Jan. 19 (Bloomberg) -- Eastman Kodak Co., the photography pioneer that introduced the Brownie Camera more than a century ago, filed for bankruptcy after consumers embraced digital cameras, a technology Kodak invented and failed to commercialize.
The Rochester, New York-based company, which traces its roots to 1880, listed assets of $5.1 billion and debt of $6.8 billion in Chapter 11 documents filed in U.S. Bankruptcy Court in Manhattan.
“They were a company stuck in time,” said Robert Burley, an associate professor at Toronto’s Ryerson University who has photographed shuttered Kodak facilities in the U.S., Canada and France since 2005. “Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability.”
The company’s credit deteriorated as revenue tumbled from traditional film, and the inventor of the Instamatic cameras was slow during the past decade to compete with Canon Inc. and Hewlett-Packard Co. in digital cameras and printers.
Moody’s Investors Service on Jan. 5 cut ratings on about $1 billion of Kodak debt with a negative outlook, citing “a heightened probability of a bankruptcy over the near-term.”
NYSE Regulation Inc. today said it would suspend trading of Kodak stock after determining the company is “no longer suitable for listing,” according to a statement.
Citigroup Inc. agreed to provide a $950 million debtor-in-possession loan to help Kodak operate during bankruptcy, the photo company said today in a statement. The loan must be approved by a bankruptcy judge.
“Kodak is taking a significant step toward enabling our enterprise to complete its transformation,” Antonio M. Perez, chief executive officer, said in the statement.
The company plans to sell “significant assets” during the bankruptcy, Chief Financial Officer Antoinette McCorvey said in a court filing. She didn’t elaborate.
As it watched digital dissolve its high-margin film business, Kodak has shed 47,000 employees since 2003, closing 13 factories that produced film, paper and chemicals, along with 130 photo laboratories. The restructuring has already cost $3.4 billion, because it was done “in a socially responsible” way, said a spokesman, Christopher Veronda.
“The announcement that Kodak is filing for bankruptcy is difficult and disappointing news for the city and people of Rochester,” New York Governor Andrew Cuomo said in a statement. “This is a time for all of us at all levels of government to come together and work with the private sector to support Rochester’s growth,” Cuomo said.
Kodak, headed for its sixth annual loss in the past seven years, tried to sell more than 1,100 digital-imaging patents and pursued royalties to fund a shift to modern commercial and consumer digital printers.
Kodak’s cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year earlier. The company is scheduled to report fourth-quarter results Jan. 26.
Kodak’s revenue has fallen by half since 2005 to $7.2 billion last year, with further declines predicted this year and next after film and photofinishing unit sales sank by 14 percent in the second quarter. The company’s losses since 2008 exceeded $1.76 billion.
Kodak’s $250 million of 7.25 percent senior unsecured notes due in November 2013 fell 3.5 cents to 29.5 cents on the dollar as of 10:06 a.m. In New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The notes fell as low as 27 cents today and have plunged from 100 cents on the dollar, or face value, in April and 48.5 cents in November.
Shares of Kodak slumped 35 percent to 36 cents at 12:55 p.m. New York time. The Rochester, New York-based company’s stock symbol changed to “EKDKQ” from “EK.”
The Bank of New York Mellon Corp. is listed as Kodak’s biggest unsecured creditor as trustee for about $670 million of unsecured notes. Other unsecured creditors include Sony Studios, which is owed $16.7 million, Warner Brothers, with $14.2 million, and Alcoa Inc., with $2.8 million.
Bank of New York Mellon is also listed as the biggest secured creditor with a claim of $776 million, backed by all of Kodak’s U.S. assets except for those exempted in a 1988 agreement, according to the filing.
Perez, a former Hewlett-Packard executive who took charge at Kodak in 2005, tried to rescue the brand by cutting costs and winning shelf space for inkjet printers at Wal-Mart Stores Inc. and Staples Inc. He pushed its commercial digital printers into publishing and packaging, touting their flexibility over old-school printing plates.
Kodak was five years too late to accelerate its shift to the digital age, Perez, 65, said in an interview in August.
Kodak hasn’t sold enough printers and presses to create sufficient demand for replacement ink and supplies and service contracts to end losses in those units. In February, it projected operating profits in consumer and commercial inkjet printing by the end of 2013.
“Essentially they’re moving away from a very profitable model that generated multiple sales -- most everyone got double prints -- to one that’s awfully difficult to make a profit in,” said John Ward, a 20-year Kodak veteran who is now a lecturer in Rochester Institute of Technology’s college of business.
“Perez had a clear understanding that change had to happen and it had to happen quickly,” said Ward, 49, who met Perez shortly after he joined Kodak as president and chief operating officer in 2003. “Clearly they could have made some changes faster, but there just weren’t a lot of options to replace the film business.”
“Out of the bankruptcy proceedings, a much smaller company can emerge,” Don Strickland, a former Kodak vice president for digital imaging, said in a Bloomberg television interview. “But I really don’t believe that there’s going to be another Kodak moment.”
The process to sell Kodak’s patents out of bankruptcy will start now and it might take a couple of months, said a person with direct knowledge of the situation.
Kodak recently stepped up its campaign to extract more cash from its patent portfolio. The company yesterday sued Samsung Electronics Co. in a case that claims the Galaxy tablet infringes technology for capturing and sending digital images. Last week the company sued HTC Corp. and Apple Inc. and also has cases against Research In Motion Ltd. and Fujifilm Holdings Corp.
Samsung in 2010 agreed to pay Kodak $550 million to settle another patent dispute in which the Suwon, South Korea-based handset maker had been accused of infringing a patent for a feature that lets users preview images on their cameras using less processing power and storage.
Kodak was founded by George Eastman, who developed a method for dry-plate photography before introducing the Kodak camera in 1888, according to the company’s website. It went on to invent film, enabling Thomas Edison to develop the motion picture camera, as well as Brownie cameras selling for $1 and Kodachrome film.
Paul Simon immortalized the film in his 1973 song “Kodachrome.” The single, which praised Kodachrome’s “nice bright colors,” peaked at No. 2 on the Billboard Hot 100 chart. Kodak stopped producing the film in 2009.
“Everyone in the 20th century has been familiar with the Kodak name and its products,” said Burley of Ryerson’s School of Image Arts. “We’ve not only used them to memorialize our families and their histories, but also for diagnostics in hospitals, producing books and newspapers and police investigative work. And then the whole world of Hollywood is based around Kodak products.”
The company also invented the first digital camera in 1975, which it shelved because it would threaten its lucrative film business, Perez said in an interview in March.
“Like many other companies on the East Coast, Kodak has been phenomenal in research and patents and not so good commercializing things, actually terrible commercializing things,” Perez said.
Chief Operating Office
The company said Jan. 10 it had adjusted its management structure and created a chief operating office to reduce costs. The new commercial and consumer segments replace a previous business structure of three divisions: graphic communications; consumer digital imaging; and film, photofinishing and entertainment.
The digital business has accounted for about 75 percent, or $4.5 billion, of Kodak’s revenue last year, McCorvey said in her filing today.
The company employs about 17,000 people, 9,100 of whom are in the U.S., compared with the 63,900 that it employed in 2003, she said.
The chief operating office will be led by Philip Faraci and Laura Quatela. Faraci, president and chief operating officer since 2007, will focus on the commercial segment and sales and regional operations, and Quatela, the company’s former general counsel who was named as a second president in December, will focus on the consumer segment and certain corporate functions, Kodak said.
Three directors resigned from Kodak’s board in December, two of them from KKR & Co., two years after the private-equity firm helped the company refinance debt.
Adam H. Clammer and Herald Y. Chen quit Dec. 21. Both were elected in September 2009 after a refinancing deal that included KKR investing in $300 million of senior bonds and warrants for 40 million shares with an exercise price of $5.50. Kodak refinanced KKR’s bonds in March 2010 via a private placement to other investors.
By agreeing to hold the warrants for at least two years, among other conditions, the private-equity firm run by Henry Kravis and George Roberts was entitled to nominate the two board members.
Laura D. Tyson was the third director to leave. Tyson, 64, a director since 1997, notified the board of her resignation Dec. 29, according to a Dec. 30 regulatory filing. Tyson is a professor at University of California, Berkeley’s Haas School of Business, has been an adviser to the Obama and Clinton administrations and sits on the boards of at least five companies, including Morgan Stanley and AT&T Inc.
The bankruptcy case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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