Over-exposed? Kodak debt mounts up as it misses digital picture

Its camera film was ubiquitous in the 20th century, but modern technology seems to have passed Kodak by

New York

If you got caught up in the hoopla around the new iPhone, that dazzling phone-cum-media-player-cum-games-console-cum-camera-in-your-pocket, spare just a little thought for the people of Eastman Kodak. As Apple's Tim Cook was preparing to unveil its latest gadget to the gawping world, the bosses at Kodak were battling with speculation that their company is headed for bankruptcy.

What use in the 21st century for the company whose rolls of camera film were ubiquitous in the 20th century? These days, you grab your phone, point, click, upload and share without your pictures coming close to anything physical. Kodak looks like becoming the latest in a long line of once-proud technology companies ruined by a digital revolution symbolised by the iPhone.

The tragedy is that Eastman Kodak was hardly caught unawares. In fact, it was one of the first firms to invent a digital camera – a 1991 device for photojournalists which came equipped with a 1.3 megapixel sensor. It has been trying to reinvent itself for the digital revolution for well over a decade, by redirecting the revenues from its dying traditional photography businesses (and even the dividends it used to pay shareholders) into new digital products. It has thrown money into digital photobooths, mass market digital cameras and memory cards, and printers for consumers and businesses. In the world of click, upload and share, even these look out of date.

And so in the past few days, investors have peeled away from the company, concluding once and for all that the transition has failed, that bankruptcy is the most likely outcome of a financial restructuring review now under way, and that creditors would be best served by Kodak's calling it a day, breaking up and selling off any last remaining viable pieces.

Profitability for its new digital ventures has been "perpetually two years away", according to Michael Holt, an analyst at Morningstar. "Still today, they say it remains two years away from their goals. Kodak has faced a classic business problem, the deterioration of its core business and the inability to reinvent itself," he said. "Very few companies make that transition. The strategy has been to milk the old business for cash and reinvest in new businesses, but it is the new businesses that I have a problem with. The market for consumer digital cameras and inkjet printers is just so competitive."

Kodak is still the world's biggest seller of film for traditional cameras and movie cameras and paper for printing out photos, and although $1.1m out of its $1.5m revenue in the last quarter came from new digital-related businesses, only those traditional businesses made any money. For the past few years of this "investment period", it has been augmenting its revenues with licensing income and legal settlements from patent disputes with the makers of digital cameras and cameraphones, including Samsung. Ironically, it is suing Apple in the hopes of squeezing more from its patent portfolio, and some investors have been hanging on to Eastman Kodak shares in the expectation of a sale of the patent portfolio. It turns out, though, that the price it might get in such a sale may have been over-hyped.

Until last week, there seemed little sign of an imminent cash-crunch that might tip Kodak into bankruptcy, even if investors could no longer see a long-term path to profitability. But then it unexpectedly tapped its bankers for an extra $160m in loans, suggesting that it had lost confidence in its promise that Christmas sales of digital cameras and printers would bring in much-needed booty, and it compounded these fears by hiring Jones Day, the law firm that advised the car-maker Chrysler on its recent bankruptcy, to give it advice on a financial restructuring.

"It is not unusual for a company in transformation to explore all options and to engage a variety of outside advisers, including financial and legal advisers," Kodak said. "The company is committed to meeting all of its obligations and has no intention of filing for bankruptcy. The company also continues to actively pursue its previously announced strategy to monetise its digital imaging patent portfolio.

"Kodak remains focused on meeting its commitments to customers and suppliers, and on delivering on its strategy to become a profitable, sustainable digital company."

Kodak shares, though, have lost three-quarters of their value this year, and it is now a penny stock, the preserve of speculators. Creditors were yesterday reported to have entered discussions about forming their own group and hiring advisers to represent them in a bankruptcy restructuring. For Mr Holt at Morningstar, whose research is aimed at value investors, the latest revelations prompted him to drop coverage of the stock. And credit ratings agencies leapt in to downgrade the company's debt, too.

Brian Taylor, an analyst at Fitch, said that a default of some kind now appeared probable, and Kodak's financial difficulties made it less and less likely it would be able to win an expensive patent lawsuit against Apple, or extract significant value from its patent portfolio.

The company, meanwhile, has failed to become a leader in digital cameras, printers or any of the other businesses in which it has invested. In a painful, and as yet unheeded, piece of advice to the 119-year-old company which brought photography to the masses.

Mr Taylor wrote: "Fitch's view is that Kodak's enterprise value would be maximised in liquidation, rather than a going-concern scenario."

Life through a lens: The company history

1880 George Eastman sets up the Eastman Dry Plate Company in Rochester, New York.



1888 Releases the first Kodak camera, priced at $25, under the slogan: "You press the button. We do the rest."



1892 The business is renamed the Eastman Kodak Company.



1896 The 100,000th Kodak camera is sold. Eastman launches film for making movies. Since then, 80 "best picture" Oscar-winners have been shot on Kodak film.



1901 The Brownie camera, costing $1, is introduced.



1912 Kodak buys Wratten and Wainwright, a British company that makes photo-materials for commercial printing. It already employes more than 5,000 staff.



1932 Eastman dies at the age of 77. Kodak launches Kodachrome, the first amateur colour film, three years later.



1945 Kodak, which had been involved with X-rays since 1896, expands its health business. It creates a film that can detect radiation exposure among workers developing the atomic bomb.



1951 The Brownie 8mm movie camera is introduced, with the Brownie movie projector following a year later.



1962 Kodak's sales hit $1bn for the first time and it has 75,000 staff. Four years later, it develops the Super 8 home-movie format. Kodak Instamatic cameras are launched in 1968.

1969 Kodak provides equipment for Nasa's Apollo 11 mission carrying the first astronauts to the Moon.



1981 Sales pass $10bn and the group enters the clinical diagnostic market.



1987 Sells the first disposable camera.



2004 Company stops selling reloadable film cameras following poor sales. The company's stock is removed from the Dow Jones Industrial Average index after 74 years.



2009 Announces plans to 'retire' Kodachrome film and reveals a fourth-quarter loss of $137m, with plans to shed 4,500 jobs.



2010 Kodak is dropped from the S&P 500 index. The stock hits an all-time low 10 months later.

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