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131 Year old Kodak Files for Bankruptcy Protection


By Mike SPECTOR, Dana MATTIOLI and Katy STECH / January 19, 2012, 1:29 A.M. / WSJ


Eastman Kodak Co. filed for Chapter 11 bankruptcy protection in New York early Thursday morning, after the struggling photography icon ran short on cash needed to fund a long-sputtering turnaround.


The storied former blue chip said it had secured $950 million in financing from Citigroup Inc. to help keep it afloat during bankruptcy proceedings. The company also named Dominic Di Napoli, a vice chairman at FTI Consulting Inc., as its chief restructuring officer to help steer the company through bankruptcy court.


The 131-year-old company struggled for decades to cope with the emergence of competitors in its film business and the rise of digital technology. Its final pivot toward transforming into a company that sells printers proved too costly amid declining film sales and expensive obligations to retirees.


The filing is a setback for Chief Executive Antonio Perez, who joined the company after running the printer business at Hewlett-Packard Co. Kodak shed more than $7 billion in market value over his tenure, as the executive failed to replicate his former employer's success in printers.


Uncertainty over the viability of Mr. Perez's printer strategy raises questions about the fate of Kodak's 19,000 employees. The filing also poses risks for Kodak's retirees, as the company could try to escape pension and health-care obligations in bankruptcy court.


Kodak, which filed in bankruptcy court in Manhattan , said it will continue to operate its businesses and hopes to emerge from Chapter 11 next year after using bankruptcy court to cut costs and sell off some of its patent portfolio.


"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 a release.


Law firm Sullivan & Cromwell and investment bank Lazard Ltd., along with FTI, are advising Kodak.


In its bankruptcy petition, Kodak listed $5.1 billion in assets and $6.75 billion in debts.


It also listed creditors including retailers Wal-Mart Stores Inc., Target, Best Buy and; Sony Studios, Warner Brothers, Disney Studios and Paramount Studios; and cellphone maker Nokia.


Kodak has lost money every year but one since Mr. Perez took over in 2005. The company's problems came to a head in 2011, when Mr. Perez's strategy of milking Kodak's patent portfolio for licensing deals to raise cash ran dry.


Hoping to plug the hole, Kodak put 1,100 digital patents up for sale in August. The prospect of a bankruptcy filing, however, kept would-be buyers on the fence, people familiar with the matter have said. Kodak talked to hedge funds about borrowing hundreds of millions of dollars to tide it over until the patents sold, but the talks hit snags.


The pressure on Kodak's cash became clear in late September, when the company drew $160 million from its credit line at a time when it had told investors it would be building cash.


Soon after, Kodak hired restructuring lawyers and advisers. In a November securities filing, the company warned that it might not be able to stay in business through 2012 unless it could borrow more money or sell some of its patents.


By early January, the company was preparing a Chapter 11 filing. The filing may make it easier for Kodak to sell the patents—and to command a higher price. An auction would be overseen by a judge and require bidders to make open offers that others could try to top.


Kodak got its start in 1881 when founder George Eastman turned kitchen experiments in his mother's Rochester home into a photographic dry plates business. For decades, the company enjoyed a virtual monopoly on film, which provided high margins and a steady cash flow. At its peak, the company employed 145,000 people globally, drew thousands of well-paid engineers to Rochester and was a blue-chip stock before entering its long decline.


Mr. Perez's rescue strategy was to concentrate on consumer and commercial inkjet printing. His goal in the consumer market was to turn the approach of market leader H-P on its head by betting consumers would pay more for printers if they could get cheaper ink refills enabled by Kodak technology. But the saturated market was tough to penetrate, and Kodak had to pay heavily to subsidize sales to build an installed base for its ink.


Creditors will have to decide whether the printer operations are worth supporting, or whether the bulk of the company's value is in its patents. Nortel Networks, a company that also had fallen behind the technology curve, opted to liquidate itself in bankruptcy court rather than reorganize, raising a greater than expected $4.5 billion for its patent trove.


Write to Mike Spector at, Dana Mattioli at and Marie Beaudette at

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