Eastman Kodak...not dead and will reorganize

"Photography pioneer Kodak files for bankruptcy"

by

Jonathan Stempel and Liana B. Baker

January 19th, 2012

REUTERS

Eastman Kodak Co, the photography icon that invented the hand-held camera, has filed for bankruptcy protection and plans to shrink significantly, capping a prolonged plunge for one of America's best-known companies.

The Chapter 11 filing makes Kodak one of the biggest corporate casualties of the digital age, after it failed to quickly embrace more modern technologies such as the digital camera -- ironically, a product it invented.

Kodak once dominated its industry, and its film was the subject of a popular 1973 song, "Kodachrome," by Paul Simon.

The bankruptcy may give Kodak, which traces its roots to 1880, the ability to find buyers for some of its 1,100 digital patents, a major portion of its value. Kodak now employs 17,000 people worldwide, down from 63,900 just nine years ago.

"It is a very sad day even though we had anticipated it," said Shannon Cross, an analyst at Cross Research who has had a "sell" rating on the company since 2001. "If it emerges, it will be a much smaller entity."

According to papers filed with the U.S. bankruptcy court in Manhattan, Kodak had about $5.1 billion of assets and $6.75 billion of liabilities at the end of September.

In court documents, Chief Financial Officer Antoinette McCorvey said, without elaborating, that Kodak plans to sell "significant assets" during the bankruptcy. Non-U.S. units are not part of the Chapter 11 case.

Kodak also said it obtained a $950 million, 18-month credit line from Citigroup Inc so it can keep operating and avoid having to liquidate. It said it expects to complete the bankruptcy process in 2013.

"This is a necessary step and the right thing to do for the future of Kodak," Chairman and Chief Executive Antonio Perez said in a statement on Thursday.

Kodak's market value has sunk well below $200 million from $31 billion 15 years ago, when its share price topped $94.

The shares began trading on Thursday on the Pink Sheets. By the end of the day they were down 6 cents at 30 cents each.

WAY BEHIND

In recent years, Perez has steered Kodak toward consumer and commercial printers.

But that failed to restore annual profitability, something Kodak has not seen since 2007, and did not arrest a cash drain.

Kodak has struggled to meet its pension and other obligations to more than 65,000 workers, retirees and others who participate in its employee benefit programs.

McCorvey said Kodak ultimately suffered from a "liquidity shortfall" as some vendors stopped shipping and providing services, and demanded shorter payment terms.

Kodak said in court papers it has about $820 million of cash and equivalents, but was down to just $56.7 million of cash in the United States.

"They got behind the curve on the analog-to-digital shift, and they were way behind for a long time," said Ananda Baruah, an analyst at Brean Murray who covers Kodak.

The company's downfall has also hit its Rust Belt hometown of Rochester, New York, with its workforce there falling to about 7,000 from more than 60,000 in Kodak's heyday.

Andrew Cuomo, New York's governor, on Thursday called the bankruptcy "difficult and disappointing news" for the city, whose population was about 211,000 in the last census.

Kodak named Dominic DiNapoli, a vice chairman at business turnaround specialist FTI Consulting Inc, as its chief restructuring officer.

The investment bank Lazard is also providing advice and has been helping Kodak look for a buyer for its digital patents. Kodak's law firm is Sullivan & Cromwell.

Last week, Kodak reorganized its business operations, creating a commercial unit and a consumer unit. It previously had units for consumer digital imaging; film, photofinishing and entertainment; and graphic communications.

Mark Zupan, dean of the University of Rochester's business school, said "there's still too much value" at Kodak for the company to be forced to liquidate. "Segments will be profitable enough to survive as a leader, as a smaller company."

LITIGATION STRATEGY

Perez, who has been chief executive since 2005, said the bankruptcy would help Kodak maximize the value of patents related to digital imaging, which Kodak said are used in virtually every modern digital camera, smartphone and tablet.

"I've talked to companies who will buy assets who said they were waiting for Kodak to go bankrupt to pay a better price," said Baruah, the Brean Murray analyst.

In the last few years, Kodak has used extensive litigation with rivals such as Apple Inc, BlackBerry maker Research in Motion Ltd, South Korea's Samsung Electronics Co and Taiwan's HTC Corp over those patents as a means to try to generate revenue.

Among Kodak's many creditors are retailers including Wal-Mart Stores Inc and Target Corp, and movie companies Sony Corp and Walt Disney Co.

Bank of New York Mellon Corp is the largest unsecured creditor, in its capacity as trustee for creditors, with more than $670 million of claims.

APOLLO 11

According to Kodak, George Eastman, a high-school dropout from upstate New York, founded the company in 1880 and began making photographic plates. To get his business going, he splurged on a second-hand engine to make the plates for $125.

Within eight years, the Kodak name had been trademarked, and the company had introduced the hand-held camera as well as roll-up film, where it became the dominant producer.

Eastman also introduced the "Wage Dividend" in which the company would pay bonuses to employees based on results.

Kodak went on to create famous cameras such as the Brownie, launched in 1900 and sold for $1, and the Instamatic in 1963.

The company on its website said a Kodak camera was used on the Apollo 11 mission in 1969. A Kodak camera was used by the astronauts to film the lunar soil from only inches away, according to NASA.

Kodak film has been used on 80 movies that have won Best Picture Oscars, according to the company.

Six years after Apollo 11, and not long after songwriter Simon told his mama not to take his Kodachrome away, Kodak invented the digital camera.

The size of a toaster, it was too big for the pockets of amateur photographers, whose pockets now are stuffed with digital offerings from the likes of Canon, Casio and Nikon.

But rather than develop the digital camera, Kodak put it on the back burner and spent years watching rivals take market share that it would never reclaim.

In 1994, Kodak spun off a chemicals business, Eastman Chemical Co, which proved to be more successful.

Kodak's final downfall in the eyes of investors began in September when it unexpectedly withdrew $160 million from a credit line, raising worries of a cash shortage.

PENSIONS IN FOCUS

It remained unclear how Kodak will address its pension obligations, many of which were built up decades ago when U.S. manufacturers offered more generous retirement and medical benefits.

Many retirees hail from Britain, where Kodak has been manufacturing since 1891. The company had promised to inject $800 million over the next decade into its British pension plan.

McCorvey, the chief financial officer, said in court papers on Thursday that she expects the trustee for the British pension plan to have a "significant" general unsecured claim against the company.

The case is In re: Eastman Kodak Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-10202.

"Kodak files for Chapter 11 bankruptcy"

by Steve Sink

January 19th, 2012

Rochester Democrat and Chronicle

Eastman Kodak Co., running short of cash and unable to sell 1,100 digital imaging patents that could have rescued it, filed Thursday for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

The iconic Rochester company, whose history dates to the late 19th century and the technical and marketing genius of founder George Eastman, has been besieged for the past three months by rumors that it would make a bankruptcy filing. Those rumors had intensified in the past two weeks.

"After considering the advantages of Chapter 11 at this time, the board of directors and the entire senior management team unanimously believe that this is a necessary step and the right thing to do for the future of Kodak," CEO Antonio M. Perez said in announcing the decision.

The filing listed assets of $5.1 billion and debts of $6.75 billion.

Perez assured employees that it will be business as usual under Chapter 11. "Kodak expects to pay employee wages and benefits," the company said.

As of a year ago, Kodak had 7,100 employees in the Rochester area and 18,800 companywide. The worldwide figure is now 17,000, the company said in its bankruptcy papers, about 8,000 of them in the U.S. It did not give a new Rochester-area figure.

At its peak in the early 1980s, the company employed 62,000 people in Rochester and 130,000 worldwide.

Kodak has about 25,000 retirees in the region, so the company's legacy is a powerful one in Rochester.

The filing was made in the Southern District of New York, a common location for major bankruptcy cases because the New York City metropolitan area has the infrastructure of banks, law firms and other institutions needed to handle complex legal matters.

Citigroup Inc.. one of the largest banks in the U.S., has committed to providing Kodak with a $950 million credit line to help sustain the company's operations while it reorganizes its finances.

Kodak said it expects to continue operating its businesses while in Chapter 11, "and to continue the flow of goods and services to its customers."

Perez said in a video statement on Kodak's website that the company has four objectives while in Chapter 11 -- obtaining the financing to reassure its employees, customers and other stakeholders that the company will stay in business; enabling it to pursue patent infringement claims against major companies including Apple Inc.; adjusting its "legacy costs" to a fairer level; and driving growth in the printing businesses Perez has declared are its future.

The filing wasn't a surprise, though no one outside the company knew precisely when it would come. Kodak was scheduled to report its 2011 fourth-quarter and full-year financial results on Jan. 26, and it may have become apparent to company officials that the news would be bad, leading to a pre-emptive move into Chapter 11.

Kodak had said in November that it was in danger of being unable to pay its bills at some point in 2012 unless it received a substantial infusion of cash. What seemed like the best potential source of cash was the sale of its digital patent portfolio, which analysts said could fetch up to $3 billion.

Kodak had said in November that it was in danger of being unable to pay its bills at some point in 2012 unless it received a substantial infusion of cash. What seemed like the best potential source of cash was the sale of its digital patent portfolio, which analysts said could fetch up to $3 billion.

But judging from the company's statement today, it now thinks it will have a better chance of selling the patents under court supervision.

"The business reorganization is intended to bolster liquidity in the U.S. and abroad, monetize non-strategic intellectual property, fairly resolve legacy liabilities, and enable the company to focus on its most valuable business lines," Kodak said in the release.

Perez has insisted that Kodak would return to profitability this year as it pursues a strategy of building several key business lines -- digital printing presses, package printing, commercial and home inkjet printers and workflow software. The company's traditional film business, though still generating substantial revenue, continues to shrink and just last week lost its status as a standalone operating division within the company.

Under Chapter 11, a company continues to operate while seeking to reorganize its finances. Many companies emerge successfully from Chapter 11.

However, some stakeholders in Kodak figure to be hurt by bankruptcy — especially retirees whose health benefits could be reduced, although such a step can only be done under the supervision of a bankruptcy court judge.

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