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January 19, 2012

Kodak Relents, Files for Chapter 11 Bankruptcy Protection

By Beecher Tuttle, TMCnet Contributor

Unable to respond effectively to the advancements of the digital age, former industry behemoth Eastman Kodak (News - Alert) filed for bankruptcy protection early Thursday morning.

Although the news is not all that surprising considering the Rochester, New York-based company has booked only one profitable year since 2004, it still marks a sad day for a 131-year film pioneer that had a market valuation of $31 billion in February of 1997. That figure dropped to just $210 million late last year after the company was hurt by competition from foreign rivals and the onset of digital photography, an industry that Kodak helped establish but one that it couldn't exploit.

Shares of Kodak stock fell from $97 per share in 1997 to an all-time low of 37 cents per share earlier this month.

Kodak has been hemorrhaging cash and increasing its debt for years, leading many to believe that today's news was an inevitability rather than a possibility. The company hired a law firm that specializes in bankruptcy cases and restructuring back in October after borrowing $160 million from a line of credit and failing to reveal its cash position publically.

Kodak has scraped by in recent years with proceeds from patent licensing and infringement lawsuits, but those wells have also begun to dry. However, Kodak has made fresh patent infringement claims against Apple, HTC (News - Alert) and Samsung in recent months.

The assumption has been that Kodak's next step will be to sell off its trove of valuable patent licenses to raise cash, pay its bills and restructure itself as a printing specialist, an initiative Chief Executive Antonio Perez has been driving at for years.

As part of the Chapter 11 filing, Kodak has obtained a $950 million load from Citigroup to establish working capital and enough liquidity to continue to operate during the bankruptcy process. The company said that it has $5.1 billion in assets and a whopping $6.8 billion in debts.

Calling the bankruptcy proceedings a "business reorganization" effort, Kodak stressed that it is looking forwarding, not backwards. The goal is to resolve its legacy liabilities, bolster its liquidity, monetize its intellectual property and then restructure its organization to focus only on profitable business lines like the printing industry.

"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," Perez noted in a statement.

Kodak has already cut its workforce by 47,000 since 2003, but it is unclear whether further workforce reductions will be necessary. With 25,000 retirees in Rochester alone, the company has been a pillar in the community for over a century. Kodak's pension obligations are also a major concern.

Kodak is scheduled to unveil its 2011 financial results later this month. Many believe that filing for bankruptcy protection a week before suggests even more meager year-end results than had been expected.

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Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Rich Steeves

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