Kodak: Chapter 11 Bankruptcy - what does it mean? (update 12.17pm)
After months of uncertainty over its finances Kodak has today confirmed that it has filed for bankruptcy protection.
NEWS UPDATE: UK STAFF SUMMONED TO MEETING
Kodak UK's consumer PR agency had yet to respond to a request for comment at the time of writing.
Eastman Kodak Co filed for Chapter 11 bankruptcy protection in New York early this morning, according to a statement issued by the company (see below).
In the statement, issued to the media, Kodak it had 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 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.'
CEO Antonio Perez described the move as a 'significant step toward enabling our enterprise to complete its transformation'.
He added: '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 monetising non-core IP [intellectual property] assets.
'We look forward to working with our stakeholders to emerge a lean, world-class, digital imaging and materials science company.'
What exactly is 'Chapter 11'?
Chapter 11 bankruptcy is 'a form of bankruptcy that was designed to allow individuals, corporations and partnerships to reorganise their debts in an attempt to repay them and get back on their feet,' according to the US-based legal website bankruptcydistrictcourt.com.
Essentially, it allows a business to continue to operate as it tries to restructure and resolve its debts.
'While not limited to businesses, it is often the chosen course businesses take because it does not limit the amount of debt, as limited by Chapter 13.
'This means large businesses and corporations with huge debt loads are often able to reorganise under this structure.'
The website adds: 'The debtor generally has four months after filing to create a repayment plan. After that time, the creditors can also make a plan...
'While in Chapter 11 bankruptcy, a business should continue operating, paying creditors from their earnings or the sale of any assets.'
Here is the full statement issued to the press by Eastman Kodak this morning:
EASTMAN KODAK COMPANY AND ITS U.S. SUBSIDIARIES COMMENCE VOLUNTARY
CHAPTER 11 BUSINESS REORGANIZATION
Flow of Goods and Services to Customers to Continue Globally in Ordinary Course
Non‐U.S. Subsidiaries Are Not Included in U.S. Filing and Are Not Subject to Court Supervision
Company Secures $950 million in Debtor‐in‐Possession Financing in U.S.
Kodak’s Reorganization to Facilitate Emergence as Profitable and Sustainable Enterprise
ROCHESTER, NY, January 19, 2012 – 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 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.
More information about Kodak’s Chapter 11 filing is available on the Internet at www.kodaktransforms.com. Information for suppliers and vendors is available at (800) 544‐7009 or (585) 724‐6100.
Kodak will be filing monthly operating reports with the Bankruptcy Court and also plans to post these monthly operating reports on the Investor Relations section of Kodak.com. The Company will continue to file quarterly and annual reports with the Securities and Exchange Commission, which will also be available in the Investor Relations section of Kodak.com.