income Plan or KRIP.  Let’s look at some numbers:

KRIP is funded at either 86% (PBGC) or 90.5% (Kodak’s 10-K), depending on who you want to believe.  That leaves the dollar amount of the underfunding at either 700 million or 500 million.  Let’s split the difference and call it 600 million.  Estimates of the value of the patent portfolio Kodak wants to sell range from 2.2 billion – 2.6 billion.  Before Kodak can make up the funding gap, it has to pay back the DIP loan it got to get it through the first part of bankruptcy: 950 million.  Still waiting after DIP and the pension are 2.6 billion in bondholder debt and a pile of unpaid vendors and some environmental remediation.  But what will Kodak have left to pay them?

$2,000,000,000 (Patents) – $950,000,000 (DIP) – $600,000,000 (Pension) = $450,000,000. 

That’s 450 million left over to pay back 2.6 billion + of debt and have enough money to keep operating a business!

Now, bankruptcy is going to reduce the bondholder, vendor and environmental debt (and reduce retiree benefits outside of KRIP) to some degree and Kodak has other valuable assets to try to sell (profitable business lines, real estate).  But if you take a moment and think about how much worse a situation Kodak will be in if they don’t sell those patents – that is, if that 2 billion dollars is not available to pay off the DIP, pension and some other debts – you will understand just how critical the patent sale is to Kodak and to Kodak’s retirees.

Yesterday’s decision takes Kodak a step closer to being able to sell those patents.  Hopefully, this is a pattern that continues.

Chris Cromwell

WSJ on the Topic: http://on.wsj.com/yNB8w8

Rumors and Trust, A Lesson From Kodak

I tell a lot of people about websites like Snopes.com.  For those who don’t know, Snopes and sites like it provide a resource for checking out the veracity of those pesky emails about things like bacterial onions, NPR’s annual imminent defunding, or the laptop you can win by forwarding an email to 8 friends (all UNTRUE, by the way).  Rumors are easy – easy to believe, easy to pass on, easy to be scared by.  The worst ones inspire us to quick, limited-thinking action.  When that action is forwarding an email there’s little harm done (aside from a few pestered friends), but when that action is changing an investment, it can be a dangerous thing.

The first rumors that spread through Rochester over Kodak’s (at the time) imminent bankruptcy had to do with SIP, Kodak’s 401(k) plan.  Some financial firms spread word that SIP assets might be frozen, or that a wave of redemptions would depress SIP values. Those notions were completely implausible and turned to be equally untrue.  But perhaps their thinking went like this: “Let’s scare them out of SIP and into a roll-over IRA with our firm.”  I don’t know if that worked or not, but I do know it’s not how we do business.  We think that your relationship to your advisor should be based on trust, that you should be presented with choices, and that advice should be tailored to your individual circumstances.  I also know that folks who work at Kodak are both smart and skeptical – two good qualities when considering the professionals you hire in your life (attorneys, financial advisors, accountants).

Rumors swirled about Kodak and we did our best to put those rumors to rest on our blog and in our community meetings.  Rumors about Kodak are sure to continue to spread.  There’s more information available since Kodak has filed and court documents are accessible, but we’re sure the rumors are not done.  So, use us as a local ‘Snopes’ for Kodak news.  Heard a rumor?  Call, email, tweet or stop by and see us to find out if it’s true.

585.473.3590
1703 Monroe Avenue (near 12 Corners)
http://www.brightonsecurities.com
@chris_crom
@gtconboy

Chris Cromwell

Kodak Seeks to Reduce Retiree Health Care

Kodak has announced that it intends to seek to cut some retiree health care benefits at the omnibus hearing in its bankruptcy court proceedings on March 20, 2012.  The reduction of health care benefits has been an expected result of Kodak’s Ch. 11 filing.  Their intention as stated in the letter below is to continue health care benefits for those not yet 65 and not eligible for Medicare and for those who retired before 1991. 

Here are some of our firm’s thoughts on this motion:

• Everyone in Rochester, everyone watching Kodak, has known that retiree health care was very likely to go.
• This is earlier than expected in the bankruptcy process, but it also preserves a bridge of coverage to Medicare for many retirees – this is better than most expected!
• One of the most at-risk groups – retirees under the age of 65 – has been saved from the health care axe.  For now.
• Notice will have to be given after the court either approves or denies the motion on March 20 – at the earliest, health care changes should be around mid-May.
• Pre-1991 retirees not affected by this motion; the contract for pre-1991 retirees is harder to walk away from.

And here is the letter from Kodak: 

February 27, 2012

Dear Kodak Retiree, LTD Recipient or Survivor:

Eastman Kodak Company and its U.S. subsidiaries filed for Chapter 11 reorganization on January 19, 2012 with the following objectives:

• To enhance the Company’s liquidity position in order to maintain the confidence of and relationships with our vendors, suppliers, and customers;
• To spur the monetization of the Company’s valuable intellectual property and fully enforce our intellectual property rights against industry participants that have infringed our proven and valuable digital imaging patents;
• To fairly apportion our legacy costs for a company of the size we are today; and
• To maximize the value of the Kodak enterprise for all of our stakeholders by reorganizing around our commercial and consumer business units.

Among the legacy costs that must be addressed as part of our reorganization are retiree health care costs that are not borne by many of the companies we compete against in the marketplace.  As we have changed these benefits over time, we have always tried to balance the needs of our retirees with the needs of the Company.  It is now clearer than ever that in order to remain a participant in the market tomorrow, we must put Kodak on a sustainable financial path today.  

You are receiving the enclosed legal motion because there is an important hearing scheduled on March 20, 2012, at which time the U.S. Bankruptcy Court will consider a planned change in Kodak retiree medical coverage that we believe will affect you.  This letter summarizes the proposed change, which we believe represents a necessary step in Kodak’s efforts to become a competitive and sustainable enterprise during and after its Chapter 11 reorganization process.  We urge you to read the entire legal motion enclosed with this letter and to consult an attorney with any questions you may have. 

The motion filed by the Company would discontinue retiree benefits under Kodak’s medical plan (defined in the motion as “Medicare Enhanced Benefits”) for the following individuals who have attained age 65 (regardless of Medicare eligibility) or are under age 65 and Medicare eligible:

• Former employees who retired on or after October 1, 1991;
• Former employees who became eligible for long-term disability benefits on or after October 1, 1991;
• Current employees who are retirement eligible when they leave the Company; and
• Survivors and dependents of these individuals.

A hearing to consider the motion is scheduled to occur in the United States Bankruptcy Court for the Southern District of New York (located at One Bowling Green, New York, New York 10004) on March 20, 2012.  Pending approval of the Bankruptcy Court, this change will become effective on May 1, 2012.

Our ultimate objective is to preserve a set of retiree benefits that are most critical to our retiree population and which would be difficult to replace.  Preserving these most critical benefits must be accomplished within the bounds of affordability for the Kodak that will emerge from Chapter 11.  As such, this proposed change to retiree medical benefits represents one important step in an ongoing process to address Kodak’s legacy costs and enable the Company to move toward a more sustainable path. 

We understand that this change will be difficult. However, individuals affected by this change who have Medicare coverage will continue to be covered by Medicare, and will typically have access to a variety of other insurance options available in their community to supplement their Medicare coverage.  In some cases, the costs associated with these options may be lower than what you are now paying under the Kodak plan.  All affected individuals will also have the opportunity to elect COBRA continuation coverage under the Kodak plan.  More details on COBRA coverage will be provided at a later date.

We are committed to keeping you informed throughout this process. To help us deliver timely communications to you, we need your help.  If you would like to receive such communications electronically, please go to the retiree tab of the Kodak Transforms website at www.kodaktransforms.com and look for instructions for how to subscribe to future e-mail notifications. 

We encourage you to review the Question & Answers included with this letter. If you have additional questions now or in the future, please call the retiree information hotline toll-free at (888) 249-2721, or visit www.kodaktransforms.com.

You may access a copy of motion (and accompanying notice) directly by clicking the “Information for Retiree Medical Beneficiaries” option on our claims agent’s web site at www.kccllc.net/kodak.  

Eastman Kodak Company

Enc.

All benefits information in this document is subject to applicable law and the terms of the relevant plan document, which will govern if there are any differences.  The Company reserves the right to amend or terminate any benefit plan at any time.

 Questions & Answers

 The following questions and answers have been prepared to help respond to questions you may have about this proposed change to Kodak retiree medical coverage.  Please note that the term “retirees” also includes LTD recipients, survivors and dependents.

Q.  Why is Kodak making this change to retiree medical coverage?  Will it be the only change?

A.  This change is one of many difficult but necessary decisions the Company needs to make in order to establish a financially sustainable course for the future.  Fairly managing legacy costs is one of the key objectives Kodak must achieve during its Chapter 11 reorganization in order to continue delivering value to its stakeholders in the years ahead.

Q.  I’m eligible for Medicare, but my covered dependents are not.  What happens to their coverage?

A. Kodak medical coverage for dependents who are under age 65 and not eligible for Medicare will not be affected by this change until they become age 65 or become eligible for Medicare, whichever occurs first.  As a result of this change, however, the cost of their current coverage may increase.

Q.  I’m not eligible for Medicare, but my covered dependent is.  What happens to our coverage?

A. You will continue to be covered under Kodak’s medical plan but your dependent will lose his or her coverage.

Q.  Why are retirees who reached age 65 or are on Medicare losing coverage but pre-65 retirees aren’t?

A.  We are taking this step now in light of two important realities:  1) Kodak must adopt a more competitive cost structure; and 2) those affected by this change are typically covered by Medicare and should have ready access to other options to replace this supplemental coverage.

Q.  Will I have to pay more for coverage than what I am paying today through Kodak?

A.  Not necessarily.  Many retirees with Medicare coverage will have access to insurance options that supplement their Medicare coverage with no monthly premiums that are comparable to what they have through Kodak.

Q.  I am currently not eligible for Medicare, but will be in the near future.  What will happen to my coverage when I become eligible for Medicare?

A.  Prior to becoming eligible for Medicare, you will need to enroll in Medicare Parts A & B.  Once enrolled in Parts A & B, if you want to pursue further coverage, you will need to evaluate the medical options available to you in your area. 

Q.  When will we know whether or not the court approves the motion?

A.  The hearing is scheduled for March 20, 2012.  It is difficult to determine when the Court will make its ruling, but you will be informed as soon as possible once a ruling has been made.

Q.  Where can I go to get information about insurance options to supplement my Medicare coverage?

A.  The options vary depending on where you live.  You can contact local insurance companies to find out what options are available in your area.  You can also contact the Centers for Medicare & Medicaid either by phone at 1-800-MEDICARE or go to the Medicare website at www.medicare.gov and go to the Medicare Plan Finder tool.  In order to get an accurate comparison of what you have today, you’ll need to select “Medicare Health Plans with drug coverage”. 

Q.  Is there any action that I need to take now?

A.  If you are eligible for Medicare, you can start exploring the available insurance options in your area to determine which one will best meet your needs. 

All benefits information in this document is subject to applicable law and the terms of the relevant plan document, which will govern if there are any differences.  The Company reserves the right to amend or terminate any benefit plan at any time.

# # #

Questions? Find me on twitter at @chris_crom or follow or subscribe to this blog to comment.

Chris Cromwell
Business Development Manager
Brighton Securities

Kodak Series: 5 Things To Know About KRIP (Kodak Retirement Income Plan)

We’ve had thousands of people asking us questions about KRIP.  Mostly, these questions are some form of ‘is my pension safe during Kodak’s bankruptcy?’  In this spirit, here are 5 things to know about KRIP:

1. The Pension is Funded.  Pension funding is given by Kodak to a trust.  The trust is a separate legal entity and its monies – the pension funding – cannot be used by Kodak for corporate purposes.  It can only be distributed by the terms of the trust document.  Currently, the Pension Benefit Guarantee Corporation (PBGC) is auditing the funding level of the pension.  The last review by Kodak had the funding level at about 96%.  The PBGC has returned with a lower number – 86%.  The difference in the numbers could be caused by different methods of calculating the funding, the time difference between the two reviews, the inclusion of a subsidiary’s pension (Qualex) or a combination of any of these things. All in all, 86% is not a bad level to be at; we are currently waiting to hear more from the PBGC about the state of the Kodak pension.
2. Any Underfunding is Likely to be Made Up by Kodak.  Kodak has stated that KRIP payments should not be affected by the bankruptcy.  Pension funding is not dismissed lightly in bankruptcy court, particularly when the company in question is sitting on so much potential value (patents, profitable business lines).  If Kodak decided it did not want to fund any shortfall in its pension, it would have to prove to the court that it cannot continue to exist without reducing or avoiding this liability.  That’s a high hurdle!
3. The Pension is Insured.  In the unlikely event that KRIP shortfalls cannot and do not have to be paid by Kodak, the PBGC would step in to take over the pension.  The PBGC insures pensions up to a maximum amount per year (your maximum is findable in these tables) just like the FDIC insures bank accounts up to a limit (in the PBGC’s case, the limit varies based on factors like age and type of pension).  The PBGC taking over the pension will likely mean a little more hassle – extra paperwork, an estimated interim payment while the PBGC operations gather all of KRIP’s information – but it also means that pensions are much more secure.  This may help all pensioners sleep a little better at night.
4. Lump-sum Payments May Come Back or May Not.  The lump-sum option offered by KRIP has been suspended while the PBGC audits the pension fund.  This is a legal requirement – pensions are required to enter what is called a ‘restricted period’ while they are being audited by the PBGC.  If the pension fund passes the PBGC’s test or if it fails but Kodak makes up the funding gap, the lump-sum option is likely to return.  We should know more in 2-3 months about how likely that is.  The purpose of this suspension is to provide some stability to the pension fund while the PBGC tests the funding level.
5. You Can Decide to Take the Lump-sum Later Even If You Take the Annuity in the Restricted Period.  Those eligible for the lump-sum option may elect to take it if and when it is offered again even if they elect the annuity during the restricted period.  This is an important option as it allows those set to retire now to do so without foregoing pension cash flow and without giving up the lump-sum option should it return.  The lump-sum will be reduced by annuitized payments already made, but other than that, the lump-sum option should look the same as it did before the bankruptcy filing.

Questions? Find me on twitter at @chris_crom or follow or subscribe to this blog to comment.

Chris Cromwell
Business Development Manager
Brighton Securities

What Goes Around

Last October an Ohio company, Collins Ink, made local headlines by halting shipments of its product to Kodak, citing concern about the impact to Collins of a Kodak bankruptcy. After a quick trip to Federal court, Collins and Kodak agreed to resume their relationship and Collins dropped from the headlines.  Fast forward to January 19 and we were reading the Collins name again, this time listed as one of Kodak’s 50 biggest creditors (find them here, page 18) owed just under $2 million. As it now stands, Collins is unlikely to see much of that money – the very outcome Collins said it feared when it attempted to cancel its relationship with Kodak.

Collins Ink is a small company, $12 million in sales compared with Kodak’s $6 billion. And I can’t help thinking that in their court fight, Kodak got the justice it could afford. But Kodak has bigger legal issues, with bigger adversaries.  A critical case, one in which Kodak has supposedly prevailed, is a patent dispute with Apple and Research in Motion (RIMM). The International Trade Commission (ITC) first ruled for Apple/RIMM, then reversed itself and awarded Kodak $1 billion in damages. But curiously, the ITC has been delaying, and delaying again, a final order in the matter. That delay is an urgent matter for Kodak, which had been hoping for the cash to help it avoid bankruptcy.  With bankruptcy a fact, now the money could help Kodak emerge healthier down the road. But Apple is not giving up the fight, asking the bankruptcy court for permission to sue Kodak for infringement.

In this new reordered scenario, Kodak is the small fry, facing a much larger adversary in court.  One wonders if Apple will get the justice it can afford. We will see what comes around.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Kodak Rumors

Information cycles as Kodak moves through bankruptcy can drive us all a little wild with frustration and anxiety.  Trying to understand what will happen with Kodak is like walking through an oddly mercurial landscape that switches instantly from a desert to a lush valley and back again.  We get no information and then we are overwhelmed and then we get none…

 

First, there were rumors about SIP and KRIP and health care: SIP could be frozen!  KRIP is in danger!  Health Care will disappear tomorrow!  Kodak was tight-lipped and those rumors spread quickly.  Our firm was a good resource, providing some information that countered the rumors (SIP will not be frozen, KRIP is fairly well-funded, Health Care is likely to go but it will be a long process).

 

Then in the first hours of January 19, 2012, Kodak filed for bankruptcy and the floodgates were opened: Kodak had a website, Kodak was disseminating Q&A’s to its employees and retirees, T.RowePrice sent notice of changes within the most popular fund inside SIP.  Our role switched from the primary information source to a primary source of financial expertise and analysis.

 

Then the waters dried up again.  We waited.  We looked expectantly to yesterday’s hearing, but that ended up being more of a trickle – naming rights to a theater in CA, approval of DIP financing… small potatoes.  Still no word about pension funding, no word about health care.  So, we wait.  Again.

 

In the waiting is when the rumors start.  This morning there was a bank mix up and some folks didn’t get their paychecks deposited in their accounts.  Twitter lit up and we started getting calls – was Kodak missing payroll!?  What did that mean!?  Was this related to planned HR layoffs?  Turns out it was just a glitch – an exceedingly ill-timed one – that was worked out very quickly.

 

It’s certain there will be more real news and more rumors about Kodak and this bankruptcy.  So, what are the lessons?  Look aggressively for information, but remain a skeptic.  Find legitimate sources to confirm what you hear.  Follow this blog and find us on twitter (George Conboy here and Chris Cromwell here).  Stay tuned to local news.  We aim to continue to be a great resource for our clients and our city – If you know any other sources, share them as a comment to this blog. 

Chris Cromwell
Business Development Manager
Brighton Securities