Kodak hopes bankruptcy filing will give it a fresh start

— -- The picture of what Eastman Kodak's future will look like remains blurry despite its Thursday filing for Chapter 11 bankruptcy protection.

Even after failing spectacularly to re-invent itself over the past decade, the iconic film manufacturer is pressing ahead with its current strategy for rejoining the ranks of leading technology companies. The plan: persuade consumers and small-business owners to try out its line of digital printers and software.

But Kodak's best chance for a big rebound post-bankruptcy might actually be in the emerging global market for giant commercial inkjet printers that can sell for $1 million or more a pop, analysts say. "They are definitely going after this market," says Pete Basiliere, research director at Gartner, the tech industry research firm. "These are home inkjet printers on steroids."

There's a bit of irony in Kodak's future being intertwined with the growth of these cutting-edge inkjet printers. Their rising importance has been driven by a modernization push at large commercial printing plants around the world that often involves replacing aging off-set printing presses, which use Kodak film, with inkjets.

Worldwide shipments for the largest of these massive digital printers held steady at more than 7,000 each year from 2006 through 2010, despite the global recession, according to Gartner. The market is expected to grow steadily for years to come, driven partly by an expected wave of advancements in inkjet printing technologies, says Basiliere.

Kodak's success is far from a given. The company must prove it can execute a winning business plan in the face of withering competition, something it has repeatedly failed to do in the past few decades.

Yet CEO Antonio Perez is not ready to throw in the towel. He said in a statement that Chapter 11 gives Kodak the best chance to succeed in tapping more value from its treasure trove of imaging patents while continuing to compete in the dynamic inkjet imaging market. Breakthrough technologies give "Kodak a competitive advantage in our growing digital businesses," he says.

The company has 120 days to submit a plan for becoming viable again. Company spokesman Christopher Veronda said Kodak will take "a series of many steps over a number of months." In court fillings, Kodak indicated it will do more of what it has already been doing, including selling patents, cutting spending on retirees and putting more emphasis on its existing product lines.

Meanwhile, Bob Volpe and Arthur Roberts, board members of Kodak retiree group EKRA, said the group will seek a seat on a creditors' committee that will review Kodak's reorganization plan; retirees will push to retain benefits.

Successful Chapter 11 reorganizations typically take a year or more. However, if the company's plan falters, court proceedings could shift to breaking up Kodak and selling the pieces to pay off creditors, says bankruptcy consultant Larry Perkins of Conway MacKenzie. That breakup process can be carried out in a matter of months.

For the moment, Perez seems committed to reviving Kodak. "He's the incumbent guy doing his best," says Perkins. "Realistically, he inherited a lot of problems that have been brewing over a long period of time."

Perez has much to unravel. Kodak muddled its way through the sea change from film-based to digital imagery, and the company faces proven competitors including the likes of Nikon, Canon, Hewlett-Packard and Ricoh, a division of IBM.

"Kodak is still a highly recognized brand. But how does it leverage this?" says Jack Gold, principal analyst at J. Gold Associates, who worked summer jobs at Kodak as a youth. "If it tries to compete in commodity markets, it likely will lose. If it competes at the high end, what products can it bring to market that will outshine its competition?"

A powerful legacy

The iconic Rochester, N.Y., company, whose history dates to the late 19th century and the technical and marketing genius of founder George Eastman, has been besieged for the past three months by rumors that it would make a bankruptcy filing. Those rumblings had intensified in the past two weeks.

The filing listed assets for the company of $5.1 billion and debts of $6.75 billion. Perez assured employees that it will be business as usual under Chapter 11. "Kodak expects to pay employee wages and benefits," the company said.

As of a year ago, Kodak had 18,800 employees companywide. The worldwide figure is now 17,000, the company said in its bankruptcy papers, about 8,000 of them in the U.S.

At its peak in the early 1980s, the company employed 130,000 worldwide, nearly half in Rochester. Kodak has about 25,000 retirees in the Rochester region, so the company's legacy is a powerful one there.

The filing was made in the Southern District of New York, a common location for major bankruptcy cases because the New York City metropolitan area has the infrastructure of banks, law firms and other institutions needed to handle complex legal matters.

Citigroup has committed to providing Kodak with a $950 million line of credit to help sustain its operations while it reorganizes its finances.

Kodak said it expects to continue operating its businesses while in Chapter 11, "and to continue the flow of goods and services to its customers."

Perez said in a video statement on Kodak's website that the company has four objectives while in bankruptcy reorganization:

•Obtaining the financing to reassure its employees, customers and other stakeholders that the company will stay in business.

•Pursuing patent-infringement claims against major companies including Apple.

•Adjusting its "legacy costs" to a fairer level.

•Driving growth in the printing businesses Perez has declared are its future.

The filing wasn't a surprise, though no one outside the company knew precisely when it would come. Kodak was scheduled to report its 2011 fourth-quarter and full-year financial results on Jan. 26, and it may have become apparent to company officials that the news would be bad, leading to a pre-emptive move into Chapter 11.

Kodak had said in November that it was in danger of being unable to pay its bills at some point in 2012 unless it received a substantial infusion of cash. What seemed like the best potential source of cash was the sale of its digital patent portfolio, which analysts said could fetch up to $3 billion. But Kodak's filing seems to indicate it now thinks it will have a better chance of selling the patents under court supervision.

Perez has insisted that Kodak would return to profitability this year as it pursues a strategy of building several key business lines — digital printing presses, package printing, commercial and home inkjet printers and workflow software. The company's traditional film business, though still generating substantial revenue, continues to shrink, and just last week lost its status as a stand-alone operating division within the company.

Kodak owes a lot of well-known companies a lot of money, including Bank of New York Mellon; retailers Wal-Mart, Target and Best Buy; and Hollywood studios Warner Bros. and Disney.

How much those companies get will be determined during bankruptcy-court proceedings.

Sink and Daneman write for the Rochester (N.Y.) Democrat and Chronicle