UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SeptemberJune 30, 20192020
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 registrant as specified in its charter)
NEW JERSEY |
| 16-0417150 |
(State of incorporation) |
| (IRS Employer Identification No.) |
|
|
|
343 STATE STREET, ROCHESTER, NEW YORK |
| 14650 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: 585-724-4000
Securities registered pursuant to Section 12 12-(b) of the Act:
Title of each class
Common | Trading Symbol (s) | Name of each exchange on which registered |
Common stock, par value $0.01 per share | KODK | New York Stock Exchange |
Indicate by check mark whether the registrant (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 registrant 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 registrant 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 the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.
| ☐ |
| Accelerated filer | |
| |
Non-accelerated filer |
|
|
| Smaller reporting company | ☒ |
|
Emerging growth company |
| ☐ |
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|
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2019,August 3, 2020, the registrant had 43,223,18175,684,110 shares of common stock, par value $0.01 per share, outstanding.
[1]
EASTMAN KODAK COMPANY
Form 10-Q
SeptemberJune 30, 20192020
Table of Contents
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Part I.—Financial Information | ||||
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Item 1. |
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| Consolidated Statement of Comprehensive (Loss) Income(Unaudited) |
| 4 |
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| 5 | |
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| 6 | |
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| 7 | ||
| 9 | |||
Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. |
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Part II. —Other Information | ||||
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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[2]
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in millions, except per share data)
|
| Three Months Ended |
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| Nine Months Ended |
|
| Three Months Ended |
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| Six Months Ended |
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| September 30, |
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| September 30, |
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| June 30, |
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| June 30, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Revenues |
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Sales |
| $ | 249 |
|
| $ | 259 |
|
| $ | 713 |
|
| $ | 768 |
|
| $ | 163 |
|
| $ | 240 |
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| $ | 373 |
|
| $ | 464 |
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Services |
|
| 66 |
|
|
| 70 |
|
|
| 200 |
|
|
| 211 |
|
|
| 50 |
|
|
| 67 |
|
|
| 107 |
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|
| 134 |
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Total revenues |
|
| 315 |
|
|
| 329 |
|
|
| 913 |
|
|
| 979 |
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|
| 213 |
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|
| 307 |
|
|
| 480 |
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|
| 598 |
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Cost of revenues |
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Sales |
|
| 216 |
|
|
| 232 |
|
|
| 639 |
|
|
| 700 |
|
|
| 159 |
|
|
| 218 |
|
|
| 350 |
|
|
| 423 |
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Services |
|
| 46 |
|
|
| 47 |
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|
| 139 |
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|
| 146 |
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| 33 |
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| 47 |
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|
| 73 |
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| 93 |
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Total cost of revenues |
|
| 262 |
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|
| 279 |
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|
| 778 |
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| 846 |
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| 192 |
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| 265 |
|
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| 423 |
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| 516 |
|
Gross profit |
|
| 53 |
|
|
| 50 |
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|
| 135 |
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| 133 |
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| 21 |
|
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| 42 |
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|
| 57 |
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| 82 |
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Selling, general and administrative expenses |
|
| 48 |
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| 53 |
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|
| 161 |
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|
| 170 |
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|
| 34 |
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| 54 |
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| 82 |
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|
| 113 |
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Research and development costs |
|
| 11 |
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| 12 |
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|
| 33 |
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|
| 37 |
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|
| 8 |
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|
| 11 |
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|
| 17 |
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| 22 |
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Restructuring costs and other |
|
| 3 |
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|
| 9 |
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| 7 |
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| 13 |
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| 1 |
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| 2 |
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| 8 |
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| 4 |
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Other operating expense (income), net |
|
| 10 |
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| (10 | ) |
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| 10 |
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| (12 | ) | ||||||||||||||||
Other operating income, net |
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| (3 | ) |
|
| — |
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| (10 | ) |
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| — |
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Loss from continuing operations before interest expense, pension income excluding service cost component, other charges (income), net and income taxes |
|
| (19 | ) |
|
| (14 | ) |
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| (76 | ) |
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| (75 | ) |
|
| (19 | ) |
|
| (25 | ) |
|
| (40 | ) |
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| (57 | ) |
Interest expense |
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| 4 |
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| 2 |
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| 12 |
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| 6 |
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| 4 |
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| 5 |
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| 8 |
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| 8 |
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Pension income excluding service cost component |
|
| (26 | ) |
|
| (35 | ) |
|
| (79 | ) |
|
| (99 | ) |
|
| (27 | ) |
|
| (26 | ) |
|
| (53 | ) |
|
| (53 | ) |
Other charges (income), net |
|
| 6 |
|
|
| (4 | ) |
|
| 7 |
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| 13 |
|
|
| 8 |
|
|
| — |
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|
| (45 | ) |
|
| 1 |
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(Loss) earnings from continuing operations before income taxes |
|
| (3 | ) |
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| 23 |
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| (16 | ) |
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| 5 |
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(Loss) income from continuing operations before income taxes |
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| (4 | ) |
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| (4 | ) |
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| 50 |
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| (13 | ) | ||||||||||||||||
Provision for income taxes |
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| 7 |
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| 3 |
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| 12 |
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| 7 |
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| 1 |
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| 2 |
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| 166 |
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| 5 |
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(Loss) earnings from continuing operations |
|
| (10 | ) |
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| 20 |
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| (28 | ) |
|
| (2 | ) | ||||||||||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| 5 |
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| (1 | ) |
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| 206 |
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|
| — |
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Loss from continuing operations |
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| (5 | ) |
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| (6 | ) |
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| (116 | ) |
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| (18 | ) | ||||||||||||||||
Income from discontinued operations, net of income taxes |
|
| — |
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| 207 |
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| — |
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| 201 |
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Net (loss) income |
| $ | (5 | ) |
| $ | 19 |
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| $ | 178 |
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| $ | (2 | ) |
| $ | (5 | ) |
| $ | 201 |
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| $ | (116 | ) |
| $ | 183 |
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Basic and diluted (loss) income per share attributable to Eastman Kodak Company common shareholders: |
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Continuing operations |
| $ | (0.35 | ) |
| $ | 0.35 |
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| $ | (1.00 | ) |
| $ | (0.40 | ) |
| $ | (0.23 | ) |
| $ | (0.25 | ) |
| $ | (2.88 | ) |
| $ | (0.65 | ) |
Discontinued operations |
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| 0.12 |
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| (0.02 | ) |
|
| 4.79 |
|
|
| — |
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|
| — |
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|
| 4.81 |
|
|
| — |
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| 4.67 |
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Total |
| $ | (0.23 | ) |
| $ | 0.33 |
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| $ | 3.79 |
|
| $ | (0.40 | ) |
| $ | (0.23 | ) |
| $ | 4.56 |
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| $ | (2.88 | ) |
| $ | 4.02 |
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Number of common shares used in basic and diluted net loss per share |
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| 43.7 |
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| 43.0 |
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| 43.7 |
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| 43.0 |
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Basic |
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| 43.0 |
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| 42.7 |
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| 43.0 |
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| 42.7 |
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Diluted |
|
| 43.0 |
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| 43.0 |
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| 43.0 |
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| 42.7 |
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The accompanying notes are an integral part of these consolidated financial statements.
[3]
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (LOSS) (Unaudited)
(in millions)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
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| 2018 |
|
| 2019 |
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| 2018 |
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| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
NET INCOME (LOSS) |
| $ | (5 | ) |
| $ | 19 |
|
| $ | 178 |
|
| $ | (2 | ) | ||||||||||||||||
NET (LOSS) INCOME |
| $ | (5 | ) |
| $ | 201 |
|
| $ | (116 | ) |
| $ | 183 |
| ||||||||||||||||
Other comprehensive income (loss), net of tax: |
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Currency translation adjustments |
|
| (2 | ) |
|
| (12 | ) |
|
| 2 |
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|
| (19 | ) |
|
| (4 | ) |
|
| 1 |
|
|
| (16 | ) |
|
| 4 |
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Pension and other postretirement benefit plan obligation activity, net of tax |
|
| (1 | ) |
|
| 3 |
|
|
| (2 | ) |
|
| 3 |
|
|
| 9 |
|
|
| — |
|
|
| 12 |
|
|
| (1 | ) |
Other comprehensive income (loss), net of tax |
|
| (3 | ) |
|
| (9 | ) |
|
| — |
|
|
| (16 | ) |
|
| 5 |
|
|
| 1 |
|
|
| (4 | ) |
|
| 3 |
|
COMPREHENSIVE INCOME (LOSS), NET OF TAX |
| $ | (8 | ) |
| $ | 10 |
|
| $ | 178 |
|
| $ | (18 | ) |
| $ | — |
|
| $ | 202 |
|
| $ | (120 | ) |
| $ | 186 |
|
The accompanying notes are an integral part of these consolidated financial statements.
[4]
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS |
|
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Cash and cash equivalents |
| $ | 225 |
|
| $ | 233 |
|
| $ | 180 |
|
| $ | 233 |
|
Trade receivables, net of allowances of $8 and $9, respectively |
|
| 195 |
|
|
| 232 |
| ||||||||
Trade receivables, net of allowances of $12 and $8, respectively |
|
| 140 |
|
|
| 208 |
| ||||||||
Inventories, net |
|
| 242 |
|
|
| 231 |
|
|
| 228 |
|
|
| 215 |
|
Restricted cash - current portion |
|
| 7 |
|
|
| 12 |
| ||||||||
Other current assets |
|
| 57 |
|
|
| 47 |
|
|
| 32 |
|
|
| 36 |
|
Current assets held for sale |
|
| 2 |
|
|
| 167 |
|
|
| 2 |
|
|
| 2 |
|
Total current assets |
|
| 721 |
|
|
| 910 |
|
|
| 589 |
|
|
| 706 |
|
Property, plant and equipment, net of accumulated depreciation of $419 and $395, respectively |
|
| 186 |
|
|
| 216 |
| ||||||||
Property, plant and equipment, net of accumulated depreciation of $418 and $423, respectively |
|
| 157 |
|
|
| 181 |
| ||||||||
Goodwill |
|
| 12 |
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|
| 12 |
|
|
| 12 |
|
|
| 12 |
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Intangible assets, net |
|
| 53 |
|
|
| 58 |
|
|
| 41 |
|
|
| 47 |
|
Operating lease right-of-use assets |
|
| 49 |
|
|
| — |
|
|
| 51 |
|
|
| 49 |
|
Restricted cash |
|
| 36 |
|
|
| 11 |
|
|
| 25 |
|
|
| 45 |
|
Deferred income taxes |
|
| 147 |
|
|
| 160 |
|
|
| — |
|
|
| 147 |
|
Other long-term assets |
|
| 205 |
|
|
| 143 |
|
|
| 285 |
|
|
| 228 |
|
TOTAL ASSETS |
| $ | 1,409 |
|
| $ | 1,510 |
|
| $ | 1,160 |
|
| $ | 1,415 |
|
|
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|
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|
|
|
|
|
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (DEFICIT) |
|
|
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Accounts payable, trade |
| $ | 140 |
|
| $ | 130 |
|
| $ | 101 |
|
| $ | 153 |
|
Short-term borrowings and current portion of long-term debt |
|
| 2 |
|
|
| 396 |
|
|
| 2 |
|
|
| 2 |
|
Current portion of operating leases |
|
| 26 |
|
|
| — |
|
|
| 11 |
|
|
| 12 |
|
Other current liabilities |
|
| 203 |
|
|
| 209 |
|
|
| 161 |
|
|
| 201 |
|
Current liabilities held for sale |
|
| — |
|
|
| 43 |
| ||||||||
Total current liabilities |
|
| 371 |
|
|
| 778 |
|
|
| 275 |
|
|
| 368 |
|
Long-term debt, net of current portion |
|
| 106 |
|
|
| 5 |
|
|
| 113 |
|
|
| 109 |
|
Pension and other postretirement liabilities |
|
| 352 |
|
|
| 379 |
|
|
| 368 |
|
|
| 378 |
|
Operating leases, net of current portion |
|
| 34 |
|
|
| — |
|
|
| 51 |
|
|
| 48 |
|
Other long-term liabilities |
|
| 195 |
|
|
| 178 |
|
|
| 197 |
|
|
| 231 |
|
Total liabilities |
|
| 1,058 |
|
|
| 1,340 |
|
|
| 1,004 |
|
|
| 1,134 |
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|
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Commitments and Contingencies (Note 10) |
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Commitments and Contingencies (Note 11) |
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| ||||||||
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Redeemable, convertible Series A preferred stock, no par value, $100 per share liquidation preference |
| 180 |
|
| 173 |
|
| 186 |
|
| 182 |
| ||||
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Equity (Deficit) |
|
|
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Common stock, $0.01 par value |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 608 |
|
|
| 617 |
|
|
| 595 |
|
|
| 604 |
|
Treasury stock, at cost |
|
| (9 | ) |
|
| (9 | ) |
|
| (9 | ) |
|
| (9 | ) |
Accumulated deficit |
|
| (17 | ) |
|
| (200 | ) |
|
| (195 | ) |
|
| (79 | ) |
Accumulated other comprehensive loss |
|
| (411 | ) |
|
| (411 | ) |
|
| (421 | ) |
|
| (417 | ) |
Total shareholders’ equity (deficit) |
|
| 171 |
|
|
| (3 | ) | ||||||||
Total shareholders’ (deficit) equity |
|
| (30 | ) |
|
| 99 |
| ||||||||
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (DEFICIT) |
| $ | 1,409 |
|
| $ | 1,510 |
|
| $ | 1,160 |
|
| $ | 1,415 |
|
The accompanying notes are an integral part of these consolidated financial statements.
[5]
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| June 30, |
| ||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | 178 |
|
| $ | (2 | ) | ||||||||
Net (loss) income |
| $ | (116 | ) |
| $ | 183 |
| ||||||||
Adjustments to reconcile to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 43 |
|
|
| 58 |
|
|
| 20 |
|
|
| 29 |
|
Pension income |
|
| (72 | ) |
|
| (81 | ) |
|
| (43 | ) |
|
| (45 | ) |
Change in fair value of embedded derivatives in the Series A Preferred Stock and Convertible Notes |
|
| 3 |
|
|
| 2 |
|
|
| (49 | ) |
|
| (2 | ) |
Net gain on sales of assets/businesses |
|
| (202 | ) |
|
| (7 | ) | ||||||||
Net gain on sales of assets |
|
| (9 | ) |
|
| (209 | ) | ||||||||
Asset impairments |
|
| 3 |
|
|
| — |
| ||||||||
Stock based compensation |
|
| 6 |
|
|
| 5 |
|
|
| 1 |
|
|
| 5 |
|
Non-cash changes in workers' compensation and legal reserves |
|
| 2 |
|
|
| (10 | ) | ||||||||
Provision for deferred income taxes |
|
| 6 |
|
|
| 6 |
|
|
| 160 |
|
|
| 4 |
|
Decrease in trade receivables |
|
| 30 |
|
|
| 28 |
|
|
| 64 |
|
|
| 22 |
|
Increase in inventories |
|
| (18 | ) |
|
| (42 | ) |
|
| (17 | ) |
|
| (14 | ) |
Increase (decrease) in trade payables |
|
| 13 |
|
|
| (25 | ) | ||||||||
(Decrease) increase in trade payables |
|
| (50 | ) |
|
| 9 |
| ||||||||
Decrease in liabilities excluding borrowings and trade payables |
|
| (5 | ) |
|
| (20 | ) |
|
| (31 | ) |
|
| (5 | ) |
Other items, net |
|
| 12 |
|
|
| 9 |
|
|
| 3 |
|
|
| 10 |
|
Total adjustments |
|
| (182 | ) |
|
| (77 | ) |
|
| 52 |
|
|
| (196 | ) |
Net cash used in operating activities |
|
| (4 | ) |
|
| (79 | ) |
|
| (64 | ) |
|
| (13 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties |
|
| (11 | ) |
|
| (24 | ) |
|
| (9 | ) |
|
| (5 | ) |
Net proceeds from sales of businesses/assets |
|
| 326 |
|
|
| 8 |
| ||||||||
Net cash provided by (used in) investing activities |
|
| 315 |
|
|
| (16 | ) | ||||||||
Net proceeds from sales of assets/businesses |
|
| 2 |
|
|
| 302 |
| ||||||||
Net proceeds from return on equity investment |
|
| 2 |
|
|
| — |
| ||||||||
Net cash (used in) provided by investing activities |
|
| (5 | ) |
|
| 297 |
| ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of Term Credit Agreement |
|
| (395 | ) |
|
| — |
|
|
| — |
|
|
| (395 | ) |
Proceeds from Convertible Notes |
|
| 98 |
|
|
| — |
|
|
| — |
|
|
| 98 |
|
Proceeds from borrowings |
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
Repayment of finance leases |
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
|
| (1 | ) |
Preferred stock dividend payments |
|
| — |
|
|
| (8 | ) |
|
| (6 | ) |
|
| — |
|
Payment of contingent consideration related to the sale of a business |
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Net cash used in financing activities |
|
| (295 | ) |
|
| (10 | ) |
|
| (6 | ) |
|
| (294 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (4 | ) |
|
| (8 | ) |
|
| (3 | ) |
|
| 1 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 12 |
|
|
| (113 | ) | ||||||||
Net decrease in cash, cash equivalents, restricted cash and cash in assets held for sale |
|
| (78 | ) |
|
| (9 | ) | ||||||||
Cash, cash equivalents, restricted cash and cash in assets held for sale, beginning of period |
|
| 267 |
|
|
| 369 |
|
|
| 290 |
|
|
| 267 |
|
Cash, cash equivalents, restricted cash and cash in assets held for sale, end of period |
| $ | 279 |
|
| $ | 256 |
|
| $ | 212 |
|
| $ | 258 |
|
The accompanying notes are an integral part of these consolidated financial statements.
[6]
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)
|
| Nine-Month Period Ending September 30, 2019 |
|
| Six-Month Period Ending June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Eastman Kodak Company Common Shareholders |
|
|
|
|
|
| Eastman Kodak Company Common Shareholders |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
|
| Series A Redeemable Convertible Preferred Stock |
|
| Common Stock |
|
| 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 |
| ||||||||||||||||||||||||||||
Equity (deficit) as of December 31, 2019 |
| $ | — |
|
| $ | 604 |
|
| $ | (79 | ) |
| $ | (417 | ) |
| $ | (9 | ) |
| $ | 99 |
|
| $ | 182 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (111 | ) |
|
| — |
|
|
| — |
|
|
| (111 | ) |
|
| — |
|
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Other comprehensive (loss) income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Series A preferred stock cash dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
Stock-based compensation |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Prior period adjustment due to adoption of ASU 2016-02 |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of March 31, 2019 |
| $ | — |
|
| $ | 615 |
|
| $ | (213 | ) |
| $ | (409 | ) |
| $ | (9 | ) |
| $ | (16 | ) |
| $ | 175 |
| ||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 201 |
|
|
| — |
|
|
| — |
|
|
| 201 |
|
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Equity (deficit) as of March 31, 2020 |
| $ | — |
|
| $ | 600 |
|
| $ | (190 | ) |
| $ | (426 | ) |
| $ | (9 | ) |
| $ | (25 | ) |
| $ | 184 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive (loss) income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
Series A preferred stock cash dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
Stock-based compensation |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of June 30, 2019 |
| $ | — |
|
| $ | 612 |
|
| $ | (12 | ) |
| $ | (408 | ) |
| $ | (9 | ) |
| $ | 183 |
|
| $ | 177 |
| ||||||||||||||||||||||||||||
Net (loss) earnings |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Series A preferred stock cash dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Series A preferred stock deemed dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| 3 |
| ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of September 30, 2018 |
| $ | — |
|
| $ | 608 |
|
| $ | (17 | ) |
| $ | (411 | ) |
| $ | (9 | ) |
| $ | 171 |
|
| $ | 180 |
| ||||||||||||||||||||||||||||
Equity (deficit) as of June 30, 2020 |
| $ | — |
|
| $ | 595 |
|
| $ | (195 | ) |
| $ | (421 | ) |
| $ | (9 | ) |
| $ | (30 | ) |
| $ | 186 |
|
The accompanying notes are an integral part of these consolidated financial statements.
[7]
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited) (cont’d)
| Nine-Month Period Ending September 30, 2018 |
|
| Six-Month Period Ending June 30, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Eastman Kodak Company Common Shareholders |
|
|
|
|
|
| Eastman Kodak Company Common Shareholders |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
|
| Series A Redeemable Convertible Preferred Stock |
|
| Common Stock |
|
| 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, 2017 |
| $ | — |
|
| $ | 631 |
|
| $ | (174 | ) |
| $ | (391 | ) |
| $ | (9 | ) |
| $ | 57 |
|
| $ | 164 |
| ||||||||||||||||||||||||||||
Equity (deficit) as of December 31, 2018 |
| $ | — |
|
| $ | 617 |
|
| $ | (200 | ) |
| $ | (411 | ) |
| $ | (9 | ) |
| $ | (3 | ) |
| $ | 173 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Other comprehensive (loss) income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
Series A preferred stock cash dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
Stock-based compensation |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Prior period adjustment due to adoption of ASU 2014-09 |
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of March 31, 2018 |
| $ | — |
|
| $ | 628 |
|
| $ | (209 | ) |
| $ | (378 | ) |
| $ | (9 | ) |
| $ | 32 |
|
| $ | 166 |
| ||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Prior period adjustment due to adoption of ASU 2016-02 |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of March 31, 2019 |
| $ | — |
|
| $ | 615 |
|
| $ | (213 | ) |
| $ | (409 | ) |
| $ | (9 | ) |
| $ | (16 | ) |
| $ | 175 |
| ||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| 201 |
|
|
| — |
|
|
| — |
|
|
| 201 |
|
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20 | ) |
|
| — |
|
|
| (20 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Series A preferred stock cash dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
Series A preferred stock deemed dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
Stock-based compensation |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Equity (deficit) as of June 30, 2018 |
| $ | — |
|
| $ | 624 |
|
| $ | (205 | ) |
| $ | (398 | ) |
| $ | (9 | ) |
| $ | 12 |
|
| $ | 168 |
| ||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
| ||||||||||||||||||||||||||||
Other comprehensive loss (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| ||||||||||||||||||||||||||||
Series A preferred stock cash dividends |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Series A preferred stock deemed dividends |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| 3 |
| ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
| ||||||||||||||||||||||||||||
Purchases of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
Equity (deficit) as of September 30, 2018 |
| $ | — |
|
| $ | 621 |
|
| $ | (186 | ) |
| $ | (407 | ) |
| $ | (9 | ) |
| $ | 19 |
|
| $ | 171 |
| ||||||||||||||||||||||||||||
Equity (deficit) as of June 30, 2019 |
| $ | — |
|
| $ | 612 |
|
| $ | (12 | ) |
| $ | (408 | ) |
| $ | (9 | ) |
| $ | 183 |
|
| $ | 177 |
|
The accompanying notes are an integral part of these consolidated financial statements.
[8]
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1: BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
BASIS OF PRESENTATION
The consolidated interim financial statements are unaudited, and certain information and footnote disclosures related thereto normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results of operations, financial position and cash flows of Eastman Kodak Company (“EKC” or the “Company”) and all companies directly or indirectly controlled, either through majority ownership or otherwise (collectively, “Kodak”). The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These consolidated interim statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Form 10-K”).
GOING CONCERN
The consolidated interim 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 SeptemberJune 30, 20192020 and December 31, 2018,2019, Kodak had approximately $225$180 million and $233 million, respectively, of cash and cash equivalents. $84$95 million and $117$72 million waswere held in the United States (“U.S.”) as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, and $141$85 million and $116$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 SeptemberJune 30, 20192020 and December 31, 20182019 were $403$429 million and $390$408 million, respectively, which includes short-term intercompany loans from Kodak’s international finance center of $105$130 million and $92$110 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. In China, where approximately $71$23 million and $59$89 million of cash and cash equivalents was held as of SeptemberJune 30, 20192020 and December 31, 2018,2019, 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 associated with an inter-company transaction. Kodak had a net decrease in cash, cash equivalents, restricted cash and cash in assets held for sale of $78 million and $9 million for the six months ended June 30, 2020 and 2019, respectively, and a net increase in cash, cash equivalents, restricted cash and cash in assets held for sale of $12$23 million for the nine months ended September 30, 2019 and a net decrease of $102 million the year ended December 31, 2018.2019. Kodak used cash of $4$64 million and $79$13 million in operating activities for the ninesix months ended SeptemberJune 30, 2020 and 2019, respectively, and 2018, respectively. The current year’sgenerated cash used infrom operating activities includesfor the receiptyear ended December 31, 2019 of brand$12 million. Cash flow from operations in 2019 benefitted from working capital improvements and functional intellectual property licensing proceeds allocated fromindividual transactions that occurred during the overall consideration received as part of the divestiture of the Packaging segment ($10 million) and the establishment of a strategic relationship with Lucky HuaGuang Graphics Co. Ltd ($13 million). Cash used in operating activities also includes the receipt of a $15 million prepayment for transition services and products and services to be provided by Kodak associated with the Packaging segment divestiture, $8 million of which has not yet been utilized. 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.
Kodak is facing liquidity challenges due to operating losses, andlow or negative cash flow from operations.operations and collateral needs. Kodak has eliminated current debt service requirements by paying down$80 million of letters of credit issued under the Senior Secured First Lien TermAmended and Restated Credit Agreement (the “Term“ABL Credit Agreement”) using proceeds from the sale of Kodak’s Flexographic Packaging business (“FPD”which matures on May 26, 2021. The Company’s 5.50% Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and refinancing the remaining balance through the issuance of convertible debt which does not require any debt service until conversion or maturitymust be redeemed on November 1, 2021. However,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, simplifyingcontinuing to simplify the organizational structure, generating cash from selling and leasing underutilized assets and paring investment in new technology by eliminating or delaying product development programs.programs as needed. Additionally, the Company looks to implement ways to reduce collateral needs in the U.S.
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, resulting in market size contractions in many countries due to economic slowdowns and government restrictions on movement. The currenteconomic uncertainties surrounding the COVID-19 pandemic are adding complexity to Kodak’s plans to return to sustainable positive cash balance outsideflow. To mitigate the economic impacts of China,the pandemic Kodak is employing temporary furloughs and pay reductions and scaling manufacturing volumes due to expectations of reduced demand.
[9]
The recent trendhistory 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 raise substantial doubt about Kodak’s ability to continue as a going concern.
SUBSEQUENT EVENTS
On July 29, 2020, the Company received conversion notices from holders of the Company’s 5.00% Secured Convertible Notes due 2021 (the “Notes”) exercising their rights to convert an aggregate of $95 million of principal amount of the Notes (the “Converted Notes”) into shares of the Company’s common stock, par value $.01 per share (“Common Stock”). Under the terms of the Notes, the conversion date of the Converted Notes is July 29, 2020 (the “Conversion Date”) and the Company was obligated to deliver an aggregate of 29,922,956 shares of Common Stock (the “Conversion Shares”) to the holders of the Converted Notes within five trading days after the Conversion Date. The Company issued the Conversion Shares on August 3, 2020 and has paid the $5.6 million of accumulated interest on the Converted Notes in cash. As a result, the Company’s obligations under the Converted Notes were fully discharged and the remaining outstanding principal amount of the Notes is $5 million.
The Company issued stock-based compensation grants for 2.4 million stock options on July 27, 2020. The terms of 1.8 million of the options awarded on July 27, 2020 provide for immediate vesting or vesting upon conversion of the Notes. The terms of 0.6 million of those options provide for vesting terms of between two and three years. As 95% of the Notes were converted on August 3, 2020, 1.7 million of the 1.8 million options with the accelerated vesting terms (all the options which vested immediately and 95% of the of the options that vested upon conversion of the Notes) vested by August 3, 2020. The valuation of the stock options granted on July 27, 2020 could result in material compensation expense being recognized in the three months ended September 30, 2020.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to the current period classification due to Kodak’s new organization structure as of January 2019 and due to assets held for sale reporting requirements.
[9]
In addition to the changes in segment reporting under the new organization structure there is a change in the segment measure of profitability. The segment measure of profitability was changed to exclude the costs, net of any rental income received, of underutilized portions of certain properties. Additionally, the allocation of costs from Eastman Business Park (“EBP”) to the Brand, Film and Imaging segment and Advanced Materials and 3D Printing Technology segment as tenants of EBP and to each of the segments as users of shared corporate space at the global headquarters changed.2020. Refer to Note 21,22, “Segment Information” for additional information.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In FebruaryNovember 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The ASU addresses certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act (the “2017 Tax Act”). The ASU provides an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 Tax Act (or portion thereof) is recorded and requires additional disclosures. The ASU is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for Kodak) and interim periods within those fiscal years. Kodak adopted the new standard on January 1, 2019. The adoption of this ASU did not have an impact on the Consolidated Financial Statements as a result of Kodak’s U.S. valuation allowance.
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. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. The new leasing standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for Kodak). The original guidance required application on a modified retrospective basis to the earliest period presented. ASU 2018-11, Targeted improvements to ASC 842, includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition. Kodak adopted the new standard on the effective date applying the new transition method allowed under ASU 2018-11. Kodak elected the package of practical expedients which permitted Kodak to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any existing leases, and (3) any initial direct costs for any existing leases as of the effective date. Kodak did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the amended lease guidance increased the assets and liabilities recorded in the Consolidated Statement of Financial Position due to the recognition of right-of-use assets and liabilities. Kodak recognized a cumulative-effect adjustment to increase retained earnings of approximately $5 million due to the derecognition of assets and deferred gain on previous sale-leaseback transactions. As a lessor, recognition of rental revenue remained mainly consistent with previous guidance, apart from the narrower definition of initial direct costs that can be capitalized.
The impact of adoption on the Consolidated Statement of Financial Position is presented below:
($ million)
| Balance at December 31, 2018 |
| Adjustments Due to ASU 2016-02 |
| Balance at January 1, 2019 |
| |||
Operating lease right-of-use assets | $ | — |
| $ | 52 |
| $ | 52 |
|
Operating lease liabilities |
| — |
|
| 61 |
|
| 61 |
|
Deferred rent payable (1) |
| 9 |
|
| (9 | ) |
| — |
|
Deferred gain on previous sale leaseback transaction (1) |
| 6 |
|
| (6 | ) |
| — |
|
Net fixed assets from previous sale leaseback transaction |
| 1 |
|
| (1 | ) |
| — |
|
Accumulated deficit |
| 200 |
|
| (5 | ) |
| 195 |
|
|
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. 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). Early adoption is permitted. The amendments should be applied retrospectively to the date of initial application of Topic 606. Kodak will adoptadopted this ASU on January 1, 2020, and it isdid not anticipated to have any impact on Kodak’s consolidated financial statements.
[10]
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). Early adoption is permitted.Kodak adopted this ASU on January 1, 2020. The standard addresses disclosures only and willdid not have an 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 ASC 820 by adding, changing, or removing certain disclosures. The ASU applies to 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 expects to prospectively adopt the provisions related to new disclosures January 1, 2020. The standard addresses disclosures only and will not have an impact on Kodak’s consolidated financial statements.
[10]
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. Early adoption is permitted.The ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Kodak will adoptadopted this ASU prospectively on January 1, 2020, and it isdid not anticipated to have a materialany impact on Kodak’s consolidateconsolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional relief through specific exceptions and practical expedients for transitioning away from reference rates that are expected to be discontinued. The relief generally applies to eligible modifications of contractual terms that change (or have the potential to change) the amount or timing of contractual cash flows related to replacement of a reference rate. The relief allows such modifications to be accounted for as continuations of existing contracts without additional analysis. The optional relief is available from March 2020 through December 31, 2022. Kodak is currently evaluating the impact of this ASU.
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, 2021 (January 1, 2022 for Kodak) with early adoption permitted. Kodak is currently evaluating the impact of this ASU.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 (as amended by ASUASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02 and ASU’s 2019-04 and 05)2020-03) 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-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. In October, the FASB directed its staff to draft anThe ASU to defer the is effective date of the standard for smaller reporting companies untilfor fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, (January 1, 2023 for Kodak) (effective date for all SEC filers, including smaller reporting companies, was originally December 15, 2019). Early adoption is permitted. Kodak is currently evaluating the impact of this ASU.
NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Financial Position that sums to the total of such amounts shown in the Statement of Cash Flows:
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash and cash equivalents |
| $ | 225 |
|
| $ | 233 |
|
| $ | 180 |
|
| $ | 233 |
|
Restricted cash included in Other current assets |
|
| 18 |
|
|
| 8 |
| ||||||||
Long-term restricted cash |
|
| 36 |
|
|
| 11 |
| ||||||||
Cash included in assets held for sale |
|
| — |
|
|
| 15 |
| ||||||||
Restricted cash - current portion |
|
| 7 |
|
|
| 12 |
| ||||||||
Restricted cash |
|
| 25 |
|
|
| 45 |
| ||||||||
Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows |
| $ | 279 |
|
| $ | 267 |
|
| $ | 212 |
|
| $ | 290 |
|
[11]
Restricted cash included in Other- current assetsportion on the Consolidated Statement of Financial Position primarily includesrepresents 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”) and collateral in support of hedging activities.who purchased Kodak’s Flexographic Packaging business (“FPD”). On April 16, 2019 the Purchaser of FPD paid Kodak $15 million in the U.S. as a prepayment for transition services and products and services to be provided by Kodak to the Purchaser. Kodak provided a $15 million guaranty, supported by cash collateral in China, to the Purchaser. The Purchaser hashad the option to satisfy its payment obligations to Kodak through a reduction of the prepayment balance or in cash. When the Purchaser satisfiessatisfied its payment obligations to Kodak by utilizing its prepayment balance, Kodak can followfollowed a guaranty amendment process to reduce the amount of its guaranty and cash collateral supporting the prepayment balance. As of SeptemberJune 30, 2020 and December 31, 2019, the remaining prepayment balance is $8was $0 million and $3 million, respectively, and the cash collateral supporting Kodak’s guaranty is $10 million.was $0 million and $4 million, respectively.
[11]
Long-term restrictedRestricted cash includes $14$9 million and $3$22 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, supporting compliance with the Excess Availability threshold under the ABL Credit Agreement, as defined intherein (Refer to Note 7,8, “Debt and Finance Leases” for information on the decrease in Restricted cash supporting the Excess Availability threshold). In addition, Kodak establishedRestricted cash as of both June 30, 2020 and December 31, 2019 includes an escrow of $10 million and $14 million, respectively, in China to secure various ongoing obligations under the agreements for the strategic relationship with Lucky HuaGuang Graphics Co. Ltd. Refer to Note 23 “Assets Held For Sale”. Long-term restrictedRestricted cash also includes $4included $3 million and $5 million of security posted related to Brazilian legal contingencies as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
NOTE 3: INVENTORIES, NET
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Finished goods |
| $ | 124 |
|
| $ | 119 |
|
| $ | 107 |
|
| $ | 105 |
|
Work in process |
|
| 58 |
|
|
| 54 |
|
|
| 60 |
|
|
| 54 |
|
Raw materials |
|
| 60 |
|
|
| 58 |
|
|
| 61 |
|
|
| 56 |
|
Total |
| $ | 242 |
|
| $ | 231 |
|
| $ | 228 |
|
| $ | 215 |
|
NOTE 4: OTHER LONG-TERM ASSETS
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Pension assets |
| $ | 147 |
|
| $ | 82 |
|
| $ | 225 |
|
| $ | 173 |
|
Estimated workers' compensation recoveries |
|
| 17 |
|
|
| 17 |
|
|
| 18 |
|
|
| 18 |
|
Long-term receivables, net of reserve of $4 and $4, respectively |
|
| 11 |
|
|
| 13 |
|
|
| 10 |
|
|
| 11 |
|
Series A Preferred Stock embedded conversion option derivative asset |
|
| 5 |
|
|
| — |
| ||||||||
Other |
|
| 30 |
|
|
| 31 |
|
|
| 27 |
|
|
| 26 |
|
Total |
| $ | 205 |
|
| $ | 143 |
|
| $ | 285 |
|
| $ | 228 |
|
The Other component above consists of other miscellaneous long-term assets that, individually, were less than 5% of the total assets component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X.
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the carrying value of goodwill by reportable segment.
(in millions) |
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| Total |
| |||||
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 56 |
|
| $ | 6 |
|
| $ | 14 |
|
| $ | — |
|
| $ | 76 |
|
Accumulated impairment losses |
|
| (56 | ) |
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| (64 | ) |
Balance as of December 31, 2019 |
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 12 |
|
Goodwill reallocation |
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 6 |
|
|
| — |
|
Balance as of June 30, 2020 |
| $ | — |
|
| $ | 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 22, “Segment Information” for additional information on the change to Kodak’s organizational structure. The Digital Printing segment has three goodwill reporting units: Electrophotographic Printing Solutions; Prosper and Versamark; and Software. The Advanced Materials and Chemicals segment has three goodwill reporting units: Motion Picture and Industrial Films and Chemicals; Advanced Materials and Functional Printing; and Kodak Services for Business. The Traditional Printing segment and Brand 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.
[12]
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 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 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. Based on the results of the June 30, 2020 and March 31, 2020 analyses, no impairment of goodwill was indicated. As of June 30, 2020 and March 31, 2020, the Brand reporting unit had negative carrying value.
The gross carrying amount and accumulated amortization by major intangible asset category as of June 30, 2020 and December 31, 2019 were as follows:
|
| June 30, 2020 | ||||||||||||
(in millions) |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Weighted-Average Amortization Period | |||
Technology-based |
| $ | 99 |
|
| $ | 79 |
|
| $ | 20 |
|
| 5 years |
Kodak trade name |
|
| 18 |
|
|
| — |
|
|
| 18 |
|
| Indefinite life |
Customer-related |
|
| 11 |
|
|
| 8 |
|
|
| 3 |
|
| 3 years |
Total |
| $ | 128 |
|
| $ | 87 |
|
| $ | 41 |
|
|
|
|
| December 31, 2019 | ||||||||||||
(in millions) |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Weighted-Average Amortization Period | |||
Technology-based |
| $ | 99 |
|
| $ | 76 |
|
| $ | 23 |
|
| 5 years |
Kodak trade name |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
| Indefinite life |
Customer-related |
|
| 11 |
|
|
| 8 |
|
|
| 3 |
|
| 4 years |
Total |
| $ | 131 |
|
| $ | 84 |
|
| $ | 47 |
|
|
|
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 result of the interim impairment test, Kodak concluded the carrying value of the Kodak trade name exceeded its fair value. Pre-tax impairment charges of $3 million are included in Other operating income, net in the six months ended June 30, 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 continued uncertainty regarding the negative impact of the COVID-19 pandemic. The interim impairment tests of the Kodak trade name used the income approach, specifically the relief from royalty method. 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.
Amortization expense related to intangible assets was $2 million for the three months ended June 30, 2020 and 2019 and $3 million for the six months ended June 30, 2020 and 2019.
Estimated future amortization expense related to intangible assets that are currently being amortized as of June 30, 2020 was as follows:
(in millions) |
|
|
|
|
Q3 - Q4 2020 |
| $ | 3 |
|
2021 |
|
| 5 |
|
2022 |
|
| 4 |
|
2023 |
|
| 4 |
|
2024 |
|
| 4 |
|
2025 and thereafter |
|
| 3 |
|
Total |
| $ | 23 |
|
[13]
NOTE 5:6: OTHER CURRENT LIABILITIES
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Deferred revenue |
| $ | 40 |
|
| $ | 43 |
| ||||||||
Employee related liabilities |
| $ | 44 |
|
| $ | 41 |
|
|
| 37 |
|
|
| 38 |
|
Deferred revenue |
|
| 32 |
|
|
| 34 |
| ||||||||
Customer rebates |
|
| 21 |
|
|
| 26 |
|
|
| 17 |
|
|
| 23 |
|
Deferred consideration on disposed businesses |
|
| 14 |
|
|
| 24 |
| ||||||||
Transition services agreement prepayment |
|
| 8 |
|
|
| — |
| ||||||||
Series A Preferred Stock dividends payable |
|
| 14 |
|
|
| 6 |
|
|
| 14 |
|
|
| 14 |
|
Workers compensation |
|
| 9 |
|
|
| 9 |
|
|
| 10 |
|
|
| 10 |
|
Restructuring liabilities |
|
| 7 |
|
|
| 8 |
|
|
| 8 |
|
|
| 12 |
|
Deferred consideration on disposed businesses (2) |
|
| — |
|
|
| 14 |
| ||||||||
Transition services agreement prepayment |
|
| — |
|
|
| 3 |
| ||||||||
Other |
|
| 54 |
|
|
| 61 |
|
|
| 35 |
|
|
| 44 |
|
Total |
| $ | 203 |
|
| $ | 209 |
|
| $ | 161 |
|
| $ | 201 |
|
(1) | The customer rebate amounts will potentially be settled through customer deductions applied to outstanding trade receivables in lieu of cash payments. |
The customer rebate amounts will potentially be settled through customer deductions applied to outstanding trade receivables in lieu of cash payments.
(2) | On September 3, 2013, Kodak consummated the sale of certain assets and the assumption of certain liabilities of the Personalized Imaging and Document Imaging Businesses (“PI/DI Businesses”) to the trustee of the U. K. pension plan (and/or its subsidiaries) for net cash consideration of $325 million. Up to $35 million in aggregate of the purchase price was subject to repayment if the PI/DI Business did not achieve certain annual adjusted EBITDA targets over the four-year period ending December 31, 2018. The PI/DI Business did not achieve the adjusted annual EBITDA target for any year in the four-year period. The amounts owed for 2015, 2016 and 2017 were paid in 2016, 2017 and 2019, respectively. The maximum potential payment related to the year ending December 31, 2018 of $14 million was accrued at the time of the divestiture of the business. The Company did not consider the procedural requirements giving rise to the obligation to pay the amount relating to the year ended December 31, 2018 to have been met. The PI/DI Businesses (operating as Kodak Alaris) filed suit against the Company alleging breach of contract based on the failure to pay the $14 million amount with respect to 2018. The Company filed counterclaims seeking contractual penalties related to late payments for goods and services provided by Kodak under various separate agreements. The Company and Kodak Alaris reached a settlement in June 2020 dismissing the actions and all claims and counterclaims asserted against each other and also amended existing supply agreements. As a part of the settlement agreement, $11 million of the deferred consideration on disposed businesses was offset against receivables of $11 million for goods and services owed to the Company by Kodak Alaris. Income of $3 million from the release of the remaining deferred consideration on disposed businesses will be recognized as revenue over the term of the amended supply agreements. |
[12]
(3) | The Other component above consists of other miscellaneous current liabilities that, individually, were less than 5% of the current liabilities component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X. |
NOTE 6:7: OTHER LONG-TERM LIABILITIES
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Workers compensation |
| $ | 84 |
|
| $ | 83 |
|
| $ | 81 |
|
| $ | 84 |
|
Asset retirement obligations |
|
| 46 |
|
|
| 48 |
|
|
| 40 |
|
|
| 48 |
|
Deferred brand licensing revenue |
|
| 18 |
|
|
| 6 |
|
|
| 16 |
|
|
| 18 |
|
Convertible debt embedded derivative liability |
|
| 18 |
|
|
| — |
| ||||||||
Deferred taxes |
|
| 12 |
|
|
| 14 |
|
|
| 30 |
|
|
| 13 |
|
Environmental liabilities |
|
| 10 |
|
|
| 10 |
|
|
| 9 |
|
|
| 10 |
|
Convertible Notes embedded conversion option derivative liability |
|
| 9 |
|
|
| 52 |
| ||||||||
Other |
|
| 7 |
|
|
| 17 |
|
|
| 12 |
|
|
| 6 |
|
Total |
| $ | 195 |
|
| $ | 178 |
|
| $ | 197 |
|
| $ | 231 |
|
|
|
Pronouncements subsectionThe Other component above consists of Note 1, “Basisother miscellaneous long-term liabilities that, individually, were less than 5% of Presentationthe total liabilities component within the Consolidated Statement of Financial Position as of the end of the preceding year, and Recent Accounting Pronouncements”.therefore have been aggregated in accordance with Regulation S-X.
[13]14]
NOTE 7:8: DEBT AND FINANCE LEASES
Debt
Amended and finance leasesRestated Credit Agreement
On January 27, 2020 Kodak exercised its right under 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.
On March 27, 2020, the Company and related maturitiesthe 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 interest rates werecollateral agent, and Bank of America, N.A. and each of the parties to the ABL Credit Agreement as follows at Septemberlenders. Each of the capitalized but undefined terms used in the context of describing the ABL Credit Agreement and the Amendment has the meaning ascribed to such term in the ABL Credit Agreement and the Amendment.
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 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 June 30, 20192020. 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 changes effected by the Amendment to the Excess Availability and Equipment Availability combined with increases in Available Accounts Receivable and Inventory allowed the Company to decrease Eligible Cash by $13 million without causing Excess Availability to fall below 12.5 % of lender commitments. Available Accounts Receivable and Inventory and Eligible Equipment have the meaning ascribed to these terms in the ABL Credit Agreement.
The Company had issued approximately $80 million of letters of credit under the ABL Credit Agreement as of both June 30, 2020 and December 31, 2018:2019. Under the ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($13.75 million at June 30, 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. On July 20, 2020 the Company funded $5 million to the Eligible Cash account. Including the July 20, 2020 Eligible Cash funding in the June 30, 2020 compliance calculation the Company had approximately $17 million of Excess Availability under the ABL Credit Agreement for the June 30, 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 June 30, 2020 and December 31, 2019, respectively), incremental to the $5 million funding of the Eligible Cash account on July 20, 2020, Kodak funded $9 million and $22 million to the Eligible Cash account held with the ABL Credit Agreement Administrative Agent as of June 30, 2020 and December 31, 2019, respectively, which is classified as Restricted Cash in the Consolidated Statement of Financial Position.
(in millions) |
| Type |
| Maturity |
| Weighted-Average Effective Interest Rate |
|
| September 30, 2019 |
|
| December 31, 2018 |
| |||
Current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Term note |
| 2019 |
|
|
|
|
| $ | — |
|
| $ | 394 |
|
|
| RED-Rochester, LLC |
| 2033 |
| 11.46% |
|
|
| 1 |
|
|
| — |
| |
|
| Finance leases |
| Various |
| Various |
|
|
| 1 |
|
|
| 2 |
| |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
| 396 |
|
Non-current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible debt |
| 2021 |
| 11.72% |
|
|
| 88 |
|
|
| — |
| |
|
| RED-Rochester, LLC |
| 2033 |
| 11.46% |
|
|
| 13 |
|
|
| — |
| |
|
| Finance leases |
| Various |
| Various |
|
|
| 3 |
|
|
| 3 |
| |
|
| Other debt |
| Various |
| Various |
|
|
| 2 |
|
|
| 2 |
| |
|
|
|
|
|
|
|
|
|
|
| 106 |
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
| $ | 108 |
|
| $ | 401 |
|
Annual maturities of debt and finance leases outstanding as of September 30, 2019 were as follows (in millions):
|
| Carrying Value |
|
| Maturity Value |
| ||
Q4 2019 |
| $ | 2 |
|
| $ | 2 |
|
2020 |
|
| 1 |
|
|
| 1 |
|
2021 |
|
| 88 |
|
|
| 113 |
|
2022 |
|
| 2 |
|
|
| 2 |
|
2023 |
|
| 1 |
|
|
| 1 |
|
2024 and thereafter |
|
| 14 |
|
|
| 14 |
|
Total |
| $ | 108 |
|
| $ | 133 |
|
On April 12, 2019,In addition to the Company repaid approximately $312 million ofchanges discussed above, the loans made underAmendment increased the Term Credit Agreement using proceedsinterest 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 sale of FPD and on May 24, 2019 repaid the remaining outstanding balance of approximately $83 million with the proceeds from the issuance of Convertible Notes described below. Base Rate plus 1.25% - 1.75% per annum.
Convertible Notes
On May 20, 2019, the Company and Longleaf Partners Small Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern Asset Management, Inc. (the “Notes Purchasers”), entered into a Notes Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to issue and sell to the Notes Purchasers, and the Notes Purchasers agreed to purchase from the Company, $100 million aggregate principal amount of the Company’s 5.00% Secured Convertible Notes due 2021 (the “Convertible Notes”).Notes. The transaction closed on May 24, 2019. The proceeds were used to repay the remaining first lien term loans outstanding ($83 million) under the Senior Secured First Lien Term Credit Agreement (the “Term Credit Agreement”), which was terminated with the repayment. The remaining proceeds were used for general corporate purposes. The Notes Purchasers also hold all outstanding shares of the Company’s 5.50% Series A Convertible Preferred Stock, (the “Series A Preferred Stock”), which vote with the shares of common stock on an as-converted basis, and are holders of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), as described below..
The Convertible Notes bear interest at a rate of 5.00% per annum, which will be payable in cash on their 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 has the same effect as delivering additional debt instruments to the Holdersholders of the Convertible Notes and therefore is considered Paid-In-Kindpaid-in-kind interest (“PIK”). Therefore, PIK will be added to the carrying value of the debt through the term and interest expense will be recorded using the effective interest method.
[14]15]
The maturity date of the Convertible Notes is initially November 1, 2021. The Company has the option to extend the maturity of the Convertible Notes by up to three years in the event that the Series A Preferred Stock is refinanced with debt or equity or the mandatory redemption date of the Series A Preferred Stock is extended. If the Convertible Notes maturity date is extended, the new maturity date must be no later than 30 days before the maturity date of any new debt or the extended mandatory redemption date of the Series A Preferred Stock.
The Convertible Notes are guaranteed by all of the subsidiaries of the Company that currently guarantee the ABL Credit Agreement (the “Subsidiary Guarantors”), and are secured by a second priority lien on certain receivables, inventory and other assets of the Company and the Subsidiary Guarantors in which the lenders under the ABL Credit Agreement have a first priority security interest.
Conversion Features
Holders of the Convertible Notes have the right to elect at any time to convert their Convertible Notes into shares of Common Stock at a conversion rate equal to 314.9785 shares of Common Stock per each $1,000 principal amount of Convertible Notes (based on a conversion price equal to $3.17482 per share of Common Stock (the “Conversion Price”), which represents a 10% premium to the volume weighted average price of the shares of Common Stock for the five day trading period ended on April 9, 2019 (the “Conversion Rate”)). The Conversion Rate and Conversion Price are subject to certain customary antidilution adjustments.
If the closing price of the Common Stock equals or exceeds 150% of the then-effective Conversion Price for 45 trading days within any 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 Company may elect to convert all outstanding Convertible Notes into shares of Common Stock at the Conversion Rate then in effect.
In the event of certain fundamental transactions, the Notes Purchasers will have the right, within a period of 30 days following the occurrence of such transaction (“Holder Fundamental Transaction Election Period”), to elect to either convert all or a portion of the Convertible Notes into shares of Common Stock at the Conversion Rate then in effect, or to receive the shares of a successor entity, if any, or the Company, and any additional consideration receivable as a result of such fundamental transaction. In addition, the Company will have the option, for a period of 30 days after the expiration of the Holder Fundamental Transaction Election Period, to repay all of the remaining outstanding Convertible Notes at par, plus accrued and unpaid interest.
Embedded Derivatives
The Convertible Notes are 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 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 (refer to Note 24, “Financial Instruments”).
The carrying value of the Convertible Notes at the time of issuance, $84 million ($100 million aggregate gross proceeds less $14 million allocated to the derivative liability and $2 million in transaction costs), is being accreted to the face amount using the effective interest method from the date of issuance through the maturity date.
Convertible Notes Registration Rights Agreement
At the closingAs of the issuance and saleJune 30, 2020, none of the Convertible Notes the Company entered into a registration rights agreement which provides the Notes Purchasers with customary registration rights in respect of the shares of the Common Stock issuable upon conversion of the Convertible Notes.
Notes Purchasers’ Beneficial Ownership of Common Stock
Prior to the issuance of the Convertible Notes, the Notes Purchasers beneficially owned 4,960,000 shares of the Company’s Common Stock, representing 11.51% of the shares of Common Stock outstanding as of September 30, 2019, and 2,000,000 shares of Series A Preferred Stock, which vote with the Common Stock on an as-converted basis representing 26.68% of the shares of Common Stock outstanding as of September 30, 2019. The Common Stock and Series A Preferred Stock held by the Notes Purchasers represented 30.15% of the voting power of the outstanding capital stock of the Company as of September 30, 2019 giving effect to the conversion of the Series A Preferred Stock. On an as-converted basis, the Convertible Notes would represent 31,497,850 shares of Common Stock, or 42.24% of the shares of Common Stock outstanding as of September 30, 2019 after giving effect to the issuance and conversion. Assuming the issuance of the Convertible Notes and based on the number of shares of Common Stock outstanding as of September 30, 2019, the Notes Purchasers would beneficially own 48.89% of the shares of Common Stock outstanding and their shares of Series A Preferred Stock will vote with the shares of Common Stock on an as-converted basis, representing an aggregate of 55.71% of the voting power of the outstanding capital stock of the Company.
[15]
Amended and Restated Credit Agreement
On May 26, 2016, the Company and the Subsidiary Guarantors entered into an Amended and Restated Credit Agreement (the “ABL Credit Agreement”) with the lenders party thereto (the “Lenders”), Bank of America, N.A., as administrative and collateral agent, and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as joint lead arrangers and joint bookrunners, which amended and restated the Original ABL Credit Agreement. Each of the capitalized but undefined terms used in the context of describing the ABL Credit Agreement has the meaning ascribed to such term in the ABL Credit Agreement.
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. The Company has issued approximately $80 million and $85 million of letters of credit under the ABL Credit Agreement as of September 30, 2019 and December 31, 2018, respectively.
The ABL Loans bear interest at the rate of LIBOR plus 2.25% - 2.75% per annum or Base Rate plus 1.25% - 1.75% per annum based on Excess Availability.
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 must provide an unconditional guarantee) of the obligations of the Company under the ABL Credit Agreement.
The Company had approximately $20 million and $19 million of Excess Availability under the ABL Credit Agreement as of September 30, 2019 and December 31, 2018, 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 75% of Orderly Liquidation Value of Eligible Equipment or $8 million, as of September 30, 2019 (which $8 million decreases by $1 million per quarter) 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.been converted.
Under the ABL Credit Agreement, Kodak is required to maintain a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 when Excess Availability is less than 12.5% of lender commitments. As of September 30, 2019 and December 31, 2018, 12.5% of lender commitments were $18.75 million.
If Excess Availability falls below 12.5% of lender commitments, Kodak may, in addition to the requirement to be in compliance with the minimum Fixed Charge Coverage Ratio, become subject to cash dominion control. Since Excess Availability was greater than 12.5% of lender commitments at September 30, 2019 and December 31, 2018, Kodak is not required to have a minimum Fixed Charges Coverage Ratio of 1.0 to 1.0.
As of September 30, 2019, and December 31, 2018, Kodak had funded $14 million and $3 million respectively, to the Eligible Cash account, held with the ABL Credit Agreement Administrative Agent, which is classified as Restricted Cash in the Consolidated Statement of Financial Position.
Under the terms of the ABL Credit Agreement, the Company may 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 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 financial statements.
In March 2018, the Company designated five subsidiaries as Unrestricted Subsidiaries: Kodak PE Tech, LLC, Kodak LB Tech, LLC, Kodak Realty, Inc., Kodakit Singapore Pte. Limited and KP Services (Jersey) Ltd. This action allowed the Company to better position assets which may be monetized in the future and address costs related to underutilized properties. Collectively, these subsidiaries had sales of approximately $2 million and $9 million for the quarter and nine months ended September 30, 2019, respectively, which represents 1% of Kodak’s consolidated sales in both periods. These subsidiaries had sales of approximately $3 million and $8 million for the quarter and nine months ended September 30, 2018, respectively, which represents 1% of Kodak’s consolidated sales for both periods. These subsidiaries had assets of $20 million and $21 million as of September 30, 2019 and December 31, 2018, respectively, which represents 1% of Kodak’s consolidated assets as of both periods.
Debt Reporting and Other Requirements
Reporting requirements under the ABL Credit Agreement require the Company to provide annual audited financial statements accompanied by an opinion of an independent public accountant without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit or other material qualification or exception, except for any such qualification or exception with respect to any indebtedness maturing within 364 days after the date of such financial statements, and that the opinion be reasonably acceptable to the agent. On March 31, 2019 the Company obtained a waiver from the agent and lenders under the ABL Credit Agreement with respect to any event of default under the reporting covenant that may be deemed to have occurred in relation to the going concern explanatory paragraph in the 2018 Form 10-K audit report.
[16]
The Convertible Notes and ABL Credit Agreement limit, among other things, the Company’s and the Subsidiary Guarantors’ ability to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments (including dividend payments, et al.) and (v) make investments (ABL Credit Agreement only). In addition to other customary affirmative covenants, the Convertible Notes and ABL Credit Agreement provide for a periodic delivery by the Company of its various financial statements as set forth in the Convertible Notes and ABL Credit Agreement. Events of default under the Convertible Notes and/or ABL Credit Agreement include, among others, failure to pay any principal, interest or other amount due under the applicable agreement, failure to deliver conversion shares (Convertible Notes only), breach of specific covenants and a change of control of the Company (ABL Credit Agreement only). Upon an event of default, the applicable lenders may declare the outstanding obligations under the applicable agreement to be immediately due and payable and exercise other rights and remedies provided for in such agreement.
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 be 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 8:9: REDEEMABLE, CONVERTIBLE SERIES A PREFERRED STOCK
On November 15, 2016, the Company issued 2,000,000 shares of 5.50% Series A Convertible Preferred Stock no par value per share (the “Series A Preferred Stock”), for an aggregate purchase price of $200 million, or $100 per share pursuant to a Series A Preferred Stock 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”), dated November 7, 2016. The Company has classified the Series A Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.
Kodak allocated $43 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance which reduced the net carrying value of the Series A Preferred Stock (see Note 23,24, “Financial Instruments”). 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), 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.
The holders of Series A Preferred Stock are 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. The Company declared a quarterly cash dividenddividends in the third quarterand fourth quarters of 2019 whichand the first and second quarters of 2020 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 paid in October 2019.$11 million.
The Purchasers have 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. The nomination right of the Purchasers will be reduced by two nominees at any time the holders of Series A Preferred Stock have the right to elect, or participate in the election of, two additional directors. Two of the directors on the Company’s current board of directors were nominated by the Purchasers.Purchasers although the holders of the Series A Preferred Stock currently have the contractual right to nominate only one director based on the results of the ownership formula.
As of SeptemberJune 30, 2019,2020, the Series A Preferred Stock has not been converted and none of the anti-dilution provisions have been triggered. Any shares of Series A Preferred Stock not converted prior to the fifth anniversary of the initial issuance of the Series A Preferred Stock are required to be redeemed at $100 per share plus the amount of accrued and unpaid dividends.
NOTE 9: LEASES
Kodak as lessee
Kodak determines if an arrangement is a lease at inception. Kodak’s operating lease agreements are primarily for real estate space and vehicles and are included within operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Statement of Financial Position.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.
[17]16]
Variable lease payments are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.NOTE 10: LEASES Many of the leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments if reasonably assured to be exercised.
Kodak does not separate lease and non-lease components of contracts for real estate leases. 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 table below presents the lease-related assets and liabilities on the balance sheet:
|
| Classification in the |
| September 30, |
| |
(in millions) |
| Consolidated Statement of Financial Position |
| 2019 |
| |
Assets |
|
|
|
|
|
|
Operating lease assets |
| Operating lease right-of-use assets |
| $ | 49 |
|
Finance lease assets |
| Property, plant and equipment, net |
|
| 5 |
|
Total lease assets |
|
|
| $ | 54 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Operating |
| Current portion of operating leases |
| $ | 26 |
|
Finance |
| Short-term borrowings and current portion of long-term debt |
|
| 1 |
|
Noncurrent |
|
|
|
|
|
|
Operating |
| Operating leases, net of current portion |
|
| 34 |
|
Finance |
| Long-term debt, net of current portion |
|
| 3 |
|
Total lease liabilities |
|
|
| $ | 64 |
|
|
|
|
|
|
|
|
Weighted-average remaining lease term |
|
|
|
| ||
Operating |
|
|
| 6 years |
| |
Finance (1) |
|
|
| 319 years |
| |
Weighted-average discount rate |
|
|
|
| ||
Operating (2) |
|
|
|
| 16.50 | % |
Finance |
|
|
|
| 6.75 | % |
|
|
|
|
Lease Costs
The table below presents certain information related to the lease costs for finance and operating leases. Lease costs are presented gross of sublease income. See “Kodak as Lessor” section below for income from subleases.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
(in millions) |
| 2019 |
|
| 2019 |
| ||
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of leased assets |
| $ | 1 |
|
| $ | 3 |
|
Interest on lease liabilities |
|
| — |
|
|
| — |
|
Operating lease cost |
|
| 6 |
|
|
| 19 |
|
Variable lease cost |
|
| 2 |
|
|
| 5 |
|
Total lease cost |
| $ | 9 |
|
| $ | 27 |
|
[18]
The table below presents supplemental cash flow information related to leases.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
(in millions) |
| 2019 |
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows for operating leases |
| $ | 6 |
|
| $ | 19 |
|
Operating cash flow for finance leases |
|
| — |
|
|
| — |
|
Financing cash flow for finance leases |
|
| 1 |
|
|
| 2 |
|
|
| $ | 7 |
|
| $ | 21 |
|
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.
(in millions) |
| Operating Leases |
|
| Finance Leases |
| ||
Q4 2019 |
| $ | 6 |
|
| $ | — |
|
2020 |
|
| 27 |
|
|
| 1 |
|
2021 |
|
| 11 |
|
|
| 1 |
|
2022 |
|
| 8 |
|
|
| 1 |
|
2023 |
|
| 7 |
|
|
| — |
|
Thereafter |
|
| 34 |
|
|
| 110 |
|
Total minimum lease payments |
|
| 93 |
|
|
| 113 |
|
Less: amount of lease payments representing interest |
|
| 33 |
|
|
| (110 | ) |
Present value of future minimum lease payments |
|
| 60 |
|
|
| 3 |
|
Less: current obligations under leases |
|
| (26 | ) |
|
| — |
|
Long-term lease obligations |
| $ | 34 |
|
| $ | 3 |
|
Future minimum contractual lease payments for operating leases having initial or remaining noncancelable lease terms in excess of one year as of December 31, 2018 were as follows:
(in millions) |
| At December 31, 2018 |
| |
2019 |
| $ | 20 |
|
2020 |
|
| 21 |
|
2021 |
|
| 13 |
|
2022 |
|
| 3 |
|
2023 |
|
| 3 |
|
Thereafter |
|
| 7 |
|
|
| $ | 67 |
|
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. 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 lease is terminated. 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. Kodak has no direct financing leases.
The Eastman Business Park segment’s core operations are to lease real estate. Kodak also leases underutilized portions of 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 reported in Revenues in the Consolidated Statement of Operations. Payments received under lease agreements for underutilized space are reported as cost reductions in Cost of revenues, SG&A expenses, R&D costs and Other charges, net. The lease arrangements are for various periods and are generally renewable.
[19]
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. The lease and non-lease components of real estate leases are accounted for as lease costs per ASU 2016-02, Leases (Topic 842).
Kodak’s net investment in sales-type leases as of September 30, 2019 and December 31, 2018 were $4 million and $3 million, respectively. The current portion of the net investment in sales-type leases is included in Trade receivables 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 on the balance sheet:
(in millions) |
|
|
|
|
Q4 2019 |
| $ | 1 |
|
2020 |
|
| 2 |
|
2021 |
|
| 1 |
|
2022 and thereafter |
|
| 1 |
|
Total minimum lease payments |
|
| 5 |
|
Less: unearned interest |
|
| (1 | ) |
Less: allowance for doubtful accounts |
|
| — |
|
Net investment in sales-type leases |
| $ | 4 |
|
Undiscounted cash flows to be received for the next five years and thereafter for operating leases and subleases are:
(in millions) |
|
|
|
|
Q4 2019 |
| $ | 4 |
|
2020 |
|
| 9 |
|
2021 |
|
| 7 |
|
2022 |
|
| 6 |
|
2023 |
|
| 4 |
|
Thereafter |
|
| 17 |
|
Total minimum lease payments |
| $ | 47 |
|
Equipment subject to operating leases and the related accumulated depreciation were as follows:
|
| September 30, |
|
| December 31, |
| ||
(in millions) |
| 2019 |
|
| 2018 |
| ||
Equipment subject to operating leases |
| $ | 33 |
|
| $ | 34 |
|
Accumulated depreciation |
|
| (22 | ) |
|
| (19 | ) |
Equipment subject to operating leases, net |
| $ | 11 |
|
| $ | 15 |
|
Equipment subject to operating leases, net is included in Property, plant and equipment, net in the Consolidated Statement of Financial Position.
Income recognized on operating lease arrangements for the quarter and ninethree months ended SeptemberJune 30, 2020 and 2019 and is presented below (income recognized for sales-type lease arrangements is $0 million)million for both periods):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||
(in millions) |
| 2019 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Lease income - operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease income |
| $ | 3 |
|
| $ | 7 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 4 |
|
| $ | 4 |
|
Sublease income |
|
| 1 |
|
|
| 5 |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
Variable lease income |
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
Total lease income |
| $ | 5 |
|
| $ | 15 |
|
| $ | 3 |
|
| $ | 5 |
|
| $ | 8 |
|
| $ | 10 |
|
[20]
NOTE 10:11: COMMITMENTS AND CONTINGENCIES
As of SeptemberJune 30, 2019,2020, the Company had outstanding letters of credit of $80 million issued under the ABL Credit Agreement, as well as bank guarantees and letters of credit of $13$2 million, surety bonds in the amount of $40$38 million, and restricted cash and deposits of $54$32 million, primarily to ensureaddress the payment of possible casualty and workers’ compensation claims, environmental liabilities,support legal contingencies, andhedging activities, compliance with the Excess Availability threshold under the ABL Credit Agreement, environmental liabilities, rental payments and to support various customs, tax and trade activities. The restricted cash and deposits are reflected in Restricted cash, Other current assets and Other long-term assets in the Consolidated Statement of Financial Position.
Kodak’s Brazilian operations are involved in various litigation matters in Brazil 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. Kodak’s Brazilian operations are disputing these matters and intend to vigorously defend its 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 SeptemberJune 30, 2019,2020, the unreserved portion of these contingencies, 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 $8$5 million.
In connection with assessments in Brazil, local regulations may require Kodak’s Brazilian operations to post security for a portion of the amounts in dispute. As of SeptemberJune 30, 2019,2020, Kodak’s Brazilian operations have posted security composed of $4$3 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 $55$41 million. Generally, any encumbrances on 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. 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.products and claims arising out of Kodak’s licensing its brand. 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.
NOTE 11:12: GUARANTEES
In connection with the settlement of certain of the Company’s historical environmental liabilities at Eastman Business Park, a more than 1,200-acre technology center and industrial complex in Rochester, New York, in the event the historical 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 for this guarantee.
[17]
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. The change in Kodak’s deferred revenue balance in relation to these extended warranty and maintenance arrangements from December 31, 20182019 to SeptemberJune 30, 2019,2020, 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 in 2019 |
|
| 73 |
|
Recognition of extended warranty and maintenance arrangement revenue in 2019 |
|
| (75 | ) |
Deferred revenue on extended warranties as of September 30, 2019 |
| $ | 20 |
|
(in millions) |
|
|
|
|
Deferred revenue on extended warranties as of December 31, 2019 |
| $ | 21 |
|
Extended warranty and maintenance arrangements deferred in 2020 |
|
| 45 |
|
Recognition of extended warranty and maintenance arrangement revenue in 2020 |
|
| (47 | ) |
Deferred revenue on extended warranties as of June 30, 2020 |
| $ | 19 |
|
[21]
Disaggregation of Revenue
The following tables present revenue disaggregated by major product, portfolio summary and geography.
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Plates, inks and other consumables |
| $ | 149 |
|
| $ | 8 |
|
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
| $ | — |
|
| $ | 160 |
|
| $ | 90 |
|
| $ | 12 |
|
| $ | 1 |
|
| $ | — |
|
| $ | — |
|
| $ | 103 |
|
Ongoing service arrangements (1) |
|
| 33 |
|
|
| 18 |
|
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| 20 |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
Total Annuities |
|
| 182 |
|
|
| 26 |
|
|
| 11 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 223 |
| ||||||||||||||||||||||||
Equipment & Software |
|
| 18 |
|
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
| ||||||||||||||||||||||||
Total annuities |
|
| 110 |
|
|
| 41 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 152 |
| ||||||||||||||||||||||||||||
Equipment & software |
|
| 9 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
| ||||||||||||||||||||||||||||
Film and chemicals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 45 |
|
|
| — |
|
|
| — |
|
|
| 45 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
Other (2) |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 1 |
|
|
| 2 |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 2 |
|
|
| 2 |
|
|
| 8 |
|
Total |
| $ | 213 |
|
| $ | 29 |
|
| $ | 14 |
|
| $ | 56 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 315 |
|
| $ | 119 |
|
| $ | 52 |
|
| $ | 38 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Plates, inks and other consumables |
| $ | 457 |
|
| $ | 25 |
|
| $ | — |
|
| $ | 9 |
|
| $ | — |
|
| $ | — |
|
| $ | 491 |
|
| $ | 216 |
|
| $ | 31 |
|
| $ | 3 |
|
| $ | — |
|
| $ | — |
|
| $ | 250 |
|
Ongoing service arrangements (1) |
|
| 97 |
|
|
| 55 |
|
|
| 33 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 188 |
|
|
| 41 |
|
|
| 64 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 105 |
|
Total Annuities |
|
| 554 |
|
|
| 80 |
|
|
| 33 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 679 |
| ||||||||||||||||||||||||
Equipment & Software |
|
| 45 |
|
|
| 10 |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 64 |
| ||||||||||||||||||||||||
Total annuities |
|
| 257 |
|
|
| 95 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 355 |
| ||||||||||||||||||||||||||||
Equipment & software |
|
| 16 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
| ||||||||||||||||||||||||||||
Film and chemicals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
Other (2) |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 3 |
|
|
| 7 |
|
|
| 45 |
|
|
|
|
|
|
| — |
|
|
| 6 |
|
|
| 5 |
|
|
| 5 |
|
|
| 16 |
|
Total |
| $ | 612 |
|
| $ | 90 |
|
| $ | 42 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 913 |
|
| $ | 273 |
|
| $ | 117 |
|
| $ | 80 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 480 |
|
[22]18]
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Plates, inks and other consumables |
| $ | 166 |
|
| $ | 8 |
|
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 178 |
|
| $ | 146 |
|
| $ | 21 |
|
| $ | 3 |
|
| $ | — |
|
| $ | — |
|
| $ | 170 |
|
Ongoing service arrangements (1) |
|
| 33 |
|
|
| 20 |
|
|
| 12 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
|
| 22 |
|
|
| 39 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
Total Annuities |
|
| 199 |
|
|
| 28 |
|
|
| 12 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 244 |
| ||||||||||||||||||||||||
Equipment & Software |
|
| 18 |
|
|
| 11 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32 |
| ||||||||||||||||||||||||
Total annuities |
|
| 168 |
|
|
| 60 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 232 |
| ||||||||||||||||||||||||||||
Equipment & software |
|
| 13 |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
| ||||||||||||||||||||||||||||
Film and chemicals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
Other (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| 1 |
|
|
| 3 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 2 |
|
|
| 3 |
|
|
| 11 |
|
Total |
| $ | 217 |
|
| $ | 39 |
|
| $ | 15 |
|
| $ | 54 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 329 |
|
| $ | 181 |
|
| $ | 69 |
|
| $ | 52 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Plates, inks and other consumables |
| $ | 509 |
|
| $ | 24 |
|
| $ | — |
|
| $ | 13 |
|
| $ | — |
|
| $ | — |
|
| $ | 546 |
|
| $ | 283 |
|
| $ | 42 |
|
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 331 |
|
Ongoing service arrangements (1) |
|
| 100 |
|
|
| 59 |
|
|
| 36 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 197 |
|
|
| 43 |
|
|
| 79 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
Total Annuities |
|
| 609 |
|
|
| 83 |
|
|
| 36 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 743 |
| ||||||||||||||||||||||||
Equipment & Software |
|
| 51 |
|
|
| 20 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 82 |
| ||||||||||||||||||||||||
Total annuities |
|
| 326 |
|
|
| 121 |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 455 |
| ||||||||||||||||||||||||||||
Equipment & software |
|
| 21 |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 41 |
| ||||||||||||||||||||||||||||
Film and chemicals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122 |
|
|
| — |
|
|
| — |
|
|
| 122 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
Other (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 3 |
|
|
| 7 |
|
|
| 32 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 5 |
|
|
| 5 |
|
|
| 22 |
|
Total |
| $ | 660 |
|
| $ | 103 |
|
| $ | 47 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 979 |
|
| $ | 347 |
|
| $ | 141 |
|
| $ | 100 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 598 |
|
(1) | Service revenue in the Consolidated Statement of Operations includes the ongoing service revenue shown above as well as revenue from project-based document management and managed print services businesses, which is included in Other above. |
(2) | Other includes revenue from professional services, non-recurring engineering services, print and managed media services, tenant rent and related property management services and licensing. |
[23]19]
Product Portfolio Summary:
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Growth engines (1) |
| $ | 44 |
|
| $ | 18 |
|
| $ | 14 |
|
| $ | 7 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 84 |
|
| $ | 27 |
|
| $ | 30 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 60 |
|
Strategic other businesses (2) |
|
| 162 |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| 2 |
|
|
| 210 |
|
|
| 92 |
|
|
| 10 |
|
|
| 35 |
|
|
| — |
|
|
| 2 |
|
|
| 139 |
|
Planned declining businesses (3) |
|
| 7 |
|
|
| 11 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 12 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
Total |
| $ | 119 |
|
| $ | 52 |
|
| $ | 38 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 213 |
| ||||||||||||||||||||||||||||
|
| $ | 213 |
|
| $ | 29 |
|
| $ | 14 |
|
| $ | 56 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Growth engines (1) |
| $ | 128 |
|
| $ | 57 |
|
| $ | 42 |
|
| $ | 22 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 252 |
|
| $ | 71 |
|
| $ | 66 |
|
| $ | 1 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 143 |
|
Strategic other businesses (2) |
|
| 461 |
|
|
| — |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 7 |
|
|
| 596 |
|
|
| 202 |
|
|
| 25 |
|
|
| 74 |
|
|
| — |
|
|
| 5 |
|
|
| 306 |
|
Planned declining businesses (3) |
|
| 23 |
|
|
| 33 |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| 65 |
|
|
|
|
|
|
| 26 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| $ | 612 |
|
| $ | 90 |
|
| $ | 42 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 913 |
| ||||||||||||||||||||||||
Total |
| $ | 273 |
|
| $ | 117 |
|
| $ | 80 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 480 |
|
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Growth engines (1) |
| $ | 39 |
|
| $ | 27 |
|
| $ | 15 |
|
| $ | 8 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 90 |
|
| $ | 45 |
|
| $ | 32 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 79 |
|
Strategic other businesses (2) |
|
| 170 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| 3 |
|
|
| 215 |
|
|
| 136 |
|
|
| 19 |
|
|
| 44 |
|
|
| — |
|
|
| 3 |
|
|
| 202 |
|
Planned declining businesses (3) |
|
| 8 |
|
|
| 12 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 18 |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
Total |
| $ | 181 |
|
| $ | 69 |
|
| $ | 52 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 307 |
| ||||||||||||||||||||||||||||
|
| $ | 217 |
|
| $ | 39 |
|
| $ | 15 |
|
| $ | 54 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
Growth engines (1) |
| $ | 113 |
|
| $ | 63 |
|
| $ | 47 |
|
| $ | 22 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 248 |
|
| $ | 84 |
|
| $ | 67 |
|
| $ | 2 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 158 |
|
Strategic other businesses (2) |
|
| 520 |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 7 |
|
|
| 651 |
|
|
| 263 |
|
|
| 36 |
|
|
| 83 |
|
|
| — |
|
|
| 5 |
|
|
| 387 |
|
Planned declining businesses (3) |
|
| 27 |
|
|
| 40 |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| 38 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 53 |
|
|
| $ | 660 |
|
| $ | 103 |
|
| $ | 47 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 979 |
| ||||||||||||||||||||||||
Total |
| $ | 347 |
|
| $ | 141 |
|
| $ | 100 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 598 |
|
[24]20]
(1) | Growth engines consist of Sonora in the Traditional Printing segment, PROSPER |
(2) | Strategic |
(3) | Planned |
Geography:
Geography (1):
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
United States |
| $ | 65 |
|
| $ | 12 |
|
| $ | 6 |
|
| $ | 36 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 122 |
|
| $ | 26 |
|
| $ | 24 |
|
| $ | 25 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 79 |
|
Canada |
|
| 4 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
North America |
|
| 69 |
|
|
| 12 |
|
|
| 7 |
|
|
| 37 |
|
|
| 1 |
|
|
| 2 |
|
|
| 128 |
|
|
| 29 |
|
|
| 25 |
|
|
| 26 |
|
|
| 2 |
|
|
| 2 |
|
|
| 84 |
|
Europe, Middle East and Africa |
|
| 79 |
|
|
| 9 |
|
|
| 4 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 98 |
|
|
| 49 |
|
|
| 18 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
Asia Pacific |
|
| 53 |
|
|
| 7 |
|
|
| 3 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 76 |
|
|
| 36 |
|
|
| 8 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 54 |
|
Latin America |
|
| 12 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Total Sales |
| $ | 213 |
|
| $ | 29 |
|
| $ | 14 |
|
| $ | 56 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 315 |
| ||||||||||||||||||||||||
Total |
| $ | 119 |
|
| $ | 52 |
|
| $ | 38 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 213 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
United States |
| $ | 175 |
|
| $ | 38 |
|
| $ | 19 |
|
| $ | 101 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 343 |
|
| $ | 61 |
|
| $ | 52 |
|
| $ | 55 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 178 |
|
Canada |
|
| 11 |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| 6 |
|
|
| 3 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
North America |
|
| 186 |
|
|
| 39 |
|
|
| 21 |
|
|
| 103 |
|
|
| 3 |
|
|
| 7 |
|
|
| 359 |
|
|
| 67 |
|
|
| 55 |
|
|
| 56 |
|
|
| 5 |
|
|
| 5 |
|
|
| 188 |
|
Europe, Middle East and Africa |
|
| 238 |
|
|
| 30 |
|
|
| 14 |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 298 |
|
|
| 117 |
|
|
| 42 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 164 |
|
Asia Pacific |
|
| 153 |
|
|
| 19 |
|
|
| 6 |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 217 |
|
|
| 75 |
|
|
| 18 |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 112 |
|
Latin America |
|
| 35 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| 14 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Total Sales |
| $ | 612 |
|
| $ | 90 |
|
| $ | 42 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 913 |
| ||||||||||||||||||||||||
Total |
| $ | 273 |
|
| $ | 117 |
|
| $ | 80 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 480 |
|
[25]21]
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
United States |
| $ | 57 |
|
| $ | 13 |
|
| $ | 6 |
|
| $ | 33 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 113 |
|
| $ | 41 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 110 |
|
Canada |
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
North America |
|
| 60 |
|
|
| 14 |
|
|
| 7 |
|
|
| 33 |
|
|
| 1 |
|
|
| 3 |
|
|
| 118 |
|
|
| 44 |
|
|
| 35 |
|
|
| 32 |
|
|
| 2 |
|
|
| 3 |
|
|
| 116 |
|
Europe, Middle East and Africa |
|
| 87 |
|
|
| 18 |
|
|
| 6 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 116 |
|
|
| 75 |
|
|
| 23 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 104 |
|
Asia Pacific |
|
| 56 |
|
|
| 7 |
|
|
| 1 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 79 |
|
|
| 51 |
|
|
| 9 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 73 |
|
Latin America |
|
| 14 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| 11 |
|
|
| 2 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
Total Sales |
| $ | 217 |
|
| $ | 39 |
|
| $ | 15 |
|
| $ | 54 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 329 |
| ||||||||||||||||||||||||
Total |
| $ | 181 |
|
| $ | 69 |
|
| $ | 52 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 307 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(in millions) |
| Print Systems |
|
| Enterprise Inkjet Systems |
|
| Kodak Software |
|
| Brand, Film and Imaging |
|
| Advanced Materials and 3D Printing Technology |
|
| Eastman Business Park |
|
| Total |
|
| Traditional Printing |
|
| Digital Printing |
|
| Advanced Materials and Chemicals |
|
| Brand |
|
| All Other |
|
| Total |
| |||||||||||||
United States |
| $ | 174 |
|
| $ | 35 |
|
| $ | 20 |
|
| $ | 98 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 337 |
|
| $ | 77 |
|
| $ | 71 |
|
| $ | 62 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 220 |
|
Canada |
|
| 9 |
|
|
| 1 |
|
|
| 3 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 5 |
|
|
| 4 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
North America |
|
| 183 |
|
|
| 36 |
|
|
| 23 |
|
|
| 100 |
|
|
| 3 |
|
|
| 7 |
|
|
| 352 |
|
|
| 82 |
|
|
| 75 |
|
|
| 63 |
|
|
| 5 |
|
|
| 5 |
|
|
| 230 |
|
Europe, Middle East and Africa |
|
| 273 |
|
|
| 43 |
|
|
| 17 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 348 |
|
|
| 147 |
|
|
| 43 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 200 |
|
Asia Pacific |
|
| 162 |
|
|
| 22 |
|
|
| 5 |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| 231 |
|
|
| 96 |
|
|
| 19 |
|
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| 141 |
|
Latin America |
|
| 42 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 48 |
|
|
| 22 |
|
|
| 4 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
Total Sales |
| $ | 660 |
|
| $ | 103 |
|
| $ | 47 |
|
| $ | 159 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 979 |
| ||||||||||||||||||||||||
Total |
| $ | 347 |
|
| $ | 141 |
|
| $ | 100 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 598 |
|
(1) | Sales are reported in the geographic area in which they originate. |
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 SeptemberJune 30, 20192020 and December 31, 20182019 were $2 million and $3$4 million, respectively, and are reported in Other current assets in the Consolidated Statement of Financial Position. The contract liabilities primarily relate to prepaid service contracts, upfront payments for certain equipment purchases or prepaid royalties on intellectual property arrangements. The amounts recorded for contract liabilities at SeptemberJune 30, 20192020 and December 31, 20182019 were $61$55 million and $48$61 million, respectively, of which $42$40 million and $43 million are reported in Other current liabilities, in both periodsrespectively, and $19$15 million and $6$18 million, respectively, are reported in Other long-term liabilities in the Consolidated Statement of Financial Position.
Revenue recognized for the quarterthree and ninesix months ended SeptemberJune 30, 20192020 and 20182019 that was included in the contract liability balance at the beginning of the year was $4$5 million and $34$31 million in 2019,2020, respectively, and $1$5 million and $29$30 million in 2018,2019, respectively, and primarily represented revenue from prepaid service contracts and equipment revenue recognition. Contract liabilities as of SeptemberJune 30, 20192020 included $26$19 million and $43$21 million of cash payments received during the quarterthree and ninesix months ended SeptemberJune 30, 2019,2020, respectively. Contract liabilities as of SeptemberJune 30, 20182019 included $23$20 million and $31$23 million of cash payments received during the quarterthree and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
[26]22]
Unsatisfied Performance Obligations
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 licensing arrangements. As of SeptemberJune 30, 2019,2020, there was approximately $70$65 million of unrecognized revenue from unsatisfied performance obligations. Approximately 10%20% of the revenue from unsatisfied performance obligations is expected to be recognized in the rest of 2019, 30%2020, 25% in 2020,2021, 20% in 2021, 10% in both 2022 and 2023 and 20%35% thereafter.
NOTE 13:14: OTHER OPERATING EXPENSE (INCOME),INCOME, NET
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets (1) |
| $ | (1 | ) |
| $ | 1 |
|
| $ | (9 | ) |
| $ | 1 |
| ||||||||||||||||
Asset impairments (2) |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
| ||||||||||||||||
Transition services agreement income |
| $ | (2 | ) |
| $ | — |
|
| $ | (4 | ) |
| $ | — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (4 | ) |
|
| (2 | ) |
Loss (gain) on sale of assets (1) |
|
| 12 |
|
|
| (5 | ) |
|
| 13 |
|
|
| (7 | ) | ||||||||||||||||
Legal reserve changes |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) | ||||||||||||||||
Other |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total |
| $ | 10 |
|
| $ | (10 | ) |
| $ | 10 |
|
| $ | (12 | ) |
| $ | (3 | ) |
| $ | — |
|
| $ | (10 | ) |
| $ | — |
|
| (1) | In |
(2) | Refer to Note |
NOTE 14:15: OTHER CHARGES (INCOME), NET
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Change in fair value of embedded conversion features derivative liability (1) |
| $ | 4 |
|
| $ | (5 | ) |
| $ | 3 |
|
| $ | 2 |
|
| $ | 4 |
|
| $ | (3 | ) |
| $ | (49 | ) |
| $ | (2 | ) |
Loss on foreign exchange transactions |
|
| 3 |
|
|
| 2 |
|
|
| 4 |
|
|
| 11 |
|
|
| 3 |
|
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
Loss on early retirement of debt |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||
Other |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 1 |
|
Total |
| $ | 6 |
|
| $ | (4 | ) |
| $ | 7 |
|
| $ | 13 |
|
| $ | 8 |
|
| $ | — |
|
| $ | (45 | ) |
| $ | 1 |
|
| (1) | Refer to Note |
NOTE 15:16: INCOME TAXES
Tax Asset Protection Plan and Amendment to the Certificate of Incorporation
On September 12, 2019, the Company adopted a Tax Asset Protection Plan (the “Plan”) and filed a certificate of amendment to its Second Amended and Restated Certificate of Incorporation (the “Protective Amendment”). The purpose of the Plan and the Protective Amendment is to help protect the Company’s ability to utilize net operating loss and foreign tax credit carryforwards (the “Tax Benefits”) to minimize U.S. federal taxes during future periods. The Company’s use of the Tax Benefits in the future may be significantly limited if it experiences an “ownership change” for U.S. federal income tax purposes as defined under Section 382 of the U.S. Internal Revenue Code. In general, an ownership change will occur when the percentage of the Company’s ownership (by value) of one or more “5-percent shareholders” has increased in the aggregate by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). In the Company’s case, because the Company’s outstanding convertible preferred stock and convertible notes are aggregated together with the Company’s common stock in determining if there is a 5-percent shareholder for tax purposes, the Plan and the Protective Amendment discourage or restrict, as applicable, the ownership of 10% or more of the Company’s common stock, rather than the 5% usually contained in such plans.
The Plan is designed to reduce the likelihood that the Company will experience an ownership change by (i) discouraging any person or group from acquiring 10% or more of the Company’s common stock and (ii) discouraging any existing 10% holder of the common stock from acquiring more than 1,000,000 additional shares of Company common stock. The Protective Amendment will generally restrict the transfer of the Company’s common stock if the effect will be to increase the beneficial ownership of any person to 10% or more of the outstanding common stock or cause the beneficial ownership of a 10% holder of common stock to increase by more than 1,000,000 shares on common stock. There is no guarantee, however, that the Plan and the Protective Amendment will prevent the Company from experiencing an ownership change.
[27]
Kodak’s income tax provision and effective tax rate were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
(Loss) earnings from continuing operations before income taxes |
| $ | (3 | ) |
| $ | 23 |
|
| $ | (16 | ) |
| $ | 5 |
|
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 50 |
|
| $ | (13 | ) |
Effective tax rate |
|
| (233.3 | )% |
|
| 13.0 | % |
|
| (75.0 | )% |
|
| 140.0 | % |
|
| (25.0 | )% |
|
| (50.0 | )% |
|
| 332.0 | % |
|
| (38.5 | )% |
Provision for income taxes |
|
| 7 |
|
|
| 3 |
|
|
| 12 |
|
|
| 7 |
|
|
| 1 |
|
|
| 2 |
|
|
| 166 |
|
|
| 5 |
|
(Benefit) provision for income taxes at U.S. statutory tax rate |
|
| (1 | ) |
|
| 5 |
|
|
| (3 | ) |
|
| 1 |
|
|
| (1 | ) |
|
| (1 | ) |
|
| 11 |
|
|
| (3 | ) |
Difference between tax at effective vs. statutory rate |
| $ | 8 |
|
| $ | (2 | ) |
| $ | 15 |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 155 |
|
| $ | 8 |
|
For the three months ended SeptemberJune 30, 2019,2020, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings, and losses, (2) the results from operations in jurisdictions outside the U.S.,U.S and (3) a provision associated with the establishment of a deferred tax asset valuation allowance outside the U.S. and (4) a benefit associated with foreign withholding taxes on undistributed earnings.
[23]
For the ninesix months ended SeptemberJune 30, 2019,2020, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) a provision of $167 million associated with the establishment of valuation allowances in certain outside U.S. jurisdictions, (2) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses (2)and (3) the results from operations in jurisdictions outside the U.S., (3)
Kodak establishes valuation allowances for deferred income tax assets in accordance with U.S. GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, Kodak considers the scheduled reversal of deferred tax liabilities and assets, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment.
As of December 31, 2019, Kodak’s deferred tax asset valuation allowance is $821 million. Of this amount, $168 million was attributable to the Company’s net deferred tax assets outside the U.S. of $322 million, and $653 million related to the Company’s net deferred tax assets in the U.S. of $633 million, for which Kodak believed it was more likely than not that the assets would not 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 assetassets.
Additionally, on February 21, 2020, Kodak agreed to terms with the IRS and settled the federal audit for calendar years 2013 and 2014. For these years, Kodak originally recorded a federal unrecognized tax position totaling $41 million, which was fully offset by tax attributes. This settlement resulted in an increase in net deferred tax assets and was fully offset by a corresponding increase in Kodak’s U.S. valuation allowance, outside the U.S. and (4) changesresulting in audit reserves.no net tax benefit.
For the three and six months ended SeptemberJune 30, 2018,2019, the difference between Kodak’s effective tax raterecorded provision and the benefit that would result from applying the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses, (2) the results from operations in jurisdictions outside the U.S., (3) a benefit associated with foreign withholding taxes on undistributed earnings and (4) changes in audit reserves, including a settlement with a taxing authority in a location outside the U.S.
For the nine months ended September 30, 2018, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses, (2) the results from operations in jurisdictions outside the U.S. and (3) changes in audit reserves, including a settlementprovision associated with a taxing authority in a location outside the U.S.foreign withholding taxes on undistributed earnings.
NOTE 16:17: RESTRUCTURING LIABILITIES
Charges for restructuring activities 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. Restructuring actions taken in the first ninesix months of 20192020 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.
[28]
Restructuring Reserve Activity
The activity in the accrued balances and the non-cash charges and credits incurred in relation to restructuring activities for the ninesix months ended SeptemberJune 30, 20192020 were as follows:
(in millions) |
| Severance Reserve (1) |
|
| Exit Costs Reserve (1) |
|
| Long-lived Asset Impairments and Inventory Write-downs (1) |
|
| Total |
| ||||
Balance as of December 31, 2018 |
| $ | 6 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 8 |
|
Q1 charges |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Q1 utilization/cash payments |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Q1 other adjustments and reclasses (2) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Balance as of March 31, 2019 |
| $ | 5 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 7 |
|
Q2 charges - continuing operations |
| $ | 2 |
|
| $ | — |
|
| $ | — |
|
| $ | 2 |
|
Q2 charges - discontinued operations |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Q2 utilization/cash payments |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Q2 other adjustments and reclasses (2) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Balance as of June 30, 2019 |
| $ | 5 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 7 |
|
Q3 charges |
| $ | 3 |
|
| $ | — |
|
| $ | — |
|
| $ | 3 |
|
Q3 utilization/cash payments |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| (3 | ) |
Balance as of September 30, 2019 |
| $ | 6 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 7 |
|
(in millions) |
| Severance Reserve (1) |
|
| Exit Costs Reserve (1) |
|
| Long-lived Asset Impairments and Inventory Write-downs (1) |
|
| Total |
| ||||
Balance as of December 31, 2019 |
| $ | 11 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 12 |
|
Q1 charges |
|
| 6 |
|
|
| 1 |
|
|
| — |
|
|
| 7 |
|
Q1 utilization/cash payments |
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| (7 | ) |
Q1 other adjustments and reclasses (2) |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
Balance as of March 31, 2020 |
| $ | 9 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 10 |
|
Q2 charges |
| $ | 1 |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
Q2 utilization/cash payments |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
Balance as of June 30, 2020 |
| $ | 7 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 8 |
|
(1) | The severance and exit costs reserves require the outlay of cash, while long-lived asset impairments and inventory write-downs represent non-cash items. |
(2)Represents
(2) | Includes $(1) million of severance charges funded from pension plan assets, which were reclassified to Pension and other postretirement liabilities and $(1) million of currency translation impacts. |
[24]
The $1 million and other postretirement liabilities.
The $3$7 million of charges for the three and six months ended SeptemberJune 30, 2019 was reported as Restructuring costs and other.
The severance costs for the three months ended September 30, 2019 related to the elimination of approximately 25 positions including approximately 10 manufacturing/service positions, and 15 administrative and sales positions. The geographic composition of these positions includes approximately 10 in the United States and Canada and 15 throughout the rest of the world.
For the nine months ended September 30, 2019, $7 million of charges was2020, respectively, were reported as Restructuring costs and other and $1 million was reported in Income from discontinued operations.the Consolidated Statement of Operations.
The severance costs for the nine3 months ended SeptemberJune 30, 20192020 related to the elimination of 3 administrative positions outside of the U.S. The severance costs for the six months ended June 30, 2020 related to the elimination of approximately 10090 positions including approximately 3020 manufacturing/service positions, and 70 administrative and sales positions. The geographic composition of these positions includes approximately 5040 in the United StatesU.S. and Canada and 50 throughout the rest of the world.
As a result of these initiatives, the majority of the severance will be paid during periods through the end of the first quarter of 2020.year.
[29]
NOTE 17:18: RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of the net periodic benefit cost for all major U.S. and Non-U.S.non-U.S. defined benefit plans are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||
(in millions) |
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
|
| U.S. |
|
| Non-U.S. |
| ||||||||||||||||
Major defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 3 |
|
| $ | — |
|
| $ | 4 |
|
| $ | 1 |
|
| $ | 8 |
|
| $ | 2 |
|
| $ | 10 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 5 |
|
| $ | 2 |
|
Interest cost |
|
| 30 |
|
|
| 3 |
|
|
| 27 |
|
|
| 3 |
|
|
| 91 |
|
|
| 9 |
|
|
| 82 |
|
|
| 9 |
|
|
| 22 |
|
|
| 2 |
|
|
| 31 |
|
|
| 3 |
|
|
| 43 |
|
|
| 4 |
|
|
| 61 |
|
|
| 6 |
|
Expected return on plan assets |
|
| (53 | ) |
|
| (6 | ) |
|
| (55 | ) |
|
| (7 | ) |
|
| (160 | ) |
|
| (17 | ) |
|
| (167 | ) |
|
| (20 | ) |
|
| (49 | ) |
|
| (4 | ) |
|
| (54 | ) |
|
| (5 | ) |
|
| (98 | ) |
|
| (9 | ) |
|
| (107 | ) |
|
| (11 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
Actuarial loss |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
|
| 3 |
|
|
| 3 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 7 |
|
|
| 3 |
|
|
| — |
|
|
| 2 |
|
Net pension income before special termination benefits |
|
| (22 | ) |
|
| (1 | ) |
|
| (25 | ) |
|
| (2 | ) |
|
| (66 | ) |
|
| (2 | ) |
|
| (77 | ) |
|
| (5 | ) |
|
| (22 | ) |
|
| — |
|
|
| (22 | ) |
|
| — |
|
|
| (45 | ) |
|
| — |
|
|
| (44 | ) |
|
| (1 | ) |
Special termination benefits |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Curtailment gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
Net pension income from major plans |
|
| (22 | ) |
|
| (1 | ) |
|
| (22 | ) |
|
| (2 | ) |
|
| (66 | ) |
|
| (2 | ) |
|
| (73 | ) |
|
| (5 | ) |
|
| (22 | ) |
|
| — |
|
|
| (23 | ) |
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| (44 | ) |
|
| (1 | ) |
Other plans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (4 | ) |
Total net pension income |
| $ | (22 | ) |
| $ | (1 | ) |
| $ | (22 | ) |
| $ | (5 | ) |
| $ | (66 | ) |
| $ | (6 | ) |
| $ | (73 | ) |
| $ | (8 | ) | ||||||||||||||||||||||||||||||||
Total net pension (income) expense |
| $ | (22 | ) |
| $ | 1 |
|
| $ | (23 | ) |
| $ | (3 | ) |
| $ | (44 | ) |
| $ | 1 |
|
| $ | (44 | ) |
| $ | (5 | ) |
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019 the special termination benefits charges were incurred as a result of Kodak’s restructuring actions and have been included in Restructuring costs and other in the Consolidated Statement of Operations for those periods.
The $2 million curtailment gain for the nine months ended September 30, 2019 was incurred as a result of the sale of FPD and is included in Income from discontinued operations in the Consolidated Statement of Operations. In addition, the amounts shown for Other plans include $5 million of settlement gains for the nine months ended September 30, 2019 due to the transfer of non-major, non-U.S. pension liabilities as a result of the sale of FPD. These amounts are also included in Income from discontinued operations in the Consolidated Statement of Operations.
[25]
NOTE 18:19: EARNINGS PER SHARE
Basic earnings per share computations are based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include any dilutive effect of potential common shares. In periods with a net loss from continuing operations available to common shareholders, 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 quarterthe three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
(Loss) income from continuing operations |
| $ | (10 | ) |
| $ | 20 |
|
| $ | (28 | ) |
| $ | (2 | ) | ||||||||||||||||
Loss from continuing operations |
| $ | (5 | ) |
| $ | (6 | ) |
| $ | (116 | ) |
| $ | (18 | ) | ||||||||||||||||
Less: Series A convertible preferred stock cash dividend |
|
| (2 | ) |
|
| (2 | ) |
|
| (8 | ) |
|
| (8 | ) |
|
| (3 | ) |
|
| (3 | ) |
|
| (6 | ) |
|
| (6 | ) |
Less: Series A convertible preferred stock deemed dividend |
|
| (3 | ) |
|
| (3 | ) |
|
| (7 | ) |
|
| (7 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (4 | ) |
|
| (4 | ) |
(Loss) income from continuing operations available to common shareholders - basic and diluted |
| $ | (15 | ) |
| $ | 15 |
|
| $ | (43 | ) |
| $ | (17 | ) | ||||||||||||||||
Loss from continuing operations available to common shareholders - basic and diluted |
| $ | (10 | ) |
| $ | (11 | ) |
| $ | (126 | ) |
| $ | (28 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (5 | ) |
| $ | 19 |
|
| $ | 178 |
|
| $ | (2 | ) |
| $ | (5 | ) |
| $ | 201 |
|
| $ | (116 | ) |
| $ | 183 |
|
Less: Series A convertible preferred stock cash dividend |
|
| (2 | ) |
|
| (2 | ) |
|
| (8 | ) |
|
| (8 | ) |
|
| (3 | ) |
|
| (3 | ) |
|
| (6 | ) |
|
| (6 | ) |
Less: Series A convertible preferred stock deemed dividend |
|
| (3 | ) |
|
| (3 | ) |
|
| (7 | ) |
|
| (7 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (4 | ) |
|
| (4 | ) |
Net (loss) income available to common shareholders - basic and diluted |
| $ | (10 | ) |
| $ | 14 |
|
| $ | 163 |
|
| $ | (17 | ) |
| $ | (10 | ) |
| $ | 196 |
|
| $ | (126 | ) |
| $ | 173 |
|
[30]
(in millions of shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic |
|
| 43.0 |
|
|
| 42.7 |
|
|
| 43.0 |
|
|
| 42.7 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units |
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
Weighted average shares - diluted EPS calculation |
|
| 43.0 |
|
|
| 43.0 |
|
|
| 43.0 |
|
|
| 42.7 |
|
(in millions of shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares — basic and diluted |
|
| 43.7 |
|
|
| 43.0 |
|
|
| 43.7 |
|
|
| 43.0 |
|
As a result of the net loss from continuing operations available to common shareholders for the quarterthree and ninesix months ended SeptemberJune 30, 20192020 and the nine months ended September 30, 2018,2019, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding for those periods.outstanding. If Kodak reported earnings from continuing operations available to common shareholders for the quarterthree and ninesix months ended SeptemberJune 30, 20192020 and the nine months ended September 30, 2018,2019, the calculation of diluted earnings per share would have included the assumed conversion of 0.60.5 million unvested restricted stock units for both periods in 20192020 and 0.20.5 million ofand 0.4 million unvested restricted stock units for the nine months ended September 30, 2018.periods in 2019, respectively.
The computation of diluted earnings per share for the quarterthree and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018also excluded the impact of (1) the assumed conversion of 2.0 million shares of Series A convertible preferred sharesPreferred Stock and (2) the assumed conversion of outstanding employee stock options of 8.97.1 million for both periods in 2020 and 9.07.2 million for both periods in the quarter and nine months ending September 30, 2019 respectively, and 5.2 million and 5.0 million in the quarter and nine months ending September 30, 2018, respectively, because the effects would have been anti-dilutive. TheIn addition, the computation of diluted earnings per share for the quarterthree and ninesix months ending Septemberended June 30, 2020 and the three months ended June 30, 2019 also excluded the assumed conversion of $100 million of Convertible Notes because the effectseffect would have been anti-dilutive.
NOTE 19:20: SHAREHOLDERS’ EQUITY
KodakThe 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 SeptemberJune 30, 20192020 and December 31, 2018,2019, there were 43.143.7 million and 42.843.2 million shares of common stock outstanding, respectively, and 2.0 million shares of Series A preferred stockPreferred Stock issued and outstanding. Treasury stock consisted of approximately 0.7 million shares and 0.6 million shares as of Septemberboth June 30, 20192020 and December 31, 2018, respectively.2019.
[26]
NOTE 20:21: OTHER COMPREHENSIVE (LOSS) INCOME (LOSS)
The changes in Other comprehensive (loss) income, (loss), by component, were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Currency translation adjustments |
| $ | (2 | ) |
| $ | (12 | ) |
| $ | 2 |
|
| $ | (19 | ) |
| $ | (4 | ) |
| $ | 1 |
|
| $ | (16 | ) |
| $ | 4 |
|
Pension and other postretirement benefit plan changes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newly established net actuarial gain |
|
| — |
|
|
| 7 |
|
|
| 5 |
|
|
| 8 |
|
|
| 5 |
|
|
| 5 |
|
|
| 6 |
|
|
| 5 |
|
Tax Provision |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Newly established net actuarial gain, net of tax |
|
| — |
|
|
| 5 |
|
|
| 3 |
|
|
| 6 |
|
|
| 5 |
|
|
| 3 |
|
|
| 6 |
|
|
| 3 |
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit | (a) |
| (2 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (6 | ) |
|
| (2 | ) |
|
| (3 | ) |
|
| (4 | ) |
|
| (4 | ) |
Amortization of actuarial losses | (a) |
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
|
| 5 |
|
|
| 2 |
|
|
| 10 |
|
|
| 2 |
|
Recognition of (gains) losses due to curtailments and settlements |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (1 | ) | ||||||||||||||||
Recognition of losses (gains) due to curtailments and settlements |
|
| 1 |
|
|
| (2 | ) |
|
| 1 |
|
|
| (2 | ) | ||||||||||||||||
Total reclassification adjustments |
|
| (1 | ) |
|
| (3 | ) |
|
| (5 | ) |
|
| (4 | ) |
|
| 4 |
|
|
| (3 | ) |
|
| 7 |
|
|
| (4 | ) |
Tax provision |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
Reclassification adjustments, net of tax |
|
| (1 | ) |
|
| (2 | ) |
|
| (5 | ) |
|
| (3 | ) |
|
| 4 |
|
|
| (3 | ) |
|
| 6 |
|
|
| (4 | ) |
Pension and other postretirement benefit plan changes, net of tax |
|
| (1 | ) |
|
| 3 |
|
|
| (2 | ) |
|
| 3 |
|
|
| 9 |
|
|
| — |
|
|
| 12 |
|
|
| (1 | ) |
Other comprehensive income (loss) |
| $ | (3 | ) |
| $ | (9 | ) |
| $ | — |
|
| $ | (16 | ) |
| $ | 5 |
|
| $ | 1 |
|
| $ | (4 | ) |
| $ | 3 |
|
| (a) | Reclassified to Total Net Periodic Benefit Cost - refer to Note |
[31]
NOTE 21:22: SEGMENT INFORMATION
Change in Segments
Effective in January 20191, 2020 Kodak changed its organizational structure. Kodak TechnologyPrepress Solutions, formerly part of the Software andPrint Systems segment, operates as a separate segment named the Traditional Printing segment. Electrophotographic Printing Solutions, segment, was moved into the Consumer and Film segment. The Consumer and Film segment was renamed the Brand, Film & Imaging segment. The Unified Workflow Solutions business, formerly part of the Software and SolutionsPrint Systems segment, will operate as a dedicated segment named Kodak Software segment.
Financial information is reported for six reportable segments: Print Systems,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 Technologysegment 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.Park segment is no longer a reportable segment. A description of theKodak’s reportable segments follows.
Print SystemsTraditional Printing: The Print SystemsTraditional Printing segment is comprised of two lines of business: Prepress Solutions and Electrophotographic Printing Solutions.
Enterprise Inkjet SystemsDigital Printing: The Enterprise Inkjet SystemsDigital Printing segment is comprised of twofour lines of business: the Electrophotographic Printing Solutions business, the Prosper business, the Versamark business and the Versamark business.
Kodak Software: The Kodak Software segment is comprised of the Software business.
Brand, FilmAdvanced Materials and ImagingChemicals:: The Brand, FilmAdvanced Materials and ImagingChemicals segment is comprised of five lines of business: Consumer Products, Industrial Film and Chemicals, Motion Picture, Advanced Materials and Functional Printing Technology and Kodak Services for Business (“KSB”) and Kodakit.Business.
Advanced Materials and 3D Printing TechnologyBrand: The Advanced Materials and 3D Printing TechnologyBrand segment includescontains the Kodak Research Laboratories and associated new business opportunities and intellectual propertybrand licensing not directly related to other business segments.business.
Eastman Business ParkAll Other: The Eastman Business Park segment includesAll Other is comprised of the operations of the Eastman Business Park, a more than 1,200-acre technology center and industrial complex.
[27]
Segment financial information is shown below:
Segment Revenues
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Print Systems |
| $ | 213 |
|
| $ | 217 |
|
| $ | 612 |
|
| $ | 660 |
|
Enterprise Inkjet Systems |
|
| 29 |
|
|
| 39 |
|
|
| 90 |
|
|
| 103 |
|
Kodak Software |
|
| 14 |
|
|
| 15 |
|
|
| 42 |
|
|
| 47 |
|
Brand, Film and Imaging |
|
| 56 |
|
|
| 54 |
|
|
| 159 |
|
|
| 159 |
|
Advanced Materials and 3D Printing Technology |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Eastman Business Park |
|
| 2 |
|
|
| 3 |
|
|
| 7 |
|
|
| 7 |
|
Consolidated total |
| $ | 315 |
|
| $ | 329 |
|
| $ | 913 |
|
| $ | 979 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Traditional Printing |
| $ | 119 |
|
| $ | 181 |
|
| $ | 273 |
|
| $ | 347 |
|
Digital Printing |
|
| 52 |
|
|
| 69 |
|
|
| 117 |
|
|
| 141 |
|
Advanced Materials and Chemicals |
|
| 38 |
|
|
| 52 |
|
|
| 80 |
|
|
| 100 |
|
Brand |
|
| 2 |
|
|
| 2 |
|
|
| 5 |
|
|
| 5 |
|
All Other |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
|
| 5 |
|
Consolidated total |
| $ | 213 |
|
| $ | 307 |
|
| $ | 480 |
|
| $ | 598 |
|
[32]
Segment Operational EBITDA and Consolidated (Loss) GainIncome from Continuing Operations Before Income Taxes
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Print Systems |
| $ | 20 |
|
| $ | 11 |
|
| $ | 32 |
|
| $ | 20 |
| ||||||||||||||||
Enterprise Inkjet Systems |
|
| (3 | ) |
|
| 2 |
|
|
| (6 | ) |
|
| 3 |
| ||||||||||||||||
Kodak Software |
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 3 |
| ||||||||||||||||
Brand, Film and Imaging |
|
| (1 | ) |
|
| (3 | ) |
|
| (10 | ) |
|
| (15 | ) | ||||||||||||||||
Advanced Materials and 3D Printing Technology |
|
| (4 | ) |
|
| (2 | ) |
|
| (9 | ) |
|
| (10 | ) | ||||||||||||||||
Eastman Business Park |
|
| — |
|
|
| 0 |
|
|
| (1 | ) |
|
| (3 | ) | ||||||||||||||||
Traditional Printing |
| $ | 1 |
|
| $ | 9 |
|
| $ | 2 |
|
| $ | 15 |
| ||||||||||||||||
Digital Printing |
|
| (3 | ) |
|
| (4 | ) |
|
| (5 | ) |
|
| (6 | ) | ||||||||||||||||
Advanced Materials and Chemicals |
|
| (7 | ) |
|
| (8 | ) |
|
| (16 | ) |
|
| (18 | ) | ||||||||||||||||
Brand |
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
|
| 3 |
| ||||||||||||||||
Total of reportable segments |
|
| 14 |
|
|
| 9 |
|
|
| 7 |
|
|
| (2 | ) |
|
| (7 | ) |
|
| (1 | ) |
|
| (15 | ) |
|
| (6 | ) |
All Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) | ||||||||||||||||
Depreciation and amortization |
|
| (14 | ) |
|
| (17 | ) |
|
| (43 | ) |
|
| (54 | ) |
|
| (10 | ) |
|
| (14 | ) |
|
| (20 | ) |
|
| (29 | ) |
Restructuring costs and other |
|
| (3 | ) |
|
| (9 | ) |
|
| (7 | ) |
|
| (13 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (8 | ) |
|
| (4 | ) |
Stock based compensation |
|
| (1 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (5 | ) |
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
|
| (5 | ) |
Consulting and other costs (1) |
|
| (2 | ) |
|
| (4 | ) |
|
| (7 | ) |
|
| (11 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (5 | ) |
Idle costs (2) |
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (3 | ) |
Former CEO separation agreement compensation |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Other operating (expense) income, net, excluding income from transition services agreement (3) |
|
| (12 | ) |
|
| 10 |
|
|
| (14 | ) |
|
| 12 |
| ||||||||||||||||
Other operating (loss) income, net, excluding income from transition services agreement (3) |
|
| — |
|
|
| (2 | ) |
|
| 6 |
|
|
| (2 | ) | ||||||||||||||||
Interest expense (4) |
|
| (4 | ) |
|
| (2 | ) |
|
| (12 | ) |
|
| (6 | ) |
|
| (4 | ) |
|
| (5 | ) |
|
| (8 | ) |
|
| (8 | ) |
Pension income excluding service cost component (4) |
|
| 26 |
|
|
| 35 |
|
|
| 79 |
|
|
| 99 |
|
|
| 27 |
|
|
| 26 |
|
|
| 53 |
|
|
| 53 |
|
Other income (charges), net (4) |
|
| (6 | ) |
|
| 4 |
|
|
| (7 | ) |
|
| (13 | ) | ||||||||||||||||
Other (charges) income, net (4) |
|
| (8 | ) |
|
| — |
|
|
| 45 |
|
|
| (1 | ) | ||||||||||||||||
Consolidated (loss) income from continuing operations before income taxes |
| $ | (3 | ) |
| $ | 23 |
|
| $ | (16 | ) |
| $ | 5 |
|
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 50 |
|
| $ | (13 | ) |
(1) | Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives. |
(2) | Consists of 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. |
(4) | As reported in the Consolidated Statement of Operations. |
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”).
[28]
As demonstrated in the above table, Operational EBITDA represents the earnings (loss) from continuing operations excluding the provision 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; former CEOChief Executive Officer (“CEO”) separation agreement compensation; other operating (expense)(loss) income, net (unless otherwise indicated); goodwill impairment losses; interest expense; and other (income) charges,(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 3D Printing TechnologyChemicals segment.
[33]
Change in Segment Measure of Profitability
During the first quarter of 2019 the segment measure was changed to exclude the costs, net of any rental income received, of underutilized portions of certain properties. Additionally, the allocation of costs from EBP to the Brand, Film and Imaging segment and Advanced Materials and 3D Printing Technology segment as tenants of EBP and to each of the segments as users of shared corporate space at the global headquarters changed. Prior year results have been revised to reflect these changes.
NOTE 22:23: DISCONTINUED OPERATIONS
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 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 $207 million in the quarter ended June 30, 2019 and $212 million in the nine months ending September 30,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 target for 2018 was not achieved.
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 has the option to satisfy its payment obligations to Kodak through a reduction of the prepayment balance or in cash. As of September 30, 2019, the remaining prepayment balance is $8 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. Additionally, the assets and liabilities associated with FPD are classified as held for sale at December 31, 2018.
The results of operations of FPD are presented below:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenues |
| $ | — |
|
| $ | 36 |
|
| $ | 44 |
|
| $ | 111 |
|
| $ | — |
|
| $ | 5 |
|
| $ | — |
|
| $ | 44 |
|
Cost of revenues |
|
| — |
|
|
| 22 |
|
|
| 28 |
|
|
| 66 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 28 |
|
Selling, general and administrative expenses |
|
| — |
|
|
| 5 |
|
|
| 10 |
|
|
| 13 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 10 |
|
Research and development costs |
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Interest expense |
|
| — |
|
|
| 7 |
|
|
| 7 |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Gain on divestiture |
|
| (4 | ) |
|
| — |
|
|
| (214 | ) |
|
| — |
|
|
| — |
|
|
| (210 | ) |
|
| — |
|
|
| (210 | ) |
Income (loss) from discontinued operations before taxes |
|
| 4 |
|
|
| — |
|
|
| 211 |
|
|
| 6 |
| ||||||||||||||||
(Benefit) provision for income taxes |
|
| (1 | ) |
|
| 1 |
|
|
| 5 |
|
|
| 6 |
| ||||||||||||||||
Income (loss) from discontinued operations |
| $ | 5 |
|
| $ | (1 | ) |
| $ | 206 |
|
| $ | — |
| ||||||||||||||||
Income from discontinued operations before taxes |
|
| — |
|
|
| 211 |
|
|
| — |
|
|
| 207 |
| ||||||||||||||||
Provision for income taxes |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 6 |
| ||||||||||||||||
Income from discontinued operations |
| $ | — |
|
| $ | 207 |
|
| $ | — |
|
| $ | 201 |
|
[34]
After the initial closing, Kodak was required to use a portion of the proceeds from the sale of FPD to repay $312 million of the loans under the Term Credit Agreement. Interest expense on debt that was required to be repaid as a result of the sale was allocated to discontinued operations.
Approximately $6 million of transaction costs are included in Selling, general and administrative expenses in the year-to-date period ending September 30, 2019.
The following table presents cash flow information associated with FPD:
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
(in millions) |
| 2019 |
|
| 2018 |
| ||
Depreciation |
| $ | — |
|
| $ | 3 |
|
Amortization |
|
| — |
|
|
| 1 |
|
Capital expenditures |
|
| — |
|
|
| 6 |
|
Depreciation and amortization of long-lived assets of FPD included in discontinued operations ceased as of December 1, 2018.
NOTE 23: ASSETS HELD FOR SALE
Assets held for sale at December 31, 2018 include the assets and liabilities of the FPD business and the assets and liabilities of Kodak (China) Graphics Communication Co. Ltd., including the offset printing plates facility in Xiamen, China.
The following table presents the aggregate carrying amount of major assets and liabilities of FPD:
|
| September 30, |
|
| December 31, |
| ||
(in millions) |
| 2019 |
|
| 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 2 |
|
Trade receivables, net |
|
| — |
|
|
| 28 |
|
Inventories, net |
|
| — |
|
|
| 33 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 28 |
|
Goodwill |
|
| — |
|
|
| 20 |
|
Intangible assets |
|
| — |
|
|
| 1 |
|
Other assets |
|
| — |
|
|
| 1 |
|
Assets of business held for sale |
| $ | — |
|
| $ | 113 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable, trade |
| $ | — |
|
| $ | 9 |
|
Pension and other postretirement liabilities |
|
| — |
|
|
| 4 |
|
Other current liabilities |
|
| — |
|
|
| 7 |
|
Liabilities of business held for sale |
| $ | — |
|
| $ | 20 |
|
[35]
A dedicated entity of FPD had intercompany receivables with Kodak of approximately $5 million as of December 31, 2018 that were part of the transaction but are not reflected in the table above as these amounts have been eliminated in deriving the consolidated financial statements.
On August 3, 2019 Kodak reached an agreement with Lucky HuaGuang Graphics Co. Ltd (“HuaGuang”) to establish a strategic relationship in the People’s Republic of China. The relationship is comprised of an agreement for Kodak to sell its shares of the Kodak (China) Graphic Communication Co. Ltd. entity which includes 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 licenses its plates technology to HuaGuang to sell into the plates market in China. The relationship was established at a closing on September 1, 2019 for net cash consideration at closing, in addition to the assumption by HuaGuang of certain liabilities, of $30 million and promissory notes of $8 million representing the outstanding amount of net intercompany receivables owed by Kodak to the Kodak (China) Graphic Communication Co. Ltd at the time of closing. Promissory note payments are being paid by HuaGuang monthly as Kodak remits payments to the Kodak (China) Graphic Communication Co. Ltd. for the outstanding intercompany receivables. The outstanding balance of the promissory notes as of September 30, 2019 is $4 million.
The relationship with HuaGuang includes a license agreement under which Kodak licenses its plates technology to HuaGuang. Therefore, $13 million of the $30 million of consideration received was recognized as licensing revenue in the Print Systems segment in the three months ended September 30, 2019. Proceeds were allocated between the sale of the business and the intellectual property license based on their relative fair values.
The following table presents the aggregate carrying amount of major assets and liabilities the offset printing plates facility in Xiamen, China:
|
| September 30, |
|
| December 31, |
| ||
(in millions) |
| 2019 |
|
| 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 13 |
|
Inventories, net |
|
| — |
|
|
| 5 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 30 |
|
Intangible assets |
|
| — |
|
|
| 2 |
|
Other assets |
|
| — |
|
|
| 4 |
|
Assets of business held for sale |
| $ | — |
|
| $ | 54 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable, trade |
| $ | — |
|
| $ | 19 |
|
Other current liabilities |
|
| — |
|
|
| 4 |
|
Liabilities of business held for sale |
| $ | — |
|
| $ | 23 |
|
Current assets held for sale as of September 30, 2019 in the Consolidated Statement of Financial Position included $2 million of assets under contract for sale not associated with either the FPD or HuaGuang transactions.
NOTE 24: 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. 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 remeasured through net (loss) earnings (both in Other (income) charges, net in the Consolidated Statement of Operations). The notional amount of such contracts open at SeptemberJune 30, 20192020 and December 31, 20182019 was approximately $376$329 million and $415$332 million, respectively. The majority of the contracts of this type held by Kodak as of SeptemberJune 30, 20192020 and December 31, 20182019 are denominated in euros, Japanese yen, Chinese renminbi and Swiss francs.
[29]
The net effect of foreign currency forward contracts in the results of operations is shown in the following table:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net (loss) gain from derivatives not designated as hedging instruments |
| $ | (1 | ) |
| $ | (2 | ) |
| $ | 2 |
|
| $ | (8 | ) | ||||||||||||||||
Net (gain) loss from derivatives not designated as hedging instruments |
| $ | (1 | ) |
| $ | 1 |
|
| $ | (2 | ) |
| $ | (3 | ) |
[36]
Kodak had no derivatives designated as hedging instruments for the quarterthree and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
In the event of a default under the ABL Credit Agreement, 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 7,8, “Debt and Finance Leases”, the Company concluded that the Convertible Notes are considered more akin to a debt-type instrument and that the economic characteristics and risks 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”) and the conversion in the event of a fundamental change or reorganization (“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 is in a liability position at SeptemberJune 30, 2020 and December 31, 2019 and is reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value being reported in Other charges (income), net in the Consolidated Statement of Operations.
As discussed in Note 8,9, “Redeemable, Convertible, Series A Preferred Stock”, 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 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 are the conversion at the option of the holder (“Optional Conversion”); the ability of Kodak to automatically convert the stock after the second anniversary of issuance (“Mandatory Conversion”) and the conversion in the event of a fundamental change or 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 asset or liability. The derivative iswas in an asset position at both SeptemberJune 30, 2019 and December 31, 2018,2020 and is reported in Other long-term assets in the Consolidated Statement of Financial Position. The derivative was in a liability position at December 31, 2019 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value being reported in Other charges (income), net in the Consolidated Statement of Operations.
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 and the gross fair value of foreign currency forward contracts in a liability position are reported in Other current liabilities in the Consolidated Statement of Financial Position. The gross fair value of forward contracts in an asset position as of Septemberboth June 30, 20192020 and December 31, 20182019 was $0 million and $3 million, respectively.$1 million. The gross fair value of foreign currency forward contracts in a liability position as of Septemberboth June 30, 20192020 and December 31, 20182019 was $1 million, for both periods.$0 million.
Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the quarterthree and ninesix months ended SeptemberJune 30, 2019.2020.
[30]
The fair value of the embedded conversion features and term extension option derivatives are calculated using unobservable inputs (Level 3 fair measurements). The value of the Optional Conversion associated with both the Convertible Notes and Series A Preferred Stock is calculated using a binomial lattice model. The value of the term extension option reflects the probability weighted average value of the Convertible Notes using the original maturity date and a hypothetical extended maturity date, with all other contractual terms unchanged.
The following tables present the key inputs in the determination of fair value for the embedded conversion features and termination option derivatives:
Convertible Notes:
|
| Valuation Date |
| |||||||||||||
|
|
|
|
|
| May 24, |
|
| Valuation Date |
| ||||||
|
| September 30, |
|
| 2019 |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| (Inception) |
|
| 2020 |
|
| 2019 |
| ||||
Total value of embedded derivative liability ($ millions) |
| $ | 18 |
|
| $ | 14 |
|
| $ | 9 |
|
| $ | 51 |
|
Kodak's closing stock price |
| $ | 2.64 |
|
| $ | 2.31 |
|
| $ | 2.23 |
|
| $ | 4.65 |
|
Expected stock price volatility |
|
| 89.16 | % |
|
| 92.48 | % |
|
| 98.82 | % |
|
| 104.61 | % |
Risk free rate |
|
| 1.62 | % |
|
| 2.13 | % |
|
| 0.16 | % |
|
| 1.58 | % |
Yield on the convertible notes |
|
| 12.82 | % |
|
| 11.98 | % |
|
| 11.15 | % |
|
| 11.52 | % |
[37]
|
| Valuation Date |
|
| Valuation Date |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Total value of embedded derivative asset ($ millions) |
| $ | 5 |
|
| $ | 4 |
| ||||||||
Total value of embedded derivative (asset) liability ($ millions) |
| $ | (6 | ) |
| $ | 1 |
| ||||||||
Kodak's closing stock price |
| $ | 2.64 |
|
| $ | 2.55 |
|
| $ | 2.23 |
|
| $ | 4.65 |
|
Expected stock price volatility |
|
| 89.16 | % |
|
| 95.55 | % |
|
| 98.82 | % |
|
| 104.61 | % |
Risk free rate |
|
| 1.62 | % |
|
| 2.46 | % |
|
| 0.16 | % |
|
| 1.58 | % |
Yield on the preferred stock |
|
| 19.20 | % |
|
| 23.77 | % |
|
| 15.51 | % |
|
| 16.27 | % |
The Fundamental Change and Reorganization Conversion values at issuance were calculated as the difference between the total value of the Convertible Notes or Series A Preferred Stock, as applicable, and the sum of the net present value of the cash flows if the Convertible Notes are repaid at their initial maturity date or 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 and term extension option derivative liability. Other than events whichthat 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. The Fundamental Change and Reorganization Conversion value for the Series A Preferred Stock exceeded the value of the Optional Conversion and Mandatory Conversion values at both SeptemberJune 30, 2019 and December 31, 20182020 resulting in the Series A Preferred Stock derivative being reported as an asset.
The fair values of long-term debt (Level 2 fair value measurements) are determined by reference to quoted market prices of similar instruments, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates. The fair values of long-term borrowings were $105$119 million and $5$111 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. At December 31, 2018, the fair value of current portion of long-term debt was also determined by reference to quoted market prices of similar instruments, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates. The fair value of current portion of long-term debt was $378 million at December 31, 2018.
The carrying values of cash and cash equivalents, and restricted cash and the current portion of long-term debt approximate their fair values at both SeptemberJune 30, 20192020 and December 31, 2018. The fair value of the current portion of long-term debt at September 30, 2019 approximates its carrying value.
2019.
[38]31]
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report on Form 10-Q 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”“targets,” or future or conditional verbs, such as “will,” “should,” “could,” or “may,” and similar 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 expectations and various assumptions. Future events or results may differ from those anticipated or expressed in the 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 the Company’s Annual Report on Form 10–K for the year ended December 31, 20182019 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,” in the corresponding sections of this report on Form 10-Q and the Company’s quarterly reportsreport on Form 10-Q for the quartersquarter ended March 31, 2019 and June 30, 2019,2020, 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 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 A Preferred Stock;
Kodak’s ability to effect strategic transactions,The impact of the global economic environment or medical epidemics such as divestitures, acquisitions, strategic alliancesthe COVID-19 pandemic;
Whether the U.S. Development Finance Corporation approves and similar transactions, ormakes the potential $765 million loan to achievea subsidiary of the benefits soughtCompany to be achieved fromsupport the launch of Kodak Pharmaceuticals and the impact of the circumstances relating to such strategic transactions;potential loan and any related announcements and investigations;
Changes in foreign currency exchange rates, commodity prices and interest 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, 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 impact ofKodak’s ability to effect strategic transactions, such as divestitures, acquisitions, strategic alliances and similar transactions, or to achieve the global economic environment on Kodak.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-Q and are expressly qualified in their entirety by the cautionary statements included or referenced 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.
OVERVIEW
Kodak is a global commercial printingtechnology company focused on print and imaging company with proprietary technologies inadvanced materials science, digital imaging science and chemicals. Kodak provides industry-leading hardware, software, and deposition processes (methods whereby one or more layers of various materials in gaseous, liquid or small particle form are deposited on a substrate in precise quantities and positions). Kodak leverages its core technology productsconsumables and services primarily to developcustomers in commercial print, packaging, publishing, manufacturing and entertainment. Kodak is committed to environmental stewardship and ongoing leadership in developing sustainable solutions. Its broad portfolio of superior products, responsive support and world-class research and development (“R&D”) make Kodak solutions a smart investment for the graphic communications marketcustomers looking to improve their profitability and is developing products for the functional printing markets. Kodak also offers brand licensing and intellectual property opportunities and provides products and services for motion pictures and other commercial films.drive growth.
[32]
Revenue decreased $14$94 million and $66$118 million when compared to the prior year quarter and first nine months (4%year-to-date periods, respectively, (31% and 7%20%, respectively), including the unfavorable impact of currency ($53 million and $25$6 million) in the current year quarter and first nine months, respectively.year-to-date periods, respectively.
[39]
The film industry and segments within the print 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 following growth engines - Sonora, Ultrastream, Advanced Materialsproduct goods packaging, graphic communications, and 3D Printing and Softwarefunctional printing markets;
Maintain market leadership positionGrow revenues through a focus on customers across Kodak’s print divisions, increasing overall share;
Promote the use of film and cash flows associated with Print Systems;
Manageexpand the expected decline inapplications of Kodak’s film and maximize cash generated by mature businesses;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:
The COVID-19 pandemic had a material impact on current quarter and year-to-date sales. The duration and extent of demand declines and then recovery is unclear. Kodak has eliminated current debt service requirementsworked closely with government officials in the jurisdictions where it operates to keep its manufacturing facilities open, but the facilities are generally operating at below normal capacity during the pandemic to date. Kodak has endeavored to address the recommended actions of government and health authorities to protect employees world-wide, with particular measures in place for those working in plants and distribution facilities. Kodak intends to continue to work with government authorities and implement employee safety measures so that the manufacturing and distribution of products during the pandemic can continue. However, uncertainty resulting from the pandemic could result in an unforeseen disruption to Kodak’s operations or supply chain. Kodak reduced operating costs, largely beginning in the second quarter of 2020, through the use of temporary furloughs and pay cuts (approximately $12 million) for its employees while operations are being negatively impacted by paying down the TermCOVID-19 pandemic.
The Company’s ABL Credit Agreement using proceeds frommatures on May 21, 2021 and the sale of FPD and refinancing the remaining balance through the issuance of convertible debt which does not require any debt service until conversion or maturitySeries A Preferred Stock must be redeemed on November 1, 2021. However,15, 2021 if not converted prior to then. Additionally, Kodak has significant ongoing cash requirements to fund ongoing operations, restructuring programs, pension and other postretirement obligations, and other obligations. Kodak’s plans to return to positive cash flow include growing revenues profitably, reducing operating expenses, simplifyingcontinuing to simplify the organizational structure, generating cash from selling and leasing underutilized assets and paring investment in new technology by eliminating or delaying product development programs.programs as needed.
Print Systems’ revenues accounted for approximately 67% of Kodak’s revenues for bothTraditional 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 quarter and nine months ended September 30, 2019. Excluding licensing revenue ($13 million) recognizedplate processing step prior to mounting plates on a printing press. This improvement in the three months ended September 30, 2019 related toprinting process saves time and costs for customers. Also, SONORA Process Free Plates reduce the HuaGuang relationship, Print Systems’ revenues decreased $17 million (8%) and $61 million (9%) compared with the prior year quarter and first nine months, respectively, including the unfavorableenvironmental impact of currency ($3 millionthe printing process because they eliminate the use of chemicals (including solvents), water and $19 million, respectively). Segment earnings improved by $9 million (82%) and $12 million (60%) comparedpower that is otherwise required to the prior year quarter and first nine months, respectively, reflecting the HuaGuang license revenue and cost reductions partially offset by volume and pricing declines.process a traditional plate. While traditional digital plate offerings are experiencing market driven 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, excluding the negative impacts during the COVID-19 pandemic, are expected to mitigate the impact of revenue declines on earnings. Traditional Printing revenues accounted for approximately 56% and 57% of Kodak’s revenues for the three and six months ended June 30, 2020. Traditional Printing’s revenues decreased $62 million (34%) and $74 million (21%) compared with the prior year quarter and year-to-date periods, respectively, including the unfavorable impact of currency ($2 million and $4 million, respectively), primarily reflecting volume and pricing declines. Segment earnings fromdeclined by $8 million (89%) and $13 million (87%) compared to the prior year quarter and year-to-date periods, respectively, reflecting the impact of reduced volumes on manufacturing costs and revenue declines.
In Enterprise Inkjet Systems,partially offset by operating cost reductions through the legacy Versamark business is expected to continue to decline as a percentageuse of the segment’s total revenue as the Prosper business grows. The Prosper Inkjet Systems business is expected to continue to build profitability. Investment in the next generation technology, Ultrastream, is focused on the ability to placetemporary furloughs and pay cuts Ultrastream writing systems in original equipment manufacturers and hybrid applications. .
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 then recovery is unclear. Manufacturing employees are being temporarily furloughed, as necessary, under reduced production plans. The segment is utilizing furloughs and pay-cuts for non-manufacturing employees in a way which will allow continued operation and product development.
[33]
to place Ultrastream writing systems in original equipment manufacturers and hybrid applications. Digital Printing’s revenues decreased $17 million (25%) and $24 million (17%) compared with the prior year quarter and year-to-date periods, respectively, primarily reflecting volume declines. Segment loss improved by $1 million compared to each of the prior year quarter (25%) and year-to-date periods (17%), respectively. |
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. The duration and extent of demand declines and then recovery is unclear. Manufacturing employees are being temporarily furloughed, as necessary, under reduced production plans. The segment is utilizing furloughs and pay-cuts for non-manufacturing employees in a way which will allow continued operation and product development.
The Kodak Software segment’sAdvanced Materials and Chemicals revenues declined $14 million (27%) and $20 million (20%) compared with the prior year quarter and year-to-date periods, respectively. The segment loss improved $1 million (7%(13%) and $5$2 million (11%) compared to the prior year quarter and first nine months,year-to-date periods, respectively, primarily reflecting volume declines.
Brand, Filmdue to price increases on professional and Imaging revenues improved $2 million compared with the prior year quarter (4%)consumer still photographic film and were flat compared with the prior year first nine months (0%). The segment loss improved $2 million compared with the prior year quarter (67%) and $5 million compared with first nine months (33%).solvents as well as operating cost reductions. Kodak plans to continue to promotepromoting the use of film and chemicals to utilize as much film manufacturing capacity as possible.
Advanced Materials and Chemicals experienced adverse impacts from the COVID-19 pandemic in the second quarter of 2020, most notably in Motion Picture where the industry has been heavily impacted and productions in affected regions have 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 then recovery is unclear. Manufacturing volumes were reduced due to the customer demand decline in the near-term. Manufacturing employees are being temporarily furloughed, as necessary, under reduced production plans.
In connection with exploring an expansion of its chemical operations which currently produces unregulated key starting materials (“KSMs”) for pharmaceuticals, Kodak applied for a loan from the U.S. International Development Finance Corporation (the “DFC”) to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs. On July 28, 2020, the DFC announced 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”), indicating Kodak’s successful completion of DFC’s initial screening, which would be followed by standard due diligence conducted by the DFC before financing is formally committed. As further described under Part II, Item 1A. Risk Factors, there can be no assurances that the DFC Loan will be approved or made. If the DFC Loan is not made, Kodak intends to continue organic expansion of its KSM production at Eastman Business Park in Rochester, New York while attempting to obtain necessary cGMP and FDA certification to make regulated KSMs and active pharmaceutical ingredients (“APIs”). Depending on its assessment of the business opportunity and availability of capital, Kodak may also explore alternative means to expand its chemical manufacturing operations for purposes of producing KSMs and APIs.
Film and related component manufacturing operations and Kodak Research Laboratories utilize capacity at Eastman Business Park, which helps cost absorption for both Kodak operations and tenants at EBP.Eastman Business Park.
Kodak plans to capitalize on its intellectual property through new business or licensing opportunities in 3D printing materials, smart material applications, and printed electronics markets.
Kodak plans to continue to pursue monetization of its asset base, selling and licensing intellectual property, and selling and leasing excess capacity in its properties.
CURRENT KODAK OPERATING MODEL AND REPORTING STRUCTURE
Change in Segments
Effective January 1, 2020 Kodak has six reportable segments:changed its organizational structure. Prepress Solutions, formerly part of the Print Systems;Systems segment, now 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;Systems segment and Kodak Software;Software segment to form the Digital Printing segment. The Brand, Film and Imaging;Imaging segment, except for the licensing of the Kodak brand to third parties, was combined with the Advanced Materials and 3D Printing Technologysegment 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.Park segment is no longer a reportable segment. A description of the reportable segments follows.
Print Systems[34]
REPORTABLE SEGMENTS
Kodak has four reportable segments: Traditional Printing, Digital Printing, 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 operations.
The Print SystemsTraditional Printing segment is comprised of Prepress Solutions, which includes Kodak’s digital offset plate offerings and computer-to-plate imaging solutions, and Electrophotographicsolutions. The Traditional Printing Solutions, which offers high-quality digital printing solutions using electrically charged toner-based technology. The Print Systems 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.
[40]
While the businesses in this segment are experiencing 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. In January 2019, Kodak received exemptions from U.S. tariffs on aluminum. The U.S. aluminum tariffs are still in place and Kodak’s exemptions continue.
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 Computer to Plate (“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 Print SystemsTraditional Printing products and services are sold globally to customers through both a direct sales team as well as indirectly through dealers.
Prepress Solutions:
Digital offset plates includeincludes 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.
CTP output devices that are used by customers to transfer images onto aluminum offset printing plates and provide consistent and high-quality imaging for offset press applications. CTP products provide high resolution, consistency and stability in thermal imaging. Kodak also offers a lower cost CTP system using TH5 imaging technology, which provides a highly efficient and cost-effective imaging solution at a lower price point.
The Traditional Printing segment also provides service and support related to these products.
Digital Printing
The Digital Printing segment contains Electrophotographic Printing Solutions, Prosper, Versamark and Software. Digital Printing products include high-quality digital printing solutions using electrically charged toner-based technology, production press systems, consumables (primarily ink), inkjet components, software and services. Digital Printing products are distributed directly by Kodak and indirectly through dealers.
Electrophotographic Printing Solutions:
NEXPRESSNEXFINITY printers produce high-quality, differentiated printing of short-run, personalized print applications, such as direct mail, books, marketing collateral and photo products.
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.
The Print Systems segment also provides service and support related to these products.
[35]
Enterprise Inkjet Systems
The Enterprise Inkjet Systems segment contains the Prosper business and the Versamark business. The Enterprise Inkjet Systems products include production press systems, consumables (primarily ink), inkjet components and services.
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 focus of the Prosper business is on developing the next generation platform, Ultrastream, with solutions that place writing systems in OEMs 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 secured itsclosed on the first agreementsale of an Ultrastream writing system for use in the fourth quartera packaging application in December of 20182019 with an industry OEM, who will integrateUteco Group. Uteco Group has integrated Ultrastream in a packaging press solution.
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.
Versamark:
The KODAK VERSAMARK Products are the predecessor products to the PROSPER business. Kodak has ceased manufacturing VERSAMARK Press Systems. Users of KODAK VERSAMARK Productsproducts continue to purchase ink and other consumables as well as related service from Kodak. Applications of the VERSAMARK products include publishing, transactional, commercial print and direct mail.
[41]
The Kodak Software segment is comprised of the Software business.
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. world
The Software business includes digital front-end controllers which manage the delivery of personalized content to digital presses while controlling color and print consistency.
Brand, FilmAdvanced Materials and ImagingChemicals
The Brand, FilmAdvanced Materials and ImagingChemicals segment is comprised of fivefour lines of business: Consumer Products, Industrial Film and Chemicals, Motion Picture, Advanced Materials and Functional Printing and Kodak Services for Business (“KSB”). Kodak’s Advanced Materials and Kodakit.
Consumer Products:
Includes licensingChemicals products are distributed directly by Kodak and indirectly through dealers. Kodak Alaris, a professional and consumer still photographic film and chemicals customer, represented approximately 20% of the Kodak brand to third parties. Kodak currently licenses its brand for use with a range of products including batteries, digitaltotal Advanced Materials and instant print cameras and camera accessories, printers and LED lighting. Kodak intends to continue efforts to grow its portfolio of brand licenses to generate both ongoing royalty streams and upfront payments.Chemicals segment revenues in 2019.
Consumer Inkjet Solutions, which involves the sale of ink to an existing installed base of consumer inkjet printers.
|
|
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.
Offers specialty inks and dispersions to third parties.
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.
Motion Picture:
[36]
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 offering onsite processing services at strategic locations in the U.S. and Europe.
Advanced Materials and Functional Printing
Advanced Materials
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.
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. Also, a portfolio of products is offered to enable others to utilize functional printing.
IP Licensing:
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 Services for Business:Business:
KSB assists organizations with challenges and opportunities created by the worldwide digital transformation. It 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. KSB has expertise in the capture, archiving, retrieval and delivery of documents including in depth knowledge of handling legacy media. KSB serves enterprise customers primarily in the banking, insurance and government sectors. Sales in KSB are project-based and can vary from year to year depending on the nature and number of projects in existence that year. KSB currently operates exclusively in Asia, primarily in China and Hong Kong.
Kodakit:
Kodakit
Kodakit iswas a platform that connectsconnected businesses with professional photographers to cater to their photography needs. Customers includeincluded global hotels and online travel agencies, real estate companies, marketplaces, advertising agencies and global brands.
In October 2019, Kodak decided to discontinue the operationoperations of Kodakit.Kodakit in October 2019.
Advanced Materials and 3D Printing Technology
The Advanced Materials and 3D Printing Technology segment contains the Kodak Research Laboratories and associated new business opportunities and intellectual property licensing not directly related to other business divisions. Kodak conducts research and files patent applications with fundamental inventions from the Kodak Research Laboratories. Additionally, Kodak continues to file new patent applications in areas aligned with its core businesses. Via these core business patent applications along with the research inventions, Kodak maintains a large worldwide portfolio of pending applications and issued patents. Product solutions in Advanced Materials and 3D Printing are in the process of being commercialized, and there are new business opportunities with identified markets and customers.Brand
Advanced MaterialsThe Brand segment Includes licensing of the Kodak brand to third parties. Kodak currently licenses its brand for use with a range of products including batteries, digital and 3D Printing Technology segment will also pursue partnership opportunitiesinstant print cameras and camera accessories, printers, and LED lighting. Kodak intends to commercialize functional materials and printed electronics technologies. These partnerships may include non-recurring engineering payments for Kodakcontinue efforts to further develop such technologies into products. Advanced Materialsgrow its portfolio of brand licenses to generate both ongoing royalty streams and 3D Printing Technology segment also provides a wide range of analytical services to external clients at market rates.upfront payments. Brand licensees use the Kodak brand on their products and use their own distribution channels.
[42]37]
Advanced Materials is developing 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. The primary focus is on light blocking particles for the textile market.
3D Printing:
3D Printing concentrates on partnerships and/or licensing opportunities in micro 3D printing solutions such as printed electronics. In addition, for macro 3D printing, AM3D manufactures and sells a specialty material to a 3D printing customer.
IP Licensing:
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.
Eastman Business Park
The Eastman Business Park segment includes the operations of Eastman Business Park, a more than 1,200-acre technology center and industrial complex in Rochester, New York and the leasing activities related to that space. A large portion of this facility is used in Kodak’s own manufacturing and other operations, while the remaining portion is occupied by external tenants or available for rent to external tenants.
Segment Revenues
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Print Systems |
| $ | 213 |
|
| $ | 217 |
|
| $ | 612 |
|
| $ | 660 |
|
Enterprise Inkjet Systems |
|
| 29 |
|
|
| 39 |
|
|
| 90 |
|
|
| 103 |
|
Kodak Software |
|
| 14 |
|
|
| 15 |
|
|
| 42 |
|
|
| 47 |
|
Brand, Film and Imaging |
|
| 56 |
|
|
| 54 |
|
|
| 159 |
|
|
| 159 |
|
Advanced Materials and 3D Printing Technology |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Eastman Business Park |
|
| 2 |
|
|
| 3 |
|
|
| 7 |
|
|
| 7 |
|
Consolidated total |
| $ | 315 |
|
| $ | 329 |
|
| $ | 913 |
|
| $ | 979 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Traditional Printing |
| $ | 119 |
|
| $ | 181 |
|
| $ | 273 |
|
| $ | 347 |
|
Digital Printing |
|
| 52 |
|
|
| 69 |
|
|
| 117 |
|
|
| 141 |
|
Advanced Materials and Chemicals |
|
| 38 |
|
|
| 52 |
|
|
| 80 |
|
|
| 100 |
|
Brand |
|
| 2 |
|
|
| 2 |
|
|
| 5 |
|
|
| 5 |
|
All Other |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
|
| 5 |
|
Consolidated total |
| $ | 213 |
|
| $ | 307 |
|
| $ | 480 |
|
| $ | 598 |
|
Segment Operational EBITDA and Consolidated LossIncome (Loss) from Continuing Operations Before Income Taxes
|
| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| September 30, |
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| September 30, |
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| June 30, |
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| June 30, |
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(in millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Print Systems |
| $ | 20 |
|
| $ | 11 |
|
| $ | 32 |
|
| $ | 20 |
| ||||||||||||||||
Enterprise Inkjet Systems |
|
| (3 | ) |
|
| 2 |
|
|
| (6 | ) |
|
| 3 |
| ||||||||||||||||
Kodak Software |
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 3 |
| ||||||||||||||||
Brand, Film and Imaging |
|
| (1 | ) |
|
| (3 | ) |
|
| (10 | ) |
|
| (15 | ) | ||||||||||||||||
Advanced Materials and 3D Printing Technology |
|
| (4 | ) |
|
| (2 | ) |
|
| (9 | ) |
|
| (10 | ) | ||||||||||||||||
Eastman Business Park |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (3 | ) | ||||||||||||||||
Traditional Printing |
| $ | 1 |
|
| $ | 9 |
|
| $ | 2 |
|
| $ | 15 |
| ||||||||||||||||
Digital Printing |
|
| (3 | ) |
|
| (4 | ) |
|
| (5 | ) |
|
| (6 | ) | ||||||||||||||||
Advanced Materials and Chemicals |
|
| (7 | ) |
|
| (8 | ) |
|
| (16 | ) |
|
| (18 | ) | ||||||||||||||||
Brand |
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
|
| 3 |
| ||||||||||||||||
All Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) | ||||||||||||||||
Depreciation and amortization |
|
| (14 | ) |
|
| (17 | ) |
|
| (43 | ) |
|
| (54 | ) |
|
| (10 | ) |
|
| (14 | ) |
|
| (20 | ) |
|
| (29 | ) |
Restructuring costs and other |
|
| (3 | ) |
|
| (9 | ) |
|
| (7 | ) |
|
| (13 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (8 | ) |
|
| (4 | ) |
Stock based compensation |
|
| (1 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (5 | ) |
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
|
| (5 | ) |
Consulting and other costs (1) |
|
| (2 | ) |
|
| (4 | ) |
|
| (7 | ) |
|
| (11 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (5 | ) |
Idle costs (2) |
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (3 | ) |
Former CEO separation agreement compensation |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Other operating (expense) income, net, excluding income from transition services agreement (3) |
|
| (12 | ) |
|
| 10 |
|
|
| (14 | ) |
|
| 12 |
| ||||||||||||||||
Other operating (loss) income, net, excluding income from transition services agreement (3) |
|
| — |
|
|
| (2 | ) |
|
| 6 |
|
|
| (2 | ) | ||||||||||||||||
Interest expense (4) |
|
| (4 | ) |
|
| (2 | ) |
|
| (12 | ) |
|
| (6 | ) |
|
| (4 | ) |
|
| (5 | ) |
|
| (8 | ) |
|
| (8 | ) |
Pension income excluding service cost component (4) |
|
| 26 |
|
|
| 35 |
|
|
| 79 |
|
|
| 99 |
|
|
| 27 |
|
|
| 26 |
|
|
| 53 |
|
|
| 53 |
|
Other income (charges), net (4) |
|
| (6 | ) |
|
| 4 |
|
|
| (7 | ) |
|
| (13 | ) | ||||||||||||||||
Other (charges) income, net (4) |
|
| (8 | ) |
|
| — |
|
|
| 45 |
|
|
| (1 | ) | ||||||||||||||||
Consolidated (loss) income from continuing operations before income taxes |
| $ | (3 | ) |
| $ | 23 |
|
| $ | (16 | ) |
| $ | 5 |
|
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 50 |
|
| $ | (13 | ) |
[43]
(1) | Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives. |
(2) | Consists of 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) | $2 million |
(4) | As reported in the Consolidated Statement of Operations. |
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”). Operational EBITDA represents the earnings (loss) from continuing operations excluding the provision 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; former CEO separation agreement compensation; other operating (expense)(loss) income, net (unless otherwise indicated); goodwill impairment losses; interest expense; and other (charges) income, (charges), net.
Kodak’s segments are measured using Operational EBITDA both before and after the allocation of corporate selling, general and administrativeSG&A expenses. 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 3D Printing TechnologyChemicals segment.
Change in Segment Measure of Profitability[38]
During the first quarter of 2019 the segment measure was changed to exclude the costs, net of any rental income received, of underutilized portions of certain properties. Additionally, the allocation of costs from EBP to the Brand, Film and Imaging segment and Advanced Materials and 3D Printing Technology segment as tenants of EBP and to each of the segments as users of shared corporate space at the global headquarters changed. Prior year results have been revised to reflect these changes.
20192020 COMPARED WITH 20182019
THIRDSECOND QUARTER RESULTS OF OPERATIONS
|
| Three Months Ended September 30, |
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
|
| Three Months Ended June 30, |
|
|
|
|
|
| Six Months Ended June 30, |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| % of Sales |
|
| 2018 |
|
| % of Sales |
|
| $ Change |
|
| 2019 |
|
| % of Sales |
|
| 2018 |
|
| % of Sales |
|
| $ Change |
|
| 2020 |
|
| % of Sales |
|
| 2019 |
|
| % of Sales |
|
| $ Change |
|
| 2020 |
|
| % of Sales |
|
| 2019 |
|
| % of Sales |
|
| $ Change |
| |||||||||||||||||||||
Revenues |
| $ | 315 |
|
|
|
|
|
| $ | 329 |
|
|
|
|
|
| $ | (14 | ) |
| $ | 913 |
|
|
|
|
|
| $ | 979 |
|
|
|
|
|
| $ | (66 | ) |
| $ | 213 |
|
|
|
|
|
| $ | 307 |
|
|
|
|
|
| $ | (94 | ) |
| $ | 480 |
|
|
|
|
|
| $ | 598 |
|
|
|
|
|
| $ | (118 | ) |
Cost of revenues |
|
| 262 |
|
|
|
|
|
|
| 279 |
|
|
|
|
|
|
| (17 | ) |
|
| 778 |
|
|
|
|
|
|
| 846 |
|
|
|
|
|
|
| (68 | ) |
|
| 192 |
|
|
|
|
|
|
| 265 |
|
|
|
|
|
|
| (73 | ) |
|
| 423 |
|
|
|
|
|
|
| 516 |
|
|
|
|
|
|
| (93 | ) |
Gross profit |
|
| 53 |
|
|
| 17 | % |
|
| 50 |
|
|
| 15 | % |
|
| 3 |
|
|
| 135 |
|
|
| 15 | % |
|
| 133 |
|
|
| 14 | % |
|
| 2 |
|
|
| 21 |
|
|
| 10 | % |
|
| 42 |
|
|
| 14 | % |
|
| (21 | ) |
|
| 57 |
|
|
| 12 | % |
|
| 82 |
|
|
| 14 | % |
|
| (25 | ) |
Selling, general and administrative expenses |
|
| 48 |
|
|
| 15 | % |
|
| 53 |
|
|
| 16 | % |
|
| (5 | ) |
|
| 161 |
|
|
| 18 | % |
|
| 170 |
|
|
| 17 | % |
|
| (9 | ) |
|
| 34 |
|
|
| 16 | % |
|
| 54 |
|
|
| 18 | % |
|
| (20 | ) |
|
| 82 |
|
|
| 17 | % |
|
| 113 |
|
|
| 19 | % |
|
| (31 | ) |
Research and development costs |
|
| 11 |
|
|
| 3 | % |
|
| 12 |
|
|
| 4 | % |
|
| (1 | ) |
|
| 33 |
|
|
| 4 | % |
|
| 37 |
|
|
| 4 | % |
|
| (4 | ) |
|
| 8 |
|
|
| 4 | % |
|
| 11 |
|
|
| 4 | % |
|
| (3 | ) |
|
| 17 |
|
|
| 4 | % |
|
| 22 |
|
|
| 4 | % |
|
| (5 | ) |
Restructuring costs and other |
|
| 3 |
|
|
| 1 | % |
|
| 9 |
|
|
| 3 | % |
|
| (6 | ) |
|
| 7 |
|
|
| 1 | % |
|
| 13 |
|
|
| 1 | % |
|
| (6 | ) |
|
| 1 |
|
|
| 0 | % |
|
| 2 |
|
|
| 1 | % |
|
| (1 | ) |
|
| 8 |
|
|
| 2 | % |
|
| 4 |
|
|
| 1 | % |
|
| 4 |
|
Other operating expense (income), net |
|
| 10 |
|
|
| 3 | % |
|
| (10 | ) |
|
| (3 | )% |
|
| 20 |
|
|
| 10 |
|
|
| 1 | % |
|
| (12 | ) |
|
| (1 | )% |
|
| 22 |
| ||||||||||||||||||||||||||||||||||||||||
Loss from continuing operations before interest expense, other charges, net and income taxes |
|
| (19 | ) |
|
| (6 | )% |
|
| (14 | ) |
|
| (4 | )% |
|
| (5 | ) |
|
| (76 | ) |
|
| (8 | )% |
|
| (75 | ) |
|
| (8 | )% |
|
| (1 | ) | ||||||||||||||||||||||||||||||||||||||||
Other operating income, net |
|
| (3 | ) |
|
| (1 | )% |
|
| — |
|
|
| 0 | % |
|
| (3 | ) |
|
| (10 | ) |
|
| (2 | )% |
|
| — |
|
|
| 0 | % |
|
| (10 | ) | ||||||||||||||||||||||||||||||||||||||||
Loss from continuing operations before interest expense, other (income) charges, net and income taxes |
|
| (19 | ) |
|
| (9 | )% |
|
| (25 | ) |
|
| (8 | )% |
|
| 6 |
|
|
| (40 | ) |
|
| (8 | )% |
|
| (57 | ) |
|
| (10 | )% |
|
| 17 |
| ||||||||||||||||||||||||||||||||||||||||
Interest expense |
|
| 4 |
|
|
| 1 | % |
|
| 2 |
|
|
| 1 | % |
|
| 2 |
|
|
| 12 |
|
|
| 1 | % |
|
| 6 |
|
|
| 1 | % |
|
| 6 |
|
|
| 4 |
|
|
| 2 | % |
|
| 5 |
|
|
| 2 | % |
|
| (1 | ) |
|
| 8 |
|
|
| 2 | % |
|
| 8 |
|
|
| 1 | % |
|
| — |
|
Pension income excluding service cost component |
|
| (26 | ) |
|
| (8 | )% |
|
| (35 | ) |
|
| (11 | )% |
|
| 9 |
|
|
| (79 | ) |
|
| (9 | )% |
|
| (99 | ) |
|
| (10 | )% |
|
| 20 |
|
|
| (27 | ) |
|
| (13 | )% |
|
| (26 | ) |
|
| (8 | )% |
|
| (1 | ) |
|
| (53 | ) |
|
| (11 | )% |
|
| (53 | ) |
|
| (9 | )% |
|
| — |
|
Other charges (income), net |
|
| 6 |
|
|
| 2 | % |
|
| (4 | ) |
|
| (1 | )% |
|
| 10 |
|
|
| 7 |
|
|
| 1 | % |
|
| 13 |
|
|
| 1 | % |
|
| (6 | ) |
|
| 8 |
|
|
| 4 | % |
|
| 0 |
|
|
| 0 | % |
|
| 8 |
|
|
| (45 | ) |
|
| (9 | )% |
|
| 1 |
|
|
| 0 | % |
|
| (46 | ) |
(Loss) earnings from continuing operations before income taxes |
|
| (3 | ) |
|
| (1 | )% |
|
| 23 |
|
|
| 7 | % |
|
| (26 | ) |
|
| (16 | ) |
|
| (2 | )% |
|
| 5 |
|
|
| 1 | % |
|
| (21 | ) | ||||||||||||||||||||||||||||||||||||||||
(Loss) income from continuing operations before income taxes |
|
| (4 | ) |
|
| (2 | )% |
|
| (4 | ) |
|
| (1 | )% |
|
| — |
|
|
| 50 |
|
|
| 10 | % |
|
| (13 | ) |
|
| (2 | )% |
|
| 63 |
| ||||||||||||||||||||||||||||||||||||||||
Provision for income taxes |
|
| 7 |
|
|
| 2 | % |
|
| 3 |
|
|
| 1 | % |
|
| 4 |
|
|
| 12 |
|
|
| 1 | % |
| �� | 7 |
|
|
| 1 | % |
|
| 5 |
|
|
| 1 |
|
|
| 0 | % |
|
| 2 |
|
|
| 1 | % |
|
| (1 | ) |
|
| 166 |
|
|
| 35 | % |
|
| 5 |
|
|
| 1 | % |
|
| 161 |
|
(Loss) earnings from continuing operations |
|
| (10 | ) |
|
| (3 | )% |
|
| 20 |
|
|
| 6 | % |
|
| (30 | ) |
|
| (28 | ) |
|
| (3 | )% |
|
| (2 | ) |
|
| (0 | )% |
|
| (26 | ) | ||||||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| 5 |
|
|
| 2 | % |
|
| (1 | ) |
|
| 0 | % |
|
| 6 |
|
|
| 206 |
|
|
| (23 | )% |
|
| — |
|
|
| 0 | % |
|
| 206 |
| ||||||||||||||||||||||||||||||||||||||||
Loss from continuing operations |
|
| (5 | ) |
|
| (2 | )% |
|
| (6 | ) |
|
| (2 | )% |
|
| 1 |
|
|
| (116 | ) |
|
| (24 | )% |
|
| (18 | ) |
|
| (3 | )% |
|
| (98 | ) | ||||||||||||||||||||||||||||||||||||||||
Income from discontinued operations, net of income taxes |
|
| — |
|
|
| 0 | % |
|
| 207 |
|
|
| 67 | % |
|
| (207 | ) |
|
| — |
|
|
| 0 | % |
|
| 201 |
|
|
| 34 | % |
|
| (201 | ) | ||||||||||||||||||||||||||||||||||||||||
Net (loss) income |
| $ | (5 | ) |
|
| (2 | )% |
| $ | 19 |
|
|
| 6 | % |
| $ | (24 | ) |
| $ | 178 |
|
|
| 19 | % |
| $ | (2 | ) |
|
| (0 | )% |
| $ | 180 |
|
| $ | (5 | ) |
|
| (2 | )% |
| $ | 201 |
|
|
| 65 | % |
| $ | (206 | ) |
| $ | (116 | ) |
|
| (24 | )% |
| $ | 183 |
|
|
| 31 | % |
| $ | (299 | ) |
[44]39]
Revenue
Current Quarter
For the three months ended SeptemberJune 30, 20192020 revenues declined $14$94 million compared with the same period in 2018,2019, driven by volume declines and unfavorable pricing within Print SystemsTraditional Printing ($857 million and $5$3 million, respectively), volume declines in Enterprise Inkjet SystemsAdvanced Materials and Chemicals and Digital Printing ($9 million)19 million and $18 million, respectively) and unfavorable foreign currency ($52 million). Intellectual property licensingThe revenue declines were offset by improved pricing and product mix in Advanced Materials and Chemicals ($4 million) and favorable mix of $13 million related to the HuaGuang relationship entered intoproducts in the three months ended September 30, 2019 positively impacted results.Digital Printing ($2 million). See segment discussions for additional details.
Year to dateYear-to-Date
For the ninesix months ended SeptemberJune 30, 20192020 revenues declined $66$118 million compared with the same period in 2018,2019, driven by volume declines and unfavorable pricing and product mix within Print SystemsTraditional Printing ($2962 million and $13$8 million, respectively), volume declines in Enterprise Inkjet SystemsAdvanced Materials and Chemicals and Digital Printing ($10 million), volume declines in Kodak Software ($4 million)29 million and $28 million, respectively) and unfavorable foreign currency ($255 million). Intellectual property licensingThe revenue declines were offset by improved pricing and product mix in Advanced Materials and Chemicals ($8 million) and favorable mix of $13 million related to the HuaGuang relationship positively impacted results.products in Digital Printing ($5 million). See segment discussions for additional details.
Gross Profit
Current Quarter
The improvement in grossGross profit for the three months ended SeptemberJune 30, 2019 of2020 declined approximately $3$21 million compared with the same period in 2018 reflected intellectual property licensing revenue of $13 million related to the HuaGuang relationship and lower depreciation and amortization ($4 million). The gross profit improvements were largely offset by lower2019 reflecting volume anddeclines, unfavorable pricing and product mix as well as increased costs in Print SystemsTraditional Printing ($27 million, $4 million and $5 million, respectively), volume declines equipment inventory write-downs due to lower selling prices combined with unfavorable manufacturingand increased costs in Enterprise Inkjet Systems ($1 millionAdvanced Materials and $4 million, respectively). See segment discussions for additional details.
Year to date
The improvementChemicals (each $5 million) and volume declines in gross profit for the nine months ended September 30, 2019 of approximately $2 million compared with the same period in 2018 reflected intellectual property licensing revenue of $13 million related to the HuaGuang relationship entered into in the three months ended September 30, 2019 and cost improvements in Brand, Film and Imaging ($7 million), lower aluminum costsDigital Printing ($3 million), refunds of aluminum tariffs paid partially offset by Kodakfavorable pricing and product mix in the last half of 2018 in Print SystemsAdvanced Materials and Chemicals ($24 million) and lower depreciation and amortization expenseexpenses ($11 million). The positive impacts were offset by lower volume and unfavorable pricing and product mix in Print Systems ($3 million and $12 million, respectively), lower volume in Enterprise Inkjet Systems and Kodak Software (each $3 million), unfavorable product mix in Brand, Film and Imaging ($3 million), unfavorable manufacturing costs and equipment inventory write-downs in Enterprise Inkjet Systems ($7 million) and unfavorable foreign currency ($24 million). See segment discussions for additional details.
Year-to-Date
Gross profit for the six months ended June 30, 2020 declined approximately $25 million compared with the same period in 2019 reflecting volume declines, unfavorable pricing and product mix as well as increased costs in Traditional Printing ($7 million, $10 million and $7 million, respectively), volume declines and increased costs Advanced Materials and Chemicals ($8 million and $7 million, respectively) and volume declines and unfavorable costs in Digital Printing ($4 million and $5 million, respectively) partially offset by favorable pricing and product mix in Advanced Materials and Chemicals ($9 million), favorable mix of products in Digital Printing ($3 million) and lower depreciation and amortization expenses ($9 million). See segment discussions for additional details.
Selling, General and Administrative Expenses
Consolidated SG&A decreased $5$20 million and $31 million for the quarterthree and six month periods ended SeptemberJune 30, 20192020, respectively, primarily due to lower investment in segment selling and marketing activities driven by cost reduction efforts ($2 million) as well as18 million for the quarter and $22 million year-to-date), and lower consulting and project costs ($2 million)million for the quarter and $4 million for the year). Consolidated SG&A decreased $9 millionThe temporary furloughs and pay cuts in the ninecurrent quarter provided approximately $3 million of the $18 million savings in the three months ending June 30, 2020. The six-month period ended SeptemberJune 30, 2019 primarily due to lower investment in segment selling and marketing activities ($8 million) and lower consulting and project costs ($4 million) partially offset byalso included $2 million of compensation included inrelated to the former CEO separation agreement.agreement while the six-month period ending June 30, 2020 included increased bad debt expense due to increased collection risk related to the COVID-19 pandemic ($3 million).
Research and Development Costs
Consolidated R&D expenses decreased $1$3 million and $4$5 million for the quarter and nine monthsyear-to-date periods ended SeptemberJune 30, 20192020, respectively, primarily due to the reduced level of investment across the segments.cost reduction efforts.
Interest ExpenseOther Charges (Income), Net
Interest expenseThe change in Other charges (income) was primarily driven by the embedded conversion features derivative liability associated with the Convertible Notes. Refer to Note 15, “Other Charges (Income), Net” and Note 24, “Financial Instruments”.
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 $7 million was allocateda valuation allowance on deferred tax assets outside the U.S. Refer to Note 16, “Income Taxes”.
Income from Discontinued Operations
The Income from discontinued operations in the three months ended September 30, 2018. Interest expenseprior year periods primarily represents the gain recognized on the sale of $7 million and $20 million was allocatedthe FPD business in April 2019. Refer to discontinued operations for the nine months ended September 30, 2019 and 2018, respectively.
PRINT SYSTEMS SEGMENTNote 23, “Discontinued Operations”.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Revenues |
| $ | 213 |
|
| $ | 217 |
|
| $ | (4 | ) |
| $ | 612 |
|
| $ | 660 |
|
| $ | (48 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | 20 |
|
| $ | 11 |
|
| $ | 9 |
|
| $ | 32 |
|
| $ | 20 |
|
| $ | 12 |
|
Operational EBITDA as a % of revenues |
|
| 9 | % |
|
| 5 | % |
|
|
|
|
|
| 5 | % |
|
| 3 | % |
|
|
|
|
[45]40]
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
| ||||||
Revenues |
| $ | 119 |
|
| $ | 181 |
|
| $ | (62 | ) |
| $ | 273 |
|
| $ | 347 |
|
| $ | (74 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | 1 |
|
| $ | 9 |
|
| $ | (8 | ) |
| $ | 2 |
|
| $ | 15 |
|
| $ | (13 | ) |
Operational EBITDA as a % of revenues |
|
| 1 | % |
|
| 5 | % |
|
|
|
|
|
| 1 | % |
|
| 4 | % |
|
|
|
|
Current Quarter
The decrease in Print SystemsTraditional Printing revenues for the three months ended SeptemberJune 30, 20192020 of approximately $62 million reflected volume and pricing declines ($50 million and $4 million, respectively) in Prepress Solutions consumables, volume declines in Prepress Solutions service ($3 million) and Prepress equipment ($3 million) and unfavorable foreign currency ($2 million). The volume declines were primarily driven by COVID-19 pandemic related declines in customer demand.
Year-to-Date
The decrease in Traditional Printing revenues for the six months ended June 30, 2020 of approximately $74 million primarily reflected volume and pricing declines ($9 million and $3 million, respectively) in Prepress Solutions consumables, pricing declines in Electrophotographic Printing Solutions consumables and service ($2 million), as well as unfavorable foreign currency ($3 million) partially offset by the intellectual property licensing revenue related to the HuaGuang relationship ($13 million) and favorable product mix in Prepress Solutions equipment ($2 million).
Year to Date
The decrease in Print Systems revenues for the nine months ended September 30, 2019 of approximately $48 million primarily reflected volume and pricing declines ($2354 million and $9 million, respectively) in Prepress Solutions consumables, and service, volume declines and unfavorable pricing in Electrophotographic PrintingPrepress Solutions consumables and service ($3 millionmillion) and $5 million, respectively), unfavorable product mix in Electrophotographic Printing SolutionsPrepress equipment ($35 million) and unfavorable foreign currency ($194 million) partially offset by the intellectual property licensing revenuefavorable pricing and product mix ($2 million) in Prepress equipment. The volume declines were primarily driven by COVID-19 pandemic related to the HuaGuang relationship ($13 million).declines in customer demand.
Operational EBITDA
Current Quarter
Print SystemsTraditional Printing Operational EBITDA for the three months ended SeptemberJune 30, 2019 improved $92020 declined $8 million compared to the prior year reflecting the intellectual property licensing revenue related to the HuaGuang relationship ($13 million), manufacturing cost improvements ($2 million) in Electrophotographic Printing Solutions, lower investment in sales and marketing activities ($1 million) and favorable foreign currency ($1 million) partially offset by pricing declines ($3 million) in Prepress Solutions consumables and service, unfavorable pricing in Electrophotographic Printing Solutions consumables and service and unfavorable manufacturing costs in Prepress Solutions (both $2 million).
Year to Date
Print Systems Operational EBITDA for the nine months ended September 30, 2019 improved $12 million compared to the prior year reflecting the intellectual property licensing revenue related to the HuaGuang relationship ($13 million), lower investment in sales and marketing activities ($4 million), lower manufacturing costs ($4 million) in Electrophotographic Printing Solutions, refunds of aluminum tariffs which were paid by Kodak in the last half of 2018 ($2 million) in Prepress Solutions consumables and the favorable impact of currency ($3 million) partially offset by volume and pricing declines ($36 million and $8$4 million, respectively) in Prepress Solutions consumables, volume declines in Prepress service ($1 million), and servicehigher manufacturing costs ($7 million) driven by unfavorable cost absorption from the volume declines partially offset by lower SG&A expenses ($8 million) and unfavorablelower aluminum costs in the current year ($2 million).
Year-to-Date
Traditional Printing Operational EBITDA for the six months ended June 30, 2020 declined $13 million primarily due to volume and pricing declines ($6 million and $9 million, respectively) in Electrophotographic PrintingPrepress Solutions consumables, volume declines in Prepress service ($2 million), higher manufacturing costs driven by unfavorable cost absorption from the volume declines ($9 million), aluminum tariff refunds received in 2019 ($2 million) and servicean increase in bad debt expense ($2 million) partially offset by lower SG&A expenses ($12 million) and lower aluminum costs in the current year ($4 million).
During 2018 U.S. tariffs imposed on aluminum purchases were included as part of the cost of printing plates sold. In January 2019, Kodak received retroactive exemptions onfrom U.S. tariffs foron aluminum. Due to the exemptions, all aluminum tariffs paid by Kodak in prior periods have beenwere recognized as a cost reduction in the currentprior year-to-date period.
ENTERPRISE INKJET SYSTEMSDIGITAL PRINTING SEGMENT
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
| ||||||||||||
Revenues |
| $ | 29 |
|
| $ | 39 |
|
| $ | (10 | ) |
| $ | 90 |
|
| $ | 103 |
|
| $ | (13 | ) |
| $ | 52 |
|
| $ | 69 |
|
| $ | (17 | ) |
| $ | 117 |
|
| $ | 141 |
|
| $ | (24 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | (3 | ) |
| $ | 2 |
|
| $ | (5 | ) |
| $ | (6 | ) |
| $ | 3 |
|
| $ | (9 | ) |
| $ | (3 | ) |
| $ | (4 | ) |
| $ | 1 |
|
| $ | (5 | ) |
| $ | (6 | ) |
| $ | 1 |
|
Operational EBITDA as a % of revenues |
|
| (10 | )% |
|
| 5 | % |
|
|
|
|
|
| (7 | )% |
|
| 3 | % |
|
|
|
|
|
| (6 | )% |
|
| (6 | )% |
|
|
|
|
|
| (4 | )% |
|
| (4 | )% |
|
|
|
|
Revenues
Current Quarter
The decline in Enterprise Inkjet SystemsDigital Printing revenues for the three months ended SeptemberJune 30, 20192020 of approximately $10$17 million primarily reflected lower volume of PROSPER systemsdeclines in Electrophotographic Printing Solutions consumables and service ($511 million), lower volume of PROSPER componentsElectrophotographic Printing Solutions equipment ($2 million) and lowerPROSPER consumables and service ($4 million) which were driven by the decline in customer demand with the COVID-19 pandemic. There were also volume ofdeclines in VERSAMARK service and consumables ($13 million) due to both declines in the installed base of VERSAMARK systems.systems and the COVID 19 pandemic. The impact of the volume declines was partially offset by improved volume in PROSPER components ($4 million).
[41]
Year to Date
The decline in Enterprise Inkjet SystemsDigital Printing revenues for the ninesix months ended SeptemberJune 30, 20192020 of approximately $13$24 million primarily reflected lower volume ofdeclines in Electrophotographic Printing Solutions consumables and service ($15 million), Electrophotographic Printing Solutions equipment ($4 million), PROSPER consumables and service ($4 million) and PROSPER systems ($1 million) which were driven by the decline in customer demand with the COVID-19 pandemic. There were also volume declines in VERSAMARK service and consumables ($6 million) due to both declines in the installed base of VERSAMARK systems lower volume of PROSPER components ($6 million), lower volume of PROSPER systems ($1 million) and the unfavorableCOVID 19 pandemic. The impact of currency ($2 million)the volume declines was partially offset by higher volume of PROSPER service and consumables ($3 million).
[46]
Operational EBITDA
Current Quarter
Enterprise Inkjet Systems Operational EBITDA for the three months ended September 30, 2019 declined $5 million driven by equipment inventory write-downs due to pricing declines combined with unfavorable manufacturing costs, and lowerimproved volume in PROSPER components ($5 million) and improved pricing in PROSPER components and PROSPER systems (each $1 million) and unfavorable manufacturing costs for both Prosper annuities and Versamark (each $1 million).
Year to Date
Enterprise Inkjet Systems Operational EBITDA for the nine months ended September 30, 2019 declined $9 million primarily driven by equipment inventory write-downs due to pricing declines in PROSPER systems ($5 million), lower volume of PROSPER components ($2 million), lower volume of VERSAMARK service and consumables ($2 million) due to declines in the installed base of VERSAMARK systems, unfavorable manufacturing costs ($2 million) and the unfavorable impact of currency ($1 million) partially offset by volume improvements in PROSPER service and consumables ($2 million) and a lower level of investment in R&D activities ($2 million).
KODAK SOFTWARE SEGMENT
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Revenues |
| $ | 14 |
|
| $ | 15 |
|
| $ | (1 | ) |
| $ | 42 |
|
| $ | 47 |
|
| $ | (5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | (2 | ) |
Operational EBITDA as a % of revenues |
|
| 14 | % |
|
| 7 | % |
|
|
|
|
|
| 2 | % |
|
| 6 | % |
|
|
|
|
Revenues
Kodak Software revenues for the three and nine months ended September 30, 2019 declined $1 million and $5 million primarily due to lower volumes ($1 million and $4 million, respectively).
Operational EBITDA
Current Quarter
Kodak SoftwareDigital Printing Operational EBITDA for the three months ended June 30, 2020 improved $1 million fordriven by higher manufacturing costs in Electrophotographic Printing Solutions ($3 million), volume declines in Electrophotographic Printing Solutions consumables and service ($2 million), PROSPER consumables and service ($2 million) and VERSAMARK service and consumables ($1 million) offset by improved volume in PROSPER components ($2 million), inventory write-downs driven by pricing declines in PROSPER systems in the prior year quarter ended September 30, 2019 primarily due to a($2 million) and lower level of investment in sales and marketing and R&D activitiesSG&A costs ($15 million).
Year to DateYear-to-Date
Kodak SoftwareDigital Printing Operational EBITDA declined $2 million infor the ninesix months ended SeptemberJune 30, 2019 compared to the prior year period primarily due to2020 improved $1 million driven by higher manufacturing costs in Electrophotographic Printing Solutions ($6 million), volume declines in Electrophotographic Printing Solutions consumables and service ($3 million), PROSPER consumables and service ($2 million) and VERSAMARK service and consumables ($2 million) offset by improved volume in PROSPER components ($3 million), volume improvements in Electrophotographic Printing Solutions equipment ($1 million), improved pricing in PROSPER systems ($2 million) and PROSPER components ($1 million) and lower volumesSG&A costs ($36 million).
BRAND, FILM
ADVANCED MATERIALS AND IMAGINGCHEMICALS SEGMENT
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
| ||||||||||||
Revenues |
| $ | 56 |
|
| $ | 54 |
|
| $ | 2 |
|
| $ | 159 |
|
| $ | 159 |
|
| $ | — |
|
| $ | 38 |
|
| $ | 52 |
|
| $ | (14 | ) |
| $ | 80 |
|
| $ | 100 |
|
| $ | (20 | ) |
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | (1 | ) |
| $ | (3 | ) |
| $ | 2 |
|
| $ | (10 | ) |
| $ | (15 | ) |
| $ | 5 |
|
| $ | (7 | ) |
| $ | (8 | ) |
| $ | 1 |
|
| $ | (16 | ) |
| $ | (18 | ) |
| $ | 2 |
|
Operational EBITDA as a % of revenues |
|
| (2 | )% |
|
| (6 | )% |
|
|
|
|
|
| (6 | )% |
|
| (9 | )% |
|
|
|
|
|
| (18 | )% |
|
| (15 | )% |
|
|
|
|
|
| (20 | )% |
|
| (18 | )% |
|
|
|
|
Revenues
Current Quarter
The increase in Brand, FilmAdvanced Materials and ImagingChemicals revenues for the three months ended SeptemberJune 30, 2019 of approximately $22020 declined $14 million was primarily due to higher revenuesfrom volume declines in Motion Picture ($310 million) driven by higher volumeproductions halted as a result of color negative film and volume improvements inthe COVID 19 pandemic, Industrial Film and Chemicals ($25 million) partially offset by volume declines inprimarily due to the COVID-19 pandemic’s impacts on its customers and Consumer Inkjet SystemsSolutions ($2 million), driven by lower sales of ink to the existing installed base of printers.
[47]
Year to Date
Brand, Film and Imaging Additionally, current year revenues for Kodak Services for Business declined ($2 million) primarily due to operations in Asia being impacted by the nine months ended September 30, 2019 were unchanged compared toCOVID-19 pandemic, and the prior year period included revenues from Kodakit ($1 million) which ceased operating in January 2020. Partially offsetting these impacts was improved pricing in Industrial Film and Chemicals ($4 million) driven by higher pricing for solvents and professional and consumer still photographic film.
Year-to-Date
Advanced Materials and Chemicals revenues for the six months ended June 30, 2020 declined $20 million primarily from volume declines in Motion Picture ($12 million) driven by productions halted as a result of the pandemic, Industrial Film and Chemicals ($6 million) primarily due to volume declines inCOVID-19 pandemic’s impacts on its customers, and Consumer Inkjet SystemsSolutions ($54 million) driven by lower sales of ink to the existing installed base of printersprinters. Additionally, current year revenues for Kodak Services for Business declined ($4 million) primarily due to operations in Asia being impacted by the COVID-19 pandemic, and lower volumethe prior year period included revenues from Kodakit ($3 million) which ceased operations in January 2020. Partially offsetting these impacts was improved pricing and improved product mix in Industrial Film and Chemicals ($8 million) driven by higher pricing and unfavorable foreign currency (each $3 million) partially offset by favorable volumeproduct mix in Motion Picture ($7 million). professional and consumer still photographic film and higher pricing for solvents.
Operational EBITDA
Current Quarter
Brand, FilmAdvanced Materials and ImagingChemicals Operational EBITDA improved $1 million for the three months ended SeptemberJune 30, 2019 improved $2 million compared with the prior year quarter2020 primarily reflecting higherdue to favorable pricing ($4 million) in Industrial Film and Chemicals.
[42]
Also contributing were lower selling and administrative expenses ($4 million), and lower R&D costs ($2 million). Partially offsetting were volume and favorable product mixdeclines in Motion Picture ($3 million), Consumer Inkjet Solutions ($1 million).
Year to Date
Brand, and Industrial Film and Imaging Operational EBITDA for the nine months ended September 30, 2019 improved $5 million compared with the prior year period primarily reflectingChemicals ($1 million), as well as unfavorable cost improvements across film manufacturing ($5 million), volumes improvements in Motion Picture ($2 million) and SG&A reductions ($2 million) offset by declines in Consumer Inkjet Systems driven by lower sales of ink to the existing installed base of printers and volume declinesimpacts in Industrial Film and Chemicals (each $2($3 million). and Motion Picture ($2 million) driven by unfavorable cost absorption.
ADVANCED MATERIALS AND 3D PRINTING TECHNOLOGY SEGMENT
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Revenues |
| $ | 1 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | (4 | ) |
| $ | (2 | ) |
| $ | (2 | ) |
| $ | (9 | ) |
| $ | (10 | ) |
| $ | 1 |
|
Operational EBITDA as a % of revenues |
| N/M |
|
| N/M |
|
|
|
|
|
| N/M |
|
| N/M |
|
|
|
|
|
Operational EBITDAYear-to-Date
Advanced Materials and 3D Printing TechnologyChemicals Operational EBITDA improved $2 million for the six months ended June 30, 2020 primarily due to favorable pricing and improved product mix ($8 million) in Industrial Film and Chemicals. Also contributing were lower selling and administrative expenses ($7 million) and lower R&D costs ($2 million). Partially offsetting were volumes declines in Motion Picture ($4 million), Industrial Film and Chemicals ($2 million) and Consumer Inkjet Solutions ($2 million) as well as unfavorable cost impacts in Industrial Film and Chemicals ($5 million) and Motion Picture ($1 million) driven by unfavorable cost absorption.
BRAND SEGMENT
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2020 |
|
| 2019 |
|
| $ Change |
| ||||||
Revenues |
| $ | 2 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | 2 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 4 |
|
| $ | 3 |
|
| $ | 1 |
|
Operational EBITDA as a % of revenues |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
| 80 | % |
|
| 60 | % |
|
|
|
|
Revenues
Brand revenues and EBITDA for the three and six months ended SeptemberJune 30, 2019 declined by approximately $2 million primarily reflecting a change in product mix, the product mix in the current year period includes less licensing revenue. Advanced Materials and 3D Printing Technology Operational EBITDA for the nine months ended September 30, 2019 improved $1 million primarily due to a lower level of investment in R&D activities.
EASTMAN BUSINESS PARK SEGMENT
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Revenues |
| $ | 2 |
|
| $ | 3 |
|
| $ | (1 | ) |
| $ | 7 |
|
| $ | 7 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITDA |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (1 | ) |
| $ | (3 | ) |
| $ | 2 |
|
Operational EBITDA as a % of revenues |
|
| 0 | % |
|
| 0 | % |
|
|
|
|
|
| (14 | )% |
|
| (43 | )% |
|
|
|
|
Operational EBITDA
Eastman Business Park Operational EBITDA for the nine months ended September 30, 2019 improved by $2 million2020 remained relatively flat compared to the prior year period primarily due to lower utilityquarter and maintenance costs.year-to-date periods.
RESTRUCTURING COSTS AND OTHER
Kodak recorded $3$1 million and $8 million of charges for the quarterthree and ninesix months ended SeptemberJune 30, 2019,2020, respectively, $1 million of which was reported in Income from discontinued operations for the nine months ended September 30, 2019Restructuring costs and other in the Consolidated Statement of Operations, with the remainder reported as Restructuring costs and Other.Operations.
Kodak made cash payments related to restructuring of approximately $3 million and $7$10 million during the quarterthree and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
The restructuring actions implemented in the first ninesix months of 20192020 are expected to generate future annual cash savings of approximately $10$9 million. These savings are expected to reduce future annual Cost of revenues and SG&A expenses by $2$1 million and $8 million, respectively. Kodak began realizing a portion of these savings in the first ninesix months of 2020 and expects the majority of the annual savings to be in effect by the end of the first quarter of 2020year as actions are completed.
[48]43]
CRITICAL ACCOUNTING POLICIES AND ESTIMATES UPDATE
Updates to critical accounting policies and estimates in Kodak’s 2019 Annual Report on Form 10-K are presented in this section. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2019 Annual Report on Form 10-K for a complete discussion of all Kodak’s critical accounting policies.
Valuation and Useful Lives of Long-Lived Assets, Including Goodwill and Intangible Assets
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 three goodwill reporting units: Motion Picture and Industrial Films and Chemicals, Advanced Materials and Functional Printing and Kodak Services for Business. 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 continues to remain its own reporting unit.
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 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 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 weighted-average cost of capital 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 constant growth method 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. 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 value, or as a result of changes in operating segments or reporting units.
Kodak updated the fair value 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 weighted-average cost of capital.
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. Impairment of the Kodak trade name could occur in the future if estimated revenues decline or if there are significant changes in the discount or royalty rates. A one percent increase in the discount rate and a 10 percent miss in expected revenues would impact the fair value of the Kodak trade name by $2 million as of June 30, 2020.
[44]
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. Based on the results of the interim impairment tests, no impairment indicators were noted. Impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected estimated future cash flows decline or if there are significant changes in the estimated useful life of the assets.
LIQUIDITY AND CAPITAL RESOURCES
Kodak is facing liquidity challenges due to operating losses and low or negative operating cash flow.flow from operations and collateral needs. Kodak has eliminated current debt service requirements by paying down$80 million of letters of credit issued under the TermABL Credit Agreement using proceeds from the sale of FPD and refinancing the remaining balance through the issuance of the Convertible Notes which do not require any debt service until conversion or maturitymatures on May 26, 2021. The Series A Preferred Stock must be redeemed on November 1, 2021. However,15, 2021 if not converted prior to then. Kodak has ongoing 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, simplifyingcontinuing to simplify the organizational structure, generating cash from selling orand 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.
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, resulting in market size contractions in many countries due to economic slowdowns and government restrictions on movement. The currentconversion of accounts receivable to cash balance outsideis 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 China,the pandemic Kodak is employing temporary furloughs and pay reductions and scaling manufacturing volumes due to reduced volumes. 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.
The recent trendhistory 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 raise substantial doubt about Kodak’s ability to continue as a going concern.
Refer to the Going Concern section of Note 1, “Basis of Presentation and Recent Accounting Pronouncements”; Note 7,8, "Debt and Finance Leases," and Note 8,9, “Redeemable, Convertible Series A Preferred Stock” in the Notes to Financial Statements for further discussion. Refer to Note 2, “Cash, Cash Equivalents and Restricted Cash” for a reconciliation of cash, cash equivalents and restricted cash.
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash, cash equivalents, restricted cash and cash in assets held for sale |
| $ | 279 |
|
| $ | 267 |
| ||||||||
Cash, cash equivalents and restricted cash |
| $ | 212 |
|
| $ | 290 |
|
Cash Flow Activity
|
| Nine Months Ended |
|
|
|
|
|
| Six Months Ended |
|
|
|
|
| ||||||||||
|
| September 30, |
|
|
|
|
|
| June 30, |
|
|
|
|
| ||||||||||
(in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
| $ | (4 | ) |
| $ | (79 | ) |
| $ | 75 |
|
| $ | (64 | ) |
| $ | (13 | ) |
| $ | (51 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
| 315 |
|
|
| (16 | ) |
|
| 331 |
| ||||||||||||
Net cash (used in) provided by investing activities |
|
| (5 | ) |
|
| 297 |
|
|
| (302 | ) | ||||||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| (295 | ) |
|
| (10 | ) |
|
| (285 | ) |
|
| (6 | ) |
|
| (294 | ) |
|
| 288 |
|
Effect of exchange rate changes on cash |
|
| (4 | ) |
|
| (8 | ) |
|
| 4 |
| ||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| $ | 12 |
|
| $ | (113 | ) |
| $ | 125 |
| ||||||||||||
Effect of exchange rate changes on cash and restricted cash |
|
| (3 | ) |
|
| 1 |
|
|
| (4 | ) | ||||||||||||
Net decrease in cash, cash equivalents, restricted cash and cash in assets held for sale |
| $ | (78 | ) |
| $ | (9 | ) |
| $ | (69 | ) |
[45]
Net cash used in operating activities improved $75increased $51 million for the ninesix months ended SeptemberJune 30, 20192020 as compared with the corresponding period in 20182019 primarily due to lowerincreased cash spend on inventory,use for accounts payable and other liabilities, partially offset by higher buildreductions of accounts payable (including the impact of the supply contract with HuaGuang), 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 licensereceivable in 2020, and the receipt in 2019 of a $15 million prepayment for transition services, products, and other services as a part of the divestiture of FPD partially offset by lower cash operating earnings.FPD.
Investing Activities
Net cash provided by investing activities improved $331decreased $302 million for the ninesix months ended SeptemberJune 30, 20192020 as compared with the corresponding period in 20182019 due to the proceeds from the sale of FPD and reduced capital spend.in the prior year.
Financing Activities
Net cash used in financing activities increased $285 million in the ninesix months ended SeptemberJune 30, 2019 as compared with2020 compares $288 million favorably to the corresponding period in 20182019 driven by the prior year repayment of the Term Credit Agreement and the payment of contingent consideration partially offset by the issuance of the Convertible Notes.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 ABL Credit Agreement had $20 million of net availability (“Excess Availability”) as of September 30, 2019. The amount of available liquidity is subject to fluctuations and includes cash balances held by various entities worldwide. At SeptemberJune 30, 20192020 and December 31, 20182019 approximately $84$95 million and $117$72 million, respectively, of cash and cash equivalents were held within the U.S. and approximately $141$85 million and $131$161 million, respectively, of cash and cash equivalents and cash in assets held for sale 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.
[49]
As of SeptemberJune 30, 20192020 and December 31, 2018,2019, outstanding inter-company loans to the U.S. were $403$429 million and $390$408 million, respectively, which includes short-term inter-company loans from Kodak’s international finance center of $105$130 million and $92$110 million, respectively. In China, where approximately $71$23 million and $59$89 million of cash and cash equivalents was held as of SeptemberJune 30, 20192020 and December 31, 2018,2019, 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 anticipation of an inter-company transaction. Under the terms of the ABL Credit Agreement, the Company is permitted to invest up to $100 million in subsidiaries and joint ventures that are not party to the ABL Credit Agreement.
On April 16, 2019,January 27, 2020 Kodak exercised its right under the Purchaser paid KodakABL 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 infrom the U.S. as a prepayment for transition services and products and services to be provided by Kodak to the Purchaser. Kodak has provided a $15 million guaranty, supported by cash collateral in China, to the Purchaser. The Purchaser has the option to satisfy its payment obligations to Kodak through a reductionprevious minimum of the prepayment balance or in cash. When the Purchaser satisfies its payment obligations to Kodak by utilizing its prepayment balance, Kodak can follow a guaranty amendment process to reduce the amount of its guaranty and cash collateral supporting the prepayment balance. As of September 30, 2019, the remaining prepayment balance is $8 million and the cash collateral supporting Kodak’s guaranty is $10$18.75 million.
On August 3, 2019 Kodak reachedMarch 27, 2020, the Company and the Subsidiary Guarantors entered into 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 agreementaggregate 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 Lucky HuaGuang Graphics Co. Ltd (“HuaGuang”)increases in Eligible Receivables and Eligible Inventory allowed the Company to establish a strategic relationshipdecrease Eligible Cash by $13 million without causing Excess Availability to fall below 12.5% of lender commitments.
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 June 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 $80 million of letters of credit under the ABL Credit Agreement as of both June 30, 2020 and December 31, 2019. Under the ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($13.75 million at June 30, 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. On July 20, 2020 the Company funded $5 million to the Eligible Cash account. Including the July 20, 2020 Eligible Cash funding in the People’s RepublicJune 30, 2020 compliance calculation the Company had approximately $17 million of China. The relationship is comprisedExcess Availability under the ABL Credit Agreement for the June 30, 2020 compliance reporting and $22 million of an agreement for KodakExcess 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 June 30, 2020 and December 31, 2019, respectively), incremental to sell its sharesthe $5 million funding of the Eligible Cash account on July 20, 2020, Kodak (China) Graphic Communication Co. Ltd. entity which includesfunded $9 million and $22 million to 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 licenses its plates technology to HuaGuangEligible Cash account held with the intentABL Credit Agreement Administrative Agent as of expanding the plates market in China. The relationship was established at a closing on September 1, 2019. At the closing Kodak received net cash proceeds of $30 million, ofJune 30, 2020 and December 31, 2019, respectively, which $13 million was receivedis classified as Restricted Cash in the United States. As partConsolidated Statement of the closing, an escrow of $14 million was established by Kodak in China to secure minimum payments required under the supply agreement.Financial Position.
[46]
Under the ABL Credit Agreement, if Excess Availability ($20 million at September 30, 2019)Availability) falls below 12.5% of lender commitments ($18.75 million at September 30, 2019)commitments), Kodak would be required to be in compliance with the minimum Fixed Charge Coverage Ratio (the only financial covenant in the ABL Credit Agreement) and could become subject to cash dominion control. 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 and/or letters of credit issued under the ABL Credit Agreement increase, if the remaining assets included in the borrowing base are not sufficient to support the required Excess Availability amount, funding of Eligible Cash may be required. Eligible Receivables, Eligible Inventory and Eligible Equipment have the meaning ascribed to these terms in the ABL Credit Agreement. Kodak intends to maintain Excess Availability above the minimum threshold. Since Excess Availability was greater than 12.5% of lender commitments as of Septemberthe June 30, 2019,2020 month-end compliance reporting date, Kodak is not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. As of SeptemberJune 30, 20192020 Fixed Charges exceeded EBITDA (as defined in the ABL Credit Agreement) by approximately $2$27 million, therefore, the Fixed Charge Coverage Ratio was less than 1.0 to 1.0.
During the second quarter of 2017, the Company reduced the amount of outstanding letters of credit issued under the ABL Credit Agreement by $20 million, which increased the amount of Excess Availability by a corresponding amount, enabling the Company to release Eligible Cash. The reduction of outstanding letters of credit was primarily attributable to the substitution of partially collateralized surety bonds in place of outstanding letters of credit. As a result of the Company’s current credit ratings, in the second quarter two surety bond holders notified the Company was required to provide $6they will require approximately $9 million of incremental collateral. The Company reduced the surety bond value by approximately $9 million in lettersJuly 2020 with an equivalent increase to an existing letter of credit towith the issuers of the surety bonds during the third quarter of 2018.New York Workers’ Compensation board. The Company could be required to provide up to an additional $13$3 million of letters of credit to the issuers of thecertain surety bonds in the future to fully collateralize the bonds.
AsThe holders of September 30,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 December 31, 2018, Kodak had funded $14 millionthe first and $3 million, respectively, tosecond quarters of 2020 that were paid when due. In July 2020, the Eligible Cash account held withCompany declared and paid the ABL Credit Agreement Administrative Agent which was classified as Restricted cashfour quarterly dividends that were in arrears in the Consolidated Statementaggregate amount of Financial Position,$11 million.
On July 28, 2020 the U.S. International Development Finance Corporation signed a non-binding letter of interest to provide up to a $765 million loan to Kodak Pharmaceuticals, Inc. (“KPI”), which is expected to be a wholly owned subsidiary of the Company that will produce pharmaceutical ingredients. The loan would be for facility upgrades and construction, provide working capital, and finance other necessary direct expenditures supporting the Excess Availability amount.launch of KPI.
Due to exercises of stock options primarily by ex-employees, the Company has received approximately $29 million, net of tax payments, starting in July through the date of this filing.
Defined Benefit Pension and Postretirement Plans
Kodak made net contributions (funded plans) or paid benefits (unfunded plans) totaling approximately $15$6 million to its defined benefit pension and postretirement benefit plans in the first ninesix months of 2019.2020. For the balance of 2019,2020, the forecasted contribution (funded plans) and benefit payment (unfunded plans) requirements for its pension and postretirement plans are approximately $6$10 million.
Capital Expenditures
Cash flow from investing activities included $11$9 million of capital expenditures for the ninesix months ended SeptemberJune 30, 2019.2020. Kodak expects approximately $15 million to $20 million of total capital expenditures for 2019.2020.
[50]
Item 4. 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 Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Kodak’s management, with the 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 period covered by this Quarterly Report on Form 10-Q. Kodak’s Executive Chairman and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, Kodak’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in Kodak’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, Kodak’s internal control over financial reporting.
[51]47]
Kodak’s Brazilian operations are involved in various litigation matters in Brazil 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’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 SeptemberJune 30, 2019,2020, Kodak’s Brazilian Operations maintained accruals of approximately $3 million for claims aggregating approximately $145$110 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 on 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. 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.
In addition to matters relating to Kodak’s operations, Kodak is involved in investigations being conducted by several congressional committees and the SEC stemming from events related to the announcement of the potential DFC Loan and Pharmaceutical Initiative discussed under Item 1A. Risk Factors below.
Reference is made to the Risk Factors set forth in Part II,I, Item 1A. of the Q2 2019 Form 10-Q.10-K. The Risk Factors remain applicable from the Q2 2019 Form 10-Q; however,10-K. In particular, Kodak notescontinues to face risks associated with the COVID-19 pandemic as described in the 2019 Form 10-K under the captions “Risk Factors—Risks Relating to Kodak’s Business—Weakness or worsening of global economic conditions could adversely affect Kodak’s financial performance and liquidity” and “—Business disruptions could seriously harm Kodak’s future revenue and financial condition and increase its costs and expenses”. Certain known consequences to Kodak from the COVID-19 pandemic are disclosed in the financial statements contained in this Form 10-Q and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” 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.
On July 28, 2020, the U.S. International Development Finance Corporation (the “DFC”) announced 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 “Pharmaceutical Initiative”). As referenced in the DFC’s announcement, the signing of the letter of interest indicates Kodak’s successful completion of the DFC’s initial screening and will be followed by standard due diligence conducted by the DFC before financing is formally committed. The letter of interest is non-binding, and there can be no assurance that the amendmentDFC’s standard due diligence will be successfully completed or that, even if the due diligence is successfully completed, the DFC will proceed with the potential DFC Loan. Congressional investigations and an SEC investigation have been commenced which could affect the likelihood of the consummation of the DFC Loan. The DFC has tweeted that it will not proceed any further with the potential DFC Loan unless the recent allegations raised in the context of the potential DFC Loan have been cleared. The potential DFC Loan has sparked intense media interest and coverage. If the DFC Loan is not made or if the findings of the investigations are unfavorable, Kodak’s reputation could be damaged and its existing business could be adversely affected.
If the DFC Loan is ultimately consummated, the Pharmaceutical Initiative will be subject to the Company’s certificaterisks associated with Kodak’s business generally as described in the 2019 Form 10-K under the caption “Risk Factors—Risks Relating to Kodak’s Business”. Based on the developmental nature of incorporationthe Pharmaceutical Initiative, if the project proceeds Kodak will face heightened risks relating to restrict certain transferstalent acquisition, construction, obtaining regulatory approvals, cost overruns, delays, product development and market development, among others. In particular, the economic success of common stockthe Pharmaceutical Initiative will depend in large part on products produced by the Pharmaceutical Initiative being able to successfully compete with pharmaceutical ingredients supplied by low-cost countries such as China and India through manufacturing and operating efficiencies, “buy American” initiatives or mandates, or otherwise. If the tax asset protection plan referencedPharmaceutical Initiative is not able to compete effectively or otherwise generate positive cash flow, the
[48]
subsidiary operating the Pharmaceutical Initiative (the “Pharmaceutical Subsidiary”) may not be able to distribute profits to the Company or repay the DFC Loan. It is contemplated that if the Pharmaceutical Subsidiary defaults on the DFC Loan, the Company will lose its equity interest in the Pharmaceutical Subsidiary (and, indirectly, the buildings and assets contributed by Kodak to the Pharmaceutical Subsidiary in connection with the Pharmaceutical Initiative). It is not contemplated that the Company will be a guarantor of the DFC Loan or responsible to repay the DFC Loan should the Pharmaceutical Subsidiary default on the DFC Loan.
As described in the 2019 Form 10-K under the caption “Risk Factors—Risks Related to the Company’s Common Stock—The Company’s stock price has been and may continue to be volatile”, there have been and may continue to be significant fluctuations in the market price of the Company’s common stock. For example, there have been significant market price fluctuations following the recent announcement of the potential DFC Loan and Pharmaceutical Initiative. The market price of the Company’s common stock may be particularly susceptible to additional significant fluctuations based on future announcements or disclosures concerning the potential DFC Loan, the Pharmaceutical Initiative, the related congressional and SEC investigations and the related internal review being performed by a special committee of the Company’s Board of Directors.
As described in the 2019 Form 10-K under the caption “Risk Factors—Risks Related to the Company’s Common Stock—The Company has registered the resale of a significantlarge portion of its outstanding securities. The resale of the Company’s securitiescommon stock, or the perception that such resale may occur, may adversely affect the price of its common 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. On August 3, 2020, the Company issued the 29,922,956 Conversion Shares to the holders of the Converted Notes (the “Converting Holders”). While the Conversion Shares have not been registered for resale, the Conversion Shares were issued without restrictive legends or certain accumulations or transferstransfer restrictions based on the Company’s receipt of an opinion of counsel for the Converting Holders that the resale of up to all of the Company’s securitiesConversion Shares by the Converting Holders could resultbe made in a change of controlaccordance with Rule 144 at any time in the three (3) month period commencing on August 3, 2020. The Company does not know if any of the Company andConversion Shares are still held by the lossConverting Holders, or if any of favorable tax attributes”the Conversion Shares have now been implemented.sold. If the Converting Holders continue to hold the Conversion Shares, future sales of the Conversion Shares by the Converting Holders could exert downward pressure on the Company’s stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Sales of unregistered securities during the quarter ended |
Not ApplicableNone
(b) | Issuer purchases of equity securities during the quarter ended |
Repurchases related to Stock Compensation Plans (1):
None
|
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Maximum That May Be Purchased under the Plans or Programs | ||
July 1 through 31 |
|
| 2,093 |
|
| $ | 2.40 |
|
| n/a |
| n/a |
August 1 through 31 |
|
| — |
|
| $ | — |
|
| n/a |
| n/a |
September 1 through 30 |
|
| 32,191 |
|
| $ | 2.38 |
|
| n/a |
| n/a |
Total |
|
| 34,284 |
|
| $ | 2.38 |
|
|
|
|
|
.
|
|
Items 3, 4 and 5.
Not applicable.
[52]49]
Index to Exhibits
(3.1) | |
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|
(3.2) | |
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|
(3.3) | |
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|
(3.4) | |
|
|
(3.5) | |
|
|
|
|
| |
| |
|
|
(31.1) | Certification signed by James V. Continenza, filed herewith. |
|
|
(31.2) | Certification signed by David E. Bullwinkle, filed herewith. |
|
|
(32.1) | |
|
|
(32.2) | |
|
|
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase. |
|
|
(101.INS) | XBRL Instance Document. |
|
|
(101.LAB) | XBRL Taxonomy Extension Label Linkbase. |
|
|
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase. |
|
|
(101.SCH) | XBRL Taxonomy Extension Schema Linkbase. |
|
|
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase |
* Management compensatory plan or arrangement
[53]50]
Pursuant to the requirements 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)
|
|
Date |
| /s/ Eric Samuels |
|
| Eric Samuels |
|
| Chief Accounting Officer and Corporate Controller |
|
| (Chief Accounting Officer and Authorized Signatory) |
[54]51]