Eastman Kodak Company's bankruptcy is another in a string
of recent chapter 11 filings by established brand names that lack a clear exit
strategy (others are Borders,
So much for the "end
As noted in Matt Daneman's article
this week in the Rochester Democrat & Chronicle (quoting
me, thanks Matt!), a Creditors'
Committee was recently formed, with the U.S. Pension Benefit Guaranty Corp.
and trustees of its UK pension plan representing two of its seven
members. The Committee appointed Milbank
Tweed as its bankruptcy counsel.
Kodak's CFO, Antoinette McCorvey, submitted a first-day
supporting affidavit which is selectively long on history and short on
prospects for the future. In the 8 years preceding the bankruptcy filing,
Kodak shed 50,000 jobs and closed 13 of 15 film plants and 130 photo
labs. It also exercised unilateral rights to reduce or eliminate some
retiree benefits to its 65,000 retirees worldwide, resulting in about $100
million of savings annually, but retiree benefits still consumed about $250
million of cash in 2011. Silver commodity prices also are an astounding
200% higher than 2008 (thank
you Chairman Bernanke!). Bankruptcy provides Kodak with an
opportunity to accomplish many cost cutting objectives, including its behemoth
$2.5 billion in legacy costs.
Notably absent from the affidavit is Kodak's staggering
losses in the past decade. Buried deep in the affidavit is a balance
sheet from which one can derive that Kodak lost about $700 million in the
nine months ended September 30, 2011, but nowhere in the affidavit can you find
that Kodak lost another $1.5
billion in the 4 preceding years! And the two years before that were
anything but banner, too ($1.9
billion loss in 2005 & 2006 - p.60).
Kodak is like a Rubik's Cube. Its corporate
chart shows 120 foreign and domestic subsidiaries. It has three
gargantuan business segments, R&D activities averaging $300-500 million per
year in expense, 13,000 foreign patents and trademarks and pending
registrations in 160 countries, and 8,900 U.S. patent and trademark
registrations and applications. This case is about not only whether the
sum of the parts are worth more than the whole, but whether some of the parts
have any tangible value at all.
Trying to predict the value of nearly 23,000 patent and
trademark registrations and applications is a monumental-if not entirely
unfeasible-task in a chapter 11, particularly given the right of licensees to
compel specific performance (see my IP in Bankruptcy
Outline). And given Kodak's accelerating losses through the past
decade, one has to wonder whether a real buyer will ever emerge for Kodak or
whether the patent trolls will pick it apart like rabid Orcs.
In sum, Kodak's footing in this chapter 11 seems as unsure as that of a
Mississippi lawyer running to a Rochester court on a winter day.
Alas, in the end, we reminisce over Paul Simon's all-too-prescient Kodachrome,
but expect Kodak's chapter 11 is a Bridge Over Troubled Water.
Time will tell whether those waters will wash out the bridge.
To read more items by Steve Jakubowski, visit the
Bankruptcy Litigation Blog
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