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Wednesday, January 04, 2012, 06:18 pm PT (09:18 pm ET)

WSJ: Eastman Kodak readying bankruptcy filing

A new report has rung an early death knell for once-mighty photography pioneer Eastman Kodak, claiming that the company is preparing a bankruptcy protection filing in case it is unable to sell off its digital imaging patents.

People familiar with the matter told The Wall Street Journal that Kodak could submit the Chapter 11 request as soon as this month or early February. Under bankruptcy protection, the company would reportedly continue to operate while a court would undertake efforts to auction off a set of 1,100 patents.

Those 1,100 patents have become a beacon of hope for the former photography giant, which still has 19,000 employees. Kodak revealed last July that it was shopping its collection of digital imaging patents around in order to shore up cash for a turnaround. Chief Executive Officer Antonio Perez said in August that a number of people had expressed interest in the portfolio.

Insiders said Kodak had unsuccessfully petitioned hedge funds to borrow money to stay afloat while waiting for the patents to sell. The company has also reportedly talked to banks about $1 billion in financing that it would need during bankruptcy proceedings.

Kodak had originally hoped for a settlement of more than $1 billion in royalties from Apple and Research in Motion by way of a lawsuit with the International Trade Commission. However, a final ruling for that suit has been delayed until September 2012.

At this point, however, it's not clear whether Kodak will survive until next September. The company had just $862 million in reserves at the end of the third quarter of 2011 after losing $222 million during the period. For his part, Perez projected that Kodak would round out the fourth quarter with $1.4 billion in the bank.

One analysis from last August valued Kodak's digital imaging patents at $3 billion. At the time, the portfolio was worth more than five times the company's market capitalization. But, in the wake of the Journal's report on Wednesday, shares of the company fell more than 28 percent, leaving Kodak's market cap at just $126.88 million. Five years ago, the stock was worth over $25, a far cry from its current value of $0.47.

Kodak's decline has drawn comparisons to other companies that floundered during the transition to the digital age. The report noted the fates of Polaroid, Borders and Blockbuster, all of which were unable to adapt to new business models.

Former employees said Kodak was the Apple or Google of its time. "We had this self-imposed opinion of ourselves that we could do anything, that we were undefeatable," said Robert Shanebrook, the company's former worldwide product manager for professional photographic film.

As sales of film dried up, Perez attempted to pivot the company to focus on printers and printer ink. However, Kodak has consistently lost money under his leadership and has achieved just a 2.6 percent share of the printer market.