Eastman Kodak Co, the photography icon that invented the hand-held camera, has filed for bankruptcy protection and plans to shrink significantly, capping a prolonged plunge for one of America's best-known companies.
The Chapter 11 filing makes Kodak one of the biggest corporate casualties of the digital age, after it failed to quickly embrace more modern technologies such as the digital camera -- ironically, a product it invented.
Kodak once dominated its industry, and its film was the subject of a popular 1973 song, "Kodachrome," by Paul Simon.
The bankruptcy 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. Kodak now employs 17,000 people worldwide, down from 63,900 just nine years ago.
"It is a very sad day even though we had anticipated it," said Shannon Cross, an analyst at Cross Research who has had a "sell" rating on the company since 2001. "If it emerges, it will be a much smaller entity."
According to papers filed with the U.S. 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.
Kodak expects to complete its U.S. restructuring in 2013. Non-U.S. units are not part of the Chapter 11 case.
"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.
Kodak's market value has sunk below $100 million from $31 billion 15 years ago, when its share price topped $94.
The shares EKDKQ.PK began trading on Thursday on the Pink Sheets , and closed down 6 cents at 30 cents.
At a nearly five-hour court hearing on Thursday, Kodak won interim approval from U.S. Bankruptcy Judge Allan Gropper to obtain up to $650 million of debtor-in-possession financing led by Citigroup Inc (C.N).
The amount is $300 million less than Kodak had sought, but would allow it to keep operating and avoid having to liquidate. A hearing to consider final approval was set for February 15.
Kodak's proposed 18-month package drew objections from secured creditors concerned they might not be paid back if Kodak executives mismanaged the company, allowed losses to mount, and failed to come up with a viable reorganization plan.
Lenders and creditors argued at Thursday's hearing over whether the package was too big. Gropper agreed that it could be cut down without threatening Kodak's ability to operate.
"This is not going to be a Chapter 7," the judge said, referring to a part of the U.S. bankruptcy code that governs liquidations.
Perez, a former Hewlett-Packard Co (HPQ.N) executive who became Kodak's chief in 2005, has in recent years steered Kodak toward consumer and commercial printers.
But that failed to restore annual profitability, something Kodak has not seen since 2007, and did not arrest a cash drain.
"They got behind the curve on the analog-to-digital shift, and they were way behind for a long time," said Ananda Baruah, a Brean Murray analyst who covers Kodak.
Kodak has struggled to meet its pension and other obligations to more than 65,000 workers, retirees and others who participate in its employee benefit programs.
McCorvey also said Apple Inc (AAPL.O), BlackBerry maker Research in Motion Ltd RIM.TO and Taiwan's HTC Corp (2498.TW) have dragged their heels in patent negotiations as Kodak's finances deteriorated.
She said Kodak "began to experience delays in licensing negotiations" with the companies, "all of which owe substantial royalties for use of Kodak's digital capture portfolio."
Patent litigation has been a major part of Kodak's recent efforts to generate revenue, and the company has sued Apple, Research in Motion and HTC over alleged violations.
Those companies have denied infringing Kodak patents. Apple on Thursday filed a limited objection in the bankruptcy case to preserve its rights in patent litigation.
Ultimately, McCorvey said, Kodak suffered from a "liquidity shortfall" as some vendors stopped shipping and providing services, and demanded shorter payment terms.
Kodak said in court papers it has about $820 million of cash and equivalents. It said it was down to just $56.7 million of cash in the United States.
"TOO MUCH VALUE" TO LIQUIDATE
The downfall has also hit Kodak's Rust Belt hometown of Rochester, New York, with its workforce there falling to about 7,000 from more than 60,000 in Kodak's heyday.
Andrew Cuomo, New York's governor, on Thursday called the bankruptcy "difficult and disappointing news" for the city, whose population was about 211,000 in the last census.
Kodak named Dominic DiNapoli, a vice chairman at business turnaround specialist FTI Consulting Inc (FCN.N), as its chief restructuring officer.
The investment bank Lazard (LAZ.N) is also providing advice and has been helping Kodak look for a buyer for its digital patents. Kodak's law firm is Sullivan & Cromwell.
Last week, Kodak reorganized its business operations, creating a commercial unit and a consumer unit. It previously had units for consumer digital imaging; film, photofinishing and entertainment; and graphic communications.
Mark Zupan, dean of the University of Rochester's business school, said "there's still too much value" for the company to liquidate. "Segments will be profitable enough to survive as a leader, as a smaller company," he said.
Perez said the bankruptcy would help Kodak maximize the value of patents related to digital imaging, used in virtually every modern digital camera, smartphone and tablet.
Andrew Dietderich, a lawyer for Kodak, told Gropper at Thursday's hearing that the company believes it has intellectual property worth $2.2 billion to $2.6 billion.
Kodak's more than 100,000 creditors include retailers such as Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N), and movie companies Sony Corp (6758.T) and Walt Disney Co (WMT.N).
According to Kodak, George Eastman, a high-school dropout from upstate New York, founded the company in 1880 and began making photographic plates. To get his business going, he splurged on a second-hand engine to make the plates 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, for which it became the dominant producer.
Eastman also introduced the "Wage Dividend" in which the company would pay bonuses to employees based on results.
Kodak went on to create cameras such as the Brownie, launched in 1900 and sold for $1, and the Instamatic in 1963.
The company on its website said a Kodak camera was used on the Apollo 11 mission in 1969. A Kodak camera was used by the astronauts to film the lunar soil from only inches away, according to NASA.
Kodak film has been used on 80 movies that have won Best Picture Oscars, according to the company.
In 1975, 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 Kodak put the digital camera on the back burner, and spent years watching rivals take market share away.
In 1994, Kodak spun off a chemicals business, Eastman Chemical Co (EMN.N), 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 is unclear how Kodak will handle its pension obligations, many of which it took on decades ago when U.S. manufacturers offered more generous retirement and medical benefits.
Many retirees hail from Britain, where the company has been manufacturing since 1891.
Kodak had promised to inject $800 million over the next decade into its British pension plan. [ID:nN1E80803N] It expects the trustee for the British plan to have a "significant" general unsecured claim against the company, court papers show.
The case is In re: Eastman Kodak Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-10202.
(Reporting by Liana B. Baker, Caroline Humer and Jonathan Stempel in New York; Nick Brown in Las Vegas; Tom Hals in Wilmington, Delaware; and Sue Zeidler in Los Angeles; Editing by Mark Bendeich, Tim Dobbyn and Bernard Orr)