Karen, I haven’t examined Kodak’s policies and I make no judgment on their repurchases of stock. Furthermore, I do not really want to take any time to study the Kodak case. I’d like to point out that stock repurchases are a way to return capital to shareholders. Payment of cash dividends is an alternative, but they are taxable as ordinary income whereas stock repurchases may subject the sellers to a lower capital gains tax. Now suppose a company has no good projects to invest in but yet has cash flows. What can it do with the excess cash? It can retire debt and/or it can make stock repurchases, which retires stock. What it does depends on such factors as the restrictions placed upon it in the bond indentures, for the bondholders usually do not allow liquidating dividends or excessive stock repurchases that endanger their position. It is better for a company to return capital to its suppliers of capital than to waste it on projects that do not return at least the cost of capital. Repurchases waste company funds when the company overpays for its stock in the market, which can happen if the management thinks the stock is undervalued when it is actually overvalued. The whole matter is fairly complex inasmuch it hinges on the oft-competing interests of bondholders, stockholders, and the managers. A critical element may be the management compensation contracts, which, in a great many instances, may be dysfunctional and motivate wealth destruction. Again, I have no idea what Kodak did or why it did it. I mention these factors as other possible circumstances that influenced the decisions that were made.

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