Bloomberg News

Kodak Adjusts Structure Under Faraci, Quatela to Cut Costs

January 10, 2012

(Updates with closing share price in sixth paragraph.)

Jan. 10 (Bloomberg) -- Eastman Kodak Co., the unprofitable 131-year-old imaging company, adjusted its management structure and created a chief operating office to reduce costs as its sales decline and cash reserves dwindle. The stock soared.

The chief operating office will be led by Philip Faraci and Laura Quatela, both presidents at Rochester, New York-based Kodak. Faraci will focus on the commercial segment and sales and regional operations, and Quatela will focus on the consumer segment and certain corporate functions, Kodak said today.

Kodak has struggled since demand for photographic film began evaporating as the world embraced digital cameras. Chief Executive Officer Antonio Perez, who took the helm in 2005, bet a turnaround on digital printers for publishers, packagers, advertisers and households. The company is weighing options including a bankruptcy filing, three people familiar with the matter said in September.

“This changes nothing,” said Amer Tiwana, an analyst at CRT Capital Group LLC in Stamford, Connecticut. “They haven’t provided any specifics around what kind of financial benefit this will yield.”

Faraci, president and chief operating officer since 2007, and Quatela, the company’s former general counsel who was last month named as a second president, both report to Perez.

Kodak rose 50 percent to 60 cents at the close in New York, the biggest gain in three months. The stock declined 88 percent last year.

Burning Cash

The new commercial and consumer segments replace a previous business structure consisting of three divisions: graphic communications; consumer digital imaging; and film, photofinishing and entertainment.

Kodak isn’t releasing cost-cutting targets from the changes, said Christopher Veronda, a company spokesman. Further adjustments are planned, he said.

“It came out of our strategic reviews, the idea that a new streamlined structure would be helpful to the company,” Veronda said. “We’ll continue to look for opportunities, and this can be a means to help accelerate an improved structure.”

Kodak’s cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year earlier. The company is scheduled to report fourth-quarter results Jan. 26.

Perez is seeking to raise cash by selling a portfolio of more than 1,100 digital imaging patents, and some other business units, while pursuing royalties from Apple Inc. and Research In Motion Ltd.

Bankruptcy Probability

The company may file for bankruptcy protection by early February if it can’t sell digital patents, the Wall Street Journal reported Jan. 4, citing people familiar with the matter. Kodak declined to comment on market rumors and speculation last week.

Moody’s Investors Service Jan. 5 cut ratings on about $1 billion of Kodak’s debt with a negative outlook, citing “a heightened probability of a bankruptcy” as liquidity deteriorates, making the patent sales effort more challenging.

That same day, the sole equity analyst to recommend buying Kodak shares cut his rating to hold. The analyst, Mark Kaufman of Rafferty Capital Markets, also lowered his price target to $2.75 from $5.50, citing uncertain timing of patent sales and “potential for strategic Chapter 11 reorganization.”

In September, after the report by Bloomberg News about Kodak weighing options, the company issued a statement saying it has “no intention of filing for bankruptcy” and that it was pursuing patent sales.

Resignations

The New York Stock Exchange Jan. 3 warned Kodak it needs to get its share price back above $1 within six months to continue trading, under listing standards rules.

Three board members resigned last month: Laura D. Tyson, a director since 1997, and Adam H. Clammer and Herald Y. Chen, two directors from private-equity firm KKR & Co. who were elected in September 2009. Communications chief Gerard Meuchner left the company “to accept another opportunity,” Kodak said Jan. 5.

With each development, pressure has increased “to say something, that they’re still alive and kicking,” CRT’s Tiwana said. “There’s no magic wand that you can wave and make things better overnight.”

Kodak is counting on winning a U.S. International Trade Commission case to help extract about $1 billion in licensing fees from Apple and RIM. Kodak claims the companies’ camera- wielding devices infringed on its image-preview technology.

Imaging Pioneer

After earlier ITC delays, Judge Thomas Pender extended until May 21 his decision on the camera company’s claims. The target date to complete the entire case is Sept. 21, Pender said in December.

Kodak was founded by George Eastman, who developed a method for dry-plate photography before introducing the Kodak camera in 1888, according to the company’s website. It went on to invent film enabling Thomas Edison to develop the motion picture camera, Brownie cameras and Kodachrome film.

The company also invented the first digital camera in 1975, which it shelved because it would threaten its lucrative film business, Perez said in a March interview.

Before Kodak, Perez spent 25 years at Hewlett-Packard Co., helping develop inkjet printers.

--Editors: Ville Heiskanen, John Lear

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net


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