Can Kodak Save Itself -- or Is It Too Late Already?

Eastman Kodak (NYSE: EK  ) is clinging to life like a drowning sailor would cling to the last scrap of wreckage timber. But like Leo DiCaprio at the end of Titanic, I'm afraid it's all for naught -- the storied image technologist is still bound to slide into the icy waters of bankruptcy.

Let's leave the deck chairs alone on this sinking ship. This week's moves are more like laying out silverware for a last dinner.

Kodak's restructuring plan cuts out one underperforming business unit but keeps two others largely intact. COO Philip Faraci is effectively demoted by placing general counsel Laura Quatela on equal footing with him in the newly created chief operating office. Here we thought that management by committee was a terrible idea, as shown by the widely criticized co-CEOs of Research In Motion (Nasdaq: RIMM  ) , but Kodak feels differently. I still think that RIM needs to simplify its C-suite, and that Kodak's move is the exact opposite of "a new and simpler business structure," as the press release puts it.

But investors loved the announcement because Kodak invoked the magic words "digital company." If the board of directors had brought in top-notch outside talent to manage that transformation, I might have bought it. Instead, the executive compensation and development committee saw fit to promote from within. In other words, the committee is rewarding existing Kodak leaders for their utter failure to grok the digital age.

So Kodak's largest boardroom committee, led by online grocery store Fresh Direct CEO Richard Braddock, scores an epic fail where it really needed a Hail Mary touchdown. Why point fingers? Because investors deserve to know exactly who is sinking this ship. The board does get bonus points for taking action, but it's only drastic on the surface. Leo is still doomed.

Is this the Immaculate Reception?
Speaking of last-second desperation plays, Kodak also filed an International Trade Commission complaint against Apple (Nasdaq: AAPL  ) and Android gadgeteer HTC. Oh, yum! This complaint comes with a side of U.S. District Court lawsuits! They've tried litigation in the past against Apple, unsuccessfully.

According to Kodak, the smartphone makers are trampling on patents covering how devices preview and transmit images. "We've had numerous discussions with both companies in an attempt to resolve this issue, and we have not been able to reach a satisfactory agreement," says Laura Quatela.

The company isn't interested in halting sales of iPads and Droid Xooms. No, Kodak just wants some money. Patents in this family have already been signed to royalty-bearing licenses with Motorola Mobility (NYSE: MMI  ) , Samsung, and Nokia (NYSE: NOK  ) . If their phones can carry the cost of a little Kodak license, why can't HTC and Apple pay their fair share?

Kodak says that more than 30 companies already pay royalties. Adding two more will obviously not turn the company's fortunes on a dime. Yes, Apple is big. So are Samsung and Motorola, and Nokia may be shrinking but it's still a leader in feature phones. They have cameras too, you know. In short, the proposed royalties simply cannot be large enough to make Apple investors shudder -- or to save Kodak's skin.

We've got a schedule to keep, son
If patents are supposed to save the day, the company would need to sell them wholesale. But the deadline for that move is approaching fast. Kodak has burned $900 million of free cash over the last four quarters and the fires are only burning faster. The balance sheet holds about one year's worth of cash destruction at this pace but then you also have $1.5 billion of debt with its roughly $150 million in annual interest payments to worry about.

Moreover, a group of hedge funds have slashed the cash reserves they'd be willing to offer Kodak as a last resort. The bony grip of bankruptcy moved just a little bit closer when that happened.

If the not-so-new management team has some secret ace up its sleeve, this would be the time to play it. Wait any longer and those juicy patents will be sold in bankruptcy auction for pennies on the dollar.

I give Kodak about six months to come up with its deus ex machina. After that, Leo succumbs to the icy waters of the North Atlantic.

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Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


Read/Post Comments (10) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 11, 2012, at 12:32 PM, jerr1 wrote:

    Lets see now the IF,S replaced with OR,S . Lets do some checking on the OR,S an IF,s Case history flash back SIRI gone bankrupt no i guess it didnt last minite thye got saved an shorts got freid agun .

  • Report this Comment On January 11, 2012, at 12:54 PM, colt1210 wrote:

    The new line of printers have gotten good reviews and the online digital processing is the best I have seen in a while. Kodak has the apps for lightroom picture processing and Ipad2 for wireless printing.

    It is probably too late but, I would like to see if this company can turn around.

  • Report this Comment On January 11, 2012, at 12:59 PM, brushpick wrote:

    In the Fool's disclosure policy, it is indicated "The Motley Fool writes about stocks in both free and paid content." Is it against the Fool's policy to disclose if this article was a paid or free article? I could be wrong, but this article is totally negative about Kodak, I would tend to believe that someone greased the Fool's palm for this one.

    On another note, poster "seph54" is an idiot. I stopped counting at 50 posts that you have made today. Working hard I would guess. How much do you get paid per post?

  • Report this Comment On January 11, 2012, at 1:00 PM, rsford97 wrote:

    its obvious you guys are shorting this stock.

  • Report this Comment On January 11, 2012, at 1:46 PM, vaderblue wrote:

    Kodak is doing the right thing here. Downsize, focus in the areas that can produce revenues

    focus on marketing their printers and conrol

    costs more effectively. Companies can expand too fast and deplete cash faster but the alternative is reverse yourself, refine your industry and push those divisons hard.

    I believe in Kodak and the come back kid. Rewarding the executes will be acceptable to investors if they turn this great company around.

    Become innovative and throw some new technology out there.

    People love Kodak. It is a household name.

    I plan on adding some shares to my porfolio very soon for I like a good challenge and these old boys are not giving up on this ship.

    Full steam ahead.

  • Report this Comment On January 11, 2012, at 2:35 PM, Jacobsonjk wrote:

    It's still unclear how this "reorganization" is supposed to save money. Kodak has said it won't lead to layoffs. The labor overhead is killing Kodak. Unless they have a plan to sell the film division, there is very little money to be saved.

  • Report this Comment On January 11, 2012, at 3:52 PM, 777BC777 wrote:

    OK. I get it. "Fools" have been shorting this stock forever and now it's on the uptick. Kodak is no longer just a "film company" as a majority of its business is no longer film. My take is that the reorg will make it a more competitive company and/or make it easier to sell off the non-core pieces to drive the core businesses (which they've already demonstrated in recent sales of some non-core assets). Because Kodak filed new litigation to defend their patents it signals they have not yet given up to bankruptcy nor have they given up on the value of their intellectual property.

  • Report this Comment On January 11, 2012, at 3:57 PM, TMFZahrim wrote:

    @brushpick, the "free and paid" refers to freely available articles like this one and premium newsletters where you have to pay for access. We don't, have never, and will never take payments from some company, hedge fund, or other outside force to write so-called hit pieces or "pump and dump" stories. I wrote this article because I'm not buying this half-hearted reorg and I think investors should know that all is not wine and roses for Kodak today. That's all.

    Anders

  • Report this Comment On January 16, 2012, at 10:14 AM, jerr1 wrote:

    Personlly after alot extensive searching i finally get this . Your web site is excellant honest news . Given availble imfomation about kodak present condition yours is good idaea of how hard it is for them to given present bussness conditions in world . Very competitive world we liv in an not getting any easyer when chips are down

  • Report this Comment On January 19, 2012, at 8:33 AM, TMFZahrim wrote:

    Today, Kodak filed for Chapter 11 bankruptcy protection. Shares will be delisted from the NYSE though it's unclear whether the stock will be liquidated or not. That's unlike Blockbuster, which told investors up front that shares would be worthless.

    My bearish thesis has now played out, faster than expected. I wish Kodak the best of luck in restructuring, staying alive, and getting back on its feet. I'll be watching from the sidelines.

    Anders

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