UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |
For the year ended December 31, 2023 or |
☐ | TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 FOR THE TRANSITION PERIOD FROM TO |
☒Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2020 or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to_____
Commission File Number 1-871-00087
EASTMAN KODAK COMPANY
(Exact name of registrantRegistrant as specified in its charter)Charter)
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(State or other jurisdiction of | ( |
343 State Street, Rochester, New York | 14650 |
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Registrant’sRegistrant’s telephone number, including area code: 585-724-4000(800)356-3259
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered | ||
Common | KODK | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrantRegistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrantRegistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company”company,” and “emerging growth companycompany” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer |
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Non-accelerated filer |
| ☐ | Smaller reporting company |
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Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1 (b). ☐
Indicate by check mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business dayRegistrant, based on the closing price of the registrant's most recently completed second fiscal quarter,shares of common stock on June 30, 20202023, was approximately $44$293 million. The registrant has no non-voting common stock.
The number of shares outstanding of the registrant's common stockRegistrant’s Common Stock outstanding as of March 1, 20217, 2024 was 78,503,476 shares of common stock.79.9 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on May 15, 2024 have been incorporated by reference into Part III of this Annual Report on Form 10-K.
Eastman Kodak Company
Form 10-K
December 31, 20192023
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When used in this report, unless otherwise indicated, by the context, “we,” “our,” “us,” the “Company” and “Kodak” refer to the consolidated company on the basis of consolidation described in Note 1 to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K Report. Also, unless otherwise indicated by the context, “EKC” and the “Company” refer to the parent company, Eastman Kodak Company.
Kodak is a global technology companymanufacturer focused on commercial print and advanced materials and chemicals. With 79,000 patents earned over 130 years of research and development ("R&D"), Kodak provides industry-leading hardware, software, consumablesbelieves in the power of technology and services primarilyscience to customers inenhance what the world sees and creates. Kodak's innovative, award-winning products, combined with its customer-first approach, make us the partner of choice for commercial print, packaging, publishing, manufacturing and entertainment.printers worldwide. Kodak is committed to environmental stewardship, and ongoingincluding industry leadership in developing sustainable solutions. Kodak’s broad portfolio of superior products, responsive support and world-class R&D make Kodak solutions a smart investment for customers looking to improve their profitability and drive growth.print.
The Company was founded by George Eastman in 1880 and incorporated in 1901 in the State of New Jersey. Kodak is headquartered in Rochester, New York.
REPORTABLE SEGMENTS
Kodak has fourDESCRIPTION OF THE BUSINESS
Kodak’s operations are classified into three reportable segments: Traditional Printing, Digital Printing,Print, Advanced Materials and Chemicals, and Brand. The balance of Kodak’s continuing operations, which do not meet the criteria of a reportable segment, are reported in All Other and primarily represent the Eastman Business Park ("EBP") operations.
Traditional Printing
The Traditional PrintingPrint segment is comprised of five lines of business: the Prepress Solutions which includes Kodak’sbusiness, the PROSPER business, the Software business, the Electrophotographic Printing Solutions business and the Versamark business. Print segment products include digital offset plate offerings and computer-to-plate (“CTP”) imaging solutions. The Traditional Printing segment provides digital and traditional product and service offerings to a variety of commercial industries, including commercial print, direct mail, book publishing, newspapers and magazines and packaging.
While this segment is experiencing challenges from digital substitution and competitive pricing pressures, innovations in Kodak product lines that can command premium prices offset some of the long-term market price erosion. Additionally, Kodak seeks to mitigate the impact of market dynamics on pricing and volume pressures and of increases in manufacturing costs, including aluminum prices, through a combination of price increases, commodity contracts, improved production efficiency and cost reduction initiatives.
Prepress Solutions capitalizes on a contract-based, stable and recurring cash flow-generative business model. The average duration of customer contracts is two years. These contracts offer stability and generate recurring revenue. The core of the business is the manufacturing of aluminum digital printing plates of varying sizes. These plates can be as small as 23cm x 27cm and as large as 126cm x 287cm. Unexposed plates are sold to commercial printing companies for use in the offset printing process. Kodak also manufactures equipment, known as CTP equipment, which images the plates with a laser. The plates are used in the offset printing process, which transfers ink from the plate onto a rubber blanket and then onto the substrate to be printed. Due to the nature of the imaging and printing process, a new plate must be used for each printing run. As a result, there is a recurring revenue stream from the sale of these plates.
The Traditional Printing products and services are sold globally to customers through both a direct sales team as well as indirectly through dealers.
Primary competitors are Fuji and Agfa. Kodak expects to benefit from current industry trends, including customers’ increasing focus on sustainability initiatives, which strengthens demand for Kodak’s process-free solutions.
Digital offset plate offerings include KODAK SONORA Process Free Plates. KODAK SONORA Process Free Plates are prepared directly with a CTP thermal output device and do not require subsequent processing chemistry, processing equipment or chemical disposal. As a result, the plates deliver cost savings and efficiency for customers and promote environmental sustainability practices.
Net sales for Traditional Printing accounted for 58% and 59% of Kodak’s total net revenue for the years ended December 31, 2020 and 2019, respectively.
The Traditional Printing segment also provides service and support related to these products.
On September 1, 2019 Kodak established a strategic relationship with Lucky HuaGuang Graphics Co. Ltd (“HuaGuang”) in the People’s Republic of China.
The relationship is comprised of an agreement under which Kodak sold its shares of the Kodak (China) Graphic Communication Co. Ltd. entity, which included the offset printing plates facility in Xiamen, China, and related assets and liabilities, to HuaGuang; a supply agreement from HuaGuang to Kodak; and a license agreement under which Kodak licensed its plates technology to HuaGuang to sell into the plates market in China.
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For further information on the relationship with HuaGuang, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Annual Report on Form 10-K (“MD&A”) and Note 16, “Other Operating (Income) Expense, net” in the Financial Statements and Supplementary Data under Item 8 of this Annual Report on Form 10-K.
Digital Printing
The Digital Printing segment contains Electrophotographic Printing Solutions, Prosper, Versamark and Software. Digital Printing products includesolutions, high-quality digital printing solutions using electrically charged toner-based technology, production press systems, consumables (primarily ink), inkjet components, software and services. Digital PrintingThe Print segment serves a variety of commercial industries, including commercial print, direct mail, book publishing, newspapers and magazines and packaging/labels. Print products are distributed directly by Kodak andsold to customers through both a direct sales team as well as indirectly through dealers. The markets that the Digital Printing segment serves are highly competitive in variable printing applications like direct mail, newspapers, books,dealers and packaging/labels.channel partners. Key competitors are Fuji, EC03, HP, Canon, Ricoh and Screen. Products and services included in Kodak’s offerings are described below.
This segment is experiencing challenges from higher raw material and other supply chain costs and competitive pricing pressures. Refer to the Business Overview and Strategy section of Item 7, “Management’s Discussion and Analysis” for additional information on the opportunities and challenges related to the Print segment.
• | Prepress Solutions: |
• | The Prepress Solutions business provides digital offset plate offerings and CTP imaging solutions. |
• | The goal of Prepress Solutions is to pursue a contract-based, stable and recurring cash flow-generative business model. The average duration of customer contracts is two years. These contracts generate recurring revenue. The core of the business is the manufacturing of aluminum digital printing plates of varying sizes. These plates can be as small as 23cm x 27cm and as large as 126cm x 287cm. Unexposed plates are sold to commercial printing companies for use in the offset printing process. Kodak also manufactures equipment, known as CTP equipment, which images the plates with a laser. The offset printing process transfers ink from the plate onto a rubber blanket and then onto the substrate to be printed. Due to the nature of the imaging and printing process, a new plate must be used for each printing run. As a result, there is a recurring revenue stream from the sale of these plates. |
NEXFINITY printers produce high-quality, differentiated printing of short-run, personalized print applications, such as direct mail, books, marketing collateral and photo products.
• | The Digital offset plate offerings include KODAK SONORA Process Free Plates. Instead of the traditional process in which a plate is run through processing equipment containing a solution of developer, chemicals and water to set the image, KODAK SONORA Process Free Plates enable printers to set the image on the platesetter, then go directly to press. Processing variability is eliminated, so process-free plate users benefit from more consistent and stable plates. The solution is designed to be a much more environmentally friendly approach that could eliminate all processing chemicals, water and excess energy and waste from the plate-making process. These plates are designed to deliver cost savings and efficiency for customers and promote environmental sustainability practices. |
DIGIMASTER printers use monochrome electrophotographic printing technology for transactional printing, short-run books, corporate documentation, manuals and direct mail. Kodak has ceased manufacturing Digimaster printers but continues to sell consumables into the installed base.
• | On September 1, 2019 Kodak established a strategic relationship with Lucky HuaGuang Graphics Co. Ltd (“HuaGuang”) in the People’s Republic of China. The relationship is comprised of an agreement under which Kodak sold its shares of the Kodak (China) Graphic Communication Co. Ltd. entity, which included the offset printing plates facility in Xiamen, China, and related assets and liabilities, to HuaGuang; a supply agreement for HuaGuang to help Kodak fulfill customer demand; and a license agreement under which Kodak licensed its plates technology, including its Sonora Process Free plates technology, to HuaGuang with the intent of expanding the plates market in China. The term of the supply agreement expires in the third quarter of 2024. |
Prosper:
• | PROSPER: |
The Prosper business product offerings, including the PROSPER Press systems and PROSPER Components, feature ultrafast inkjet droplet generation. This includes the PROSPER 6000 Press, which delivers a continuous flow of ink that enables constant and consistent operation, with uniform ink droplet size and accurate placement, even at very high print speeds. Applications of the PROSPER Press include publishing, commercial print, direct mail and packaging. PROSPER System Components are integrated into original equipment manufacturer (“OEM”) partner products and systems. Sales of equipment that incorporate the PROSPER Writing Systems result in recurring revenue from sales of ink and other consumables and equipment service. The level of recurring revenue depends on the application for which the equipment is used, which drives the total number of pages printed and, therefore, the amount of ink usage. The business model is further supplemented by consumption of other consumables including refurbished jetting modules and service.
• | The PROSPER business product offerings include PROSPER press systems and PROSPER components, based on KODAK’s Continuous Inkjet Technologies KODAK Stream and ULTRASTREAM, along with KODACHROME and KODAK EKTACOLOR Inks and KODAK OPTIMAX Primers. Examples include the PROSPER 7000 Turbo Press and the PROSPER ULTRA 520 Press, which is powered by ULTRASTREAM, Kodak’s 4th generation inkjet technology, which Kodak believes delivers exceptional quality at the fastest speeds, even on the most demanding jobs with heavy ink coverage on glossy and coated papers. |
The focus of the Prosper business is on developing the next generation platform, Ultrastream, with solutions that place writing systems in OEMs products and systems as well as direct sale press products that widens its reach into applications for packaging and décor and expands the substrate range to include plastics. The Prosper business closed on the first sale of a writing system for use in a packaging application in December of 2019 with Uteco Group. Uteco Group is integrating Ultrastream in a packaging press solution.
• | In addition to Kodak-branded presses, PROSPER print head components are integrated into original equipment manufacturer (“OEM”) partner products and systems. Applications include publishing, commercial print, direct mail, packaging, and décor. The modular and scalable design of print heads powered by our ULTRASTREAM inkjet technology facilitates integration in print widths from 104 – 2500 mm (4” – 98”) for applications on paper, film, plastic, and other substrates, expanding the footprint of inkjet printing to take on the challenges of a new age of digital printing. |
The Prosper business includes Kodak Print Services. Kodak Print Services prints the Jersey Evening Post as well as the majority of U.K. national newspapers for distribution in both Jersey and Guernsey islands. The business is used to demonstrate the value of the Kodak Prosper presses to customers around the world.
• | Sales of PROSPER presses and components result in recurring revenue from sales of KODACHROME and KODAK EKTACOLOR Inks and KODAK OPTIMAX Primers and equipment service. The level of recurring revenue depends on the application for which the equipment is used, which drives the total number of pages printed and, therefore, the amount of ink usage. Kodak also generates revenue through the sale of other consumables including refurbished jetting modules and service. |
Versamark:
• | Software: |
The KODAK VERSAMARK Products are the predecessor products to the PROSPER business. Kodak has ceased manufacturing VERSAMARK Press Systems. Users of KODAK VERSAMARK products continue to purchase ink and other consumables as well as service from Kodak. Applications of the VERSAMARK products include publishing, transactional, commercial print and direct mail.
Software:
The Software business offers a leading suite of solutions for print production workflow, including the PRINERGY workflow production software, by providing customer value through automation, web integration and integration with other Kodak products and third-party offerings. Production workflow software is used by customers to manage digital and conventional print content from file creation to output.
Production workflow software manages content and color, reduces manual errors and helps customers manage the collaborative creative process. Kodak believes it is a leader in production workflow solutions for the commercial print and packaging industries with over 15,000 systems installed in some of the largest printing and packaging establishments around the world.
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• | The Software business includes digital front-end controllers which manage the delivery of personalized content to digital presses while controlling color and print consistency. |
• | Electrophotographic Printing Solutions: |
• | NEXFINITY printers produce high-quality, differentiated printing of short-run, personalized print applications, such as direct mail, books, marketing collateral and photo products. |
• | Kodak ceased manufacturing of NEXFINITY printers effective December 2022. Kodak will continue to offer ink and other consumables as well as provide service to its installed base of printers. |
• | Versamark: |
• | The KODAK VERSAMARK products are the predecessor products to the PROSPER business. Kodak has ceased manufacturing VERSAMARK Press Systems. Users of KODAK VERSAMARK products continue to purchase ink and other consumables as well as service from Kodak. Applications of the VERSAMARK products include publishing, transactional, commercial print and direct mail. |
Net sales for Digital Printingthe Prepress business accounted for 23%56%, 59% and 24%57% of Kodak’s total net revenue for the years ended December 31, 20202023, 2022 and 2019,2021, respectively.
Advanced Materials and Chemicals
The Advanced Materials and Chemicals segment is comprised of four lines of business: the Industrial Film and Chemicals business, the Motion Picture business, the Advanced Materials and Functional Printing business and Kodakthe IP Licensing and Analytical Services for Business (“KSB”).business. Kodak’s Advanced Materials and Chemicals products are distributed directly by Kodak and indirectly through dealers. Kodak Alaris, a professional and consumer still photographic film and chemicals customer, represented approximately 30% and 20%34% of total Advanced Materials and Chemicals segment revenues in 20202023 and 2019, respectively.32% in both 2022 and 2021. Products and services included in Kodak’s offerings are described below.
The Advanced Materials and Chemicals segment includes the Kodak Research Laboratories which conduct research, develop new product or new business opportunities such as Kodak's growth initiatives of printed electronics, light blocking treatment for fabrics and diagnostic test reagents and file patent applications for its inventions and innovations.
The Advanced Materials and Chemicals segment also manages licensing of its intellectual property to third parties and is a supporting participant for any licensing of Kodak intellectual property to a third party. Kodak maintains a large worldwide portfolio of pending applications and issued patents.
Industrial Film and Chemicals:
Offers industrial film, including films used by the electronics industry to produce printed circuit boards, as well as professional and consumer still photographic film.
Includes related component businesses: Polyester Film; Solvent Recovery; and Specialty Chemicals. Specialty Chemicals include unregulated key starting materials (“KSMs”) for pharmaceuticals. Kodak intends to continue organic expansion of its KSM production and is exploring opportunities to further expand its pharmaceutical offerings.
Offers specialty inks and dispersions to third parties.
Offers Coating and Product Commercialization Services: Offerings include both pilot-scale and production scale roll-to-roll coating capabilities utilizing Kodak’s assets and know-how to commercialize and manufacture 3rd party products.
Includes Consumer Inkjet Solutions. Starting in 2013, Kodak stopped manufacturing consumer inkjet printers and focused on the sale of ink to its installed printer base. Kodak’s final build of ink inventory was depleted in the second quarter of 2020.
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• | Offers professional and consumer still photographic film, as well as industrial film, including films used by the electronics industry to produce printed circuit boards. |
• | Includes related component businesses: Specialty Chemicals; Solvent Recovery; and Polyester Film. Specialty Chemicals include unregulated key starting materials (“KSMs”) for pharmaceuticals. Kodak intends to continue organic expansion of its KSM production and is exploring opportunities to further expand its pharmaceutical offerings. Specialty Chemicals also includes materials for batteries (e.g., electric vehicles ("EV") and others) and specific functional materials for personal care products. |
• | Offers specialty inks and dispersions to third parties. |
• | Offers coating and product commercialization services: offerings include both pilot-scale and production scale roll-to-roll coating capabilities utilizing Kodak’s assets and know-how to commercialize and manufacture third-party products. This includes the growth initiative for coated substrates for components used in cell and battery pack assembly. |
Includes the motion picture film business serving the entertainment industry. Motion picture products are sold directly to studios, external laboratories and independent filmmakers.
• | Motion Picture: |
• | Includes the motion picture film business serving the entertainment industry. Motion picture products are sold directly to studios, external laboratories and independent filmmakers. |
• | Kodak motion picture film processing laboratories offer onsite processing services at strategic locations in the U.S. and Europe. |
• | Advanced Materials and Functional Printing: |
• | Advanced Materials develops solutions for component smart materials based on the materials science inventions and innovations from the research laboratories. There are multiple applications that Kodak contemplates addressing in this category, one of which is light blocking particles for black out window treatments. The commercialization of the black out window treatments is complete including a coated textile production facility in Eastman Business Park. A second application is a specialized functional film being manufactured for use by a 3D printing customer. A third application is the process development work for launching Kodak’s diagnostic test reagents as preparation for the opening of a cGMP facility within an existing building at Eastman Business Park to manufacture regulated pharmaceutical materials for healthcare applications. |
• | Functional Printing concentrates on contract manufacturing, development partnerships, and/or licensing opportunities in very high-resolution micro-3D printing solutions such as printed electronics and printed transparent antennas. Development partnerships may include non-recurring engineering payments for Kodak’s efforts to further develop such technologies into products. Also, a portfolio of products is offered to enable others to utilize functional printing. |
• | IP Licensing and Analytical Services: |
• | Kodak actively seeks opportunities to leverage its patents and associated technology in licensing and/or cross-licensing deals to support both revenue growth and its ongoing businesses. While revenues from these licensing activities tend to be unpredictable in nature, this segment carries the potential for revenue generation from intellectual property licensing and new materials businesses. Kodak also provides a wide range of analytical services to external clients at competitive rates. |
Refer to the U.S.Business Overview and Europe.
Advanced Materials
Strategy section of Item 7, “Management’s Discussion and Analysis” for additional information on the opportunities related to Advanced Materials develops solutions for component smart materials based on the materials science inventions and innovations from the research laboratories. There are multiple applications that Kodak contemplates addressing in this category. Currently, the primary focus is on light blocking particles (Kodalux) for the textile market. In addition, a specialty material is manufactured by this group for use by a 3D printing customer.Chemicals growth initiatives.
Functional Printing:
Functional Printing concentrates on contract manufacturing, development partnerships, and/or licensing opportunities in very high-resolution 3D printing solutions such as printed electronics. Development partnerships may include non-recurring engineering payments for Kodak’s efforts to further develop such technologies into products. Also, a portfolio of products is offered to enable others to utilize functional printing.
IP Licensing and Analytical Services:
Kodak actively seeks opportunities to leverage its patents and associated technology in licensing and/or cross-licensing deals to support both revenue growth and its ongoing businesses. While revenues from these licensing activities tend to be unpredictable in nature, this segment still carries the potential for revenue generation from intellectual property licensing and new materials businesses.Kodak also provides a wide range of analytical services to external clients at market rates.
Kodak Services for Business:
KSB provides business process outsourcing services, scan and capture solutions, records conversion services, workflow solutions, content management, and print and managed media services that assist customers with solutions that meet their business requirements. During 2020, KSB operated exclusively in Asia, primarily in China and Hong Kong.
KSB was sold to Swiss Post Solutions in December 2020.
Kodakit
Kodakit was a platform that connected businesses with professional photographers to cater to their photography needs. Customers included global hotels and online travel agencies, real estate companies, marketplaces, advertising agencies and global brands.
In October 2019, Kodak decided to discontinue the operation of Kodakit.
Net sales for Motion Picture and Industrial Film and Chemicals business accounted for 18%, 15% and 14% of Kodak’s total net revenue for the years ended December 31, 20202023, 2022 and 2019,2021, respectively.
Brand
The Brand segment includes licensing of the Kodak brand to third parties. Kodak currently licenses its brand for use with a range of products including digital, instant print and 35mm film cameras, printing and scanning consumer use devices, eyewear, batteries apparel and eyewear.apparel. Kodak intends to continue efforts to grow its portfolio of brand licenses to generate both ongoing royalty streams and upfront payments. Brand licensees use the Kodak brand on their own products and use their own distribution channels.
DISCONTINUED OPERATIONS
Discontinued operations
RAW MATERIALS
The raw materials used by Kodak are many and varied and are generally readily available. Lithographic aluminum is the primary material used in the manufacture of offset printing plates. Kodak procures lithographic aluminum coils from several suppliers with pricing largely based in part, on either prevailing market prices for aluminum or on fixed prices for aluminum agreed to up to eighteen months prior.aluminum. Electronic components are used in the manufacturing of commercial printers and other electronic devices. The film and chemicals business uses many raw materials, including silver, from a broad range of suppliers. While most raw materials are generally available from multiple sources, certain key electronic components, and other components and specialty chemicals included in the finished goods manufactured by Kodak and manufactured by and purchased from Kodak’s third-party suppliers are obtained from single or limited sources, which subjects Kodak to supply risks. Also, tariffs imposed inRefer to Item 1A, "Risk Factors" and the U.S. haveExecutive Overview section of Item 7, “Management’s Discussion and Analysis” for a discussion of the practical effectimpact of reducing to a single source the potential suppliers of lithographic aluminum coilseconomic environment and other global events for U.S. production purposes.additional information.
SEASONALITY OF BUSINESS
Printing equipment and plate unit sales generally are higher in the fourth quarter, resulting from customer or industry budgeting practices and buying patterns.
RESEARCH AND DEVELOPMENT
Kodak's general practice is to protect its investment in research and development and its freedom to use its inventions by obtaining patents. The ownership of these patents contributes to Kodak's ability to provide industry-leading products. Kodak holds portfolios of patents in several areas important to its business, including specific technologies such as lithographic printing plates and related equipment systems; digital printing workflow and color management proofing systems; key press components and toners for color and black-and-white electrophotographic printing systems including key press components and toners;systems; commercial inkjet writing systems and components, presses and inks; consumer inkjet inks and media; custom and specialty materials for 3D printing, functional printing materials, material formulations, and deposition modalities; engineered microparticles for specific functions; and security materials; embedded information; and color negative films, processing and print films.materials. Each of these areas is important to existing and emerging business opportunities that bear directly on Kodak's overall business performance.
In addition to patents, Kodak’s intellectual property includes know-how in many of the areas noted above, but in other businesses as well;well, such as color negative films, processing and print films, and manufacturing of KSMs for the pharmaceutical industry.
Kodak's major products are not dependent upon one single, material patent. Rather, the technologies that underlie Kodak's products are supported by an aggregation of patents having various remaining lives and expiration dates.dates along with know-how and trade secrets. There is no individual patent, or group of patents, whose expiration is expected to have a material impact on Kodak's results of operations.
ENVIRONMENTAL PROTECTIONMATTERS
Kodak is subject to variousa wide variety of increasingly stringent federal, state, local, and foreign environmental laws and governmental regulations, concerning environmental matters. The U.S. federal environmental legislationincluding laws addressing the discharge of pollutants into the air and state regulatory programs having an impact on Kodak includewater, the Toxic Substances Control Act, the Resource Conservationmanagement and Recovery Act, the Clean Air Act, the Clean Water Act, the NY State Chemical Bulk Storage Regulationsdisposal of hazardous substances and wastes, and the Comprehensive Environmental Response, Compensation and Liability Actcleanup of 1980, as amended (the “Superfund Law”).
contaminated sites. It is Kodak’s policy to carry out its business activities in a manner consistent with sound health, safety and environmental management practices and to comply with applicable health, safety and environmental laws and regulations. Kodak continues to engage in programs for environmental, health and safety protection and control.
Based upon informationA liability for environmental remediation and other environmental costs is accrued when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated. Environmental costs and accruals are presently available,not material to Kodak’s operations, cash flows or financial position. Although there is no assurance that existing or future costs associated with environmental compliance arelaws applicable to operations or products will not expected to have a material adverse effect on Kodak's capitaloperations, cash flows or financial condition, Kodak does not currently anticipate material expenditures or competitive position, althoughto comply with environmental laws and regulations.
Kodak is focused on developing and delivering products and technologies that can drive sustainability and profitability by increasing operational efficiency, minimizing resource use, reducing costs couldover time and empowering customers to meet their own sustainability objectives.
The opportunity to reduce the environmental impact of its products and services is especially great for print products, as commercial printing has historically been a significant source of waste and pollution. Kodak continues to develop in-house life cycle assessment and carbon footprint capabilities, which will help identify where the environmental footprint of Kodak’s products can be material to a particular quarter or year.further reduced.
EMPLOYMENT
AtHUMAN CAPITAL
As of the end of 2020,2023, Kodak employed the full time equivalent of approximately 4,500 people globally, of whom approximately 1,900 were employed4,000 employees across 34 countries. Kodak’s success depends on identifying, attracting, engaging, developing, and retaining a highly skilled workforce in multiple areas within Kodak. Outside the U.S. The actual numberthere are employees in certain countries that are represented by unions or similar organizations, such as works councils, or are covered by collective bargaining agreements.
Kodak utilizes temporary staffing programs to develop a pipeline of talent and provide additional support during peak periods. This includes working closely with local schools to provide apprentice and intern programs. Less than 2% of its workforce is temporary.
Diversity, Equity and Inclusion
Kodak seeks to create an inclusive and creative environment globally. Kodak strives to create a culture of inclusion, reduce bias in its talent practices, and invest in and engage with its communities. Kodak conducts diversity and code of conduct trainings with employees may be greater because someand managers to promote an inclusive and diverse workplace, where all individuals feel respected and part of a team regardless of their race, national origin, ethnicity, gender, age, religion, disability, sexual orientation or gender identity.
Kodak has achieved a score of 100% on the Human Rights Campaign Foundation’s Corporate Equality Index for over two decades and is included on its list of “Best Places to Work for LGBTQ+ Equality”.
Health, Wellness and Safety
Kodak is dedicated to driving continuous safety improvement across its operations. Kodak’s approach includes identifying and mitigating risk, targeted training, information sharing on safe work part time.practices, and thorough analysis of incidents and near misses, implementing preventative measures and performing reviews to ensure the hazard has been eliminated.
AVAILABLE INFORMATION
Kodak files many reports with the Securities and Exchange Commission (“SEC”) (www.sec.gov), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. These reports, and amendments to these reports, are made available free of charge as soon as reasonably practicable after being electronically filed with or furnished to the SEC. They are available through Kodak's website at www.Kodak.com. To reach the SEC filings, follow the links to Company, About Kodak,Us, Investor Center, Financial InformationFinancials and then SEC Filings.
Kodak operates in rapidly changing economic and technological environments which present numerous risks many of which are driven byand uncertainties. The risk factors it cannot control or predict. Certain factors maydescribed below, if realized, could have a material adverse effect on itsKodak’s business, financial condition, and results of operations and make an investment in itsour securities risky. You should carefully consider carefully thethese risks and uncertainties described below in addition to other information contained in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)(“MD&A”) section and the consolidated financial statements and related notes.
Summary of Risk Factors
The following discussion of “risk factors” identifies Kodak’s assessmentis a summary of the most significantrisk factors which may adversely affect its business, operations, financial position, stock price or future financial performance. AdditionalKodak faces. The list is not exhaustive, and investors should read this “Risk Factors” section in full. Some of the risks and uncertainties Kodak is unawarefaces include:
Summary of Risks Related to Kodak’sKodak’s Business and Operations
● | Kodak’s business, financial condition and results of operations have been and may continue to be adversely affected by global economic and geopolitical conditions, including wars and other hostilities, medical epidemics, inflation, rising interest rates, and slowdowns in customer demand. |
● | The ability to generate positive operating cash flows will be necessary for Kodak to continue to operate our business. |
● | If Kodak is unable to continue successful development, funding, and commercialization of products in businesses upon which we are focused or do so within an acceptable timeframe, Kodak’s financial performance could be adversely affected. |
● | If Kodak is unable to successfully or timely implement cost structure reductions, Kodak’s business, financial condition and results of operations could be negatively affected. |
● | The loss of one or more of Kodak’s key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business. |
● | If Kodak cannot effectively anticipate or rapidly respond to technology trends and develop and market new products to respond to changing customer needs and preferences, our revenue, earnings and cash flow could be adversely affected. |
● | Kodak’s investment in new products and services may not achieve expected returns. |
● | If Kodak does not manage product reliability, yield and quality, our product launch plans may be delayed, our financial results may be adversely impacted, and our reputation may be harmed. |
● | Aging manufacturing facilities and equipment could lead to failures of equipment and systems. |
● | If Kodak fails to manage distribution of our products and services properly, our revenue, gross margins and earnings could be adversely impacted. |
● | Cyber-attacks or other data security incidents that disrupt Kodak’s operations or result in the breach or other compromise of proprietary of confidential information about our workforce, our customers, or other third parties could disrupt our business, harm our reputation, cause us to lose customers, and expose us to costly regulatory enforcement and litigation, any of which could lead to material adverse effects on Kodak’s results of operations, business and financial condition. |
● | If Kodak cannot protect the intellectual property rights on which our business depends, or if third parties assert that we violate their intellectual property rights, our revenue, earnings, expenses and liquidity may be adversely impacted. |
● | Kodak’s inability to effectively complete and manage strategic transactions could adversely impact our business performance, including our financial results. |
● | Failure to successfully manage the development and improvement of IT systems could diminish or delay any anticipated efficiencies and operational improvements, and our operations and business could be disrupted. |
● | If the reputation of Kodak or its brand erodes significantly, it could have a material impact on our financial results. |
● | Increased competition, including price competition, could have a material adverse impact on Kodak’s revenue, gross margins, cash flow and market share. |
● | Business disruptions could seriously harm Kodak’s future revenue and financial condition. |
● | Kodak relies on third-party suppliers and service providers to support our manufacturing, logistics, and business operations and faces the risks associated with reliance on external business partners. |
● | Due to the nature of the products we sell and Kodak’s worldwide distribution, Kodak is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity costs which, together with tariffs that may be imposed, may adversely impact our results of operations and financial position. |
● | Kodak faces additional costs and risks associated with our worldwide business operations. |
● | An inability to provide competitive financing arrangements to Kodak’s customers or extension of credit to customers whose creditworthiness deteriorates could adversely impact our revenue, profitability and financial position. |
Summary of Risks Related to Kodak is not able’s Indebtedness and Access to successfully implement itsCapital Markets
● | The Company’s substantial monetary obligations require a portion of our cash flow to be used to fund other obligations rather than be invested in the business and could adversely affect our ability to fund our operations. |
● | The availability of letters of credit under the Amended and Restated Letter of Credit Facility Agreement ("Amended and Restated L/C Facility Agreement") is limited by the amount of cash on deposit with the administrative agent. |
● | Kodak may desire additional capital funding and such capital may not be available to us and/or may be limited. |
● | There can be no assurance the Company will be able to comply with the terms of our various credit facilities. |
● | The current non-investment grade status and Kodak’s financial condition may adversely impact Kodak’s commercial operations, increase our liquidity requirements and increase the cost of refinancing opportunities. We may not have adequate liquidity to post required amounts of additional collateral. |
Summary of Legal, Regulatory and Compliance Risks
● | Legal proceedings and governmental investigations could have a material adverse effect on our business operations and prospects, reputation, financial condition, results of operations and stock price. |
● | Our business and financial condition can be impaired by improper conduct by any of our employees, agents, or business partners. |
● | Failure to comply with privacy, data protection and cyber security laws and regulations could have a materially adverse effect on Kodak’s reputation, results of operations or financial condition. |
● | Failure to comply with environmental laws and regulations or liabilities imposed as a result of such laws and regulations could have an adverse effect on our business, results of operations and financial condition. |
● | If Kodak fails to maintain effective internal controls over financial reporting, we may not be able to accurately report our financial results, which could have a material adverse effect on Kodak’s operations, investor confidence in our business and the trading prices of our securities. |
● | Kodak may have additional tax liabilities. |
● | Kodak’s future pension and other postretirement benefit plan costs and required level of contributions could be unfavorably impacted by changes in actuarial assumptions, market performance of plan assets and obligations imposed by legislation or pension authorities which could adversely affect our financial position, results of operations, and cash flow. |
● | Kodak may be required to recognize impairments in the value of our trade name and/or other long-lived assets which could adversely affect our results of operations. |
Summary of Risks Related to the Company’s Common Stock
● | The conversion of the Series B Preferred Stock and Series C Preferred Stock into shares of the Company’s common stock may dilute the value for the current holders of the Company’s common stock. |
● | The holder of the Series C Preferred Stock may influence the composition of the Board and future actions taken by the Board. |
● | The resale of the Company’s common stock may adversely affect the price of our common stock. |
● | The resale of a significant portion of the Company’s securities or certain accumulations or transfers of the Company’s securities could result in a change of control of the Company and the loss of favorable tax attributes. |
● | The Company’s stock price has been and may continue to be volatile. |
Risks Related to Kodak’s Business and Operations
Kodak’s business, plans, or experiences implementation delays in cost structure reduction, Kodak’s consolidatedfinancial condition and results of operations financial positionhave been and may continue to be adversely affected by global economic and geopolitical conditions, including the impact of wars and other hostilities, medical epidemics, inflation, rising interest rates, and slowdowns in customer demand.
Worsening global economic conditions, including those associated with the war in Ukraine, the conflicts involving Israel, medical epidemics, heightened levels of inflation and rising interest rates, could have material adverse impacts on Kodak’s business, cash flows, employees, suppliers, customers, and others’ ability to conduct business, including increased operational costs, extended business shutdowns, reduced operations, restrictions or interruptions in shipping, manufacturing or installing products, reduced consumer demand and the reduced ability of our customers to make payments. Accounts receivable and past due accounts could increase due to a decline in our customers’ ability to pay, and our liquidity, including our ability to use credit lines, could be negatively affected.impacted by failures of financial instrument counterparties, including banks and other financial institutions.
Due to the global economic impact of the war in Ukraine, the conflicts involving Israel, medical epidemics, heightened levels of inflation and rising interest rates, we have and may continue to experience additional operating costs due to increased cost of energy, shipping, raw materials and labor, limited availability of raw materials and component products, delays in shipping and transportation and a decline in customer demand. Kodak’s business plans are subject to a number of assumptions, projections, and analysis. If these assumptions prove to be incorrect, Kodak may be unsuccessful in executing its business plans or achieving the projected results, which could adversely impact its financial results and liquidity. In addition, Kodak continues to rationalize its workforce and streamline operations to a leaner and more focused organization aligned with its business initiatives. There are no assurances such measures will prove to be successful or the cost savingsproducts contain aluminum, silver, petroleum-based or other results it achieves through these plans will be consistent with its expectations. As a result, itscommodity-based raw materials, the prices of which have significantly increased, and could continue to increase. Ongoing disruptions in our supply chain could affect our ability to continue to meet customer demand for our products and services. Continued or worsening operational and global economic conditions could materially affect our business, financial condition or results of operations, financial positionoperations. The extent to which the global economic conditions affect our results will depend on future developments, which are highly uncertain and liquidity couldcannot be negatively impacted. If restructuring plans are not effectively managed, itpredicted. This includes new information which may experience lost customer sales, product delays, additional costs and other unanticipated effects, causing harm to its business and customer relationships.
Finally,emerge concerning the timing and implementationcontinued impact of these plans require compliance with numerous laws and regulations, including local labor laws,the war in Ukraine and the failure to comply with such requirements may resultconflicts involving Israel, any escalation thereof, and the impact of the international response thereto. For additional discussion regarding known impacts of the war in damages, finesUkraine, the conflicts involving Israel and penalties which could adversely affect Kodak’s business.the global economic environment, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations“ in this Annual Report on Form 10-K.
The ability to generate positive operating cash flows will be necessary for Kodak to continue to operate itsour business.
Continued investment, capital needs, restructuring payments, dividends and servicing Kodak’s debt require a significant amount of cash flow from operations generated by Kodak in 2019 were derived from working capital improvements and individual transactionswe may not be able to generate sufficient cash to fund these activities, which occurred during the yearcould adversely affect our business, financial condition, and are not expected to be recurring.results of operations. Kodak has not consistently generated positive operating cash flows without supplementing such cash flow from operations with financing and monetization transactions over the past several years. The Traditional Printing segment, Kodak’s largest segment, has had, and is expected to continue to have, declining revenues. Kodak’s stable and remaining growthKodak's businesses may not grow or continue to generate the same or enough cash flow to offset businesses with declining cash flows and investments needed for certain growth businesses. flow.
It may take Kodak longer than planned to generate consistent positive cash flow from operations, than planned, which would have a material adverse effect on itsour liquidity and financial position. If Kodak is unable to generate positive cash flow from operations for an extended period in the future or to adequately supplement such cash flow from operations, with proceeds from monetization transactions, itsour ability to continue as a going concern could be impaired or limited.
Continued investment, capital needs, restructuring payments, dividends and servicing the Company’s debt require a significant amount of cash and it may not be able
Kodak’s ability to generate sufficient cash is subject to fund these activities, which could adversely affect its business, operating resultsgeneral economic, financial, competitive, legal, regulatory and financial condition.other factors beyond our control. There are no assurances:
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• | Kodak’s businesses will generate sufficient cash flow from operations; | |
• | Kodak will be able to repatriate or move cash to locations where and when it is needed; | |
• | Kodak will meet all conditions associated with borrowings or issuing letters of credit under the Amended and Restated L/C Facility Agreement; | |
• | Kodak will realize cost savings, earnings growth or operating improvements resulting from the execution of our business and restructuring plan; | |
• | Kodak will not have to expend cash defending lawsuits regardless of the merits of any claims raised; or | |
• | Future sources of funding will be available in amounts sufficient to enable funding of our liquidity needs. |
Kodak’s business may not generate cash flow in an amount sufficient to enable itus to pay the principal or mandatory redemption price of, or interest and dividends on, the senior secured first lien term loans (the “Term Loans”) borrowed under the Amended and Restated Credit Agreement, dated February 26, 2021,June 30, 2023, by and among the Company, the lenders party thereto (the “Term Loan Lenders”), and Alter Domus (US) LLC, as Administrative Agent (the “Credit“Term Loan Credit Agreement”), the 5.0% unsecured convertible notes held by the Term Loan Lenders (the “Convertible Notes”), the 4.0% Series B Convertible Preferred Stock of the Company (the “Series B Preferred Stock”), and the 5.0% Series C Convertible Preferred Stock of the Company (the “Series C Preferred Stock”), or to fund Kodak’s other liquidity needs, including working capital, capital expenditures, product development efforts, restructuring actions, collateral requirements, strategic acquisitions, investments and alliances and other general corporate requirements. Its film manufacturing facilities are aged and without significant updates to equipment and systems will be more prone to failure. Capital improvements are planned but there is risk to manufacturing operations especially due to the complexity of the processes and technology and the loss of knowledge as employees leave who are familiar with the processes and technology. The longer these updates are delayed the higher the risk due to equipment failures, further obsolescence and additional loss of employees with the specific knowledge base.
Kodak’s ability to generate cash is subject to general economic, financial, competitive, litigation, regulatory and other factors beyond its control. There are no assurances:
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If Kodak cannot fund itsour liquidity needs, itwe will have to take actions, such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, and investments and alliances; selling additional assets; restructuring or refinancing the Company’s debt; or seeking additional equity capital. Such actions could increase the Company’s debt, negatively impact customer confidence in itsour ability to provide products and services, reduce itsour ability to raise additional capital and delay sustained profitability. There are no assurances any of these actions could, if necessary, be taken on commercially reasonable terms, or at all, or they would satisfy Kodak’s liquidity needs.
If Kodak is unable to continue successful development, funding, and commercialization of products in businesses upon which it iswe are focused or do so within an acceptable timeframe, itsKodak’s financial performance could be adversely affected.
Kodak has focused itsour investments in print, advanced materials, and chemicals. These investment areas include offset plates and CTP devices, digital printing using commercial inkjet, and electrophotography, high resolution functional printing for electronic and optical solutions, specialty chemicals (including pharmaceutical and reagent products), coated materials used in electric vehicle/energy storage batteries and smart materials for light control and 3D printing. Each of these businesses requires additional investment and may not be successful. The introduction of successful innovative products at market competitive prices and the achievement of scale are necessary for Kodak to grow these businesses, improve margins and achieve itsour financial objectives. Additionally, itsKodak’s strategy is based on a number of factors and assumptions, some of which are not within itsour control, such as the actions of third parties. There can be no assurance that itwe will be able to successfully execute all or any elements of itsour strategy, or that itsKodak’s ability to successfully execute itsour strategy will be unaffected by external factors. If Kodak is unsuccessful in growing itsour investment businesses as planned, or perceiving the needs of itsour target customers, itsKodak’s results of operations, financial performancecondition and liquidity could be adversely affected.
Due to the nature of the products it sells and Kodak’s worldwide distribution, Kodak is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity costs which, together with tariffs that may be imposed, may adversely impact its results of operations and financial position.
As a result of Kodak’s global operating and financing activities, it is exposed to changes in currency exchange rates and interest rates, which may adversely affect its results of operations and financial position. Exchange rates and interest rates in markets in which it does business tend to be volatile and, at times, its sales and profitability can be negatively impacted across all its segments depending upon the value of the U.S. dollar and other major currencies such as the euro, the Japanese yen, the British pound and the Chinese yuan. In addition, Kodak’s products contain aluminum, silver, petroleum-based or other commodity-based raw materials, the prices of which have been, and may continue to be, volatile. In the case of aluminum and other raw materials and components imported by Kodak, tariffs imposed from time to time may give rise to future cost increases. Tariffs or duties may also be imposed on exported products produced by Kodak, making such products less competitive in jurisdictions imposing such tariffs or duties. If the global economic situation remains uncertain or worsens, there could be further volatility in changes in currency exchange rates, interest rates and commodity prices, which could have negative effects on its revenue and earnings.
Weakness or worsening of global economic conditions could adversely affect Kodak’s financial performance and liquidity.
The global economic environment may adversely affect sales of Kodak’s products, profitability and liquidity. Global financial markets have been experiencing extreme volatility, including as a result of the global outbreak of the coronavirus formally known as COVID-19. Economic conditions could accelerate any decline in demand for products, which could also place pressure on its results of operations and liquidity.
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In particular, if the coronavirus has a significant impact on the printing industry it could adversely impact the demand for Kodak’s products. Certain known consequences to Kodak from the COVID-19 pandemic are disclosed in the financial statements contained in this Form 10-K and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The full extent to which the COVID-19 pandemic will impact Kodak’s results will depend on future developments, which are highly uncertain and cannot be predicted at the time of this filing, including new information which may emerge concerning the scope and duration of the pandemic and the restrictions and other actions implemented to fight it, among others. Direct and indirect effects from the COVID-19 pandemic could have a material adverse effect on the continuity of Kodak’s business operations and its results of operations and financial position, particularly if such effects have an extended duration. There is no guarantee that anticipated economic growth levels in markets which have experienced some economic strength will continue in the future, or Kodak will succeed in expanding sales in these markets.
In addition, accounts receivable and past due accounts could increase due to a decline in its customers’ ability to pay as a result of an economic downturn, including as a result of the COVID 19 pandemic, and its liquidity, including its ability to use credit lines, could be negatively impacted by failures of financial instrument counterparties, including banks and other financial institutions. If global economic weakness and tightness in the credit markets exist, worsen or are attenuated, Kodak’s profitability and related cash generation capability could be adversely affected and, therefore, affect its ability to meet its anticipated cash needs, impair its liquidity or increase its costs of borrowing.
Following an implementation period after the UK left the EU on 31 January 2020, and as of 1 January 2021 the UK is no longer a member of the EU single market and customs union. However, in December 2020 the UK reached a deal with the EU on certain key points, notably trade so that no duty is paid on goods moving between the UK and the EU. Additional border checks have been introduced for goods leaving and entering the UK and these have resulted in some delays early in 2021. New export / import documentation required has resulted in some incremental costs.
The uncertainty concerning Brexit has also caused global stock market volatility and currency exchange rate fluctuations that resulted in strengthening of the U.S. dollar relative to other foreign currencies in which we conduct business. There may also be broader uncertainty over the position the United States will take with respect to certain treaty and trade relationships with other countries. This uncertainty may impact (i) the ability or willingness of non-U.S. companies to transact business in the United States, including with the Company, (ii) regulation and trade agreements affecting U.S. companies, (iii) global stock markets and (iv) general global economic conditions. All of these factors are outside Kodak’s control but may cause it to adjust its strategy in order to compete effectively in global markets and could adversely affect its business, financial condition, operating results and cash flows.
If Kodak is unable to successfully develop or commercialize new products or do so in a timely manner, itsimplement cost structure reductions, Kodak’s business, financial positioncondition and operating results may suffer.
Kodak generally sells its products in industries which are characterized by rapid technological changes, frequent new product and service introductions and changing industry standards.
Without the timely introduction of new products, services and enhancements, its products and services will become technologically obsolete over time, in which case its revenue and operating results would suffer. Therefore, its future results of operations will dependcould be negatively affected.
Kodak continues to rationalize our workforce and streamline operations to a significant extent upon its ability to successfully commercialize new products in a timely manner. The success of its new productsleaner and services will depend on several factors, including its ability to:
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As a result of thesemore focused organization aligned with our business initiatives. There are no assurances that workforce reductions, restructuring efforts and other factors, products currently in development by Kodak (for example, UltraStream technology, new generations of Sonora offset plates, and small particle technology) may or may not be successfully commercialized in a timely manner, or at all. In connection with new products, Kodak will face risks relating to talent acquisition, construction, obtaining regulatory approvals, cost overruns, delays, product development and market development, among others. If any of its key products cannot be successfully or timely commercialized, its operating results could be adversely affected. Moreover, it cannot guarantee any investment made in developing productscost-saving measures will be recouped, even if it is successful in commercializing those products, which could have a material adverse effect on its business, financial position and operating results.
If Kodak’s commercialization and manufacturing processes fail to prevent issuesor the cost savings or other beneficial results will be consistent with product reliability, yield and quality, its product launch plans may be delayed, its financial results may be adversely impacted, and its reputation may be harmed.
In developing, commercializing and manufacturing Kodak’s products and services it must adequately address reliability and prevent yieldexpectations. The extent of change across our organizational structure, senior leadership, culture, functional alignment, outsourcing and other quality issues, including defectsareas poses risks in its engineering, designthe form of personnel capacity constraints and manufacturing processes, as well as defects in third-party components included in its products. Because Kodak’s products are sophisticated and complicatedinstitutional knowledge loss that could lead to develop and commercialize with rapid advances in technologies, the occurrence of defects may increase, particularly with the introduction of new product lines.
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Unanticipated issues with product performance may delay product launch plans which could result in additional expenses, lost revenue and earnings. Although it has established internal procedures to minimize risks which may arise from product quality issues, there can be no assurance it will be able to eliminate or mitigate occurrences of thesediminished results, compliance issues, and associated liabilities. Product reliability, yieldharm to our reputation. If workforce reductions, restructuring efforts and quality issues can impair itsother cost-saving measures are not effectively managed, Kodak may also experience lost sales, harm to our business and customer relationships, with new or existing customers and adversely affect its brand image; product quality issues can result in recalls, warranty,adverse effects on employee morale, loss of key employees or other service obligationsretention issues, product delays and litigation;increased costs.
Finally, the timing and its reputation as a producerimplementation of high quality products could suffer, all of which could adversely affect its business as well as its financial results.
If the reputation of Kodak or its brand erodes significantly, it could have a material impact on its financial results.
Kodak’s reputation,workforce reductions may require compliance with laws and regulations, including local labor laws, and the reputation of its brand, form the foundation of its relationshipsfailure to comply with key stakeholders and other constituencies, including customers, suppliers and consumers. The quality and safety of Kodak’s products are critical to its business. Kodak’s products have worldwide recognition, and its financial success is directly dependent on the success of its product offering. One aspect of Kodak’s business is licensing others to use Kodak’s brand in connection with the sale of such licensees’ products and services, and activities by such licensees may be perceived by the market as being activities of Kodak.
The success of Kodak’s brand can suffer if its or its licensees’ marketing plans, product initiatives or activities do not have the desired impact on the brand’s image or ability to attract customers. Kodak’s results could also be negatively impacted if its brand suffers substantial harm to its reputation due to significant product reliability and quality issues, and product-related litigation. Additionally, negative or inaccurate postings or comments on social media or networking websites about Kodak, its licensees or its brand could generate adverse publicity which could damage the reputation of the brand. Kodak takes measures to research licensees prior to entering into agreements, assesses the quality of licensee products, and maintains strict requirements to govern licensees use of the brand. Kodak also devotes significant time and resources to programs consistent with its corporate values and commitments that are designed to protect and preserve its reputation, such as social responsibility and environmental sustainability. If these programs are not executed as planned or suffer negative publicity, Kodak’s reputation and financial results could be adversely impacted.
Increased competition, including price competition, could have a material adverse impact on Kodak’s revenue, gross margins, cash flow and market share.
The markets in which Kodak does business are highly competitive with large, entrenched, and well financed industry participants, many of which are larger than Kodak. In addition, it encounters aggressive price competition for many of its products and services from numerous companies globally. Any of its competitors may:
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As a result, Kodak may not be able to compete successfully with its competitors. Finally, it may not be able to maintain its operating costs or prices at levels which would allow it to compete effectively. Kodak’s results of operations and financial condition may be adversely affected by these and other industry-wide pricing pressures. If its products, services and pricing are not sufficiently competitive with current and future competitors, it could also lose market share, adversely affecting its revenue, gross margins and cash flow.
An inability to provide competitive financing arrangements to Kodak’s customers or extension of credit to customers whose creditworthiness deteriorates could adversely impact its revenue, profitability and financial position.
The competitive environment in which Kodak operates may require it to facilitate or provide financing to its customers. Customer financing arrangements may cover all or a portion of the purchase price invoices for its products and services. It may also assist customers in obtaining financing from banks and other sources. Its success may be dependent, in part, upon its ability to provide customer financing on competitive terms and on its customers’ creditworthiness. Tightening of credit in the global financial markets can adversely affect the ability of Kodak’s customers to obtain financing for significant purchases, which may result in a decrease in, or cancellationdamages, fines and penalties. Any of orders for its productsthese outcomes could negatively impact Kodak’s business, financial condition, and services. If Kodak is unable to provide competitive financing solutions to its customers or if it extends credit to customers whose creditworthiness deteriorates, its revenues, profitability and financial position could be adversely impacted.results of operations.
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The loss of one or more of Kodak’sKodak’s key personnel, or itsour failure to attract and retain other highly qualified personnel in the future, could harm itsour business.
In order for it to be successful, Kodak must continue to attract, retain and motivate executives and other key employees including technical, managerial, marketing, sales, research and support positions.across the Company. Hiring and retaining qualified executives, research and engineering professionals, and qualified sales representatives, particularly in Kodak’s targeted growth markets, areis critical to itsour future. ItThe impact of the COVID-19 pandemic has resulted in increased attrition and significant shifts in the labor market and employee expectations. Given that our business is highly technical and specialized, it would be difficult to replace the loss of any of our key employees. Kodak may be unable to attract and retain highly qualified management and employees, particularly if it doeswe do not offer employment terms competitive with the rest of the market. Failure to attract and retain qualified individuals, key leaders, executives and employees, or failure to develop and implement a viable succession plan, could result in inadequate depth of institutional knowledge or skill sets, which could adversely affect its business.Kodak’s business and results of operations.
If Kodak cannot effectively anticipate or rapidly respond to technology trends and develop and market new products to respond to changing customer needs and preferences, itsour revenue, earnings and cash flow could be adversely affected.
Kodak serves imaging/print needs for business markets, including graphic communications, packaging, enterprise services,generally sells our products in industries which are characterized by rapid technological changes, frequent new product and printed electronics. Itsservice introductions and changing industry standards. Kodak’s success in these markets depends on itsour ability to offer differentiated solutions and technologies to capture market share and grow scale. To enable this, itdo so, Kodak must continually develop and introduce new products and services in a timely manner to keep pace with technological developments and achieve customer acceptance. In addition, the services and products it provideswe provide to customers may not or may no longer meet the needs of itsour customers as the business models of itsour customers evolve. ItsKodak’s customers may decide to outsource their imaging and printing needs or may purchase imaging services and needsprinting services from other suppliers.suppliers in order to meet their needs. In addition, it is difficult to predictalways successfully anticipate the products and services itsour customers will demand. The success of Kodak’s business depends in part on itsour ability to identify and respond promptly to changes in customer preferences, expectations and needs. If itKodak does not timely assess and respond to changing customer expectations, preferences and needs, itsour financial condition, results of operations or cash flows could be adversely affected.
If Kodak is unable to timely anticipate new technology trends, develop improvements to itsour current technology to address changing customer preferences, and effectively communicate itsour businesses, products, and the markets it serves, itswe serve, our revenue, earnings and cash flow could be adversely affected.
The success of Kodak’s technology development efforts may be affected by the development efforts of itsour competitors, which may have more financial and other resources to better ascertain technology trends, changing customer preferences, and changing business expectations or models. Kodak’s assessment and response may as a result be incomplete or inferior when compared to itsour competitors, which could adversely affect itsour product roadmaps and associated revenue streams.
Kodak has reduced the scope of its corporate-focused research and development activities. If itsour investment in research and product development is inadequate, itsour response to changing customer needs and changing market dynamics may be too slow and this may adversely affect revenue streams from new products and services.
Kodak makes investments’s investment in new products and services that may not achieve expected returns.
Commercial success depends on many factors, including innovativeness, developer support,innovation, manufacturing capability, and effective distribution and marketing. If customers do not perceive Kodak’s latest offerings as providing significant new functionality or other value, they may reduce their purchases of new products or upgrades, unfavorably affecting our revenue. That may mean Kodak maydoes not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all.
New products and services may not be profitable, and even if they are profitable, operating margins for some new products and businesses may not be as high as the margins Kodak has experienced historically. Developing new technologies is complex. It can require long development and testing periods. Significant delays in new releases or significant problems in creating new products or services could adversely affect Kodak’s revenue.
If Kodak relies on third-party suppliersdoes not manage product reliability, yield and service providers to support itsquality, our product launch plans may be delayed, our financial results may be adversely impacted, and our reputation may be harmed.
In developing, commercializing, manufacturing logistics, and business operations and faces the risks associated with reliance on external business partners.
Kodak relies on third-party suppliers for goodsservicing our products and services, Kodak must adequately address reliability and prevent yield and other quality issues, including defects in our engineering, design and manufacturing processes, as well as defects in third-party components included in our products.
Because Kodak’s products are sophisticated and complicated to support its manufacturing, logistics,develop and business operations. Tocommercialize with rapid advances in technologies, the extent it relies on third-parties, it facesoccurrence of defects may increase, particularly with the introduction of new product lines.
Unanticipated issues with product performance may delay product launch plans which could result in additional expenses, lost revenue and earnings. Although Kodak has established internal procedures to minimize risks that those third partieswhich may notarise from product quality issues, there can be no assurance we will be able to:
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Suppliers may choose to unilaterally withhold products, componentseliminate or services. In addition, Kodak may experience shortagesmitigate occurrences of these issues and associated liabilities. Product reliability, yield and quality issues can impair our relationships with new or existing customers and adversely affect our brand image; product quality issues can result in supplyrecalls, warranty, or other service obligations and disruptions in servicelitigation; and supplyour reputation as a resultproducer of unexpected demand, transportation and logistical limitations, and/or disruptions or production difficulties at its suppliers, such as disruptions due to fires, medical epidemics, other natural disasters or events outside of a supplier’s control. In addition, disruptions could result from a reduction in the number of its suppliers due to their own financial difficulties or a reduction in the products offered by such suppliers. As a result of the loss of any supplier, or a substantial decrease in the availability of products from its suppliers, Kodak may be unable to meet its customer commitments, its costs could be higher than planned, and its cash flows and the reliability of itshigh quality products could be negatively impacted. Kodak will vigorously enforce its contractual rights under such circumstances, but there is no guarantee it will be successful in preventing or mitigating the effects of unilateral actions by its suppliers.
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Other supplier problems that Kodak could encounter include electronic component shortages, excess supply, interruption of IT services, risks related to the duration and termination of its contracts with suppliers for components and materials, non-competitive pricing due to tariffs, and risks related to the ability to obtain products, components or services from single source suppliers on favorable terms or at all. The realization of any of these risks, should alternative third-party relationships not be available or established, could cause interruptions in supply or increases in costs which might result in Kodak’s inability to meet customer demand for its products, damage to its relationships with its customers, and reduced market share,suffer, all of which could adversely affect its resultsour business as well as our financial results.
Aging manufacturing facilities and equipment could lead to failures of equipment and systems and require capital investment.
Kodak’s manufacturing facilities are aged, and without significant updates to equipment and systems, will be more prone to failure. Capital improvements to manufacturing facilities are planned but there is risk to manufacturing operations especially due to the complexity of the processes and technology and the loss of knowledge as employees leave who are familiar with the processes and technology. The longer these updates are delayed the higher the risk due to equipment failures, further obsolescence and additional loss of employees with the specific knowledge base. If Kodak’s equipment and systems experience a critical failure, we could experience an interruption of operations, manufacturing delays, increased costs associated with repairs or redesigns of systems and financial condition.
Any significant negative change in the payment terms that Kodak has with its suppliers could adversely affect its liquidity. There is a risk thatproducts, loss of sales and customers and damage to Kodak’s key suppliers could respond toreputation, any actual or apparent decrease in or any concern with its financial results or liquidity by requiring or conditioning their sale of goods or services to Kodak on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upon delivery, or shorter payment terms. Kodak’s need for additional liquidity could significantly increase and its supply could be materially disrupted if a significant portion of its key suppliers and vendors took one or more of the actions described above, which could have a material adverse effect on itsour business, financial condition and results of operations.
If Kodak fails to manage distribution of our products and services properly, our revenue, gross margins and earnings could be adversely impacted.
Kodak uses a variety of distribution methods to sell and deliver our products and services, including direct sales, third-party resellers, channel partners and distributors. Successfully managing the interaction of direct and indirect channels across customer satisfaction,segments for our products and services is complex. Since each distribution method has distinct risks and financial implications, Kodak’s failure to achieve the most advantageous delivery model for our products and services could adversely affect our revenue and earnings.
If Kodak cannot protect the intellectual property rights on which our business depends, or if third parties assert that we violate their intellectual property rights, our revenue, earnings, expenses and liquidity may be adversely impacted.
A key differentiator for Kodak in many of our businesses is our technological advantage over competitors’ products and solutions. Our technological advantage is supported by Kodak’s intellectual property rights. Patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and non-disclosure, confidentiality and other types of agreements with Kodak’s employees, customers, suppliers and other parties, may not be effective in establishing, maintaining, protecting and enforcing Kodak’s intellectual property rights.
Any of Kodak’s direct or indirect intellectual property rights could be challenged, invalidated, circumvented, infringed, diluted, disclosed or misappropriated, or such intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the same degree as the laws of the United States.
Therefore, in certain jurisdictions, Kodak may be unable to protect our proprietary technology adequately against unauthorized third-party copying, infringement or use, which could adversely affect our competitive position. Also, some of Kodak’s businesses and some of our products rely on key technologies developed or licensed by third parties and, because of the rapid pace of technological change in the information technology industry, we may not be able to obtain or continue to obtain licenses and technologies from relevant third parties on reasonable terms, or at all.
Kodak also licenses third parties to use our trademarks. In an effort to preserve our trademark rights, Kodak enters into license agreements with these third parties which govern the use of our trademarks and requires our licensees to abide by quality control standards with respect to the goods and services they provide under the trademarks. Although Kodak makes efforts to police the use of our trademarks by our licensees, there can be no assurance these efforts will be sufficient to ensure the licensees abide by the terms of their licenses. In the event Kodak’s licensees fail to do so, our trademark rights could be diluted and our reputation harmed by our licensees’ activities. Also, failure by Kodak and our licensees to sufficiently exploit any of Kodak’s trademarks in any markets could erode Kodak’s trademark rights with respect to the relevant trademarks. Because the laws and enforcement regimes of certain countries do not protect proprietary rights to the same degree as those in the United States, in certain jurisdictions Kodak may be unable to adequately prevent such unauthorized uses, which could result in impairment of our trademark rights.
Kodak has made substantial investments in new, proprietary technologies and has filed patent applications and obtained patents to protect our intellectual property rights in these technologies as well as the interests of our licensees. There can be no assurance Kodak’s patent applications will be approved, any patents issued will be of sufficient scope or strength to provide us with meaningful protection, or such patents will not be challenged by third parties. Furthermore, Kodak may fail to accurately predict all of the countries where patent protection will ultimately be desirable, and if we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. The patents issuing may vary in scope of coverage depending on the country in which such patents issue.
In addition, the intellectual property rights of others could inhibit Kodak’s ability to conduct our business. Other companies may hold patents on technologies used in Kodak’s industries and some of these companies may be aggressively seeking to expand, enforce or license their patent portfolios. Third parties may claim Kodak and our customers, licensees or other parties indemnified by us are infringing upon their intellectual property rights.
Such claims may be made by competitors seeking to block or limit Kodak’s access to certain markets. Additionally, certain individuals and groups have purchased intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies like Kodak. Even if we believe the claims are without merit, these claims may have the following negative impacts on our business:
• | claims can be time consuming and costly to defend and may distract management’s attention and resources; | |
• | claims of intellectual property infringement may require us to redesign affected products, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products; | |
• | even if we have an agreement with a third party to indemnify us against such costs, the indemnifying party may be unable to uphold such party’s contractual obligations; and | |
• | if we cannot or do not license the infringed technology at all, license the technology on reasonable terms or substitute similar technology from another source, Kodak’s revenue and earnings could be adversely impacted. |
Finally, Kodak uses open-source software in connection with some of our products and services. Companies which incorporate open-source software into their products have, from time to time, faced claims challenging the ownership of open-source software and/or compliance with open-source license terms. As a result, Kodak could be subject to suits by parties claiming ownership of what we believe to be open-source software or noncompliance with open-source licensing terms. Some open-source software licenses require users who distribute open-source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open-source code on unfavorable terms or at no cost. Any requirement to disclose Kodak’s source code or pay damages for breach of contract could be harmful to our business results of operations and financial condition.
Cyber-attacks or other data security incidents that disrupt Kodak’s operations or result in the breach or other compromise of proprietary of confidential information about our workforce, our customers, or other third parties could disrupt our business, harm our reputation, cause us to lose customers, and expose us to costly regulatory enforcement and litigation, any of which could lead to material adverse effects on Kodak’s results of operations, business and financial condition.
To effectively manage our global business, Kodak depends on secure and reliable information technology systems with accurate data. These systems and their underlying infrastructure are provided by a combination of Kodak and third parties, and if unavailable or unreliable, could disrupt Kodak’s operations, causing delays or cancellation of customer orders, impeding the manufacturing or delivery of products, delaying the reporting of financial results, or impacting other business processes critical to running our business.
Attacks on IT systems continue to grow in frequency, complexity and sophistication, and Kodak is regularly targeted by unauthorized parties using malicious tactics, code and viruses. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, are increasingly more complex and sophisticated and may be difficult to detect for long periods of time. Therefore, the system controls and security measures Kodak and other third parties use to prevent, detect and respond to data or cyber security incidents may not be sufficient to anticipate and identify these techniques or implement adequate or timely preventive or responsive measures.
Kodak’s IT systems contain critical information about our business, including intellectual property and confidential information of our customers, business partners, and employees. Cyber-attacks, breaches or defects in our systems or those of third parties could result in unauthorized access to and misuse of our information, corruption of data, or disruption of operations, any of which could have a material adverse impact on Kodak’s business and reputation. The speed to closure of significant cyber security incidents may be influenced by the cooperation of governmental or law enforcement agencies, which is outside of our control.
Kodak also provides IT-based products and services to our customersand operates services used by our customers and hosted by Kodak. A breach of our security or reliability measures, or those of our third-party service providers, could negatively impact our customers’ operations or data privacy, which could expose Kodak to liability and reputational harm.
We may be required to incur significant costs to protect against damage caused by cyber-attacks or data security incidents in the future. Such events may expose us to unexpected liability, litigation, regulatory investigation and penalties, loss of customers’ business, unfavorable impact to business reputation, any of which could lead to a material adverse effect on our business, financial condition and results of operations.
Kodak is implementing improvements to IT systems to more effectively manage our global business and implement our strategic plans. If Kodak is unable to successfully manage the development, improvement and transition of IT systems, anticipated efficiencies and operational improvements may be delayed or diminished, and we may experience cost overruns, disruption in our operations, or other business or reputational harm, any of which could have a material adverse effect on Kodak’s results of operations, business and financial condition.
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Kodak’s inability to effectively complete and manage strategic transactions could adversely impact our business performance, including our financial results.
From time to time, Kodak may be engaged in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures, asset sales, spin-offs and outsourcing transactions and may enter into agreements relating to such transactions in order to further our business objectives.
In order to successfully pursue strategic transactions, Kodak must identify suitable sellers, buyers and partners and successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the elimination of any remaining post-sale costs related to divested businesses. Transaction risk can be more pronounced for larger and more complicated transactions or when multiple transactions are pursued simultaneously. Strategic transactions may involve the following risks and challenges that could negatively impact our results of operations:
• | the need to obtain required regulatory and other approvals; | |
• | the need to integrate acquired or combined operations with our business; | |
• | potential loss of key employees; | |
• | difficulty in evaluating operating costs, infrastructure requirements, environmental and other liabilities, and other factors beyond our control; | |
• | wrong, inaccurate, or changing business assumptions on which such acquisitions or combinations are predicated; | |
• | potential lack of operating experience in new business or geographic areas; | |
• | an increase in our expenses and working capital requirements; | |
• | competition for strategic transactions, which may increase transaction costs and the ability to identify opportunities; | |
• | management’s attention may be temporarily diverted; and | |
• | the possibility we may be required to issue a substantial amount of additional equity or debt securities or assume additional debt in connection with any such transactions. |
There are no assurances Kodak will be able to consummate any strategic transactions which we undertake or, if consummated, Kodak will achieve the anticipated levels of cash flows liquidityor realize synergies or other anticipated benefits from a strategic transaction. If Kodak fails to identify and successfully complete transactions that further our strategic objectives, we may be required to expend resources to develop products and technology internally, we may be at a competitive disadvantage or we may be adversely affected by negative market perceptions. Any of these factors could have an adverse effect on Kodak’s revenue, gross margins and profitability.
If the reputation of Kodak or its brand erodes significantly, it could have a material impact on our financial results.
Kodak’s products and brand have worldwide recognition. Kodak’s reputation, and the reputation of our brand, form the foundation of our relationships with key stakeholders and other constituencies, including customers, suppliers, distributors, channel partners, consumers and investors. Any harm to the reputation of Kodak or our brand could have a material adverse impact on our results of operations, business and financial position.condition. The value of Kodak’s brand is reflected, in part, in our Brand segment, which licenses the Kodak brand for use by third parties in a wide range of products. Consumers and the public may view the products and activities of brand licensees as the products and activities of Kodak. The measures Kodak undertakes to research and manage licensee relationships and assess the quality of their products may not be sufficient to protect against legal proceedings and reputational harm in the event that licensed products and services do not meet consumer expectations for quality and safety. Other factors that could dilute or damage the reputation of Kodak and our brand include the failure of products and services to meet customer expectations, litigation and government investigations, negative or inaccurate comments in the media, including social media, and failure to meet and manage customer and industry expectations regarding the impact of our business on matters of social responsibility and environmental sustainability.
Increased competition, including price competition, could have a material adverse impact on Kodak’s revenue, gross margins, cash flow and market share.
The markets in which Kodak does business are highly competitive with large, entrenched, and well financed industry participants, many of which are larger than Kodak. In addition, we encounter aggressive price competition for many of our products and services from numerous companies globally. Any of our competitors may:
• | foresee the course of market developments more accurately than Kodak does; | |
• | sell superior products and provide superior services or offer a broader variety of products and services; | |
• | have the ability to produce or supply similar products and services at a lower cost; | |
• | have better access to materials and supplies and the ability to acquire materials and supplies at a lower cost; | |
• | develop stronger relationships with our suppliers or customers; | |
• | adapt more quickly to new technologies or evolving customer requirements; or | |
• | have access to capital markets or other financing sources on more favorable terms. |
As a result, Kodak may not be able to compete successfully with our competitors. Finally, we may not be able to maintain our operating costs or prices at levels which would allow us to compete effectively. Kodak’s results of operations and financial condition may be adversely affected by these and other industry-wide pricing pressures. If our products, services and pricing are not sufficiently competitive with current and future competitors, we could also lose market share, adversely affecting our revenue, gross margins and cash flow.
Business disruptions could seriously harm Kodak’sKodak’s future revenue and financial condition and increase its costs and expenses. condition.
Worldwide operations could be subject to earthquakes, power shortages or outages, internet, systems and telecommunications failures, cyber-attacks, terrorism and other physical security threats, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, failure of critical infrastructure, medical epidemics, political or economic instability, including war and protests, and other natural or manmade disasters or business interruptions, for which Kodak is predominantly self-insured. The occurrence of any of these business disruptions could seriously harm its revenuecause disruptions to Kodak’s operations or the operations of our suppliers, distributors and resellers, or customers and have a material adverse effect on Kodak’s results of operations and financial condition and increase its costs and expenses.condition.
The ongoing outbreak
Certain of Kodak’s critical business functions, including itsour manufacturing and field service operations, cannot be performed remotely, and an inability of Kodak’s employees to physically work at itsour or its customersour customers’ locations due to government restrictions, health concerns or illness may disrupt itsdisruptions in service could harm Kodak’s operations, perhaps significantly. Kodak has experienced some disruptions in its manufacturing and logistics operations due to the coronavirus outbreak. The full extent to which the coronavirus outbreak continues to impact Kodak’s results will depend on future developments, which are highly uncertain and cannot be predicted at the time of this filing, including new information which may emerge concerning the coronavirus and the actions taken to contain the virus or treat its impact, among others. Complications from the coronavirus outbreak could have a material adverse effect on the continuity of our business operations and our results of operations and financial position.
In addition, some areas, including parts of the east and west coasts of the United States, have previously experienced, and may experience in the future, major power shortages and blackouts. These blackouts could cause disruptions to Kodak’s operations or the operations of its suppliers, distributors and resellers, or customers. Kodak has operations including research and development facilities in geographically disparate locations, such as Israel, Japan, China, Canada and Germany.
The impact of these risks is greater in areas where products are manufactured at a sole or limited number of location(s), and where the sourcing of materials is limited to a sole or limited base of suppliers, since any material interruption in operations in such locations or suppliers could impact Kodak’s ability to provide a particular product or service for a period of time.
Kodak’s
If our systems are disrupted or fail for any reason, both Kodak and ourcustomers could experience data loss, financial loss, harm to reputation, or significant business interruption. Any delays or failures caused by network outages, software or hardware failures, or other data processing disruptions, could result in our inability to effectively complete and manage strategic transactions could adversely impact its business performance, including its financial results.
As part of Kodak’s strategy, it may be engagedprovideservices in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures, asset sales, spin-offs and outsourcing transactions and may enter into agreements relating to such transactions in order to further its business objectives. In order to successfully pursue its strategic transaction strategy, it must identify suitable sellers, buyers and partners and successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the elimination of any remaining post-sale costs related to divested businesses. Transaction risk can be more pronounced for larger and more complicated transactionsa timely fashion or when multiple transactions are pursued simultaneously. There are no assurances Kodak will be able to consummate any strategic transactions which it undertakes or, if consummated, Kodak will achieve the benefits sought to be achieved from such strategic transactions. If Kodak fails to identify and successfully complete transactions that further its strategic objectives, itat all. We may be required to expend resourcesincur significant costs to develop productsprotect against damage caused by disruptions or security breaches in the future. Such events may expose us to unexpected liability, litigation, regulatory investigation and technology internally, it maypenalties, loss of customers’ business, and unfavorable impact to business reputation, as a result of which there could be at a competitive disadvantage or it may be adversely affected by negative market perceptions. Any of these factors could have anmaterial adverse effect on its revenue, gross marginsour business and profitability. In addition, unpredictability surroundingresults of operations.
Kodak relies on third-party suppliers and service providers to support our manufacturing, logistics, and business operations and faces the timing of such transactions could adversely affect its financial results.risks associated with reliance on external business partners.
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Kodak may pursue acquisitions or combinations which could fail or present unanticipated problems for its business in the future, which would adversely affect its ability to realize the anticipated benefits of those transactions or increase the price it would be required to pay.
Kodak may seekrelies on third-party suppliers for goods and services, many of which are unique, to enter into transactions which may include acquiring or combining with other businesses. Itsupport our manufacturing, logistics, and business operations. To the extent we rely on third parties, we face the risks that those third parties may not be able to identify suitable acquisition or combination opportunities or finance and complete any particular acquisition or combination successfully. Furthermore, acquisitions and combinations involve a number of risks and challenges, including:to:
Suppliers may choose to unilaterally withhold products, components or services. In addition, Kodak may experience shortages in supply and disruptions in service and supply as a result of unexpected demand, product obsolescence, transportation and logistical limitations, and/or disruptions or production difficulties at our suppliers, such as disruptions due to fires, medical epidemics, other natural disasters or events outside of a supplier’s control. In addition, disruptions could result from a reduction in the number of our suppliers due to their own financial difficulties or a reduction in the products offered by such suppliers. As a result of the loss of any supplier, or a substantial decrease in the availability of products from our suppliers, Kodak may be unable to meet our customer commitments, our costs could be higher than planned, and our cash flows and the reliability of our products could be negatively impacted. Kodak will vigorously enforce our contractual rights under such circumstances, but there is no guarantee we will be successful in preventing or mitigating the effects of unilateral actions by our suppliers. Other supplier problems that Kodak could encounter include electronic component shortages, interruption of IT services, risks related to the duration and termination of our contracts with suppliers for components and materials, non-competitive pricing due to tariffs, and risks related to the ability to obtain products, components or services from single source suppliers on favorable terms or at all. Hardware, applications and services, including cloud-based services, that we develop or procure from third-party suppliers may contain defects in design or other problems that could compromise the integrity and availability of our services. The realization of | ||||||||||||||||||
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Any of these factorsrisks, should alternative third-party relationships not be available or established, could cause interruptions in supply or increases in costs which might result in Kodak’s inability to meet customer demand for our products, damage to our relationships with our customers, and reduced market share, all of which could adversely affect its ability to achieve anticipated levelsKodak’s results of cash flows or realize synergies or other anticipated benefits from a strategic transaction. Furthermore,operations and financial condition.
Any significant negative change in the market for transactions is highly competitive, which maypayment terms that Kodak has with our suppliers could adversely affect its abilityour liquidity. There is a risk that Kodak’s key suppliers could respond to find transactions which fit its strategic objectivesany actual or increase the price it would be required to pay (which couldapparent decrease the benefit of the transactionin or hinder its desire or ability to consummate the transaction). Strategic transactions may occur at any time and may be significant in size relative to its assets and operations.
Cyber-attacks or other data security incidents that disrupt Kodak’s operations or result in the breach or other compromise of proprietary of confidential information about its workforce, its customers, or other third parties could disrupt its business, harm its reputation, cause it to lose customers, and expose it to costly regulatory enforcement and litigation.
To effectively manage Kodak’s global business, it depends on secure and reliable information technology systemsconcern with accurate data. These systems and their underlying infrastructure are provided by a combination of Kodak and third-parties, and if unavailable or unreliable, could disrupt Kodak’s operations, causing delays or cancellation of customer orders, impeding the manufacturing or delivery of products, delaying the reporting ofour financial results or impacting other business processes criticalliquidity by requiring or conditioning their sale of goods or services to running its business.
Kodak on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upon delivery, or shorter payment terms. Kodak’s IT systems contain critical information about its business, including intellectual propertyneed for additional liquidity could significantly increase and confidential informationour supply could be materially disrupted if a significant portion of its customers, business partners, and employees. Cyber-attacksour key suppliers took one or defects in its systems could result in this proprietary information being disclosed or modified, which could cause significant damage to its business or its reputation.
Kodak has system controls and security measures in place that are designed to protect its IT systems against intentional or unintentional disruptionsmore of its operations or disclosure of confidential information, but it may not be able to implement solutions that result in stopping or detecting all of these threats to its internal information systems or those of its third-party providers. A breach of Kodak’s security measures could result in unauthorized access to and misuse of its information, corruption of data, or disruption of operations, any ofthe actions described above, which could have a material adverse effect on our sales, customer satisfaction, cash flows, liquidity and financial position.
Due to the nature of the products we sell and Kodak’s worldwide distribution, Kodak is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity costs which, together with tariffs that may be imposed, may adversely impact our results of operations and financial position.
As a result of Kodak’s global operating and financing activities, we are exposed to changes in currency exchange rates and interest rates, which may adversely affect our results of operations and financial position.
Exchange rates and interest rates in markets in which we do business tend to be volatile and, at times, our sales and profitability can be negatively impacted across all of our segments depending upon the value of the U.S. dollar and other major currencies such as the euro, the Japanese yen, the British pound and the Chinese yuan. Tariffs or duties may also be imposed on its business.exported products produced by Kodak, making such products less competitive in jurisdictions imposing such tariffs or duties. If the global economic situation remains uncertain or worsens, there could be further volatility in changes in currency exchange rates, interest rates and commodity prices, which could have negative effects on Kodak’s business, financial condition and results of operations.
Kodak faces additional costs and risks associated with our worldwide business operations.
Kodak’s business is subject to additional costs and risks associated with doing business internationally, such as:
• | support of multiple languages; | |
• | recruitment of sales and technical support personnel with the skills to design, manufacture, sell and supply products; | |
• | compliance with governmental regulation of imports and exports, including obtaining required import or export approval for our products; | |
• | complexity of managing international operations; | |
• | exposure to foreign currency exchange rate fluctuations; | |
• | commercial laws and business practices which may favor local competition and the imposition of tariffs on products or raw materials imported into or exported from the U.S.; | |
• | multiple, potentially conflicting, and changing governmental laws, regulations and practices, including differing export, import, tax, anti-corruption, anti-dumping, economic sanction, labor, and employment laws; |
• | difficulties in collecting accounts receivable; | |
• | limitations or restrictions on the repatriation of cash and the potential obligation to move cash to locations limiting or restricting repatriation; | |
• | limitations or reductions in protection of intellectual property rights; | |
• | complications in logistics and distribution arrangements; and | |
• | political or economic instability. |
As a global company, Kodak is subject to regulatory requirements and laws in the jurisdictions in which we operate, and any alleged non-compliance with these requirements or laws could result in an adverse financial or reputational impact.
An inability to provide competitive financing arrangements to Kodak’s customers or extension of credit to customers whose creditworthiness deteriorates could adversely impact our revenue, profitability and financial position.
The competitive environment in which Kodak operates may require us to facilitate or provide financing to our customers. Customer financing arrangements may cover all or a portion of the purchase price for our products and services. We may also assist customers in obtaining financing from banks and other sources. Our success may be dependent, in part, upon our ability to provide customer financing on competitive terms and on our customers’ creditworthiness. Tightening of credit in the global financial markets can adversely affect the ability of Kodak’s customers to obtain financing for significant purchases, which may result in a decrease in, or cancellation of, orders for our products and services. If Kodak is unable to provide competitive financing solutions to our customers or if we extend credit to customers whose creditworthiness deteriorates, our revenues, profitability and financial position could be adversely impacted.
Risks Related to Kodak’s Indebtedness and Access to Capital Markets
The Company’s substantial monetary obligations require a portion of our cash flow to be used to fund other obligations rather than be invested in the business and could adversely affect our ability to fund our operations.
The Company has obligations for borrowed money or in connection with letters of credit under the Term Loan Credit Agreement and the cash collateralized Amended and Restated L/C Facility Agreement (together, the “Credit Agreements”).
The Company’s indebtedness under the Credit Agreements and our other obligations could have important negative consequences to the Company and investors in our securities. These include the following:
• | Kodak may not be able to satisfy all of our obligations, including, but not limited to, our obligations under the Credit Agreements, which may cause a cross-default or cross-acceleration on other debt Kodak may have incurred; | |
• | We could have difficulties obtaining necessary financing in the future for working capital, capital expenditures, debt service requirements, collateral requirements, refinancing or other purposes; | |
• | We will have to use a significant part of our cash flow or cash balances to make payments on our debt and Series B Preferred Stock and to satisfy the other obligations set forth above, which may reduce the capital available for operations and expansion; and | |
• | Adverse economic or industry conditions may have more of a negative impact. |
The Company cannot be sure cash generated from our businesses will be as high as we expect, or our expenses will not be higher than we expect. Because a portion of our expenses are fixed in any given year, our operating cash flow margins are highly dependent on revenues, which are largely driven by customer demand. A lower amount of cash generated from our businesses or higher expenses than expected, when coupled with our debt obligations, could adversely affect Kodak’s ability to fund our operations.
The availability of letters of credit under the Amended and Restated L/C Facility Agreement is limited by the amount of cash on deposit.
Availability under the Company’s Amended and Restated L/C Facility Agreement is based on cash collateral in an amount greater than or equal to 104% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”).
If L/C Cash Collateral is not maintained to support the 104% of the $31 million of letters of credit outstanding under the Amended and Restated L/C Facility Agreement, the Company would be required to place additional cash on deposit with the administrative agent within one business day of a demand. Additional cash would also be required to be deposited if Kodak desires to have additional letters of credit issued.
Additional L/C Cash Collateral would be classified as restricted cash and would not be available to support ongoing working capital and investment needs.
Kodak may desire additional capital funding and such capital may not be available to us and/or may be limited.
Kodak also provides IT-based productsmay desire to raise additional capital, including to pursue additional growth opportunities, strategic transactions or additional reorganization initiatives or refinance or redeem outstanding debt or preferred stock. Because of Kodak’s current non-investment grade credit rating and servicesfinancial condition, and/or the current volatility and tightening in the financial and credit markets, Kodak’s access to its customers,the capital markets may be limited.
Kodak’s ability to obtain capital and operates services used by its customers and hosted by Kodak, both businesses and consumers, and a breachthe costs of its security or reliability measures, or thosesuch capital are dependent on numerous factors, including:
• | Covenants in the Credit Agreements; | |
• | Obtaining a consent from the holders of Series B and C Preferred Stock for the issuance of additional preferred shares which rank senior or pari passu to the Series B and C Preferred Stock; |
• | Investor confidence in Kodak and the markets in which we operate; | |
• | Our financial performance and projected financial performance and the financial performance and projected financial performance of our subsidiaries; | |
• | Our levels of debt and redemption obligations; | |
• | Our ability to generate positive cash flow; | |
• | Our ability to consummate monetization transactions including asset sales; | |
• | Our requirements for posting collateral under various commercial agreements; | |
• | Our current non-investment grade credit rating; | |
• | Our long-term business prospects; and | |
• | General economic and capital market conditions. |
Attacks on IT systems continue to grow in frequency, complexity and sophistication, and Kodak is regularly targeted by unauthorized parties using malicious tactics, code and viruses.
Kodak has programsmay not be successful in placeobtaining additional capital for these or other reasons. An inability to prevent, detect and respondaccess capital may limit our ability to datacapitalize on growth or cyber security incidents. However, becauseefficiency opportunities or refinancings we would otherwise like to pursue.
There can be no assurance the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, are increasingly more complex and sophisticated and mayCompany will be difficult to detect for long periods of time, Kodak may be unable or fail to anticipate these techniques or implement adequate or timely preventive or responsive measures.
Failureable to comply with anti-corruption lawsthe terms of our various credit facilities.
A breach of any of the covenants contained in the Credit Agreements could result in an event of default under these facilities.
If any default or event of default occurs under the Amended and regulations, anti-money laundering lawsRestated L/C Facility Agreement and regulations, economicthe Company is not able to either cure it or obtain a waiver from the requisite lenders under the Amended and trade sanctions,Restated L/C Facility Agreement, the administrative agent under the Amended and similar lawsRestated L/C Facility Agreement may, and at the request of the requisite lenders for that facility must, declare all of the Company’s outstanding obligations under the Amended and Restated L/C Facility Agreement, together with accrued interest and fees, to be immediately due and payable. In addition, the agent under the Amended and Restated L/C Facility Agreement may, and at the request of the requisite lenders must, terminate the lenders’ commitments under that facility and cease making further loans. If any default or event of default occurs under the Term Loan Credit Agreement and the Company is not able to either cure it or obtain a waiver from the holders of the Term Loan Credit Agreement, such holders may declare all of the Company’s outstanding obligations under the Term Loan Credit Agreement, together with accrued interest and fees, to be immediately due and payable. If applicable, the administrative agent under the Amended and Restated L/C Facility Agreement and the holders of the Term Loan Credit Agreement could institute foreclosure proceedings against the pledged assets. Any of these outcomes would likely have an adverse effect on the Company’s operations and our ability to satisfy our obligations as they come due.
The current non-investment grade status and Kodak’s financial condition may adversely impact Kodak’s commercial operations, increase our liquidity requirements and increase the cost of refinancing opportunities. We may not have adequate liquidity to post required amounts of additional collateral.
The Company’s corporate family credit rating is currently below investment grade and there are no assurances our credit ratings will improve, or they will not decline, in the future. In addition, the Company may not continue to maintain credit ratings from the recognized rating agencies.
Our credit ratings and financial condition may affect the evaluation of our creditworthiness by trading counterparties and lenders, which could put us at a disadvantage to competitors with higher or investment grade ratings.
In carrying out our commercial business strategy, the current non-investment grade credit ratings have resulted and will likely continue to result in requirements that Kodak either prepay obligations or post significant amounts of collateral to support our business.
Should our ratings continue at their current levels, or should our ratings be further downgraded, we would expect these negative effects to continue and, in the case of a downgrade, become more pronounced.
Legal, Regulatory and Compliance Risks
Legal proceedings and governmental investigations associated with the U.S. International Development Finance Corporation announcement or in general could have a materiallymaterial adverse effect on Kodak’sour business operations and prospects, reputation, financial condition, results of operations and stock price.
On July 28, 2020, the U.S. International Development Finance Corporation (the “DFC”) announced (the “DFC Announcement”) the signing of a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan (the “DFC Loan”) to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs (the “DFC Pharmaceutical Project”).
The DFC Announcement and circumstances surrounding it prompted congressional investigations, an SEC investigation and a New York Attorney General’s investigation. In addition, lawsuits have been filed or threatened alleging various securities law violations and breaches of fiduciary duties based on circumstances surrounding the DFC Announcement. For further information on these investigations and lawsuits, see Note 12, “Commitments and Contingencies” in the Notes to Financial Statements.
Legal proceedings in general, and securities, class action and patent infringement litigation and regulatory investigations in particular, can be expensive and disruptive. The investigations and lawsuits associated with the DFC announcement have diverted, and may continue to divert, the attention of Kodak’s employees, management and board of directors. In addition, the response to the DFC related investigations and lawsuits has resulted in, and may continue to result in, increased legal expense and related costs. Kodak’s insurance, to the extent maintained, is not expected to cover all costs associated with the investigations and legal proceedings. We are unable to predict how much longer the legal proceedings and investigations to which we are currently subject will continue. An unfavorable outcome of any governmental investigation or legal proceeding may have an adverse impact on our reputation, business, financial condition and results of operations, prospects, or have other adverse consequences.stock price.
Our business and financial condition can be impaired by improper conduct by any of our employees, agents, or business partners.
Regulators worldwide are exercising heightened scrutiny with respect to anti-corruption, economic and trade sanctions, and anti-money laundering laws and regulations. Such heightened scrutiny has resulted in more aggressive investigations and enforcement of such laws and more burdensome regulations, any of which could adversely impact Kodak’s business. Kodak has a global operating presence, including in numerous developing economies where companies andSuch laws govern payments to government officials, are more likely to engage in businessbribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, that are prohibited by domesticconflicts of interest, competition, employment practices and foreign lawsworkplace behavior, export and regulations, includingimport compliance, economic and trade sanctions, money laundering and data privacy. In particular, the United StatesU.S. Foreign Corrupt Practices Act, the UK Bribery Act and the U.K. Bribery Act.
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Suchsimilar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments or offers of payments to foreign government officials and leaders of political parties, and in some cases, to other persons, for the purpose of obtaining or retaining business. Kodak is also subjectbusiness, and we operate in many parts of the world that have experienced governmental corruption to economic and trade sanctions programs, including those administered by the U.S. Treasury Department’s Officesome degree.
Kodak has implemented policies and procedures designed to monitor and addressensure compliance with applicable anti-corruption, economic and trade sanctions and anti-money laundering laws and regulations, including worldwide system screening of all customers, suppliers and itvendors, banking entities, sales orders, and purchase orders. Kodak periodically reviews, upgrades and enhances certain of itsour policies and procedures.procedures, including sanctioned parties listings used in screening its master and transactional data as well as export license and license exception determination routines. However, there can be no assurance that itsour employees, consultantsagents or agentsbusiness partners will not take actions in violation of itsour policies for which itwe may be ultimately deemed responsible, or that itsour policies and procedures will be adequate or will be determined to be adequate by regulators. Any violationssuch improper actions or allegations of applicable anti-corruption, economicsuch acts could damage our reputation and trade sanctionssubject us to civil or anti-money laundering laws or regulationscriminal investigations and related shareholder lawsuits, could limit certain of Kodak’s business activities until they are satisfactorily remediated and could result inlead to substantial civil and criminal, monetary and non-monetary penalties including fines,and could cause us to incur significant losses as a victim and legal and investigatory fees. In addition, the government may seek to hold us liable for violations committed by companies in which we invest or that we acquire. If Kodak is found to have violated laws and regulations, it could damage itsmaterially adversely affect our business, reputation, and have a materially adverse effect on its results of operation oroperations and financial condition.condition.
Failure to comply with privacy, data protection and cyber security laws and regulations could have a materially adverse effect on Kodak’sKodak’s reputation, results of operations or financial condition.
Kodak receives, processes, transmits and stores information relating to identifiable individuals (personal information), both in itsour role as a technology provider and as an employer. As a result, Kodak is subject to numerous U.S. federal and state and foreign laws and regulations relating to personal information.
Examples of data privacy laws include (but are not limited to) the EU’s General Data Protection Regulation (“GDPR”) and ePrivacy laws, California’s Consumer Privacy Act (“CCPA”) and other U.S. state privacy laws, China’s Personal Information Protection Law (“PIPL”), and Brazil’s General Data Protection Law (“LGPD”). These laws have been subject to frequent changes, and new legislation in this area may be enacted at any time. Additionally, the application of existing and new laws in the areas of cloud services and artificial intelligence is evolving, and we may face challenges monitoring and complying with these requirements.
More recent examples of data privacy laws include the EU’s General Data Protection Regulation (GDPR), California’s Consumer Privacy Act (CCPA)
Failure to comply with existing and Privacy Rights Act (CPRA), and Brazil’s General Data Protection Law (LGPD).
Recentlynewly enacted laws and regulations as well as any other change to existing laws, the introduction of new laws in this area, or the failure to comply with existing laws that are applicable, may subject Kodak to, among other things, additional costs or changes to itsour business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on itsour ability to obtain and process information and allegations by itsour customers and clients that it haswe have not performed itsour contractual obligations. AtWe may also face risk (including loss of substantial business) if our customers and other stakeholders are not confident that our products and service can be used in a manner that is compliant with applicable data protection laws.
Recent developments in the sameregulation of cross-border data transfers from the European Economic Area and countries with similar regimes, including enforcement decisions and regulatory guidance issued by key supervisory authorities, creates uncertainty as to our and our customers’ ability to use platforms and processing services located in the U.S. and other non-adequate jurisdictions. While existing data transfer mechanisms, such as standard contractual clauses, remain valid, Kodak’s use of these transfer mechanisms is subject to legal, regulatory and political pressure. Kodak anticipates spending additional time the riskand expense to enable continued cross-border transfers as needed to operate our business, which may have a material adverse effect on our business and results of cyber-attacks is relevant to the requirements regarding storage, transfer, sharing and handling of personal information.operations.
This environment demands Kodak continuously improve itsour design and coordination of privacy and security controls (including within our products, websites and business processes) and contractual arrangements across itsour businesses and geographies. While Kodak has taken steps to comply with applicable data protection laws and the regulations and guidance published by applicable regulators, our efforts to achieve and remain in compliance may not be sufficient or fully successful. Despite these efforts, it is possible itsKodak’s security controls over personal data, its training of employees and vendors on data privacy and data security, and other practices it followsKodak, may not prevent the improper disclosure of personal information. Improper disclosure of this information could harm itsour reputation or subject itus to liability under laws which protect personal data, resulting in increased costs or loss of revenue.
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Kodak cannot protect the intellectual property rights on which its business depends, or if third parties assert it violates their intellectual property rights, its revenue, earnings, expenses and liquidity may be adversely impacted.
A key differentiator for Kodak in many of its businesses is its technological advantage over competitors’ products and solutions. Its technological advantage is supported by Kodak’s intellectual property rights. Patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and non-disclosure, confidentiality and other types of agreements with Kodak’s employees, customers, suppliers and other parties, may not be effective in establishing, maintaining, protecting and enforcing Kodak’s intellectual property rights.
Any of Kodak’s direct or indirect intellectual property rights could be challenged, invalidated, circumvented, infringed, diluted, disclosed or misappropriated, or such intellectual property rights may not be sufficientsubject to permit it to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the same degree as the laws of the United States.
Therefore, in certain jurisdictions, Kodak may be unable to protect its proprietary technology adequately against unauthorized third party copying, infringement or use, which could adversely affect its competitive position. Also, some of Kodak’s business and some of its products rely on key technologies developed or licensed by third parties and, because of the rapid pace of technological change in the information technology industry, it may not be able to obtain or continue to obtain licenses and technologies from relevant third parties on reasonable terms, or at all.
Kodak also licenses third parties to use its trademarks. In an effort to preserve its trademark rights, Kodak enters into license agreements with these third parties which govern the use of its trademarks and require its licensees to abide by quality control standards with respect to the goods and services they provide under the trademarks. Although Kodak makes efforts to police the use of its trademarks by its licensees, there can be no assurance these efforts will be sufficient to ensure the licensees abide by the terms of their licenses. In the event Kodak’s licensees fail to do so, its trademark rights could be diluted and its reputation harmed by its licensees’ activities. Also, failure by Kodak and its licensees to sufficiently exploit any of Kodak’s trademarks in any markets could erode Kodak’s trademark rights with respect to the relevant trademarks. Because theenvironmental laws and enforcement regimes of certain countries do not protect proprietary rightsregulations. Failure to the same degreecomply with such laws and regulations or liabilities imposed as those in the United States, in certain jurisdictions Kodak may be unable to adequately prevent such unauthorized uses, which could result in impairment of its trademark rights.
Kodak has made substantial investments in new, proprietary technologies and has filed patent applications and obtained patents to protect its intellectual property rights in these technologies as well as the interests of its licensees.
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There can be no assurance Kodak’s patent applications will be approved, any patents issued will be of sufficient scope or strength to provide it with meaningful protection, or such patents will not be challenged by third parties. Furthermore, Kodak may fail to accurately predict all of the countries where patent protection will ultimately be desirable, and if it fails to timely file a patent application in any such country, it may be precluded from doing so at a later date. The patents issuing may vary in scope of coverage depending on the country in which such patents issue.
In addition, the intellectual property rights of others could inhibit Kodak’s ability to conduct its business. Other companies may hold patents on technologies used in Kodak’s industries and some of these companies may be aggressively seeking to expand, enforce or license their patent portfolios. Third parties may claim Kodak and its customers, licensees or other parties indemnified by it are infringing upon their intellectual property rights. Such claims may be made by competitors seeking to block or limit Kodak’s access to certain markets. Additionally, certain individuals and groups have purchased intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from large companies like Kodak. Even if it believes the claims are without merit, these claims may have the following negative impacts on its business:
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Finally, Kodak uses open source software in connection with some of its products and services. Companies which incorporate open source software into their products have, from time to time, faced claims challenging the ownership of open source software and/or compliance with open source license terms. As a result Kodakof such laws and regulations could be subject to suits by parties claiming ownership of what it believes to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source codehave an adverse effect on unfavorable terms or at no cost. Any requirement to disclose Kodak’s source code or pay damages for breach of contract could be harmful to itsour business, results of operations and financial condition.
Kodak is subject to environmental laws and regulations world-wide that govern, for example, the discharge of pollutants, the management of hazardous materials, the cleanup of contaminated sites, and the composition and end-of-life management of our products. Changes to such laws and regulations could increase our cost of doing business, limit the sale of certain of our products in certain jurisdictions or require modifications to our products that may be costly, time consuming or infeasible.
Non-compliance with applicable laws or liability incurred without regard to fault could have a material adverse effect on our business, results of operations and financial condition. The cost of complying with such laws could have a material adverse effect on our business, results of operations and financial condition. Any uncertainties related to environmental conditions or obligations at Kodak’s properties may impact our ability to further develop or sell such properties.
If Kodak fails to maintain effective internal controls over financial reporting, we may not be able to accurately report our financial results, which could have a material adverse effect on Kodak’s operations, investor confidence in our business and the trading prices of our securities.
Kodak is required to maintain disclosure controls and procedures and internal controls over financial reporting that are effective for the purposes described in Item 9A, “Controls and Procedures”. The existence of a material weakness in Kodak’s internal controls may adversely affect our ability to record, process, summarize and report financial information timely and accurately and, as a result, our financial statements may contain material misstatements or omissions, which could result in regulatory scrutiny, cause investors to lose confidence in our reported financial condition and otherwise have a material adverse effect on Kodak’s business, financial condition, cash flow results of operations or the trading price of Kodak’s stock.
Kodak may have additional tax liabilities.
We earn our income in both in the U.S. and abroad and, as such, aresubject to the tax laws in the U.S. and numerous foreign jurisdictions. Current economic and political conditions can impact these tax laws. Proposals to reform U.S. and foreign tax laws could significantly impact how Kodak is taxed on its global earnings. In August 2022, the Inflation Reduction Act was enacted in the U.S. and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”). This became effective January 1, 2023. There is no impact on our provision for income taxes from the CAMT for the year ended December 31, 2023.
Additionally, The Organization for Economic Co-operation and Development ("OECD") has led efforts to devise, and to permanently implement, a two-pillar solution to global tax challenges. These pillars focus on global profit allocations and provide for a global minimum effective corporate tax rate of 15%. A number of countries have enacted or are proposing to enact legislation that aligns with the directives set forth in the two-pillar solution; many of which are effective for the 2024 year. These changes could increase tax uncertainty and have an adverse impact on our effective tax rate and cash flow.
Management reviews regularly the adequacy of the provisions for taxes as they relate to Kodak’s income and transactions. In order to assess uncertain tax positions, Kodak applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made.
Kodak’s future pension and other postretirement benefit plan costs and required level of contributions could be unfavorably impacted by changes in actuarial assumptions, market performance of plan assets and obligations imposed by legislation or pension authorities which could adversely affect itsour financial position, results of operations, and cash flow.
Kodak has significant defined benefit pension and other postretirement benefit obligations.
The funded status of itsour U.S. and non-U.S. defined benefit pension plans (and other postretirement benefit plans), and the related cost reflected in itsour financial statements, are affected by various factors subject to an inherent degree of uncertainty. Key assumptions used to value these benefit obligations, funded status and expense recognition include the discount rate for future payment obligations, the long term expected rate of return on plan assets, salary growth, healthcare cost trend rates, mortality trends, and other economic and demographic factors. Significant differences in actual experience, or significant changes in future assumptions or obligations imposed by legislation or pension authorities, could lead to a potential future need to contribute cash or assets to Kodak’s plans in excess of currently estimated contributions and benefit payments and could have an adverse effect on Kodak’s consolidated results of operations, financial position or liquidity.
In past years, Kodak has experienced increasesvariability in the costs of these defined benefit pension and postretirement benefit obligations as a result of macro-economic factors beyond itsour control, including increases in health care costs, declinesvariability in investment returns on pension plan assets, and changes in discount rates and mortality rates used to calculate pension and related liabilities. At least some of these macro-economic factors may again put pressure on the cost of providing pension and medical benefits. There can be no assurance itwe will succeed in limiting cost increases. In addition, continued upward pressure, including any as a result of new legislation, could reduce the profitability of its businesses.
Kodak may be required to recognize impairments in the value of its goodwillour trade name and/or other long-lived assets which could adversely affect itsour results of operations.
Upon emergence from bankruptcy, Kodak applied fresh start accounting pursuant to which the reorganization value was allocated to the individual assets and liabilities based on their estimated fair values. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. In connection with fresh start, Kodak also determined the fair value of its other long-lived assets, including intangible assets. The determination of reorganization value, equity value of the Company’s common stock and fair value of assets and liabilities is dependent on various estimates and assumptions, including financial projections and the realization of certain events.
Kodak tests goodwill and indefinite livedindefinite-lived intangible assets for impairment annually or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Kodak evaluates other long-lived assets for impairments whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairments could occur in the future if Kodak’s expected future cash flows decline, marketif there are significant changes in the discount rate or interest rate environments deteriorate,royalty rates, or if carrying values change materially compared with changes in their respective fair values.
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Kodak’s businesses experience seasonality of sales. Therefore, lower demand for Kodak’s products or increases in costs during periods which are expected to be at peak in seasonality may have a pronounced negative effect on its results of operations.
Equipment and consumables sales generally exhibit higher levels in the fourth quarter due to the seasonal nature of placements, resulting from customer or industry budgeting practices. As a result, a sequential quarter-to-quarter comparison is not a good indication of Kodak’s performance or how it will perform in the future. In addition, adverse developments during what are expected to be peak periods in seasonality, such as lower-than-anticipated demand for its products, an internal systems failure, increases in materials costs, or failure of or performance problems with one of its key logistics, components supply, or manufacturing partners, could have a material adverse impact on its financial condition and operating results. Tight credit markets which limit capital investments or a weak economy which decreases print demand could negatively impact equipment or consumable sales. These external developments are often unpredictable and may have an adverse impact on its business and results of operations.
If Kodak fails to manage distribution of its products and services properly, its revenue, gross margins and earnings could be adversely impacted.
Kodak uses a variety of distribution methods to sell and deliver its products and services, including direct sales, third-party resellers and distributors. Successfully managing the interaction of direct and indirect channels across customer segments for its products and services is complex. Since each distribution method has distinct risks and financial implications, Kodak’s failure to achieve the most advantageous delivery model for its products and services could adversely affect its revenue and earnings.
Kodak’s future results could be harmed if it is unsuccessful in its sales in emerging markets.
Because Kodak is seeking to expand its sales and number of customer relationships outside the United States, including in emerging markets in Asia, Latin America and Eastern Europe, Kodak’s business is subject to risks associated with doing business internationally, such as:
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There can be no assurance Kodak will be able to market and sell its products in all of its targeted markets. If its efforts are not successful, its business growth and results of operations could be harmed.
As a global company, Kodak is subject to regulatory requirements and laws in the jurisdictions in which it operates, and any alleged non-compliance with these requirements or laws could result in an adverse financial or reputational impact.
Kodak is subject to environmental laws and regulations. Failure to comply with such laws and regulations or liabilities imposed as a result of such laws and regulations could have an adverse effect on its business, results of operations and financial condition.
Kodak is subject to environmental laws and regulations world-wide that govern, for example, the discharge of pollutants, the management of hazardous materials, the cleanup of contaminated sites, and the composition and end-of-life management of its products.
Non-compliance with applicable laws or liability incurred without regard to fault could have a material adverse effect on its business, results of operations and financial condition. The cost of complying with such laws could have a material adverse effect on its business, results of operations and financial condition. Any uncertainties related to environmental conditions or obligations at Kodak’s properties may impact its ability to further develop or sell such properties.
Kodak may have additional tax liabilities.
Kodak is subject to income taxes in the U.S. and in many foreign jurisdictions. Significant judgment is required in determining Kodak’s worldwide provision for income taxes. In the course of its business, there are transactions and calculations where the ultimate tax determination is uncertain.
Kodak operates within multiple taxing jurisdictions worldwide and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution.
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Management’s ongoing assessments of the outcomes of these issues and related tax positions require judgment, and although management believes that adequate provisions have been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the earnings and cash flow of Kodak.
Kodak’s business, financial position, results of operations, cash flows and reputation may be negatively impacted by legal matters.
Kodak has various contingencies which are not reflected on its balance sheet, including those arising as a result of being involved from time to time in a variety of claims, lawsuits, investigations, remediations and proceedings concerning commercial, tax, tort, customs, employment, health and safety and intellectual property matters, licensee activities, and compliance with various domestic and international laws and regulations. Should developments in any of these matters cause a change in its determination as to an unfavorable outcome and result in the need to recognize a material accrual or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on its business, financial position, results of operations, and cash flows.
On July 28, 2020, the U.S. International Development Finance Corporation (the “DFC”) announced (the “DFC Announcement”) the signing of a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan (the “DFC Loan”) to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs (the “DFC Pharmaceutical Project”). The DFC Announcement and circumstances surrounding it prompted congressional investigations, an SEC investigation and a New York Attorney General’s investigation. A number of lawsuits have been filed or threatened alleging various securities law violations and breaches of fiduciary duties based on circumstances surrounding the DFC Announcement. If the findings of the ongoing investigations are unfavorable or the Company is not successful in defending the lawsuits associated with the DFC Announcement, Kodak’s reputation could be damaged, its existing business could be adversely affected, and it may incur significant costs which may not be fully covered by insurance.
Regulations related to “conflict minerals” may require Kodak to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing Kodak’s products.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of Congo (“DRC”) and adjoining countries.
As a result, in August 2012, the SEC adopted rules requiring disclosure related to sourcing of specified minerals, known as “conflict minerals,” which are necessary to the functionality or production of products manufactured or contracted to be manufactured by public companies. Kodak has designed its overall conflict minerals policies and procedures to be consistent with the guidance issued by the Organization for Economic Co-operation and Development (“OECD”) and continues to perform due diligence on its supply chain. Kodak filed its most recent Conflict Minerals Disclosure report for the reporting period from January 1, 2019 to December 31, 2019 on May 29, 2020. As of the date of the report, Kodak determined certain of its products contain such specified minerals but was unable to determine whether or not such minerals originate from the DRC or an adjoining country. Kodak may incur additional costs to comply with these disclosure requirements, including costs related to determining the sources of the specified minerals used in its products, in addition to the cost of any changes to products, processes, or sources of supply as a consequence of such verification activities, which may adversely affect its business.
In addition, the number of suppliers who provide “conflict-free” minerals may be limited, which may make it difficult to satisfy customers who require all of the components of its products be certified as conflict-free, which could place it at a competitive disadvantage if it is unable to do so. Because Kodak’s supply chain is complex, it may also not be able to sufficiently verify the origins of the relevant minerals used in its products through its due diligence procedures, which may harm its reputation.
Risks Related to the Company’s Indebtedness and Access to Capital Markets
There can be no assurance the Company will be able to comply with the terms of its various credit facilities.
A breach of any of the financial or other covenants contained in the cash collateralized Letter of Credit Facility Agreement (the “LC Credit Agreement”), Asset Based Revolving Credit Agreement (the “ABL Credit Agreement”), Term Loan Credit Agreement or the Convertible Notes, (together, the “Credit Agreements”) could result in an event of default under these facilities.
If any default or event of default occurs under the LC Credit Agreement or ABL Credit Agreement and the Company is not able to either cure it or obtain a waiver from the requisite lenders under the LC Credit Agreement and ABL Credit Agreement, the administrative agent under the LC Credit Agreement and ABL Credit Agreement may, and at the request of the requisite lenders for that facility must, declare all of the Company’s outstanding obligations under the LC Credit Agreement and ABL Credit Agreement, together with accrued interest and fees, to be immediately due and payable. In addition, the agent under the LC Credit Agreement and ABL Credit Agreement may, and at the request of the requisite lenders must, terminate the lenders’ commitments under that facility and cease making further loans. If any default or event of default occurs under the Term Loan Credit Agreement or Convertible Notes and the Company is not able to either cure it or obtain a waiver from the holders of the Term Loan Credit Agreement or Convertible Notes, such holders may declare all of the Company’s outstanding obligations under the Term Loan Credit Agreement and Convertible Notes, together with accrued interest and fees, to be immediately due and payable. If applicable, the administrative agent under the LC Credit Agreement, ABL Credit Agreement and Term Loan Credit Agreement and the collateral agent for the Convertible Notes could institute foreclosure proceedings against the pledged assets. Any of these outcomes would likely have an adverse effect on the Company’s operations and its ability to satisfy its obligations as they come due.
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On March 6, 2020 Kodak obtained a waiver from the agent and lenders under the ABL Credit Agreement with respect to any event of default under the reporting covenant in the ABL Credit Agreement that may be deemed to have occurred in relation to the going concern explanatory paragraph contained in the audit report on Kodak’s financial statements as of and for the year ended December 31, 2019. The additional liquidity provided by the financing transactions which closed on February 26, 2021, the extension of the maturity date of the ABL Credit Agreement, and the repurchase and exchange of the Series A Preferred Stock alleviated the substantial doubt about Kodak’s ability to continue as a going concern within one year after the date its financial statements are issued (March 16, 2021) and therefore a waiver from the agent and lenders under the ABL Credit Agreement was not required for the financial statements as of and for the year ended December 31, 2020. For more information on the reporting covenants under the Credit Agreements and the potential impact of the explanatory paragraph in the audit report refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Sources of Liquidity.”
The current non-investment grade status and Kodak’s financial condition may adversely impact Kodak’s commercial operations, increase its liquidity requirements and increase the cost of refinancing opportunities. It may not have adequate liquidity to post required amounts of additional collateral.
The Company’s corporate family credit rating is currently below investment grade and there are no assurances its credit ratings will improve, or they will not decline, in the future. In addition, the Company may not continue to maintain credit ratings from the recognized rating agencies.
Its credit ratings and financial condition may affect the evaluation of its creditworthiness by trading counterparties and lenders, which could put it at a disadvantage to competitors with higher or investment grade ratings.
In carrying out its commercial business strategy, the current non-investment grade credit ratings have resulted and will likely continue to result in requirements that Kodak either prepay obligations or post significant amounts of collateral to support its business.
Should its ratings continue at their current levels, or should its ratings be further downgraded, it would expect these negative effects to continue and, in the case of a downgrade, become more pronounced. In particular, given the Company’s current credit ratings it would be required, if requested, to provide up to $3 million of additional letters of credit to the issuers of certain surety bonds to fully collateralize such bonds.
The availability of borrowings and letters of credit under the ABL Credit Agreement and LC Credit Agreement is limited by the amount of various types of assets and, under certain circumstances, the administrative agent under the ABL Credit Agreement will have greater control over Kodak’s cash.
Availability under the Company’s ABL Credit Agreement is based on the amount of Eligible Receivables, Eligible Inventory, Eligible Machinery and Equipment less specified reserves as described in Note 9, “Debt and Finance Leases” to the consolidated financial statements. Kodak’s U.S. Accounts Receivable and Inventory levels have declined over the past four years, and Machinery and Equipment for purposes of the ABL Credit Agreement amortizes down by $1 million per quarter.
Availability under the Company’s LC Credit Agreement is based on cash collateral in an amount greater than or equal to 103% of the aggregate amount of letters of credit issued and outstanding at any given time (the “LC Cash Collateral”).
If Eligible Receivables, Eligible Inventory and Eligible Machinery and Equipment continue to decline and an asset base cannot be maintained to support the $42 million of letters of credit outstanding under the ABL Credit Agreement and the $11 million of Excess Availability required under the ABL Credit Agreement, or if LC Cash Collateral is not maintained to support the 103% of the $49 million of letters of credit outstanding under the LC Credit Agreement, the Company would be required to remain in compliance with the ABL Credit Agreement’s Fixed Charge Coverage Ratio and operate under cash dominion by the administrative agent under the ABL Credit Agreement.
Additional LC Cash Collateral would be classified as restricted cash and would not be available to support ongoing working capital and investment needs.
If the administrative agent under the ABL Credit Agreement executed cash dominion, it would increase operational complexities for the Company. An event of default would occur under these circumstances if the Company is unable to remain in compliance with the ABL Credit Agreement’s Fixed Charge Coverage Ratio and operate under cash dominion by the administrative agent under the ABL Credit Agreement.
The Company’s substantial monetary obligations require a portion of its cash flow be used to fund other obligations rather than be invested in the business and could adversely affect its ability to fund its operations.
The Company’s indebtedness under the Credit Agreements and its other obligations could have important negative consequences to the Company and investors in its securities. These include the following:
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The Company cannot be sure cash generated from its business will be as high as it expects, or its expenses will not be higher than it expects. Because a portion of its expenses are fixed in any given year, its operating cash flow margins are highly dependent on revenues, which are largely driven by customer demand. A lower amount of cash generated from its business or higher expenses than expected, when coupled with its debt obligations, could adversely affect its ability to fund its operations.
Kodak may desire additional capital funding and such capital may not be available to it and/or may be limited.
Kodak may desire to raise additional capital, including to pursue additional growth opportunities, strategic transactions or additional reorganization initiatives or refinance or redeem outstanding debt or preferred stock. Because of Kodak’s current non-investment grade credit rating and financial condition, and/or general conditions in the financial and credit markets, its access to the capital markets may be limited.
Kodak’s ability to obtain capital and the costs of such capital are dependent on numerous factors, including:
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Kodak may not be successful in obtaining additional capital for these or other reasons. An inability to access capital may limit its ability to capitalize on growth or efficiency opportunities or refinancings it would otherwise like to pursue.
Risks Related to the Company’s’s Common Stock
The conversion of the Series B Preferred Stock and Series C Preferred Stock and Convertible Notes into shares of the Company’sCompany’s common stock may dilute the value for the current holders of the Company’sCompany’s common stock.
The 1,000,000 outstanding shares of the Company’s Series B Preferred Stock are convertible into shares of the Company’s common stock at a conversion rate of 9.5238 shares of common stock per share of Series B Preferred Stock and the 750,0001,138,443 outstanding shares of the Company’s Series C Preferred Stock (expected to increase to 1,000,000 outstanding shares) are convertible into shares of the Company’s common stock at a conversion rate of 10 shares of common stock per share of Series C Preferred Stock, and the Convertible Notes are convertible into shares of the Company’s common stock at a conversion rate of 100 shares of common stock per $1,000 principal amount of Convertible Notes.Stock. The outstanding shares of Series C Preferred Stock and outstanding principal amount of the Convertible Notes are expected to increase as a result of the payment of dividends and interest in kind at a rate of 5.0% per annum.dividends. As a result of the conversion of any issued and outstanding Series B Preferred Stock or Series C Preferred Stock or Convertible Notes (collectively, the “Convertible Securities”), the Company’s existing shareholders will own a smaller percentage of itsour outstanding common stock. Based on the capitalization of the Company as of February 26, 2021 after giving effect to the issuance of the Convertible Securities,December 31, 2023, the conversion of all Convertible Securities would result in the issuance to holders thereof of approximately 22%21% of the outstanding common stock after giving effect to such conversion. Further, additional shares of common stock may be issuable pursuant to certain other features of the Convertible Securities, with such issuances being further dilutive to existing holders of common stock.
If Convertible Securities are converted into common stock, holders of such converted common stock will be entitled to the same dividend and distribution rights as holders of the common stock currently authorized and outstanding. As such, another dilutive effect resulting from the conversion of any issued and outstanding Convertible Securities will be a dilution to dividends and distributions.
Holders of the Company’s common stock will not realize any dilution in their ownership, dividend or distribution rights solely as a result of the reservation of any shares of common stock for issuance upon conversion of the Convertible Securities or for issuance of additional shares of common stock pursuant to certain other features of the Convertible Securities, but will experience such dilution to the extent additional shares of common stock are issued in the future as described above.
The holder of the Series C Preferred Stock ownowns a large portion of the voting power of the Company’sCompany’s outstanding securities and the holdershas nominated one member of the Series C Preferred Stock and Convertible Notes each haveCompany’s Board. An affiliate of the Term Loan Lenders has the right to nominate one member for election to the Company’s Board. Company’s Board and holders of the Series B Preferred Stock and Series C Preferred Stock will have such right in the event dividends are in arrears.As a result, these holdersparties may influence the composition of the Board and future actions taken by the Board.
The holder of the Company’s Series C Preferred Stock areis entitled to vote upon all matters upon which holders of the Company’s common stock have the right to vote and is entitled to the number of votes equal to the number of full shares of common stock into which such shares of Series C Preferred Stock could be converted at the then applicable conversion rate.
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Assuming the issuance of all shares of Series C Preferred Stock under contract to be issued, theThe holder of the Series C Preferred Stock would holdholds approximately 11%13% of the voting power of the Company on an as-converted basis. As a result, this holder may have the ability to influence future actions by the Company requiring shareholder approval.
The holder of the Series C Preferred Stock also hashad the right to nominate one member for election to the Company’s board of directors (the “Board”). This nomination, which right expires uponhas expired; however, the earlier to occur ofindividual nominated by the third anniversary of the initial issuanceholder of the Series C Preferred Stock pursuant to this right continues to serve as a member of the Board. If dividends on the Series C Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holder ceasingof the Series C Preferred Stock will be entitled to nominate one additional director at the next annual shareholder meeting and all subsequent shareholder meetings until all accumulated dividends on the Series C Preferred Stock have been paid or declared. This nomination right expires if the holder ceases to directly or indirectly hold at least a majority of the shares of Series C Preferred Stock purchased or the common stock received upon the conversion of such shares and is exclusive to the initial holder and does not transfer with the Series C Preferred Stock.
Also, an affiliate of the Term Loan Lenders has the right to nominate one member for election to the Board until the third anniversary of the initial issuance of the Term Loans or untildate on which the Term Loan Lenders cease to hold at least 50%$200 million of the original principal amount of the Term Loans and commitments under the Credit Agreement, whichever is earlier. Until the Term Loan Lenders cease to hold at least 50% of the original principal amount of the Term Loans and commitments under the Credit Agreement, at any time that the director nominated by the affiliate of the Term Loan Lenders is not serving on the Board, such affiliate will have the right to designate a non-voting observer to the Board.Loans.
Also, if dividends on the Series B Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holders of the Series B Preferred Stock will be entitled to nominate one director at the next annual shareholder meeting and all subsequent shareholder meetings until all accumulated dividends on the Series B Preferred Stock have been paid or set aside. As a result, the presence of directors on the Board nominated by the current holder of Series C Preferred Stock or an affiliate of the Term Loan Lenders or nominated in the future by the holders of Series B Preferred Stock would enable such holders and lenders to influence the composition of the Board and, in turn, potentially influence and impact future actions taken by the Board.
The Company has registered, and has a duty to register, the resale of a large portion of itsour outstanding securities. The resale of the Company’sCompany’s common stock, or the perception that such resale may occur, may adversely affect the price of itsour common stock.
In compliance with a Registration Rights Agreementcertain agreements to which the Company is a party, it haswe have registered the resale of an aggregate of approximately 16.5 million shares of outstanding common stock. The Company is also a partyup to Registration Rights Agreements pursuant to which it is obligated to register for resale the approximately 22 million41,333,435 shares of common stock that are either outstanding or issuable upon conversion of the Convertible Securities.Preferred Stock. The resale of a substantial number of shares of common stock in the public market, or the perception that such resale might occur, could cause the market price of the Company’s common stock to decline. Under the terms of the Registration Rights Agreementscertain agreements to which the Company is subject, certain of the counterparties to such Registration Rights Agreementsagreements can, in certain circumstances, require the Company to participate in an underwritten public offering of the registered securities. Any shares sold in a registered resale will be freely tradable without restriction under the Securities Act. While the Company cannot predict the size of future resales or distributions of itsour common stock, if there is a perception that such resales or distributions could occur, or if the holders of the Company’s securities registered for resale sell a large number of the registered securities, the market price for the Company’s common stock could be adversely affected.
The resale of a significant portion of the Company’sCompany’s securities or certain accumulations or transfers of the Company’sCompany’s securities could result in a change of control of the Company and the loss of favorable tax attributes.
Holders of the Convertible Securities and holders of large blocks of the Company’s common stock collectively have a significant influence over matters presented to the Company’s shareholders for approval, including election of members to the Board and change of control transactions. In addition, the holders of such securities collectively would be able to cause a significant change in the ownership of the Company by selling a sufficient portion of the Company’s securities held by them. If such a transaction, in combination with other transactions in securities of the Company which have already occurred or future issuances of securities by the Company, were to result in an “ownership change” as determined under Section 382 of the Internal Revenue Code of 1986, as amended, then the Company’s ability to offset taxable income with tax attributes generated prior to the ownership change date could be limited, possibly substantially. Certain accumulations or transfers of the Company’s outstanding securities not involving these holders, could also cause such an “ownership change”. For more information on the Company’s tax attributes refer to Note 18,17, “Income Taxes”. The interests of the holders of the Convertible Securities and holders of large blocks of the Company’s common stock may not always coincide with the interests of the other holders of our common stock.
The Company’sCompany’s stock price has been and may continue to be volatile.
The market price of the Company’s common stock has fluctuated substantially, experienced extreme volatility in the context of the DFC Announcement and may continue to fluctuate significantly.has declined significantly since that time. Future announcements or disclosures concerning the Company, itsour strategic initiatives, (including the potential DFC Loan and any announcement concerning any initiatives concerning pharmaceuticals), itsour sales and profitability, quarterly variations in actual or anticipated operating results or comparable sales, any failure to meet analysts’ expectations, sales of large blocks of itsour common stock and developments concerning the investigations, lawsuits and claims relating to the DFC Announcement, among other factors, could cause the market price of itsour common stock to fluctuate substantially.
ITEM 1B.UNRESOLVED UNRESOLVED STAFF COMMENTS
None.
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Risk Management and Strategy
Kodak has implemented various processes designed to assess, identify and manage risk from cybersecurity threats. Kodak's cybersecurity program follows the structure and objectives of the U.S. National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and is designed to satisfy multi-jurisdictional regulatory requirements. Key areas of Kodak's cybersecurity risk management processes and strategy currently include:
● | Cross-Functional Collaboration and Coordination. Our information technology (“IT”) security operations and risk management team (“IT Security Team”), led by our Chief Information Security Officer (“CISO”), has first line responsibility for the implementation and operation of our cybersecurity risk management processes. However, this team works together with other internal teams to coordinate efforts, priorities and oversight. These include: |
o | our IT Risk Council (the “Council”), which is comprised of key leaders from stakeholder groups throughout the Company and led by our CISO and meets monthly to review metrics and discuss risks and recent events; |
o | our Risk Management and Compliance Committee (the “Risk Committee”), which is responsible for evaluating and assessing overall enterprise risk, including cybersecurity risk; |
o | our Internal Audit Department, which monitors certain IT systems controls that are integrated into our larger Sarbanes-Oxley control environment; |
o | our Chief Privacy Officer; and |
o | our crisis management team, a cross-functional team of senior management and subject matter experts from across the Company established to be ready to respond to crisis events, including those arising from cybersecurity incidents. |
● | Ongoing Evaluation and Assessment of Systems and Processes. We routinely evaluate our IT systems and infrastructure, including with respect to system security, and regularly implement upgrades to improve system functionality and performance as well as to enhance security. Security controls are routinely assessed by our annual general controls audit and other audits and assessments as well as a thorough assessment performed during the annual cyber insurance application process. In addition to periodic in-depth evaluations of our systems and processes, we monitor our IT systems and processes on an ongoing basis with the goal of identifying and remediating real and potential threats as they arise. |
● | Security Awareness Program to Train and Test Personnel. We operate a security awareness program that includes regular, mandatory trainings for relevant personnel on data protection and malware detection, policy and process awareness, periodic phishing simulations and other kinds of preparedness testing. |
● | Incident Response Process and Team. We maintain an incident response process with defined roles, responsibilities and reporting protocols. This process focuses on responding to and recovering from any significant breach as well as mitigating any impact to our business. Generally, when a breach or suspected breach is identified, the IT Security Team would escalate the issue to the Council for initial analysis and guidance. In the event of a serious IT incident, the crisis management team would be notified and the incident response team would typically be tasked with preparing an initial response. The incident response team, in consultation with others regarding impact and materiality, would be responsible for determining whether a particular incident (alone or in combination with other factors) triggers any reporting or notification responsibilities. |
● | Regular Evaluation of Initiatives, Results and Priorities. The IT Security Team, in consultation with the Council and other members of senior management, updates its strategy at least annually to account for changes in our business strategy, legal and regulatory developments, and further developments in the cybersecurity threat landscape. In addition, we periodically engage a third-party provider to conduct an external assessment of our security program. The results of this assessment, which are reported to the Audit and Finance Committee (and the Board, as appropriate), assist us in determining whether any further changes to our existing policies and practices are warranted. |
We expect that our cybersecurity risk management processes and strategy will continue to evolve as the cybersecurity threat landscape evolves.
We engage third-party providers to assist us with our cybersecurity risk management and strategy. Examples of services provided by these third-party providers include threat monitoring, incident response support, testing, mitigation strategies, updates on emerging trends and developments and policy guidance. Prior to exchanging any sensitive data or integrating with any key third-party provider, we assess their security fitness against our risk posture and request changes as we deem necessary. Security controls are imposed through comprehensive standard terms and conditions that include privacy and incident reporting requirements, and third parties are periodically re-evaluated for security risk.
As of December 31, 2023, we have not identified any risks from cybersecurity threats (including any previous cybersecurity incidents) that have materially affected the Company, our business strategy, our results of operations or our financial condition. For a discussion of risks from cybersecurity threats that could be reasonably likely to materially affect us, please see our Risk Factors discussion under the heading, “Risks Related to Kodak’s Business and Operations—Cyber-attacks or other data security incidents that disrupt Kodak’s operations or result in the breach or other compromise of proprietary of confidential information about our workforce, our customers, or other third parties could disrupt our business, harm our reputation, cause us to lose customers, and expose us to costly regulatory enforcement and litigation, any of which could lead to material adverse effects on Kodak’s results of operations, business and financial condition” in this Form 10-K.
Governance
Consistent with our overall risk management governance structure, management is responsible for the day-to-day management of cybersecurity risk while our Board and its Audit and Finance Committee perform an oversight function.
Board Oversight. Our Board has delegated to its Audit and Finance Committee the responsibility for overseeing cybersecurity risk exposures in addition to our broader risk management program. Management (including our Chief Information Officer (“CIO”) and our CISO) reports at least annually to the Audit and Finance Committee on information security and data privacy and protection. These presentations address a wide range of topics, including trends in cyber threats and the status of initiatives intended to bolster our security systems and the cyber readiness of our personnel.
Management’s Role. Our IT Security Team addresses and responds to cyber risk, including cyber risks related to security architecture and engineering, identity and access management and security operations. The team oversees compliance with our cybersecurity framework within the organization and facilitates cybersecurity risk management activities throughout the organization. The IT Security Team also assists with the review and approval of policies, completes benchmarking against applicable standards, and oversees the security awareness program.
Our IT Security team is led by our CISO. Our CISO reports to our CIO who, in turn, reports to our Executive Chairman and Chief Executive Officer. Our CISO has 40 years of IT experience, with over 20 of those focused on IT security functions and strategies. Collectively, the other members of our IT Security Team have decades of relevant education and experience and maintain a wide range of industry certifications. We provide cybersecurity training for our IT Security Team upon joining the IT Security Team, on an annual basis and more frequently when necessary.
As noted previously, our CISO is a member of the Council, which meets monthly to provide operational direction to the IT Security Team considering the evolving risk landscape. The IT Security Team and the Council, through ongoing communication, monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents. The CISO or CIO, in consultation with the Council and other members of senior management, reports such threats and incidents to the Audit and Finance Committee, as appropriate. These reports may be included in, or in addition to, the regular annual reports to the Audit and Finance Committee.
Kodak's worldwide headquarters is located in Rochester, New York.
Kodak owns 11 million square feet and leases, as a lessee, approximately 4 million square feet of space that includes administrative, research and development, manufacturing and marketing facilities in several worldwide locations. Out of the owned space, Kodak leases out approximately 1 million800,000 square feet to third partythird-party tenants. The leases are for various periods and are generally renewable.
Kodak’s principal manufacturing facilities, by segment, are listed below. Properties in a location may be shared by all segments operating in that location.
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Rochester, New York, USA | Rochester, New York, USA | |||
Columbus, Georgia, USA |
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Dayton, Ohio, USA | Vancouver, Canada | |||
Osterode, Germany |
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Vancouver, Canada |
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| Gunma, Japan | |||
Shanghai, China |
Shanghai, China
(software development)
Vancouver, Canada
Regional distribution centers are located in various places within and outside of the United States.
Research and development is headquartered at the Kodak Research Laboratories which is part of the Eastman Business Park in Rochester, New York, where Kodak conducts research and files patent applications withfor fundamental inventions. Eastman Business Park is a more than 1,200-acre innovation and manufacturing hub, which features a comprehensive set of technology, transportation and utility infrastructure assets. The complex features an on-site rail and wastewater treatment facility and manufacturing, distribution, lab and office space. Kodak owns over 600 acres of Eastman Business Park with the other 600 acres owned by unrelated third parties. Kodak uses and leases out its space at Eastman Business Park as part of its strategy of adaptive and effective reuse of infrastructure, services, buildings and land.
Other U.S. research and development groups are located in Dayton, Ohio and Columbus, Georgia. Outside the U.S., research and development groups are located in Canada, Israel, Germany, Japan and China. The research and development groups work in close cooperation with manufacturing units and marketing organizations to develop new products and applications to serve both existing and new markets.
Kodak has excess capacity in some locations. Kodak is pursuing monetizingthe monetization of its excess capacity by selling or leasing the associated properties.
On August 13, 2020 Tiandong Tang commenced a class action lawsuit against the Company, its Executive ChairmanITEM 3. LEGAL PROCEEDINGS
See Note 11, “Commitments and Chief Executive Officer and its Chief Financial Officer in Federal District CourtContingencies” in the District of New Jersey, and on August 26, 2020 Jimmie A. McAdams and Judy P. McAdams commenced a class action lawsuit against the Company and its Executive Chairman and Chief Executive Officer in Federal District Court in the Southern District of New York (collectively, the “Securities Class Actions”). The Securities Class Actions seek damages and other relief based on alleged violations of federal securities laws in the context of the DFC Announcement of the potential DFC Loan and DFC Pharmaceutical Project discussed under Item 1A. Risk Factors above. Since the filing of the Securities Class Actions, procedural activities have been ongoing relatingNotes to the determination of venueFinancial Statements included in Part II, Item 8, “Financial Statements and lead plaintiff. The Company intends to vigorously defend itself against the Securities Class Actions.
In addition to the Securities Class Actions, on December 29, 2020 Robert Garfield commenced a class action lawsuit against the Company and each of the members of its Board of DirectorsSupplementary Data” for information regarding certain legal proceedings in the Superior Court of Mercer County, New Jersey seeking equitable relief and damages in favor of the Company based on alleged breaches of fiduciary duty by the Company’s Board of Directors associated with alleged false and misleading proxy statement disclosure (the “Fiduciary Class Action”). The Company has also received three requests under New Jersey law demanding, among other things, that the Company take certain actions in response to alleged breaches of fiduciary duty relating to option grants and securities transactions in the context of the DFC Announcement and alleged proxy statement disclosure deficiencies. The Company has responded to and engaged in discussions concerning these requests, and its response and discussions may serve as the basis for the requestors to bring shareholder derivative lawsuits (any such lawsuits, collectively with the Fiduciary Class Action, the “Fiduciary Matters”). The Company intends to vigorously defend the Fiduciary Matters.
The DFC Announcement has also prompted investigations by several congressional committees, the SEC and the New York Attorney General’s office. The Company is cooperating in those investigations.
Kodak’s Brazilian operations are involved in various litigation matters and have received or been the subject of numerous governmental assessments related to indirect and other taxes in various stages of litigation, as well as civil litigation and disputes associated with former employees and contract labor.
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The tax matters, which comprise the majority of the litigation matters, are primarily related to federal and state value-added taxes and income taxes. Kodak’s Brazilian operations are disputing these matters and intend to vigorously defend their position. Kodak routinely assesses these matters as to the probability of ultimately incurring a liability in its Brazilian operations and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of December 31, 2020, Kodak’s Brazilian operations maintained accruals of approximately $3 million for claims aggregating approximately $117 million inclusive of interest and penalties where appropriate. In connection with assessments and litigation in Brazil, local regulations may require Kodak’s Brazilian operations to post security for a portion of the amounts in dispute. Generally, any encumbrances of the Brazilian assets would be removed to the extent the matter is resolved in Kodak’s favor.
Kodak is involved in various lawsuits, claims, investigations, remediations and proceedings, including, from time to time, commercial, customs, employment, environmental, tort and health and safety matters, which are being handled and defended in the ordinary course of business.involved.
ITEM 4.MINE SAFETY DISCLOSURES
Kodak is also subject, from time to time, to various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum of Kodak’s products. These matters are in various stages of investigation and litigation and are being vigorously defended. Based on information currently available, Kodak does not believe that it is probable that the outcomes in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations. Litigation is inherently unpredictable, and judgments could be rendered or settlements entered that could adversely affect Kodak’s operating results or cash flows in a particular period. Kodak routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
None.
INFORMATION ABOUT ITSOUR EXECUTIVE OFFICERS
Pursuant to General Instructions G (3) of Form 10-K, the following list is included as an unnumbered item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders.
Name | Age | Positions Held | |||
James V. Continenza |
| 61 | Executive Chairman and Chief Executive Officer | ||
David E. Bullwinkle |
| 49 | Chief Financial Officer and Senior Vice President | ||
Roger W. Byrd |
| 58 | General Counsel, Secretary and Senior Vice President | ||
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| 50 |
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| Chief Accounting Officer and Corporate Controller | |||
Terry R. Taber |
| 69 | Chief Technical Officer, Vice President, Senior Vice President Advanced Materials and Chemicals | ||
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The executive officers' biographies follow:
James V. Continenza
James V. Continenza leads the transformation of Kodak as Executive Chairman and Chief Executive Officer. He was appointed Executive Chairman by the Board of Directors onas Executive Chairman in February 20, 2019 and was appointedas Chief Executive Officer by the Board of Directors onin July 27, 2020. Continenza joined the Board of Directors of Kodak in April 2013 and became Chairman of the Board in September 2013.
Continenza brings a proven track record of guiding leading technology companies through transformations. Since September 2012, Continenza has served as the Chairman and Chief Executive Officer of Vivial Inc., a privately held marketing technology and communications company. He has also held leadership roles at STi Prepaid,company from September 2012 through June 2021, and served as Chairman and Chief Executive Officer of Vivial Media LLC, a telecommunications company; Anchor Glass Container Corp.,portion of Vivial Inc. remaining after a leading manufacturer of glass containers; Teligent, Inc., a provider of communications services including voice, data, and internet access; Lucent Technologies Product Finance, a global leader in telecom equipment; and AT&T.partial sale, from June 2021 to January 2022.
In addition to his management experience, Continenza serves and has served on the boards of directors of a number of public and private companies. Continenza served on the board of directors of NII Holdings, Inc. (Nasdaq: NIHD), the holding company for Nextel Brazil, a wireless communication services provider, from August 2015 to August 2019. Among other private company boards, Continenza currently serves on the board of directors of Wildcat Discovery Technologies, Inc. (“Wildcat”), a private technology company that uses proprietary methods to research and develop new battery materials. Continenza was appointed to the board of Wildcat as the Company’s designee in connection with the Company’s purchase of preferred securities of Wildcat.
Previously, Continenza served on the boards of directors of Datasite LLC (formerly known as Merrill Corporation) from July 2013 to December 2020 and Cenveo Corporation, an industry leader in transformative publishing solutions. He has also served on the boards of Datasite LLC (formerly known as Merrill Corp.), NII Holdings, Inc., Tembec, Inc. and Neff Corporation. He also serves or has served on the boards of a number of private companies.solutions, from September 2018 to September 2022.
David E. Bullwinkle
Dave Bullwinkle ishas been the Chief Financial Officer and Senior Vice President of Kodak. The Board of Directors elected Bullwinkle to this position effectiveKodak since July 2016. Effective November 6,2018, Bullwinkle is responsible for leading Kodak's worldwide treasury, internal audit, controller and tax teams. Between November 2018 and July 2023, Bullwinkle held the role of President of the Eastman Business Park Division. Bullwinkle iswhere he was responsible for advancing the growth strategy for Eastman Business Park and leading Kodak's worldwide finance, corporate development, internal audit and purchasing teams. Bullwinkle reports to Executive Chairman Jim Continenza.that business.
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Bullwinkle joined Kodak in 2004 and has worked in several financial management roles at the companyKodak including Worldwide BU Controller, Assistant Corporate Controller and External Reporting Manager. He served as the Director of Corporate Financial Planning and Analysis and Vice President, Finance at Kodak from November 2010 to June 2016, and as Director of Investor Relations from August 2013 to June 2016.
Prior to joining Kodak, Bullwinkle worked as the Manager of Financial Reporting at Birds Eye Foods, Inc. and previously at PricewaterhouseCoopers from 1996 to 2002 in various roles including serving as an Assurance Manager.
Bullwinkle has an MBA from St. John Fisher College and Bachelor of Science in Accounting degree from SUNY Geneseo. Bullwinkle is also a Certified Public Accountant in the State of New York.
Roger W. Byrd
Roger Byrd was appointed General Counsel, Secretary and Senior Vice President of Kodak in January 2019. He is responsible for leading the company'sCompany's global legal function and for providing legal guidance to senior leadership and the Board of Directors. HeByrd also overseessupports the Company with credit agreement compliance, securities reporting, corporate development function. Byrd reports to Executive Chairman Jim Continenza.
governance, M&A and financing transactions, joint ventures, and other strategic initiatives. Byrd joined Kodak in 2015 as Assistant General Counsel and Vice President, Legal Department and while at Kodak has focused on M&A and financing transactions, joint ventures, and other strategic initiatives. Byrd has also been active in providing credit agreement compliance, securities reporting and corporate governance support to the Company. The Board of Directors elected him to Senior Vice President and Secretary in January 2019.Department.
Prior to joining Kodak, Byrd was a Partner at Nixon Peabody LLP. During his 23-year career at Nixon Peabody, he represented a broad range of clients in connection with a variety of M&A, financing and other corporate transactions. Byrd also served as General Counsel at Choice One Communications, Inc. from 2005 – 2006,, a competitive local exchange carrier.carrier from 2005 – 2006.
Byrd received a B.S. degree
Richard T. Michaels
Richard Michaels was appointed Chief Accounting Officer and Corporate Controller of Kodak in accounting from Bob Jones University and a J.D. from Duke University School of Law.
John O’Grady
Effective January 2020, John O’Grady is Senior Vice President of Print, with senior responsibilities relating to the Traditional Printing segment. He reports to Executive Chairman Jim Continenza.
April 2021. From 2011 until April 24, 2018 to January 2020, O'Grady was President, Print Systems Division, which served graphic arts and commercial print customers with printing plates, computer to plate imaging solutions, electrophotographic printing solutions, OEM toner, and equipment services. From December 1, 2017 to April 24, 2018, O'Grady was President of Consumer Imaging Division. In this role, he was responsible for motion picture and commercial films, synthetic chemicals, and consumer products, including products from Kodak brand licensees. From January 2016 to December 2017, O'Grady was General Manager, Worldwide Sales, Print Systems Division, responsible for managing the sales, service and regional marketing for the Print Systems Division on a worldwide basis in addition to the go-tomarket back office operations for Kodak. From January 2015 to December 2015, O'Grady was Managing Director of the Europe, United States and Canada, Australia and New Zealand (EUCAN) Region. From December 2010 to December 2014, he was Managing Director, U.S. & Canada Region. From December 2008 to December 2010, O'Grady was Regional Managing Director, Europe, Africa and Middle East Region (EAMER) and Chairman Eastman Kodak Sàrl, and from May 2007 to December 2008, he was Managing Director, EAMER, Consumer Businesses. O’Grady has2021 Michaels served as a corporate vice president since March 2007, including as a senior vice president from August 2016 through February 2020.
O'GradyKodak’s Assistant Corporate Controller. Michaels joined Kodak in 19972004 as Controller for the Graphics Communications Group and has held key business development and regional managementseveral other controller positions in Kodak's digital imaging businesses.at the Company prior to becoming the Assistant Corporate Controller.
Prior to joining Kodak, O'Grady had a 12-year careerMichaels held various positions at Verbatim.
O'Grady graduatedPricewaterhouseCoopers from the University of Limerick in Ireland with a B.S. degree in Electronics.
Eric H. Samuels
Eric Samuels was appointed Corporate Controller and Chief Accounting Officer in July 2009. Samuels previously served as the Company’s Assistant Corporate Controller and brings1995 to his position more than 20 years of leadership experience in corporate finance and public accounting. He joined Kodak in 2004 as Director, Accounting Research and Policy. Samuels reports to Chief Financial Officer David Bullwinkle.
Prior to joining Kodak, Samuels had a 14-year career in public accounting during which he served as a senior manager at KPMG LLP's Department of Professional Practice (National Office) in New York City. Prior to joining KPMG in 1996, he worked in Ernst & Young's New York City office.
Samuels has a B.S. degree in business economics from the State University of New York College at Oneonta. He2004. Michaels is a Certified Public Accountant in the State of New York and a member of the American Institute of Certified Public Accountants.York.
Terry R. Taber, PhD
Terry Taber has served as Kodak's Chief Technical Officer since January 2009. Effective January 2020, he is a Senior Vice President of Advanced Materials and Chemicals. He reports to Executive Chairman Jim Continenza.
From May 1, 2017 to January 2020, Taber was named President of the Advanced Materials and 3D Printing Technology Division, which contained the research laboratories and included licensing as well as new business development activities related to Kodak's patents and proprietary technology, and focused on opportunities in smart material applications, printed electronics markets and 3D printing materials.
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From January 1, 2015 to May 1, 2017, Taber was named President of the Intellectual Property Solutions Division. From January 2007 to December 2008 he was the Chief Operating Officer of Kodak's Image Sensor Solutions ("ISS") business, a leading developer of advanced CCD and CMOS sensors serving imaging and industrial markets, and priormarkets. Prior to Taber’s role with ISS, he held a series of senior positions in Kodak's research and development and product organizations. Taber has served as a corporate vice president since December 2008, including as a senior vice president from December 2010 through February 2020.
During his more than 40 years at Kodak, Taber has been involved in new materials research, product development and commercialization, manufacturing, and executive positions in R&D and business management.
Taber's early responsibilities included research on new synthetic materials, an area in which he holds several patents, program manager for several film products, worldwide consumer film business product manager, Associate Director of R&D and directorDirector of Materials & Media R&D.
Taber received a B.S. degree in Chemistry from Purdue University and a Ph.D. in Organic Chemistry from the California Institute of Technology. He also received an M.S. in General Management from MIT as a Kodak Sloan Fellow.
In past board service, he was a founding Board Member of the Innovation & Material Sciences Institute and served on the Executive Advisory Board of FIRST Rochester (For Inspiration and Recognition of Science and Technology). Taber currently serves on the George Eastman Museum Board, effective June 2018. He also serves on the Executive Committee of the Greater Rochester Chamber of Commerce and on the Board of Trustees for Roberts Wesleyan College and Northeastern Seminary.
Randy D. Vandagriff
Effective January 2020, Randy D. Vandagriff is Senior Vice President
From May 1, 2017 to January 2020 Vandagriff was President, Enterprise Inkjet Systems Division, responsible for delivering commercial inkjet technology, printers and solutions to the market. Vandagriff has spent his 37-year career innovating inkjet technology for the printing market. From January 2004 to August 2012, Vandagriff was Vice President, Research and Development for Kodak Versamark, responsible for leading a worldwide R&D organization responsible for developing four generations of inkjet technologies and delivering industry-leading performance, including Kodak Stream and Ultrastream inkjet technologies. From January 2015 to May 2017, Vandagriff led the Kodak Creo Server business located in Tel Aviv, Israel. He has served as a corporate vice president since May 2017.
In addition to his strong product development capabilities, Vandagriff has traveled internationally, working with key Kodak customers to successfully implement commercial inkjet into their production processes. His respected knowledge, broad background, and deep industry network has contributed to making Kodak the world's leader in high volume variable printing solutions.
Vandagriff holds an MBA degree from the University of Phoenix and a Bachelor of Science in Mechanical Engineering from Wright State University.PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
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The Company’s common stock is listed on the New York Stock Exchange (NYSE) under the symbol “KODK”.
There were 2,082693 shareholders of record of common stock on December 31, 2020.2023.
Information regarding securities authorized for issuance under equity compensation plans is included in Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report under the caption “Equity Compensation Plan Information.”
DIVIDEND INFORMATION
No dividends on common stock were declared or paid during 20202023 or 2019.2022.
Dividends for common shareholders may be restricted under Kodak’s Term Loan Credit Agreement, ABL Credit Agreement,debt and preferred stock agreements.
The graph below matches Eastman Kodak Company's cumulative 5-Year total shareholder return on common stock with the Series B Preferred Stockcumulative total returns of the Russell 2000 index and the Series C Preferred Stock.S&P 600 Information Technology index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2018 to 12/31/2023.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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ISSUER PURCHASES OF EQUITY SECURITIES DURING THE QUARTER ENDED DECEMBER December 31, 20202023
There were no issuer purchases of equity securities with an effective date in the quarter ended December 31, 2020.
Total Number of | ||||||||||||||||
Shares Purchased as | Maximum That May | |||||||||||||||
Total Number | Average | Part of Publicly | Be Purchased | |||||||||||||
of Shares | Price Paid | Announced Plans | under the Plans or | |||||||||||||
Purchased (1) | per Share | or Programs (2) | Programs (2) | |||||||||||||
October 1 through 31, 2023 | 1,531 | $ | 3.89 | N/A | N/A | |||||||||||
November 1 through 30, 2023 | — | $ | — | N/A | N/A | |||||||||||
December 1 through 31, 2023 | — | $ | — | N/A | N/A | |||||||||||
Total | 1,531 | $ | 3.89 |
(1) These purchases were made to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees.
(2) Kodak does not have a publicly announced repurchase plan or program.
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
Kodak is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.
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ITEM7. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Kodak forand should be read in conjunction with the years ended December 31, 2020consolidated financial statements and 2019.notes thereto included in Part II, Item 8. “Financial Statements and Supplementary Data” (“Item 8”) of this Annual Report on Form 10-K. All references to Notes relate to Notes to the Financial Statements in Item 8. “Financial Statements and Supplementary Data.”
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report on Form 10-K includes "forward–looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995.
Forward–looking statements include statements concerning Kodak’s plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, liquidity, investments, financing needs and business trends and other information that is not historical information. When used in this document, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “predicts,” “forecasts,” “strategy,” “continues,” “goals,” “targets” or future or conditional verbs, such as “will,” “should,” “could,” or “may,” and similar words and expressions, as well as statements that do not relate strictly to historical or current facts, are intended to identify forward–looking statements. All forward–looking statements, including management’s examination of historical operating trends and data, are based upon Kodak’s current expectations and various assumptions. Future eventsForward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results may differ from those anticipated or expressed in theor implied by such forward-looking statements. Important factors that could cause actual events or results to differ materially from the forward-looking statements include, among others, the risks and uncertainties described in more detail in this report on Form 10–K under the headings “Business,” “Risk Factors,” “Legal Proceedings” and/or “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources,” and in other filings the Company makes with the SEC from time to time, as well as the following:
● | Kodak’s ability to improve and sustain its operating structure, cash flow, profitability and other financial results; |
● | Kodak’s ability to achieve strategic objectives, cash forecasts, financial projections, and projected growth; |
● | Kodak’s ability to achieve the financial and operational results contained in its business plans; |
● | Kodak’s ability to obtain additional or alternate financing if and as needed, Kodak's continued ability to manage world-wide cash through inter-company loans, distributions and other mechanisms, and Kodak's ability to provide or facilitate financing for its customers; |
● | Kodak’s ability to fund continued investments, capital needs, collateral requirements and restructuring payments and service its debt and Series B Preferred Stock and Series C Preferred Stock; |
● | Changes in foreign currency exchange rates, commodity prices, interest rates and tariff rates; |
● | The impact of the global economic environment, including inflationary pressures, geopolitical issues such as the war in Ukraine and the conflicts involving Israel, medical epidemics, and Kodak’s ability to effectively mitigate the associated increased costs of aluminum and other raw materials, energy, labor, shipping, delays in shipment and production times, and fluctuations in demand; |
● | Kodak’s ability to effectively compete with large, well-financed industry participants or with competitors whose cost structure is lower than Kodak’s; |
● | The performance by third parties of their obligations to supply products, components or services to Kodak and Kodak’s ability to address supply chain disruptions and continue to obtain raw materials and components available from single or limited sources of supply, which may be adversely affected by the war in Ukraine, the conflicts involving Israel, and residual effects of the COVID-19 pandemic; |
● | Kodak’s ability to comply with the covenants in its various credit facilities; | |
● | Kodak’s ability to effectively anticipate technology and industry trends and develop and market new products, solutions and technologies, including products based on its technology and expertise that relate to industries in which it does not currently conduct material business; | |
● | Kodak’s ability to effect strategic transactions, such as investments, acquisitions, strategic alliances, divestitures and similar transactions, or to achieve the benefits sought to be achieved from such strategic transactions; |
● | Kodak’s ability to discontinue, sell or spin-off certain non-core businesses or operations, or otherwise monetize assets; |
● | The impact of the investigations, litigation and claims arising out of the circumstances surrounding the announcement on July 28, 2020, by the U.S. International Development Finance Corporation of the signing of a non‐binding letter of interest to provide a subsidiary of Kodak with a potential loan to support the launch of an initiative for the manufacture of pharmaceutical ingredients for essential generic drugs; and |
● | The potential impact of force majeure events, cyber‐attacks or other data security incidents that could disrupt or otherwise harm Kodak’s operations. |
Future events and other financial results;
Kodak’s ability to achieve cash forecasts, financial projections, and projected growth;
Kodak’s ability to achieve the financial and operational results contained in its business plans;
Kodak’s ability to comply with the covenants in its various credit facilities;
Kodak’s ability to fund continued investments, capital needs and restructuring payments and service its debt and Series B Preferred Stock and Series C Preferred Stock;
The impact of the global economic environment or medical epidemics such as the COVID-19 pandemic;
The impact of the investigations, litigations and claims arising out of the circumstances surrounding the DFC Announcement;
Changes in foreign currency exchange rates, commodity prices, interest rates and tariff rates;
Kodak’s ability to effectively anticipate technology trends and develop and market new products, solutions and technologies;
Kodak’s ability to effectively compete with large, well-financed industry participants;
Continued sufficient availability of borrowings and letters of credit under the ABL Credit Agreement and L/C Facility Agreement, Kodak’s ability to obtain additional financing if and as needed and Kodak’s ability to provide or facilitate financing for its customers;
The performance by third parties of their obligations to supply products, components or services to Kodak and the ability to address supply chain disruptions and continue to obtain raw materials and components available from single sources of supply; and
Kodak’s ability to effect strategic transactions, such as acquisitions, strategic alliances, divestitures and similar transactions, or to achieve the benefits sought to be achieved from such strategic transactions.
There may be other factors that may cause Kodak’s actual results to differ materially from the forward–looking statements. All forward–looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this report on Form 10-K and are expressly qualified in their entirety by the cautionary statements included in this document. Kodak undertakes no obligation to update or revise forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, except as required by law.
The following Management’s Discussion and Analysis ("MD&A") provides a historical and prospective narrative on the Company’s financial condition and results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Cross references to Notes in this MD&A are to the Notes in the Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data". The discussion of the Company’s financial condition and results of operations for the year ended December 31, 2022 compared to the same period in 2021 is included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10–K for the year ended December 31, 2022.
EXECUTIVEOVERVIEW
Consolidated revenues in the year ended December 31, 2023 were $1.117 billion, a decline of $88 million (7%) from 2022. Currency impacted revenue favorably in 2023 compared to 2022 ($1 million).
Print revenues, which accounted for 74% of Kodak’s total revenues in 2023, declined by $110 million (12%) compared to 2022. Advanced Materials and Chemicals revenue improved $21 million (9%) from 2022 to 2023.
Economic Environment and Other Global Events:
Kodak's products are sold and serviced in numerous countries across the globe with more than half of sales generated outside the U.S. Current global economic conditions remain highly volatile due to the uncertain and unpredictable macroeconomic environment, heightened levels of inflation, the war in Ukraine, the conflicts involving Israel, and other global events which impacted Kodak’s operations. Kodak is experiencing increased manufacturing costs due to volume declines for certain businesses and increased labor, material and distribution costs, as well as supply chain disruptions and shortages in materials and labor.
Kodak has implemented various pricing actions to mitigate the impact of increased manufacturing costs, primarily within its Print and Advanced Materials and Chemicals segments. Largely beginning in the latter part of the second quarter of 2021, in order to mitigate the impact of higher aluminum, energy and packaging costs within Prepress Solutions, the Print segment implemented surcharges on purchases of plates that continue to be periodically reviewed and adjusted accordingly. In addition, the Advanced Materials and Chemicals segment implemented various pricing actions primarily within its Industrial Films and Chemicals and Motion Picture businesses.
The Print segment is experiencing a slowdown in customer demand for plates that negatively impacted volume due to current global economic conditions and the impact of pricing actions. In addition to the pricing actions described above, Kodak has implemented supply chain and workforce optimization, productivity improvements and other cost savings activities. The combined actions have mitigated the impact of increased manufacturing costs. However, the potential worsening of economic conditions and the negative impact on customer demand due to further pricing actions could unfavorably impact this segment's operating results.
The Advanced Materials and Chemicals segment has also experienced labor shortages in certain manufacturing areas. Increased demand for consumer film products along with manufacturing equipment limitations and labor shortages have contributed to increased backorders. Kodak has increased headcount in this segment to better meet demand, but supply will continue to be constrained by manufacturing equipment limitations without further capital improvements.
Kodak has implemented numerous measures to mitigate the challenges associated with supply chain disruptions and shortages in materials, including increasing safety stock on certain materials, increasing lead‐times, providing suppliers with longer forecasts of future demand and certifying additional sources or substitute materials where possible. These measures have enabled Kodak to largely meet current demand.
Following the cessation of U.S. plate manufacturing operations by Kodak’s key competitors, Kodak has faced increasing competition in the U.S. from low-priced plates imported from China and Japan. On September 28, 2023, Kodak filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission requesting relief from unfairly traded imports of plates from China and Japan in the form of the imposition of anti-dumping and/or countervailing duties on such imported plates. On November 15, 2023 the U.S. International Trade Commission determined that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of aluminum lithographic printing plates from China and Japan that are allegedly sold in the U.S. at less than fair value and subsidized by the government of China. The U.S. Department of Commerce has commenced investigations to determine dumping and subsidy margins against imports of plates manufactured in China and Japan. On February 27, 2024, the Commerce Department announced the preliminary findings in its countervailing duty investigation on imports of plates manufactured in China and imposed a provisional duty of 38.50% on practically all such plates. The preliminary findings from the anti-dumping investigations are due to be announced in the second quarter of 2024. There can be no assurance that the provisional countervailing duties will become final or that Kodak will otherwise obtain the relief sought or, if relief is obtained, that the final rates of duties that may be imposed on such imported plates will provide effective relief.
Kodak is monitoring the events surrounding the conflicts involving Israel and the impact on the operations of its Israel subsidiary. A leased warehouse in Israel has been destroyed; however, none of Kodak’s employees were injured. While the implications of this conflict are difficult to predict at this time, Kodak has been able to adapt its operations to avoid material disruption to its business. The direct operations of Kodak’s Israel subsidiary are less than 1% of total consolidated revenue and assets for 2023.
Kodak also continues to monitor the events surrounding the war in Ukraine and the various sanctions imposed in response to the war. Kodak is in compliance with all sanctions. Kodak is experiencing worldwide supply constraints for aluminum and increased energy and transportation costs due in part to the war in Ukraine. The extent to which the war in Ukraine will impact the global economy and Kodak's business and operations remains uncertain.
The war in Ukraine and the international response have disrupted Kodak’s ability to operate its Russian subsidiary in the ordinary course, affecting its ability to pay vendors and employees, receive amounts owed from customers in Russia and deliver product. Kodak is in the process of an orderly winding down of its Russian subsidiary having ceased its direct Russian operations. The direct operations of Kodak’s Russian subsidiary are not material to the Company’s financial statements (less than 1% of total consolidated revenues and assets for 2021, 2022 and 2023), and there were no material impacts to the consolidated results of operations for the years ended December 31, 2022 and 2023.
The ongoing changes in global economic conditions and the impact of other global events on Kodak’s operations and financial performance remains uncertain and will depend on several factors such as the slowdown in customer demand, the ability to offset higher labor, material and distribution costs through pricing actions, duration of supply chain disruptions and the ability to secure raw materials and components.
Business Overview and Strategy:
Segments within the print industry and the film industry face competition from digital substitution. Kodak’s strategy is to:
• | Focus product investment in core competency areas of print and advanced materials, leveraging Kodak’s proprietary technologies to deliver technologically advanced products in the product goods packaging, graphic communications and functional printing markets; |
• | Grow profitability through a focus on customers across Kodak’s Print segment; |
• | Promote the use of film and expand the applications of Kodak’s film and chemicals to best utilize the existing infrastructure; and |
• | Continue to streamline processes to drive cost reductions and improve operating leverage. |
A discussion of opportunities and challenges related to Kodak’s strategy follows:
• | Print's digital plate products include traditional digital plates and KODAK SONORA Process Free Plates. SONORA Process Free Plates allow Kodak customers to skip the plate processing step prior to mounting plates on a printing press. This improvement in the printing process is intended to save time and costs for customers. Also, SONORA Process Free Plates reduce the environmental impact of the printing process because they eliminate the use of chemicals (including solvents), water and power that is otherwise required to process a traditional plate. The segment's digital plate products are experiencing challenges from higher prices and availability of raw materials, digital substitution and competitive pricing pressures. Kodak seeks to mitigate the impact of increases in manufacturing costs through a combination of surcharges and price increases, improved production efficiency and cost reduction initiatives. In addition, Kodak seeks to offset the impact of short-term and long-term market dynamics on pricing and volume pressures through innovations in Kodak product lines, including investing in digital print technologies. |
• | In Print's digital printing businesses, the PROSPER business is expected to grow as the legacy VERSAMARK business continues to decline as a percentage of the segment’s total revenue. The PROSPER Inkjet Systems business is expected to continue to build profitability. Kodak launched the PROSPER 7000 Turbo Press in June 2022. The PROSPER 7000 Turbo Press enables commercial, publishing and newspaper printers to compete more effectively with offset and to shift more long run jobs from conventional printing processes to inkjet. Kodak completed the placement of the first PROSPER 7000 Turbo Press in the third quarter of 2023. Investment in the next generation technology, ULTRASTREAM, is focused on the ability to place ULTRASTREAM writing systems in Kodak branded presses and in various original equipment manufacturers in applications ranging from commercial print to packaging. The first flexible packaging printing system utilizing Kodak's ULTRASTREAM inkjet technology was placed during the second quarter of 2022. In addition, Kodak officially launched the KODAK PROSPER ULTRA 520 Digital Press utilizing Kodak's ULTRASTREAM inkjet technology, which offers offset print quality in a smaller footprint. Kodak completed the placement of the first KODAK PROSPER ULTRA 520 Digital Press in the fourth quarter of 2023. |
• | Advanced Materials and Chemicals segment is using Kodak's deep expertise in chemistry and strengths in deposition and coating processes that come from decades of experience in film manufacturing to work on new initiatives: |
• | EV/Energy Storage Battery Material Manufacturing - Coating of substrates is a critical aspect of manufacturing materials for batteries and Kodak plans to capitalize on its expertise in coating technology to develop opportunities in this area. Kodak is currently in the process of expanding its pilot coating facility. On July 13, 2022, Kodak invested $25 million to acquire a minority preferred equity interest in Wildcat Discovery Technologies, Inc. (“Wildcat”), a private technology company that uses proprietary methods to research and develop new battery materials, including an EV battery. Kodak has also entered into an agreement to provide coating and engineering services in collaboration with Wildcat to develop and scale film coating technologies. Wildcat has granted Kodak certain rights to negotiate a production or licensing arrangement with Wildcat when and if Wildcat’s technology reaches commercial readiness. |
• | Light-Blocking Technology - Kodak plans to leverage a proprietary technology initially developed for electrophotographic toners to commercialize a carbon‐less fabric coating designed to offer superior light management, from complete blackout to selective light filtering, and coating compatibility with an unmatched range of fabrics. Kodak has installed a production-scale machine to coat fabrics in Eastman Business Park, located in Rochester, NY. |
• | Transparent Antennas - Kodak plans to leverage its proprietary copper micro‐wire technologies and high‐resolution printing expertise to contract‐manufacture custom transparent antennas for automotive, commercial construction, and other applications requiring excellent radio frequency (“RF”) and optical performance. The integration of antennas is growing worldwide due to the rapid expansion of 5G and an overall increase in RF communications, and the ubiquity of glass surfaces makes transparent antennas attractive for multiple end‐use markets. |
• | Reagent Manufacturing - Kodak plans to capitalize on its existing chemical manufacturing expertise, including current production of unregulated Key Starting Materials for pharmaceuticals, to implement an expansion into manufacturing Diagnostic Test Reagent solutions. Kodak has started construction of a lab and manufacturing facility to manufacture reagents for healthcare applications within an existing building located at Eastman Business Park ("EBP"). |
• | Film and related component manufacturing operations and Kodak Research Laboratories utilize capacity at EBP, which helps cost absorption for both Kodak operations and tenants at EBP. |
• | Kodak plans to capitalize on its intellectual property through new business or licensing opportunities, focusing on opportunities in 3D printing materials, smart material applications and printed electronics markets. |
RESULTS OF OPERATIONS
Year Ended | Year Ended | |||||||||||||||||||
December 31, | % of | December 31, | % of | $ Change vs. | ||||||||||||||||
(in millions) | 2023 | Sales | 2022 | Sales | 2022 | |||||||||||||||
Revenues | $ | 1,117 | $ | 1,205 | $ | (88 | ) | |||||||||||||
Cost of revenues | 907 | 1,035 | (128 | ) | ||||||||||||||||
Gross profit | 210 | 19 | % | 170 | 14 | % | 40 | |||||||||||||
Selling, general and administrative expenses | 159 | 14 | % | 153 | 13 | % | 6 | |||||||||||||
Research and development costs | 34 | 3 | % | 34 | 3 | % | — | |||||||||||||
Restructuring costs and other | 7 | 1 | % | 10 | 1 | % | (3 | ) | ||||||||||||
Other operating expense (income), net | 6 | 1 | % | (1 | ) | 0 | % | 7 | ||||||||||||
Earnings (loss) from continuing operations before interest expense, pension income excluding service cost component, loss on early extinguishment of debt, other (income) charges, net and income taxes | 4 | 0 | % | (26 | ) | (2 | %) | 30 | ||||||||||||
Interest expense | 52 | 5 | % | 40 | 3 | % | 12 | |||||||||||||
Pension income excluding service cost component | (161 | ) | (14 | %) | (98 | ) | (8 | %) | (63 | ) | ||||||||||
Loss on early extinguishment of debt | 27 | 2 | % | — | - | 27 | ||||||||||||||
Other (income) charges, net | (1 | ) | (0 | %) | 1 | 0 | % | (2 | ) | |||||||||||
Earnings from continuing operations before income taxes | 87 | 8 | % | 31 | 3 | % | 56 | |||||||||||||
Provision for income taxes | 12 | 1 | % | 5 | 0 | % | 7 | |||||||||||||
NET EARNINGS | $ | 75 | 7 | % | $ | 26 | 2 | % | $ | 49 |
Revenues
For the year ended December 31, 2023, revenues declined approximately $88 million compared with the same period in 2022 primarily due to lower volume in Print ($154 million) and Advanced Materials and Chemicals ($11 million), partially offset by improved pricing and product mix within Print ($43 million) and Advanced Materials and Chemicals ($32 million). See segment discussions for additional details.
Gross Profit
Gross profit for 2023 improved approximately $40 million compared with the same period in 2022, primarily due to improved pricing and product mix in Print ($41 million) and Advanced Materials and Chemicals ($31 million), lower aluminum costs in Print ($25 million) and favorable foreign currency ($2 million). Partially offsetting these favorable impacts was higher manufacturing costs in Print and Advanced Materials and Chemicals ($43 million and $7 million, respectively) and a reduction in employee benefit reserves in the prior year ($9 million). See segment discussions for additional details.
Selling, General and Administrative Expenses
Consolidated SG&A for 2023 increased $6 million in 2023 primarily due to an increase in selling and administrative costs ($11 million), the net impact of a reduction in employee benefit reserves in the prior year ($4 million) and higher stock-based compensation costs ($2 million) partially offset by an increase in income representing insurance reimbursement of legal costs ($5 million) and lower consulting and project costs ($6 million).
Research and Development Costs
Consolidated R&D expenses were unchanged in 2023.
Restructuring Costs and Other
These costs, as well as restructuring costs reported in Cost of revenues, are discussed under the "Restructuring Costs and Other" section in this MD&A and Note 18, “Restructuring Costs and Other."
Interest Expense
The increase in interest expense in 2023 of $12 million primarily reflects the impact of the refinancing transactions that closed in the third quarter of 2023. Refer to Note 8, “Debt and Credit Facilities” for further information.
Other Operating Expense (Income), Net
For details, refer to Note 15, “Other Operating Expense (Income), Net.”
Pension Income
For details, refer to Note 19, “Retirement Plans."
Loss on Early Extinguishment of Debt
For details, refer to Note 8, "Debt and Credit Facilities."
Other (Income) Charges, Net
For details, refer to Note 16, “Other (Income) Charges, Net.”
Provision for Income Taxes
For details, refer to Note 17, “Income Taxes.”
DETAILED RESULTS OF OPERATIONS
Net Revenues from Continuing Operations by Reportable Segment
Year Ended December 31, | ||||||||
2023 | 2022 | |||||||
(in millions) | ||||||||
$ | 828 | $ | 938 | |||||
Advanced Materials and Chemicals | 255 | 234 | ||||||
Brand | 17 | 17 | ||||||
Total of reportable segments | 1,100 | 1,189 | ||||||
All Other | 17 | 16 | ||||||
Consolidated total | $ | 1,117 | $ | 1,205 |
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”). As demonstrated in the table below, Operational EBITDA represents the earnings from continuing operations before income taxes excluding non-service cost components of pension and other postemployment benefits income; depreciation and amortization expense; restructuring costs and other; stock-based compensation expense; consulting and other costs; idle costs; other operating (expense) income, net; loss on early extinguishment of debt; interest expense and other income (charges), net.
Kodak’s segments are measured using Operational EBITDA both before and after allocation of corporate selling, general and administrative expenses (“SG&A”). The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
Segment Operational EBITDA and Consolidated Earnings from Continuing Operations Before Income Taxes
Year Ended December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
$ | 20 | $ | 5 | |||||
Advanced Materials and Chemicals | 10 | (1 | ) | |||||
Brand | 15 | 14 | ||||||
All Other | 2 | 3 | ||||||
Depreciation and amortization | (30 | ) | (29 | ) | ||||
Restructuring costs and other | (10 | ) | (13 | ) | ||||
Stock-based compensation | (7 | ) | (5 | ) | ||||
Consulting and other costs (1) | 13 | 2 | ||||||
Idle costs (2) | (3 | ) | (3 | ) | ||||
Other operating (expense) income, net, (3) | (6 | ) | 1 | |||||
Interest expense (3) | (52 | ) | (40 | ) | ||||
Pension income excluding service cost component (3) | 161 | 98 | ||||||
Loss on early extinguishment of debt (3) | (27 | ) | — | |||||
Other income (charges), net (3) | 1 | (1 | ) | |||||
Consolidated earnings from continuing operations before income taxes | $ | 87 | $ | 31 |
(1) | Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives, investigations and litigation. Consulting and other costs include $15 million and $10 million of income in the years ended December 31, 2023 and 2022, respectively, representing insurance reimbursement of legal costs previously paid by the Company associated with investigations and litigation matters. Kodak received $20 million of insurance reimbursement proceeds in the year ended December 31, 2023, of which $5 million was recorded in Other current assets in the Consolidated Statement of Financial Position as of December 31, 2022. Kodak received $5 million of insurance reimbursement proceeds in the year ended December 31, 2022. |
(2) | Consists of third-party costs such as security, maintenance and utilities required to maintain land and buildings in certain locations not used in any Kodak operations and the costs, net of any rental income received, of underutilized portions of certain properties. |
(3) | As reported in the Consolidated Statement of Operations. |
In 2023, Kodak decreased employee benefit reserves by $1 million primarily composed of a reduction in workers’ compensation reserves driven by changes in discount rates. The decrease in reserves in 2023 impacted SG&A by approximately $1 million.
Kodak decreased employee benefit reserves by $15 million in 2022 composed of a reduction in workers’ compensation reserves of approximately $13 million driven by changes in discount rates and a decrease in other employee benefit reserves of approximately $2 million, driven by both changes in discount rates and favorable experience. The decrease in reserves in 2022 impacted gross profit by approximately $9 million, R&D by approximately $1 and SG&A by approximately $5 million.
2023 Segments
Change in Segments
Effective February 2023 Kodak changed its organizational structure. The Traditional Printing segment and the Digital Printing segment were combined into one segment, named the Print segment. No changes were made to Kodak's other segments. Prior year segment information was revised to conform with the new organizational structure.
PRINT SEGMENT
Revenues
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | $ Change | |||||||||
Revenues | $ | 828 | $ | 938 | $ | (110 | ) | |||||
Operational EBITDA | 20 | 5 | 15 | |||||||||
Operational EBITDA as a % of revenues | 2 | % | 1 | % |
Revenues
The decrease in Print revenues of approximately $110 million primarily reflected reduced volumes in Prepress Solutions consumables, equipment and service ($105 million, $10 million and $4 million, respectively), volume declines in Electrophotographic Printing Solutions consumables and service as well as equipment ($12 million and $7 million, respectively), volume declines in PROSPER annuities and components ($7 million and $4 million, respectively) and volume declines in VERSAMARK consumables and service ($5 million). The unfavorable impacts were partially offset by improved pricing and product mix in Prepress Solutions consumables and equipment ($29 million and $3 million, respectively), improved pricing and product mix in PROSPER annuities and Electrophotographic Printing Solutions consumables and service ($3 million each), improved pricing in Versamark consumables and service ($2 million) and favorable foreign exchange ($1 million).
Operational EBITDA
Print Operational EBITDA improved approximately $15 million primarily due to improved pricing in Prepress Solutions consumables ($29 million) and PROSPER annuities and Electrophotographic Printing Solutions consumables and service ($3 million each), improved product mix in Prepress Solutions equipment and improved pricing and product mix in VERSAMARK annuities ($2 million each), lower aluminum and R&D costs ($25 million and $2 million, respectively) and favorable foreign currency ($2 million). These favorable impacts were partially offset by increased manufacturing costs ($43 million) driven by lower volume and increases in costs such as utilities, transportation and supplies, higher selling and administrative costs ($4 million) and the net impact of the change in workers’ compensation and employee benefit reserves ($8 million)
ADVANCED MATERIALS AND CHEMICALS SEGMENT
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | $ Change | |||||||||
Revenues | $ | 255 | $ | 234 | $ | 21 | ||||||
Operational EBITDA | 10 | (1 | ) | 11 | ||||||||
Operational EBITDA as a % of revenues | 4 | % | 0 | % |
Revenues
The improvement in Advanced Materials and Chemicals revenues of approximately $21 million is the result of pricing and product mix improvements in Industrial Film and Chemicals ($28 million) and price improvements in Motion Picture ($4 million) partially offset by lower volumes in Industrial Film and Chemicals ($5 million) and Motion Picture ($4 million).
Operational EBITDA
Advanced Materials and Chemicals Operational EBITDA improved approximately $11 million reflecting improved pricing and product mix as well as higher margins in Industrial Film and Chemicals ($27 million and $2 million, respectively) and pricing improvements in Motion Picture ($4 million) partially offset by increased manufacturing costs ($7 million), higher SG&A costs ($6 million) and the impact of net changes in workers’ compensation and employee benefit reserves ($6 million).
BRAND SEGMENT
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | $ Change | |||||||||
Revenues | $ | 17 | $ | 17 | $ | - | ||||||
Operational EBITDA | 15 | 14 | 1 | |||||||||
Operational EBITDA as a % of revenues | 88 | % | 82 | % |
There were no material changes to Brand revenues or Operational EBITDA in 2023.
RESTRUCTURING COSTS AND OTHER
2023
Restructuring actions taken in 2023 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included actions to complete the process of ceasing manufacturing of the Electrophotographic Printing Solutions equipment products as well as various targeted reductions in manufacturing, service, sales and administrative functions.
As a result of these actions, for the year ended December 31, 2023 Kodak recorded $10 million of charges of which $7 million were reported as Restructuring costs and other in the Consolidated Statement of Operations. The remaining $3 million represented inventory write-downs and were reported as Cost of revenues in the accompanying Consolidated Statement of Operations.
Kodak made cash payments related to restructuring of approximately $9 million for the year ended December 31, 2023.
The restructuring actions implemented in 2023 are expected to generate future annual cash savings of approximately $9 million. These savings are expected to reduce future annual Cost of revenues and SG&A expenses by $5 million and $4 million, respectively. Kodak expects the majority of the annual savings to take effect by the end of the second quarter of 2024 as actions are completed. See Note 18, “Restructuring Costs and Other” for additional information on Kodak’s restructuring actions.
LIQUIDITY AND CAPITAL RESOURCES
Management’s Assessment of Liquidity
Kodak ended the year with a cash balance of $255 million, an increase of $38 million from December 31, 2022.
The financing transactions entered into during the third quarter of 2023 (see “July 21, 2023 Financing Transactions” below for further information) and prior financing transactions provided additional liquidity to the Company to fund on-going operations and obligations, invest in growth opportunities in Kodak’s businesses of Print and Advanced Materials and Chemicals and for corporate infrastructure investments expected to contribute to improvements in operational efficiencies and cash flow.
Available liquidity includes cash balances and cash flows from operating activities. The amount of available liquidity is subject to fluctuations and includes cash balances held by various entities worldwide. At December 31, 2023 and 2022 approximately $167 million and $152 million, respectively, of cash and cash equivalents were held within the U.S. and approximately $88 million and $65 million, respectively, of cash and cash equivalents were held outside the U.S. Cash balances held outside the U.S. are generally required to support local country operations and may have high tax costs or other limitations that delay the ability to repatriate, and therefore may not be readily available for transfer to other jurisdictions. Kodak utilizes cash balances outside the U.S. to fund needs in the U.S. through the use of inter-company loans.
As of December 31, 2023 and 2022, outstanding inter-company loans to the U.S. were $460 million and $399 million, respectively, which includes short-term inter-company loans from Kodak’s international finance center of $173 million and $109 million, respectively. In China, where approximately $29 million and $24 million of cash and cash equivalents was held as of December 31, 2023 and 2022, respectively, there are limitations related to net asset balances that may impact the ability to make cash available to other jurisdictions in the world. Under the terms of the Amended and Restated Term Loan Credit Agreement, the Company is permitted to invest up to $60 million (or $75 million after the Deleveraging Milestone Date) in Restricted Subsidiaries that are not Loan Parties and in joint ventures or Unrestricted Subsidiaries that are not party to the Amended and Restated Term Loan Credit Agreement.
The Company’s Hong Kong subsidiary has an $80 million inter-company loan from one of the Company’s Chinese subsidiaries with a maturity date of November 16, 2024, the proceeds of which were in turn loaned to the Company. The inter-company loan terms provide for it to be repaid over two years in four equal installments, with the first $20 million installment due by November 16, 2023 and the remaining installments due in 2024. The Company paid $2 million ofthe first $20 million installment in January 2024 and is evaluating alternatives for the remaining installments which would allow Kodak and its subsidiaries to perform their obligations to each other while minimizing the impact on U.S. liquidity taking into account requirements imposed by Chinese regulators. Any amounts repaid to the Chinese subsidiary may not be able to be loaned, repatriated or otherwise moved back to the U.S., in which case the Company’s U.S. liquidity would be reduced. If the inter-company loan is not extended, refinanced or amended and the Hong Kong subsidiary does not pay any of the individual installments by the end of the 30-day grace period following notice by the Chinese subsidiary after a failure to pay on the due date of such installment, the Hong Kong subsidiary would default on the inter-company loan. The Chinese subsidiary has not issued notice to the Hong Kong subsidiary based on the failure to make the first full installment payment.
Kodak's cash flows continue to be negatively impacted by higher manufacturing costs due to volume declines and increased labor, material and distribution costs, supply chain disruptions and shortages in materials and labor. The impacts from price increases, continued cost reduction actions and supply chain-related cost improvements that were largely implemented during 2022 have positively impacted Kodak’s operations in 2023. The economic uncertainties surrounding the current inflationary environment and other global events represent additional elements of complexity in Kodak’s plans to return to sustainable positive cash flow. The Company cannot predict the duration and scope of such events, including the war in Ukraine and the conflicts involving Israel, and other factors such as the ability to continue to secure raw materials and components, the impact of rising costs of labor, commodity and distribution costs, or how quickly and to what extent normal economic and operating conditions can resume.
During the third quarter of 2023, Kodak entered into multiple long-term brand licensing arrangements and recorded total deferred revenue of approximately $57 million. Kodak received approximately $12 million and $40 million of cash proceeds related to these licensing arrangements in 2023 and first quarter of 2024, respectively. Kodak expects to receive the remaining $5 million in 2025.
Kodak's plans to return to sustainable positive cash flow include increasing profitability through pricing actions and reducing operating expenses by executing on cost controls, implementing effective working capital utilization, continuing to simplify the organizational structure, investing in information technology systems to drive operational efficiencies, generating cash from selling and leasing underutilized assets or through new brand licensing opportunities and implementing ways to reduce cash collateral needs.
Kodak believes that its liquidity position is adequate to fund its operating and investing needs and to provide the flexibility to respond as necessary to ordinary changes in the business and economic environment. Kodak’s ability to adequately fund its long-term liquidity, debt servicing and capital requirements will be dependent on generating positive cash flows from operations, managing world-wide cash through intercompany loans, distributions or other mechanisms, and the ability to convert, redeem or extend the existing Series B and Series C Preferred Stock past their current maturities of May 26, 2026.
July 21, 2023 Financing Transactions:
On February 26, 2021, the Company and certain of its subsidiaries (the "Subsidiary Guarantors") entered into a Credit Agreement (the “Original Term Loan Credit Agreement”) with certain funds affiliated with Kennedy Lewis Investment Management LLC (“KLIM”) as lenders (the “Original Term Loan Lenders”) and Alter Domus (US) LLC, as administrative agent.
On June 30, 2023, the Company entered into an amendment (the “Term Loan Amendment”) to the Original Term Loan Credit Agreement (the Original Term Loan Credit Agreement and, as amended and restated by the Term Loan Amendment, the “Amended and Restated Term Loan Credit Agreement”), with KLIM as lenders (the “Term Loan Lenders”) and Alter Domus (US) LLC, as administrative agent (the “Agent”). Subject to the terms and conditions of the Term Loan Amendment, the Term Loan Lenders provided the Company with a commitment to provide term loans in an aggregate principal amount of $450 million (the “Term Loans”).
On July 21, 2023, the Amended and Restated Term Loan Credit Agreement became effective and the Company completed its borrowing of the Term Loans. The Company received net proceeds from the Term Loans of approximately $435 million, of which $318 million, representing the aggregate principal amount of the Original Term Loans plus accrued paid-in-kind interest and prepayment premium and $2 million of cash interest, was paid by the Company to refinance the obligations under the Original Term Loan Credit Agreement.
Approximately $28 million of the net proceeds from the Term Loans were used to repay in full the Company’s outstanding Convertible Notes, representing the aggregate principal amount of the Convertible Notes plus accrued paid-in-kind interest.
The Company repaid in full the amounts outstanding under its 2023 Amended ABL Credit Agreement, using $59 million of the net proceeds from the Term Loans to fund the L/C Cash Collateral account and paying approximately $1 million in fees in connection with the Amended and Restated L/C Facility Agreement (defined below).
The remaining net proceeds from the Term Loans of approximately $29 million are being used by the Company for general corporate purposes and working capital needs.
The Term Loan Amendment also amended and restated the Original Term Loan Credit Agreement to, among other things, (i) extend the maturity date to the earlier of August 15, 2028 or the date that is 91 days prior to the maturity date or mandatory redemption date of any of the Company’s then-outstanding Series B Preferred Stock or Series C Preferred Stock or any extensions or refinancings of any of the foregoing, (ii) make certain other changes to the terms of the Original Term Loan Credit Agreement and (iii) make certain other changes to the terms of the Guarantee and Collateral Agreement, dated as of February 26, 2021, among the Company, the Subsidiary Guarantors and the Agent.
The Term Loans bear interest at a rate of 7.5% per annum payable in cash and 5.0% per annum payable “in-kind” or in cash at the Company’s option, for an aggregate interest rate of 12.5% per annum.
The Amended and Restated Term Loan Credit Agreement continues to limit, among other things, the ability of the Company and its Restricted Subsidiaries (as defined in the Amended and Restated Term Loan Credit Agreement) to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments and (v) make investments. The Amended and Restated Term Loan Credit Agreement contains customary affirmative covenants, including delivery of certain of the Company’s financial statements, and customary event of default provisions, including a cross-default provision that would give rise to an event of default if there is a default under or acceleration of “Material Indebtedness” other than inter-company indebtedness. Material Indebtedness includes obligations having a principal amount of at least $20 million (increasing to $25 million after the Deleveraging Milestone Date). The Amended and Restated Term Loan Credit Agreement does not include a financial maintenance covenant or any subjective acceleration clauses.
During the first quarter of 2024, the Company prepaid $17 million of the Term Loans with net proceeds from the sale of Target Non-Core Assets (as defined in the Amended and Restated Term Loan Agreement).
ABL Credit Agreement
Approximately $58 million of letters of credit were issued under the 2023 Amended ABL Credit Agreement and Amended ABL Credit Agreement as of both July 21, 2023 and December 31, 2022. As noted above, upon the termination of the 2023 Amended ABL Credit Agreement, the letters of credit totaling $58 million were transferred to the Amended and Restated L/C Facility. The lenders’ security interest in any of the Company’s or its subsidiaries’ assets or property securing the 2023 Amended ABL Credit Agreement was released.
Letter of Credit Facility Agreement
Approximately $31 million and $43 million of letters of credit were issued under the Amended and Restated L/C Facility Agreement and L/C Facility Agreement as of December 31, 2023 and 2022, respectively. The letters of credit under the Amended and Restated L/C Facility Agreement are collateralized by cash collateral (the “L/C Cash Collateral”). The L/C Cash Collateral was $32 million and $44 million at December 31, 2023 and 2022, respectively, which was classified as Restricted Cash.
On June 30, 2023, the Company and the Subsidiary Guarantors entered into an amendment (the “June 2023 L/C Facility Amendment”) to the 2023 Amended L/C Facility Agreement (as amended and restated by the June 2023 L/C Facility Amendment, the “Amended and Restated L/C Facility Agreement”) with Bank of America, N.A., as L/C Lender, L/C Agent and Issuing Bank. The June 2023 L/C Facility Amendment became effective on July 21, 2023.
Under the terms and conditions of the June 2023 L/C Facility Amendment, the L/C Lender increased the commitment to issue letters of credit on the Company’s behalf from an aggregate amount of up to $50 million to an aggregate amount of up to $100 million (the “L/C Facility Commitments”) until August 30, 2023, provided that, at all times, the Company posted L/C Cash Collateral in an amount greater than or equal to 104% of the aggregate amount of letters of credit issued and outstanding at any given time.
The Company used $59 million of the net proceeds from the Term Loans to cash collateralize the letters of credit transferred to the L/C Facility from the 2023 Amended ABL Credit agreement, increasing the balance on deposit in the L/C Cash Collateral account to $102 million. In August 2023, the Company used $68 million of the funds in the L/C Cash Collateral account to cash collateralize its undiscounted actuarial workers’ compensation obligations directly with the New York State Workers’ Compensation Board (“NYS WCB”), reducing the issued letters of credit to $31 million and the balance on deposit in the L/C Cash Collateral account to $32 million (see further discussion on NYS WCB below), and elected to reduce the L/C Facility Commitments to $50 million effective August 15, 2023. The Amended and Restated L/C Facility Agreement does not include a minimum liquidity or financial maintenance covenant.
Cash Flow:
Cash, cash equivalents and restricted cash balances were as follows:
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Cash, cash equivalents and restricted cash | $ | 377 | $ | 286 |
Cash Flow Activity
Year Ended December 31, | Year-Over- | |||||||||||
(in millions) | 2023 | 2022 | Year Change | |||||||||
Cash flows from operating activities: | ||||||||||||
Net cash provided by (used in) operating activities | $ | 38 | $ | (116 | ) | $ | 154 | |||||
Cash flows from investing activities: | ||||||||||||
Net cash used in investing activities | (32 | ) | (56 | ) | 24 | |||||||
Cash flows from financing activities: | ||||||||||||
Net cash provided by financing activities | 85 | 43 | 42 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | (8 | ) | 8 | ||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 91 | $ | (137 | ) | $ | 228 |
Operating Activities
Net cash from operating activities improved $154 million for the year ended December 31, 2023 as compared with the prior year primarily due to improved earnings, an increase in proceeds from insurance reimbursements ($15 million), a refund from a governmental authority ($9 million), decreased investment in inventory and an increase in liabilities excluding borrowings and trade payables driven by an increase in deferred revenue associated with brand licensing arrangements. This improvement was partially offset by an increase in trade receivables driven by $40 million in receivables recorded for brand licensing arrangements and a reduction in trade payables.
Investing Activities
Net cash used in investing activities decreased $24 million for the year ended December 31, 2023 as compared to the prior year primarily due to the investment in Wildcat in the third quarter of 2022.
Financing Activities
Net cash provided by financing activities increased $42 million in the year ended December 31, 2023 compared to the corresponding period in 2022 driven primarily by the net proceeds received from the July 21, 2023 financing transactions.
Other Collateral Requirements
The NYS WCB requires security deposits related to self-insured workers’ compensation obligations, which security deposits are recalculated annually. Due to changes in 2019 to the manner in which the required security deposit is determined, the Company has been required to post additional collateral over the last several years. At December 31, 2022, the Company posted $75.0 million of collateral, representing 107% of the Company’s undiscounted actuarial workers’ compensation obligations. Effective May 1, 2023, the Company added New York to its existing workers compensation liability insurance policy and is no longer self-insured for future claims. As a result, the NYS WCB confirmed the Company will no longer be obligated to post any additional collateral. Further, the NYS WCB confirmed the Company can request a review of the security deposits supporting the historical liability beginning on July 1, 2025 with the submission of a current actuarial report. Based on the results of the actuarial valuation report, the required security deposits may be eligible for reduction in future periods.
Based on the legacy nature of the Company’s workers’ compensation obligations, the undiscounted actuarial obligation has been declining and the Company expects this trend to continue. While it may not be indicative of the rate of future declines, the undiscounted actuarial liability declined by an average of $5.3 million per year between 2014 and 2023. Accordingly, subject to the possibility of other changes to the calculation of required security deposits by the NYS WCB, the Company expects the amount of the required security deposits to decline over time and the gradual return of the security deposits that have been made or the capital used to support such security deposits.
As a result of the Company’s credit ratings, during the second quarter of 2020 two surety bond holders notified the Company they required approximately $9 million of incremental collateral. The Company reduced the surety bond value by approximately $9 million in July 2020 with an equivalent increase to an existing letter of credit with the NYS WCB. The Company could be required to provide up to an additional $4 million of letters of credit to the issuers of certain surety bonds in the future to fully collateralize the bonds.
Other Uses of Cash Related to Financing Transactions
The holders of the Term Loans are entitled to quarterly cash interest payments at a rate of 7.5% per annum. The holders of Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4% per annum. All interest and dividends have been paid when due.
Defined Benefit Pension and Postretirement Plans
Kodak made contributions (funded plans) or paid net benefits (unfunded plans) totaling approximately $13 million relating to its non-U.S. defined benefit pension and postretirement benefit plans in 2023. For 2024, the forecasted contribution (funded plans) and net benefit payment (unfunded plans) requirements for its non-U.S. defined benefit pension and postretirement plans are approximately $12 million. Kodak does not expect to make any cash contributions to the Kodak Retirement Income Plan, Kodak’s U.S. defined benefit pension plan (“KRIP”) in 2024, and expects benefit payments (unfunded plans) related to its non-major U.S. plans to be less than $1 million.
As of December 31, 2023, the fair value of plan assets of KRIP was $3.5 billion and KRIP’s projected benefit obligation was $2.4 billion, as a result of which KRIP was over funded by $1.2 billion (see Note 19, “Retirement Plans” in the Notes to Financial Statements). Kodak, in conjunction with the Kodak Retirement Income Plan Committee, has been exploring how best to preserve and maximize the value of KRIP’s over-funding for the benefit of key stakeholders including current and former employees and Kodak shareholders. There can be no assurances that Kodak will receive excess assets from KRIP or concerning the timing or amount of any such receipt. All liabilities of KRIP must be satisfied before any excess assets will revert to Kodak, and any amounts that ultimately revert to Kodak will depend on the amount of KRIP’s liabilities and the future investment performance and value of its assets. Also, any amount received will be subject to material excise tax and other obligations. To the extent Kodak receives net proceeds from excess KRIP assets, Kodak must use such proceeds to pay down the Term Loans to defined levels pursuant to the Plan Reversion Proceeds provisions of the Amended and Restated Term Loan Credit Agreement before such proceeds would be available for other purposes.
Capital Expenditures
Cash flows from investing activities included $32 million for capital expenditures for the year ended December 31, 2023. Kodak expects approximately $45 million to $65 million of cash flows for investing activities from capital expenditures for the year ending December 31, 2024.
BEPS Pillar 2
In December 2021, the Organization for Economic Cooperation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025. Kodak is in the process of assessing the tax effects of Pillar 2 legislation for when it comes into effect. Due to the complexities in applying the legislation, the potential impact of the enacted or substantively enacted legislation on Kodak’s consolidated financial statements and related disclosures is not yet reasonably estimable.
U.S. International Development Finance Corporation Non-Binding Letter of Interest
On July 28, 2020, the U.S. International Development Finance Corporation signed a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs. The DFC Loan would have been for facility upgrades and construction, provide working capital, and finance other necessary direct expenditures supporting the launch of Kodak Pharmaceuticals. As previously reported, on April 22, 2022 the Company received a letter from the DFC advising the Company that the authority conferred on the DFC by Executive Order 13922 expired on March 27, 2022 and that, consequently, the DFC is unable to consider the project further and the Company’s application has been closed.
The Company remains interested in working with governmental agencies to leverage its assets and technology to on-shore manufacturing of pharmaceutical and other healthcare materials. As described under “Overview” above, the Company is also continuing to explore expanding further into the pharmaceutical space on a smaller scale than contemplated by the DFC Loan using other sources of capital, including a portion of the capital raised by the Company on July 21, 2023.
Contractual Obligations
The impact that contractual obligations are expected to have on Kodak's cash flow in future periods is as follows:
As of December 31, 2023 | ||||||||||||||||||||||||||||
(in millions) | Total | 2024 | 2025 | 2026 | 2027 | 2028 | 2029+ | |||||||||||||||||||||
Long-term debt (1) | $ | 593 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 582 | $ | 7 | ||||||||||||||
Interest payments on debt (2) | 195 | 37 | 38 | 40 | 41 | 37 | 2 | |||||||||||||||||||||
Operating lease obligations | 54 | 17 | 8 | 6 | 5 | 5 | 13 | |||||||||||||||||||||
Purchase obligations (3) | 25 | 14 | 5 | 2 | 2 | 1 | 1 | |||||||||||||||||||||
Convertible preferred stock cash dividends (7) | 11 | 4 | 4 | 3 | — | — | — | |||||||||||||||||||||
Total (4) (5) (6) | $ | 878 | $ | 73 | $ | 56 | $ | 52 | $ | 49 | $ | 625 | $ | 23 |
(1) | Primarily represents the maturity values of Kodak's long-term debt obligations as of December 31, 2023. The loans made under the Amended and Restated Term Credit Agreement become due on August 15, 2028 or the date that is 91 days prior to the maturity date or mandatory redemption date of any of the Company’s then outstanding Series B Preferred Stock or Series C Preferred Stock or any extensions or refinancings of any of the foregoing. The loans made under the Amended and Restated Term Credit Agreement receive 5% paid-in-kind interest at maturity. Paid-in-kind interest is included in the principal amount due. The contractual obligations do not reflect any contingent mandatory annual principal prepayments that may be required to be made upon achieving certain excess cash flow targets or from the Net Proceeds from the sale of Target Non-Core Assets, as such terms are defined in the Amended and Restated Term Loan Credit Agreement. Refer to Note 8, "Debt and Credit Facilities". |
(2) | Includes cash interest payments on the Term Loan Credit Agreement, the RED-Rochester LLC debt and commitment fees for the Amended and Restated L/C Facility Agreement. |
(3) | Purchase obligations include agreements related to raw materials, supplies, production and administrative services, as well as marketing and advertising, that are enforceable and legally binding on Kodak and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. |
(4) | Due to uncertainty regarding the completion of tax audits and possible outcomes, an estimate of the timing of payments related to uncertain tax positions and interest cannot be made. See Note 17, “Income Taxes,” for additional information regarding Kodak's uncertain tax positions. |
(5) | For 2024, the Company is forecasting $12 million in contributions and net benefit payments for its Non-U.S. major defined benefit retirement plans and other postretirement benefit plans. Expected contributions are excluded from the contractual obligations table because they do not represent contractual cash outflows, as they are dependent on numerous factors which may result in a wide range of outcomes. |
(6) | Because timing of their future cash outflows are uncertain, the other long-term liabilities presented in Note 7, “Other Long-Term Liabilities,” are excluded from this table. |
(7) | On February 26, 2021, the Company issued 1,000,000 shares of 4% Series B Convertible Preferred Stock, no par value per share (the “Series B Preferred Stock”) and 1,000,000 shares of 5% Series C Convertible Preferred Stock, no par value per share (the “Series C Preferred Stock”). The Series B and Series C Preferred Stock have a liquidation preference of $100 per share. The holders of Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4% per annum. The holder of Series C Preferred Stock is entitled to cumulative dividends payable quarterly in additional shares of Series C Preferred Stock. If holders of the Series B and Series C Preferred stock convert their shares into common stock, dividends will decrease. The Company is required to redeem all shares not converted prior to May 28, 2026 at $100 per share plus the amount of any accrued and unpaid dividends. Due to uncertainty regarding the number of shares that will be redeemed, the redemption amount has not been included in the above table. Refer to Note 9, "Redeemable, Convertible Preferred Stock". |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Revenue Recognition
Preparation of the Company’s Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Significant accounting policies used in the preparation of the Consolidated Financial Statements are more fully described in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies”. The accounting policies most critical to the preparation of the consolidated financial statements and require the most difficult, subjective or complex judgments are described below.
Kodak's revenue transactions include salesRevenue Recognition
Kodak sells a wide portfolio of products (such as components and consumables for use in Kodak,services to its customers. Kodak’s agreements have varying terms and other manufacturers’conditions depending on the goods and services being sold, the rights and obligations conveyed, and the legal jurisdiction of the arrangement. While most of Kodak’s agreements have standard terms and conditions, more complex equipment specialty materials and film-based products), equipment, software, services, integrated solutions, and intellectual property and brand licensing. Complex arrangements withmay contain nonstandard terms and conditions maythat require significant contract interpretation to determine the appropriate accounting, including the allocation of transaction price to the various performance obligations and determination of the stand-alone selling price of each performance obligation. accounting.
For equipment sales, revenue recognition may depend on completion of installation based on the type of equipment, level of customer specific customization and other contractual terms. In instances in which the agreement with the customer contains a customer acceptance clause, revenue is deferred until customer acceptance is obtained, provided the customer acceptance clause is considered to be substantive.
At
Kodak’s brand licensing agreements (symbolic licenses) may include upfront payments with a defined license period or a perpetual license term. Significant judgment is required to determine the timeterm over which revenue iswill be recognized Kodak also records reductions to revenue for customer incentive programs. Such incentive programs include cash and volume discounts and promotional allowances. For those incentives that require the estimation of sales volumes or redemption rates, such as for volume rebates, Kodak uses historical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized. In the event that the actual results of these items differ from the estimates, adjustments to the sales incentive accruals are recorded. Future market conditions and product transitions may require Kodak to take actions to increase customer incentive offers, possibly resulting in an incremental reduction of revenue at the time the incentive is offered.whether a significant financing component exists.
Valuation and Useful Lives
Taxes
Kodak performs a testaccounts for goodwill impairment annually and whenever events or changes in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its’ carrying amount.
Goodwill is tested for impairment at a level of reporting referred to as a reporting unit, which is an operating segment or one level below an operating segment (a component) if the component constitutes a business for which discrete financial information is available and regularly reviewed by segment management.
As a result of the change in segments that became effective as of January 1, 2020, Kodak’s goodwill reporting units changed. The Digital Printing segment has three goodwill reporting units: Electrophotographic Printing Solutions, Prosper and Versamark, and Software. The Advanced Materials and Chemicals segment has two goodwill reporting units: Motion Picture and Industrial Films and Chemicals, and Advanced Materials and Functional Printing. The Traditional Printing segment, Brand segment and Eastman Business Park segment each have one goodwill reporting unit.
As of December 31, 2019, the goodwill balance of $12 million under the prior year segment reporting structure was comprised of $6 million for the Brand, Film and Imaging segment and $6 million for the Kodak Software segment, which had only one reporting unit (Software). The goodwill in the Brand, Film and Imaging segment was reported in the Consumer Products reporting unit.
The goodwill previously reported in the Consumer Products goodwill reporting unit was transferred to the Brand goodwill reporting unit using a relative fair value allocation to affected reporting units. Goodwill previously reported in the Software reporting unit was transferred to the Digital Printing segment and remains in its own reporting unit. As of December 31, 2020, goodwill is recorded in the Brand and Software reporting units.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Kodak estimates the fair value of its reporting unitsincome taxes using the guideline public company methodasset and discounted cash flowliability method. To estimate fair value utilizingThis approach requires the guideline public company method, Kodak applies valuation multiples, derived from the operating datarecognition of publicly-traded benchmark companies, to the same operating data of the reporting units. The valuation multiples are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”). To estimate fair value utilizing the discounted cash flow method, Kodak establishes an estimate of future cash flows for each reporting unit and discounts those estimated future cash flows to present value.
Kodak performed a quantitative test of impairment for all reporting units for its annual goodwill impairment test as of December 31, 2020. Kodak utilized the discounted cash flow method and guideline public company method to estimate the fair value of reporting units with goodwill. For these reporting units, Kodak selected equal weighting of the guideline public company method and the discounted cash flow method as the valuation approaches produced comparable ranges of fair value. Fair values for the other reporting units were estimated using the discounted cash flow method only.
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To estimate fair value utilizing the discounted cash flow method, Kodak established an estimate of future cash flows for the period ranging from January 1, 2021 to December 31, 2025 and discounted the estimated future cash flows to present value. The expected cash flows were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. The discount rates are estimated based on an after-tax weighted average cost of capital (“WACC”) for each reporting unit reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections. Discount rates of 14% to 30% were utilized in the valuation based on Kodak’s best estimates of the after-tax WACC of each reporting unit.
A terminal value was included for all reporting units at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate. The terminal value was calculated using either the constant growth method (“CGM”) based on the cash flows of the final year of the discrete period or the H-model, which assumes the growth during the terminal period starts at a higher rate and declines in a linear manner over a specified transition period toward a stable growth rate.
Based upon the results of Kodak’s December 31, 2020 analysis, Kodak concluded that the fair value of the reporting units substantially exceeded their carrying values, therefore no impairment of goodwill was indicated. Impairment of goodwill could occur in the future if a reporting unit’s fair value changes significantly, if Kodak’s market capitalization significantly declines, if a reporting unit’s carrying value changes materially compared with changes in its fair values, or as a result of changes in operating segments or reporting units.
Kodak performed interim tests of impairment for goodwill as of June 30, 2020 due to the continued uncertainty regarding the negative impact of the COVID-19 pandemic on its operations, and as of March 31, 2020, due to the decline in market capitalization as of that date since the last goodwill impairment test (December 31, 2019) and the uncertainty regarding the negative impact of the COVID-19 pandemic at that time. Kodak utilized the discounted cash flow method to estimate the fair value of all reporting units for both tests. Kodak established an estimate of future cash flows for the period ranging from July 1, 2020 to December 31, 2024 for the June 30, 2020 interim test, and April 1, 2020 to December 31, 2024 for the March 31, 2020 interim test. The future cash flows were discounted to present value. The expected cash flows were derived from earnings forecasts and assumptions regarding the timing and impact of the COVID-19 pandemic on each reporting unit as of each applicable interim test date. The discount rates are estimated based on an after-tax WACC for each reporting unit reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections. Discount rates of 16% to 55% were utilized in the June 30, 2020 valuation, and 21% to 55% for the March 31, 2020 valuation, both based on Kodak’s best estimates of the after-tax WACC of each reporting unit as of the applicable valuation date.
A terminal value was included for all reporting units at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate. The terminal value was calculated using either the CGM based on the cash flows of the final year of the discrete period or the H-model, which assumes the growth during the terminal period starts at a higher rate and declines in a linear manner over a specified transition period toward a stable growth rate.
Based upon the results of Kodak’s June 30, 2020 and March 31, 2020 analyses, no impairment of goodwill was indicated. No interim impairment test for goodwill was performed as of September 30, 2020.
The carrying value of the indefinite-lived intangible asset related to the Kodak trade name is evaluated for potential impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired.
Kodak performed its annual test of impairment for the Kodak trade name as of December 31, 2020. The fair value of the Kodak trade name was valued using the income approach, specifically the relief from royalty method based on the following significant assumptions: (a) forecasted revenues ranging from January 1, 2021 to December 31, 2025, including a terminal year with growth rates ranging from -4.5% to 2.5%; (b) an after-tax royalty rate of 0.4% of expected net sales determined with regard to comparable market transactions and profitability analysis; and (c) discount rates ranging from 16% to 30%, which were based on the after-tax WACC.
Based on the results of Kodak’s December 31, 2020 assessment, the fair value of the Kodak trade name exceeded its carrying value. Impairment of the Kodak trade name could occur in the future if expected revenues decline or if there are significant changes in the discount rates or royalty rates. A one percent increase in the discount rate and a 10% miss in expected revenues would impact the fair value of the Kodak trade name by $3 million.
Kodak performed an interim impairment test of the Kodak trade name as of June 30, 2020 and March 31, 2020. The fair value of the Kodak trade name was valued using the income approach, specifically the relief from royalty method based on the following significant assumptions: (a) forecasted revenues ranging from July 1, 2020 to December 31, 2024 for the June 30, 2020 interim test, and April 1, 2020 to December 31, 2024 for the March 31, 2020 interim test, both valuations included a terminal year with growth rates ranging from -3% to 2.5% (b) an after-tax royalty rate of 0.4% of expected net sales, and (c) discount rates ranging from 16% to 25% for the June 30, 2020 interim test, and 23% to 32% for the March 31, 2020 interim test. The discount rates are based on the after-tax WACC.
Based on the results of Kodak’s March 31, 2020 assessment, the carrying value of the Kodak trade name exceeded its fair value and Kodak recorded a pre-tax impairment charge of $3 million. Based on the results of Kodak’s June 30, 2020 assessment, the fair value of the Kodak trade name exceeded its’ carrying value. No interim impairment test for the Kodak tradename was deemed necessary as of September 30, 2020.
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Long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. When evaluating long-lived assets for impairment, the carrying value of an asset group is compared to its estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group. The impairment is the excess of the carrying value over the fair value of the long-lived asset group. Kodak updated its estimate of undiscounted cash flows for each asset group as of June 30, 2020 and March 31, 2020 using a probability weighted approach in determining the likelihood of possible adverse impacts from the COVID-19 pandemic as of each applicable interim test date. In addition, Kodak updated its estimate of undiscounted cash flows for each asset group as of December 31, 2020. Based on the results of the impairment tests, no impairments were recorded.
The value of property, plant, and equipment is depreciated over its expected useful life in such a way as to allocate it as equitably as possible to the periods during which services are obtained from their use, which aims to distribute the value over the remaining estimated useful life of the unit in a systematic and rational manner. An estimate of useful life not only considers the economic life of the asset, but also the remaining life of the asset to the entity. Impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected future cash flows decline or if there are significant changes in the estimated useful life of the assets.
Series A Preferred Stock and Convertible Notes Embedded Conversion Features and Term Extension Derivatives
On November 15, 2016, the Company issued 2,000,000 shares of Series A Preferred Stock no par value per share. On May 24, 2019, the Company issued $100 million aggregate principal amount of Convertible Notes. The Company concluded that the Series A Preferred Stock and Convertible Notes are considered more akin to debt-type instruments and that the economic characteristics and risks of the embedded conversion features and term extension at the Company’s option (in the case of the Convertible Notes), except where the conversion price is increased to the liquidation preference in the case of the Series A Preferred Stock, were not considered clearly and closely related to the Series A Preferred Stock or the Convertible Notes. Accordingly, these embedded features were bifurcated from the Series A Preferred Stock and Convertible Notes and separately accounted for on a combined basis at fair value as two single derivatives. The Company allocated $43 million of the net Series A Preferred Stock proceeds to the Series A Preferred Stock derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance which reduced the original carrying value of the Series A Preferred Stock. The Company allocated $14 million of the net Convertible Notes proceeds to the Convertible Notes derivative liability based on the aggregate fair value of the embedded features on the date of issuance which reduced the original carrying value of the Convertible Notes. The derivatives are being accounted for at fair value with subsequent changes in the fair value being reported as part of Other charges, net in the Consolidated Statement of Operations. With the conversion of the Convertible Notes in the third quarter of 2020, the Convertible Notes derivative liability expired. The fair value of the Convertible Notes derivative was a liability of $51 million at December 31, 2019 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The fair value of the Series A Preferred Stock derivative as of December 31, 2020 was a liability of $9 million which is reported in Other current liabilities and as of December 31, 2019 was a liability of $1 million which is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position.
The fair value of the embedded conversion features derivative is calculated using unobservable inputs (Level 3 fair measurements). The value of the Optional Conversion associated with the Series A Preferred Stock is calculated using a binomial lattice model.
The following table presents the key inputs in the determination of fair value for the Series A Preferred Stock embedded conversion features derivative:
|
| Valuation Date |
| |||||
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total value of embedded derivative liability (in millions) |
| $ | 9 |
|
| $ | 1 |
|
Kodak's closing stock price |
|
| 8.14 |
|
|
| 4.65 |
|
Expected stock price volatility |
|
| 133.44 | % |
|
| 104.61 | % |
Risk free rate |
|
| 0.10 | % |
|
| 1.58 | % |
Yield on the preferred stock |
|
| 11.97 | % |
|
| 16.27 | % |
The Fundamental Change and Reorganization Conversion values at issuance were calculated as the difference between the total value of the Series A Preferred Stock and the sum of the net present value of the cash flows if the Series A Preferred Stock is redeemed on its fifth anniversary and the values of the other embedded derivatives. The Fundamental Change and Reorganization Conversion values reduce the value of the embedded conversion features derivative liability. Other than events which alter the likelihood of a fundamental change or reorganization event, the value of the Fundamental Change and Reorganization Conversion reflects the value as of the issuance date, amortized for the passage of time.
Taxes
Kodak recognizes deferred tax liabilitiesassets and assetsliabilities for the expected future tax consequences of operating losses, credit carry-forwardscarryforwards and temporary differences between the carrying amounts and tax basis of Kodak’s assets and liabilities.
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Kodak records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. Kodak has consideredManagement is required to exercise judgment in assessing the realizability of Kodak’s deferred tax assets, considering all available positive and negative evidence. Inherent in this process is the requirement to estimate forecasted earnings, future taxable income, the geographical mix of earnings in the jurisdictions in which Kodak operates and prudent and feasible tax planning strategies in determining the need for these valuation allowances. As of December 31, 2020, Kodak has net deferred tax assets before valuation allowances of approximately $1,081 million andon a valuation allowance related to those net deferred tax assets of approximately $1,112 million, resulting in net deferred tax liabilities of approximately $31 million.
Kodak considers both positive and negative evidence, in determining whether a valuation allowance is needed by territory, including, but not limited to, whether particular entities are in three-year cumulative income positions. As of March 31, 2020, Kodak determined that it was more likely than not that deferred tax assets outside the U.S. which were not offset with valuation allowances as of March 31, 2020 would not be realized due to reductions in estimates of future profitability as a result of the COVID-19 pandemic in locations outside the U.S. Accordingly, Kodak recorded a provision of $167 million associated with the establishment of a valuation allowance on those deferred tax assets. During 2019, Kodak determined that it was more likely than not that a portion of the deferred tax assets outside the U.S. would not be realized due to reduced sales volumes and profits in locations outside the U.S. and accordingly recorded a provision of $19 million associated with the establishment of a valuation allowance on those deferred tax assets.
Kodak may be able to make the determination that the realization of deferred tax assets in certain foreign jurisdictions is more likely than not in the future. Kodak will continue to evaluate whether valuation allowances are needed, at a jurisdictional level, in future reporting periods.jurisdiction-by-jurisdiction basis. It is possible that sufficientactual results will differ from assumptions and require adjustments to allowances. Future periods may also provide positive evidence including sustained profitability, may become available in future periods with respectsufficient to one or more jurisdictions to reach a conclusionconclude that all or part of the valuation allowance with respect to such jurisdictions couldrecorded in each jurisdiction can be reversed.
Utilization ofKodak’s ability to utilize its U.S. net operating losses (“NOL”NOLs”) and tax credits may be subject to limitations imposed by Section 382 of the Internal Revenue Code. Section 382 limits the utilization of NOLs in the event of significant changes in the stock ownership of the Company in the future. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of NOL carryforwards, other tax carryforwards, and certain built-in losses as defined under that Section, upon an ownership change. In general terms, anCompany. An ownership change may result from transactions that increaseoccurs if, among other things, the aggregate ownership of stockholders owning five percent stockholders inof Kodak’s stock increases by more than 50 percentage points over a three-year testingrolling period. The Company has a relatively high concentrationAn ownership change can also occur by other items, such as the sale of stockholdersKodak shares that holdare owned by its 5% or more of the outstanding stock.shareholders. Future transactions, when combined with reported transactions within the testing period, could aggregate an ownership change during the testing period in excess of 50 percentage points.
A Section 382 ownership change would significantly impair Kodak’s ability to utilize NOLs and tax credits in the U.S. As of December 31, 2020,2023, Kodak had available U.S. NOL carry-forwards for income tax purposes of approximately $1,309$1,577 million and unused foreign tax credits of $358$281 million. Any impairment of these tax attributes would be fully offset by a corresponding decrease in Kodak’s U.S. valuation allowance, which would result in no net tax provision.
KodakKodak’s intent is to repatriate its offshore earnings when prudent. As such, it has recorded deferred tax liabilities of $22$16 million and $19$17 million for potential taxes on undistributed earnings, includingprimarily attributable to foreign withholding taxes, as of December 31, 20202023 and 2019,2022, respectively.
In general, the amount of tax expense or benefit from continuing operations is determined without regard to the tax effects of other categories of income or loss, such as Other comprehensive (loss) income. However, an exception to this rule applies when there is a loss from continuing operations and income from items outside of continuing operations that must be considered. This exception requires that income from discontinued operations, extraordinary items, and items charged or credited directly to other comprehensive income be considered in determining the amount of tax benefit that results from a loss in continuing operations. This exception affects the allocation of the tax provision amongst categories of income.
Kodak operates within multiple taxing jurisdictions worldwide and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Management’s ongoing assessments of the outcomes of these issues and related tax positions require judgment, and although managementmany years to resolve. Management believes that adequate provisions have been made for such issues, however, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the earnings of Kodak. Conversely, if these issues are resolved favorably in the future,favorably, the related provisions would be reduced, thus having a positive impact on earnings. Management’s ongoing assessments of the outcomes of these issues and related tax positions requires judgment.
Pension and Other Postretirement Benefits
Kodak’s defined benefit pension and other postretirement benefit costs and obligations are estimated using several key assumptions. TheseThe assumptions whichthat have the most significant effect on the Company’s consolidated financial position and results of operations are reviewed at least annually by Kodak, include the discount rate,expected long-term expected rate of return on plan assets (“EROA”), salary growth, healthcare cost trend rate, mortality trends and other economic and demographic factors.discount rates. Actual results that differ from Kodak’s assumptions are recorded as unrecognized gains and losses as a component of accumulated other comprehensive income in shareholders’ equity and are amortized to earnings over the estimated future service period of the active participants in the plan or, if the plan is almost entirely inactive, the average remaining lifetime expectancy of inactive participants, to the extent such total net unrecognized gains and losses exceed 10% of the greater of the plan's projected benefit obligation or the calculated value of plan assets. Significant differences in actual experience or significant changes in future assumptions would affect Kodak’s pension and other postretirement benefit costs and obligations.
Asset
Return on Plan Assets
EROA is a long-term assumption, which Kodak reviews annually. Kodak utilizes asset and liability modeling studies are utilized by Kodak to adjust asset exposures to conform to its investment strategy, and to review aits liability hedging program through the use of forward-looking correlation, risk and return estimates.
31
Thoseprogram. These studies generate forward-looking estimates of correlation, risk and return generated fromwhich are used in the modeling studies are also used to estimatedevelopment of the EROA. The EROA is estimated utilizing a forward-looking building block model factoringwhich factors in the expected risk of each asset category, return, and correlation over a five to seven-year horizon, and weightingweighs the exposures by the currentstrategic asset allocation.
Historical inputs are utilized in the forecasting model, to frame the current market environmentincluding historical asset returns with adjustments made based on the forward-looking view. Kodak aggregates investments into major asset categories based on the underlying benchmark of the strategy. Kodak’s asset categories include broadly diversified exposure to U.S. and non-U.S. equities, U.S. and non-U.S. government and corporate bonds, inflation-linked bonds, commodities and absolute return strategies. Each allocation to these major asset categories is determined within the overall asset allocation to accomplish unique objectives, including enhancing portfolio return, providing portfolio diversification, or hedging plan liabilities.liabilities, in accordance with the overall investment strategy.
The EROA, once set, is applied to the calculated value of plan assets in the determination of the expected return component of Kodak’s pension expense. Kodak uses a calculated value of plan assets, which recognizes gains and losses in the fair value of assets over a four-year period, to calculate expected return on assets.
At December 31, 2020,2023, the calculated value of the assets of Kodak’s major U.S. and non-U.S. defined benefit pension plans was approximately $4.1$4.2 billion and the fair value of the assets of Kodak’s major U.S. and non-U.S. defined benefit pension plans was approximately $4.4$4.1 billion. Asset gains and losses that are not yet reflected in the calculated value of plan assets are not included in amortization of unrecognized gains and losses.
Kodak reviews its EROA assumption annually. To facilitate this review, every three years, or when market conditions change materially,
Kodak’s larger plans will undertake asset allocation or asset and liability modeling studies. The weighted average EROA used to determine the 2020 net pension expense for major U.S. and non-U.S. defined benefit pension plansplan accounts for substantially all of Kodak’s net pension income and represents approximately 87% of the total fair value of major plan assets as of December 31, 2023. The following table presents actual and expected return on plan assets, as well as the corresponding percentages for Kodak’s major U.S. defined benefit pension plan:
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in millions) | ||||||||||||
Actual return on plan assets | $ | (170 | ) | $ | (152 | ) | $ | 716 | ||||
Expected return on plan assets | (257 | ) | 178 | 167 | ||||||||
Actual rate of return on plan assets | 3.9 | % | (6.1 | %) | 17.7 | % | ||||||
Expected rate of return on plan assets | 7.5 | % | 5.3 | % | 5.2 | % |
The actual rate of return on Kodak’s major U.S. defined benefit pension plan for 2023 was 6.00%3.9%, lower than the expected rate of return of 7.5%, driven by lower than expected returns in the private equity asset class. For 2022 the actual rate of return was negative 6.1%, lower than the expected rate of return of 5.3%, driven by lower than expected bond performance due to rising interest rates. For 2021 the actual rate of return exceeded the expected rate of return driven by higher returns for the U.S. Plan’s private equity and 3.27%,hedge fund portfolio. The expected average rate of return on plan assets is a long-term, forward-looking assumption and will likely differ from the actual return in any specific year.
Gains or losses from direct investments in derivative instruments by Kodak’s major U.S defined benefit pension plan can be volatile from year to year and could materially affect the fair value of plan assets. The total net realized (losses) gains from these derivative investments that were included in the actual return on plan assets balance in the table above for the years ending December 31, 2023, 2022 and 2021 were approximately ($1) million, ($128) million and ($23) million, respectively. Refer to the Derivative Instruments discussion below for additional information.
Approximately $2.7 billion and $2.6 billion of the total fair value of Kodak’s major U.S. defined pension plan as of December 31, 2023 and 2022, respectively, represents plan assets where the fair market value is not readily determinable and are measured using the net asset value (“NAV”) per share expedient. Except for investments in private equity funds and real estate funds, the remaining investments have redemption rights and can be, and historically have been, redeemed by the U.S. Plan at NAV. For private equity funds and real estate funds, the investors do not have an option to redeem their interest in these funds but rather receive distributions from time to time through the liquidation of the underlying investments in the funds. Secondary sales of a material portion of the investments in these funds are infrequent and historically, immaterial portions of these funds were sold for values not significantly different from NAV.
Discount Rates:
Generally, Kodak bases the discount rate assumption for its significant plans on high quality corporate bond yields in the respective countries as of the measurement date. Specifically, for its U.S., Canadian, Euro-zone and UK plans, Kodak determines a discount rate using a cash flow model to incorporate the expected timing of benefit payments and an AA-rated corporate bond yield curve. For Kodak'sKodak’s U.S. plans,Plan, the Citigroup Above Median Pension Discount Curve is used. For Kodak’s other non-U.S. plans, discount rates are determined by comparison to published local high-quality bond yields or indices considering estimated plan duration and removing any outlying bonds, as warranted.
Kodak uses
Changes in discount rates for Kodak’s major U.S. defined benefit plan has the spot yield curve approach to estimatemost significant effect on the service and interest costs by applying the specific spot rates along the yield curve used to determine thetotal projected benefit obligations to relevant projected cash outflows.for Kodak.
The salary growth assumptions are determined basedtable below shows the discount rates for Kodak’s major U.S. pension plan for the years shown:
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Discount Rates - Projected Benefit Obligation: | ||||||||||||
U.S. Plan | 4.92 | % | 5.13 | % | 2.54 | % |
As discount rates reflect the market rate on the measurement date, the rates can be volatile from year to year. The decrease in the discount rate for Kodak’s long-term actual experience and future and near-term outlook.major U.S. defined benefit pension plan from December 31, 2022 to December 31, 2023 resulted in an increase in the projected benefit obligation of approximately $40 million at December 31, 2023. The healthcare cost trendincrease in the discount rate assumptions are based on historical cost and payment data,for Kodak’s major U.S. defined benefit pension plan from December 31, 2021 to December 31, 2022 resulted in a decrease in the near-term outlook and an assessmentprojected benefit obligation of the likely long-term trends.approximately $582 million at December 31, 2022.
Sensitivity Analysis:
The following table illustrates the sensitivity to a change to certain key assumptions used in the calculation of expense for the year ending December 31, 20212023 and the projected benefit obligation (“PBO”) at December 31, 20202023 for Kodak's major U.S. and non-U.S. defined benefit pension plans:
Impact on 2024 | Impact on PBO | |||||||||||||||||||||||||||||||
Pre-Tax Pension Expense | December 31, 2023 | |||||||||||||||||||||||||||||||
(in millions) |
| Impact on 2021 Pre-Tax Pension Expense Increase (Decrease) |
|
| Impact on PBO December 31, 2020 Increase (Decrease) |
| Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||
Change in assumption: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
25 basis point decrease in discount rate |
| $ | 6 |
|
| $ | 1 |
|
| $ | 99 |
|
| $ | 34 |
| $ | 6 | $ | (1 | ) | $ | 44 | $ | 12 | |||||||
25 basis point increase in discount rate |
|
| (3 | ) |
|
| — |
|
|
| (74 | ) |
|
| (25 | ) | (6 | ) | 1 | (43 | ) | (12 | ) | |||||||||
25 basis point decrease in EROA |
|
| 8 |
|
|
| 2 |
|
| N/A |
|
| N/A |
| 9 | 1 | N/A | N/A | ||||||||||||||
25 basis point increase in EROA |
|
| (8 | ) |
|
| (2 | ) |
| N/A |
|
| N/A |
| (9 | ) | (1 | ) | N/A | N/A |
Total pension income from continuing operations before special termination benefits, curtailments and settlements for the major U.S. defined benefit pension plan in the U.S. was $91$149 million for 20202023 and is expected to be approximately $86$152 million in 2021.2024. The increase in pension income for 2024 is driven primarily by lower interest expense. Pension incomeexpense from continuing operations before special termination benefits, curtailments and settlements for the major non-U.S. defined benefit pension plans was less than $1$3 million for 20202023 and is projected to be $3$2 million in 2024.
Workers’ CompensationDerivative Instruments:
Kodak’s major U.S. defined benefit plan utilizes derivative investments primarily to hedge liability interest rate risk to U.S. government bonds. Kodak’s major U.S. defined benefit pension plan’s derivative portfolio consists of exchange traded futures contracts. As of December 31, 2023 and 2022 the notional amount of these derivative instruments approximated $384 million and $389 million, respectively. Daily variation margin payments are made to or received from the counterparty for changes in the market value of futures contracts and are recorded as realized gains and losses in the Gain on Plan Assets balance. As these futures contracts have short-term maturities, the fair value of these derivative instruments at December 31, 2023 and 2022 was $1 million and $0 million, respectively, which represents the unrealized gains and losses on these contracts. Refer to Note 19, “Retirement Plans” in the Notes to Financial Statements for additional information.
Kodak self-insures and participatesAn increase in high-deductible insurance programs with retention and per occurrence deductible levels for claims related to workers’ compensation. The estimated liability for workers’ compensationinterest rates is based on actuarially estimated, discounted costthe primary factor that could precipitate material losses in Kodak’s major U.S. defined benefit plan's existing derivatives portfolio. A 25-basis point increase in interest rates would cause a loss from the government bond derivatives of claims, including claims incurred but not reported. Historical loss development factors are utilized to projectapproximately $8 million. However, as illustrated in the future development of incurred losses, and the amounts are adjusted based on actual claim experience, settlements, claim development trends, changes in state regulations and judicial interpretations.
A 25 basis-point changeabove table, a 25-basis point increase in the discount rate used to measure the PBO of the U.S. Plan would have hadcause a $2$43 million impact ondecrease in the expensePBO. Accordingly, while an increase in interest rates would expose the U.S. Plan’s derivative investments to losses, it would also likely result in an offsetting decrease to the U.S. Plan’s PBO.
Kodak’s major U.S. defined benefit plan invests in a diversified portfolio of hedge funds that utilize a variety of investment strategies. The total net asset value of these hedge funds was approximately $1.6 billion and net liability$1.5 billion as of December 31, 2020.2023 and 2022 respectively. Separate from the major U.S. defined benefit plan’s direct investments in exchange traded futures contracts, hedge funds may utilize derivative instruments to execute their investment strategy.
Stock Compensation
Officers, directors and employees of the Company and its consolidated subsidiaries are eligible to receive awards. The principal awards issued are non-qualified stock options and restricted stock units. Stock options are at exercise prices equal toAny gains or greater than the closing price of Kodak’s stock on the date of grant and expire seven years after the grant date. Stock-based compensation awards granted under Kodak’s stock incentive plan are generally subject to a three-year vesting period from the date of grant, or a later datelosses, as determined by the Executive Compensation Committee.
Compensation expense is recognized over the service or performance period for each separately vesting tranche of the award and is adjusted for actual forfeitures before vesting. Kodak assesses the likelihood that performance-based shares will be earned based on the probability of meeting the performance criteria. For those performance-based awards that are deemed probable of achievement, expense is recorded, and for those awards that are deemed not probable of achievement, no expense is recorded. Kodak assesses the probability of achievement each quarter.
The fair value of restricted stock units is based on the closing market price of the Company’s stock on the grant date.
Kodak generally utilizes the Black-Scholes option valuation model to estimatewell as changes in the fair value of stock options. The expected termderivative investments held by the hedge fund, are included in the hedge fund’s net asset value. Losses could occur in the future from hedge fund investments which may result in part from the use of options granted isderivative investments by the period of timehedge funds. However, the options are expected tomaximum potential loss on any individual fund would be outstanding and is calculated using a simplified method based on the option’s vesting period and original contractual term. The historical volatility of the Company’s stock is used to estimate expected volatility. The risk-free rate is based on the yield on U.S. Treasury notes with a term equallimited to the option’s expected term.U.S. Plan’s investment in that fund.
Given the volatility of the Company’s stock price in the third quarter of 2020, the Company utilized a lattice-based valuation model to value time-based vesting awards granted July 27, 2020 and a Monte Carlo simulation valuation model to value options granted on July 27, 2020 which vested upon conversion of the Convertible Notes.
Inventories
Inventories are stated at the lower of average cost or market. Carrying values of excess and obsolete inventories are reduced to net realizable value. Judgment is required to assess the ultimate demand for and realizable value of inventory. The analysis of inventory carrying values considers several factors including length of time inventory is on hand, historical sales, product shelf life, product life cycle, product category, and product obsolescence.
Accounts Receivable Reserves
Accounts receivable reserves are based on historical collections experience as well as reserves for specific receivables deemed to be at risk for collection. The collectability of customer receivables is reviewed on an ongoing basis considering past due invoices and the current creditworthiness of each customer. Judgment is required in assessing the ultimate realization of accounts receivables.
New Accounting Pronouncements
A description of new accounting pronouncements is contained in Note 1, “Summary“Basis of Presentation & Summary of Significant Accounting Policies”.
33
Revenue declined $213 million (17%) from 2019 to 2020. Currency impacted revenue favorably in 2020 compared to 2019 ($9 million).
Segments within the print industry and the film industry face competition from digital substitution. Kodak’s strategy is to:
Focus product investment in core competency areas
Grow revenues through a focus on customers across Kodak’s print divisions, increasing overall share;
Promote the use of film and expand the applications of Kodak’s film and chemicals to best utilize the existing infrastructure; and
Continue to streamline processes to drive cost reductions and improve operating leverage.
A discussion of opportunities and challenges related to Kodak’s strategy follows:
Traditional Printing’s digital plate products include traditional digital plates and KODAK SONORA Process Free Plates. SONORA Process Free Plates allow Kodak customers to skip the plate processing step prior to mounting plates on a printing press. This improvement in the printing process saves time and costs for customers. Also, SONORA Process Free Plates reduce the environmental impact of the printing process because they eliminate the use of chemicals (including solvents), water and power that is otherwise required to process a traditional plate. While traditional digital plate offerings are experiencing volume and pricing pressure, innovations in Kodak product lines which command premium prices, such as SONORA Process Free Plates, are expected to offset some of the long-term price erosion in the market and manufacturing efficiencies. Traditional Printing’s revenues accounted for 58% of Kodak’s total revenues in 2020. Traditional Printing’s revenues declined $135 million (19%) in 2020. The prior year period included $13 million of intellectual property licensing revenue associated with the strategic relationship established with HuaGuang in September 2019. Excluding the $13 million of licensing revenue, 2020 revenues declined $122 million, primarily reflecting volume and pricing declines. Segment earnings declined by $27 million (56%) compared to the prior year period, reflecting the license revenue in the prior year, the impact of reduced volumes on manufacturing costs and revenue partially offset by operating cost reductions through the use of temporary furloughs and pay cuts.
None of the Traditional Printing segment’s manufacturing facilities were ordered to close by governmental authorities. Many of the segment’s customers around the globe continued to operate, but at decreased volumes. Therefore, demand for the segment’s products declined. The Traditional Printing segment may also be impacted by supply chain disruptions and travel restrictions. With the decline in customer demand, manufacturing volumes were reduced. The duration and extent of demand declines and recovery is unclear. Manufacturing employees were temporarily furloughed, as necessary, under reduced production plans. The segment utilized furloughs and pay-cuts for non-manufacturing employees in a way which allowed continued operation and product development.
In Digital Printing, the legacy Versamark business is expected to continue to decline as a percentage of the segment’s total revenue as the Prosper business continues to grow. The Prosper Inkjet Systems business is expected to continue to build profitability, excluding the negative impacts during the COVID-19 pandemic. Investment in the next generation technology, Ultrastream, is focused on the ability to place Ultrastream writing systems in OEM and hybrid applications. Digital Printing revenue declined $52 million (18%) in 2020, primarily reflecting volume declines. Despite the revenue declines, segment earnings only declined $1 million (11%) from 2019 to 2020 driven by cost reductions.
None of the Digital Printing segment’s manufacturing facilities were ordered to close by governmental authorities. Many of the segment’s customers around the globe continued to operate, but at decreased volumes. Therefore, demand for the segment’s products declined. The Digital Printing segment may also be impacted by supply chain disruptions and travel restrictions. With the decline in customer demand, manufacturing volumes were reduced.
34
The duration and extent of demand declines and recovery is unclear. Manufacturing employees were temporarily furloughed, as necessary, under reduced production plans. The segment utilized furloughs and pay-cuts for non-manufacturing employees in a way which allowed continued operation and product development.
Advanced Materials and Chemicals revenue declined $28 million (14%) from 2019 to 2020. The segment loss improved $11 million (32%) from 2019 to 2020 due to price increases on consumer still photographic film and solvents as well as operating cost reductions. Kodak plans to continue to promote the use of film to utilize as much film manufacturing capacity as possible.
Advanced Materials and Chemicals has experienced adverse impacts from the COVID-19 pandemic, most notably in Motion Picture where the industry has been heavily impacted and productions in affected regions had been suspended. None of the Advanced Materials and Chemicals segment’s manufacturing facilities were ordered to close by governmental authorities. However, each of the segment’s product lines was impacted by lowered demand and may also be impacted by supply chain disruptions and travel restrictions. The duration and extent of demand declines and recovery is unclear. Manufacturing volumes were reduced due to the customer demand decline in the near-term. Manufacturing employees were temporarily furloughed, as necessary, under reduced production plans.
Kodak is working to organically expand its KSM production at Eastman Business Park in Rochester, New York while exploring alternatives to obtain necessary cGMP and FDA certification to make regulated KSMs and active pharmaceutical ingredients (“APIs”) and otherwise utilize its assets and technology in the healthcare space. Depending on its assessment of the business opportunity and availability of capital, Kodak may also explore alternative means to further expand its chemical manufacturing operations for purposes of producing materials to support the healthcare industry. A portion of the capital raised by the Company on February 26, 2021 is being used to fund these exploratory activities and may be used to fund expansion opportunities that the Company considers attractive.
Film and related component manufacturing operations and Kodak Research Laboratories utilize capacity at Eastman Business Park (“EBP”), which helps cost absorption for both Kodak operations and tenants at Eastman Business Park.
Kodak plans to capitalize on its intellectual property through new business or licensing opportunities, focusing on opportunities in smart material applications and printed electronics markets and also pursuing limited opportunities in 3D printing materials.
DETAILED RESULTS OF OPERATIONS
Net Revenues from Continuing Operations by Reportable Segment
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
(in millions) |
|
|
|
|
|
|
|
|
Traditional Printing |
| $ | 592 |
|
| $ | 727 |
|
Digital Printing |
|
| 241 |
|
|
| 293 |
|
Advanced Materials and Chemicals |
|
| 172 |
|
|
| 200 |
|
Brand |
|
| 13 |
|
|
| 12 |
|
Total of reportable segments |
|
| 1,018 |
|
|
| 1,232 |
|
Other |
|
| 11 |
|
|
| 10 |
|
Consolidated total |
| $ | 1,029 |
|
| $ | 1,242 |
|
35
Segment Operational EBITDA and Consolidated Loss from Continuing Operations Before Income Taxes
|
| Year Ended December 31, |
| |||||
| 2020 |
|
| 2019 |
| |||
Traditional Printing |
| $ | 21 |
|
| $ | 48 |
|
Digital Printing |
|
| (10 | ) |
|
| (9 | ) |
Advanced Materials and Chemicals |
|
| (23 | ) |
|
| (34 | ) |
Brand |
|
| 11 |
|
|
| 8 |
|
Other |
|
| 1 |
|
|
| (1 | ) |
Depreciation and amortization |
|
| (37 | ) |
|
| (55 | ) |
Restructuring costs and other |
|
| (17 | ) |
|
| (16 | ) |
Stock-based compensation |
|
| (15 | ) |
|
| (7 | ) |
Consulting and other costs (1) |
|
| (9 | ) |
|
| (7 | ) |
Idle costs (2) |
|
| (3 | ) |
|
| (5 | ) |
Former CEO separation agreement compensation |
|
| — |
|
|
| (2 | ) |
Other operating income (expense), net, excluding income from transition services agreement (3) |
|
| 7 |
|
|
| (22 | ) |
Interest expense (4) |
|
| (12 | ) |
|
| (16 | ) |
Pension income excluding service cost component (4) |
|
| 98 |
|
|
| 104 |
|
Loss on early extinguishment of debt |
|
| (2 | ) |
|
| — |
|
Other charges, net (4) |
|
| (386 | ) |
|
| (46 | ) |
Consolidated loss from continuing operations before income taxes |
| $ | (376 | ) |
| $ | (60 | ) |
|
|
|
|
|
|
|
|
Kodak increased employee benefit reserves by approximately $4 million in 2020 reflecting an increase in workers’ compensation reserves ($7 million) partially offset by a decrease in postemployment benefit reserves ($3 million). In 2019 workers’ compensation reserves increased by approximately $3 million. The increase in reserves in 2020 impacted gross profit and SG&A each by approximately $2 million. The increase in reserves in 2019 impacted gross profit by approximately $2 million and SG&A by approximately $1 million.
36
| Year Ended December 31, |
|
| % of |
|
| Year Ended December 31, |
|
| % of |
|
| $ Change vs. |
| ||||||
|
| 2020 |
|
| Sales |
|
| 2019 |
|
| Sales |
|
| 2019 |
| |||||
Revenues |
| $ | 1,029 |
|
|
|
|
|
| $ | 1,242 |
|
|
|
|
|
|
| (213 | ) |
Cost of revenues |
|
| 894 |
|
|
|
|
|
|
| 1,060 |
|
|
|
|
|
|
| (166 | ) |
Gross profit |
|
| 135 |
|
|
| 13 | % |
|
| 182 |
|
|
| 15 | % |
|
| (47 | ) |
Selling, general and administrative expenses |
|
| 172 |
|
|
| 17 | % |
|
| 211 |
|
|
| 17 | % |
|
| (39 | ) |
Research and development costs |
|
| 34 |
|
|
| 3 | % |
|
| 42 |
|
|
| 3 | % |
|
| (8 | ) |
Restructuring costs and other |
|
| 17 |
|
|
| 2 | % |
|
| 16 |
|
|
| 1 | % |
|
| 1 |
|
Other operating (income) expense, net |
|
| (14 | ) |
|
| -1 | % |
|
| 15 |
|
|
| 1 | % |
|
| (29 | ) |
Loss from continuing operations before interest expense, pension income excluding service cost component, loss on early extinguishment of debt, other charges, net and income taxes |
|
| (74 | ) |
|
| (7 | %) |
|
| (102 | ) |
|
| (8 | %) |
|
| 28 |
|
Interest expense |
|
| 12 |
|
|
| 1 | % |
|
| 16 |
|
|
| 1 | % |
|
| (4 | ) |
Pension income excluding service cost component |
|
| (98 | ) |
|
| (10 | %) |
|
| (104 | ) |
|
| (8 | %) |
|
| 6 |
|
Loss on early extinguishment of debt |
|
| 2 |
|
|
| 0 | % |
|
| — |
|
|
| — |
|
|
| 2 |
|
Other charges, net |
|
| 386 |
|
|
| 38 | % |
|
| 46 |
|
|
| 4 | % |
|
| 340 |
|
Loss from continuing operations before income taxes |
|
| (376 | ) |
|
| (37 | %) |
|
| (60 | ) |
|
| (5 | %) |
|
| (316 | ) |
Provision for income taxes |
|
| 168 |
|
|
| 16 | % |
|
| 31 |
|
|
| 2 | % |
|
| 137 |
|
Loss from continuing operations |
|
| (544 | ) |
|
| (53 | %) |
|
| (91 | ) |
|
| (7 | %) |
|
| (453 | ) |
Earnings from discontinued operations, net of income taxes |
|
| 3 |
|
|
| 0 | % |
|
| 207 |
|
|
| 17 | % |
|
| (204 | ) |
NET (LOSS) EARNINGS |
| $ | (541 | ) |
|
| (53 | %) |
| $ | 116 |
|
|
| 9 | % |
|
| (657 | ) |
Revenues
For the year ended December 31, 2020, revenues decreased by approximately $213 million compared with the same period in 2019. Volume declines and pricing and product mix within Traditional Printing ($112 million and $16 million, respectively) and volume declines in Digital Printing and Advanced Materials and Chemicals ($58 million and $42 million, respectively) drove the revenue declines. The revenue declines were offset by improved pricing and product mix in Advanced Materials and Chemicals ($14 million) and favorable mix of products in Digital Printing ($4 million) and favorable foreign currency ($9 million). The prior year period also included intellectual property licensing revenue ($13 million) associated with the HuaGuang relationship entered into in September 2019. See segment discussions for additional details.
Gross Profit
Gross profit for 2020 decreased by approximately $47 million. The decrease reflected volume declines, unfavorable pricing and product mix as well as increased costs in Traditional Printing ($13 million, $16 million and $4 million, respectively), volume declines and increased costs in Advanced Materials and Chemicals (each $11 million), volume declines and unfavorable costs in Digital Printing ($5 million and $13 million, respectively) partially offset by favorable pricing and product mix in Advanced Materials and Chemicals ($14 million), favorable mix of products in Digital Printing ($4 million) and lower depreciation and amortization expenses ($17 million). The prior year period also included intellectual property licensing revenue ($13 million) associated with the HuaGuang relationship entered into in September 2019. See segment discussions for additional details.
Selling, General and Administrative Expenses
Consolidated SG&A for 2020 decreased $39 million primarily due to lower investment in selling and marketing activities driven by cost reduction efforts ($48 million). The temporary furloughs and pay cuts provided approximately $7 million of the $48 million reduction in 2020. Temporary government assistance programs provided approximately $3 million. Additional savings were provided by headcount reductions. The savings provided by the lower investment in selling and marketing activities was partially offset by increased stock compensation expense ($10 million) as discussed in Note 23, Stock-Based Compensation and an increase of $2 million in consulting and project costs with the internal and external investigations that started in the third quarter of 2020. The 2019 period also included $2 million of compensation related to the former CEO separation agreement while the 2020 period included increased bad debt expense primarily attributed to increased collection risk related to the COVID-19 pandemic ($3 million).
Research and Development Costs
Consolidated R&D expenses decreased $8 million in 2020 primarily due primarily due to cost reduction efforts.
Restructuring Costs and Other
These costs, as well as the restructuring costs reported in Cost of revenues, are discussed under the "Restructuring Costs and Other" section in this MD&A.
37
Other Operating (Income) Expense, Net
For details, refer to Note 16, “Other Operating (Income) Expense, Net.”
Other Charges, Net
The change in Other charges, net was primarily driven by the embedded conversion features derivative liability associated with the Convertible Notes. Refer to Note 14, “Financial Instruments” and Note 17, “Other Charges, Net”.
Pension Income
For details, refer to Note 20, “Retirement Plans.”
Provision for Income Taxes
The Provision for income taxes in the year-to-date period was primarily driven by the $167 million provision associated with the establishment of a valuation allowance on deferred tax assets outside the U.S. Refer to Note 18, “Income Taxes”.
Discontinued Operations
Discontinued operations of Kodak include the Flexographic Packaging segment. Refer to Note 29, “Discontinued Operations” in the Notes to Financial Statements for additional information.
TRADITIONAL PRINTING SEGMENT
Revenues
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Revenues |
| $ | 592 |
|
| $ | 727 |
|
| $ | (135 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
|
| 21 |
|
|
| 48 |
|
|
| (27 | ) |
Operational EBITDA as a % of revenues |
|
| 4 | % |
|
| 7 | % |
|
|
|
|
Revenues
The decrease in Traditional Printing revenues of approximately $135 million primarily reflected volume and pricing declines ($97 million and $16 million, respectively) in Prepress Solutions consumables and volume declines in Prepress Solutions service ($6 million) and equipment ($10 million) offset by favorable pricing and product mix ($2 million) in Prepress equipment and favorable foreign currency ($6 million). In addition, the prior year period included $13 million of intellectual property licensing revenue associated with the HuaGuang relationship. The volume declines were primarily driven by COVID-19 pandemic related declines in customer demand.
Operational EBITDA
Traditional Printing Operational EBITDA declined approximately $27 million primarily due to volume and pricing declines ($11 million and $16 million, respectively) in Prepress Solutions consumables, volume declines in Prepress service ($3 million) and higher manufacturing costs driven by unfavorable cost absorption from the volume declines ($10 million) partially offset by lower SG&A expenses ($22 million) driven by headcount reductions, temporary furloughs and pay cuts as well as lower aluminum costs in the current year ($8 million). In addition, the prior year period included $13 million of intellectual property licensing revenue associated with the HuaGuang relationship and $2 million of cost reductions due to retroactive exemptions from U.S. tariffs imposed on aluminum purchases in 2018. The U.S tariffs were imposed on aluminum purchases in 2018 and were included as part of the cost of plates sold in 2018.
DIGITAL PRINTING SEGMENT
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Revenues |
| $ | 241 |
|
| $ | 293 |
|
| $ | (52 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
|
| (10 | ) |
|
| (9 | ) |
|
| (1 | ) |
Operational EBITDA as a % of revenues |
|
| -4 | % |
|
| -3 | % |
|
|
|
|
Revenues
The decrease in Digital Printing revenues of approximately $52 million primarily reflected volume declines in Electrophotographic Printing Solutions consumables and service ($27 million), Electrophotographic Printing Solutions equipment ($14 million), PROSPER consumables and service ($5 million), PROSPER systems ($3 million) and Software ($4 million) as well as product mix in PROSPER systems ($3 million), all of which were driven by the decline in customer demand due to the COVID-19 pandemic.
38
There were also volume declines in VERSAMARK service and consumables ($10 million) due to both declines in the installed base of VERSAMARK systems and the COVID 19 pandemic. The declines were partially offset by improved volume and favorable product mix in PROSPER components ($5 million and $3 million, respectively) and favorable product mix in Electrophotographic Printing Solutions equipment ($2 million) and well as favorable foreign currency ($2 million).
Operational EBITDA
The decrease in Digital Printing Operational EBITDA of $1 million was driven by higher manufacturing costs in Electrophotographic Printing Solutions ($14 million), primarily due to unfavorable cost absorption from the volume declines in Electrophotographic Printing Solutions consumables and service ($4 million). There were also volume declines in Software ($4 million), VERSAMARK service and consumables ($3 million) and PROSPER consumables and service ($2 million) partially offset by improved volume and favorable product mix in PROSPER components ($3 million and $2 million, respectively), volume changes in Electrophotographic Printing Solutions equipment ($3 million), favorable costs in Software ($3 million), favorable product mix in VERSAMARK equipment ($2 million) and lower SG&A costs ($11 million) driven by headcount reductions, temporary furloughs and pay cuts.
ADVANCED MATERIALS AND CHEMICALS SEGMENT
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Revenues |
| $ | 172 |
|
| $ | 200 |
|
| $ | (28 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
|
| (23 | ) |
|
| (34 | ) |
|
| 11 |
|
Operational EBITDA as a % of revenues |
|
| -13 | % |
|
| -17 | % |
|
|
|
|
Revenues
The decrease in Advanced Materials and Chemicals revenues of approximately $28 million is the result of volume declines in Motion Picture ($16 million) driven by productions halted as a result of the pandemic, Industrial Film and Chemicals ($11 million) primarily due to the COVID-19 pandemic’s impacts on its customers, and Consumer Inkjet Solutions ($7 million) driven by lower sales of ink to the existing installed base of printers. Additionally, current year revenues for KSB declined ($5 million) primarily due to operations in Asia being impacted by the COVID-19 pandemic, and the prior year period included revenues from Kodakit ($4 million) which ceased operations in January 2020. Partially offsetting these impacts was improved pricing in Industrial Film and Chemicals ($13 million) driven by higher pricing in professional and consumer still photographic film and solvents.
Operational EBITDA
Advanced Materials and Chemicals Operational EBITDA improved approximately 11 million primarily due to favorable pricing ($13 million) in Industrial Film and Chemicals. Also contributing to the improvement were lower selling and administrative expenses ($14 million) driven by headcount reductions, temporary furloughs and pay cuts as well as lower R&D costs ($5 million). Partially offsetting were volume declines in Motion Picture ($5 million) and Consumer Inkjet Solutions ($4 million) as well as unfavorable cost impacts in Industrial Film and Chemicals ($8 million) and Motion Picture ($3 million) driven by unfavorable cost absorption.
RESTRUCTURING COSTS AND OTHER
2020
Restructuring actions taken in 2020 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included various targeted reductions in manufacturing, service, sales and other administrative functions.
As a result of these actions, for the year ended December 31, 2020 Kodak recorded $17 million of charges which were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations.
Kodak made cash payments related to restructuring of approximately $15 million for the year ended December 31, 2020.
The restructuring actions implemented in 2020 are expected to generate future annual cash savings of approximately $24 million. These savings are expected to reduce future annual Cost of revenues and SG&A expenses by $9 million and $15 million, respectively. Kodak expects the majority of the annual savings to be in effect by the end of 2021 as actions are completed.
2019
For the year ended December 31, 2019 Kodak recorded $16 million of charges which were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations.
39
LIQUIDITY AND CAPITAL RESOURCES
Kodak’s products are sold and serviced in numerous countries across the globe with more than half of sales generated outside the U.S. Current global economic conditions are highly volatile due to the COVID-19 pandemic. The conversion of accounts receivable to cash is taking longer and collection risk has increased since before the pandemic. The economic uncertainty surrounding the COVID-19 pandemic is an additional complexity in Kodak’s plans to return to sustainable positive cash flow. To mitigate the economic impacts of the pandemic Kodak employed temporary furloughs and pay reductions and adjusted manufacturing volumes to meet changing expectations around production requirements.
The Company is also seeking to take advantage of any available government incentives around the world in response to the COVID-19 pandemic such as employee related tax deferrals or holidays, wage subsidies and loan programs including those under the U.S. CARES Act, although the Company has not yet been able to take advantage of any loan programs and may not qualify for any loans under the programs created under the U.S. CARES Act. Many of the available government incentives for which the Company qualifies are in the form of deferrals of payments that will be required to be paid in the future.
|
| As of December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Cash, cash equivalents and restricted cash |
| $ | 256 |
|
| $ | 290 |
|
Cash Flow Activity
|
| Year Ended December 31, |
|
|
|
|
| |||||
(in millions) |
| 2020 |
|
| 2019 |
|
| Year-Over-Year Change |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by in operating activities |
| $ | (35 | ) |
| $ | 12 |
|
| $ | (47 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
| (13 | ) |
|
| 311 |
|
|
| (324 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
| 10 |
|
|
| (298 | ) |
|
| 308 |
|
Effect of exchange rate changes on cash and restricted cash |
|
| 4 |
|
|
| (2 | ) |
|
| 6 |
|
Net (decrease) increase in cash, cash equivalents, restricted cash and cash in assets held for sale |
| $ | (34 | ) |
| $ | 23 |
|
| $ | (57 | ) |
Operating Activities
Net cash (used in) provided by operating activities declined $47 million for the year ended December 31, 2020 as compared with the prior year primarily due to increased cash use for accounts payable and other liabilities, including the payment of $6 million of interest upon the conversion of the Convertible Notes, partially offset by higher reductions of accounts receivable in 2020 and lower cash operating losses. Additionally, cash used in operations in 2019 benefitted from the allocation of $10 million of the proceeds from the divestiture of FPD as consideration for a brand license, the allocation of $13 million of the proceeds from entering the relationship with HuaGuang as consideration for an intellectual property license receipt and the receipt of a $15 million prepayment for transition services, products, and other services as a part of the divestiture of FPD.
Investing Activities
Net cash (used in) provided by investing activities decreased $324 million for the year ended December 31, 2020 as compared to the prior year due to proceeds from the sale of FPD in the prior year.
Financing Activities
Net cash provided by (used in) financing activities improved $308 million in the year ended December 31, 2020 as compared to the prior year driven by the current year proceeds received from option exercises, the prior year repayment of the Company’s term credit agreement and the prior year payment of contingent consideration partially offset by the issuance of the Convertible Notes and the proceeds from the RED – Rochester borrowing and the current year payment of preferred stock dividends.
Sources of Liquidity
Available liquidity includes cash balances and the unused portion of the ABL Credit Agreement. The amount of available liquidity is subject to fluctuations and includes cash balances held by various entities worldwide. At December 31, 2020 and 2019, approximately $99 million and $72 million, respectively, of cash and cash equivalents were held within the U.S. and approximately $97 million and $161 million, respectively, of cash and cash equivalents were held outside the U.S.
Cash balances held outside of the U.S. are generally required to support local country operations, may have high tax costs or other limitations that delay the ability to repatriate, and therefore may not be readily available for transfer to other jurisdictions. Kodak utilizes cash balances outside the U.S. to fund needs in the U.S. through the use of intercompany loans. As of December 31, 2020 and 2019 outstanding intercompany loans to the U.S. were $449 million and $408 million, respectively, which includes short-term intercompany loans from Kodak’s international finance center of $150 million and $110 million.
40
In China, where approximately $34 million and $89 million, respectively, of cash and cash equivalents were held as of December 31, 2020 and 2019, there are limitations related to net asset balances that impact the ability to make cash available to other jurisdictions in the world. On May 12, 2020, a Chinese subsidiary of Kodak transferred approximately $70 million to a U.S. subsidiary of Kodak in an inter-company transaction.
ABL Credit Agreement
On January 27, 2020 Kodak exercised its right under the Amended and Restated Credit Agreement (the “ABL Credit Agreement”) to permanently reduce lender commitments, reducing the commitments from $150 million to $120 million. As a result, the minimum Excess Availability decreased to $15 million from the previous minimum of $18.75 million. (Refer to the Amended and Restated Credit Agreement section of Note 9, “Debt and Finance Leases”, for the definition of Excess Availability).
On March 27, 2020, the Company and the subsidiaries of the Company that are guarantors (the “Subsidiary Guarantors”) entered into Amendment No. 3 to the ABL Credit Agreement (the “Amendment”) with the Lenders and Bank of America, N.A., as administrative and collateral agent. The Amendment decreased the available asset-based revolving loans (the “ABL Loans”) and letters of credit from an aggregate amount of up to $120 million to $110 million, subject to the Borrowing Base.
As a result of the additional reduction in lender commitments, the minimum Excess Availability decreased to $13.75 million from the previous amount of $15 million.
The changes provided by the Amendment to the Excess Availability and Equipment Availability combined with increases in Eligible Receivables and Eligible Inventory allowed the Company to decrease Eligible Cash by $13 million at the time of the Amendment without causing Excess Availability to fall below the minimum required.
The Amendment also changed Equipment Availability from (i) the lesser of 75% of Net Orderly Liquidation Value of Eligible Equipment or $6 million to (ii) the lesser of 70% of Net Orderly Liquidation Value of Eligible Equipment or $14.75 million as of March 31, 2020. The Equipment Availability was $14.75 million for September 30, 2020. The $14.75 million amount decreases by $1 million per quarter starting on July 1, 2020 until maturity or the amount is decreased to $0, whichever comes first.
The Company had issued approximately $90 million and $80 million of letters of credit under the ABL Credit Agreement as of December 31, 2020 and 2019, respectively. Under the ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($13.75 million at December 31, 2020). If Excess Availability is below 12.5% of lender commitments the Company has the ability to fund amounts into the Eligible Cash account which will increase Excess Availability for purposes of the previous month-end compliance reporting. The Company had approximately $20 million of Excess Availability under the ABL Credit Agreement for the December 31, 2020 compliance reporting and $22 million of Excess Availability under the ABL Credit Agreement as of December 31, 2019. To maintain Excess Availability of greater than 12.5% of lender commitments ($13.75 million and $18.75 million as of December 31, 2020 and 2019, respectively), Kodak funded $35 million and $22 million to the Eligible Cash account held with the ABL Credit Agreement Administrative Agent as of December 31, 2020 and 2019, respectively, which is classified as Restricted Cash in the Consolidated Statement of Financial Position.
Under the ABL Credit Agreement, if Excess Availability falls below 12.5% of lender commitments, Kodak may, in addition to the requirement to be in compliance with a minimum Fixed Charge Coverage Ratio, become subject to cash dominion control. Kodak intends to continue to maintain Excess Availability above the minimum threshold which may require additional funding of Eligible Cash. In addition to Eligible Cash, the borrowing base is supported by Eligible Receivables, Eligible Inventory and Eligible Equipment. To the extent the assets supporting the borrowing base decline, if the remaining assets included in the borrowing base are not sufficient to support the required Excess Availability amount, additional funding of Eligible Cash may be required. Since Excess Availability was greater than 12.5% of lender commitments Kodak is not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. As of December 31, 2020 Fixed Charges (as defined in the ABL Credit Agreement) exceeded EBITDA by approximately $37 million, therefore the Fixed Charges Coverage Ratio was less than 1.0 to 1.0. See “February 26, 2021 Financing Transactions” below for a summary of subsequent amendments to the ABL Credit Agreement.
Other Collateral Requirements
The New York State Workers’ Compensation Board (“NYSWCB”) requires security deposits related to self-insured workers’ compensation obligations. The security deposit required by NYSWCB is based on actuarial calculations of the Company’s obligations and company specific factors such as its declining workforce and reducing exposure. The NYSWCB calculation also includes a financial contingency based on the employer’s credit rating and a calculation of unallocated loss adjustment expenses. In 2020 the NYSWCB waived these charges to provide employers some relief while they endure the economic impacts of COVID. The waived security deposits amounted to $16.7 million in 2020. The increase to the security deposit required by NYSWCB in 2020, not including the waived amounts, was $14.9 million. The Company has agreed to post additional collateral of approximately $3 million for each of the next five years to satisfy the current security deposit obligation.
The collateral obligation can be satisfied by issuing letters of credit or through other means. The amount of security deposit required by NYSWCB will be re-calculated annually. Therefore, the amount of additional collateral required may change each year.
As a result of the Company’s current credit ratings, during the second quarter of 2020 two surety bond holders notified the Company they required approximately $9 million of incremental collateral.
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The Company reduced the surety bond value by approximately $9 million in July 2020 with an equivalent increase to an existing letter of credit with the New York Workers’ Compensation board. The Company could be required to provide up to $3 million of letters of credit to the issuers of certain surety bonds in the future to fully collateralize the bonds.
On September 1, 2019 Kodak established a strategic relationship with HuaGuang in the People’s Republic of China. The relationship is comprised of an agreement under which Kodak sold its shares of the Kodak (China) Graphic Communication Co. Ltd. entity which included the offset printing plates facility in Xiamen, China, and related assets and liabilities, to HuaGuang, a supply agreement for HuaGuang to help Kodak fulfill customer demand and a license agreement under which Kodak licensed its plates technology, including its Sonora Process Free plates technology, to HuaGuang with the intent of expanding the plates market in China. Upon the establishment of the relationship, Kodak received net cash proceeds of $30 million, of which $13 million was received in the United States. As part of the arrangement, Kodak established an escrow of $14 million in China to secure minimum payments required under the supply agreement.
February 26, 2021 Financing Transactions
On February 26, 2021 the Company entered into a five-year Term Credit Agreement (the “Term Loan Credit Agreement”), a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”), a Securities Purchase Agreement (the “Securities Purchase Agreement”), and a Series A Preferred Stock Repurchase and Exchange Agreement (the “Repurchase and Exchange Agreement”).
The Term Loan Credit Agreement provides for an initial term loan in the amount of $225 million and a commitment to provide delayed draw term loans in an aggregate principal amount of up to $50 million on or before February 26, 2023. The term loan bears interest at a rate of 8.5% per annum payable in cash and 4.0% per annum payable “in-kind” or in cash at the Company’s option, for an aggregate interest rate of 12.5% per annum. The Purchase Agreement provides for the sale of a total of $100 million of Series C Preferred Stock, with an initial sale of $75 million of Series C Preferred Stock and an additional $25 million of this series of preferred stock subject to Hart-Scott-Rodino Antitrust Improvements Act clearance. The Series C Preferred Stock provides for cumulative dividends payable quarterly “in-kind” in the form of additional shares of Series C Preferred Stock at a rate of 5.0% per annum. The Securities Purchase Agreement provides for the issuance of an aggregate of one million shares of common stock for a purchase price of $10.00 in cash per share for an aggregate purchase price of $10 million and $25 million aggregate principal amount of the Company’s newly issued 5.0% unsecured convertible promissory notes due May 28, 2026 to the lenders under the Term Loan Credit Agreement. The convertible notes bear interest at a rate of 5.0% per annum, which will be payable in cash on the maturity date and in additional shares of Common Stock on any conversion date. With the proceeds from these transactions, the Company repurchased one million shares of the Series A Preferred Stock under the terms of the Repurchase and Exchange Agreement for $100 million plus accrued and unpaid dividends. In addition, Kodak has issued one million shares of Series B Preferred Stock in exchange for the remaining Series A Preferred Stock. The Series B Preferred Stock provides for cumulative dividends payable quarterly in cash at a rate of 4.0% per annum. The Company received net proceeds of approximately $235 million on February 26, 2021, before fees of approximately $10 million, as a result of these transactions.
On February 26, 2021 the Company also entered into a cash collateralized Letter of Credit Facility Agreement for up to $50 million and amended its ABL Credit Agreement to decrease the commitments from $110 million to $90 million and to extend the maturity date to February 26, 2024, or the date that is 90 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s outstanding term loan, convertible notes, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock or any refinancing of any of the foregoing. Pursuant to the Letter of Credit Facility Agreement, the Letter of Credit Lenders committed to issue letters of credit on the Company’s behalf in an aggregate amount of up to $50 million, provided that the Company posts cash collateral in an amount greater than or equal to 103% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”). The term of the Letter of Credit Facility Agreement is three years, subject to the same automatic springing maturity as the Amended ABL Credit Agreement. The balance on deposit as of February 26, 2021 in the L/C Cash Collateral account was approximately $49 million, of which approximately $14 million was deposited into the L/C Cash Collateral account from proceeds of the financing transactions described herein and the remainder of which was cash collateral previously used to secure letters of credit under the ABL Credit Agreement. The amendment to the ABL Credit Agreement also removed Eligible Cash from the Borrowing Base. Therefore, amounts funded into the Eligible Cash account will no longer increase Excess Availability for purposes of the month-end compliance reporting. The ABL Amendment also adds a requirement, tested quarterly, that the Company maintain Minimum Liquidity (as defined in the Amended ABL Credit Agreement) of at least $80 million, and a corresponding requirement is contained in the Letter of Credit Facility Agreement.
Other Sources/Uses of Cash Related to Financing Transactions
The holders of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 5.5% per annum. Until the third quarter of 2018 all dividends owed on the Series A Preferred Stock were declared and paid when due. No quarterly dividend was declared in the third or fourth quarters of 2018 or the first and second quarters of 2019. The Company declared quarterly cash dividends in the third and fourth quarters of 2019 and each quarter of 2020 that were paid when due. In July 2020, the Company declared and paid the four quarterly dividends that were in arrears in the aggregate amount of $11 million. Due to exercises of stock options primarily by ex-employees, the Company received approximately $33 million, net of tax payments, in 2020.
Defined Benefit Pension and Postretirement Plans
Kodak made contributions (funded plans) or paid net benefits (unfunded plans) totaling approximately $17 million relating to its defined benefit pension and postretirement benefit plans in 2020. For 2021, the forecasted contribution (funded plans) and net benefit payment (unfunded plans) requirements for its defined benefit pension and postretirement plans are approximately $17 million.
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Capital Expenditures
Cash flows from investing activities included $17 million for capital expenditures for the year ended December 31, 2020. Kodak expects approximately $15 million to $25 million of cash flows for investing activities from capital expenditures for the year ending December 31, 2021, before consideration of any investment Kodak may make utilizing proceeds from the February 26, 2021 financing transactions. Kodak plans to invest some of the proceeds from those financing transactions in growth opportunities in Kodak’s core businesses of print, advanced materials and chemicals as well as corporate infrastructure investments expected to contribute to improvements in cash flow.
U.S. International Development Finance Corporation Non-Binding Letter of Interest
On July 28, 2020 the U.S. International Development Finance Corporation signed a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs. The DFC Loan would be for facility upgrades and construction, provide working capital, and finance other necessary direct expenditures supporting the launch of Kodak Pharmaceuticals. The signing of the letter of interest indicated Kodak’s successful completion of the DFC’s initial screening, which would be followed by standard due diligence conducted by the DFC before financing would be formally committed. The application process for the DFC Loan was put on hold when investigations were commenced with respect to the circumstances surrounding the DFC Announcement. While the letter of interest with the DFC has never been formally terminated and the Company has not received any communication from the DFC rejecting its application, given the time that has elapsed and the recent changes in administration at the federal government and the DFC the Company is operating on the basis that the DFC Loan as envisioned at the time of the DFC Announcement will not proceed. The Company remains interested in working with the DFC and other governmental agencies to leverage its assets and technology to on-shore manufacturing of pharmaceutical and other healthcare materials. As described under “Overview” above, the Company is also continuing to explore expanding further into the pharmaceutical space on a smaller scale than contemplated by the DFC Loan using other sources of capital, including a portion of the capital raised by the Company on February 26, 2021.
Off-Balance Sheet Arrangements
In connection with the settlement of certain of the Company’s historical environmental liabilities at EBP and in accordance with the terms of the associated settlement agreement (“Amended EBP Settlement Agreement”), in the event the historical EBP liabilities exceed $99 million, the Company will become liable for 50% of the portion above $99 million with no limitation to the maximum potential future payments. There is no liability recorded related to this guarantee.
Kodak issues indemnifications in certain instances when it sells businesses and real estate, and in the ordinary course of business with its customers, suppliers, service providers and business partners.
Further, the Company indemnifies its directors and officers who are, or were, serving at the Company's request in such capacities. Historically, costs incurred to settle claims related to these indemnifications have not been material to Kodak’s financial position, results of operations or cash flows. Additionally, the fair value of the indemnifications that Kodak issued during the year ended December 31, 2020 was not material to Kodak’s financial position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates, commodity prices, and interest rates, which may adversely affect its results of operations and financial position. In seeking to minimize the risks associated with such activities, Kodak may enter into derivative contracts. Kodak does not utilize financial instruments for trading or other speculative purposes. Foreign currency forward contracts are used to hedge existing foreign currency denominated assets and liabilities, especially those of Kodak’s international finance center, as well as forecasted foreign currency denominated intercompany sales.
KodakKodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Long-term debt is generally used to finance long-term investments, while short-term debt is used to meet working capital requirements.
Using a smaller reporting company as definedsensitivity analysis based on estimated fair value of open foreign currency forward contracts using available forward rates, if the U.S. dollar had been 10% stronger at December 31, 2023 and 2022, the fair value of open forward contracts would have decreased $12 million and $11 million, respectively. Such changes in fair value would be substantially offset by Rule 12b-2the revaluation or settlement of the Exchange Actunderlying positions hedged.
The majority of the Company’s debt is fixed rate debt. The fair market value of fixed-rate debt is sensitive to changes in interest rates. At December 31, 2023 and is2022, a 10% change in market interest rates would change the fair value of the Company’s debt by approximately $5 million and $2 million, respectively.
Kodak’s financial instrument counterparties are high-quality investment or commercial banks with significant experience with such instruments. Kodak manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties. Kodak has procedures to monitor the credit exposure amounts. The maximum credit exposure at December 31, 2023 was not requiredsignificant to provide the information under this item.Kodak.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Eastman Kodak Company
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Eastman Kodak Company (the Company) as of December 31, 2020,2023 and 2022, the related consolidated statementsstatement of operations, comprehensive (loss) income, equity (deficit) and cash flow for each of the yearthree years in the period ended December 31, 2020,2023, and the related notes and financial statement schedule forlisted in the year ended December 31, 2020 appearing inIndex at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020,2023 and 2022, and the results of its operations and its cash flows for each of the yearthree years in the period ended December 31, 2020,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 14, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Retirement Benefits – Valuation of Private Equity Investment | ||
Description of the Matter | As described in Note 19 to the consolidated financial statements, at December 31, 2023 the Company’s U.S Plan holds $1,097 million in private equity investments. The private equity investments are valued primarily based on independent appraisals, discounted cash flow models, cost and comparable market transactions. These investments are valued by the U.S. Plan using the net asset value (NAV) per share expedient. For investments with lagged pricing, the Company uses the latest available net asset values, and also considers expected return and other relevant material events for the year-end valuation of these investments. Auditing the net asset value of these private equity investments is challenging because of the higher estimation uncertainty associated with the inputs to the underlying net asset values and estimated returns used in determining year-end valuations for investments with lagged pricing. Additionally, certain information regarding the net asset value of these private equity investments is based on unaudited information available to management at the time of valuation. | |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the valuation of plan assets. This included testing management’s controls over private equity investment valuation, which included a look-back analysis to identify if there were significant changes in the private equity fund valuations subsequent to year-end, inspecting responses to questionnaires sent to asset managers and evaluating the fourth quarter returns of benchmark indices to assess whether the valuations of the U.S. Plan’s private equity investments with lagged pricing should be adjusted. Our audit procedures included, among others, comparing private equity investment returns to selected relevant benchmark indices to test the fourth quarter market activity for investments with lagged pricing, obtaining the latest audited financial statements for a sample of investments and comparing to the Company's recorded values and understanding any significant differences. We also inquired of management about changes to the investment portfolio and/or related investment strategies and considerations. We assessed the historical accuracy of management's estimates by comparing actual activity to previous estimates. We evaluated for contrary evidence by confirming the net asset values of the investments and ownership interests directly with the trustees and a sample of managers at year end. We also assessed the appropriateness of the disclosures in the consolidated financial statements. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Rochester, New York
March 14, 2024
# of Firm Id | EY-42; | Auditor Name: | Ernst & Young | Auditor Location: | Rochester, New York, USA |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Eastman Kodak Company
Opinion on Internal Control Over Financial Reporting
We have audited Eastman Kodak Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Eastman Kodak Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Graphic Systems Services, Inc. (GSS), which is included in the 2023 consolidated financial statements of the Company and constituted less than 1% of total assets as of December 31, 2023 and less than 1% of total net revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of GSS.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2023 and 2022, the related consolidated statement of operations, comprehensive (loss) income, equity (deficit) and cash flow for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated March 14, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itseffective internal control over financial reporting. As part of ourreporting was maintained in all material respects.
Our audit we are required to obtainincluded obtaining an understanding of internal control over financial reporting, but not forassessing the purposerisk that a material weakness exists, testing and evaluating the design and operating effectiveness of expressing an opinioninternal control based on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,assessed risk, and performing such other procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresas we considered necessary in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.circumstances. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit MattersDefinition and Limitations of Internal Control Over Financial Reporting
The critical audit matters communicated below are matters arising fromA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the current period auditreliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that were communicatedreceipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or requiredtimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to be communicatedfuture periods are subject to the audit committee and that: (1) relate to accountsrisk that controls may become inadequate because of changes in conditions, or disclosures that are material to the financial statements and (2) involved our especially challenging, subjectivedegree of compliance with the policies or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.procedures may deteriorate.
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/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Rochester, New York
March 16, 202114, 2024
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Eastman Kodak Company
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Eastman Kodak Company
Opinion on the Financial Statements
We have audited the consolidated statement of financial position of Eastman Kodak Company and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, comprehensive (loss) income, equity (deficit) and cash flow for the year ended December 31, 2019, including the related notes and schedule of valuation and qualifying accounts for the year ended December 31, 2019 appearing under Item 15(1) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 (not presented herein) to the consolidated financial statements, the Company has limitations on its ability to repatriate cash held outside the U.S. to other jurisdictions, experienced recent operating losses and negative cash flow from operations, redemption dates in 2021 for debt and preferred stock and significant cash requirements to fund ongoing operations and other obligations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 (not presented herein). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
March 17, 2020, except for the change in composition of reportable segments discussed in Note 27 to the consolidated financial statements, as to which the date is March 16, 2021
We served as the Company's auditor from at least 1924 to 2020. We have not been able to determine the specific year we began serving as auditor of the Company.
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CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
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| Year Ended December 31, |
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(in millions, except per share data) | Year Ended December 31, | |||||||||||||||||||
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| 2020 |
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| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Revenues |
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|
|
|
| ||||||||||||
Sales |
| $ | 806 |
|
| $ | 979 |
| $ | 917 | $ | 983 | $ | 925 | ||||||
Services |
|
| 223 |
|
|
| 263 |
| 200 | 222 | 225 | |||||||||
Total net revenues |
|
| 1,029 |
|
|
| 1,242 |
| 1,117 | 1,205 | 1,150 | |||||||||
Cost of revenues |
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|
|
|
|
|
|
| ||||||||||||
Sales |
|
| 743 |
|
|
| 877 |
| 765 | 885 | 830 | |||||||||
Services |
|
| 151 |
|
|
| 183 |
| 142 | 150 | 156 | |||||||||
Total cost of revenues |
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| 894 |
|
|
| 1,060 |
| 907 | 1,035 | 986 | |||||||||
Gross profit |
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| 135 |
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|
| 182 |
| 210 | 170 | 164 | |||||||||
Selling, general and administrative expenses |
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| 172 |
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|
| 211 |
| 159 | 153 | 177 | |||||||||
Research and development costs |
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| 34 |
|
|
| 42 |
| 34 | 34 | 33 | |||||||||
Restructuring costs and other |
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| 17 |
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| 16 |
| 7 | 10 | 6 | |||||||||
Other operating (income) expense, net |
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| (14 | ) |
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| 15 |
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Loss from continuing operations before interest expense, pension income excluding service cost component, loss on early extinguishment of debt, other charges, net and income taxes |
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| (74 | ) |
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| (102 | ) | ||||||||||||
Other operating expense (income), net | 6 | (1 | ) | (6 | ) | |||||||||||||||
Earnings (loss) from continuing operations before interest expense, pension income excluding service cost component, loss on early extinguishment of debt, other (income) charges, net and income taxes | 4 | (26 | ) | (46 | ) | |||||||||||||||
Interest expense |
|
| 12 |
|
|
| 16 |
| 52 | 40 | 33 | |||||||||
Pension income excluding service cost component |
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| (98 | ) |
|
| (104 | ) | (161 | ) | (98 | ) | (102 | ) | ||||||
Loss on early extinguishment of debt |
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| 2 |
|
|
| — |
| 27 | — | — | |||||||||
Other charges, net |
|
| 386 |
|
|
| 46 |
| ||||||||||||
Loss from continuing operations before income taxes |
|
| (376 | ) |
|
| (60 | ) | ||||||||||||
Other (income) charges, net | (1 | ) | 1 | (5 | ) | |||||||||||||||
Earnings from continuing operations before income taxes | 87 | 31 | 28 | |||||||||||||||||
Provision for income taxes |
|
| 168 |
|
|
| 31 |
| 12 | 5 | 4 | |||||||||
Loss from continuing operations |
|
| (544 | ) |
|
| (91 | ) | ||||||||||||
Earnings from discontinued operations, net of income taxes |
|
| 3 |
|
|
| 207 |
| ||||||||||||
NET (LOSS) EARNINGS |
| $ | (541 | ) |
| $ | 116 |
| ||||||||||||
NET EARNINGS | $ | 75 | $ | 26 | $ | 24 | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Basic and diluted (loss) earnings per share attributable to Eastman Kodak Company common shareholders: |
|
|
|
|
|
|
|
| ||||||||||||
Continuing operations |
| $ | (9.83 | ) |
| $ | (2.58 | ) | ||||||||||||
Discontinued operations |
|
| 0.06 |
|
|
| 4.81 |
| ||||||||||||
Total |
| $ | (9.77 | ) |
| $ | 2.23 |
| ||||||||||||
Basic earnings per share attributable to Eastman Kodak Company common shareholders | $ | 0.71 | $ | 0.16 | $ | 0.28 | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Number of common shares used in basic and diluted (loss) earnings per share |
|
| 57.4 |
|
|
| 43.0 |
| ||||||||||||
Diluted earnings per share attributable to Eastman Kodak Company common shareholders | $ | 0.67 | $ | 0.16 | $ | 0.27 | ||||||||||||||
Number of common shares used in basic and diluted earnings per share: | ||||||||||||||||||||
Basic | 79.4 | 78.9 | 78.4 | |||||||||||||||||
Diluted | 90.5 | 80.6 | 80.5 |
The accompanying notes are an integral part of these consolidated financial statements.
47
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(in millions)
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
NET (LOSS) EARNINGS |
| $ | (541 | ) |
| $ | 116 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net: |
|
|
|
|
|
|
|
|
Currency translation adjustments and other |
|
| (16 | ) |
|
| 6 |
|
Pension and other postretirement benefit plan obligation activity, net of tax |
|
| (13 | ) |
|
| (12 | ) |
Other comprehensive loss, net attributable to Eastman Kodak Company |
|
| (29 | ) |
|
| (6 | ) |
COMPREHENSIVE (LOSS) INCOME, NET |
| $ | (570 | ) |
| $ | 110 |
|
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
NET EARNINGS | $ | 75 | $ | 26 | $ | 24 | ||||||
Other comprehensive (loss) income, net: | ||||||||||||
Currency translation adjustments | (8 | ) | (12 | ) | 6 | |||||||
Pension and other postretirement benefit plan obligation activity, net of tax | (173 | ) | 253 | 661 | ||||||||
Other comprehensive (loss) income, net attributable to Eastman Kodak Company | (181 | ) | 241 | 667 | ||||||||
COMPREHENSIVE (LOSS) INCOME, NET | $ | (106 | ) | $ | 267 | $ | 691 |
The accompanying notes are an integral part of these consolidated financial statements.
48
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
|
| As of December 31, |
| As of December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
ASSETS |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 196 |
|
| $ | 233 |
| $ | 255 | $ | 217 | ||||
Trade receivables, net of allowances of $10 and $8 |
|
| 177 |
|
|
| 208 |
| ||||||||
Trade receivables, net of allowances of $8 and $7 respectively | 195 | 177 | ||||||||||||||
Inventories, net |
|
| 206 |
|
|
| 215 |
| 217 | 237 | ||||||
Restricted cash - current portion |
|
| 7 |
|
|
| 12 |
| ||||||||
Other current assets |
|
| 39 |
|
|
| 36 |
| 45 | 48 | ||||||
Current assets held for sale |
|
| 2 |
|
|
| 2 |
| — | 2 | ||||||
Total current assets |
|
| 627 |
|
|
| 706 |
| 712 | 681 | ||||||
Property, plant and equipment, net |
|
| 152 |
|
|
| 181 |
| 169 | 154 | ||||||
Goodwill |
|
| 12 |
|
|
| 12 |
| 12 | 12 | ||||||
Intangible assets, net |
|
| 39 |
|
|
| 47 |
| 24 | 28 | ||||||
Operating lease right-of-use assets |
|
| 48 |
|
|
| 49 |
| 30 | 39 | ||||||
Restricted cash |
|
| 53 |
|
|
| 45 |
| 110 | 62 | ||||||
Deferred income taxes |
|
| — |
|
|
| 147 |
| ||||||||
Pension and other postretirement assets | 1,216 | 1,233 | ||||||||||||||
Other long-term assets |
|
| 317 |
|
|
| 228 |
| 82 | 76 | ||||||
TOTAL ASSETS |
| $ | 1,248 |
|
| $ | 1,415 |
| $ | 2,355 | $ | 2,285 | ||||
|
|
|
|
|
|
|
|
| ||||||||
LIABILITIES, REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND EQUITY |
|
|
|
|
|
|
|
| ||||||||
Accounts payable, trade |
| $ | 118 |
|
| $ | 153 |
| $ | 125 | $ | 134 | ||||
Short-term borrowings and current portion of long-term debt |
|
| 2 |
|
|
| 2 |
| 1 | 1 | ||||||
Current portion of operating leases |
|
| 12 |
|
|
| 12 |
| 13 | 15 | ||||||
Other current liabilities |
|
| 164 |
|
|
| 201 |
| 144 | 143 | ||||||
Total current liabilities |
|
| 296 |
|
|
| 368 |
| 283 | 293 | ||||||
Long-term debt, net of current portion |
|
| 17 |
|
|
| 109 |
| 457 | 316 | ||||||
Pension and other postretirement liabilities |
|
| 406 |
|
|
| 378 |
| 237 | 230 | ||||||
Operating leases, net of current portion |
|
| 49 |
|
|
| 48 |
| 24 | 31 | ||||||
Other long-term liabilities |
|
| 212 |
|
|
| 231 |
| 213 | 171 | ||||||
Total liabilities |
|
| 980 |
|
|
| 1,134 |
| 1,214 | 1,041 | ||||||
|
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 11) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Redeemable, convertible Series A preferred stock, no par value, $100 per share liquidation preference |
|
| 191 |
|
|
| 182 |
| ||||||||
Redeemable, convertible preferred stock, no par value, $100 per share liquidation preference | 210 | 203 | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, $0.01 par value |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value | — | — | ||||||||||||||
Additional paid in capital |
|
| 1,152 |
|
|
| 604 |
| 1,156 | 1,160 | ||||||
Treasury stock, at cost |
|
| (9 | ) |
|
| (9 | ) | (11 | ) | (11 | ) | ||||
Accumulated deficit |
|
| (620 | ) |
|
| (79 | ) | (495 | ) | (570 | ) | ||||
Accumulated other comprehensive loss |
|
| (446 | ) |
|
| (417 | ) | ||||||||
Accumulated other comprehensive income | 281 | 462 | ||||||||||||||
Total equity |
|
| 77 |
|
|
| 99 |
| 931 | 1,041 | ||||||
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY |
| $ | 1,248 |
|
| $ | 1,415 |
| $ | 2,355 | $ | 2,285 |
The accompanying notes are an integral part of these consolidated financial statements.
49
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(in millions, except share data)
|
| Common Stock (1) |
|
| Additional Paid in Capital |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock |
|
| Total |
|
| Series A Redeemable Convertible Preferred Stock |
| |||||||
Equity (deficit) as of December 31, 2018 |
| $ | — |
|
| $ | 617 |
|
| $ | (200 | ) |
| $ | (411 | ) |
| $ | (9 | ) |
|
| (3 | ) |
| $ | 173 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 116 |
|
|
| — |
|
|
| — |
|
|
| 116 |
|
|
| — |
|
Adjustments due to ASU 2016-02 |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
|
| — |
|
Series A preferred stock cash dividends |
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| 9 |
|
Stock-based compensation |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
Equity (deficit) as of December 31, 2019 |
| $ | — |
|
| $ | 604 |
|
| $ | (79 | ) |
| $ | (417 | ) |
| $ | (9 | ) |
| $ | 99 |
|
| $ | 182 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| — |
|
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| (16 | ) |
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| (13 | ) |
|
| — |
|
Series A preferred stock cash and accrued dividends |
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| 9 |
|
Conversion of Convertible Notes |
|
|
|
|
|
| 520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 520 |
|
|
|
|
|
Stock option exercises |
|
|
|
|
|
| 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29 |
|
|
|
|
|
Stock-based compensation |
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
Equity (deficit) as of December 31, 2020 |
| $ | — |
|
| $ | 1,152 |
|
| $ | (620 | ) |
| $ | (446 | ) |
| $ | (9 | ) |
| $ | 77 |
|
| $ | 191 |
|
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Redeemable | ||||||||||||||||||||||||||
Common | Paid in | Accumulated | Comprehensive | Treasury | Convertible | |||||||||||||||||||||||
Stock | Capital | Deficit | Income (Loss) | Stock | Total | Preferred Stock (1) | ||||||||||||||||||||||
Equity (deficit) as of December 31, 2021 | $ | — | $ | 1,166 | $ | (596 | ) | $ | 221 | $ | (10 | ) | $ | 781 | $ | 196 | ||||||||||||
Net earnings | — | — | 26 | — | — | 26 | — | |||||||||||||||||||||
Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | (12 | ) | — | (12 | ) | — | |||||||||||||||||||
Pension and other postretirement liability adjustments | — | — | — | 253 | — | 253 | — | |||||||||||||||||||||
Preferred stock cash and accrued dividends | — | (4 | ) | — | — | — | (4 | ) | — | |||||||||||||||||||
Preferred stock in-kind dividends | — | (5 | ) | — | — | — | (5 | ) | 5 | |||||||||||||||||||
Preferred stock deemed dividends | — | (2 | ) | — | — | — | (2 | ) | 2 | |||||||||||||||||||
Treasury stock purchases (2) | — | — | — | — | (1 | ) | (1 | ) | — | |||||||||||||||||||
Stock-based compensation | — | 5 | — | — | — | 5 | — | |||||||||||||||||||||
Equity (deficit) as of December 31, 2022 | $ | — | $ | 1,160 | $ | (570 | ) | $ | 462 | $ | (11 | ) | $ | 1,041 | $ | 203 | ||||||||||||
Net earnings | — | — | 75 | — | — | 75 | — | |||||||||||||||||||||
Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | (8 | ) | — | (8 | ) | — | |||||||||||||||||||
Pension and other postretirement liability adjustments | — | — | — | (173 | ) | — | (173 | ) | — | |||||||||||||||||||
Preferred stock cash and accrued dividends | — | (4 | ) | — | — | — | (4 | ) | — | |||||||||||||||||||
Preferred stock in-kind dividends | — | (5 | ) | — | — | — | (5 | ) | 5 | |||||||||||||||||||
Preferred stock deemed dividends | — | (2 | ) | — | — | — | (2 | ) | 2 | |||||||||||||||||||
Stock-based compensation | — | 7 | — | — | — | 7 | — | |||||||||||||||||||||
Equity (deficit) as of December 31, 2023 | $ | — | $ | 1,156 | $ | (495 | ) | $ | 281 | $ | (11 | ) | $ | 931 | $ | 210 |
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Continued)
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Redeemable | ||||||||||||||||||||||||||
Common | Paid in | Accumulated | Comprehensive | Treasury | Convertible | |||||||||||||||||||||||
Stock | Capital | Deficit | (Income) Loss | Stock | Total | Preferred Stock (1) | ||||||||||||||||||||||
Equity (deficit) as of December 31, 2020 | $ | — | $ | 1,152 | $ | (620 | ) | $ | (446 | ) | $ | (9 | ) | 77 | $ | 191 | ||||||||||||
Net earnings | — | — | 24 | — | — | 24 | — | |||||||||||||||||||||
Other comprehensive income (net of tax): | ||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | 6 | — | 6 | — | |||||||||||||||||||||
Pension and other postretirement liability adjustments | — | — | — | 661 | — | 661 | — | |||||||||||||||||||||
Repurchase of Series A Preferred Stock | — | — | — | — | — | - | (100 | ) | ||||||||||||||||||||
Exchange of Series A Preferred Stock | — | 92 | — | — | — | 92 | (92 | ) | ||||||||||||||||||||
Expiration of Series A embedded derivative | — | 11 | — | — | — | 11 | — | |||||||||||||||||||||
Issuance of convertible, redeemable Series B Preferred Stock, net | — | (95 | ) | — | — | — | (95 | ) | 93 | |||||||||||||||||||
Issuance of common stock | — | 10 | — | — | — | 10 | — | |||||||||||||||||||||
Issuance of convertible, redeemable Series C Preferred Stock, net | — | — | — | — | — | — | 97 | |||||||||||||||||||||
Preferred stock cash and accrued dividends | — | (4 | ) | — | — | — | (4 | ) | — | |||||||||||||||||||
Preferred stock in-kind dividends | — | (4 | ) | — | — | — | (4 | ) | 4 | |||||||||||||||||||
Preferred stock deemed dividends | — | (3 | ) | — | — | — | (3 | ) | 3 | |||||||||||||||||||
Treasury stock purchases (2) | — | — | — | — | (1 | ) | (1 | ) | — | |||||||||||||||||||
Stock-based compensation | — | 7 | — | — | — | 7 | — | |||||||||||||||||||||
Equity (deficit) as of December 31, 2021 | $ | — | $ | 1,166 | $ | (596 | ) | $ | 221 | $ | (10 | ) | $ | 781 | $ | 196 |
(1) | There are 60 million shares of |
(2) | Represents purchases of common stock to satisfy tax withholding obligations. |
The accompanying notes are an integral part of these consolidated financial statements.
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF CASH FLOW
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net earnings | $ | 75 | $ | 26 | $ | 24 | ||||||
Adjustments to reconcile to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 30 | 29 | 31 | |||||||||
Pension and other postretirement income | (145 | ) | (77 | ) | (83 | ) | ||||||
Change in fair value of the Preferred Stock and Convertible Notes embedded derivatives | 2 | (3 | ) | (7 | ) | |||||||
Asset impairments | 5 | 1 | — | |||||||||
Stock based compensation | 7 | 5 | 7 | |||||||||
Non-cash changes in workers' compensation and other employee benefit reserves | (1 | ) | (15 | ) | (4 | ) | ||||||
Net loss on sales of assets | — | — | 1 | |||||||||
Loss on early extinguishment of debt | 27 | — | — | |||||||||
Benefit from deferred income taxes | (1 | ) | (3 | ) | (1 | ) | ||||||
Increase in trade receivables | (16 | ) | (12 | ) | (5 | ) | ||||||
Decrease (increase) in miscellaneous receivables | 6 | (1 | ) | (3 | ) | |||||||
Decrease (increase) in inventories | 19 | (31 | ) | (19 | ) | |||||||
(Decrease) increase in trade accounts payable | (14 | ) | (12 | ) | 38 | |||||||
Increase (decrease) in liabilities excluding borrowings and trade payables | 21 | (36 | ) | (29 | ) | |||||||
Other items, net | 23 | 13 | 3 | |||||||||
Total adjustments | (37 | ) | (142 | ) | (71 | ) | ||||||
Net cash provided by (used in) operating activities | 38 | (116 | ) | (47 | ) | |||||||
Cash flows from investing activities: | ||||||||||||
Additions to properties | (32 | ) | (31 | ) | (21 | ) | ||||||
Purchase of preferred equity interest | — | (25 | ) | — | ||||||||
Net proceeds from sales of businesses/assets, net | — | — | 1 | |||||||||
Net cash used in investing activities | (32 | ) | (56 | ) | (20 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net proceeds from Amended and Restated Term Loan Agreement | 435 | — | — | |||||||||
Net proceeds from Original Term Loan Credit Agreement | — | 49 | 215 | |||||||||
Repayment of Original Term Loan Credit Agreement | (316 | ) | — | — | ||||||||
Proceeds from issuance of Convertible Notes | — | — | 25 | |||||||||
Repayment of Convertible Notes | (28 | ) | — | — | ||||||||
Other debt acquisition costs | (1 | ) | — | (2 | ) | |||||||
Net proceeds from Series C Preferred Stock | — | — | 99 | |||||||||
Net proceeds from the sale of common stock | — | — | 10 | |||||||||
Repurchase of Series A Preferred Stock | — | — | (100 | ) | ||||||||
Preferred stock dividend payments | (4 | ) | (4 | ) | (7 | ) | ||||||
Treasury stock purchases | — | (1 | ) | (1 | ) | |||||||
Finance lease payments | (1 | ) | (1 | ) | (1 | ) | ||||||
Net cash provided by financing activities | 85 | 43 | 238 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | (8 | ) | (4 | ) | |||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 91 | (137 | ) | 167 | ||||||||
Cash, cash equivalents and restricted cash, beginning of period | 286 | 423 | 256 | |||||||||
Cash, cash equivalents and restricted cash, end of period (1) | $ | 377 | $ | 286 | $ | 423 |
(1) | Refer to Note 2, “Cash, Cash Equivalents and Restricted Cash” for the components of cash, cash equivalents and restricted cash. |
The accompanying notes are an integral part of these consolidated financial statements.
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
(in millions)
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Cash paid for interest and income taxes was: | ||||||||||||
Interest (net of portion capitalized of $3 million in 2023 and 2022 and $0 million in 2021) | $ | 26 | $ | 23 | $ | 14 | ||||||
Income taxes (net of refunds) | $ | 9 | $ | 6 | $ | 2 |
The accompanying notes are an integral part of these consolidated financial statements.
50
CONSOLIDATED STATEMENT OF CASH FLOW
|
| Year Ended December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) earnings |
| $ | (541 | ) |
| $ | 116 |
|
Adjustments to reconcile to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 37 |
|
|
| 55 |
|
Pension and other postretirement income |
|
| (77 | ) |
|
| (91 | ) |
Change in fair value of embedded derivatives in the Series A Preferred Stock and the Convertible Notes |
|
| 382 |
|
|
| 42 |
|
Asset impairments |
|
| 3 |
|
|
| 6 |
|
Stock based compensation |
|
| 15 |
|
|
| 7 |
|
Non-cash changes in workers' compensation and postemployment reserves |
|
| 4 |
|
|
| 3 |
|
Net gains on sales of businesses/assets |
|
| (10 | ) |
|
| (201 | ) |
Loss on early extinguishment of debt |
|
| 2 |
|
|
| — |
|
Provision for deferred income taxes |
|
| 160 |
|
|
| 21 |
|
Decrease in trade receivables |
|
| 33 |
|
|
| 21 |
|
Decrease in inventories |
|
| 12 |
|
|
| 11 |
|
(Decrease) increase in trade accounts payable |
|
| (36 | ) |
|
| 25 |
|
Decrease in liabilities excluding borrowings |
|
| (26 | ) |
|
| (10 | ) |
Other items, net |
|
| 7 |
|
|
| 7 |
|
Total adjustments |
|
| 506 |
|
|
| (104 | ) |
Net cash (used in) provided by operating activities |
|
| (35 | ) |
|
| 12 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to properties |
|
| (17 | ) |
|
| (15 | ) |
Net proceeds from sales of businesses/assets, net |
|
| 2 |
|
|
| 326 |
|
Net proceeds from return of equity investment |
|
| 2 |
|
|
| — |
|
Net cash (used in) provided by investing activities |
|
| (13 | ) |
|
| 311 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
| 33 |
|
|
| — |
|
Repayment of emergence credit facilities |
|
| — |
|
|
| (395 | ) |
Proceeds from issuance of convertible notes |
|
| — |
|
|
| 98 |
|
Proceeds from other borrowings |
|
| — |
|
|
| 14 |
|
Payment of contingent consideration related to the sale of a business |
|
| — |
|
|
| (10 | ) |
Preferred stock dividend payments |
|
| (22 | ) |
|
| (3 | ) |
Finance lease payments |
|
| (1 | ) |
|
| (2 | ) |
Net cash provided by (used in) financing activities |
|
| 10 |
|
|
| (298 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 4 |
|
|
| (2 | ) |
Net (decrease) increase in cash, cash equivalents, restricted cash and cash in assets held for sale |
|
| (34 | ) |
|
| 23 |
|
Cash, cash equivalents, restricted cash and cash in assets held for sale, beginning of period |
|
| 290 |
|
|
| 267 |
|
Cash, cash equivalents and restricted cash, end of period (1) |
| $ | 256 |
|
| $ | 290 |
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
51
CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
(in millions)
SUPPLEMENTAL CASH FLOW INFORMATION
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash paid for interest and income taxes was: |
|
|
|
|
|
|
|
|
Interest |
| $ | 8 |
|
| $ | 21 |
|
Income taxes (net of refunds) |
| $ | 8 |
|
| $ | 17 |
|
The accompanying notes are an integral part of these consolidated financial statements.
52
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The following is a description of the significant accounting policies of Kodak.
When used in this report, unless otherwise indicated by the context, “EKC” or the “Company” means the parent company, Eastman Kodak Company, and “Kodak” refers to the consolidated group,
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of EKCEastman Kodak Company ("EKC") and all companies directly or indirectly controlled by EKC, either through majority ownership or otherwise. Kodak consolidates variable interest entities if Kodak has a controlling financial interest and is determined to be the primary beneficiary of the entity.
GOING CONCERN
The consolidated financial statements have been prepared on the going concern basis of accounting, which assumes Kodak will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
As of December 31, 2020 and 2019, Kodak had approximately $196 million and $233 million of cash and cash equivalents, respectively. $99 million and $72 million was held in the U.S. as of December 31, 2020 and 2019, respectively, and $97 million and $161 million were held outside the U.S. Cash balances held outside the U.S. are generally required to support local country operations and may have high tax costs or other limitations that delay the ability to repatriate, and therefore may not be readily available for transfer to other jurisdictions. Outstanding inter-company loans to the U.S. as of December 31, 2020 and 2019 were $449 million and $408 million, respectively, which includes short-term intercompany loans from Kodak’s international finance center of $150 million and $110 million as of December 31, 2020 and 2019, respectively. In China, where approximately $34 million and $89 million of cash and cash equivalents was held as of December 31, 2020 and 2019, respectively, there are limitations related to net asset balances that may impact the ability to make cash available to other jurisdictions in the world. On May 12, 2020, a Chinese subsidiary of Kodak transferred approximately $70 million to a U.S. subsidiary of Kodak in an inter-company transaction. Kodak had a net decrease in cash, cash equivalents and restricted cash of $34 million for the year ended December 31, 2020 and a net increase in cash, cash equivalents, restricted cash and cash in assets held for sale of $23 million for the year ended December 31, 2019. Kodak used cash of $35 million in operating activities for year ended December 31, 2020 and generated cash from operating activities of $12 million for the year ended December 31, 2019. Cash flow from operations in 2019 benefitted from working capital improvements and individual transactions that occurred during the year.
U.S. GAAP requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued or prior to the conditions or events that create the going concern risk.
As of December 31, 2020 and 2019 Kodak was facing liquidity challenges due to operating losses and low or negative cash flow from operations. As of December 31, 2020 Kodak had $90 million of letters of credit issued under the Amended and Restated Credit Agreement (the “ABL Credit Agreement”) which had a maturity date of May 26, 2021. The Series A Preferred Stock of $200 million was required to be redeemed on November 15, 2021 if not converted prior to then. Additionally, Kodak has significant cash requirements to fund ongoing operations, restructuring programs, pension and other postretirement obligations, and other obligations. Kodak’s plans to return to sustainable positive cash flow include growing revenues profitably, reducing operating expenses, simplifying the organizational structure, generating cash from selling and leasing underutilized assets and paring investment in new technology by eliminating or delaying product development programs. Additionally, the Company looks to implement ways to reduce collateral needs in the U.S. to free-up cash for use in operations.
Kodak’s products are sold and serviced in numerous countries across the globe with more than half of sales generated outside the United States. Current global economic conditions are highly volatile due to the COVID-19 pandemic. The economic uncertainties surrounding the COVID-19 pandemic are adding complexity to Kodak’s plans to return to sustainable positive cash flow.
53
To mitigate the economic impacts of the pandemic Kodak employed temporary furloughs and pay reductions during 2020 and has been modifying manufacturing volumes as expectations of demand change.
On February 26, 2021 the Company entered into a five-year Term Credit Agreement (the “Term Loan Credit Agreement”), a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”), a Securities Purchase Agreement (the “Securities Purchase Agreement”), and a Series A Preferred Stock Repurchase and Exchange Agreement (the “Repurchase and Exchange Agreement”).
The Term Loan Credit Agreement provides for an initial term loan in the amount of $225 million and a commitment to provide delayed draw term loans in an aggregate principal amount of up to $50 million on or before February 26, 2023. The Purchase Agreement provides for the sale of a total of $100 million of Series C Preferred Stock with an initial sale of $75 million of Series C Preferred Stock and an additional $25 million of this series of preferred stock subject to Hart-Scott-Rodino Antitrust Improvements Act clearance. The Securities Purchase Agreement provides for the issuance of an aggregate of one million shares of common stock for a purchase price of $10.00 in cash per share for an aggregate purchase price of $10 million and $25 million aggregate principal amount of the Company’s newly issued 5.0% unsecured convertible promissory notes due May 28, 2026 to the lenders under the Term Loan Credit Agreement. With the proceeds from these transactions, the Company repurchased one million shares of the Series A Preferred Stock under the terms of the Repurchase and Exchange Agreement for $100 million plus accrued and unpaid dividends. In addition, Kodak has issued one million shares of Series B Preferred Stock in exchange for the remaining Series A Preferred Stock. The Company received net proceeds of approximately $235 million on February 26, 2021, before fees of approximately $10 million, as a result of these transactions.
If any shares of Series C Preferred Stock have not been converted prior to 91 days following the fifth anniversary of the initial issuance of the Series C Preferred Stock, the Company will be required to redeem such shares at a redemption price equal to the liquidation preference of the redeemed shares plus the amount of accrued and unpaid dividends thereon; however, the holders of the Series C Preferred Stock have the right to extend such date by up to two years. If any shares of Series B Preferred Stock have not been converted prior to 91 days following the fifth anniversary of the initial issuance of the Series B Preferred Stock, the Company will be required to redeem such shares at a redemption price equal to the liquidation preference of the redeemed shares plus the amount of accrued and unpaid dividends thereon.
On February 26, 2021 the Company also entered into a cash collateralized Letter of Credit Facility Agreement for up to $50 million and amended its ABL Credit Agreement to decrease the commitments from $110 million to $90 million and extend the maturity date to February 26, 2024, or the date that is 90 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s outstanding term loan, convertible notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the foregoing.
The recent history of negative operating cash flow, maturity of the ABL Credit Agreement in 2021, redemption date in 2021 for the Series A Preferred Stock, increased challenges in managing cash during the COVID-19 pandemic and general lack of certainty regarding the return to positive cash flow raised substantial doubt about Kodak’s ability to continue as a going concern as of December 31, 2019. The additional liquidity provided by the financing transactions which closed on February 26, 2021, the extension of the maturity date of the ABL Credit Agreement, and the repurchase and exchange of the Series A Preferred Stock alleviated the substantial doubt about Kodak’s ability to continue as a going concern within one year after the date these financial statements are issued (March 16, 2021).
RECLASSIFICATIONS
Certain amounts for priorfrom previous periods have been reclassified to conform to the current period classification due to Kodak’sKodak's new organization structure as of January 2020. February 2023. Refer to Note 27, “Segment Information”26, "Segment Information" and Note 14, "Revenue" for additional informationinformation.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at year end and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from these estimates.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency is the functional currency. The financial statements of these subsidiaries and branches are translated into U.S. dollars as follows: assets and liabilities at year-end exchange rates; revenue, expenses and cash flows at average exchange rates; and shareholders’ equity at historical exchange rates. For those subsidiaries for which the local currency is the functional currency, the resulting translation adjustment is recorded as a component of Accumulated other comprehensive lossincome in the accompanying Consolidated Statement of Financial Position.
54
For certain other subsidiaries and branches outside the U.S., operations are conducted primarily in U.S. dollars, which is therefore the functional currency. Monetary assets and liabilities of these foreign subsidiaries and branches, which are recorded in local currency, are remeasured at year-end exchange rates, while the related revenue, expense, and gain and loss accounts, which are recorded in local currency, are remeasured at average exchange rates. Non-monetary assets and liabilities and the related revenue, expense, and gain and loss accounts, are remeasured at historical exchange rates. Adjustments that result from the remeasurement of the assets and liabilities of these subsidiaries are included in Other (income) charges, net in the accompanying Consolidated Statement of Operations.
The effects of foreign currency transactions, including related hedging activities, are included in Other (income) charges, net, in the accompanying Consolidated Statement of Operations.
CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less at date of purchase are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value. The cost of all of Kodak’s inventories is determined by the average cost method, which approximates current cost. Kodak provides inventory reserves for excess, obsolete or slow-moving inventory based on changes in customer demand, technology developments or other economic factors.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost, net of accumulated depreciation. Kodak capitalizes additions and improvements while maintenance and repairs are charged to expense as incurred. Upon sale or other disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to Other operating expense (income), net (loss) earnings.in the Consolidated Statement of Operations.
Kodak calculates depreciation expense using the straight-line method over the assets’ estimated useful lives, which are as follows:
Estimated Useful | |||
Lives |
| ||
Buildings and building improvements | 5-40 | ||
Land improvements | 4-20 | ||
Leasehold improvements | 3-20 | ||
Equipment | 3-20 | ||
Tooling | 1-3 | ||
Furniture and fixtures | 5-10 |
Kodak depreciates leasehold improvements over the shorter of the lease term or the assets’ estimated useful life.
INTERNAL USE SOFTWARE
Expenditures for software purchases and software developed for internal use are capitalized and depreciated on a straight-line basis over the estimated useful lives, generally 3 to 10 years. For software developed for internal use, certain costs are capitalized, including external direct costs of materials and services associated with developing or obtaining the software, and payroll and payroll-related costs for employees who are directly associated with internal-use software projects. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended use. Costs associated with preliminary project stage activities, training, maintenance, and other post-implementation stage activities are expensed as incurred. The carrying value of owned software and development costs is recorded in Property, plant and equipment, net while the carrying value of cloud-based software and development costs is recorded in Other current assets and Other long-term assets. The carrying value of software and development costs is reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
GOODWILL
Goodwill is not amortized but is required to be assessed for impairment at least annually and whenever events or changes in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
When testing goodwill for impairment, Kodak may assess qualitative factors for some or all of its reporting units to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If Kodak determines based on this qualitative test of impairment that it is more likely than not that a reporting unit’s fair value is less than its carrying amount or elects to bypass the qualitative assessment for some or all of its reporting units, then a quantitative goodwill impairment test is performed to test for a potential impairment of goodwill.performed. The amount of goodwill impairment, if any, is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Refer to Note 5, “Goodwill and Other Intangible Assets”.
55
WORKERS’ COMPENSATION
Kodak self-insures and participates in high-deductible insurance programs with retention and per occurrence deductible levels for claims related to workers’ compensation. The estimated liability for workers’ compensation is based on actuarially estimated, discounted cost of claims, including claims incurred but not reported. Historical loss development factors are utilized to project the future development of incurred losses, and the amounts are adjusted based on actual claim experience, settlements, claim development trends, changes in state regulations and judicial interpretations. Refer to Note 7,6, “Other Current Liabilities” and Note 8,7, “Other Long-Term Liabilities” for the estimated liabilities. Amounts recoverable from insurance companies or third parties are estimated using historical experience and estimates of future recoveries. Estimated recoveries are not offset against the related accrual. The amount recorded for the estimated recoveries at December 31, 2020 2023 and 20192022 was $21$16 million each year,and $15 million, respectively, of which $18$12 million iswas reported in Other long-term assets in the Consolidated Statement of Financial Position each year.in both periods. The remaining $4 million and $3 million, at each year end isrespectively, was reported in Other current assets in the Consolidated Statement of Financial Position.
LEASES
Kodak as lessee
Kodak determines if an arrangement is a lease at inception. The primary criteria used to classify transactions as operating or finance leases are: (1)(1) whether the ownership transfers at the end of the lease, (2)(2) whether the lease term is equal to or greater than 75% of the economic life of the asset, and (3)(3) whether the present value of the minimum lease payments is equal to or greater than 90% of the fair value of the asset at inception of the lease. Kodak does not have leases that include assets of a specialized nature, generally does not provide residual value guarantees or have any leases for which the exercise of end-of-lease purchase options is reasonably assured at lease inception.
Right-of-useOperating lease right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the operating lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets are adjusted for prepayments and lease incentives. Variable lease payments are also excluded from the measurement of ROU assets and lease liabilities and are recognized in expense in the period in which the obligation for those payments is incurred. Lease agreements may include options to extend or terminate the lease at Kodak’s discretion, which are included in the determination of the lease term when they are reasonably certain to be exercised.
Kodak’s lease agreements are primarily for real estate space and vehicles. Arrangements for goods and services are also assessed to determine if the arrangement contains a lease at its inception. Operating leases are included within Operating lease right-of-use assets, Current portion of operating leases and Operating leases, net of current portion in the Consolidated Statement of Financial Position. Finance leases are included in Property, plant and equipment, net, Short-term borrowings and current portion of long-term debt and Long-term debt, net of current portion in the Consolidated Statement of Financial Position.
When available, the rate implicit in the lease is used to discount lease payments to present value; however, many leases do not provide a readily determinable implicit rate. Therefore, Kodak applies its incremental borrowing rate to discount the lease payments at lease commencement.
The incremental borrowing rate is the rate of interest that EKC would have to pay to borrow, on a collateralized basis, over a similar term. Lease renewal or extensionRenewal options and/or termination options are factored into the determination of lease payments only if reasonably certain to be exercised. considered probable.
Rental expense related to operating leases is recognized on a straight-line basis over the lease term. The lease agreements havemay include both lease and non-lease components. Kodak does not separate lease and non-lease components of contracts for real estate leases but does separate lease and non-lease components for equipment leases.
Kodak as Lessor
Kodak places its own equipment at customer sites under sales-type and operating lease arrangements. Arrangements classified as sales-type leases with revenue recognition at inception generally transfer title to the equipment by the end of the lease term or have a lease term that is for a major part of the remaining economic life of the equipment; and collectability is considered probable. Leases meeting the sales-type lease criteria with variable lease payments that do not depend upon a reference rate or index are classified as operating leases if they would otherwise result in a day-one loss. If the arrangement meets the criteria for a sales-type lease but collectability is not considered probable, Kodak will not derecognize the asset and will record all payments received as a liability until the earlier of collectability becoming probable or the termination of the lease. Arrangements that do not meet the sales-type lease criteria are classified as operating leases with revenue recognized over the term. Contracts with customers may include multiple performance obligations including equipment, optional software licenses and service agreements. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Equipment subject to operating leases is included in Property, plant and equipment, net in the Consolidated Statement of Financial Position and is depreciated to estimated residual value over its expected useful life. Equipment operating lease terms and depreciable lives generally vary from 3 to 7 years.
The Eastman Business Park segment’s core operations are to leasecommercial real estate.estate management activities including real estate leasing and related facility management services. Kodak also leases underutilized portions of its other real estate properties to third parties under both operating lease and sublease agreements. Payments received under operating lease agreements as part of the Eastman Business Park segment are recognized on a straight-line basis over the term and are reported in Revenues in the Consolidated Statement of Operations. Payments received under lease and sublease agreements for other underutilized space are recognized on a straight-line basis and reported as cost reductions in Cost of revenues, Selling, general and administrative (“SG&A&A”) expenses, research and development (“R&D&D”) costs and Other (income) charges, net.
Renewal options and/or termination options are factored into the determination of lease payments if considered probable. Kodak does not separate lease and non-lease components of contracts for real estate leases but does separate lease and non-lease components for equipment leases.
56
Equipment subject to operating leases consists of equipment rented to customers. Equipment subject to operating leases is included in Property, plant and equipment, net in the Consolidated Statement of Financial Position and is depreciated to estimated residual value over its expected useful life. Equipment operating lease terms and depreciable lives generally vary from 3 to 7 years.
REVENUE
Kodak’s revenue transactions include sales of products (such as components and consumables for use in Kodak and other manufacturers’ equipment, film-based products and film-based products)specialty materials and chemicals), equipment, software, services (such as equipment and software maintenance, engineering, coating and contract manufacturing services), integrated solutions, intellectual property and brand licensing;licensing, and commercial real estate management activities. Revenue from services includes extended warranty, customer support and maintenance agreements, consulting, business process services, training and education.
Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration Kodak expects to be entitled to in exchange for those goods or services.
For product sales (such as plates, film, inks, specialty materials and chemicals and other consumables), revenue is recognized when control has transferred from Kodak to the buyer, which may be upon shipment or upon delivery to the customer site, based on contract terms or legal requirements in certain jurisdictions. ServiceEquipment and software related service revenue is recognized using the time-based method ratably over the contractual period as it best depicts when the customer receives the benefit from the service. Service revenue for time and materials-based agreements is recognized as services are performed.
Equipment is generally dependent on, and interrelated with, the underlying operating system (firmware) and cannot function without the operating system. In these cases, the hardware and software licenselicenses are accounted for as a single performance obligation. Contracts with customers may include multiple performance obligations including equipment and optional software licenses and service agreements. Service agreements generally have a one-year initial term subject to annual renewals and may be prepaid or paid over-time and range from three months to six years.over time. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Kodak applies the residual allocation method for sales of certain complex, highly customized equipment due to significant variability in pricing. Standalone selling prices are based on the observable prices charged to customersof the products or services when sold separately or by using expected cost-plus margin.margin when directly observable prices are not available. The Company reassesses its standalone selling prices at least annually.
For non-complex equipment installations and software sales, (Prepress and PROSPER Components and Software) businesses revenue is recognized when control of each distinct performance obligation has transferred from Kodak to the buyer, which is generally met when the equipment or software is delivered and installed at the customer site, as delivery and installation generally occur within the same period. For complex equipment installations or integrated software solutions, (PROSPER Presses, Electrophotographic Printing Solutions Printers, Software) revenue is deferred until receipt of customer acceptance and control has transferred to the buyer.
Software licenses are sold both in bundled equipment arrangements as discussed above or on a stand-alone basis (Software). Softwarebasis. Perpetual licenses are generally perpetual and are usually sold with post-contract support services (“PCS”) which are considered distinct performance obligations as the customer’s use of the existing software is not dependent upon future upgrades. Kodak recognizes software revenue at the time that the customer obtains control over the software which generally occurs upon installation, while revenue allocated to the PCS is recognized over the service period. The Company also sells SaaS arrangements with revenue recognized over the contract term.
In service arrangements such as consulting or business process services (Kodak Services for Business) where final acceptance by the customer is required, revenue is deferred until all acceptance criteria have been met and Kodak has a legal right to payment.
Kodak’s licensing revenue is comprised of software licenses as discussed above, licenses to use functional intellectual property (e.g. patents and technical know-how) and licenses to use symbolic intellectual property (e.g. brand names and trademarks) (Advanced Materials and Chemicals and Brand businesses). The timing and the amount of revenue recognized from the licensing of intellectual property depends upon a variety of factors, including the nature of the performance obligations (functional vs. symbolic licenses), specific terms of each agreement, and the payment terms. Aside from software licenses discussed above, Kodak’s functional licenses generally provide the right to use functional intellectual property; therefore, non-sales/usage-based revenue is recognized when the customer has the right to use the intellectual property while sales and usage-based royalties are recognized in the period the related sales and usage occurs. Revenue for symbolic licenses such as brand licenses are recognized over time.
Real estate management revenue consists primarily of income from tenant leases, including rent and utilities, as well as facility management services and hosting onsite events. Usage based revenue is recognized as earned while tenant lease income is recognized on a straight-line basis over the lease term (Refer to Leases; Kodak as Lessor above).
Deferred revenue is recorded when cash payments are received in advance of satisfying performance obligations such as deposits required in advance on equipment orders, prepaid service contracts, prepaid tenant lease income or prepaid royalties on intellectual property arrangements. Interest expense is imputed for payments received greater than one year in advance of performance.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. With the exception of brand licensing arrangements, Kodak applies the practical expedient with respect to implied financial components and only imputes interest for payment terms greater than one year.
57
Sales and usage-based taxes are excluded from revenues.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. At the time revenue is recognized, Kodak estimates these amounts based onrecords reductions to revenue for customer incentive programs, rebates and promotional allowances. For those incentives that require estimation, such as for volume rebates, Kodak uses historical experience and both internal and customer data to estimate the expected amount to be provided to customers.sales incentive at the time revenue is recognized.
Incremental direct costs of obtaining a contract consist of sales commissions. Kodak expenses sales commissions when incurred if the amortization period would be one year or less. Capitalized sales commissions are amortized on a straight-line basis over the life of the contract. These costs are recorded in Selling, general and administrative expenses.SG&A expenses in the Consolidated Statement of Operations. Kodak accrues the estimated cost of post-sale obligations, including basic product warranties, at the time of revenue recognition. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales.
Kodak does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less or for which revenue is recognized at the amount to which Kodak has the right to invoice for services performed.
Performance obligations with an original expected length of greater than one year generally consist of deferred service contracts, operating leases and brand licensing arrangements. As of December 31, 2020,2023, there was approximately $70$98 million of unrecognized revenue from unsatisfied performance obligations. Approximately 30%15% of the revenue from unsatisfied performance obligations is expected to be recognized in 2021, 25% in 2022,2024, 15% in 20232025, 10% in 2026, 10% in 2027 and 30%50% thereafter.
ALLOWANCE FOR CREDIT LOSSES
Kodak records an allowance for credit losses against financial assets measured at amortized cost basis (primarily accounts receivable) for the current expected credit losses inherent in the asset over its expected life. The allowance for credit losses is maintained based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Kodak records a specific reserve for individual accounts when Kodak becomes aware of specific customer circumstances evidencing the customer's inability to pay, such as in the case of a bankruptcy filing or deterioration in the customer's operating results or financial position.
RESEARCH AND DEVELOPMENT COSTS
R&D costs, which include costs incurred in connection with new product development, fundamental and exploratory research, process improvement, product use technology and product accreditation, are expensed in the period in which they are incurred.
ADVERTISING
Advertising costs are expensed as incurred and are included in Selling, general and administrativeSG&A expenses in the accompanying Consolidated Statement of Operations. Advertising expenses amounted to $2 million, $3 million and $5$2 million for the years ended December 31, 20202023, 2022 and 2019, respectively. 2021.
SHIPPING AND HANDLING COSTS
Amounts charged to customers and costs incurred by Kodak related to shipping and handling are included in net salesNet revenue and costCost of sales,revenues, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying values of long-lived assets, other than goodwill and intangible assets with indefinite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable.
The recoverability of the carrying values of long-lived
Long-lived assets is assessed by first grouping long-lived assetsare grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (the asset group) and, secondly, by estimating. If the sum of the expected undiscounted future cash flows that are directly associated with and that are expected to arise from the use of and eventual disposition of such asset group. Kodak estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. Ifgroup is less than the carrying value of the asset group exceeds the estimated undiscounted cash flows, Kodak records an impairment chargea loss is recognized to the extent the carrying value of the long-lived asset group exceeds its fair value. Kodak determines fair value through quoted market prices in active markets or if quoted market prices are unavailable, through the performance of internal analyses ofusing a discounted cash flows.flow analysis.
The remaining useful lives of long-lived assets are reviewed in connection with the assessment of recoverability of long-lived assets and the ongoing strategic review of the business and operations. If the review indicates that the remaining useful life of the long-lived asset has changed significantly, the depreciation on that asset is adjusted to facilitate full cost recovery over its revised estimated remaining useful life.
The carrying values of indefinite-lived intangible assets are evaluated for potential impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The fair value of the Kodak trade name is valued using the income approach, specifically the relief from royalty method. Refer to Note 5, “Goodwill and Other Intangible Assets.”
INCOME TAXES
Kodak recognizes deferred tax liabilities and assets for the expected future tax consequences of operating losses, credit carry-forwards and temporary differences between the carrying amounts and tax basis of Kodak’s assets and liabilities. Kodak records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. For discussion of the amounts and components of the valuation allowances as of December 31, 2020 2023 and 2019,2022, refer to Note 18,17, “Income Taxes.”
The undistributed earnings of Kodak’s foreign subsidiaries are not considered permanently reinvested. Kodak has recognized a deferred tax liability (net of related foreign tax credits) on the foreign subsidiaries’ undistributed earnings.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In November 2018, June 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting StandardStandards Update (“ASU”("ASU") 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.
58
This guidance amended Topic 808 and Topic 606 to clarify that transactions in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The amendments preclude an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The new standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 (January 1, 2020 for Kodak). The amendments should be applied retrospectively to the date of initial application of Topic 606. Kodak adopted this ASU on January 1, 2020, and it did not have any impact on Kodak’s consolidated financial statements.
In September 2018 the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements in Topic 820 by adding, changing, or removing certain disclosures about recurring or nonrecurring fair value measurements. The additional and/or modified disclosures relate primarily to Level 3 fair value measurements while removing certain disclosures related to transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU is effective retrospectively, for fiscal years beginning after December 15, 2019 (January 1, 2020 for Kodak) and interim periods within those fiscal years. Entities are permitted to early adopt any removed or modified disclosures but can delay adoption of the new disclosures until their effective date. Kodak retrospectively early adopted the provisions of the ASU that removed or modified disclosures in the fourth quarter of 2018 and prospectively adopted the provisions related to new disclosures January 1, 2020. The standard addresses disclosures only and did not have an impact on Kodak’s consolidated financial statements.
In September 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements in ASC 715-20 by adding, clarifying, or removing certain disclosures. ASU 2018-14 requires all entities to disclose (1) the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU also clarifies certain disclosure requirements for entities with two or more defined benefit pension plans when aggregate disclosures are presented. The ASU removes other disclosures from the existing guidance, such as the requirement to disclose the effects of a one-percentage-point change in the assumed health care cost trend rates. The ASU is effective retrospectively for fiscal years ending after December 15, 2020 (the year ended December 31, 2020 for Kodak). Kodak adopted this ASU on January 1, 2020. The standard addresses disclosures only and did not have an impact on Kodak’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which addresses how a customer should account for the costs of implementing a cloud computing service arrangement (also referred to as a “hosting arrangement”). Under ASU 2018-15, entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract in the same way as implementation costs associated with a software license; implementation costs incurred in the application development stage, such as costs for the cloud computing arrangement’s integration with on-premise software, coding, and configuration or customization, should be capitalized and amortized over the term of the cloud computing arrangement, including periods covered by certain renewal options. The ASU is effective in fiscal years beginning after December 15, 2019 (January 1, 2020 for Kodak) including interim periods within those fiscal years. The ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Kodak adopted this ASU prospectively on January 1, 2020, and it did not have any impact on Kodak’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 (as amended by ASU’s 2018-01, 10, 11 and 20 and ASU 2019-01) requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and eliminates certain real estate-specific provisions. Kodak adopted the new standard on the effective date of January 1, 2019, applying the new transition method allowed under ASU 2018-11.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments. More convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted EPS calculation in certain circumstances. The ASU is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, (January 1, 2024 for Kodak). Early adoption is permitted for all entities for fiscal years beginning after December 15, 2020. The ASU allows entities to use either a modified retrospective or full retrospective transition method. Kodak adopted this ASU on January 1, 2021 and it did not have any impact on Kodak’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions related to intra-period tax allocations and deferred tax accounting on outside basis differences in foreign subsidiaries and equity method investments. Additionally, it provides other simplifying measures for the accounting for income taxes. The new standard is effective for fiscal years beginning after December 15, 2020 (January 1, 2021 for Kodak) with early adoption permitted. Kodak is currently evaluating the impact of this ASU.
59
In June 2016, the FASB issued ASU 2016-13,2016‐13, Financial Instruments—Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments. ASU 2016-132016‐13 (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-022018‐19,2019‐04,2019‐05,2019‐10,2019‐11,2020‐02,2020‐03 and 2020-03)2022‐02) requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In addition, the ASU requires credit losses relating to available-for-saleavailable‐for‐sale debt securities to be recorded through an allowance for credit losses. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The ASU is effective for smaller reporting companiesKodak for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (January( January 1, 2023 for Kodak). Early adoption is permitted. Kodak is currently evaluatingadopted the new standard on January 1, 2023 using the modified retrospective approach and it did not have a material impact of this ASU.on Kodak’s consolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disclosure of additional categories of information about federal, state and foreign income taxes in the rate reconciliation table and more details about the reconciling items in some categories if items meet a quantitative threshold. The ASU requires entities to disclose income taxes paid, net of refunds, disaggregated by federal (national), state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance makes several other changes to the disclosure requirements. The ASU is required to be applied prospectively, with the option to apply it retrospectively. The ASU is effective for Kodak for fiscal years beginning after December 15, 2024 ( January 1, 2025 for Kodak).
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the ASU enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. The ASU does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The ASU is required to be applied retrospectively to all periods presented in the financial statements. The ASU is effective for Kodak for fiscal years beginning after December 15, 2023 ( January 1, 2024 for Kodak) and interim periods within fiscal years beginning after December 15, 2024 ( January 1, 2025 for Kodak).
NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Statement of Financial Position that sums to the total of such amounts shown in the Statement of Cash Flows:
|
| As of December 31, |
| As of December 31, | ||||||||||||
| 2020 |
|
| 2019 |
| 2023 | 2022 | |||||||||
Cash and cash equivalents |
| $ | 196 |
|
| $ | 233 |
| $ | 255 | $ | 217 | ||||
Restricted cash - current portion |
|
| 7 |
|
|
| 12 |
| ||||||||
Restricted cash reported in Other current assets | 12 | 7 | ||||||||||||||
Restricted cash |
|
| 53 |
|
|
| 45 |
| 110 | 62 | ||||||
Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows |
| $ | 256 |
|
| $ | 290 |
| $ | 377 | $ | 286 |
Restricted cash -reported in Other current portionassets on the Consolidated Statement of Financial Position primarily representsrepresented amounts that support hedging activities. In addition, as of December 31, 2019, it also contained collateral for a guaranty provided to MIR Bidco, SA (the “Purchaser”) who purchased Kodak’s Flexographic Packaging business (“FPD”). As of December 31, 2020,activities and 2019, the cash collateral supporting Kodak’s guaranty was $0 million and $4 million, respectively.
Restricted cash includes $35 million and $22 million as of December 31, 2020 and 2019, respectively, supporting compliance with the Excess Availability threshold under the ABL Credit Agreement, as defined in Note 9, “Debt and Finance Leases”. In addition, Restricted cash as of December 31, 2020 and 2019 includes an escrow of $12$3 million and $14 million, respectively, in China to secure various ongoing obligations under the agreements fora supply agreement associated with the strategic relationship with Lucky HuaGuang Graphics Co. Ltd. Long-term("HuaGuang"). The agreement with HuaGuang expires in the third quarter of 2024.
Restricted cash included $32 million and $44 million as of December 31, 2023 and 2022, respectively, representing the cash collateral required to be posted by the Company under the Letter of Credit Facility (“L/C Cash Collateral”) (Refer to Note 8, “Debt and Credit Facilities” for information on the Restricted cash supporting the L/C Cash Collateral). In addition, restricted cash also includes $4as of December 31, 2023 included $63 million representing cash collateral supporting the Company’s undiscounted actuarial workers’ compensation obligations with the New York State Workers’ Compensation Board ("NYS WCB"). Restricted cash as of December 31, 2023 and 2022 included $8 million and $5$6 million, respectively, of security posted related to Brazilian legal contingencies asand, for both periods, $5 million of cash collateral posted for a letter of credit for aluminum purchases in the United Kingdom. As of December 31, 2020 and 2019, respectively. 2022 restricted cash also included an escrow of $5 million under the supply agreement with HuaGuang.
NOTE 3: INVENTORIES, NET
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Finished goods | $ | 85 | $ | 98 | ||||
Work in process | 68 | 64 | ||||||
Raw materials | 64 | 75 | ||||||
Total | $ | 217 | $ | 237 |
NOTE 3: INVENTORIES, NET
|
| As of December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Finished goods |
| $ | 97 |
|
| $ | 105 |
|
Work in process |
|
| 54 |
|
|
| 54 |
|
Raw materials |
|
| 55 |
|
|
| 56 |
|
Total |
| $ | 206 |
|
| $ | 215 |
|
NOTE 4: PROPERTY, PLANT AND EQUIPMENT, NET
|
| As of December 31, |
| As of December 31, | ||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
Land |
| $ | 55 |
|
| $ | 67 |
| $ | 55 | $ | 51 | ||||
Buildings and building improvements |
|
| 131 |
|
|
| 144 |
| 137 | 134 | ||||||
Machinery and equipment |
|
| 388 |
|
|
| 382 |
| 420 | 390 | ||||||
Construction in progress |
|
| 8 |
|
|
| 11 |
| 27 | 29 | ||||||
|
|
| 582 |
|
|
| 604 |
| ||||||||
Property, plant and equipment, gross | 639 | 604 | ||||||||||||||
Accumulated depreciation |
|
| (430 | ) |
|
| (423 | ) | (470 | ) | (450 | ) | ||||
Property, plant and equipment, net |
| $ | 152 |
|
| $ | 181 |
| $ | 169 | $ | 154 |
Depreciation expense was $32$26 million, $24 million and $48$26 million for the years ended December 31, 20202023, 2022 and 2019,2021, respectively.
60
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the changes in the carrying value of goodwill by reportable segment.
(in millions) |
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Consolidated Total |
| |||||
As of December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 56 |
|
| $ | 6 |
|
| $ | 14 |
|
| $ | — |
|
| $ | 76 |
|
Accumulated impairment losses |
|
| (56 | ) |
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| (64 | ) |
Balance as of December 31, 2018 |
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 12 |
|
Impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance as of December 31, 2019 |
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 12 |
|
Goodwill reallocation |
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 6 |
|
|
| — |
|
As of December 31, 2020 |
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 56 |
|
|
| 6 |
|
|
| 8 |
|
|
| 6 |
|
|
| 76 |
|
Accumulated impairment losses |
|
| (56 | ) |
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| (64 | ) |
Balance as of December 31, 2020 |
| $ | — |
|
| $ | 6 |
|
| $ | — |
|
| $ | 6 |
|
| $ | 12 |
|
Advanced | ||||||||||||||||
Materials and | Consolidated | |||||||||||||||
(in millions) | Chemicals | Brand | Total | |||||||||||||
Balance as of December 31, 2021 | $ | 6 | $ | — | $ | 6 | $ | 12 | ||||||||
Impairment | — | — | — | — | ||||||||||||
As of December 31, 2022 | 6 | — | 6 | 12 | ||||||||||||
Impairment | — | — | — | — | ||||||||||||
As of December 31, 2023 | $ | 6 | $ | — | $ | 6 | $ | 12 | ||||||||
Gross goodwill | $ | 62 | $ | 8 | $ | 6 | $ | 76 | ||||||||
Accumulated impairment losses | (56 | ) | (8 | ) | — | (64 | ) | |||||||||
Balance as of December 31, 2023 | $ | 6 | $ | — | $ | 6 | $ | 12 |
As a result of the change in segments that became effective as of January 1, 2020, Kodak’s goodwill reporting units changed. Refer to Note 27, “Segment Information” for additional information on the change to Kodak’s organizational structure. The Digital PrintingPrint segment has threefour goodwill reporting units: Prepress Solutions, Electrophotographic Printing Solutions; Prosper and Versamark; and Software. The Advanced Materials and Chemicals segment has two goodwill reporting units: Motion Picture and Industrial Films and Chemicals; and Advanced Materials and Functional Printing. The Traditional Printing segment and Brand segment each have has one goodwill reporting unit.
As of December 31, 2019, the2023, goodwill balance of $12 million under the prior year segment reporting structure was comprised of $6 million for the Brand, Film and Imaging segment and $6 million for the Kodak Software segment, which hadis only one reporting unit (Software). The goodwillrecorded in the Brand Film and Imaging segment was reported in the Consumer Products reporting unit. The goodwill previously reported in the Consumer Products goodwill reporting unit was transferred to the Brand goodwill reporting unit using a relative fair value allocation to affectedSoftware reporting units. Goodwill previously reported in the Software reporting unit was transferred to the Digital Printing segment where it continues to remain its own reporting unit.
Kodak performed interim tests of impairment for goodwill as of June 30, 2020 due to the uncertainty regarding the negative impact of the COVID-19 pandemic on its operations, and as of March 31, 2020, due to the decline in market capitalization as of that date since the last goodwill impairment test (December 31, 2019) and the uncertainty regarding the negative impact of the COVID-19 pandemic at that time. Based on the results of the June 30, 2020 and March 31, 2020 analyses, no impairment of goodwill was indicated. No interim impairment test for goodwill was performed as of September 30, 2020.
Based upon the results of Kodak’s December 31, 20202023 and 2022 annual impairment test,tests, no impairment of goodwill is indicated. As of December 31, 2020,2023 and 2022 the carrying value of the Brand reporting unit had negative carrying value.was negative.
`
The gross carrying amount and accumulated amortization by major intangible asset category as of December 31, 2020 2023 and 20192022 were as follows:
As of December 31, 2023 | |||||||||||||||||||||||||||
Weighted Average | |||||||||||||||||||||||||||
|
| As of December 31, 2020 | Remaining | ||||||||||||||||||||||||
|
| Gross Carrying |
|
| Accumulated |
|
|
|
|
|
| Weighted-Average | Gross Carrying | Accumulated | Amortization Period | ||||||||||||
(in millions) |
| Amount |
|
| Amortization |
|
| Net |
|
| Amortization Period | Amount | Amortization | Net | (in years) | ||||||||||||
Technology-based |
| $ | 99 |
|
| $ | 80 |
|
| $ | 19 |
|
| 5 years | $ | 99 | $ | 92 | $ | 7 | 2 years | ||||||
Kodak trade name |
|
| 18 |
|
|
| — |
|
|
| 18 |
|
| Indefinite life | 17 | — | 17 | Indefinite life | |||||||||
Customer-related |
|
| 11 |
|
|
| 9 |
|
|
| 2 |
|
| 3 years | 9 | 9 | — | 0 years | |||||||||
Total |
| $ | 128 |
|
| $ | 89 |
|
| $ | 39 |
|
|
| $ | 125 | $ | 101 | $ | 24 |
As of December 31, 2022 | |||||||||||||||||||||||||||
Weighted Average | |||||||||||||||||||||||||||
|
| As of December 31, 2019 | Remaining | ||||||||||||||||||||||||
|
| Gross Carrying |
|
| Accumulated |
|
|
|
|
|
| Weighted-Average | Gross Carrying | Accumulated | Amortization Period | ||||||||||||
(in millions) |
| Amount |
|
| Amortization |
|
| Net |
|
| Amortization Period | Amount | Amortization | Net | (in years) | ||||||||||||
Technology-based |
| $ | 99 |
|
| $ | 76 |
|
| $ | 23 |
|
| 5 years | $ | 99 | $ | 88 | $ | 11 | 3 years | ||||||
Kodak trade name |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
| Indefinite life | 17 | — | 17 | Indefinite life | |||||||||
Customer-related |
|
| 11 |
|
|
| 8 |
|
|
| 3 |
|
| 4 years | 9 | 9 | - | 1 year | |||||||||
Total |
| $ | 131 |
|
| $ | 84 |
|
| $ | 47 |
|
|
| $ | 125 | $ | 97 | $ | 28 |
61
The annual and interim impairment tests of the Kodak trade name use the income approach, specifically the relief from royalty method.
In the first quarter of 2020, due to the uncertainty regarding the negative impact of the COVID-19 pandemic at that time, Kodak performed an interim test of impairment for the Kodak trade name. Based on the resultresults of the interimKodak’s December 31, 2023 annual impairment test, Kodak concluded the carrying value of the Kodak trade name exceeded its fair value. Pre-taxvalue and Kodak recorded a pre-tax impairment chargescharge of $3 million are included in Other operating (income) expense, net for the year ended December 31, 2020 in the Consolidated Statement of Operations. Kodak also performed an interim test of impairment for the Kodak trade name as of June 30, 2020 due to the uncertainty regarding the negative impact of the COVID-19 pandemic.less than $1 million. Based on the result of the interim impairment test as of June 30, 2020, Kodak concluded the fair value of the Kodak trade name exceeded its’ carrying value resulting in no additional impairment. No interim impairment test for the Kodak tradename was performed as of September 30, 2020. Based upon the results of Kodak’s annual December 31, 20202022 annual impairment test, no impairment of the Kodak trade name was indicated.
In the fourth quarter of 2019, Kodak concluded the carrying value of the Kodak trade name exceeded its fair value. Pre-taxvalue and Kodak recorded a pre-tax impairment chargescharge of $4$1 million aredriven by lower forecasted revenues primarily associated with the decision to cease manufacturing of the Electrophotographic Printing Solutions equipment products. The $1 million impairment charge is included in Other operating (income) expense (income), net for the year ended December 31, 2022 in the Consolidated Statement of Operations.
Amortization expense related to intangible assets was $5 million and $7$4 million for the year ended December 31, 2023 and $5 million for each of the years ended December 31, 20202022 and 2019, respectively.2021.
Estimated future amortization expense related to intangible assets that are currently being amortized as of December 31, 20202023 was as follows:
(in millions) |
|
|
|
|
2021 |
| $ | 5 |
|
2022 |
|
| 5 |
|
2023 |
|
| 4 |
|
2024 |
|
| 4 |
|
2025 |
|
| 3 |
|
Total |
| $ | 21 |
|
NOTE 6: OTHER LONG-TERM ASSETS
(in millions) | ||||
2024 | $ | 4 | ||
2025 | 3 | |||
Total | $ | 7 |
|
| As of December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Pension assets |
| $ | 262 |
|
| $ | 173 |
|
Estimated workers' compensation recoveries |
|
| 18 |
|
|
| 18 |
|
Long-term receivables, net of allowance of $0 million and $4 million |
|
| 11 |
|
|
| 11 |
|
Other |
|
| 26 |
|
|
| 26 |
|
Total |
| $ | 317 |
|
| $ | 228 |
|
The Other component above consists of other miscellaneous long-term assets that, individually, were less than 5% of the total assets component in the accompanying Consolidated Statement of Financial Position, and therefore have been aggregated in accordance with Regulation S-X.
62
NOTE 7:6: OTHER CURRENT LIABILITIES
|
| As of December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Deferred revenue and customer deposits |
| $ | 46 |
|
| $ | 43 |
|
Employment-related liabilities |
|
| 35 |
|
|
| 38 |
|
Customer rebates |
|
| 21 |
|
|
| 23 |
|
Restructuring liabilities |
|
| 11 |
|
|
| 12 |
|
Workers' compensation |
|
| 9 |
|
|
| 10 |
|
Embedded conversion option derivative liability |
|
| 9 |
|
|
| — |
|
Series A Preferred Stock dividends payable |
|
| 3 |
|
|
| 14 |
|
Deferred consideration on disposed businesses (1) |
|
| — |
|
|
| 14 |
|
Transition services agreement prepayment |
|
| — |
|
|
| 3 |
|
Other |
|
| 30 |
|
|
| 44 |
|
Total |
| $ | 164 |
|
| $ | 201 |
|
|
|
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Deferred revenue and customer deposits | $ | 37 | $ | 40 | ||||
Employment-related liabilities | 36 | 35 | ||||||
Customer rebates | 12 | 18 | ||||||
Workers' compensation | 10 | 9 | ||||||
Restructuring liabilities | 5 | 7 | ||||||
Accrued interest | 9 | 6 | ||||||
Preferred Stock dividends payable | 1 | 1 | ||||||
Other | 34 | 27 | ||||||
Total | $ | 144 | $ | 143 |
The customer rebate amounts will potentially be settled through customer deductions applied to outstanding trade receivables in lieu of cash payments.
The Other component above consists of other miscellaneous current liabilities that, individually, were less than 5% of the total current liabilities component within the Consolidated Statement of Financial Position and therefore have been aggregated in accordance with Regulation S-X.S-X.
NOTE 8:7: OTHER LONG-TERM LIABILITIES
|
| As of December 31, |
| As of December 31, | ||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
Workers' compensation |
| $ | 89 |
|
| $ | 84 |
| $ | 56 | $ | 59 | ||||
Asset retirement obligations |
|
| 41 |
|
|
| 48 |
| 43 | 43 | ||||||
Deferred taxes |
|
| 31 |
|
|
| 13 |
| 27 | 27 | ||||||
Deferred brand licensing revenue |
|
| 17 |
|
|
| 18 |
| 63 | 11 | ||||||
Environmental liabilities | 9 | 8 | ||||||||||||||
Embedded conversion option derivative liabilities |
|
| — |
|
|
| 52 |
| 2 | 4 | ||||||
Environmental liabilities |
|
| 9 |
|
|
| 10 |
| ||||||||
Other |
|
| 25 |
|
|
| 6 |
| 13 | 19 | ||||||
Total |
| $ | 212 |
|
| $ | 231 |
| $ | 213 | $ | 171 |
(1) | During the third quarter of 2023, Kodak entered into multiple long-term brand licensing arrangements and recorded total deferred revenue of approximately $57 million. Kodak received approximately $12 million of cash proceeds related to these licensing arrangements in 2023 and approximately $40 million and $5 million, respectively, was recorded as an offset in Trade receivables, net and Other long-term assets in the Consolidated Statement of Financial Position. Approximately $54 million of the deferred revenue balance related to these licensing arrangements as of December 31, 2023 is recorded in Other long-term liabilities and the remaining $3 million in Other current liabilities in the Consolidated Statement of Financial Position. Kodak will recognize the total deferred revenue amount ratably over the term of the respective arrangements, ranging from five to twenty years. While the arrangements include up-front payments, Kodak determined that the contracts did not have a significant financing component. |
The Other component above consists of other miscellaneous long-term liabilities that, individually, were less than 5% of the total liabilities component in the accompanying Consolidated Statement of Financial Position and therefore have been aggregated in accordance with Regulation S-X.S-X.
63
NOTE 9:8: DEBT AND FINANCE LEASESCREDIT FACILITIES
Debt and finance leases and related maturities and interest rates were as follows at December 31, 2020 2023 and 2019:2022:
|
|
|
|
|
|
|
|
|
| As of December 31, |
| Weighted-Average | As of December 31, | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
| Effective | 2023 | 2022 | ||||||||||||
(in millions) |
| Type |
| Maturity |
| Weighted-Average Effective Interest Rate |
|
| Carrying Value |
|
| Carrying Value |
| Type | Maturity | Interest Rate | Carrying Value | Carrying Value | |||||||||||
Current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| RED-Rochester, LLC |
| 2033 |
| 11.42% |
|
|
| 1 |
|
|
| 1 |
| ||||||||||||||
|
| Finance leases |
|
|
| Various |
|
|
| 1 |
|
|
| 1 |
| RED-Rochester, LLC | 11.45% | $ | 1 | $ | 1 | ||||||||
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
| 2 |
| 1 | 1 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Non-current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Convertible debt |
| 2021 |
| 11.72% |
|
|
| — |
|
|
| 91 |
| Term Loans | 2028 | 13.72% | 446 | — | |||||||||
|
| RED-Rochester, LLC |
| 2033 |
| 11.42% |
|
|
| 12 |
|
|
| 13 |
| Original Term Loans | 2026 | 13.68% | — | 286 | |||||||||
|
| Finance leases |
| Various |
| Various |
|
|
| 3 |
|
|
| 4 |
| Convertible Debt | 2026 | 17.28% | — | 18 | |||||||||
|
| Other debt |
| Various |
| Various |
|
|
| 2 |
|
|
| 1 |
| RED-Rochester, LLC | 2033 | 11.45% | 10 | 11 | |||||||||
|
|
|
|
|
|
|
|
|
|
| 17 |
|
|
| 109 |
| Finance Leases | Various | Various | 1 | 1 | ||||||||
|
|
|
|
|
|
|
|
|
| $ | 19 |
|
| $ | 111 |
| 457 | 316 | |||||||||||
$ | 458 | $ | 317 |
Annual maturities of debt and finance leases outstanding at December 31, 20202023 were as follows:
Carrying | Maturity | |||||||||||||||
(in millions) |
| Carrying Value |
|
| Maturity Value |
| Value | Value | ||||||||
2021 |
| $ | 2 |
|
| $ | 2 |
| ||||||||
2022 |
|
| 2 |
|
|
| 2 |
| ||||||||
2023 |
|
| 1 |
|
|
| 1 |
| ||||||||
2024 |
|
| 1 |
|
|
| 1 |
| 1 | 1 | ||||||
2025 |
|
| 1 |
|
|
| 1 |
| 1 | 1 | ||||||
2026 and thereafter |
|
| 12 |
|
|
| 12 |
| ||||||||
2026 | 1 | 1 | ||||||||||||||
2027 | 1 | 1 | ||||||||||||||
2028 | 447 | 582 | ||||||||||||||
2029 and thereafter | 7 | 7 | ||||||||||||||
Total |
| $ | 19 |
|
| $ | 19 |
| $ | 458 | $ | 593 |
Convertible NotesTerm Loan Credit Agreement
On May 20, 2019, February 26, 2021, the Company and Longleaf Partners Small Cap Fund, C2W Partners Master Fund Limitedcertain of its subsidiaries (the "Subsidiary Guarantors") entered into a Credit Agreement (the “Original Term Loan Credit Agreement”) with certain funds affiliated with Kennedy Lewis Investment Management LLC (“KLIM”) as lenders (the “Original Term Loan Lenders”) and Deseret Mutual Pension Trust,Alter Domus (US) LLC, as administrative agent (the “Agent”). Pursuant to the Original Term Loan Credit Agreement, the Original Term Loan Lenders provided the Company with (i) an initial term loan in the amount of $225 million, which was drawn in full on the same date, and (ii) a commitment to provide delayed draw term loans in an aggregate principal amount of up to $50 million on or before February 26, 2023 (collectively, the “Original Term Loans”). The delayed draw term loans were drawn in full on June 15, 2022. The maturity date of the Original Term Loans was February 26, 2026, and the Original Term Loans were non-amortizing.
On June 30, 2023, the Company and the Subsidiary Guarantors entered into an amendment (the “Term Loan Amendment”) to the Original Term Loan Credit Agreement (the Original Term Loan Credit Agreement, as amended and restated by the Term Loan Amendment, the “Amended and Restated Term Loan Credit Agreement”), with certain funds affiliated with KLIM as lenders (the “Term Loan Lenders”) and the Agent.
Subject to the terms and conditions of the Term Loan Amendment, the Term Loan Lenders provided the Company with a commitment to provide term loans in an aggregate principal amount of $450 million (the “Term Loans”).
On July 21, 2023, the Amended and Restated Term Loan Credit Agreement became effective and the Company completed its borrowing of the Term Loans. The Company received net proceeds of $435 million from the Term Loans which were used to (i) refinance the obligations under the Original Term Loan Credit Agreement, (ii) repay in full and terminate the commitments under the Company’s asset-based revolving credit facility made available pursuant to the 2023 Amended ABL Credit Agreement as defined below, (iii) repay in full the Company’s outstanding 5.0% unsecured convertible promissory notes due May 28, 2026 (the "Convertible Notes") held by the Original Term Loan Lenders, (iv) pay certain fees and expenses related to the foregoing and the Amended and Restated L/C Facility Agreement (defined below), (v) provide cash collateral in respect of the Amended and Restated L/C Facility Agreement, as described below, or other collateral obligations, and (vi) for general corporate purposes and working capital needs of the Company and its subsidiaries (a net amount of $29 million).
The Term Loan Amendment also amended and restated the Original Term Loan Credit Agreement to, among other things, (i) extend the maturity date to the earlier of August 15, 2028 or the date that is 91 days prior to the maturity date or mandatory redemption date of any of the Company’s then-outstanding Series B Preferred Stock or Series C Preferred Stock or any extensions or refinancings of any of the foregoing, (ii) make certain other changes to the terms of the Original Term Loan Credit Agreement and (iii) make certain other changes to the terms of the Guarantee and Collateral Agreement, dated as of February 26, 2021, among the Company, the Subsidiary Guarantors and the Agent.
The Term Loans bear interest at a rate of 7.5% per annum payable in cash and 5.0% per annum payable “in-kind” ("PIK") or in cash at the Company’s option, for an aggregate interest rate of 12.5% per annum. Obligations under the Amended and Restated Term Loan Credit Agreement are investment funds managedsecured by Southeastern Asset Management, Inc.a first priority lien on substantially all assets of the Company and the Subsidiary Guarantors (subject to certain exceptions) not constituting L/C Cash Collateral, as defined below (collectively, the “Term Loan Priority Collateral”), and a second priority lien on the L/C Cash Collateral. The aggregate carrying value of the Term Loan Priority Collateral and L/C Cash Collateral as of December 31, 2023 was $4,205 million.
The Amended and Restated Term Loan Credit Agreement continues to limit, among other things, the ability of the Company and its Restricted Subsidiaries (as defined in the Amended and Restated Term Loan Credit Agreement) to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments and (v) make investments. The Amended and Restated Term Loan Credit Agreement contains customary affirmative covenants, including delivery of certain of the Company’s financial statements, and customary event of default provisions, including a cross-default provision that would give rise to an event of default if there is a default under or acceleration of “Material Indebtedness” other than inter-company indebtedness. Material Indebtedness includes obligations having a principal amount of at least $20 million (increasing to $25 million if the Term Loans are paid down to $200 million, which is referred to as the “Deleveraging Milestone Date”). The Amended and Restated Term Loan Credit Agreement does not include a financial maintenance covenant or any subjective acceleration clauses.
On an annual basis, the Company is obligated to prepay, within 10 business days following the filing of annual Form 10-K, outstanding Term Loans in an amount equal to Excess Cash Flow (“ECF”) as defined in the Amended and Restated Term Loan Credit Agreement provided no such prepayment is required if such prepayment would cause U.S. liquidity to be less than $60 million, or $85 million after the Deleveraging Milestone Date. For the year ended December 31, 2023, ECF was a negative amount. In addition to customary prepayment covenants, the Company is also required to use the Net Proceeds from the monetization of Target Non-Core Assets as such terms are defined in the Amended and Restated Term Loan Credit Agreement to make prepayments subject to certain exceptions. During the first quarter of 2024, the Company prepaid $17 million of the Term Loans with Net Proceeds from the sale of Target Non-Core Assets.
Loss on Early Extinguishment of Debt - Original Term Loans
The Company used $316 million of the net proceeds received from the Term Loans, which represented the aggregate principal amount of the Original Term Loans plus accrued PIK and prepayment premium, to refinance the Company’s obligations under the Original Term Loan Credit Agreement. In addition, the Company used $2 million of the net proceeds to pay accrued and unpaid cash interest. The carrying value of the Original Term Loans as of July 21, 2023 approximated $293 million. The Company recorded a loss on early extinguishment of debt of approximately $23 million during the third quarter of 2023.
Board Rights Agreement
On June 30, 2023, in connection with the execution of the Term Loan Amendment, the Company entered into an amendment (the “Notes Purchasers”"Board Rights Agreement Amendment") to the letter agreement with KLIM, dated February 26, 2021 (the “Original Board Rights Agreement”). Pursuant to the Board Rights Agreement Amendment, KLIM's right to nominate one individual for election as a member of the Company’s board of directors will last until the date on which KLIM ceases to hold at least $200 million of the original principal amount of Term Loans. The individual nominated pursuant to the Original Board Rights Agreement was appointed to the Company's Board of Directors on April 1, 2021 and has been elected to serve one-year terms at each of the annual meetings since May 19, 2021.
Securities Purchase Agreement
On February 26, 2021, the Company and the Term Loan Lenders (the “Buyers”), entered into a NotesSecurities Purchase Agreement (the “Securities Purchase Agreement”) pursuant to which the Company agreed to issue and sellsold to the Notes Purchasers, and the Notes Purchasers agreed to purchase from the Company, $100 millionBuyers (i) an aggregate principal amount of the Company’s Convertible Notes due 2021. The transaction closed on May 24, 2019. The proceeds were used to repay the remaining first lien term loans outstanding ($83 million) under the Company’s term credit agreement, which was terminated with the repayment. The remaining proceeds were used for general corporate purposes. The Notes Purchasers also hold all outstanding1,000,000 shares of the Company’s Series A Preferred Stock, and are holders of shares(the “Purchased Shares”) of the Company’s common stock, par value $0.01 per share (the “Common(“Common Stock”), as described below. The maturity date for a purchase price of $10.00 in cash per share for an aggregate purchase price of $10 million and (ii) $25 million aggregate principal amount of the newly issued Convertible Notes was November 1,in a private placement transaction. The issuance and sale of the Purchased Shares and Convertible Notes were consummated on February 26, 2021.
Convertible Notes
The Convertible Notes bore interest at a rate of 5.00%5.0% per annum, which would have beenwas payable in cash on theirthe maturity date and at the option of the Company, in either cash or additional shares of Common Stock on any conversion date. The payment of interest only at the maturity date hadhas the same effect as delivering additional debt instruments to the Holders of the Convertible Notes and therefore is considered Paid-In-Kind interest (“PIK”).PIK. Therefore, PIK was being added to the carrying value of the debt through the term and interest expense was recorded using the effective interest method.
64
On July 29, 2020, the Company received conversion notices from holders The maturity date of the Convertible Notes exercising their rightswas May 28, 2026.
Conversion Features
The Buyers had the right to elect at any time to convert the Convertible Notes into shares of the Company's Common Stock, par value $0.01 per share ("Common Stock"), at an aggregateinitial conversion rate equal to 100 shares of $95 million ofCommon Stock per each $1,000 principal amount of the Convertible Notes (the “Initial Converted Notes”) into shares(based on an initial conversion price equal to $10.00 per share of Common Stock). The conversion rate and conversion price were subject to certain customary anti-dilution adjustments.
If the closing price of the Company’s common stock, par value $.01 per share (“Common Stock”). UnderStock equaled or exceeded $14.50 (subject to adjustment in the termssame manner as the conversion price) for 45 trading days within any period of 60 consecutive trading days, the Company had the right to cause the mandatory conversion of the Convertible Notes the conversion date of the Initial Converted Notes was July 29, 2020 (the “Initial Conversion Date”) and the Company was obligated to deliver an aggregate of 29,922,956 shares of Common Stock (the “Initial Conversion Shares”) to the holders of the Initial Converted Notes within five trading days after the Initial Conversion Date. The Company issued the Initial Conversion Shares on August 3, 2020 and paid the $5.6 million of accumulated interest on the Initial Converted Notes in cash. As a result, the Company’s obligations under the Initial Converted Notes were fully discharged and the remaining outstanding principal amount of the Convertible Notes was $5 million.
On September 30, 2020, the Company announced its election to mandatorily convert the remaining $5 million outstanding principal amount of the Convertible Notes (the “Mandatory Converted Notes”) into shares of Common Stock. The conversion
In the event of certain fundamental transactions, the Buyers had the right, within a period of 30 days following the occurrence of such transaction, to elect to either require prepayment of the Mandatory ConvertedConvertible Notes was effective on September 30, 2020 (the “Mandatory Conversion Date”). The Company issued 1,574,892at par plus accrued and unpaid interest or convert all or a portion of the Convertible Notes into shares of Common Stock toat the holder of the Mandatory Converted Notes on September 30, 2020 (the “Mandatory Conversion Shares”). The Company paid the accrued interestconversion rate then in effect plus any additional shares based on the Mandatory Converted Notesprice per share of Common Stock in connection with the formfundamental transaction, or to receive the shares of cash and interest ceased to accrue on the Mandatory Converted Notes on the Mandatory Conversion Date. As a result of the conversion of all the Convertible Notes, the lien granted by the Company on certain of its assets to secure the Convertible Notes was released.successor entity, if any.
Embedded Derivatives
The Convertible Notes were considered more akin to a debt-type instrument and the economic characteristics and risks of the embedded conversion features and term extension at the Company’s option were not considered clearly and closely related to the Convertible Notes. Accordingly, these embedded features were bifurcated from the Convertible Notes and separately accounted for on a combined basis at fair value as a single derivative liability. Kodak allocated $14$12 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded features and term extension on the date of issuance which reduced the net carrying value of the Convertible Notes. The derivative was being accounted for at fair value with subsequent changes in the fair value being reported as part of Other (income) charges, net in the Consolidated Statement of Operations (referOperations. The fair value of the Convertible Notes embedded derivative at July 21, 2023, when the Convertible Notes were repaid, was a liability of $5 million. The fair value of the Convertible Notes embedded derivative as of December 31, 2022 was a liability of $2 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 14,13, “Financial Instruments”). for information on the valuation of the derivative.
The carrying value of the Convertible Notes at December 31, 2022 was $18 million. The estimated fair value of the timeConvertible Notes as of issuance, $84December 31, 2022 was $16 million ($100 million aggregate gross proceeds less $14 million allocated to the derivative liability and $2 million in transaction costs),(Level 3). The carrying value was being accreted to the faceaggregate principal amount using the effective interest method from the date of issuance through the maturity date.
Loss on Early Extinguishment
of Debt - Convertible Notes
The calculationcarrying value, including the fair value of the embedded derivative liability, of the Convertible Notes at July 21, 2023 approximated $24 million. The Company used $28 million of the net proceeds received from the Term Loans to repay in full the aggregate principal amount of the Convertible Notes plus accrued PIK interest. The Company recorded a loss on early extinguishment of debt is shown below:of approximately $4 million during the third quarter of 2023.
(in millions) |
|
|
|
|
Fair value of Initial Conversion Shares |
| $ | 506 |
|
Fair value of Mandatory Conversion Shares |
|
| 13 |
|
Carrying value of Convertible Notes |
|
| (92 | ) |
Fair value of pro-rata share of embedded derivatives at Initial Conversion Date |
|
| (416 | ) |
Fair value of pro-rata share of embedded derivatives at Mandatory Conversion Date |
|
| (9 | ) |
Total |
| $ | 2 |
|
Securities Registration Rights Agreement
On February 26, 2021, the Company and the Buyers entered into a Registration Rights Agreement (the “Securities Registration Rights Agreement”) providing the Buyers with registration rights in respect of the Purchased Shares and the Common Stock issuable upon conversion of the Convertible Notes. The Securities Registration Rights Agreement contains other customary terms and conditions, including certain customary indemnification obligations; however, the Securities Registration Rights Agreement does not obligate the Company to facilitate an underwritten offering of the registered Common Stock by the Buyers.
Amended and RestatedABL Credit Agreement
On September 3, 2013, the Company entered into a Senior Secured First Lien Terman Asset Based Revolving Credit Agreement (the “Term“Original ABL Credit Agreement”). Additionally, On February 26, 2021, the Company and the Subsidiary Guarantors entered into an Asset Based Revolvinga fourth amendment to the ABL Credit Agreement (together(as amended in 2021, the “Amended ABL Credit Agreement”), among the Company, the Subsidiary Guarantors, the lenders party thereto, Bank of America, N.A., as agent (the “Agent”), and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as arrangers, with the TermAgent and the Required Lenders. Each of the capitalized but undefined terms used in the context of describing the Amended ABL Credit Agreement has the “Credit Agreements”). Pursuantmeaning ascribed to such term in the Amended ABL Credit Agreement.
The Amended ABL Credit Agreement amended the ABL Credit Agreement to, among other things, (i) extend the maturity date to February 26, 2024 or the date that was 90 days prior to the termsearliest scheduled maturity date or mandatory redemption date of any of the Credit Agreements,Company’s Term Loans, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the Company was provided with term loan facilities in anforegoing and (ii) decreased the aggregate principal amount of $420commitments from $110 million of first-lien term loans (the “First Lien Loans”). On April 12, 2019,to $90 million, which decreased the Company repaid approximately $312minimum Excess Availability to $11.25 million of the First Lien Loans using proceeds from the saleprevious amount of FPD and on May 24, 2019 repaid$13.75 million. Commitments under the remaining First Lien LoansAmended ABL Credit Agreement continued to be able to be used in the form of approximately $83 million with the proceeds from the issuancerevolving loans or letters of the Convertible Notes. credit.
On May 26, 2016, March 14, 2023, the Company and the Subsidiary Guarantors entered into anamendment No.5 to the Amended and Restated Credit Agreement (the “ABL“2023 Amended ABL Credit Agreement”Agreement") with the lenders party thereto (the “Lenders”), Bank of America, N.A., as administrative agent and collateral agent to, among other things: (i) extend the maturity date of the Company's asset based loan facility from February 26, 2024 to the earliest of June 12, 2024, the termination of the 2023 Amended L/C Facility Agreement (as defined below) or the date that is 91 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s Original Term Loans, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the foregoing; (ii) require the Company to maintain daily Minimum Liquidity of $50 million, subject to certain cure rights, and Bankto maintaining quarterly Minimum Liquidity of America, N.A.$80 million, and JPMorgan Chase Bank, N.A., as joint lead arrangers and joint bookrunners, which amended and restated(iii) on February 26, 2024, decrease the Original ABL Credit Agreement.
The ABL Credit Agreement provides that the Lenders will make available asset-based revolving loans (the “ABL Loans”) and letters of credit in an aggregate amount of up to $150 million, subject to the Borrowing Base.
On January 27, 2020 Kodak exercised its right under the ABL Credit Agreement to permanently reduce lender commitments from $150$90 million to $120$81 million. As a result, the minimum Excess Availability decreased to $15 million from the previous minimum of $18.75 million.
65
On March 27, 2020, the Company and the subsidiaries of the Company that are guarantors (the “Subsidiary Guarantors”) entered into Amendment No. 3 to the ABL Credit Agreement (the “Amendment”) with the lenders party thereto (the “Lenders”), Bank of America, N.A., as administrative and collateral agent, and Bank of America, N.A. and each of the parties to the ABL Credit Agreement as lenders. Each of the capitalized but undefined terms used in the context of describing the 2023 Amended ABL Credit Agreement and the Amendment has the meaning ascribed to such term in the 2023 Amended ABL Credit Agreement.
If Minimum Liquidity fell below the daily or quarterly required minimum, an Event of Default would have occurred, in which case the Agent had the right to declare the obligation of each Lender to make Revolving Loans and of the Issuing Banks to issue Letters of Credit to be terminated, and declare the Revolving Loans, all interest thereon and all other amounts payable under the 2023 Amended ABL Credit Agreement to be due and payable.
Approximately $58 million letters of credit were issued under the 2023 Amended ABL Agreement as of July 21, 2023 and December 31, 2022.
On July 21, 2023, the Company used the net proceeds from the Term Loans to repay in full the amounts outstanding under its 2023 Amended ABL Credit Agreement (the “ABL Prepayment”). Upon the administrative agent’s receipt in full of the ABL Prepayment, the 2023 Amended ABL Credit Agreement was terminated and the Amendment.lenders’ security interest in any of the Company’s or its subsidiaries assets or property securing the 2023 Amended ABL Credit Agreement was released.
Quarterly Minimum Liquidity was $143 million and $150 million at March 31, 2023 and December 31, 2022, respectively, and daily Minimum Liquidity exceeded the $50 million threshold. Quarterly Minimum Liquidity as of June 30, 2023 was not required to be calculated or furnished to the Lenders as the 2023 Amended ABL Credit Agreement was terminated on July 21, 2023.
The Amendment decreasedCompany was required to maintain Excess Availability above the available ABL Loans and lettersgreater of credit from an aggregate amount12.5% of up to $120 million to $110 million, subject to the Borrowing Base. As a result of the additional reduction in lender commitments ($11.25 million at both May 31, 2023 and December 31, 2022) which was tested at the minimumend of each month. Excess Availability decreased to $13.75was $17 million from the previous amount of $15 million.
The Amendment also changed Equipment Availability from (i) the lesser of 75% of Net Orderly Liquidation Value of Eligible Equipment or $6 million to (ii) the lesser of 70% of Net Orderly Liquidation Value of Eligible Equipment or $14.75and $21 million as of MarchMay 31, 2020. The $14.75 million amount decreases by $1 million per quarter starting on July 1, 2020 until maturity2023 and December 31, 2022, respectively. Excess Availability as of June 30, 2023 was not required to be calculated or furnished to the amount is decreased to $0, whichever comes first.
UnderLenders as the2023 Amended ABL Credit Agreement Kodak iswas terminated on July 21, 2023.
If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million, a Fixed Charge Coverage Ratio Trigger Event would have occurred. During any Fixed Charge Coverage Ratio Trigger Event, the Company would have been required to maintain a minimum Fixed Charge Coverage Ratio of 1.00greater than or equal to 1.00 when1.0 to 1.0. If Excess Availability is less than 12.5%fell below the greater of lender commitments. As of December 31, 2020 and 2019, 12.5% of lender commitments were $13.75or $11.25 million, and $18.75 million, respectively.
If Excess Availability falls below 12.5% of lender commitments, Kodak may,could, in addition to the requirement to be in compliance with the minimum Fixed Charge Coverage Ratio, have become subject to cash dominion control. Since Excess Availability was greater than 12.5% of lender commitments or $11.25 million at May 31, 2023 and December 31, 2020 and 2019, 2022, Kodak is was not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0.
The Company has issued approximately $90If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million and $80 millionthe Fixed Charge Coverage Ratio was less than 1.0 to 1.0, an Event of lettersDefault would have occurred and the Agent would have had the right to declare the obligation of crediteach Lender to make Revolving Loans and of the Issuing Banks to issue Letters of Credit to be terminated, and declare the Revolving Loans, all interest thereon and all other amounts payable under the2023 Amended ABL Credit Agreement as of December 31, 2020to be due and 2019, The Company had approximately $20 million and $22 million ofpayable.
As noted above, since Excess Availability under the ABL Credit Agreement as of December 31, 2020 and 2019, respectively. Excess Availability is equal to the sum of (i) 85% of the amount of the Eligible Receivables less a Dilution Reserve, (ii) the lesser of 85% of Net Orderly Liquidation Value or 75% of the Eligible Inventory, (iii) the lesser of 70% of Orderly Liquidation Value of Eligible Equipment or $12.75 million as of December 31, 2020 and (iv) Eligible Cash less (a) Rent and Charges Reserves, (b) Principal Outstanding and (c) Outstanding Letters of Credit. Availability is subject to the borrowing base calculation, reserves and other limitations. To maintain Excess Availability ofwas greater than 12.5% of lender commitments ($13.75or $11.25 million, Kodak was not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. As of March 31, 2023, Consolidated EBITDA (minus Capital Expenditures and $18.75income taxes paid in cash) (as defined in the 2023 Amended ABL Credit Agreement) exceeded Fixed Charges by approximately $9 million, therefore the Fixed Charge Coverage Ratio was more than 1.0 to 1.0. The Fixed Charge Coverage Ratio as of December 31, 2020 and 2019, respectively), Kodak funded $35 million and $22 millionJune 30, 2023 was not required to be calculated or furnished to the Eligible Cash account held withLenders as the2023 Amended ABL Credit Agreement Administrative Agent as of December 31, 2020 and 2019, respectively, which is classified as Restricted Cash in the Consolidated Statement of Financial Position.was terminated on July 21, 2023.
In addition to the changes discussed above, the Amendment increased the interest rate charged on the ABL Loans. The interest rate on the ABL Loans (which is based on Excess Availability) increased to LIBOR plus 3.50% - 4.00% per annum from LIBOR plus 2.25% - 2.75% per annum or the Base Rate plus 2.50% - 3.00% per annum from the Base Rate plus 1.25% - 1.75% per annum.
The ABL Credit Agreement matures on May 26, 2021.
Each existing direct or indirect U.S. subsidiary of the Company (other than Immaterial Subsidiaries, Unrestricted Subsidiaries and certain other subsidiaries) has provided an unconditional guarantee (and any such future subsidiaries mustwere required to provide an unconditional guarantee) of the obligations of the Company under the Credit Agreements. Obligations under the ABL Agreement are secured by: (i) a first lien on cash, accounts receivable, inventory, machinery and equipment (the “ABL Collateral”) and were also secured by (ii) a second lien on the Term CollateralAgreements (as defined below). Subject to certain exceptions, obligations under the Term Credit Agreement were secured by: (i) a first lien on all assets of the Company and the Subsidiary Guarantors, other than the ABL Collateral, including a first lien on 100% of the stock of material domestic subsidiaries and 65% of the stock of material first-tier foreign subsidiaries (collectively the “Term Collateral”) and (ii) a second lien on the ABL Collateral. With the repayment of the First Lien Loans, the obligations under the ABL Agreement are now secured by a first lien on the Term Collateral. The aggregate carrying value of the Term Collateral and ABL Collateral as of December 31, 2020 and 2019 was $1,412 million and $1,302 million, respectively
Under the terms of the Amended ABL Credit Agreement, the Company maycould designate Restricted Subsidiaries as Unrestricted Subsidiaries provided the aggregate sales of all Unrestricted Subsidiaries are less than 7.5% of the consolidated sales of Kodak and the aggregate assets of all Unrestricted Subsidiaries are less than 7.5% of Kodak’s consolidated assets. Further, on a pro forma basis at the time of designation and immediately after giving effect thereto, Excess Availability must be at least $30$30 million and the pro forma Fixed Charge Coverage Ratio must be no less than 1.0 to 1.0. Upon designation of Unrestricted Subsidiaries, the Company is required to provide to the Lenders reconciling statements to eliminate all financial information pertaining to Unrestricted Subsidiaries which is included in its annual and quarterly consolidated financial statements.
In March 2018,Under the Amended ABL Credit Agreement the Company designated fivethree subsidiaries as Unrestricted Subsidiaries: Kodak PE Tech, LLC, Kodak LB Tech, LLC, Kodak Realty, Inc., Kodakit Singapore Pte. LimitedInc, and KP Services (Jersey) Ltd. This action allowedCollectively, the Company to better position assets which may be monetized in the future and address costs related to underutilized properties. Collectively, these subsidiaries haveUnrestricted Subsidiaries had sales of approximately $6 million and $12$7 million for the years ended December 31, 2020 2022 and 2019,2021, respectively, which representsrepresented 1% of Kodak’s consolidated sales for both periods.
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each period. These subsidiaries had assets of $15 million and $20$12 million as of December 31, 2020 and 2019, respectively, 2022, which represented 1% of Kodak’s consolidated assets as of such dates.
Letter of Credit Facility Agreement
On February 26, 2021, the Company and the Subsidiary Guarantors entered into a Letter of Credit Facility Agreement (the “L/C Facility Agreement”) among the Company, the Subsidiary Guarantors, the lenders party thereto (the “L/C Lenders”), Bank of America, N.A., as agent, and Bank of America, N.A., as issuing bank. Pursuant to the L/C Facility Agreement, the L/C Lenders committed to issue letters of credit on the Company’s behalf in an aggregate amount of up to $50 million, provided that the Company posts cash collateral in an amount greater than or equal to 103% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”).
On March 14, 2023, the Company entered into an amendment to the L/C Facility Agreement (the “2023 Amended L/C Facility Agreement”) to, among other things: (i) extend the maturity date of the L/C Facility Agreement from February 26, 2024 to the earliest of June 12, 2024, the termination of the 2023 Amended ABL Credit Agreement, as applicable, or the date that is 91 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s Term Loans, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancing of any of the foregoing and (ii) require the Company to maintain daily Minimum Liquidity of $50 million, subject to certain cure rights, and to maintaining a quarterly Minimum Liquidity of $80 million. Each of the capitalized but undefined terms used in the context of describing the 2023 Amended L/C Facility Agreement has the meaning ascribed to such term in the Credit Agreements.2023 Amended L/C Facility Agreement.
Debt Reporting and Other Requirements
Reporting requirements under
As with the2023 Amended ABL Credit Agreement, requirethe 2023 Amended L/C Facility Agreement required the Company to provide annual audited financial statements accompanied bymaintain Excess Availability above the greater of 12.5% of lender commitments or $11.25 million. If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million, a Fixed Charge Coverage Ratio Trigger Event would have occurred under the 2023 Amended L/C Facility Agreement as with the 2023 Amended ABL Credit Agreement. During any Fixed Charge Coverage Ratio Trigger Event, the Company would have been required to maintain a Fixed Charge Coverage Ratio of greater than or equal to 1.0 to 1.0.
On June 30, 2023, the Company and the Subsidiary Guarantors entered into an opinion of an independent public accountant without a “going concern” or like qualification or exception and without any qualification or exception asamendment (the “June 2023 L/C Facility Amendment”) to the scope2023 Amended L/C Facility Agreement (as amended and restated by the June 2023 L/C Facility Amendment, the “Amended and Restated L/C Facility Agreement”), with Bank of such audit or other material qualification or exception, except for any such qualification or exception with respectAmerica, N.A., as L/C Lender, L/C Agent and Issuing Bank. The June 2023 L/C Facility Amendment became effective on July 21, 2023.
Under the terms and conditions of the June 2023 L/C Facility Amendment, the L/C Lender increased the commitment to any indebtedness maturing within 364 days afterissue letters of credit on the dateCompany’s behalf from an aggregate amount of such financial statements, andup to $50 million, to an aggregate amount of up to $100 million (the “L/C Facility Commitments”), until August 30, 2023; provided that, the opinion be reasonably acceptable to the agent. On March 6, 2020at all times, the Company obtained a waiver fromposts cash collateral in an amount greater than or equal to 104% of the agentaggregate amount of letters of credit issued and lenders underoutstanding at any given time (the “L/C Cash Collateral”).
Upon the termination of the 2023 Amended ABL Credit Agreement with respect to any eventon July 21, 2023, the letters of defaultcredit totaling $58 million issued under the reporting covenant that may be deemed to have occurred in relation2023 Amended ABL Credit Agreement were transferred to the going concern explanatory paragraphAmended and Restated L/C Facility Agreement. The Company used $59 million of the net proceeds from the Term Loans to cash collateralize the letters of credit transferred to the L/C Facility. In August 2023, the Company used $68 million of the funds in the 2019 Form 10-K audit report. L/C Cash Collateral account to cash collateralize the Company’s undiscounted actuarial workers’ compensation obligations directly with the NYS WCB, reducing the issued letters of credit to $31 million, and elected to reduce the L/C Facility Commitments to $50 million effective August 15, 2023.
The ABL CreditJune 2023 L/C Facility Amendment also amended and restated the 2023 Amended L/C Facility Agreement limits,to, among other things, (i) extended the maturity date to the earliest of (x) the fifth anniversary of the Restatement Date (as defined therein), (y) the date that is 90 days prior to the maturity of the Amended and Restated Term Loan Credit Agreement, as such date may be extended pursuant to the terms thereof (or the maturity date of any refinancing thereof), or (z) the date that is 90 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s then-outstanding Series B Preferred Stock or Series C Preferred Stock or any refinancings of any of the foregoing, (ii) eliminated the existing cash maintenance requirements, and (iii) made certain other changes to the terms of the 2023 Amended L/C Facility Agreement.
Approximately $31 million and $43 million letters of credit were issued under the Amended and Restated L/C Facility Agreement as of December 31, 2023 and 2022, respectively. The balance on deposit in the L/C Cash Collateral account as of December 31, 2023 and 2022 was approximately $32 million and $44 million, respectively.
The Company’s obligations under the Amended and Restated L/C Facility Agreement are guaranteed by the Subsidiary Guarantors’ abilityGuarantors and are secured by (i) a first priority lien on the L/C Cash Collateral and (ii) a second priority lien on certain Term Loan Priority Collateral of the Company and U.S. subsidiary guarantors.
The Amended and Restated L/C Facility Agreement contains certain affirmative and negative covenants similar to (i) incur indebtedness, (ii) incurthe affirmative and negative covenants contained in the Amended and Restated Term Loan Credit Agreement. The Amended and Restated L/C Facility Agreement does not include a minimum liquidity or create liens, (iii) disposefinancial maintenance covenant.
The Company will pay an unused line fee of assets, (iv) make restricted payments (including dividend payments, et al.)37.5-50 basis points per annum, depending on whether the unused portion of the maximum commitments is less than or equal to 50% or greater than 50% of such commitments, respectively. The Company will pay a letter of credit fee of 3.75% per annum on issued and (v) make investments (ABL Credit Agreement only). Inoutstanding letters of credit, in addition to other customary affirmative covenants,a fronting fee of 25 basis points on such letters of credit. Amounts drawn under any letter of credit will be reimbursed from the ABL Credit Agreement provides for a periodic deliveryL/C Cash Collateral. If not so reimbursed, and not otherwise repaid by the Company of its various financial statements as set forthto the L/C Lender, such amounts will accrue interest, to be paid monthly, at a floating Base Rate (as defined in the ABL Credit Agreement. Events of default under the ABL Credit Agreement include, among others, failure to pay any principal, interest or other amount due under the applicable agreement, breach of specific covenantsAmended and a change of control of the Company. Upon an event of default, the lenders may declare the outstanding obligations under the ABL Credit Agreement to be immediately due and payable and exercise other rights and remedies provided for in such agreement.Restated L/C Facility Agreement) plus 2.75% per annum until repaid.
RED-Rochester, LLC
In January 2019 Kodak entered into a series of agreements with RED-Rochester, LLC (“RED”), which provides utilities to the Eastman Business Park. Kodak received a payment of $14 million from RED. Kodak is required to pay a minimum annual payment to RED of approximately $2 million regardless of utility usage. Kodak is accounting for the $14 million payment from RED as debt. The minimum payments required under the agreement from Kodak to RED will beare reported as a reduction of the debt and interest expense using the effective interest method. The debt payments to RED continue until August 2033.
NOTE 9: REDEEMABLE, CONVERTIBLE PREFERRED STOCK
NOTE 10: REDEEMABLE, CONVERTIBLE SERIES A PREFERRED STOCKRedeemable convertible preferred stock was as follows:
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Series B preferred stock | $ | 96 | $ | 95 | ||||
Series C preferred stock | 114 | 108 | ||||||
Total | $ | 210 | $ | 203 |
Series A Preferred Stock
On November 15, 2016, the Company issued 2,000,000 shares of 5.50% Series A Preferred Stock, no par value per share, for an aggregate purchase price of $200 million, or $100 per share pursuant to a Series A Preferred Stock Purchase Agreement (the “Purchase“Series A Purchase Agreement”) with Southeastern Asset Management, Inc. (“Southeastern”) and Longleaf Partners Small-Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern (such investment funds, collectively, the “Purchasers”“Series A Purchasers”), dated November 7, 2016. The Company received net proceeds of $198 million after issuance costs.
The Company has classified the Series A Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.
Dividend and Other RightsRedemption Features
On November 14, 2016,If any shares of Series A Preferred Stock had not been converted prior to the Company filed with the Department of Treasuryfifth anniversary of the State of New Jersey a Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Designations”) which established the designation, number of shares, rights, preferences and limitationsinitial issuance of the Series A Preferred Stock, which became effective upon filing. Thethe Company would have been required to redeem such shares at $100 per share plus the amount of accrued and unpaid dividends. As the Company concluded that the Series A Preferred Stock ranks seniorwas considered more akin to a debt-type instrument, the redemption feature was considered to be clearly and closely related to the Company’s common stock (“Common Stock”) with respecthost contract and therefore was not required to dividend rightsbe separated from the Series A Preferred Stock.
Repurchase and rights on liquidation, winding-up and dissolution. TheExchange Agreement
On February 26, 2021 the Company entered into a Series A Preferred Stock has a liquidation preference of $100 per share,Repurchase and Exchange Agreement (the “Repurchase and Exchange Agreement”) with Southeastern and the holdersPurchasers. The Company repurchased one million shares of the Series A Preferred Stock under the terms of the Repurchase and Exchange Agreement for $100,641,667, representing the liquidation value of the Series A Preferred Stock plus accrued and unpaid dividends. In addition, the Company and the Purchasers agreed to exchange the remaining one million shares of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rateheld by the Purchasers for shares of 5.50% per annum. Until the third quarter of 2018 all dividends owed on theCompany’s newly created 4.0% Series AB Convertible Preferred Stock, were declaredno par value (the “Series B Preferred Stock”) on a one-for-one basis plus accrued and paid when due. No quarterly dividend was declared in the third or fourth quartersunpaid dividends of 2018 or the first and second quarters$641,667. The exchange of 2019. After the second quarter of 2019, the Company has declared quarterly cash dividends in each quarter that were paid when due. In July 2020, the Company declared and paid the four quarterly dividends that were in arrears. The total amount of dividends in arrears was $11 million.
Until December 24, 2020, when the Certificate of Designations was amended, holdersshares of Series A Preferred Stock were entitled to vote together with the holders of the Common Stock as a single class, in each case, on an as-converted basis, except where a separate class vote was required by law. Holdersfor shares of Series AB Preferred Stock have certain limited special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company. was a noncash financing activity.
Until December 24, 2020, when such contractual right was terminated by amendment, the Purchasers had the right to nominate members to the Company’s board of directors proportional to their ownership on an as converted basis, which initially allowed the Purchasers to nominate two members to the board. If dividends on any Series A Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holders of Series A Preferred Stock, voting with holders of all other preferred stock of the Company whose voting rights are then exercisable, will be entitled to vote for the election of two additional directors in the next annual meeting and all subsequent meetings until all accumulated dividends on such Series A Preferred Stock and other voting preferred stock have been paid or set aside. One of the directors on the Company’s current board of directors was nominated by the Purchasers.
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Embedded Conversion FeaturesFeatures
Each share of Series A Preferred Stock iswas convertible, at the option of each holder at any time, into shares of Common Stock at the initial conversion rate of 5.7471 (equivalent to an initial conversion price of $17.40 per share of Common Stock). If a holder electselected to convert any shares of Series A Preferred Stock during a specified period in connection with a fundamental change (as defined in the Certificate of Designations), the conversion rate will bewould have been adjusted under certain circumstances and such holder willwould also behave been entitled to a payment in respect of accumulated dividends. If a holder electselected to convert any shares of Series A Preferred Stock during a specified period following a reorganization event (as defined in the Certificate of Designations), such holder can electcould have elected to have the conversion rate adjusted. In addition, the Company will havehad the right to require holders to convert any shares of Series A Preferred Stock in connection with certain reorganization events, in which case the conversion rate will bewould have been adjusted under certain circumstances. If shares of Series A Preferred Stock are were not converted in connection with a reorganization event, such shares willwould have become convertible into the exchanged property from the reorganization event.
The Company will havehad the right to convert Series A Preferred Stock into Common Stock at any time after the second anniversary of the initial issuance if the closing price of the Common Stock has equaled or exceeded 125 percent of the then-effective conversion price for 45 trading days within a period of 60 consecutive trading days, with the last trading day of such 60 day period ending on the trading day immediately preceding the business day on which the Company issues a press release announcing the mandatory conversion.
The initial conversion rate and the corresponding conversion price are subject to customary anti-dilution adjustments as well as an adjustment if the Company is obligated to make a cash payment under the settlement agreement relating to the remediation of historical environmental liabilities at EBP, as discussed in Note 13, “Guarantees”.
The Company concluded that the Series A Preferred Stock is considered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features, except where the conversion price is increased to the liquidation preference, were not considered clearly and closely related to the Series A Preferred Stock. Accordingly, these embedded conversion features were bifurcated from the Series A Preferred Stock and separately accounted for on a combined basis at fair value as a single derivative. The CompanyKodak allocated $43 million of the net proceeds receivedfrom the issuance of the Series A Stock to thea derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance, which reduced the originalnet carrying value of the Series A Preferred Stock. The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other charges, net in the Consolidated Statement of Operations. The fair value of the Series A Preferred Stock derivative as of December 31, 2020 was a liability of $9 million and is included in Other current liabilities in the accompanying Consolidated Statement of Financial Position. The fair value of the Series A Preferred Stock derivative as of December 31, 2019 was a liability of $1 million which is included in Other long-term liabilities. Refer to Note 14, “Financial Instruments” for information on the valuation of the derivative.
The carrying value of the Series A Preferred Stock at the time of issuance, $155 million ($200 million aggregate gross proceeds less $43 million allocated to the derivative liability and $2 million in transaction costs), was being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date, November 15, 2021.
Extinguishment of Series A Preferred Stock
The carrying value, including the fair value of the embedded derivative liability, of the Series A Preferred Stock prior to extinguishment approximated $203 million. Upon repurchase and exchange of the Series A Preferred Stock, Kodak recorded $8 million as a deemed dividend to Additional paid in capital in the Consolidated Statement of Financial Position, representing the difference between the fair value of consideration transferred and the carrying value of the Series A Preferred Stock.
Dividend and Other Rights
The holders of Series A Preferred Stock were entitled to cumulative dividends payable quarterly in cash at a rate of 5.50% per annum. Until the third quarter of 2018 all dividends owed on the Series A Preferred Stock were declared and paid when due. No quarterly dividend was declared in the third or fourth quarters of 2018 or the first and second quarters of 2019. After the second quarter of 2019, quarterly cash dividends were declared each quarter and were paid when due. In July 2020, the Company declared and paid the four quarterly dividends that were in arrears. The total amount of dividends in arrears was $11 million.
Series B Preferred Stock
The fair value of the Series B Preferred Stock at the time of issuance approximated $95 million. The Company has classified the Series B Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.
Dividend and Other Rights
On February 25, 2021, the Company filed with the Department of Treasury of the State of New Jersey a Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (the “Series B Certificate of Designations”) which established the designation, number of shares, rights, preferences and limitations of the Series B Preferred Stock which became effective upon filing. The Series B Preferred Stock ranks senior to the Common Stock and pari passu with the Series C Preferred Stock with respect to dividend rights and rights on liquidation, winding-up and dissolution. The Series B Preferred Stock has a liquidation preference of $100 per share, and the holders of Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4.0% per annum. If dividends on any Series B Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holders of the Series B Preferred Stock will be entitled to nominate one director at the next annual shareholder meeting and all subsequent shareholder meetings until all accumulated dividends on such Series B Preferred Stock have been paid or set aside. Dividends owed on the Series B Preferred Stock have been declared and paid when due. Holders of Series B Preferred Stock will have certain limited special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company.
Conversion Features
Each share of Series B Preferred Stock is convertible, at the option of each holder at any time, into shares of Common Stock at the initial conversion rate of 9.5238 shares of Common Stock for each share of Series B Preferred Stock (equivalent to an initial conversion price of $10.50 per share of Common Stock). The initial conversion rate and the corresponding conversion price are subject to certain customary anti-dilution adjustments. If a holder elects to convert any shares of Series B Preferred Stock during a specified period in connection with a fundamental change (as defined in the Series B Certificate of Designations), such holder can elect to have the conversion rate adjusted and can elect to receive a cash payment in lieu of shares for a portion of the shares. Such holder will also be entitled to a payment in respect of accumulated dividends. In addition, the Company will have the right to require holders to convert any shares of Series B Preferred Stock in connection with certain reorganization events in which case the conversion rate will be adjusted, subject to certain limitations.
The Company has the right to cause the mandatory conversion of the Series B Preferred Stock into shares of Common Stock if the closing price of the Common Stock has equaled or exceeded $14.50 (subject to adjustment in the same manner as the conversion price) for 45 trading days within a period of 60 consecutive trading days.
Embedded Conversion Features
The Company concluded that the Series B Preferred Stock was more akin to a debt-type instrument and that the economic characteristics and risks of the conversion option upon a fundamental change by the holder was not considered clearly and closely related to the Series B Preferred Stock. Accordingly, this embedded conversion feature was bifurcated from the Series B Preferred Stock and is being separately accounted for as a derivative. The Company allocated $1 million to the derivative liability based on the aggregate fair value of the embedded conversion feature on the date of issuance which reduced the original carrying value of the Series B Preferred Stock.
The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other (income) charges, net in the Consolidated Statement of Operations. The fair value of the Series B Preferred Stock embedded derivative as of both December 31, 2023 and 2022 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 13, “Financial Instruments” for information on the valuation of the derivative.
The carrying value of the Series B Preferred Stock at the time of issuance, $93 million ($95 million fair value of Series B Preferred Stock on February 26, 2021 less $1 million allocated to the derivative liability and $1 million of transaction costs) is being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date, May 28, 2026.
Redemption Features
If any shares of Series B Preferred Stock have not been converted prior to May 28, 2026 (the “Redemption Date”), the Company is required to redeem such shares at $100 per share plus the amount of accrued and unpaid dividends. As the Company concluded that the Series B Preferred Stock is considered more akin to a debt-type instrument, the redemption feature is considered to be clearly and closely related to the host contract and therefore was not required to be separated from the Series B Preferred Stock.
Series B Registration Rights Agreement
On November 15, 2016, the Company and the Series A Purchasers entered into a Registration Rights Agreement (the “Series A Registration Rights Agreement”) which provided the Series A Purchasers with customary registration rights in respect of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock. The Series A Registration Rights Agreement contains other customary terms and conditions, including certain customary indemnification obligations. The Repurchase and Exchange Agreement extended the registration rights provided under the Series A Registration Rights Agreement to shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
Series C Preferred Stock
Purchase Agreement
On February 26, 2021, the Company and GO EK Ventures IV, LLC (the “Investor”) entered into a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor, and the Investor agreed to purchase from the Company, an aggregate of 1,000,000 shares of the Company’s newly created 5.0% Series C Convertible Preferred Stock, no par value per share (the “Series C Preferred Stock”), for a purchase price of $100 per share, representing $100 million of gross proceeds to the Company. The initial issuance and sale of 750,000 shares ($75 million gross proceeds) closed on February 26, 2021. The final issuance and sale of the remaining 250,000 shares ($25 million gross proceeds) closed on March 30, 2021 after expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The Investor is a fund managed by Grand Oaks Capital. The Company used the proceeds from the sale of the Series C Preferred Stock for general corporate purposes including the funding of growth initiatives. The Company has classified the Series C Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.
Dividend and Other Rights
On February 25, 2021, the Company filed with the Department of Treasury of the State of New Jersey a Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (the “Series C Certificate of Designations”) which established the designation, number of shares, rights, preferences and limitations of the Series C Preferred Stock and became effective upon filing. The Series C Preferred Stock ranks senior to the Common Stock and pari passu with the Series B Preferred Stock with respect to dividend rights and rights on liquidation, winding-up and dissolution. The Series C Preferred Stock has an initial liquidation preference of $100 per share, and holders of Series C Preferred Stock are entitled to cumulative dividends payable quarterly “in-kind” in the form of additional shares of Series C Preferred Stock at a rate of 5.0% per annum. If dividends on the Series C Preferred Stock are not declared and paid for any given fiscal quarter, the liquidation preference is automatically increased by the amount of such unpaid dividends. Holders of the Series C Preferred Stock are also entitled to participate in any dividends paid on the Common Stock (other than stock dividends) on an as-converted basis, with such dividends on any shares of the Series C Preferred Stock being payable upon conversion of such shares of Series C Preferred Stock to Common Stock. Dividends owed on the Series C Preferred Stock have been declared and additional Series C shares issued when due.
Holders of Series C Preferred Stock are entitled to vote together with the holders of the Common Stock as a single class, in each case, on an as-converted basis, except where a separate class vote is required by law. Holders of Series C Preferred Stock have certain limited special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company.
Pursuant to the Purchase Agreement, the Investor has the right to nominate one director at each annual or special meeting of the Company’s shareholders ("Designee") until the earlier of the third anniversary of the execution of the Purchase Agreement and such time as the Investor and its Affiliates (as defined in the Purchase Agreement) do not hold at least a majority of the Series C Preferred Stock purchased under the Purchase Agreement. The Designee was elected to serve one-year terms at each of the annual meetings since May 19, 2021. In the third quarter of 2023 the Designee resigned and a successor Designee nominated by the Investor was appointed by the Company's Board of Directors to fill the vacancy.
Conversion Features
Each share of Series C Preferred Stock is convertible, at the option of each holder at any time, into shares of Common Stock at the initial conversion price of $10 per share of Common Stock. The initial conversion price and the corresponding conversion rate are subject to certain customary anti-dilution adjustments and to proportional increase in the event the liquidation preference of the Series C Preferred Stock is automatically increased as described above. If a holder elects to convert any shares of Series C Preferred Stock during a specified period in connection with a fundamental change (as defined in the Series C Certificate of Designations), such holder can elect to have the conversion rate adjusted and can elect to receive a cash payment in lieu of shares for a portion of the shares of Common Stock. Such holder will also be entitled to a payment in respect of accumulated dividends and a payment based on the present value of all required remaining dividend payments through May 28, 2026, the mandatory redemption date. Such additional payments will be payable at the Company’s option in cash or in additional shares of Common Stock. In addition, the Company will have the right to require holders to convert any shares of Series C Preferred Stock in connection with certain reorganization events in which case the conversion rate will be adjusted, subject to certain limitations.
The Company has the right to cause the mandatory conversion of the Series C Preferred Stock into shares of Common Stock (i) at any time after February 26, 2023 if the closing price of the Common Stock has equaled or exceeded 200% of the then-effective conversion price for 45 trading days within a period of 60 consecutive trading days, or (ii) at any time after February 26, 2024 if the closing price of the Common Stock has equaled or exceeded 150% of the then-effective conversion price for 45 trading days within a period of 60 consecutive trading days.
Embedded Conversion Features
The Company concluded that the Series C Preferred Stock is more akin to a debt-type instrument and that the economic characteristics and risks of the conversion option upon a fundamental change by the holder is not considered clearly and closely related to the Series C Preferred Stock. Accordingly, this embedded conversion feature was bifurcated from the Series C Preferred Stock and separately accounted for as a derivative. The Company allocated $2 million of the net proceeds received to the derivative liability based on the aggregate fair value of the embedded conversion features on the dates of issuance which reduced the original carrying value of the Series C Preferred Stock.
The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other (income) charges, net in the Consolidated Statement of Operations. The fair value of the Series C Preferred Stock derivative as of both December 31, 2023 and 2022 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 13, “Financial Instruments” for information on the valuation of the derivative.
The carrying value of the Series C Preferred Stock at the time of issuance, $97 million ($100 million aggregate gross proceeds less $2 million allocated to the derivative liability and $1 million in transaction costs) is being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date, November 15, 2021.date.
Redemption Features
If any shares of Series AC Preferred Stock have not been converted prior to the fifth anniversary of the initial issuance of the Series A Preferred Stock,Redemption Date, the Company is required to redeem such shares at $100 per share plus the amount of accrued and unpaid dividends.dividends thereon; provided that the holders of the Series C Preferred Stock have the right to extend such redemption date by up to two years. As the Company concluded that the Series AC Preferred Stock is considered more akin to a debt-type instrument, the redemption feature is considered to be clearly and closely related to the host contract and therefore was not required to be separated from the Series AC Preferred Stock.
Series AC Registration Rights Agreement
On November 15, 2016, February 26, 2021, the Company Southeastern and the PurchasersInvestor entered into a Registration Rights Agreement (the “Series AC Registration Rights Agreement”), pursuant to which provides the Company agreed to register underInvestor with customary registration rights in respect of the Securities Act and take certain actions with respect to the offer and sale by the Purchasers of shares of Series A Preferred Stock purchased by the Purchasers and shares of Common Stock issuable upon conversion of the Series AC Preferred Stock and issuable pursuant to the terms of theStock. The Series A Preferred Stock (the “Series A registrable securities”).
Pursuant to theC Registration Rights Agreement the Company has filed with the SEC a shelf registration statement on Form S-3 that relates to the resale of the Series A registrable securitiescontains other customary terms and such registration statement has been declared effective by the SEC. Upon the written demand of the relevant Purchaser(s), the Company will facilitate a “takedown” of Series A registrable securities off of the registration statement but the Purchaser(s) may not, individually or collectively, make more than four demands in the aggregate. Any demand for an underwritten offering of Series A Preferred Stock must have an aggregate market value (based on the most recent closing price of the Common Stock into which the Series A Preferred Stock is convertible at the time of the demand) of at least $75 million.conditions, including certain customary indemnification obligations.
NOTE 10: LEASES
The Series A Registration Rights Agreement does not entitle the Purchasers to piggyback registration rights. The Series A Registration Rights Agreement is binding upon the parties thereto and their successors and will inure to the benefit of each Purchaser and its successors and permitted assigns. Neither party may assign the Series A Registration Rights Agreement without the prior written consent of the other party.
68
The table below presents the lease-related assets and liabilities on the balance sheet:
|
| Classification in the |
| December 31, |
| Classification in the | December 31, | ||||||||||||
(in millions) |
| Consolidated Statement of Financial Position |
| 2020 |
|
| 2019 |
| Consolidated Statement of Financial Position | 2023 | 2022 | ||||||||
Assets |
|
|
|
|
|
|
|
|
|
| |||||||||
Operating lease assets |
| Operating lease right-of-use assets |
| $ | 48 |
|
| $ | 49 |
| Operating lease right-of-use assets | $ | 30 | $ | 39 | ||||
Finance lease assets |
| Property, plant and equipment, net |
|
| 4 |
|
|
| 5 |
| Property, plant and equipment, net | 1 | 1 | ||||||
Total lease assets |
|
|
| $ | 52 |
|
| $ | 54 |
| Total lease assets | $ | 31 | $ | 40 | ||||
|
|
|
|
|
|
|
|
|
|
| |||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
| |||||||||
Current |
|
|
|
|
|
|
|
|
|
| |||||||||
Operating |
| Current portion of operating leases |
| $ | 12 |
|
| $ | 12 |
| Current portion of operating leases | $ | 13 | $ | 15 | ||||
Finance |
| Short-term borrowings and current portion of long-term debt |
|
| 1 |
|
|
| 1 |
| |||||||||
Noncurrent |
|
|
|
|
|
|
|
|
|
| |||||||||
Operating |
| Operating leases, net of current portion |
|
| 49 |
|
|
| 48 |
| Operating leases, net of current portion | 24 | 31 | ||||||
Finance |
| Long-term debt, net of current portion |
|
| 3 |
|
|
| 4 |
| Long-term debt, net of current portion | 1 | 1 | ||||||
Total lease liabilities |
|
|
| $ | 65 |
|
| $ | 65 |
| Total lease liabilities | $ | 38 | $ | 47 | ||||
|
|
|
|
|
|
|
|
|
|
| |||||||||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
| |||||||||||
Operating |
|
|
|
|
|
|
| 6 years |
| ||||||||||
Finance (1) |
|
|
|
|
|
|
| 393 years |
| ||||||||||
Weighted-average discount rate |
|
|
|
|
|
|
|
| |||||||||||
Operating (2) |
|
|
|
|
|
|
|
| 13.81 | % | |||||||||
Finance |
|
|
|
|
|
|
|
| 6.86 | % |
|
|
|
|
Lease Costs
The table below presents certain information related to the lease expense for finance and operating leases. Lease expense is presented gross of sublease income. See “Kodak as Lessor” section below for income from subleases.
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Finance lease expense |
|
|
|
|
|
|
|
| ||||||||||||
Amortization of leased assets |
| $ | 1 |
|
| $ | 3 |
| $ | 1 | $ | 1 | $ | 1 | ||||||
Interest on lease liabilities |
|
| — |
|
|
| — |
| — | — | — | |||||||||
Operating lease expense |
|
| 21 |
|
|
| 25 |
| 16 | 17 | 19 | |||||||||
Variable lease expense (1) |
|
| 9 |
|
|
| 10 |
| 7 | 7 | 9 | |||||||||
Total lease expense |
| $ | 31 |
|
| $ | 38 |
| $ | 24 | $ | 25 | $ | 29 |
(1) |
|
|
69
The table below presents supplemental cash flow information related to leases. Changes in operating lease liabilities and operating lease assets are included in Increase (decrease) in liabilities excluding borrowings and trade payables, and Other items, net, respectively, in the Consolidated Statement of Cash Flows.
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
| ||||||||||||
Operating cash flows for operating leases |
| $ | 22 |
|
| $ | 25 |
| $ | 20 | $ | 19 | $ | 21 | ||||||
Operating cash flow for finance leases |
|
| — |
|
|
| — |
| — | — | — | |||||||||
Financing cash flow for finance leases |
|
| 1 |
|
|
| 2 |
| 1 | 1 | 1 | |||||||||
Total | $ | 21 | $ | 20 | $ | 22 | ||||||||||||||
|
| $ | 23 |
|
| $ | 27 |
| ||||||||||||
Weighted-average remaining lease term (in years) | ||||||||||||||||||||
Operating | 5 | 5 | 5 | |||||||||||||||||
Finance | 3 | 3 | 2 | |||||||||||||||||
Weighted-average discount rate | ||||||||||||||||||||
Operating | 13.22 | % | 12.17 | % | 11.91 | % | ||||||||||||||
Finance | 6.42 | % | 5.18 | % | 5.56 | % |
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for the next five years and thereafter to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
Undiscounted future cash flows: | ||||||||||||||||
(in millions) |
| Operating Leases |
|
| Finance Leases |
| Operating Leases | Finance Leases | ||||||||
2021 |
| $ | 19 |
|
| $ | 1 |
| ||||||||
2022 |
|
| 21 |
|
|
| 1 |
| ||||||||
2023 |
|
| 11 |
|
|
| 1 |
| ||||||||
2024 |
|
| 10 |
|
|
| — |
| $ | 17 | $ | — | ||||
2025 |
|
| 6 |
|
|
| — |
| 8 | 1 | ||||||
2026 | 6 | — | ||||||||||||||
2027 | 5 | — | ||||||||||||||
2028 | 5 | — | ||||||||||||||
Thereafter |
|
| 28 |
|
|
| 121 |
| 13 | — | ||||||
Total minimum lease payments |
|
| 95 |
|
|
| 124 |
| 54 | 1 | ||||||
Less: amount of lease payments representing interest |
|
| (34 | ) |
|
| (120 | ) | (17 | ) | — | |||||
Present value of future minimum lease payments |
|
| 61 |
|
|
| 4 |
| 37 | 1 | ||||||
Less: current obligations under leases |
|
| 12 |
|
|
| 1 |
| 13 | — | ||||||
Long-term lease obligations |
| $ | 49 |
|
| $ | 3 |
| $ | 24 | $ | 1 |
At December 31, 2023 leases that had not yet commenced were not significant.
Kodak’s net investment in sales-type leases as of December 31, 20202023 and 2022 was $5 million.$3 million and $4 million, respectively. The current portion of the net investment in sales-type leases is included in Trade receivablesOther current assets in the Consolidated Statement of Financial Position. The portion of the net investment in sales-type leases due after one year is included in Other long-term assets.
The table below reconciles the undiscounted cash flows to be received for the next five years and thereafter to the net investment in sales-type leases recorded in the Consolidated Statement of Financial Position:
(in millions) |
|
|
|
|
2021 |
| $ | 2 |
|
2022 |
|
| 2 |
|
2023 |
|
| 1 |
|
2024 and thereafter |
|
| 1 |
|
Total minimum lease payments |
|
| 6 |
|
Less: unearned interest |
|
| (1 | ) |
Less: allowance for doubtful accounts |
|
| — |
|
Net investment in sales-type leases |
| $ | 5 |
|
(in millions) | ||||
2024 | $ | 1 | ||
2025 | 1 | |||
2026 and thereafter | 1 | |||
Total minimum lease payments | 3 | |||
Less: unearned interest | — | |||
Net investment in sales-type leases | $ | 3 |
70
Undiscounted cash flows to be received for the next five years and thereafter for operating leases and subleases are:
(in millions) |
|
|
|
| ||||
2021 |
| $ | 7 |
| ||||
2022 |
|
| 5 |
| ||||
2023 |
|
| 4 |
| ||||
2024 |
|
| 4 |
| $ | 9 | ||
2025 |
|
| 1 |
| 5 | |||
2026 | 3 | |||||||
2027 | 2 | |||||||
2028 | 2 | |||||||
Thereafter |
|
| 7 |
| 6 | |||
Total minimum lease payments |
| $ | 28 |
| $ | 27 |
Income recognized on lease arrangements for the years ended December 31, 20202023, 2022 and 20192021 is presented below:
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Lease income - sales-type leases |
| $ | 1 |
|
| $ | — |
| $ | 1 | $ | 1 | $ | 3 | ||||||
Lease income - operating leases |
|
| 8 |
|
|
| 9 |
| 9 | 8 | 8 | |||||||||
Sublease income |
|
| 2 |
|
|
| 6 |
| ||||||||||||
Variable lease income (1) |
|
| 5 |
|
|
| 6 |
| 5 | 5 | 5 | |||||||||
Total lease income |
| $ | 16 |
|
| $ | 21 |
| $ | 15 | $ | 14 | $ | 16 |
(1) |
|
|
Equipment subject to operating leases and the related accumulated depreciation were as follows:
|
| As of December 31, |
| As of December 31, | ||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
Equipment subject to operating leases |
| $ | 24 |
|
| $ | 29 |
| $ | 26 | $ | 19 | ||||
Accumulated depreciation |
|
| (19 | ) |
|
| (20 | ) | (18 | ) | (16 | ) | ||||
Equipment subject to operating leases, net |
| $ | 5 |
|
| $ | 9 |
| $ | 8 | $ | 3 |
Equipment subject to operating leases, net is included in Property, plant and equipment, net in the Consolidated Statement of Financial Position.
NOTE 11: COMMITMENTS AND CONTINGENCIES
NOTE 12: COMMITMENTS AND CONTINGENCIES
Asset Retirement Obligations
Kodak’s asset retirement obligations primarily relate to asbestos contained in buildings that Kodak owns. In many of the countries in which Kodak operates, environmental regulations exist that require Kodak to handle and dispose of asbestos in a special manner if a building undergoes major renovations or is demolished. Otherwise, Kodak is not required to remove the asbestos from its buildings. Kodak records a liability equal to the estimated fair value of its obligation to perform asset retirement activities related to the asbestos, computed using an expected present value technique, when sufficient information exists to calculate the fair value. Kodak does not have a liability recorded related to every building that contains asbestos because Kodak cannot estimate the fair value of its obligation for certain buildings due to a lack of sufficient information about the range of time over which the obligation may be settled through demolition, renovation or sale of the building.
The following table provides asset retirement obligation activity (in millions) (there was no significant activity in 2023):
|
| For the Year Ended December 31, |
| For the Year Ended December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(in millions) | 2023 | 2022 | ||||||||||||||
Asset Retirement Obligations at start of period |
| $ | 48 |
|
| $ | 48 |
| $ | 43 | $ | 42 | ||||
Liabilities incurred in the current period |
|
| 1 |
|
|
| 3 |
| — | 1 | ||||||
Liabilities settled in the current period |
|
| (9 | ) |
|
| (6 | ) | — | (2 | ) | |||||
Accretion expense |
|
| 1 |
|
|
| 2 |
| ||||||||
Revision in estimated cash flows |
|
| — |
|
|
| 1 |
| — | 2 | ||||||
Asset Retirement Obligations at end of period |
| $ | 41 |
|
| $ | 48 |
| $ | 43 | $ | 43 |
71
Other Commitments and Contingencies
As of December 31, 2020,2023 the Company had outstanding letters of credit of $90$31 million issued under the ABL CreditAmended and Restated L/C Facility Agreement, as well as bank guarantees and letters of credit of $2$1 million, surety bonds in the amount of $29$19 million, and restricted cash of $60$122 million, primarily related to support compliancecash collateral supporting the Company’s undiscounted actuarial workers’ compensation obligations with the Excess Availability threshold under the ABL Credit Agreement,NYS WCB, cash collateral to ensure the payment of possible casualty and workersworkers’ compensation claims, for the outstanding letters of credit under the Amended and Restated L/C Facility Agreement, to ensure payment of possible legal contingencies, hedging activities, environmental liabilities, legal contingencies, rental payments and to support various customs, hedging, tax and trade activities. The restricted cash and deposits areis recorded in Restricted cash – current portionCurrent assets and Restricted cash in the Consolidated Statement of Financial Position.
Kodak’s Brazilian operations are involved in various litigation matters and have received or been the subject of numerous governmental assessments related to indirect and other taxes in various stages of litigation, as well as civil litigation and disputes associated with former employees and contract labor. The tax matters, which comprise the majority of the litigation matters, are primarily related to federal and state value-added taxes and income taxes. Kodak isKodak’s Brazilian operations are disputing these matters and intendsintend to vigorously defend itstheir position. Kodak routinely assesses all these matters as to the probability of ultimately incurring a liability in its Brazilian operations and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of December 31, 2020, the2023, Kodak’s Brazilian Operations maintained accruals of approximately $4 million for claims aggregating approximately $127 million inclusive of interest and penalties where appropriate. The unreserved portion of these contingencies,the indirect taxes, civil litigation and disputes involving former employees and contract labor claims, inclusive of any related interest and penalties, for which there was at least a reasonable possibility that a loss may be incurred, amounted to approximately $5$6 million.
In connection with assessments in Brazil, local regulations may require Kodak to post security for a portion of the amounts in dispute. As of December 31, 2020,2023, Kodak has posted security composed of $4$8 million of pledged cash reported within Restricted cash in the Consolidated Statement of Financial Position and liens on certain Brazilian assets with a net book value of approximately $43$45 million. Generally, any encumbrances on the Brazilian assets would be removed to the extent the matter is resolved in Kodak's favor.
On The Company has received five requests under New Jersey law demanding, among other things, that the Company take certain actions in response to alleged breaches of fiduciary duty relating to option grants and securities transactions and alleged proxy statement disclosure deficiencies (each a “Derivative Demand”, and collectively the “Derivative Demands”) in the context of an announcement on July 28, 2020 (the “DFC Announcement”) by the U.S. International Development Finance Corporation (the “DFC”) announced (the “DFC Announcement”)regarding the signing of a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan (the “DFC Loan”) to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs (the “DFC Pharmaceutical Project”).
On August 13, 2020 Tiandong TangMay 19, 2021 Louis Peters, one of the persons making a Derivative Demand (“Peters”), commenced a class actionderivative lawsuit againston behalf of the Company its Executive Chairmanagainst certain officers and Chief Executive Officercurrent and its Chief Financial Officer in Federal District Court in the Districtformer directors of New Jersey, and on August 26, 2020 Jimmie A. McAdams and Judy P. McAdams commenced a class action lawsuit against the Company and its Executive Chairman and Chief Executive Officer in Federal District Courtthe Company as a nominal defendant in the Southern DistrictSupreme Court of the State of New York (collectively, the “Securities Class Actions”). The Securities Class Actions seekin Monroe County seeking damages and otherequitable relief based on alleged violationsbreaches of federal securities lawsfiduciary duty and unjust enrichment resulting from stock trades, option grants and a charitable contribution in the context of the DFC Announcement of the potential DFC Loan and DFC Pharmaceutical Project. SinceProject (the “State Derivative Lawsuit”). The plaintiff filed an amended complaint in the filing of the Securities Class Actions, procedural activities have been ongoing relating to the determination of venue and lead plaintiff.
In addition to the Securities Class Actions,State Derivative Lawsuit on December 29, 2020 Robert Garfield commenced a class action lawsuit againstAugust 23, 2021, and the Company and each of the members of its Board of Directors,individual defendants filed motions to dismiss (or alternatively, in the Superior Court of Mercer County, New Jersey seeking equitable relief and damages in favorcase of the Company, baseda motion for summary judgment) in the State Derivative Lawsuit on alleged breachesOctober 22, 2021. On March 17, 2022, the court issued an order staying the State Derivative Lawsuit pending the resolution of fiduciary duty by the Company’s BoardFederal Derivative Lawsuit described below.
On September 2, 2021 Herbert Silverberg, another person making a Derivative Demand (“Silverberg”), commenced a derivative lawsuit on behalf of Directors associated with alleged false and misleading proxy statement disclosure (the “Fiduciary Class Action”). The Company has also received three requests under New Jersey law demanding, among other things, that the Company take certain actions in response to alleged breachesagainst one current and one former director of fiduciary duty relating to option grantsthe Company and securities transactionsthe Company as a nominal defendant in the contextFederal District Court for the Western District of New York seeking damages and equitable relief on a basis overlapping with the DFC AnnouncementState Derivative Lawsuit and alleged proxy statement disclosure deficiencies. Themisrepresentations and omissions. On October 4, 2021 Peters commenced a derivative lawsuit on behalf of the Company has responded to and engagedagainst the same parties named in discussions concerning these requests, and its response and discussions may serve as the basisState Derivative Lawsuit in the Federal District Court for the requestorsWestern District of New York seeking damages and equitable relief on a basis overlapping with the State Derivative Lawsuit and alleged violations of Section 10(b) of the Exchange Act. The Federal derivative lawsuits filed by Silverberg and Peters were consolidated into a single proceeding (the “Federal Derivative Lawsuit”) on January 18, 2022, and Peters was appointed as lead plaintiff in the Federal Derivative Lawsuit. An amended consolidated complaint combining the allegations contained in the Federal derivative lawsuits filed by Silverberg and Peters was filed in the Federal Derivative Lawsuit on February 16, 2022, and the Company and individual defendants served motions to bringdismiss or, in the alternative in the case of the Company, for summary judgment on April 15, 2022. Threshold discovery in the case was completed, and the Company and individual defendants formally filed their motions to dismiss/for summary judgment on September 30, 2022. The plaintiffs filed an opposition to the motions to dismiss/for summary judgment on November 14, 2022, and the Company and the individual defendants filed responses to the plaintiffs’ opposition on December 27, 2022 and December 23, 2022, respectively. A hearing with respect to the motions to dismiss/for summary judgment was held on August 9, 2023, and the lawsuit was dismissed in its entirety with prejudice on September 26, 2023. The plaintiffs filed a notice of appeal of the dismissal on October 25, 2023.
Additional shareholder derivative lawsuitsmay be brought based on the other Derivative Demands (any such lawsuits, collectively with the Fiduciary Class Action,State Derivative Lawsuit and the Federal Derivative Lawsuit, the “Fiduciary Matters”). The Company, acting through a Special Committee of Independent Directors, previously determined that there was no merit to the claims alleged by the Derivative Demands made through the time of its determination (except with respect to the charitable contribution, which was not fully considered by the Special Committee). See the Company’s Current Report on Form 8-K filed with the SEC on September 16, 2020. The Company, acting through a separate Special Litigation Committee of Independent Directors, concurred with the first Special Committee’s findings and further concluded that it is not in the Company’s interest to bring or allow any other shareholder to assert any of the claims alleged by the State Derivative Lawsuit or Federal Derivative Lawsuit (with the exception of the Peters claim purportedly arising under Section 10(b) of the Exchange Act, which was not addressed as no demand was made with respect to such claim). The second Special Litigation Committee will carefully review any other additional complaints constituting Fiduciary Matters which may be filed.
The DFC Announcement has also prompted investigations by several congressional committees, the SEC and the New York Attorney General’s office. The Company has cooperated in those investigations.
The Securities Class Actions, Fiduciary MattersAs previously reported, the Attorney General of the State of New York (the “NYAG”) has threatened to file a lawsuit against the Company and investigationsits Chief Executive Officer alleging violations of New York State’s Martin Act (the “Threatened Claim”). In connection with the Threatened Claim and pursuant to a special process under New York law, in 2021 additional documents were produced by several congressional committees, the SECCompany to the NYAG and the New York Attorney General’s office pertaining toNYAG took testimony of the DFC Announcement remain ongoing.Company’s Chief Executive Officer and General Counsel. The Company had discussions with the NYAG regarding a potential resolution of the Threatened Claim in the spring of 2022, but those discussions did not result in a resolution. If the Threatened Claim is ultimately brought by the NYAG, the Company intends to vigorously defend itself against the Securities Class Actions and Fiduciary Matters and is cooperating in the investigations related to the DFC Announcement.Threatened Claim.
In addition, Kodak is involved in various lawsuits, claims, investigations, remediations and proceedings, including, from time to time, commercial, customs, employment, environmental, tort and health and safety matters, which are being handled and defended in the ordinary course of business. Kodak is also subject, from time to time, to various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum of Kodak’s products and claims arising out of Kodak’s licensing its brand.products. These matters are in various stages of investigation and litigation and are being vigorously defended. Based on information currently available, Kodak does not believe that it is probable that the outcomes in any of these various matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations. Litigation is inherently unpredictable, and judgments could be rendered or settlements entered that could adversely affect Kodak’s operating results or cash flows in a particular period. Kodak routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
72
NOTE 13:12: GUARANTEES
In accordance with the terms of a settlement agreement concerning certain of the Company’s historical environmental liabilities at EBP, in the event the historical liabilities exceed $99 million, the Company will become liable for 50% of the portion above $99$99 million with no limitation to the maximum potential future payments. There is no liability recorded related to this guarantee.
Indemnifications
Kodak may, in certain instances, indemnify third parties when it sells businesses and real estate, and in the ordinary course of business with its customers, suppliers, service providers and business partners. Additionally, Kodak indemnifies officers and directors who are, or were, serving at Kodak’s request in such capacities. Historically, costs incurred to settle claims related to these indemnifications have not been material to Kodak’s financial position, results of operations or cash flows. Further, the fair value of any right to indemnification granted during the year ended December 31, 20202023 was not material to Kodak’s financial position, results of operations or cash flows.
Extended Warranty Arrangements
Kodak offers its customers extended warranty arrangements that are generally one year, but may range from three months to six years after the original warranty period. Kodak provides repair services and routine maintenance under these arrangements. Kodak has not separated the extended warranty costs from the routine maintenance service costs, as it is not practicable to do so. Therefore, these costs have been aggregated in the discussion that follows. The change in Kodak's deferred revenue balance in relation to these extended warranty and maintenance arrangements, which is reflected in Other current liabilities in the accompanying Consolidated Statement of Financial Position, was as follows:
(in millions) |
|
|
|
|
Deferred revenue on extended warranties as of December 31, 2018 |
| $ | 22 |
|
New extended warranty and maintenance arrangements |
|
| 98 |
|
Recognition of extended warranty and maintenance arrangement revenue |
|
| (99 | ) |
Deferred revenue on extended warranties as of December 31, 2019 |
|
| 21 |
|
New extended warranty and maintenance arrangements |
|
| 91 |
|
Recognition of extended warranty and maintenance arrangement revenue |
|
| (93 | ) |
Deferred revenue on extended warranties as of December 31, 2020 |
| $ | 19 |
|
(in millions) | ||||
Deferred revenue on extended warranties as of December 31, 2021 | $ | 19 | ||
New extended warranty and maintenance arrangements | 89 | |||
Recognition of extended warranty and maintenance arrangement revenue | (89 | ) | ||
Deferred revenue on extended warranties as of December 31, 2022 | 19 | |||
New extended warranty and maintenance arrangements | 87 | |||
Recognition of extended warranty and maintenance arrangement revenue | (89 | ) | ||
Deferred revenue on extended warranties as of December 31, 2023 | $ | 17 |
Costs incurred under these extended warranty and maintenance arrangements for the years ended December 31, 20202023, 2022 and 20192021 amounted to $88$77 million, $78 million and $105$82 million, respectively.
NOTE 14:13: FINANCIAL INSTRUMENTS
Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates, which may adversely affect its results of operations and financial position. Kodak manages such exposures, in part, with derivative financial instruments. Foreign currency forward contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities, as well as forecasted foreign currency denominated intercompany assets.
Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Kodak does not utilize financial instruments for trading or other speculative purposes.
Kodak’s foreign currency forward contracts are not designated as hedges and are marked to market through net (loss) earnings at the same time that the exposed assets and liabilities are re-measured through net (loss) earnings (both in Other (income) charges, net in the Consolidated Statement of Operations). The notional amount of such contracts open at December 31, 2020 2023 and 20192022 was approximately $361$279 million and $332$308 million, respectively. The majority of the contracts of this type held by Kodak at December 31, 2020 2023 and 20192022 were denominated in euros, Japanese yen, Chinese renminbi and Swiss francs.Japanese yen. The net effect of foreign currency forward contracts in the results of operations is shown in the following table:
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Net (gain) loss from derivatives not designated as hedging instruments |
| $ | (11 | ) |
| $ | 4 |
| ||||||||||||
Net loss (gain) from derivatives not designated as hedging instruments | $ | 12 | $ | 16 | $ | (1 | ) |
Kodak had no derivatives designated as hedging instruments for the years ended December 31, 2020 2023 and 2019.
2022. Kodak’s derivative counterparties are high-quality investment or commercial banks with significant experience with such instruments. Kodak manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties. Kodak has procedures to monitor the credit exposure amounts. The maximum credit exposure at December 31, 20202023 was not significant to Kodak.
73
In the event of a default under the Company’s ABL Credit Agreement,Agreements, or a default under any derivative contract or similar obligation of Kodak, subject to certain minimum thresholds, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset positions with the same counterparty.
As discussed in Note 9,8, “Debt and Finance Leases”Credit Facilities”, the Company concluded that the Convertible Notes were considered more akin to a debt-type instrument and that the economic characteristics and risks of certain of the embedded conversion features and term extension option were not considered clearly and closely related to the Convertible Notes. The embedded conversion features not considered clearly and closely related are the conversion at the option of the holder (“Optional Conversion”), the mandatory conversion by Kodak (“Mandatory Conversion”) and the conversion in the event of a fundamental change or reorganizationtransaction by the holder at the then applicable conversion rate (“Fundamental Change or Reorganization Conversion”). Accordingly, these embedded conversion features and term extension option were bifurcated from the Convertible Notes and separately accounted for on a combined basis as a single derivative asset or liability. The derivative was revalued when the Convertible Notes were repaid in the third quarter of 2023. The embedded conversion features and term extension option were revalued as of August 3, 2020, whenexpired on July 21, 2023 upon the Initial Conversion Shares were issued, resulting in the recognition of $407 million of expense for a pro-rata portion of the embedded conversion features and term extension option. The remaining embedded conversion features and term extension option were revalued again as of the Mandatory Conversion date, resulting in the recognition of $9 million of net expense.
With the conversionrepayment of the Convertible Notes in the third quarter of 2020, the embedded conversion features and term extension option expired.Notes. The derivative was in a liability position at December 31, 2019 2022 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative was being accounted for at fair value with changes in fair value reportedincluded in Other (income) charges, net in the Consolidated Statement of Operations.
As discussed in Note 10,9, “Redeemable, Convertible Series A Preferred Stock”, Kodakthe Company concluded that the Series B Preferred Stock and the Series C Preferred Stock are more akin to a debt-type instrument and that the economic characteristics and risks of the conversion in the event of a fundamental change (“Fundamental Change Conversion”) is not considered clearly and closely related to the Series B and Series C Preferred Stock. Accordingly, this embedded conversion feature was bifurcated from both the Series B and Series C Preferred Stock and are separately accounted for as a derivative asset or liability. Both derivatives were in a liability position at December 31, 2023 and 2022 and were reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivatives are being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations.
The Company concluded that the Series A Preferred Stock is consideredwas more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features, except where the conversion price was increased to the liquidation preference, were not considered clearly and closely related to the Series A Preferred Stock. The embedded conversion features not considered clearly and closely related arewere the conversion at the option of the holder;holder, the ability of Kodak to automatically convert the stock after the second anniversary of issuance and the conversion in the event of a fundamental change or reorganization.reorganization (“Fundamental Change or Reorganization Conversion”). Accordingly, these embedded conversion features were bifurcated from the Series A Preferred Stock and separately accounted for on a combined basis as a single derivative liabilityasset or liability. The embedded conversion features were revalued as of February 26, 2021 when the Company repurchased one million shares of Series A Preferred Stock and exchanged the remaining one million shares of Series A Preferred Stock for Series B Preferred Stock. The revaluation as of February 26, 2021 resulted in the recognition of $2 million of net expense which is reportedwas included in Other current liabilities in the Consolidated Statement of Financial Position as of December 31, 2020 and in Other long-term liabilities as of December 31, 2019. The derivative is being accounted for at fair value with changes in fair value being reported in Other(income) charges, net in the Consolidated Statement of Operations. With the repurchase and exchange of the shares of the Series A Preferred Stock the embedded conversion features derivative liability expired.
The net effect of the Preferred Stock and Convertible Notes embedded derivatives in the results of operations is shown in the following table:
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Net loss (gain) from Preferred Stock and Convertible Notes embedded derivatives | $ | 2 | $ | (3 | ) | $ | (7 | ) |
Fair Value
Fair values of Kodak’s foreign currency forward contracts are determined using observable inputs (Level 2 fair value measurements) and are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using discount rates appropriate for the duration of the contracts. The gross fair value of foreign currency forward contracts in an asset position are reported in Other current assets in the Consolidated Statement of Financial Position and the gross fair value of foreign currency contracts in a liability position are reported in Other current liabilities. The gross fair value of foreign currency forward contracts in an asset position as of December 31, 2020 2023 and 20192022 was $3 million and $1 million, in both periods.respectively. The gross fair value of the foreign currency forward contracts in a liability position as of December 31, 2020 2023 and 20192022 was $0 million in both periods.and $1 million, respectively.
The fair value of the embedded conversion features and term extension option for the Convertible Notes were revalued as of August 3, 2020, and again at September 30, 2020. The fair value of the embedded derivative at each conversion datederivatives was calculated based on the fair value of the shares issued less the fair value of debt. The fair value of shares issued is based on the weighted average stock price on the time of day the shares were transferred for August 3, 2020, and the closing stock price as of September 30, 2020. The fair value of debt is based on pricing models based on the value of related cash flows discounted at current market interest rates.
74
The following table presents the key inputs in the determination of fair value for the embedded conversion features and termination option derivatives at each conversion date:
|
| Valuation Date |
| |||||
|
| September 30, |
|
| August 3, |
| ||
|
| 2020 |
|
| 2020 |
| ||
Total value of embedded derivative liability immediately prior to extinguishment (in millions) |
| $ | 9 |
|
| $ | 429 |
|
Value of embedded derivative liability that expired (in millions) |
| $ | 9 |
|
| $ | 416 |
|
Value of remaining embedded derivative liability |
| $ | — |
|
| $ | 13 |
|
Kodak's stock price (1) |
| $ | 8.82 |
|
| $ | 16.91 |
|
Risk free rate |
|
| 0.12 | % |
|
| 0.12 | % |
Yield on the Convertible Notes |
|
| 8.93 | % |
|
| 9.47 | % |
|
|
Except as discussed above for the fair value determined at the time of conversion, the fair value of the embedded conversion features and term extension option derivatives are calculated using unobservable inputs (Level 3 fair measurements). The value of the Optional Conversion featureembedded derivatives associated with both the Convertible Notes and Series A, Series B and Series C Preferred Stock iswas calculated using a binomial lattice model. The value
The following tables present the key inputs in the determination of fair value for the embedded conversion features and termination option derivatives.features:
Convertible Notes:
|
| Valuation Date |
| Valuation Date | ||||||||
|
| December 31, |
| July 21, | December 31, | |||||||
|
| 2019 |
| 2023 | 2022 | |||||||
Total value of embedded derivative liability (in millions) |
| $ | 51 |
| $ | 5 | $ | 2 | ||||
Kodak's closing stock price |
|
| 4.65 |
| $ | 5.26 | $ | 3.05 | ||||
Expected stock price volatility |
|
| 104.61 | % | 60.00 | % | 50.00 | % | ||||
Risk free rate |
|
| 1.58 | % | 4.50 | % | 4.17 | % | ||||
Yield on the Convertible Notes |
|
| 11.52 | % | ||||||||
Implied credit spread on the Convertible Notes | 17.75 | % | 26.19 | % |
Series AB Preferred Stock:
|
| Valuation Date |
| |||||
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total value of embedded derivative liability (in millions) |
| $ | 9 |
|
| $ | 1 |
|
Kodak's closing stock price |
|
| 8.14 |
|
|
| 4.65 |
|
Expected stock price volatility |
|
| 133.44 | % |
|
| 104.61 | % |
Risk free rate |
|
| 0.10 | % |
|
| 1.58 | % |
Yield on the preferred stock |
|
| 11.97 | % |
|
| 16.27 | % |
Valuation Date | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
Total value of embedded derivative liability (in millions) | $ | 1 | $ | 1 | ||||
Kodak's closing stock price | $ | 3.90 | $ | 3.05 | ||||
Expected stock price volatility | 60.00 | % | 50.00 | % | ||||
Risk free rate | 4.14 | % | 4.17 | % | ||||
Implied credit spread on the Series B Preferred Stock | 18.34 | % | 27.19 | % |
Series C Preferred Stock:
Valuation Date | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
Total value of embedded derivative liability (in millions) | $ | 1 | $ | 1 | ||||
Kodak's closing stock price | $ | 3.90 | $ | 3.05 | ||||
Expected stock price volatility | 60.00 | % | 50.00 | % | ||||
Risk free rate | 4.14 | % | 4.17 | % | ||||
Implied credit spread on the Series C Preferred Stock | 20.34 | % | 29.19 | % |
The Fundamental Change and Reorganization Conversion values at issuance were calculated as the difference between the total value of the Convertible Notes, Series B or Series AC Preferred Stock, as applicable, and the sum of the net present value of the cash flows if the Convertible Notes are repaid at their maturity or the Series AB and Series C Preferred Stock is redeemed on its fifth anniversaryredemption date and the values of the other embedded derivatives. The Fundamental Change and Reorganization Conversion value reduces the value of the embedded conversion features and term extension option derivative liability. Other than events which alter the likelihood of a fundamental change, or reorganization event, the value of the Fundamental Change and Reorganization Conversion reflectreflects the value as of the issuance date, amortized for the passage of time.
The calculation of the Fundamental Change or Reorganization Conversion values for the Series A Preferred Stock was the same as the calculation described above for the Fundamental Change Conversion values for the Convertible Notes and Series B and C Preferred Stock.
The fair values of long-term borrowings were $17$396 million and $111$271 million at December 31, 2020 2023 and 2019,2022, respectively.
Fair values of long-term borrowings (Level 2 fair value measurements) are determined by reference to quoted market prices, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates.
Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the year ended December 31, 2020.2023.
75
The carrying values of cash and cash equivalents, restricted cash and the current portion of long-term borrowings approximate their fair values.
NOTE 14: REVENUE
NOTE 15: REVENUE
Disaggregation of Revenue
The following tables present revenue disaggregated by major product, portfolio summary and geography.geography (in millions).
Major product:
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
Plates, inks and other consumables |
| $ | 463 |
|
| $ | 64 |
|
| $ | 5 |
|
| $ | — |
|
| $ | — |
|
| $ | 532 |
|
Ongoing service arrangements (1) |
|
| 80 |
|
|
| 131 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 212 |
|
Total Annuities |
|
| 543 |
|
|
| 195 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 744 |
|
Equipment & Software |
|
| 49 |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 95 |
|
Film and chemicals |
|
| — |
|
|
| — |
|
|
| 154 |
|
|
| — |
|
|
| — |
|
|
| 154 |
|
Other (2) |
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 13 |
|
|
| 11 |
|
|
| 36 |
|
Total |
| $ | 592 |
|
| $ | 241 |
|
| $ | 172 |
|
| $ | 13 |
|
| $ | 11 |
|
| $ | 1,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
Plates, inks and other consumables |
| $ | 572 |
|
| $ | 83 |
|
| $ | 11 |
|
| $ | — |
|
| $ | — |
|
| $ | 666 |
|
Ongoing service arrangements (1) |
|
| 86 |
|
|
| 155 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 244 |
|
Total Annuities |
|
| 658 |
|
|
| 238 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 910 |
|
Equipment & Software |
|
| 56 |
|
|
| 55 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
Film and chemicals |
|
| — |
|
|
| — |
|
|
| 166 |
|
|
| — |
|
|
| — |
|
|
| 166 |
|
Other (2) |
|
| 13 |
|
|
| — |
|
|
| 20 |
|
|
| 12 |
|
|
| 10 |
|
|
| 55 |
|
Total |
| $ | 727 |
|
| $ | 293 |
|
| $ | 200 |
|
| $ | 12 |
|
| $ | 10 |
|
| $ | 1,242 |
|
Year Ended | ||||||||||||||||||||
December 31, 2023 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
Core products and services (1) | ||||||||||||||||||||
Plates, inks and other consumables | $ | 571 | $ | 26 | $ | — | $ | — | $ | 597 | ||||||||||
Ongoing service arrangements | 185 | — | — | — | 185 | |||||||||||||||
Total annuities | 756 | 26 | — | — | 782 | |||||||||||||||
Equipment & Software | 72 | — | — | — | 72 | |||||||||||||||
Film and chemicals | — | 215 | — | — | 215 | |||||||||||||||
Total core products and services | 828 | 241 | — | — | 1,069 | |||||||||||||||
Growth products (2) | — | 14 | — | — | 14 | |||||||||||||||
Other (3) | — | — | 17 | 17 | 34 | |||||||||||||||
Total | $ | 828 | $ | 255 | $ | 17 | $ | 17 | $ | 1,117 |
Year Ended | ||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
Core products and services (1) | ||||||||||||||||||||
Plates, inks and other consumables | $ | 652 | $ | 26 | $ | — | $ | — | $ | 678 | ||||||||||
Ongoing service arrangements | 205 | — | — | — | 205 | |||||||||||||||
Total annuities | 857 | 26 | — | — | 883 | |||||||||||||||
Equipment & Software | 81 | — | — | — | 81 | |||||||||||||||
Film and chemicals | — | 192 | — | — | 192 | |||||||||||||||
Total core products and services | 938 | 218 | — | — | 1,156 | |||||||||||||||
Growth products (2) | — | 16 | — | — | 16 | |||||||||||||||
Other (3) | — | - | 17 | 16 | 33 | |||||||||||||||
Total | $ | 938 | $ | 234 | $ | 17 | $ | 16 | $ | 1,205 |
Year Ended | ||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
Core products and services (1) | ||||||||||||||||||||
Plates, inks and other consumables | $ | 599 | $ | 22 | $ | — | $ | — | $ | 621 | ||||||||||
Ongoing service arrangements | 213 | — | — | — | 213 | |||||||||||||||
Total annuities | 812 | 22 | — | — | 834 | |||||||||||||||
Equipment & Software | 96 | — | — | — | 96 | |||||||||||||||
Film and chemicals | — | 180 | — | — | 180 | |||||||||||||||
Total core products and services | 908 | 202 | — | — | 1,110 | |||||||||||||||
Growth products (2) | — | 9 | — | — | 9 | |||||||||||||||
Other (3) | — | 1 | 15 | 15 | 31 | |||||||||||||||
Total | $ | 908 | $ | 212 | $ | 15 | $ | 15 | $ | 1,150 |
(1) |
|
|
|
|
76
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
Growth engines (1) |
| $ | 162 |
|
| $ | 135 |
|
| $ | 3 |
|
| $ | 13 |
|
| $ | — |
|
| $ | 313 |
|
Strategic other businesses (2) |
|
| 430 |
|
|
| 52 |
|
|
| 159 |
|
|
| — |
|
|
| 11 |
|
|
| 652 |
|
Planned declining businesses (3) |
|
| — |
|
|
| 54 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 64 |
|
|
| $ | 592 |
|
| $ | 241 |
|
| $ | 172 |
|
| $ | 13 |
|
| $ | 11 |
|
| $ | 1,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
Growth engines (1) |
| $ | 180 |
|
| $ | 140 |
|
| $ | 3 |
|
| $ | 12 |
|
| $ | — |
|
| $ | 335 |
|
Strategic other businesses (2) |
|
| 547 |
|
|
| 78 |
|
|
| 172 |
|
|
| — |
|
|
| 10 |
|
|
| 807 |
|
Planned declining businesses (3) |
|
| — |
|
|
| 75 |
|
|
| 25 |
|
|
| — |
|
|
| — |
|
|
| 100 |
|
|
| $ | 727 |
|
| $ | 293 |
|
| $ | 200 |
|
| $ | 12 |
|
| $ | 10 |
|
| $ | 1,242 |
|
|
|
(2) |
|
|
|
|
(3) | Other consists of Intellectual Property Licensing ("IP Licensing"), Brand Licensing and |
77
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
United States |
| $ | 121 |
|
| $ | 106 |
|
| $ | 115 |
|
| $ | 13 |
|
| $ | 11 |
|
| $ | 366 |
|
Canada |
|
| 14 |
|
|
| 8 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
North America |
|
| 135 |
|
|
| 114 |
|
|
| 116 |
|
|
| 13 |
|
|
| 11 |
|
|
| 389 |
|
Europe, Middle East and Africa |
|
| 257 |
|
|
| 86 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 355 |
|
Asia Pacific |
|
| 171 |
|
|
| 37 |
|
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 251 |
|
Latin America |
|
| 29 |
|
|
| 4 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 34 |
|
Total Sales |
| $ | 592 |
|
| $ | 241 |
|
| $ | 172 |
|
| $ | 13 |
|
| $ | 11 |
|
| $ | 1,029 |
|
|
| |||||||||||||||||||||||
|
| Year Ended |
| |||||||||||||||||||||
|
| December 31, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Other |
|
| Total |
| ||||||
United States |
| $ | 162 |
|
| $ | 147 |
|
| $ | 122 |
|
| $ | 12 |
|
| $ | 10 |
|
| $ | 453 |
|
Canada |
|
| 13 |
|
|
| 8 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
North America |
|
| 175 |
|
|
| 155 |
|
|
| 124 |
|
|
| 12 |
|
|
| 10 |
|
|
| 476 |
|
Europe, Middle East and Africa |
|
| 300 |
|
|
| 87 |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| 408 |
|
Asia Pacific |
|
| 208 |
|
|
| 44 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
|
| 306 |
|
Latin America |
|
| 44 |
|
|
| 7 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 52 |
|
Total Sales |
| $ | 727 |
|
| $ | 293 |
|
| $ | 200 |
|
| $ | 12 |
|
| $ | 10 |
|
| $ | 1,242 |
|
Year Ended | ||||||||||||||||||||
December 31, 2023 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
United States | $ | 250 | $ | 199 | $ | 17 | $ | 17 | $ | 483 | ||||||||||
Canada | 17 | 2 | — | — | 19 | |||||||||||||||
North America | 267 | 201 | 17 | 17 | 502 | |||||||||||||||
Europe, Middle East and Africa | 360 | 20 | — | — | 380 | |||||||||||||||
Asia Pacific | 178 | 33 | — | — | 211 | |||||||||||||||
Latin America | 23 | 1 | — | — | 24 | |||||||||||||||
Total Sales | $ | 828 | $ | 255 | $ | 17 | $ | 17 | $ | 1,117 |
Year Ended | ||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
United States | $ | 276 | $ | 177 | $ | 17 | $ | 16 | $ | 486 | ||||||||||
Canada | 20 | 2 | — | — | 22 | |||||||||||||||
North America | 296 | 179 | 17 | 16 | 508 | |||||||||||||||
Europe, Middle East and Africa | 410 | 19 | — | — | 429 | |||||||||||||||
Asia Pacific | 199 | 35 | — | — | 234 | |||||||||||||||
Latin America | 33 | 1 | — | — | 34 | |||||||||||||||
Total Sales | $ | 938 | $ | 234 | $ | 17 | $ | 16 | $ | 1,205 |
Year Ended | ||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Advanced | ||||||||||||||||||||
Materials and | ||||||||||||||||||||
(in millions) | Chemicals | Brand | Other | Total | ||||||||||||||||
United States | $ | 244 | $ | 152 | $ | 15 | $ | 15 | $ | 426 | ||||||||||
Canada | 20 | 2 | — | — | 22 | |||||||||||||||
North America | 264 | 154 | 15 | 15 | 448 | |||||||||||||||
Europe, Middle East and Africa | 387 | 17 | — | — | 404 | |||||||||||||||
Asia Pacific | 224 | 41 | — | — | 265 | |||||||||||||||
Latin America | 33 | — | — | — | 33 | |||||||||||||||
Total Sales | $ | 908 | $ | 212 | $ | 15 | $ | 15 | $ | 1,150 |
(1) |
| Sales are reported in the geographic area in which they originate. No non-U.S. country generated more than 10% of net sales in the years ended December 31, |
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed trade receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) in the Consolidated Statement of Financial Position. The contract assets are transferred to trade receivables when the rights to consideration become unconditional. The amounts recorded for contract assets at December 31, 2020 and 2019 were $2 million and $4 million, respectively, and are reported in Other current assets in the Consolidated Statement of Financial Position. The contract liabilities primarily relate to brand licensing agreements, prepaid service contracts or upfront payments for certain equipment purchases or prepaid royalties on intellectual property arrangements.purchases. The amounts recorded for contract liabilities at December 31, 2020 and 2019 were $64 million and $61 million, respectively, of which $47 million and $43 million, respectively, are reported in Other current liabilities and $17 million and $18 million, respectively, are reported in Other long-term liabilities in the Consolidated Statement of Financial Position. Contract assets and liabilities consisted of the following:
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Contract assets | $ | 1 | $ | 1 | ||||
Contract liabilities - current | 37 | 40 | ||||||
Contract liabilities - long-term | 63 | 11 | ||||||
Total | $ | 100 | $ | 51 |
Revenue recognized for the years ended December 31, 2020 and 2019 that was included
Activity in the contract liability balance at the beginning of the year was $43 million and $34 million, respectively, and primarily representeddeferred revenue from prepaid service contracts and equipment revenue recognition. Contract liabilities as of December 31, 2020 and 2019 included $41 million and $47 million, respectively of cash payments received during the years ended December 31, 2020 and 2019, respectively.accounts consisted of:
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Beginning liabilities recognized in revenue | $ | 33 | $ | 38 | $ | 37 | ||||||
Cash payments received, net of revenue recognized | 39 | 30 | 28 |
78
NOTE 16:15: OTHER OPERATING (INCOME) EXPENSE (INCOME), NET
|
| Year Ended December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Expense (income): |
|
|
|
|
|
|
|
|
(Gain) loss related to the sales of assets (1), (2) |
| $ | (10 | ) |
| $ | 14 |
|
Transition services agreement income |
|
| (6 | ) |
|
| (6 | ) |
Asset impairments (3), (4) |
|
| 3 |
|
|
| 6 |
|
Other |
|
| (1 | ) |
|
| 1 |
|
Total |
| $ | (14 | ) |
| $ | 15 |
|
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Asset impairments (1) (2) | $ | 5 | $ | 1 | $ | — | ||||||
Legal settlements | — | (1 | ) | (7 | ) | |||||||
Loss related to the sales of assets | — | — | 1 | |||||||||
Other | 1 | (1 | ) | — | ||||||||
Total | $ | 6 | $ | (1 | ) | $ | (6 | ) |
| (1) | In the |
|
|
|
|
| ||
(2) | In the |
NOTE 17:16: OTHER (INCOME) CHARGES, NET
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Change in fair value of embedded conversion features derivative (1) |
| $ | 382 |
|
| $ | 42 |
| ||||||||||||
Interest income (1) | $ | (15 | ) | $ | (1 | ) | $ | (1 | ) | |||||||||||
Change in fair value of embedded conversion features derivative (2) | 2 | (3 | ) | (7 | ) | |||||||||||||||
Loss on foreign exchange transactions |
|
| 5 |
|
|
| 3 |
| 9 | 4 | 2 | |||||||||
Other |
|
| (1 | ) |
|
| 1 |
| 3 | 1 | 1 | |||||||||
Total |
| $ | 386 |
|
| $ | 46 |
| $ | (1 | ) | $ | 1 | $ | (5 | ) |
(1) | Includes $9 million of interest income associated with a refund received in the first quarter of 2023 from a governmental authority in a location outside the U.S. that was previously held in order to guarantee potential tax disputes in that jurisdiction. | |
| Refer to Note |
NOTE 18:17: INCOME TAXES
The components of (Loss) earnings (loss) from continuing operations before income taxes and the related provision for U.S. and other income taxes were as follows (in millions):
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
(Loss) earnings from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
U.S. |
| $ | (388 | ) |
| $ | (68 | ) |
Outside the U.S. |
|
| 12 |
|
|
| 8 |
|
Total |
| $ | (376 | ) |
| $ | (60 | ) |
U.S. income taxes: |
|
|
|
|
|
|
|
|
Current benefit |
| $ | — |
|
| $ | — |
|
Deferred provision |
|
| 2 |
|
|
| — |
|
Income taxes outside the U.S.: |
|
|
|
|
|
|
|
|
Current (benefit) provision |
|
| (3 | ) |
|
| 7 |
|
Deferred provision |
|
| 169 |
|
|
| 24 |
|
Total provision |
| $ | 168 |
|
| $ | 31 |
|
79
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Earnings (loss) from continuing operations before income taxes: | ||||||||||||
U.S. | $ | 36 | $ | (2 | ) | $ | (12 | ) | ||||
Outside the U.S. | 51 | 33 | 40 | |||||||||
Total | $ | 87 | $ | 31 | $ | 28 | ||||||
U.S. income taxes: | ||||||||||||
Deferred benefit | (1 | ) | (3 | ) | (1 | ) | ||||||
Income taxes outside the U.S.: | ||||||||||||
Current provision | 12 | 7 | 4 | |||||||||
Deferred provision | 1 | 1 | 1 | |||||||||
Total provision | $ | 12 | $ | 5 | $ | 4 |
The differences between income taxes computed using the U.S. federal income tax rate and the provision for income taxes for continuing operations were as follows (in millions):
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
Amount computed using the statutory rate |
| $ | (79 | ) |
| $ | (13 | ) | $ | 18 | $ | 7 | $ | 6 | ||||||
Increase (reduction) in taxes resulting from: |
|
|
|
|
|
|
|
| ||||||||||||
Unremitted foreign earnings |
|
| 2 |
|
|
| (1 | ) | 1 | (2 | ) | (1 | ) | |||||||
Operations outside the U.S. |
|
| 3 |
|
|
| 22 |
| 13 | 4 | 8 | |||||||||
Legislative tax law and rate changes |
|
| (11 | ) |
|
| 1 |
| — | — | (28 | ) | ||||||||
Valuation allowance |
|
| 220 |
|
|
| 11 |
| (19 | ) | (9 | ) | 20 | |||||||
Tax settlements and adjustments, including interest |
|
| (43 | ) |
|
| 2 |
| — | 4 | (1 | ) | ||||||||
Embedded derivative liability |
|
| 81 |
|
|
| 9 |
| ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Other, net |
|
| (5 | ) |
|
| — |
| (1 | ) | 1 | — | ||||||||
Provision from income taxes |
| $ | 168 |
|
| $ | 31 |
| ||||||||||||
Provision for income taxes | $ | 12 | $ | 5 | $ | 4 |
The significant components of deferred tax assets and liabilities were as follows (in millions):
|
| As of December 31, |
| As of December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(in millions) | 2023 | 2022 | ||||||||||||||
Deferred tax assets |
|
|
|
|
|
|
|
| ||||||||
Pension and postretirement obligations |
| $ | 25 |
|
| $ | 39 |
| ||||||||
Restructuring programs |
|
| 2 |
|
|
| 2 |
| $ | 1 | $ | 2 | ||||
Leasing |
|
| 4 |
|
|
| 1 |
| 2 | 3 | ||||||
Foreign tax credit |
|
| 358 |
|
|
| 355 |
| 281 | 358 | ||||||
Inventories |
|
| 9 |
|
|
| 8 |
| 11 | 14 | ||||||
Investment tax credit |
|
| 42 |
|
|
| 46 |
| 25 | 26 | ||||||
Employee deferred compensation |
|
| 26 |
|
|
| 24 |
| 23 | 22 | ||||||
Depreciation |
|
| 36 |
|
|
| 41 |
| 31 | 33 | ||||||
Research and development costs |
|
| 40 |
|
|
| 56 |
| 42 | 42 | ||||||
Tax loss carryforwards |
|
| 480 |
|
|
| 325 |
| 529 | 506 | ||||||
Other deferred revenue |
|
| 2 |
|
|
| 2 |
| 2 | 2 | ||||||
Other |
|
| 89 |
|
|
| 86 |
| 79 | 74 | ||||||
Total deferred tax assets |
| $ | 1,113 |
|
| $ | 985 |
| ||||||||
Total deferred tax assets before valuation allowances | $ | 1,026 | $ | 1,082 | ||||||||||||
Valuation allowances | (778 | ) | (826 | ) | ||||||||||||
Total net deferred tax assets | $ | 248 | $ | 256 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Deferred tax liabilities |
|
|
|
|
|
|
|
| ||||||||
Pension and postretirement obligations | $ | (251 | ) | $ | (258 | ) | ||||||||||
Goodwill/intangibles |
| $ | 10 |
|
| $ | 11 |
| (8 | ) | (8 | ) | ||||
Unremitted foreign earnings |
|
| 22 |
|
|
| 19 |
| (16 | ) | (17 | ) | ||||
Total deferred tax liabilities |
|
| 32 |
|
|
| 30 |
| (275 | ) | (283 | ) | ||||
Net deferred tax assets before valuation allowance |
|
| 1,081 |
|
|
| 955 |
| ||||||||
Valuation allowance |
|
| 1,112 |
|
|
| 821 |
| ||||||||
Net deferred tax (liabilities) assets |
| $ | (31 | ) |
| $ | 134 |
| ||||||||
Net deferred tax liabilities | $ | (27 | ) | $ | (27 | ) |
Deferred tax (liabilities) assetsliabilities are reported in the following componentscomponent within the Consolidated Statement of Financial Position (in millions):
|
| As of December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Deferred income taxes |
| $ | — |
|
| $ | 147 |
|
Other long-term liabilities |
|
| (31 | ) |
|
| (13 | ) |
Net deferred tax (liabilities) assets |
| $ | (31 | ) |
| $ | 134 |
|
80
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Other long-term liabilities | $ | (27 | ) | $ | (27 | ) | ||
Net deferred tax liabilities | $ | (27 | ) | $ | (27 | ) |
As of December 31, 2020, 2023, Kodak had available domestic and foreign NOL carry-forwardsnet operating loss ("NOL") carryforwards for income tax purposes of approximately $2,068$2,181 million, of which approximately $856$1,007 million have an indefinite carry-forwardcarryforward period. The $1,007 million with an indefinite carryforward period includes $150 million of U.S interest carryforward. The remaining $1,212$1,174 million that do not have an indefinite carryforward period expire between the years 20212024 and 2038. 2042. Kodak also had foreign tax and investment tax credit carryforwards of $281 million and $25 million, respectively, which expire between 2024 and 2035. A total of $147 million of the foreign tax credit carryforwards will expire in 2024 if left unutilized. If written off, these tax attributes are expected to be fully offset by a corresponding decrease in Kodak's valuation allowance, resulting in no net tax provision.
As of December 31, 2020, Kodak had2023, approximately $77 million of unused foreign tax credits expired and investmentwere written off. These tax credits of $358 million and $42 million, respectively, with various expiration dates through 2039.attributes were fully offset by a corresponding decrease in Kodak’s valuation allowance, which resulted in no net tax provision.
Utilization of NOL carry-forwardsKodak’s ability to utilize its U.S. NOLs and tax credits may be subject to limitations imposed by Section 382 of the Internal Revenue Code. Section 382 limits the utilization of NOLs in the event of significant changes in the stock ownership of the Company in the future. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of NOL carryforwards, other tax carryforwards, and certain built-in losses as defined under that Section, upon an ownership change. In general terms, anCompany. An ownership change may result from transactions that increaseoccurs if, among other things, the aggregate ownership of certain stockholders inowning five percent of Kodak’s stock increases by more than 50 percentage points over a three-yearthree-year rolling period. An ownership change can also occur by other events, such as the sale of Kodak shares that are owned by its 5% shareholders. Future transactions, when combined with reported transactions within the testing period.period could aggregate to an ownership change during the testing period in excess of 50 percentage points.
Kodak hadKodak’s intent is to repatriate its offshore earnings when prudent. As such, it has recorded deferred tax liabilities of $22$16 million and $19$17 million for potential taxes on the undistributed earnings, includingprimarily attributable to foreign withholding taxes, as of December 31, 2020 2023 and 2019,2022, respectively.
Kodak’s valuation allowance as of December 31, 20202023 was $1,112$778 million. Of this amount, $374$290 million was attributable to Kodak’s net deferred tax assets outside the U.S. of $364$279 million and $738$488 million related to Kodak’s net deferred tax assets in the U.S. of $717$472 million, for which Kodak believes it is not more likely than not that the assets will be realized.
As of March 31, 2020, Kodak determined that it was more likely than not that deferred tax assets outside the U.S. which were not offset with valuation allowances as of March 31, 2020 would not be realized due to reductions in estimates of future profitability as a result of the COVID-19 pandemic in locations outside the U.S. Accordingly, Kodak recorded a provision of $167 million associated with the establishment of a valuation allowance on those deferred tax assets.
Kodak’s valuation allowance as of December 31, 20192022 was $821$826 million. Of this amount, $168$285 million was attributable to Kodak’s net deferred tax assets outside the U.S. of $322$275 million, and $653$541 million related to Kodak’s net deferred tax assets in the U.S. of $633$524 million, for which Kodak believes it is not more likely than not that the assets will be realized.
During 2019, Kodak determined that it was more likely than not that a portion of the deferred tax assets outside the U.S. would not be realized due to reduced sales volumes and profits in locations outside the U.S. and accordingly recorded a provision of $19 million associated with the establishment of a valuation allowance on those deferred tax assets.
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of Kodak’s liability for income taxes associated with unrecognized tax benefits is as follows
(in (in millions):
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Balance as of January 1 |
| $ | 54 |
|
| $ | 57 |
|
Tax positions related to the current year: |
|
|
|
|
|
|
|
|
Additions |
|
| — |
|
|
| — |
|
Tax positions related to prior years: |
|
|
|
|
|
|
|
|
Additions |
|
| 2 |
|
|
| 1 |
|
Reductions |
|
| (42 | ) |
|
| (1 | ) |
Settlements with taxing jurisdictions |
|
| (6 | ) |
|
| (3 | ) |
Balance as of December 31 |
| $ | 8 |
|
| $ | 54 |
|
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Balance as of January 1 | $ | 3 | $ | 4 | $ | 8 | ||||||
Tax positions related to the current year: | ||||||||||||
Additions | — | — | — | |||||||||
Tax positions related to prior years: | ||||||||||||
Additions | 1 | 1 | — | |||||||||
Reductions | (1 | ) | (2 | ) | (1 | ) | ||||||
Settlements with taxing jurisdictions | (1 | ) | — | (3 | ) | |||||||
Balance as of December 31 | $ | 2 | $ | 3 | $ | 4 |
Kodak’s policy regarding interest and/or penalties related to income tax matters is to recognize such items as a component of provision for income tax (benefit) expense.taxes. Kodak had approximately $14$10 million of interest and penalties associated with uncertain tax benefits accrued as of December 31, 2020 2023 and 2019.2022.
Kodak had uncertain tax benefits of approximately $22 million and $20$13 million as of December 31, 2020 2023 and 2019, respectively,2022, that, if recognized, would affect the effective income tax rate. Kodak has classified certain income tax liabilities as current or noncurrent based on management’s estimate of when these liabilities will be settled. The current liabilities are recorded in Other current liabilities in the Consolidated Statement of Financial Position. Noncurrent income tax liabilities are recorded in Other long-term liabilities in the Consolidated Statement of Financial Position.
It is reasonably possible that the liability associated with Kodak’s unrecognized tax benefits will increase or decrease within the next twelve months. These changes may be the result of settling ongoing audits or the expiration of statutes of limitations. Such changes to the unrecognized tax benefits could range from $0 million to $5 million based on current estimates. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.
81
Although management believes that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the earnings of Kodak. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings.
During 2020,2023, Kodak agreed to terms with the IRS and settled the federalan open tax audit for calendarthe years 2013 and 2014. For these years, Kodak originally recorded through 2017 with a federal unrecognized tax position (“UTP”) totaling $41non-US taxing authority. This settlement included a cash payment of $1 million which was fully offset byis reflected in the provision for income taxes.
During 2022, Kodak settled an open tax attributes.audit for the years 2015 through 2018 with a non- U.S. taxing authority. This settlement resultedincluded a cash payment of $2 million which is reflected in an increasethe provision for taxes and a decrease in net deferred tax assets and wasof $3 million which is fully offset by a corresponding increasereduction in Kodak’s U.S.the valuation allowance, resulting in no net tax benefit.
During 2019, Kodak reached a settlement outside of the U.S. and settled an audit for calendar years 2005-2008. Kodak originally recorded liabilities for UTPs totaling $3 million (plus interest of approximately $3 million). Kodak paid $2 million in 2019 as result of this settlement and paid the remaining $4 million in April 2020.allowance.
Kodak is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Kodak has substantially concluded all U.S. federal income tax matters for years through 20152018 and state income tax matters for years through 20122015 with the respective tax authorities. With respect to countries outside the U.S., Kodak has substantially concluded all material foreign income tax matters through 2013 with respective foreign tax jurisdiction authorities.
NOTE 19:18: RESTRUCTURING COSTS AND OTHER
Kodak recognizes the need to continually rationalize its workforce and streamline its operations in the face of ongoing business and economic changes. Charges for restructuring initiatives are recorded in the period in which Kodak commits to a formalized restructuring plan, or executes the specific actions contemplated by the plan and all criteria for liability recognition under the applicable accounting guidance have been met.
The activity in the accrued balances and the non-cash charges and credits incurred in relation to restructuring programs during the twothree years ended December 31, 20202023 were as follows (in millions):
|
| Severance Reserve (1) |
|
| Exit Costs Reserve (1) |
|
| Long-lived Asset Impairments and Inventory Write-downs (1) |
|
| Total |
| Inventory | |||||||||||||||||||
Balance as of December 31, 2018 |
| $ | 6 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 8 |
| ||||||||||||||||
Severance | Exit Costs | Write- | ||||||||||||||||||||||||||||||
(in millions) | Reserve (1) | Reserve (1) | downs (1) | Total | ||||||||||||||||||||||||||||
Balance as of December 31, 2020 | $ | 10 | $ | 1 | $ | — | $ | 11 | ||||||||||||||||||||||||
Charges |
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 16 |
| 6 | — | — | 6 | ||||||||||||
Utilization/cash payments |
|
| (8 | ) |
|
| (1 | ) |
|
| — |
|
|
| (9 | ) | (10 | ) | — | — | (10 | ) | ||||||||||
Other adjustments & reclasses (2) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) | (2 | ) | — | — | (2 | ) | ||||||||||
Balance as of December 31, 2019 |
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| 12 |
| ||||||||||||||||
Balance as of December 31, 2021 | 4 | 1 | — | 5 | ||||||||||||||||||||||||||||
Charges |
|
| 16 |
|
|
| 1 |
|
|
| — |
|
|
| 17 |
| 6 | 4 | 3 | 13 | ||||||||||||
Utilization/cash payments |
|
| (14 | ) |
|
| (1 | ) |
|
| — |
|
|
| (15 | ) | (6 | ) | — | (3 | ) | (9 | ) | |||||||||
Other adjustments & reclasses (2) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) | (2 | ) | — | — | (2 | ) | ||||||||||
Balance as of December 31, 2020 |
| $ | 10 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 11 |
| ||||||||||||||||
Balance as of December 31, 2022 | 2 | 5 | — | 7 | ||||||||||||||||||||||||||||
Charges | 8 | (1 | ) | 3 | 10 | |||||||||||||||||||||||||||
Utilization/cash payments | (6 | ) | (3 | ) | (3 | ) | (12 | ) | ||||||||||||||||||||||||
Balance as of December 31, 2023 | $ | 4 | $ | 1 | $ | — | $ | 5 |
| The severance and exit costs reserves require the outlay of |
| The |
20192021 Activity
Restructuring actions taken in 20192021 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included various targeted reductions in manufacturing, service, sales, research and development, and other administrative functions.
As a result of these actions, for the year ended December 31, 20192021 Kodak recorded $16$6 million of charges which were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations.
The 20192021 severance costs related to the elimination of approximately 220130 positions, including approximately 15070 administrative 65and 60 manufacturing/service and 5 research and development positions. The geographic composition of these positions included approximately 9070 in the U.S. and Canada and 13060 throughout the rest of the world.
822022 Activity
Restructuring actions taken in 20202022 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included various targeted reductions in manufacturing, service, sales, research and development, and other administrative functions.
As a result of these actions, for the year ended December 31, 20202022 Kodak recorded $17$13 million of charges of which $10 million were reported as Restructuring costs and other and $3 million were reported as Cost of revenues in the accompanying Consolidated Statement of Operations.
The 20202022 severance costs related to the elimination of approximately 250115 positions, including approximately 16050 administrative, 40 manufacturing/service and 25 research and development positions. The geographic composition of these positions included approximately 65 in the U.S. and Canada and 50 throughout the rest of the world. The 2022 exit costs related to the cessation of manufacturing of the Electrophotographic Printing Solutions equipment products and represent contractual obligations associated with open purchase orders as of December 31, 2022.
2023 Activity
Restructuring actions taken in 2023 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included actions to complete the process of ceasing manufacturing of the Electrophotographic Printing Solutions equipment products as well as various targeted reductions in manufacturing, service, sales, and administrative functions.
As a result of these actions, for the year ended December 31, 2023 Kodak recorded $10 million of charges of which $7 million were reported as Restructuring costs and other and $3 million were reported as Cost of revenues in the accompanying Consolidated Statement of Operations.
The 2023 severance costs related to the elimination of approximately 130 positions, including approximately 50 administrative and 9080 manufacturing/service positions. The geographic composition of these positions included approximately 14020 in the U.S. and Canada and 110 throughout the rest of the world.
As a result of these initiatives, the majority of the severance and exit cost liabilities as of December 31, 20202023 will be paid during periods through the end of 2021.the second quarter of 2024. The $1 million exit cost reserves primarily relatereserve relates to a liability for which timing of the payment is uncertain.
NOTE 20:19: RETIREMENT PLANS
Substantially all U.S. employees are covered by a noncontributory defined benefit plan, the Kodak Retirement Income Plan (“KRIP” or the "U.S. Plan"), which is funded by Company contributions to an irrevocable trust fund. The funding policy for KRIP is to contribute amounts sufficient to meet minimum funding requirements as determined by employee benefit and tax laws plus any additional amounts the Company determines to be appropriate. Assets in the trust fund are held for the sole benefit of participating employees and retirees. They are composed
For U.S. employees hired prior to March 1999, KRIP’s benefits were generally based on a formula recognizing length of service and final average earnings. KRIP included a separate cash balance formula for all U.S. employees hired after February 1999, as well as employees hired prior to that date who opted into the cash balance formula during a special election period. Effective January 1, 2015 the KRIP was amended to provide that all participants accrue benefits under a single, revised cash balance formula (the “Cash Balance Plan”). The Cash Balance Plan credits employees'employees’ hypothetical accounts with an amount equal to a specified percentage of their pay, plus interest based on the 30-year30-year Treasury bond rate. Effective January 1, 2020, In May 2022, the credits increasedKRIP plan was amended to increase the employees’ crediting rates from 7% or 8% of pay to either 9% or 10% of pay.pay based on employee classification to 12% or 13% of pay, retroactive to January 1, 2022. The plan amendment also provided a one-time service credit to eligible employees’ cash balance accounts. In May 2023, the KRIP plan was amended to provide another one-time service credit to eligible employees’ cash balance accounts.
Many subsidiaries and branches operating outside the U.S. have defined benefit retirement plans covering substantially all employees. Contributions by Kodak for these plans are typically deposited under government or other fiduciary-type arrangements. Retirement benefits are generally based on contractual agreements that provide for benefit formulas using years of service and/or compensation prior to retirement. The actuarial assumptions used for these plans reflect the diverse economic environments within the various countries in which Kodak operates.
Information on the major funded and unfunded U.S. and Non-U.S. defined benefit pension plans is presented below. The information for the U.S. for all years presented relates to KRIP. The composition of the major Non-U.S. plans may vary from year to year. If the major Non-U.S. plan composition changes, prior year data is conformed to ensure comparability.
83
Obligations and Funded Status:
The measurement date used to determine the pension obligation for all funded and unfunded U.S. and Non-U.S. defined benefit plans is December 31.
Year Ended | Year Ended | |||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Projected benefit obligation at beginning of period | $ | 2,482 | $ | 577 | $ | 3,132 | $ | 816 | ||||||||
Service cost | 13 | 2 | 13 | 3 | ||||||||||||
Interest cost | 117 | 20 | 80 | 9 | ||||||||||||
Benefit payments | (283 | ) | (43 | ) | (294 | ) | (44 | ) | ||||||||
Plan Amendments | 29 | — | 28 | — | ||||||||||||
Actuarial loss (gain) | 28 | 12 | (479 | ) | (165 | ) | ||||||||||
Special termination benefits | — | — | 2 | — | ||||||||||||
Currency adjustments | — | 20 | — | (42 | ) | |||||||||||
Projected benefit obligation at end of period | $ | 2,386 | $ | 588 | $ | 2,482 | $ | 577 | ||||||||
Change in Plan Assets | ||||||||||||||||
Fair value of plan assets at beginning of period | $ | 3,659 | $ | 526 | $ | 4,105 | $ | 626 | ||||||||
Actual Return on plan assets | 170 | 25 | (152 | ) | (31 | ) | ||||||||||
Employer contributions | — | 6 | — | 5 | ||||||||||||
Benefit payments | (283 | ) | (43 | ) | (294 | ) | (44 | ) | ||||||||
Currency adjustments | — | 14 | — | (30 | ) | |||||||||||
Fair value of plan assets at end of period | $ | 3,546 | $ | 528 | $ | 3,659 | $ | 526 | ||||||||
Over (under) funded status at end of period | $ | 1,160 | $ | (60 | ) | $ | 1,177 | $ | (51 | ) | ||||||
Accumulated benefit obligation at end of period | $ | 2,384 | $ | 579 | $ | 2,482 | $ | 568 |
|
| Year Ended December 31, 2020 |
|
| Year Ended December 31, 2019 |
| ||||||||||
(in millions) |
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Change in Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period |
| $ | 3,475 |
|
| $ | 834 |
|
| $ | 3,405 |
|
| $ | 834 |
|
Service cost |
|
| 11 |
|
|
| 3 |
|
|
| 10 |
|
|
| 3 |
|
Interest cost |
|
| 86 |
|
|
| 9 |
|
|
| 122 |
|
|
| 13 |
|
Benefit payments |
|
| (277 | ) |
|
| (47 | ) |
|
| (349 | ) |
|
| (48 | ) |
Actuarial loss |
|
| 299 |
|
|
| 39 |
|
|
| 284 |
|
|
| 36 |
|
Settlements |
|
| (121 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Special termination benefits |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Currency adjustments |
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| (4 | ) |
Projected benefit obligation at end of period |
| $ | 3,476 |
|
| $ | 912 |
|
| $ | 3,475 |
|
| $ | 834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
| $ | 3,610 |
|
| $ | 661 |
|
| $ | 3,445 |
|
| $ | 671 |
|
Gain on plan assets |
|
| 495 |
|
|
| 20 |
|
|
| 514 |
|
|
| 28 |
|
Employer contributions |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 10 |
|
Benefit payments |
|
| (277 | ) |
|
| (47 | ) |
|
| (349 | ) |
|
| (48 | ) |
Settlements |
|
| (121 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Currency adjustments |
|
| — |
|
|
| 55 |
|
|
| — |
|
|
| — |
|
Fair value of plan assets at end of period |
| $ | 3,707 |
|
| $ | 696 |
|
| $ | 3,610 |
|
| $ | 661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over (under) funded status at end of period |
| $ | 231 |
|
| $ | (216 | ) |
| $ | 135 |
|
| $ | (173 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of period |
| $ | 3,473 |
|
| $ | 903 |
|
| $ | 3,474 |
|
| $ | 825 |
|
An actuarial loss of $28 million related to the U.S. Plan's projected benefit obligation ("PBO") was recognized in 2023, primarily driven by a decrease in the discount rate ($40 million), partially offset by a gain associated with favorable mortality experience ($12 million). Additionally, a prior service cost was recognized as a result of a plan amendment ($29 million) in 2023. In 2022, a PBO actuarial gain of $479 million was recognized for the U.S. Plan driven primarily by an increase in the discount rate ($582 million), partially offset by a loss associated with updated mortality assumptions ($105 million). Additionally, a prior service cost was recognized as a result of a plan amendment ($28 million). The Non-U.S. PBO actuarial loss of $12 million recognized in 2023 was driven by decreases in discount rates ($20 million) and unfavorable demographic experience ($1 million), partially offset by gains associated with lower inflation assumptions ($9 million). The Non-U.S. PBO actuarial gains of $165 million recognized in 2022 were driven primarily by an increase in the discount rates.
The settlement amount of $121 millionactual return on plan assets for the U.S. Plan was $170 million for the year ended December 31,2020 represents lump sum payments31, 2023 and negative $152 million for the year ended December 31, 2022. The return for 2023 reflected strong performance of debt securities and certain hedge fund investments, and the negative return for 2022 reflected negative bond performance due to rising interest rates. The total net realized losses from KRIP.derivative investments for 2023 and 2022 were approximately ($1) million and ($128) million, respectively. Refer to discussion below on derivative instruments for further information.
The weighted-average assumptions used to determine the benefit obligation amounts for all major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:
As of December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 4.92 | % | 3.47 | % | 5.13 | % | 3.93 | % | 2.54 | % | 1.48 | % | ||||||||||||
Salary increase rate | 1.50 | % | 2.06 | % | 1.00 | % | 2.71 | % | 1.00 | % | 2.39 | % | ||||||||||||
Interest crediting rate for cash balance plan | 4.00 | % | NA | 4.00 | % | NA | 2.00 | % | NA |
Amounts recognized in the Consolidated Statement of Financial Position for all major funded and unfunded U.S. and Non-U.S. defined benefit plans are as follows (in millions):
|
| As of December 31, |
| As of December 31, | ||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||||||||||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||||||||||||||||||
Other long-term assets |
| $ | 231 |
|
| $ | 16 |
|
| $ | 135 |
|
| $ | 26 |
| ||||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||
Pension and other postretirement assets | $ | 1,160 | $ | 42 | $ | 1,177 | $ | 42 | ||||||||||||||||||||||||
Pension and other postretirement liabilities |
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (199 | ) | — | (102 | ) | — | (93 | ) | ||||||||||
Net amount recognized |
| $ | 231 |
|
| $ | (216 | ) |
| $ | 135 |
|
| $ | (173 | ) | $ | 1,160 | $ | (60 | ) | $ | 1,177 | $ | (51 | ) |
Information with respect to the major funded and unfunded U.S. and Non-U.S. defined benefit plans with a projected benefit obligation in excess of the fair value of plan assets is as follows (in millions):
` |
| As of December 31, |
| |||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| As of December 31, | |||||||||||||||||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| 2023 | 2022 | ||||||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||
Projected benefit obligation |
| $ | — |
|
| $ | 618 |
|
| $ | — |
|
| $ | 568 |
| $ | — | $ | 406 | $ | — | $ | 209 | ||||||||
Fair value of plan assets |
|
| — |
|
|
| 386 |
|
|
| — |
|
|
| 368 |
| — | 304 | — | 116 |
84
Information with respect to the major funded and unfunded U.S. and Non-U.S. defined benefit plans with an accumulated benefit obligation in excess of the fair value of plan assets is as follows (in millions):
|
| As of December 31, |
| As of December 31, | ||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||||||||||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||||||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||
Accumulated benefit obligation |
| $ | — |
|
| $ | 609 |
|
| $ | — |
|
| $ | 559 |
| $ | — | $ | 397 | $ | — | $ | 201 | ||||||||
Fair value of plan assets |
|
| — |
|
|
| 386 |
|
|
| — |
|
|
| 368 |
| — | 304 | — | 116 |
Amounts recognized in accumulated other comprehensive income (loss) incomein shareholders’ equity for all major funded and unfunded U.S. and Non-U.S. defined benefit plans consist of (in millions):
|
| As of December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Prior service credit |
| $ | 13 |
|
| $ | 2 |
|
| $ | 20 |
|
| $ | 3 |
|
Net actuarial loss |
|
| (220 | ) |
|
| (182 | ) |
|
| (244 | ) |
|
| (151 | ) |
Total |
| $ | (207 | ) |
| $ | (180 | ) |
| $ | (224 | ) |
| $ | (148 | ) |
As of December 31, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||
Prior service (cost) credit | $ | (45 | ) | $ | 2 | $ | (25 | ) | $ | 2 | ||||||
Net actuarial gain (loss) | 449 | (52 | ) | 594 | (43 | ) | ||||||||||
Total | $ | 404 | $ | (50 | ) | $ | 569 | $ | (41 | ) |
Other changes in major plan assets and benefit obligations recognized in Other comprehensive (loss) income (expense) are as follows (in millions):
|
| Year Ended December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Newly established gain (loss) |
| $ | — |
|
| $ | (38 | ) |
| $ | 16 |
|
| $ | (30 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
|
| — |
|
Net actuarial loss |
|
| 15 |
|
|
| 7 |
|
|
| — |
|
|
| 5 |
|
Curtailment gain recognized in expense |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
Net loss recognized in expense due to settlement |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total income (loss) recognized in Other comprehensive income |
| $ | 17 |
|
| $ | (31 | ) |
| $ | 7 |
|
| $ | (25 | ) |
Year Ended December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||
Newly established (loss) gain | $ | (115 | ) | $ | (7 | ) | $ | 149 | $ | 120 | $ | 635 | $ | (4 | ) | |||||||||
Newly established prior service cost | (29 | ) | — | (28 | ) | — | — | — | ||||||||||||||||
Amortization of: | ||||||||||||||||||||||||
Prior service cost (credit) | 9 | — | (3 | ) | — | (7 | ) | — | ||||||||||||||||
Net actuarial (gain) loss | (30 | ) | 1 | — | 10 | 30 | 9 | |||||||||||||||||
Total (loss) income recognized in Other comprehensive (loss) income | $ | (165 | ) | $ | (6 | ) | $ | 118 | $ | 130 | $ | 658 | $ | 5 |
The
For the year ended December 31, 2023, the U.S. loss consisted of the PBO actuarial loss of $28 million and an asset actuarial loss of $87 million as actual asset returns were less than expected returns and the Non-U.S. losses were driven primarily by discount rate changes. Inloss consisted of the U.S., losses due to discount rate changes werePBO actuarial loss of $12 million partially offset by asset gains.actuarial gains of $5 million as actual asset returns exceeded expected returns. For the year ended December 31, 2022, the U.S. gain consisted of the PBO actuarial gain of $479 million partially offset by asset actuarial losses of $330 million and the Non-U.S. gain consisted of the PBO actuarial gain of $165 million partially offset by asset actuarial losses of $45 million.
Pension (Income) Expense:
85
Pension income(income) expense for all defined benefit plans included (in millions):
|
| Year Ended December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Major defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 11 |
|
| $ | 3 |
|
| $ | 10 |
|
| $ | 3 |
|
Interest cost |
|
| 86 |
|
|
| 9 |
|
|
| 122 |
|
|
| 13 |
|
Expected return on plan assets |
|
| (196 | ) |
|
| (19 | ) |
|
| (214 | ) |
|
| (22 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
|
| — |
|
Actuarial loss |
|
| 15 |
|
|
| 7 |
|
|
| — |
|
|
| 5 |
|
Pension income before special termination benefits |
|
| (91 | ) |
|
| — |
|
|
| (89 | ) |
|
| (1 | ) |
Special termination benefits |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Curtailment gains |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
Settlement losses |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net pension income for major defined benefit plans |
|
| (79 | ) |
|
| — |
|
|
| (88 | ) |
|
| (1 | ) |
Other plans including unfunded plans |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (3 | ) |
Net pension (income), expense |
| $ | (79 | ) |
| $ | 1 |
|
| $ | (88 | ) |
| $ | (4 | ) |
The $2 million curtailment gain for the year ended December 31, 2019 was incurred as a result of the sale of FPD. In addition, the amounts shown in Other Plans for the year ended December 31, 2019 include $5 million of settlement gains due to the transfer of non-major, non-U.S. pension liabilities as a result of the sale of FPD. These amounts are included in Earnings from discontinued operations in the Consolidated Statement of Operations.
The $9 million settlement loss for the year ended December 31, 2020 was incurred as a result of lump sum payments from KRIP.
Year Ended December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||||||
(in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||
Major defined benefit plans: | ||||||||||||||||||||||||
Service cost | $ | 13 | $ | 2 | $ | 13 | $ | 3 | $ | 11 | $ | 3 | ||||||||||||
Interest cost | 117 | 20 | 80 | 9 | 47 | 5 | ||||||||||||||||||
Expected return on plan assets | (257 | ) | (20 | ) | (178 | ) | (14 | ) | (167 | ) | (15 | ) | ||||||||||||
Amortization of: | ||||||||||||||||||||||||
Prior service cost (credit) | 9 | — | (3 | ) | — | (7 | ) | — | ||||||||||||||||
Actuarial (gain) loss | (30 | ) | 1 | — | 10 | 30 | 9 | |||||||||||||||||
Pension (income) expense before special termination benefits | (148 | ) | 3 | (88 | ) | 8 | (86 | ) | 2 | |||||||||||||||
Special termination benefits | — | — | 2 | — | 2 | — | ||||||||||||||||||
Net pension (income) expense for major defined benefit plans | (148 | ) | 3 | (86 | ) | 8 | (84 | ) | 2 | |||||||||||||||
Other plans including unfunded plans | — | 1 | — | — | — | (2 | ) | |||||||||||||||||
Net pension (income) expense | $ | (148 | ) | $ | 4 | $ | (86 | ) | $ | 8 | $ | (84 | ) | $ | — |
The special termination benefits of $3 million for each of the years ended December 31, 2020 2022 and 20192021 were incurred as a result of Kodak'sKodak’s restructuring actions and, therefore, have been included in Restructuring costs and other in the Consolidated Statement of Operations for those periods.
The weighted-average assumptions used to determine the benefit obligation amounts for all major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:
|
| As of December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Discount rate |
|
| 2.09 | % |
|
| 1.01 | % |
|
| 2.97 | % |
|
| 1.44 | % |
Salary increase rate |
|
| 3.50 | % |
|
| 1.56 | % |
|
| 3.50 | % |
|
| 1.72 | % |
Interest crediting rate for cash balance plan |
|
| 1.75 | % |
| NA |
|
|
| 2.50 | % |
| NA |
|
The weighted-average assumptions used to determine net pension (income) expense for all the major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||
Effective rate for service cost |
|
| 2.97 | % |
|
| 1.48 | % |
|
| 4.03 | % |
|
| 2.47 | % |
Effective rate for interest cost |
|
| 2.58 | % |
|
| 1.19 | % |
|
| 3.75 | % |
|
| 1.89 | % |
Salary increase rate |
|
| 3.50 | % |
|
| 1.72 | % |
|
| 3.50 | % |
|
| 2.06 | % |
Expected long-term rate of return on plan assets |
|
| 6.00 | % |
|
| 3.27 | % |
|
| 6.50 | % |
|
| 3.46 | % |
Interest crediting rate for cash balance plan |
|
| 2.50 | % |
| NA |
|
|
| 2.50 | % |
| NA |
|
86
Year Ended December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Effective rate for service cost | 5.04 | % | 3.44 | % | 3.45 | % | 1.60 | % | 2.11 | % | 1.17 | % | ||||||||||||
Effective rate for interest cost | 5.02 | % | 3.80 | % | 2.97 | % | 1.20 | % | 1.42 | % | 0.70 | % | ||||||||||||
Salary increase rate | 1.00 | % | 2.71 | % | 1.00 | % | 2.39 | % | 3.50 | % | 1.56 | % | ||||||||||||
Expected long-term rate of return on plan assets | 7.50 | % | 4.16 | % | 5.30 | % | 2.67 | % | 5.20 | % | 2.56 | % | ||||||||||||
Interest crediting rate for cash balance plan | 3.85 | % | NA | 2.58 | % | NA | 1.75 | % | NA |
The expected return on plan assets (“EROA”) is a long-term rate of return which is based on a combination of formal asset and liability studies that include forward-looking return expectations given the current asset allocation.
Kodak uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligations to relevant projected cash outflows.
Plan Asset Investment Strategy
The investment strategy underlying the asset allocation for the pension assets is to achieve an optimal return on assets with an acceptable level of risk while providing for the long-term liabilities and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plans. This is primarily achieved by investing in a broad portfolio constructed of various asset classes including equity, and equity-like investments, debt, and debt-like investments, real estate, private equity, hedge funds and other assets and instruments. Long duration bonds and Treasury bond futures are usedIn addition, the U.S. Plan uses derivative investments primarily to partially match the long-term nature of plan liabilities.hedge liability interest rate risk to U.S. government bonds. Other investment objectives include maintaining broad diversification between and within asset classes and fundinvestment managers and managing asset volatility relative to plan liabilities.
Every three years, or when market conditions have changed materially, each of Kodak’s major pension plans will undertake an asset allocation or asset and liability modeling study. The asset allocation and expected return on the plans’ assets are individually set to provide for benefits and other cash obligations within each country’s legal investment constraints.
Actual allocations may vary from the target asset allocations due to market value fluctuations, the length of time it takes to implement changes in strategy, and the timing of cash contributions and cash requirements of the plans. The asset allocations are monitored and are rebalanced in accordance with the policy set forth for each plan.
The total plan assets attributable to the major U.S. defined benefit plans as of December 31, 2020 relates to KRIP. The expected long-term rate of return on plan assets assumption (“EROA”) is based on a combination of formal asset and liability studies that include forward-looking return expectations given the current asset allocation. A review of the EROA as of December 31, 2020, based upon the current asset allocation and forward-looking expected returns for the various asset classes in which KRIP invests, resulted in an EROA of 5.2%.
Plan Asset Risk Management
Kodak evaluates its defined benefit plans’ asset portfolios for the existence of significant concentrations of risk. Types of concentrations that are evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, individual fund and individual fund. Foreign currency contracts and swaps are used to partially hedge foreign currency risk. Additionally, Kodak’s major defined benefit pension plans invest in government bond futures and long durationsingle investment grade bonds to partially hedge the liability risk of the plans.manager. As of both the years ended December 31, 2020 2023 and 2019, there were no2022 the most significant concentrations (defined as greater than 10% of plan assets) of risk in Kodak’s defined benefitwere with two investment management firms (Loomis Sayles and Income Research + Management) which each managed 10% of plan assets.
The Company’s weighted-average asset allocations for its major U.S. defined benefit pension plan by asset category, are as follows:
|
| As of December 31, |
|
|
| As of December 31, | |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 Target | 2023 | 2022 | 2023 Target | ||||||||||
Asset Category |
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity securities |
|
| 10 | % |
|
| 10 | % |
| 5-15% | |||||||||||
Debt securities |
|
| 42 | % |
|
| 44 | % |
| 35-45% | 20 | % | 20 | % | 18-24% | ||||||
Real estate |
|
| 1 | % |
|
| 1 | % |
| 0-10% | 0 | % | 1 | % | 0% | ||||||
Cash and cash equivalents |
|
| 2 | % |
|
| 1 | % |
| 0-10% | 5 | % | 7 | % | 0-10% | ||||||
Global balanced asset allocation funds |
|
| 14 | % |
|
| 15 | % |
| 10-20% | |||||||||||
Other |
|
| 31 | % |
|
| 29 | % |
| 25-35% | |||||||||||
Private equity | 31 | % | 30 | % | 23-28% | ||||||||||||||||
Hedge funds (1) | 44 | % | 42 | % | 46-58% | ||||||||||||||||
Total |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % | 100 | % |
(1) | The 2023 target for hedge funds includes a policy allocation to U.S. government bonds that is obtained via treasury futures contracts. |
Kodak’s weighted-average asset allocations for its major Non-U.S. defined benefit pension plans by asset category, are as follows:
|
| As of December 31, |
|
|
| As of December 31, | |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 Target | 2023 | 2022 | 2023 Target | ||||||||||
Asset Category |
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity securities |
|
| 5 | % |
|
| 5 | % |
| 0-10% | 6 | % | 6 | % | 0-10% | ||||||
Debt securities |
|
| 33 | % |
|
| 31 | % |
| 25-35% | 16 | % | 16 | % | 10-20% | ||||||
Real estate |
|
| 2 | % |
|
| 2 | % |
| 0-10% | 2 | % | 2 | % | 0-5% | ||||||
Cash and cash equivalents |
|
| 2 | % |
|
| 2 | % |
| 0-10% | 2 | % | 4 | % | 0-5% | ||||||
Global balanced asset allocation funds |
|
| 5 | % |
|
| 5 | % |
| 0-10% | |||||||||||
Other |
|
| 53 | % |
|
| 55 | % |
| 50-60% | |||||||||||
Hedge Funds | 6 | % | 4 | % | 0-10% | ||||||||||||||||
Private equity | 8 | % | 8 | % | 0-10% | ||||||||||||||||
Insurance contracts | 60 | % | 60 | % | 25-75% | ||||||||||||||||
Total |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % | 100 | % |
87Derivative Investments
Fair Value MeasurementsThe U.S. Plan derivative instruments consist primarily of direct investments in exchange traded futures contracts. Government bond exposure is obtained via U.S. government bond futures. Foreign currency futures contracts are used to partially hedge foreign currency risk.
Kodak’sAs of December 31, 2023 and 2022, the notional amount for exchange traded futures contracts approximated $384 million and $389 million, respectively. Realized gains and losses from these derivative investments are included in the gain on plan assets balance. The total fair value of these derivative instruments at December 31, 2023 and 2022 was $1 million and $0 million, respectively, which represents the unrealized gains and losses on these contracts and is included in the derivative line items in the table of plan assets below. The U.S. defined benefit pension plan is required to maintain cash on deposit to collateralize its obligations under its futures contracts. As of both the years ended December 31, 2023 and 2022, approximately $9 million was on deposit in cash and Treasury bills to fulfill these requirements and is included in the cash and cash equivalents asset allocations by level withinclass in the table below.
The U.S. Plan invests in a diversified portfolio of hedge funds that may utilize derivative instruments to execute their investment strategy. Any gains or losses, as well as changes in the fair value hierarchy at December 31, 2020 and 2019of derivative investments held by a hedge fund, are presentedincluded in the tables below for Kodak’s major defined benefit plans. hedge fund’s net asset value.
Fair Value Measurements
Kodak’s plan assets are accounted for at fair value and are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement, with the exception of investments for which fair value is measured using the net asset value (“NAV”) per share expedient. Kodak’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value of assets and their placement within the fair value hierarchy levels.
The fair value of Kodak’s U.S. defined benefit pension plan assets at December 31, 2023 and 2022 by asset class is presented in the tables below:
U.S. Plan
December 31, 2023
U.S. | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | ||||||||||||||||||||
Markets for | Significant | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Measured at | |||||||||||||||||
(in millions) | (Level 1) | (Level 2) | (Level 3) | NAV | Total | |||||||||||||||
Cash and cash equivalents (1) | $ | 164 | $ | — | $ | — | $ | — | $ | 164 | ||||||||||
Debt Securities: (2) | ||||||||||||||||||||
Government bonds | — | 32 | — | — | 32 | |||||||||||||||
Investment grade bonds | — | 682 | — | — | 682 | |||||||||||||||
Real estate | — | — | — | 18 | 18 | |||||||||||||||
Other: | ||||||||||||||||||||
Hedge funds | — | — | — | 1,552 | 1,552 | |||||||||||||||
Private Equity | — | — | 3 | 1,094 | 1,097 | |||||||||||||||
Derivatives with unrealized gains | 1 | — | — | — | 1 | |||||||||||||||
$ | 165 | $ | 714 | $ | 3 | $ | 2,664 | $ | 3,546 |
U.S. Plan
December 31, 2022
U.S. | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | ||||||||||||||||||||
Markets for | Significant | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Measured at | |||||||||||||||||
(in millions) | (Level 1) | (Level 2) | (Level 3) | NAV | Total | |||||||||||||||
Cash and cash equivalents (1) | $ | 251 | $ | — | $ | — | $ | — | $ | 251 | ||||||||||
Debt Securities: (2) | ||||||||||||||||||||
Government bonds | — | 39 | — | — | 39 | |||||||||||||||
Investment grade bonds | — | 717 | — | — | 717 | |||||||||||||||
Real estate | — | — | — | 29 | 29 | |||||||||||||||
Other: | ||||||||||||||||||||
Hedge funds | — | — | — | 1,528 | 1,528 | |||||||||||||||
Private Equity | — | — | 3 | 1,092 | 1,095 | |||||||||||||||
$ | 251 | $ | 756 | $ | 3 | $ | 2,649 | $ | 3,659 |
Assets not utilizing the net asset valueNAV per share expedient are valued as follows: Equity and debt
(1) | Cash and cash equivalents are primarily held in short term investment funds and are used for benefit and fee payments, as well as for margin and liquidity requirements associated with the U.S. Plan’s derivative instrument contracts. |
(2) | Debt securities are traded on an active market and are valued using a market approach based on the closing price on the last business day of the year. |
Investments Valued at NAV
Kodak performs an active market are valued using a market approach based oninvestment-by-investment analysis to determine if the closing price oninvestment meets the last business day of the year. Real estate investments are valued primarily based on independent appraisals and discounted cash flow models, taking into consideration discount rates and local market conditions. Cash and cash equivalents are valued utilizing cost approach valuation techniques. Other investments are valued using a combination of market, income, and cost approaches, based on the nature of the investment. Private equity investments are valued primarily based on independent appraisals, discounted cash flow models, cost, and comparable market transactions, which include inputs such as discount rates and pricing data from the most recent equity financing. Insurance contracts are primarily valued based on contract values, which approximate fair value.requirements to be measured at NAV. For investments with lagged pricing, Kodak uses the latest available net asset values and also considers expected return subsequent cash flows and other relevant material events.events for the year-end valuation of these investments.
Major U.S. Plans
December 31, 2020
|
| U.S. |
| |||||||||||||||||
(in millions) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Measured at NAV |
|
| Total |
| |||||
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 66 |
|
| $ | 66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 383 |
|
|
| 383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1,101 |
|
|
| 1,102 |
|
Investment Grade Bonds |
|
| — |
|
|
| 446 |
|
|
| — |
|
|
|
|
|
|
| 446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| 37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation Funds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 514 |
|
|
| 514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute Return |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 442 |
|
|
| 447 |
|
Private Equity |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 711 |
|
|
| 716 |
|
Derivatives with unrealized gains |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Derivatives with unrealized losses |
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| $ | (3 | ) |
| $ | 451 |
|
| $ | 5 |
|
| $ | 3,254 |
|
| $ | 3,707 |
|
88
December 31, 2019
|
| U.S. |
| |||||||||||||||||
(in millions) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Measured at NAV |
|
| Total |
| |||||
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 38 |
|
| $ | 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 374 |
|
|
| 378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,110 |
|
|
| 1,110 |
|
Investment Grade Bonds |
|
| — |
|
|
| 457 |
|
|
| — |
|
|
| — |
|
|
| 457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| 42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation Funds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 544 |
|
|
| 544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute Return |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 370 |
|
|
| 370 |
|
Private Equity |
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 680 |
|
|
| 687 |
|
Derivatives with unrealized gains |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Derivatives with unrealized losses |
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| $ | (12 | ) |
| $ | 457 |
|
| $ | 7 |
|
| $ | 3,158 |
|
| $ | 3,610 |
|
For Kodak’s major U.S.The total fair value, unfunded commitments and redemption provisions for the U.S defined benefit pension plans, equityplan’s investments valued at NAV are invested broadly in U.S. equity, developed international equity, and emerging markets. Fixed income investments are comprised primarily of long duration U.S. Treasuries and investment-grade corporate bonds. as follows:
Investments Valued at NAV at December 31, 2023 | ||||||||||||||
Unfunded | Redemption | Redemption | ||||||||||||
(in millions): | Fair Value | Commitments | Frequency | Notice Period | ||||||||||
Real estate | $ | 18 | $ | — | N/A | N/A | ||||||||
Private equity | 1,094 | 172 | N/A | N/A | ||||||||||
Hedge Funds | 1,552 | — | Bi-Monthly, Monthly, Quarterly, Semi-Annual, and Annual | 5-365 days | ||||||||||
Total | $ | 2,664 | $ | 172 |
Investments Valued at NAV at December 31, 2022 | ||||||||||||||
Unfunded | Redemption | Redemption | ||||||||||||
(in millions): | Fair Value | Commitments | Frequency | Notice Period | ||||||||||
Real estate | $ | 29 | $ | — | N/A | N/A | ||||||||
Private equity | 1,092 | 229 | N/A | N/A | ||||||||||
Hedge Funds | 1,528 | 26 | Bi-Monthly, Monthly, Quarterly, Semi-Annual, and Annual | 5-365 days | ||||||||||
Total | $ | 2,649 | $ | 255 |
Real estate investments primarily include investments in limited partnerships that invest in office, industrial, retail and apartment properties. Global Balanced Asset Allocation investmentsInvestments are commingled funds that hold a diversified portfolioprimarily valued by the fund manager based on independent appraisals, discounted cash flow models, cost and comparable market transactions. The term of passive market exposures, including equities, debt, currencieseach fund is typically 10 or more years and commodities. Absolute return investments are comprisedthe fund’s investors do not have an option to redeem their interest in the fund but receive distributions through the liquidation of a diversified portfolio of hedge funds using equity, debt, commodity and currency strategies held separate from the derivative-linked hedge funds described later in this footnote. underlying investments.
Private equity investments are primarily comprised of direct limited partnerships and fund-of-fund investments that invest in distressed investments, venture capital, leveraged buyouts and special situations. Natural resourcePrivate equity investments are valued by the fund manager primarily based on independent appraisals, discounted cash flow models, cost, and comparable market transactions. The term of each fund is typically 10 or more years and the fund’s investors do not have an option to redeem their interest in the fund. The investors in the fund receive distributions through the liquidation of the underlying investments in oilthe fund.
The U.S. Plan invests in a portfolio of hedge funds to supplement the return generated by its exchange traded futures contracts as well as in a separate portfolio of hedge funds where the objective is to seek a higher absolute return. Hedge fund investments are made through direct investments in individual hedge funds. The hedge fund investments substantially consist of a diversified portfolio of hedge funds that use equity, debt, commodity, currency strategies and gas partnershipsderivative instruments. The U.S. defined benefit pension plan evaluates several factors for investing in hedge funds including investment strategy, return, risk, liquidity, correlation to other funds and timberthe number of funds to achieve a diversified portfolio of hedge funds.
Hedge funds are alsotypically valued by each fund’s third-party fund administrator based upon the valuation of the underlying securities and instruments, primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held. The U.S. defined benefit pension plan maintains cash and Treasury bills as liquidity reserves that serve as variation margin for the U.S. Treasury futures contracts directly held by the U. S. Plan to hedge its liability duration. Approximately $77 million and $90 million of cash liquidity reserves associated with hedge funds as of December 31, 2023 and 2022, respectively, are included in this category.the cash and cash equivalents asset class in the table above.
89
The tables below summarize Kodak’s U.S. Plan investments in hedge funds by type for those investments valued at NAV:
U.S. Plan:
December 31, 2023
Redemption | Redemption | ||||||
(in millions) | Net Asset Value | Frequency | Notice Period | ||||
Multi-strategy hedge funds | $ | 509 | Quarterly | 45-90 days | |||
Relative value hedge funds | 342 | Bi-monthly, Quarterly | 6-120 days | ||||
Directional hedge funds | 143 | Monthly | 5 days | ||||
Equity long/short hedge funds | 264 | Monthly, Quarterly | 45-90 days | ||||
Sector specialist hedge funds | 120 | Quarterly, Semi-Annually | 60-90 days | ||||
Long-biased hedge funds | 160 | Quarterly, Annually | 60-90 days | ||||
Event driven hedge funds | 14 | Quarterly | 90 days | ||||
$ | 1,552 |
December 31, 2022
Redemption | Redemption | ||||||
(in millions) | Net Asset Value | Frequency | Notice Period | ||||
Multi-strategy hedge funds | $ | 495 | Quarterly | 45-90 days | |||
Relative value hedge funds | 331 | Bi-monthly, Quarterly | 6-120 days | ||||
Directional hedge funds | 167 | Monthly | 5 days | ||||
Equity long/short hedge funds | 227 | Quarterly | 45-90 days | ||||
Sector specialist hedge funds | 135 | Quarterly, Semi-Annually | 60-90 days | ||||
Long-biased hedge funds | 159 | Quarterly, Annually | 60-90 days | ||||
Event driven hedge funds | 14 | Quarterly | 90 days | ||||
$ | 1,528 |
Hedge funds typically have the right to restrict redemption requests beyond Kodak’s control. In these cases, redemptions may extend beyond the general redemption terms outlined in the table above. Certain hedge fund investments have no redemption rights and will become liquid only upon sale by the hedge fund managers. As of both the years ended December 31, 2023 and 2022, these investments represented approximately 1% of the hedge funds investments valued at NAV.
Approximately 31% of total U.S. Plan assets as of December 31, 2023 are invested in private equity funds, real estate funds and other investments where the U.S. Plan receives distributions through the liquidation of the underlying investments. Liquidity of U.S. Plan assets is managed to minimize the likelihood that these investments would need to be sold to cover benefit payments, derivative losses, or any other short-term need.
The total unfunded commitments, if and when they are called over the term of each investment, are expected to be funded by the available liquidity in the U.S. Plan consistent with historical experience.
The fair value of Kodak’s major non-U.S. defined benefit pension plans assets at December 31, 2023 and 2022 by asset class are presented in the tables below:
Major Non-U.S. Plans
December 31, 20202023
Non - U.S. | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | ||||||||||||||||||||
Markets for | Significant | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Measured at | |||||||||||||||||
(in millions) | (Level 1) | (Level 2) | (Level 3) | NAV | Total | |||||||||||||||
Cash and cash equivalents | $ | 13 | $ | — | $ | — | $ | — | $ | 13 | ||||||||||
Equity securities | 33 | — | — | — | 33 | |||||||||||||||
Debt securities: | ||||||||||||||||||||
Investment grade bonds | 35 | 45 | — | — | 80 | |||||||||||||||
Global high yield & emerging market debt | 2 | — | — | — | 2 | |||||||||||||||
Real estate | — | — | — | 11 | 11 | |||||||||||||||
Other: | ||||||||||||||||||||
Hedge Funds | — | — | — | 29 | 29 | |||||||||||||||
Private equity | — | — | — | 42 | 42 | |||||||||||||||
Insurance contracts | — | 30 | 287 | — | 317 | |||||||||||||||
Derivatives with unrealized gains | 1 | — | — | — | 1 | |||||||||||||||
$ | 83 | $ | 75 | $ | 287 | $ | 82 | $ | 527 |
|
| Non - U.S. |
| |||||||||||||||||
(in millions) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Measured at NAV |
|
| Total |
| |||||
Cash and cash equivalents |
| $ | 10 |
|
| $ | — |
|
| $ | — |
|
| $ | 7 |
|
| $ | 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
Investment Grade Bonds |
|
| 87 |
|
|
| 90 |
|
|
| — |
|
|
| — |
|
|
| 177 |
|
Global High Yield & Emerging Market Debt |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation Funds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 30 |
|
Insurance Contracts |
|
| — |
|
|
| 45 |
|
|
| 291 |
|
|
| — |
|
|
| 336 |
|
|
| $ | 135 |
|
| $ | 135 |
|
| $ | 291 |
|
| $ | 135 |
|
| $ | 696 |
|
90
December 31, 20192022
|
| Non - U.S. |
| |||||||||||||||||
(in millions) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Measured at NAV |
|
| Total |
| |||||
Cash and cash equivalents |
| $ | 5 |
|
| $ | — |
|
| $ | — |
|
| $ | 8 |
|
| $ | 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| 51 |
|
Inflation-Linked Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
Investment Grade Bonds |
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| 65 |
|
|
| 126 |
|
Global High Yield & Emerging Market Debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation Funds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34 |
|
|
| 34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute Return |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
Private Equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| 38 |
|
Insurance Contracts |
|
| — |
|
|
| 317 |
|
|
| — |
|
|
| — |
|
|
| 317 |
|
Derivatives with unrealized gains |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| $ | 6 |
|
| $ | 378 |
|
| $ | — |
|
| $ | 277 |
|
| $ | 661 |
|
Non - U.S. | ||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||
in Active | ||||||||||||||||||||
Markets for | Significant | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Measured at | |||||||||||||||||
(in millions) | (Level 1) | (Level 2) | (Level 3) | NAV | Total | |||||||||||||||
Cash and cash equivalents | $ | 21 | $ | — | $ | — | $ | — | $ | 21 | ||||||||||
Equity securities | 31 | — | — | — | 31 | |||||||||||||||
Debt securities: | ||||||||||||||||||||
Investment grade bonds | 35 | 45 | — | — | 80 | |||||||||||||||
Global high yield & emerging market debt | 2 | — | — | — | 2 | |||||||||||||||
Real estate | — | — | — | 11 | 11 | |||||||||||||||
Other: | ||||||||||||||||||||
Hedge Funds | — | — | — | 20 | 20 | |||||||||||||||
Private equity | — | — | — | 43 | 43 | |||||||||||||||
Insurance contracts | — | 29 | 289 | — | 318 | |||||||||||||||
$ | 89 | $ | 74 | $ | 289 | $ | 74 | $ | 526 |
For Kodak’s major non-U.S. defined benefit pension plans, equity investments are invested broadly in local equity, developed international and emerging markets. Fixed income investments are comprised primarily of government and investment grade corporate bonds. Real estate investments primarily include investments in limited partnerships that invest in office, industrial, and retail properties. Global Balanced Asset Allocation investments are commingled funds that hold a diversified portfolio of passive market exposures, including equities, debt, currencies and commodities. Absolute returnHedge fund investments are comprised of a diversified portfolio of hedge funds using equity, debt, commodity and currency strategies held separate from the derivative-linked hedge funds described later in this footnote.instruments. Private equity investments are comprised of limited partnerships and fund-of-fund investments that invest in distressed investments, venture capital and leveraged buyouts. Insurance contracts are typically annuities from life insurance companies covering specific pension obligations.
For Kodak’s major defined benefit pension plans, certain investment managers are authorizedinvestments in real estate and private equity funds, the investors do not have an option to investredeem their interest in derivatives such as futures, swaps, and currency forward contracts. Investmentsthe fund. The investors in derivatives are used to obtain desired exposure to a particular asset, index or bond duration and require only a portionthe fund receive distributions through the liquidation of the total exposure to be investedunderlying investments in the fund. There are no material unfunded commitments as cash collateral. In instances where exposures are obtained via derivatives, the majority of the exposure value is available to be invested, and is typically invested, in a diversified portfolio of hedge fund strategies that generate returns in addition to the return generated by the derivatives. Of the December 31, 2020 investments shown in the major U.S. plans table above, 4% of the total pension assets represented equity securities exposure obtained via derivatives 2023 and are reported in equity securities, and 29% of the total pension assets represented U.S. government bond exposure with 11 years duration, obtained via derivatives and are reported in government bonds. Of the December 31, 2019 investments shown in the major U.S. plans table above, 4% of the total pension assets represented equity securities exposure obtained via derivatives and are reported in equity securities, and 30% of the total pension assets represented U.S. government bond exposure with 12 years duration, obtained via derivatives and are reported in government bonds.2022.
Of the December 31, 20202023 and 2022 investments shown in the major Non-U.S. plans table above, there are no material derivative exposures. Of the December 31, 2019 investments shown in the major Non-U.S. plans table above, 7%
91
The following is a reconciliation of the beginning and ending balances of level 3 assets of Kodak’s major U.S. and non-U.S. defined benefit pension plans:
U.S. | ||||||||||||||||||||||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||||||||||||||||||||||
Relating to | ||||||||||||||||||||||||||||||||||||||||
|
| U.S. |
| Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| Net Realized and Unrealized Gains |
|
|
|
|
|
|
|
|
| January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||||||
(in millions) |
| Balance at January 1, 2020 |
|
| Relating to Assets Still Held |
|
| Relating to Assets Sold During the Period |
|
| Net Purchases, Sales and Settlements |
|
| Balance at December 31, 2020 |
| 2023 | Still Held | Period | Settlements | 2023 | ||||||||||||||||||||
Private Equity |
|
| 7 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| 5 |
| 3 | — | — | — | 3 | |||||||||||||||
Total |
| $ | 7 |
|
| $ | (2 | ) |
| $ | — |
|
| $ | — |
|
| $ | 5 |
| $ | 3 | $ | — | $ | — | $ | — | $ | 3 |
U.S. | ||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||
Relating to | ||||||||||||||||||||
Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||
January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||
(in millions) | 2022 | Still Held | Period | Settlements | 2022 | |||||||||||||||
Private Equity | — | — | — | 3 | 3 | |||||||||||||||
Total | $ | — | $ | — | $ | — | $ | 3 | $ | 3 |
U.S. | ||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||
Relating to | ||||||||||||||||||||
Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||
January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||
(in millions) | 2021 | Still Held | Period | Settlements | 2021 | |||||||||||||||
Private Equity | 5 | (5 | ) | — | — | — | ||||||||||||||
Total | $ | 5 | $ | (5 | ) | $ | — | $ | — | $ | — |
|
| U.S. |
| |||||||||||||||||
|
|
|
|
|
| Net Realized and Unrealized Gains |
|
|
|
|
|
|
|
|
| |||||
(in millions) |
| Balance at January 1, 2019 |
|
| Relating to Assets Still Held |
|
| Relating to Assets Sold During the Period |
|
| Net Purchases, Sales and Settlements |
|
| Balance at December 31, 2019 |
| |||||
Private Equity |
|
| 6 |
|
|
| 2 |
|
|
| — |
|
|
| (1 | ) |
|
| 7 |
|
Total |
| $ | 6 |
|
| $ | 2 |
|
| $ | — |
|
| $ | (1 | ) |
| $ | 7 |
|
Non - U.S. | ||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||
Relating to | ||||||||||||||||||||
Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||
January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||
(in millions) | 2023 | Still Held | Period | Settlements | 2023 | |||||||||||||||
Insurance Contracts | 289 | (2 | ) | — | — | 287 | ||||||||||||||
Total | $ | 289 | $ | (2 | ) | $ | — | $ | — | $ | 287 |
Non - U.S. | ||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||
Relating to | ||||||||||||||||||||
Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||
January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||
(in millions) | 2022 | Still Held | Period | Settlements | 2022 | |||||||||||||||
Insurance Contracts | 342 | (53 | ) | — | — | 289 | ||||||||||||||
Total | $ | 342 | $ | (53 | ) | $ | — | $ | — | $ | 289 |
|
| Non - U.S. |
| |||||||||||||||||
|
|
|
|
|
| Net Realized and Unrealized Gains |
|
|
|
|
|
|
|
|
| |||||
(in millions) |
| Balance at January 1, 2020 (1) |
|
| Relating to Assets Still Held |
|
| Relating to Assets Sold During the Period |
|
| Net Purchases, Sales and Settlements |
|
| Balance at December 31, 2020 |
| |||||
Insurance Contracts |
|
| 273 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| 291 |
|
Total |
| $ | 273 |
|
| $ | 18 |
|
| $ | — |
|
| $ | — |
|
| $ | 291 |
|
|
|
Non - U.S. | ||||||||||||||||||||
Net Realized and Unrealized Gains | ||||||||||||||||||||
Relating to | ||||||||||||||||||||
Balance at | Relating to | Assets | Net Purchases, | Balance at | ||||||||||||||||
January 1, | Assets | Sold During the | Sales and | December 31, | ||||||||||||||||
(in millions) | 2021 | Still Held | Period | Settlements | 2021 | |||||||||||||||
Insurance Contracts | 291 | (37 | ) | — | 88 | 342 | ||||||||||||||
Total | $ | 291 | $ | (37 | ) | $ | — | $ | 88 | $ | 342 |
The following pension benefit payments, which reflect expected future service, are expected to be paid (in millions):
|
| U.S. |
|
| Non-U.S. |
| ||
2021 |
| $ | 297 |
|
| $ | 50 |
|
2022 |
|
| 284 |
|
|
| 49 |
|
2023 |
|
| 270 |
|
|
| 48 |
|
2024 |
|
| 259 |
|
|
| 47 |
|
2025 |
|
| 246 |
|
|
| 46 |
|
2026 - 2030 |
|
| 1,059 |
|
|
| 212 |
|
(in millions) | U.S. | Non-U.S. | |||||||
2024 | $ | 263 | $ | 45 | |||||
2025 | 254 | 43 | |||||||
2026 | 242 | 42 | |||||||
2027 | 230 | 41 | |||||||
2028 | 219 | 40 | |||||||
2029 - 2033 | 935 | 184 |
NOTE 21:20: OTHER POSTRETIREMENT BENEFITS
In Canada, Kodak provides medical, dental, life insurance, and survivor income benefits to eligible retirees. In the U.K., Kodak provides medical benefits to eligible retirees. The other postretirement benefit plans in Canada and the U.K. areplan is closed to new participants. Information on the Canada and U.K. other postretirement benefit plansplan is presented below.
The measurement date used to determine the net benefit obligation for Kodak'sthe Canada other postretirement benefit plansplan is December 31.
92
Changes in Kodak’s benefit obligation and funded status were as follows (in millions):
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(in millions) | 2023 | 2022 | ||||||||||||||
Net benefit obligation at beginning of period |
| $ | 63 |
|
| $ | 64 |
| $ | 43 | $ | 52 | ||||
Interest cost |
|
| 1 |
|
|
| 2 |
| 2 | 1 | ||||||
Plan participants’ contributions |
|
| 1 |
|
|
| 1 |
| ||||||||
Actuarial loss |
|
| 1 |
|
|
| — |
| ||||||||
Actuarial gain | — | (7 | ) | |||||||||||||
Benefit payments |
|
| (3 | ) |
|
| (4 | ) | (2 | ) | (3 | ) | ||||
Net benefit obligation at end of period |
| $ | 63 |
|
| $ | 63 |
| $ | 43 | $ | 43 | ||||
|
|
|
|
|
|
|
|
| ||||||||
Underfunded status at end of period |
| $ | (63 | ) |
| $ | (63 | ) | (43 | ) | (43 | ) |
Amounts recognized in the Consolidated Statement of Financial Position consist of (in millions):
|
| As of December 31, |
| As of December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(in millions) | 2023 | 2022 | ||||||||||||||
Other current liabilities |
| $ | (3 | ) |
| $ | (3 | ) | $ | (3 | ) | $ | (3 | ) | ||
Pension and other postretirement liabilities |
|
| (60 | ) |
|
| (60 | ) | (40 | ) | (40 | ) | ||||
|
| $ | (63 | ) |
| $ | (63 | ) | $ | (43 | ) | $ | (43 | ) |
Amounts recognized in Accumulated other comprehensive lossincome consist of (in millions):
|
| As of December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net actuarial gain |
| $ | 4 |
|
| $ | 5 |
|
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Net actuarial gain | $ | 10 | $ | 11 |
Changes in benefit obligations recognized in Other comprehensive loss (income) consist of (in millions):
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Newly established loss |
| $ | 1 |
|
| $ | — |
|
Amortization of: |
|
|
|
|
|
|
|
|
Net actuarial gain |
|
| — |
|
|
| 1 |
|
Total gain recognized in Other comprehensive income |
| $ | 1 |
|
| $ | 1 |
|
Year Ended December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Newly established gain | $ | — | $ | 7 | ||||
Total gain recognized in Other comprehensive loss (income) | $ | — | $ | 7 |
Other postretirement benefit cost included:
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
Components of net postretirement benefit cost: |
|
|
|
|
|
|
|
| ||||||||||||
Service cost |
| $ | — |
|
| $ | — |
| $ | — | $ | — | $ | — | ||||||
Interest cost |
|
| 1 |
|
|
| 2 |
| 2 | 1 | 1 | |||||||||
Amortization of: |
|
|
|
|
|
|
|
| ||||||||||||
Actuarial gain |
|
| — |
|
|
| (1 | ) | (1 | ) | — | — | ||||||||
Other postretirement benefit cost from continuing operations |
| $ | 1 |
|
| $ | 1 |
| $ | 1 | $ | 1 | $ | 1 |
The weighted-average assumptions used to determine the net benefit obligations were as follows:
|
| As of December 31, |
| As of December 31, | ||||||||||||
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
Discount rate |
|
| 2.21 | % |
|
| 2.93 | % | 4.64 | % | 5.15 | % | ||||
Salary increase rate |
|
| 1.80 | % |
|
| 1.80 | % | 1.85 | % | 2.10 | % |
93
The weighted-average assumptions used to determine the net postretirement benefit cost were as follows:
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||||
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | 2021 | |||||||||||
Effective rate for interest cost |
|
| 2.67 | % |
|
| 3.26 | % | 5.13 | % | 2.53 | % | 1.81 | % | ||||||
Salary increase rate |
|
| 1.80 | % |
|
| 2.35 | % | 2.10 | % | 1.85 | % | 1.70 | % |
The weighted-average assumed healthcare cost trend rates used to compute the other postretirement amounts were as follows:
|
| 2020 |
|
| 2019 |
| 2023 | 2022 | ||||||||
Healthcare cost trend |
|
| 5.33 | % |
|
| 5.37 | % | 5.73 | % | 5.64 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
|
| 3.14 | % |
|
| 3.14 | % | 3.32 | % | 3.57 | % | ||||
Year that the rate reaches the ultimate trend rate |
|
| 2039 |
|
|
| 2038 |
| 2040 | 2043 |
The following other postretirement benefits, which reflect expected future service, are expected to be paid (in millions):
2021 |
| $ | 3 |
|
2022 |
|
| 3 |
|
2023 |
|
| 3 |
|
2024 |
|
| 3 |
|
2025 |
|
| 3 |
|
2026-2030 |
|
| 16 |
|
2024 | $ | 3 | ||
2025 | 3 | |||
2026 | 3 | |||
2027 | 3 | |||
2028 | 3 | |||
2029 - 2033 | 12 |
NOTE 22:21: EARNINGS PER SHARE
Basic earnings per share are calculated using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share calculations include any dilutive effect of potential common shares. In periods with a net loss from continuing operations, diluted earnings per share are calculated using weighted-average basic shares for that period, as utilizing diluted shares would be anti-dilutive to loss per share.
A reconciliation of the amounts used to calculate basic and diluted earnings per share for the years ended December 31, 20202023, 2022 and 2019 follows (in millions):2021 follows:
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Loss from continuing operations attributable to Eastman Kodak Company |
| $ | (544 | ) |
| $ | (91 | ) |
Less: Series A Preferred Stock cash and accrued dividends |
|
| (11 | ) |
|
| (11 | ) |
Less: Series A Preferred Stock deemed dividends |
|
| (9 | ) |
|
| (9 | ) |
Loss from continuing operations available to common shareholders - basic and diluted |
| $ | (564 | ) |
| $ | (111 | ) |
Net (loss) income attributable to Eastman Kodak Company |
| $ | (541 | ) |
| $ | 116 |
|
Less: Series A Preferred Stock cash and accrued dividends |
|
| (11 | ) |
|
| (11 | ) |
Less: Series A Preferred Stock deemed dividends |
|
| (9 | ) |
|
| (9 | ) |
Net (loss) income available to common shareholders - basic and diluted |
| $ | (561 | ) |
| $ | 96 |
|
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
Net income attributable to Eastman Kodak Company | $ | 75 | $ | 26 | $ | 24 | ||||||
Less: Preferred Stock cash and accrued dividends | (4 | ) | (4 | ) | (4 | ) | ||||||
Less: Preferred Stock in-kind dividends | (5 | ) | (5 | ) | (4 | ) | ||||||
Less: Preferred Stock deemed dividends | (2 | ) | (2 | ) | (3 | ) | ||||||
Plus: Expiration of Series A embedded derivative | — | — | 11 | |||||||||
Less: Earnings attributable to Series C Preferred shareholders | (8 | ) | (2 | ) | (2 | ) | ||||||
Net income available to common shareholders - basic | $ | 56 | $ | 13 | $ | 22 | ||||||
Effect of dilutive securities: | ||||||||||||
Add back: Series B preferred stock cash and deemed dividends | $ | 5 | $ | — | $ | — | ||||||
Net earnings available to common shareholders - diluted | $ | 61 | $ | 13 | $ | 22 |
94
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Weighted-average common shares outstanding - basic | 79.4 | 78.9 | 78.4 | |||||||||
Effect of dilutive securities: | ||||||||||||
Unvested restricted stock units and awards | 0.9 | 0.6 | 0.1 | |||||||||
Stock options | 0.7 | 1.1 | 2.0 | |||||||||
Series B Preferred Stock | 9.5 | — | — | |||||||||
Weighted-average common shares outstanding - diluted | 90.5 | 80.6 | 80.5 |
As a result of the net loss from continuing operations available to common shareholders for the years ended December 31, 2020 and 2019, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding. If Kodak reported earnings from continuing operations available to common shareholders for the years ended December 31, 2020 and 2019, the calculationThe computation of diluted earnings per share would have includedfor the year ended December 31, 2023 excluded the impact of (1) the assumed conversion of 0.61.1 million unvested restricted stock units for both periodsshares of Series C Preferred Stock and 0.7(2) the assumed exercise of 3.9 million outstanding employee stock options for the year ended December 31, 2020.in each case because they would have been anti-dilutive.
The computation of diluted earnings per share for the yearsyear ended December 31, 20202022 and 20192021 excluded the impact of (1)(1) the assumed conversion of 2.0$25 million of Convertible Notes, (2) the assumed conversion of 1.0 million shares of Series AB Preferred Stock, and (2)(3) the assumed conversion of 4.01.1 million and 6.81.0 million, respectively, shares of Series C Preferred Stock and (4) the assumed exercise of 3.3 million and 2.9 million, respectively, outstanding employee stock options respectively,in each case because they would have been anti-dilutive. The computation of diluted earnings per share for the year ended December 31, 2019 also excluded the assumed conversion of $100 million of Convertible Notes because the effects would have been anti-dilutive.
NOTE 23:22: STOCK-BASED COMPENSATION
Kodak’s stock incentive plan is the 2013 Omnibus Incentive Plan (the “2013(as restated and further amended, the “2013 Plan”). The 2013 Plan is administered by the Compensation, Nominating and Governance Committee of the Board of Directors.
Officers, directors and employees of the Company and its consolidated subsidiaries are eligible to receive awards. Stock options are generally non-qualified, are at exercise prices equal to or greater than the closing price of Kodak’s stock on the date of grant and expire seven years or ten years after the grant date. Stock-based compensation awards granted under Kodak’s stock incentive plan are generally subject to a three-yearthree-year vesting period from the date of grant, or a later date as determined by the Compensation, Nominating and Governance Committee. Awards are subject to settlement in newly-issued shares of common stock. Unless sooner terminated by the Compensation, Nominating and Governance Committee, no awards may be granted under the 2013 Plan after May 20, 2030.19, 2031.
The maximum number of shares of common stock available for grant under the 2013 Plan is 8.013.0 million. For purposes ofstock option grants awarded on or prior to May 19, 2021, for the number of shares available for grant in accordance withunder the 2013 Plan, a stock option countscounted as a fraction of a share, based on the fair market value of the stock option relative to the closing stock price on the date of grant, while eachgrant. For stock option awards granted after May 19, 2021, a stock option counts as one share. Each restricted stock unit and restricted stock award counts as one share. The total number of shares of common stock registered for issuance under the 2013 Plan is approximately 13.5 million. In addition, under the 2013 Plan, the maximum number of shares available for the grant of incentive stock options is 2.0 million shares. The maximum number of shares as to which stock options or stock appreciation rights may be granted to any one person under the 2013 Plan in any calendar year is 2.5 million shares.
The maximum number of awards that may be granted to any non-employee director under the 2013 Plan in any calendar year may not exceed a number of awards with a grant date fair value of $450,000, computed as of the grant date.
Compensation expense is recognized on a straight-line basis over the service or performance period for each separately vesting tranche of the award and is adjusted for actual forfeitures before vesting. Kodak assesses the likelihood that performance-based shares will be earned based on the probability of meeting the performance criteria. For those performance-based awards that are deemed probable of achievement, expense is recorded, and for those awards that are deemed not probable of achievement, no expense is recorded. Kodak assesses the probability of achievement each quarter.
Restricted Stock Units and Restricted Stock awards
Restricted stock units and restricted stock awards are payable in shares of the Company common stock upon vesting. The fair value of restricted stock units and restricted stock awards without a market condition is based on the closing market price of the Company’s stock on the grant date. The following inputs were used for restricted stock units issued in 2023 with a market condition:
Year Ended | ||
December 31, | ||
2023 | ||
Fair value of options granted | $ 3.03 | |
Risk-free interest rate | 3.80% | |
Term (in years) | 3.0 | |
Volatility | 60% | |
Weighted-average expected dividend yield | 0.00% |
Compensation cost related to restricted stock units and restricted stock awards was $4 million, $4 million and $5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The weighted average grant date fair value of restricted stock units and awards granted for the years ended December 31, 2023, 2022 and 2021 was $3.90, $4.60 and $8.50, respectively. The total fair value of restricted stock units and awards that vested was $4 million, $5 million and $6 million for the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023, there was $6 million of unrecognized compensation cost related to restricted stock units. The cost is expected to be recognized over a weighted average period of 1.6 years.
The following table summarizes information about unvested restricted stock unit and award activity for the year ended December 31, 2023:
Restricted | Weighted-Average | |||||||
Stock | Grant Date | |||||||
Units/Awards | Fair Values | |||||||
Outstanding on December 31, 2022 | 1,140,877 | $ | 6.30 | |||||
Granted | 2,007,609 | $ | 3.90 | |||||
Vested | 583,810 | $ | 6.16 | |||||
Forfeited | 27,092 | $ | 5.37 | |||||
Outstanding on December 31, 2023 | 2,537,584 | $ | 4.44 |
In addition to the outstanding unvested restricted stock units and awards per the above table, there are also 368,324 vested restricted stock units outstanding as of December 31, 2023 with a weighted average grant date fair value of $6.10.
Stock Options
The following table summarizes information about stock option activity for the year ended December 31, 2023:
Average | ||||||||||||||||
Weighted | Remaining | Aggregate | ||||||||||||||
Shares | Exercise | Contractual | Intrinsic | |||||||||||||
Under | Price | Life | Value | |||||||||||||
Option | Per Share | (Years) | ($ millions) | |||||||||||||
Outstanding on December 31, 2022 | 6,884,311 | $ | 6.97 | |||||||||||||
Granted | 50,000 | $ | 4.28 | |||||||||||||
Expired | 161,203 | $ | 15.41 | |||||||||||||
Exercised | 25,000 | $ | 3.90 | |||||||||||||
Outstanding on December 31, 2023 | 6,748,108 | $ | 6.75 | 3.35 | $ | 2 | ||||||||||
Exercisable on December 31, 2023 | 6,698,108 | $ | 6.77 | 3.33 | $ | 2 | ||||||||||
Expected to vest December 31, 2023 | 6,748,108 | $ | 6.75 | 3.35 | $ | 2 |
The aggregate intrinsic value represents the total pretax intrinsic value that option holders would have received had all option holders exercised their options on the last trading day of the year. The aggregate intrinsic value is the difference between the Kodak closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options. The intrinsic values of options outstanding, exercisable or expected to vest as of December 31, 2023 were each $2 million.
The weighted average grant date fair value of options granted for the year ended December 31, 2023 was $2.87. There were no options granted in the years ended December 31, 2022 and 2021. The total fair value of options that vested during the years ended December 31, 2023, 2022 and 2021 was $1 million, $2 million and $2 million, respectively. Compensation cost related to stock options for the years ended December 31, 2023, 2022 and 2021 was $3 million, $1 million and $2 million, respectively.
As of December 31, 2023, there was less than $1 million of unrecognized compensation cost related to stock options, which will be recognized over a weighted average period of 2.0 years.
There were less than 1 million options exercised in the years ended December 31, 2023, 2022 and 2021.
Kodak utilizes the Black-Scholes option valuation model to estimate the fair value of stock options that do not have a market condition for award vesting and the lattice-based method to estimate the fair value of stock options with a market condition for award vesting.
The expected term of options granted is the period of time the options are expected to be outstanding and is calculated using a simplified method based on the option’s vesting period and original contractual term. The Company uses the historical volatility of the Company’s stock to estimate expected volatility. The risk-free rate was based on the yield on U.S. Treasury notes with a term equal to the option’s expected term.
The following inputs were used for the valuation of stock option grants issued without a market condition in the year ended December 31, 2023 (there were no stock option grants issued in the years ended December 31, 2022 and 2021):
Year Ended | ||||
December 31, | ||||
2023 | ||||
Weighted-average fair value of options granted | $ | 3.48 | ||
Weighted-average risk-free interest rate | 3.75 | % | ||
Expected option lives (in years) | 4.5 | |||
Weighted-average volatility | 120 | % | ||
Expected dividend yield | 0.00 | % |
The following inputs were used in the lattice-based valuation of stock option grants issued with a market condition in 2023:
Year Ended | ||||
December 31, | ||||
2023 | ||||
Fair value of options granted | $ | 2.25 | ||
Risk-free interest rate | 3.80 | % | ||
Term (in years) | 3.0 | |||
Volatility | 60 | % | ||
Weighted-average expected dividend yield | 0.00 | % |
On February 16, 2023, the Compensation, Nominating and Governance Committee of the Board of Directors approved extending the expiration dates for non-qualified stock options awarded between 2016 and 2020 to 21 currently active employees and directors. No other terms were modified. The contractual terms were extended from approximately seven years to approximately ten years. In November 2023 the extended expiration date of certain options was rescinded. The change in the terms of the awards was accounted for as a modification. As a result of the modification, Kodak recognized $2 million of incremental compensation expense in the year-ended 2023, reflecting the incremental fair value of the 3.5 million awards that were modified over the fair value of the original awards immediately before the modification. The fair value of the awards was calculated using a binomial lattice-based valuation model. The key assumptions used in the fair value calculations were:
February 16, 2023 | ||||
Option Award | ||||
Modifications | ||||
Immediately Before | Immediately After | |||
Range of fair values | 0.000 -2.1414 | 1.322 -2.2424 | ||
Range of risk-free interest rates | 3.82% - 4.99% | 3.82% - 4.99% | ||
Range of remaining contractual terms (in years) | 0.37 - 4.25 | 3.37 - 7.25 | ||
Range of weighted volatilities | 66.96% - 103.39% | 66.96% - 103.39% | ||
Expected dividend yield | 0.00% | 0.00% | ||
Early exercise model | 2.5 | 2.5 | ||
Number of times steps | 500 | 500 |
On February 26, 2021 James V. Continenza, Executive Chairman and Chief Executive Officer of Kodak, and the Company entered into an Executive Chairman and CEO Agreement, as amended on November 29, 2023 and November 30, 2022 (the “Employment Agreement”). The Employment Agreement is effective for a three-year period ending on February 26, 2027. Pursuant to the Employment Agreement, Mr. Continenza will not have the right to exercise any stock options granted to him in February 2019 or July 2020 to the extent that, after giving effect to the issuance of the Company’s common stock resulting from such exercise, Mr. Continenza (together with his affiliates and any person acting as a group), would beneficially own more than 4.99% of the then issued and outstanding shares of Common Stock (the “Beneficial Ownership Limitation”). The Beneficial Ownership Limitation shall cease and be of no further force and effect upon a Change of Control (as such term is defined in the Company’s Amended and Restated 2013 Omnibus Incentive Plan). The restrictions on the exercisability of previous stock option awards were a modification of the original awards. As the February 2019 and July 2020 stock options were fully vested prior to the modification date and there was no incremental value provided in the modification, no additional compensation expense was recognized. Also pursuant to the Employment Agreement, Mr. Continenza was granted 200,000 fully vested restricted stock units in the first quarter of 2021. The Company recognized $2 million of stock-based compensation expense associated with the grant of restricted stock units.
NOTE 23: SHAREHOLDERS’ EQUITY
The Company has 560 million shares of authorized stock, consisting of: (i) 500 million shares of common stock, par value $0.01 per share, and (ii) 60 million shares of preferred stock, no par value, issuable in one or more series. As of December 31, 2023 and 2022 there were 79.6 million and 79.1 million shares of common stock outstanding, respectively, 1.0 million shares of Series B preferred stock issued and outstanding, and 1.1 million shares of Series C preferred stock issued and outstanding.
Treasury Stock
Treasury stock consisted of approximately 1.0 million and 0.9 million shares at December 31, 2023 and 2022, respectively.
Registration Statements
On August 10, 2021, the Company filed a Registration Statement on Form S-3 (Registration No.254352) to register for possible resale from time to time of up to 44,490,032 shares of common stock, subject to adjustments for stock splits, stock dividends and reclassifications and similar transactions (the “Resale Shares”). The Company registered the Resale Shares to satisfy its obligations under the following agreements:
(1) | A registration rights agreement (the “Backstop Registration Rights Agreement”), dated as of September 3, 2013, between the Company and GSO Capital Partners LP, on behalf of various managed funds, BlueMountain Capital Management, LLC, on behalf of various managed funds, George Karfunkel, United Equities Commodities Company, Momar Corporation and Contrarian Capital Management, LLC, on behalf of Contrarian Funds, LLC, which, prior to the expiration of the Backstop Registration Rights Agreement on October 16, 2021, required the registration of certain shares of common stock. |
(2) | A Series A Preferred Stock repurchase and exchange agreement, dated as of February 26,2021, with Southeastern Asset Management, Inc. (“Southeastern”) and Longleaf Partners Small-Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern (such investment funds, collectively, the “Purchasers”), extending the registration rights provided under a registration rights agreement, dated as of November 15,2016, with Southeastern and the Purchasers, to shares of the Company's common stock issuable upon conversion of 1,000,000 shares of Series B Preferred Stock (as defined herein) issued thereunder. |
(3) | A registration rights agreement, dated as of February 26,2021, with GO EK Ventures IV, LLC (the “Investor”), a fund managed by Grand Oaks Capital, providing the Investor with registration rights in respect of shares of the Company's common stock issuable upon conversion of 1,000,000 shares of Series C Preferred Stock (as defined herein) issued pursuant to a Series C Preferred Stock purchase agreement, dated as of February 26,2021, with the Investor; and |
(4) | A securities registration rights agreement, dated as of February 26,2021, with certain funds affiliated with Kennedy Lewis Investment Management LLC (the “Buyers”), providing the Buyers with registration rights in respect of (i) 1,000,000 shares of the Company's common stock and (ii) shares of the Company's common stock issuable upon conversion of $25,000,000 aggregate principal amount of the Company's 5.0% unsecured convertible promissory notes due May 28,2026, in each case, issued in a private placement transaction pursuant to a securities purchase agreement, dated as of February 26,2021, with the Buyers. |
On August 10, 2021, the Company filed a shelf Registration Statement on Form S-3 (Registration No.254353) for the offer and sale of securities from time to time in one or more offerings of up to $500,000,000 of common stock, preferred stock, debt securities, warrants, depositary shares, purchase contracts, guarantees and units. The Company would file a prospectus supplement to include the specific terms of any offering or sale under this shelf registration statement. At December 31, 2023 the Company had not made any offerings or sales of securities pursuant to this registration statement.
NOTE 24: OTHER COMPREHENSIVE (LOSS) INCOME
The changes in Other comprehensive (loss) income by component, were as follows:
Year Ended December 31, | |||||||||||||
(in millions) | 2023 | 2022 | 2021 | ||||||||||
Currency translation adjustments | |||||||||||||
Currency translation adjustments | $ | (8 | ) | $ | (12 | ) | $ | 6 | |||||
Pension and other postretirement benefit plan changes | |||||||||||||
Newly established net actuarial (loss) gain | (122 | ) | 277 | 632 | |||||||||
Newly established prior service cost | (29 | ) | (28 | ) | — | ||||||||
Tax benefit | — | — | — | ||||||||||
Newly established net actuarial (loss) gain, net of tax | (151 | ) | 249 | 632 | |||||||||
Reclassification adjustments: | |||||||||||||
Amortization of prior service credit (cost) | (a) | 9 | (4 | ) | (7 | ) | |||||||
Amortization of actuarial (gains) losses | (a) | (31 | ) | 8 | 37 | ||||||||
Recognition of losses due to settlements and curtailments | (a) | — | — | (1 | ) | ||||||||
Total reclassification adjustments | (22 | ) | 4 | 29 | |||||||||
Tax provision | — | — | — | ||||||||||
Reclassification adjustments, net of tax | (22 | ) | 4 | 29 | |||||||||
Pension and other postretirement benefit plan changes, net of tax | (173 | ) | 253 | 661 | |||||||||
Other comprehensive (loss) income | $ | (181 | ) | $ | 241 | $ | 667 |
(a) | Reclassified to Pension income - refer to Note 19, "Retirement Plans" and Note 20, "Other Postretirement Benefits" for additional information. |
NOTE 25: ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income is composed of the following:
As of December 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Currency translation adjustments | $ | (120 | ) | $ | (112 | ) | ||
Pension and other postretirement benefit plan changes | 401 | 574 | ||||||
Total | $ | 281 | $ | 462 |
NOTE 26: SEGMENT INFORMATION
Kodak has three reportable segments: Print, Advanced Materials and Chemicals and Brand. A description of Kodak’s reportable segments follows.
Print: The Print segment is comprised of five lines of business, the Prepress Solutions business: the Prosper business, the Software business, the Electrophotographic Printing Solutions business and the Versamark business.
Advanced Materials and Chemicals: The Advanced Materials and Chemicals segment is comprised of four lines of business: the Industrial Film and Chemicals business, the Motion Picture business, the Advanced Materials and Functional Printing business and the IP Licensing and Analytical Services business.
Brand: The Brand segment contains the brand licensing business.
All Other: All Other is comprised of the operations of the Eastman Business Park, a more than 1,200 acre technology center and industrial complex.
Segment financial information is shown below. Asset information by segment is not disclosed as this information is not separately identified and reported to the Chief Operating Decision Maker.
Net Revenues from Continuing Operations by Reportable Segment
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in millions) | ||||||||||||
$ | 828 | $ | 938 | $ | 908 | |||||||
Advanced Materials and Chemicals | 255 | 234 | 212 | |||||||||
Brand | 17 | 17 | 15 | |||||||||
Total of reportable segments | 1,100 | 1,189 | 1,135 | |||||||||
All Other | 17 | 16 | 15 | |||||||||
Total | $ | 1,117 | $ | 1,205 | $ | 1,150 |
Segment Measure of Profit and Loss
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”). As demonstrated in the table below, Operational EBITDA represents the earnings (loss) from continuing operations before income taxes excluding non-service cost components of pension and other postemployment benefits income; depreciation and amortization expense; restructuring costs and other; stock-based compensation expense; consulting and other costs; idle costs; other operating income, net (unless otherwise indicated); interest expense; loss on early extinguishment of debt and other (charges) income, net.
Kodak’s segments are measured using Operational EBITDA both before and after allocation of corporate selling, general and administrative expenses (“SG&A”). The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
2023 Segments
Change in Segments
Effective February 2023 Kodak changed its organizational structure. The Traditional Printing segment and the Digital Printing segment were combined into one segment, named the Print segment. No changes were made to Kodak's other segments. Prior year segment information was revised to conform with the new organizational structure.
Segment Operational EBITDA and Consolidated Earnings from Continuing Operations Before Income Taxes
Year Ended December 31, | ||||||||||||
(in millions) | 2023 | 2022 | 2021 | |||||||||
$ | 20 | $ | 5 | $ | 4 | |||||||
Advanced Materials and Chemicals | 10 | (1 | ) | (6 | ) | |||||||
Brand | 15 | 14 | 13 | |||||||||
Total of reportable segments | 45 | 18 | 11 | |||||||||
All Other | 2 | 3 | 2 | |||||||||
Depreciation and amortization | (30 | ) | (29 | ) | (31 | ) | ||||||
Restructuring costs and other | (10 | ) | (13 | ) | (6 | ) | ||||||
Stock-based compensation | (7 | ) | (5 | ) | (7 | ) | ||||||
Consulting and other costs (1) | 13 | 2 | (19 | ) | ||||||||
Idle costs (2) | (3 | ) | (3 | ) | (2 | ) | ||||||
Other operating (expense) income, net (3) | (6 | ) | 1 | 6 | ||||||||
Interest expense (3) | (52 | ) | (40 | ) | (33 | ) | ||||||
Pension income excluding service cost component (3) | 161 | 98 | 102 | |||||||||
Loss on early extinguishment of debt (3) | (27 | ) | — | — | ||||||||
Other income (charges), net (3) | 1 | (1 | ) | 5 | ||||||||
Consolidated earnings from continuing operations before income taxes | $ | 87 | $ | 31 | $ | 28 |
(1) | Consulting and other costs are professional services and internal costs associated with corporate strategic initiatives, investigations and litigation. Consulting and other costs included $15 million and $10 million of income in the year ended December 31, 2023 and 2022, respectively, representing insurance reimbursement of legal costs previously paid by the Company associated with investigations and litigation matters. Kodak received $20 million of insurance reimbursement in 2023 of which $5 million was recorded in Other current assets in the Consolidated Statement of Financial Position as of December 31, 2022. Kodak received $5 million of insurance reimbursement proceeds in the year ended 2022. |
(2) | Consists of third-party costs such as security, maintenance, and utilities required to maintain land and buildings in certain locations not used in any Kodak operations and the costs, net of any rental income received, of underutilized portions of certain properties. |
(3) | As reported in the Consolidated Statement of Operations |
In 2023, Kodak decreased employee benefit reserves by $1 million primarily reflecting a reduction in workers’ compensation reserves of approximately $1 million driven by changes in discount rates. The decrease in reserves in 2023 impacted SG&A by approximately $1 million.
In 2022, Kodak decreased employee benefit reserves by $15 million composed of a reduction in workers’ compensation reserves of approximately $13 million driven by changes in discount rates and a decrease in other employee benefit reserves of approximately $2 million, driven by both changes in discount rates and favorable experience. The decrease in reserves in 2022 impacted gross profit by approximately $9 million, R&D by approximately $1 million and SG&A by approximately $5 million.
Kodak decreased workers’ compensation reserves by approximately $4 million in 2021 driven by changes in discount rates. The decrease in reserves in 2021 impacted gross profit by approximately $3 million and SG&A by approximately $1 million.
Amortization and depreciation expense by segment are not included in the segment measure of profit and loss but are regularly provided to the Chief Operating Decision Maker.
(in millions) | Year Ended December 31, | |||||||||||
Intangible asset amortization expense from continuing operations: | 2023 | 2022 | 2021 | |||||||||
$ | 4 | $ | 4 | $ | 4 | |||||||
Brand | — | 1 | 1 | |||||||||
Total | $ | 4 | $ | 5 | $ | 5 |
(in millions) | Year Ended December 31, | |||||||||||
Depreciation expense from continuing operations: | 2023 | 2022 | 2021 | |||||||||
$ | 17 | $ | 17 | $ | 20 | |||||||
Advanced Materials and Chemicals | 7 | 6 | 5 | |||||||||
All Other | 1 | 1 | 1 | |||||||||
Total | $ | 25 | $ | 24 | $ | 26 |
(in millions) | Year Ended December 31, | |||||||
Long-lived assets located in: (1) | 2023 | 2022 | ||||||
The United States | $ | 112 | $ | 95 | ||||
Europe, Middle East and Africa | 6 | 9 | ||||||
Asia Pacific | 5 | 6 | ||||||
Canada and Latin America | 46 | 44 | ||||||
Non-U.S. countries total (2) | 57 | 59 | ||||||
Total | $ | 169 | $ | 154 |
(1) | Long-lived assets are comprised of property, plant and equipment, net. |
(2) | Of the total non-U.S. property, plant and equipment in 2023, $45 million was located in Brazil. Of the total non-U.S. property, plant and equipment in 2022, $41 million was located in Brazil. |
Major Customers
No single customer represented 10% or more of Kodak’s total net revenue in any year presented.
NOTE 27: BUSINESS COMBINATION
On May 26, 2023 Kodak acquired 100% of the outstanding shares of Graphic Systems Services, Inc., a leading provider of web inkjet press transport systems and other print-related components and engineering services.
The acquisition was immaterial to Kodak's financial position as of December 31, 2023 and its results of operations and cash flows for the year ended December 31, 2023.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Kodak maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Kodak’s reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including Kodak’s Executive Chairman and Chief Executive Officer and Kodak’s Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Kodak’s management, with participation of Kodak’s Executive Chairman and Chief Executive Officer and Kodak’s Chief Financial Officer, has evaluated the effectiveness of Kodak’s disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K. Kodak’s Executive Chairman and Chief Executive Officer and Kodak’s Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, Kodak’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Management’s Report on Internal Control Over Financial Reporting
The management of Kodak is responsible for establishing and maintaining adequate internal control over financial reporting. Kodak’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Kodak’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Kodak; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of Kodak are being made only in accordance with authorizations of management and directors of Kodak; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Kodak’s assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment or breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On May 16, 2023, Kodak acquired 100% of the outstanding shares of Graphic Systems Services, Inc. (“GSS”). GSS represented less than 1% of consolidated revenues for the year ended December 31, 2023 and less than 1% of consolidated total assets as of December 31, 2023. As permitted by the SEC, Kodak elected to exclude GSS from its assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 31, 2023 and changes in internal controls over financial reporting from the date of acquisition through December 31, 2023.
Management assessed the effectiveness of Kodak’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in "Internal Control-Integrated Framework” (2013). Based on management’s assessment using the COSO criteria, management has concluded that Kodak's internal control over financial reporting was effective as of December 31, 2023. The effectiveness of Kodak’s internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, Kodak’s independent registered public accounting firm, as stated in their report, refer to Item 8. Financial Statements and Supplementary Data.
Changes in Internal Control over Financial Reporting
Kodak is in the process of a multi-year project to modernize and enhance the Company’s global information technology systems, to improve and standardize business and financial processes and to increase the efficiency and effectiveness of financial planning and reporting. As the phased implementation occurs, it may result in changes to processes and procedures which may result in changes to internal controls over financial reporting. As such changes occur, Kodak evaluates whether they materially affect the Company’s internal controls over financial reporting.
There have been no changes identified in Kodak’s internal control over financial reporting that occurred during Kodak’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, Kodak’s internal control over financial reporting.
Rule 10b5-1 Trading Plans
The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the three months ended December 31, 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows:
(1) | On December 21, 2023, David E. Bullwinkle, Chief Financial Officer and Senior Vice President, adopted a Rule 10b5-1 Plan with respect to the potential exercise of vested stock options and the associated sale of up to 518,289 shares of Kodak common stock, which plan commences on March 21, 2024 and expires on December 31, 2024 or upon the earlier completion of all authorized transactions under such plan. |
(2) | On December 21, 2023, Roger W. Byrd, General Counsel, Secretary and Senior Vice President, adopted a Rule 10b5-1 Plan with respect to the potential exercise of vested stock options and the associated sale of up to 135,201 shares of Kodak common stock, which plan commences on March 21, 2024 and expires on March 15, 2025 or upon the earlier completion of all authorized transactions under such plan. |
None of our other Section 16 officers or directors adopted or terminated a "non-Rule 10b5-1 trading arrangement" as defined in Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 regarding directors is incorporated by reference from the information under the caption "Board of Directors and Corporate Governance - Director Nominees" in the Company's Notice of 2024 Annual Meeting and Proxy Statement (the “Proxy Statement”), which will be filed within 120 days after December 31, 2023. The information required by Item 10 regarding audit committee composition and audit committee financial expert disclosure is incorporated by reference from the information under the caption "Board of Directors and Corporate Governance - Committees of the Board - Audit and Finance Committee" in the Proxy Statement. The information required by Item 10 regarding executive officers is contained in Part I of this report under the caption "Information About our Executive Officers". The information required by Item 10 regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference, if necessary, from the information under the caption "Security Ownership of Certain Beneficial Owners and Management – Delinquent Section 16(a) Reports" in the Proxy Statement.
We have adopted a Business Conduct Guide that applies to all of our officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions, as well as a Directors’ Code of Conduct that applies to our directors. Our Business Conduct Guide and Directors’ Code of Conduct are posted on our website located at http://investor.kodak.com/corporate-governance/supporting-documents. We intend to disclose future amendments to certain provisions of the Business Conduct Guide and waivers of the Business Conduct Guide granted to executive officers on the website within four business days following the date of the amendment or waiver.
ITEM 11.EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from the information under the following captions in the Proxy Statement: "Executive Compensation”, "CEO Pay Ratio", "Pay Versus Performance, “Director Compensation” and “Board of Directors and Corporate Governance – Compensation, Nominating and Governance Committee Interlocks and Insider Participation.”
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference from the information under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. “Securities Authorized for Issuance Under Equity Compensation Plans” is shown below.
EQUITY COMPENSATION PLAN INFORMATION
Information as of December 31, 2023, regarding the Company’s equity compensation plans is summarized in the following table:
Number of Securities | Number of Securities | |||||||||||
to be Issued Upon | Remaining Available for | |||||||||||
Exercise of | Weighted- | Future Issuance Under | ||||||||||
Outstanding Options, | Average | Equity Compensation | ||||||||||
Restricted Stock Units | Exercise Price of | Plans (Excluding | ||||||||||
and Restricted Stock | Outstanding | Securities Reflected in | ||||||||||
Plan Category | Awards | Options (1) | Column (a)) (2) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 9,654,016 | $ | 6.75 | 2,383,466 | ||||||||
Equity compensation plans not approved by security holders | — | — | — |
(1) | Represents the weighted-average exercise price of outstanding stock options. The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units |
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the information under the captions "Certain Relationships and Related Transactions" and "Board of Directors and Corporate Governance – Director and Nominee Independence" in the Proxy Statement.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference from the information under the caption “Principal Accounting Fees and Services” in the Proxy Statement.
|
|
ITEM 15.FINANCIAL STATEMENT SCHEDULES, EXHIBITS
98
NOTE 26: ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is composed of the following:
|
| As of December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Currency translation adjustments |
| $ | (106 | ) |
| $ | (90 | ) |
Pension and other postretirement benefit plan changes |
|
| (340 | ) |
|
| (327 | ) |
Ending balance |
| $ | (446 | ) |
| $ | (417 | ) |
NOTE 27: SEGMENT INFORMATION
Change in Segments
Effective January 1, 2020 Kodak changed its organizational structure. Prepress Solutions, formerly part of the Print Systems segment, operates as a separate segment named the Traditional Printing segment. Electrophotographic Printing Solutions, formerly part of the Print Systems segment, was combined with the Enterprise Inkjet Systems segment and Kodak Software segment to form the Digital Printing segment. The Brand, Film and Imaging segment, except for the licensing of the Kodak brand to third parties, was combined with the Advanced Materials and 3D Printing segment to form the Advanced Materials and Chemicals segment. The licensing of the Kodak brand to third parties operates as a separate segment named the Brand segment. The Eastman Business Park segment is no longer a reportable segment. A description of Kodak’s reportable segments follows.
Traditional Printing: The Traditional Printing segment is comprised of Prepress Solutions.
Digital Printing: The Digital Printing segment is comprised of four lines of business: the Electrophotographic Printing Solutions business, the Prosper business, the Versamark business and the Software business.
Advanced Materials and Chemicals: The Advanced Materials and Chemicals segment is comprised of five lines of business: Industrial Film and Chemicals, Motion Picture, Advanced Materials and Functional Printing Technology and Kodak Services for Business.
Brand: The Brand segment contains the brand licensing business.
All Other: All Other is comprised of the operations of the Eastman Business Park, a more than 1,200 acre technology center and industrial complex.
Segment financial information is shown below. Asset information by segment is not disclosed as this information is not separately identified and reported to the Chief Operating Decision Maker.
Net Revenues from Continuing Operations by Reportable Segment
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
(in millions) |
|
|
|
|
|
|
|
|
Traditional Printing |
| $ | 592 |
|
| $ | 727 |
|
Digital Printing |
|
| 241 |
|
|
| 293 |
|
Advanced Materials and Chemicals |
|
| 172 |
|
|
| 200 |
|
Brand |
|
| 13 |
|
|
| 12 |
|
Total of reportable segments |
|
| 1,018 |
|
|
| 1,232 |
|
Other |
|
| 11 |
|
|
| 10 |
|
Consolidated total |
| $ | 1,029 |
|
| $ | 1,242 |
|
Segment Measure of Profit and Loss
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”). As demonstrated in the table below, Operational EBITDA represents the earnings (loss) from continuing operations excluding the provision (benefit) for income taxes; non-service cost components of pension and OPEB income; depreciation and amortization expense; restructuring costs; stock-based compensation expense; consulting and other costs; idle costs; the former CEO separation agreement compensation; other operating (expense) income, net (unless otherwise indicated); interest expense; loss on early extinguishment of debt and other charges, net.
Kodak’s segments are measured using Operational EBITDA both before and after allocation of corporate selling, general and administrative expenses (“SG&A”). The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
99
Segment Operational EBITDA and Consolidated Loss from Continuing Operations Before Income Taxes
|
| Year Ended December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Traditional Printing |
| $ | 21 |
|
| $ | 48 |
|
Digital Printing |
|
| (10 | ) |
|
| (9 | ) |
Advanced Materials and Chemicals |
|
| (23 | ) |
|
| (34 | ) |
Brand |
|
| 11 |
|
|
| 8 |
|
Total of reportable segments |
|
| (1 | ) |
|
| 13 |
|
Other |
|
| 1 |
|
|
| (1 | ) |
Depreciation and amortization |
|
| (37 | ) |
|
| (55 | ) |
Restructuring costs and other |
|
| (17 | ) |
|
| (16 | ) |
Stock-based compensation |
|
| (15 | ) |
|
| (7 | ) |
Consulting and other costs (1) |
|
| (9 | ) |
|
| (7 | ) |
Idle costs (2) |
|
| (3 | ) |
|
| (5 | ) |
Former CEO separation agreement compensation |
|
| — |
|
|
| (2 | ) |
Other operating income (expense), net, excluding income from transition services agreement (3) |
|
| 7 |
|
|
| (22 | ) |
Interest expense (4) |
|
| (12 | ) |
|
| (16 | ) |
Pension income excluding service cost component (4) |
|
| 98 |
|
|
| 104 |
|
Loss on early extinguishment of debt |
|
| (2 | ) |
|
| — |
|
Other charges, net (4) |
|
| (386 | ) |
|
| (46 | ) |
Consolidated loss from continuing operations before income taxes |
| $ | (376 | ) |
| $ | (60 | ) |
|
|
|
|
|
|
|
|
Kodak increased employee benefit reserves by approximately $4 million in 2020 reflecting an increase in workers’ compensation reserves ($7 million) partially offset by a decrease in postemployment benefit reserves ($3 million). In 2019 workers’ compensation reserves increased by approximately $3 million. The increase in reserves in 2020 impacted gross profit and SG&A each by approximately $2 million. The increase in reserves in 2019 impacted gross profit by approximately $2 million and SG&A by approximately $1 million.
Amortization and depreciation expense by segment are not included in the segment measure of profit and loss but are regularly provided to the Chief Operating Decision Maker.
(in millions) |
| Year Ended December 31, |
| |||||
Intangible asset amortization expense from continuing operations: |
| 2020 |
|
| 2019 |
| ||
Traditional Printing |
| $ | 1 |
|
| $ | 2 |
|
Digital Printing |
|
| 3 |
|
|
| 4 |
|
Brand |
|
| 1 |
|
|
| 1 |
|
Consolidated total |
| $ | 5 |
|
| $ | 7 |
|
100
| Year Ended December 31, |
| ||||||
Depreciation expense from continuing operations: |
| 2020 |
|
| 2019 |
| ||
Traditional Printing |
| $ | 19 |
|
| $ | 28 |
|
Digital Printing |
|
| 7 |
|
|
| 10 |
|
Advanced Materials and 3D Printing |
|
| 5 |
|
|
| 6 |
|
Other |
|
| 1 |
|
|
| 4 |
|
Consolidated total |
| $ | 32 |
|
| $ | 48 |
|
(in millions) |
| Year Ended December 31, |
| |||||
Long-lived assets (1) located in: |
| 2020 |
|
| 2019 |
| ||
The United States |
| $ | 78 |
|
| $ | 85 |
|
Europe, Middle East and Africa |
|
| 22 |
|
|
| 28 |
|
Asia Pacific |
|
| 5 |
|
|
| 8 |
|
Canada and Latin America |
|
| 47 |
|
|
| 60 |
|
Non-U.S. countries total (2) |
|
| 74 |
|
|
| 96 |
|
Consolidated total |
| $ | 152 |
|
| $ | 181 |
|
|
|
|
|
Major Customers
No single customer represented 10% or more of Kodak’s total net revenue in any year presented.
NOTE 28: RELATED PARTY
Kodak’s Executive Chairman is the Chairman of the Board for a company that purchased $3 million of products in 2019. At December 31, 2019, the company owed Kodak $1 million.
NOTE 29: DISCONTINUED OPERATIONS
Flexographic Packaging segment
Discontinued operations of Kodak include the former Flexographic Packaging segment comprised of Kodak’s Flexographic Packaging Business (“FPD”).
Kodak consummated the sale of certain assets of FPD to MIR Bidco, SA (the “Purchaser”) on April 8, 2019 for net cash consideration at closing, in addition to the assumption by Purchaser of certain liabilities of FPD, of $320 million, pursuant to the Stock and Asset Purchase Agreement (“SAPA”) signed in November 2018 and amended in March 2019. Assets and liabilities of FPD in China were transferred at a deferred closing on July 1, 2019 for net cash consideration of $5.9 million at closing and a promissory note for $1.4 million in addition to the assumption by Purchaser of certain liabilities of FPD, in accordance with the SAPA. Kodak operated FPD in China, subject to certain covenants, until the deferred closing occurred. The promissory note was reduced by a true-up payment of $0.2 million owed by Kodak to the Purchaser which reflected the actual economic benefit attributable to the operation of FPD in China from the time of the initial closing through the time of the deferred closing.
The divested business has the right to use Kodak’s corporate brand for a 10-year period related to Covered Products (as defined in the SAPA) for no additional consideration. Therefore, $10 million of consideration received for the sale of FPD was recognized as deferred revenue related to the brand license. The deferred revenue is reported in Long-term liabilities in the Consolidated Statement of Financial Condition and will be recognized as revenue over the term of the license. Proceeds were allocated between the sale of FPD and the brand license based on their relative fair values.
Kodak recognized an after- tax gain on the sale of FPD of $212 million in the year ended December 31, 2019.
Simultaneously with entering into the SAPA, the Company and the Purchaser entered into an Earn-out Agreement, pursuant to which the Company will be entitled to an aggregate of up to $35 million in additional cash consideration if FPD achieves agreed EBITDA targets for 2018 ($10 million earn-out), 2019 ($10 million earn-out) and 2020 ($15 million earn-out). The EBITDA targets for 2019 and 2018 were not achieved. The FPD 2020 results are not yet available.
101
On April 16, 2019 the Purchaser paid Kodak $15 million as a prepayment for services and products to be provided by Kodak to the Purchaser. The Purchaser had the option to satisfy its payment obligations to Kodak through a reduction of the prepayment balance or in cash. As of December 31, 2020, the remaining prepayment balance was $0 million.
The results of operations of FPD are classified as discontinued operations in the Consolidated Statement of Operations for all periods presented. Direct operating expenses of the discontinued operations are included in the results of discontinued operations. Indirect expenses that were historically allocated to the discontinued operations have been included in the results of continuing operations. Prior period results have been reclassified to conform to the current period presentation.
The results of operations of the Business are presented below:
|
| Year Ended December 31, |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Revenues |
| $ | — |
|
| $ | 44 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| — |
|
|
| 28 |
|
Selling, general and administrative expenses |
|
| — |
|
|
| 10 |
|
Research and development expenses |
|
| — |
|
|
| 2 |
|
Interest expense |
|
| — |
|
|
| 7 |
|
Gain on divestiture |
|
| — |
|
|
| (214 | ) |
Earnings from continuing operations before income taxes |
|
| — |
|
|
| 211 |
|
Provision for income taxes |
|
| — |
|
|
| 4 |
|
Earnings (loss) from discontinued operations |
| $ | — |
|
| $ | 207 |
|
Interest was allocated to discontinued operations based on an estimated debt paydown of the Term Credit Agreement.
Earnings from discontinued operations in the Consolidated Statement of Operations for December 31, 2020 includes earnings of $3 million associated with businesses disposed of in previous years.
102
None.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Kodak maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Kodak’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including Kodak’s Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Kodak’s management, with participation of Kodak’s Executive Chairman and Chief Financial Officer, has evaluated the effectiveness of Kodak’s disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K. Kodak’s Executive Chairman and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, Kodak’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Management’s Report on Internal Control Over Financial Reporting
The management of Kodak is responsible for establishing and maintaining adequate internal control over financial reporting. Kodak’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Kodak’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Kodak; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of Kodak are being made only in accordance with authorizations of management and directors of Kodak; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Kodak’s assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment or breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Kodak’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in "Internal Control-Integrated Framework” (2013). Based on management’s assessment using the COSO criteria, management has concluded that Kodak's internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control over Financial Reporting
There was no change identified in Kodak’s internal control over financial reporting that occurred during Kodak’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, Kodak’s internal control over financial reporting other than as follows:
During the quarter ended September 30, 2020 the Company discovered deficiencies in controls required to safeguard Company assets. The Company did not prevent the unauthorized issuance of the Company’s common stock when previously forfeited non-qualified stock options were exercised by five former officers and employees in July 2020. Errors existed in employee equity accounts for the five former officers and employees as well as other current and former officers and employees which could have resulted in additional inappropriate exercises. Controls were inadequate with regard to the timely input and verification of master data updates for equity grants, the maintenance of audit documentation of grant activity in the repository of grants serviced by a third-party administrator, and the performance of independent reconciliations of the repository to supporting company records for the detection of errors or misstatements in employee equity account balances.
The Company has remediated these control deficiencies as of December 31, 2020. Documentation and supervisory review controls around master data were strengthened and an audit trail of stock-based compensation award additions and modifications is now being maintained. A complete reconciliation of the repository of equity grants is being performed and controls have been strengthened by employing an independent reconciliation process and ensuring appropriate segregation of duties.
103
Not applicable.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 regarding directors is incorporated by reference from the information under the caption "Board of Directors and Corporate Governance - Director Nominees" in the Company's Notice of 2021 Annual Meeting and Proxy Statement (the “Proxy Statement”), which will be filed within 120 days after December 31, 2020. The information required by Item 10 regarding audit committee composition and audit committee financial expert disclosure is incorporated by reference from the information under the caption "Board of Directors and Corporate Governance - Committees of the Board - Audit and Finance Committee" in the Proxy Statement. The information required by Item 10 regarding executive officers is contained in Part I under the caption "Information About Its Executive Officers". The information required by Item 10 regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference, if necessary, from the information under the caption "Security Ownership of Certain Beneficial Owners and Management – Delinquent Section 16(a) Reports" in the Proxy Statement.
We have adopted a Business Conduct Guide that applies to all of our officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions, as well as a Directors’ Code of Conduct that applies to our directors. Our Business Conduct Guide and Directors’ Code of Conduct are posted on our website located at http://investor.kodak.com/corporate-governance/supporting-documents. We intend to disclose future amendments to certain provisions of the Business Conduct Guide and waivers of the Business Conduct Guide granted to executive officers, on the website within four business days following the date of the amendment or waiver.
ITEM 11.EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from the information under the following captions in the Proxy Statement: "Executive Compensation”, “Director Compensation” and “Board of Directors and Corporate Governance – Executive Compensation Committee Interlocks and Insider Participation.”
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference from the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and “Proposal 3 – Equity Compensation Plan Information” in the Proxy Statement.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the information under the captions "Certain Relationships and Related Transactions" and "Board of Directors and Corporate Governance – Director and Nominee Independence" in the Proxy Statement.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference from the information under the caption “Principal Accounting Fees and Services” in the Proxy Statement.
ITEM 15. FINANCIAL STATEMENT SCHEDULES, EXHIBITS
1. | Valuation and qualifying accounts |
Schedule II
Eastman Kodak Company
Valuation and Qualifying Accounts
Beginning | Net Deductions | Ending | ||||||||||||||
(in millions) | Balance | Additions | and Other | Balance | ||||||||||||
Year ended December 31, 2023 | ||||||||||||||||
Reserve for doubtful accounts | $ | 7 | 3 | 2 | $ | 8 | ||||||||||
Deferred tax valuation allowance | $ | 826 | 62 | 110 | $ | 778 | ||||||||||
Year ended December 31, 2022 | ||||||||||||||||
Reserve for doubtful accounts | $ | 7 | 2 | 2 | $ | 7 | ||||||||||
Deferred tax valuation allowance | $ | 934 | 18 | 126 | $ | 826 | ||||||||||
Year ended December 31, 2021 | ||||||||||||||||
Reserve for doubtful accounts | $ | 10 | — | 3 | $ | 7 | ||||||||||
Deferred tax valuation allowance | $ | 1,112 | 33 | 211 | $ | 934 |
All other schedules have been omitted because they are not applicable or the information required is shown in the financial statements or notes thereto.
Eastman Kodak Company
Valuation and Qualifying Accounts
|
| Beginning |
|
|
|
|
|
| Net Deductions |
|
| Ending |
| |||
(in millions) |
| Balance |
|
| Additions |
|
| and Other |
|
| Balance |
| ||||
Year ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts |
| $ | 8 |
|
|
| 7 |
|
|
| 5 |
|
| $ | 10 |
|
Deferred tax valuation allowance |
| $ | 821 |
|
|
| 344 |
|
|
| 53 |
|
| $ | 1,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts |
| $ | 9 |
|
|
| 3 |
|
|
| 4 |
|
| $ | 8 |
|
Deferred tax valuation allowance |
| $ | 853 |
|
|
| 64 |
|
|
| 96 |
|
| $ | 821 |
|
All other schedules have been omitted because they are not applicable, or the information required is shown in the financial statements or notes thereto.
104
Exhibit
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Number | |||
(3.1) | |||
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105
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106
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107
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108
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| |
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| |
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| |
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| |
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| |
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| |
* Management contract or compensatory plan or arrangement.
# Eastman Kodak Company was granted confidential treatment(Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 as filed on September 3, 2013).
(3.2)
(3.3)
(3.4)
(3.5)
(3.6)
(3.7)
(3.8)
(4.1)
(4.2)
(4.3)
(4.4)
(4.5)
(4.6) |
(4.7) |
(4.8) | |
(4.9) | Amendment to Letter Agreement, dated as of June 30, 2023, by and among the Company and Kennedy Lewis Investment Management LLC (Incorporated by reference to Exhibit (10.3) of the Company’s Current Report on Form 8-K as filed on July 7, 2023). |
(4.10) | |
*(10.1) | |
*(10.2) | |
*(10.3) | |
*(10.4) | |
*(10.5) | |
*(10.6) | |
*(10.7) | |
*(10.8) |
*(10.9) |
*(10.10) | |
*(10.11) | |
*(10.12) | |
*(10.13) | |
*(10.14) | |
*(10.15) | |
*(10.16) |
*(10.17) | |
*(10.18) | |
*(10.19) | Eastman Kodak Company Sales Executive Compensation Plan and Form of Notification Letter, filed herewith. |
*(10.20) | Executive Chairman and CEO Agreement between Eastman Kodak Company and James V. Continenza, dated November 29, 2023, filed herewith. |
*(10.21) | |
*(10.22) |
*(10.23) | |
*(10.24) | |
(10.25) | Amendment No. 2 to Letter of Credit Facility Agreement, dated as of June 30, 2023, by and among the Company, the Subsidiary Guarantors named therein and Bank of America, N.A., as Agent, Lender and Issuing Bank, including as an exhibit the Amended and Restated Letter of Credit Facility Agreement (Incorporated by reference to Exhibit (10.2) of the Company’s Current Report on Form 8-K as filed on July 7, 2023). |
(10.26) | |
(10.27) | First Amendment to Credit Agreement, dated as of June 30, 2023, by and among the Company, the Subsidiary Guarantors named therein, the Lenders named therein and Alter Domus (US), LLC, as Administrative Agent, including as exhibits the Amended and Restated Term Loan Credit Agreement and Guarantee and Collateral Agreement, as amended (Incorporated by reference to Exhibit (10.1) of the Company’s Current Report on Form 8-K as filed on July 7, 2023). |
(10.28) | |
(10.29) | |
(10.30) | |
(10.31) | |
(10.32) | |
(10.33) |
(21) | |
(23.1) | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, filed herewith. |
(31.1) | Certification signed by James V. Continenza, filed herewith. |
(31.2) | Certification signed by David E. Bullwinkle, filed herewith. |
(32.1) | |
(32.2) | |
(97) | Eastman Kodak Company CompensationRecoupment (Clawback) Policy, filed herewith, |
(101.CAL) | Inline XBRL Taxonomy Extension Calculation Linkbase. |
(101.INS) | Inline XBRL Instance Document. |
(101.LAB) | Inline XBRL Taxonomy Extension Label Linkbase. |
(101.PRE) | Inline XBRL Taxonomy Extension Presentation Linkbase. |
(101.SCH) | Inline XBRL Taxonomy Extension Scheme Linkbase. |
(101.DEF) | Inline XBRL Taxonomy Extension Definition Linkbase. |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in |
* Management contract or compensatory plan or arrangement.
# Eastman Kodak Company was granted confidential treatment for certain information contained in this exhibit. Such information was filed separately with the Securities and Exchange Commission pursuant to an application for confidential treatment under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2.
None.
None.
109
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EASTMAN KODAK COMPANY | ||
(Registrant) | ||
By: | /s/ James V. Continenza | |
James V. Continenza | ||
Executive Chairman and Chief Executive Officer | ||
March 14, 2024 |
EASTMAN KODAK COMPANY
(Registrant)
By:
/s/ James V. Continenza
James V. Continenza
Executive Chairman
March 16, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date: March 14, 2024 139
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