The once mighty photographic company Eastman Kodak announced late Wednesday that it had filed for Chapter 11 bankruptcy after years of dwindling sales as it failed to respond to developments in the digital age.
In a statement, Kodak chairman and CEO Antonio M. Perez said, “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.”
The company that brought the world the Brownie camera over 100 years ago also stated it had secured an 18-month, $950 million loan from Citigroup to help it continue operating.
Last week Kodak announced a reorganization of its company in an effort to improve efficiency and cut costs, and is currently embroiled in a legal battle with Apple and HTC, claiming the two companies have infringed a number of its patents.
The iconic American company dominated the photography business for much of its 131-year history, at its peak holding a 90 percent share of the US camera film market in the 1970s. Since then, however, it has been caught in a downward spiral. In the 80s, business began to fall away when foreign companies started selling film at lower prices, and in the 90s the advent of digital cameras virtually destroyed Kodak‘s business. The failure of the company to adapt to the digital revolution culminated in Wednesday’s announcement.
To say Kodak is facing major difficulties is, of course, putting it mildly. Even if it can generate revenue from selling its patents and winning patent disputes in court, it’s hard to see how it can move forward from here. The market for camera film continues to shrink rapidly and although Kodak has a stake in the compact digital camera business, that market is coming under increasing threat from smartphones with their constantly improving photographic capabilities.
Below: Kodak’s statement:
Eastman Kodak Company (“Kodak” or the “Company”) announced today that it and its U.S. subsidiaries filed voluntary petitions for chapter 11 business reorganization in the U.S. Bankruptcy Court for the Southern District of New York.
“The Board of Directors, the senior management team and I would like to underscore our appreciation for the hard work and loyalty of our employees. Kodak exemplifies a culture of collaboration and innovation. Our employees embody that culture and are essential to our future success.”
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. The Company has made pioneering investments in digital and materials deposition technologies in recent years, generating approximately 75% of its revenue from digital businesses in 2011.
Kodak has obtained a fully-committed, $950 million debtor-in-possession credit facility with an 18-month maturity from Citigroup to enhance liquidity and working capital. The credit facility is subject to Court approval and other conditions precedent. The Company believes that it has sufficient liquidity to operate its business during chapter 11, and to continue the flow of goods and services to its customers in the ordinary course.
Kodak expects to pay employee wages and benefits and continue customer programs. Subsidiaries outside of the U.S. are not subject to proceedings and will honor all obligations to suppliers, whenever incurred. Kodak and its U.S. subsidiaries will honor all post-petition obligations to suppliers in the ordinary course.
“Kodak is taking a significant step toward enabling our enterprise to complete its transformation,” said Antonio M. Perez, Chairman and Chief Executive Officer. “At the same time as we have created our digital business, we have also already effectively exited certain traditional operations, closing 13 manufacturing plants and 130 processing labs, and reducing our workforce by 47,000 since 2003. Now we must complete the transformation by further addressing our cost structure and effectively monetizing non-core IP assets. We look forward to working with our stakeholders to emerge a lean, world-class, digital imaging and materials science company.”
“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,” Mr. Perez continued. “Our goal is to maximize value for stakeholders, including our employees, retirees, creditors, and pension trustees. We are also committed to working with our valued customers.
“Chapter 11 gives us the best opportunities to maximize the value in two critical parts of our technology portfolio: our digital capture patents, which are essential for a wide range of mobile and other consumer electronic devices that capture digital images and have generated over $3 billion of licensing revenues since 2003; and our breakthrough printing and deposition technologies, which give Kodak a competitive advantage in our growing digital businesses.”
Mr. Perez concluded, “The Board of Directors, the senior management team and I would like to underscore our appreciation for the hard work and loyalty of our employees. Kodak exemplifies a culture of collaboration and innovation. Our employees embody that culture and are essential to our future success.”
Kodak has taken this step after preliminary discussions with key constituencies and intends to work toward a consensual reorganization in the best interests of its stakeholders. Kodak expects to complete its U.S.-based restructuring during 2013.
The Company and its Board of Directors are being advised by Lazard, FTI Consulting Inc. and Sullivan & Cromwell LLP. In addition, Dominic DiNapoli, Vice Chairman of FTI Consulting, will serve as Chief Restructuring Officer to support the management team as to restructuring matters during the chapter 11 case.