Kodak files for bankruptcy protection
Thursday 19 January 2012
Eastman Kodak, the photography icon that invented the hand-held camera and helped bring the world the first pictures from the moon, has filed for bankruptcy protection, capping a prolonged plunge for one of America's best-known companies.
The Chapter 11 filing 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.
It may also help Kodak continue to shrink a business that still employs 17,000 people, down from 63,900 just nine years ago.
Kodak also obtained a $950 million, 18-month credit line from Citigroup so it can keep operating during the bankruptcy process, which it expects to complete 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.
According to papers filed with the US 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-US units are not part of the Chapter 11 case.
Kodak once dominated its industry and its film was the subject of a popular Paul Simon song, but it failed to embrace more modern technologies quickly enough, such as the digital camera - ironically, a product it even invented.
Its downfall hit its Rust Belt hometown of Rochester, New York, with employment there falling to about 7,000 from more than 60,000 in Kodak's heyday.
Kodak's market value, meanwhile, has sunk to less than $150 million from $31 billion 15 years ago.
In recent years, Perez has steered Kodak's focus more toward consumer and commercial printers.
But that failed to restore annual profitability, something Kodak has not seen since 2007, or arrest a cash drain that has made it difficult for the company to meet its substantial pension and other benefits obligations to its workers and retirees.
McCorvey said Kodak ultimately suffered from a "liquidity shortfall" as some vendors stopped shipping and providing services, and demanded shorter payment terms.
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.
Perez said the bankruptcy would help Kodak maximize the value of its technology assets, including patents related to digital imaging that it said are used in virtually every modern digital camera, smartphone and tablet.
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.
George Eastman, a high-school dropout from upstate New York, founded Kodak in 1880, and began to make photographic plates. To get his business going, he splurged on a second-hand engine 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.
Nearly a century after Kodak's founding, the astronaut Neil Armstrong used a Kodak camera the size of a shoebox to take pictures as he became in 1969 the first man to walk on the moon.
Those pictures arguably had more viewers than the 80 films that have won Best Picture Oscars and were shot on Kodak film.
Six years after Armstrong's walk, 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. It ended September with $862 million of cash.
It remained unclear how Kodak will address its pension obligations, many of which were built up decades ago when US 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. It remains unclear how that country's pension regulator might seek to preserve some or all of the company's obligations to British pensioners.
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.
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