ekform10q2qrt2014.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q

 
 
[X]      
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2014
 
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 1-87

 
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

 
 
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, and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]    No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.    Yes [X]     No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
Large accelerated filer
 
 
[  ]
 
Accelerated filer
 
[  ]
 
 
Non-accelerated filer
 
[X]
 
Smaller reporting company
 
[  ]
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]   No [X]
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Title of each Class
 
 
Number of Shares Outstanding at
August 1, 2014
 
Common Stock, $0.01 par value
41,729,327

 
 

 
 
 

 
 


 
EASTMAN KODAK COMPANY
Form 10-Q
 
June 30, 2014
 
Table of Contents
 
     
   
Page
 
 
Part I.—Financial Information
 
 
     
Item 1.
Financial Statements
3
 
Consolidated Statement of Operations (Unaudited)
3
 
Consolidated Statement of Comprehensive (Loss) Income (Unaudited)
4
 
Consolidated Statement of Financial Position (Unaudited)
5
 
Consolidated Statement of Cash Flows (Unaudited)
6
 
Notes to Financial Statements (Unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
 
Liquidity and Capital Resources
37
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
40
Item 4.
Controls and Procedures
41
 
Part II.—Other Information
     
Item 1.
Legal Proceedings
41
Item 6.
Exhibits
42
     
 
Signatures
43
 
Index to Exhibits
44
 

 
 
2

 

 
 
Part I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
 
(in millions, except per share data)

 
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
                    
 
2014
   
2013
   
2014
   
2013
 
Revenues
                       
   Sales   $ 429     $ 472     $ 818     $ 961  
   Services     96       111       191       216  
Total revenues
    525       583       1,009       1,177  
Cost of revenues
                               
   Sales
    350       365       671       726  
   Services
    73       85       147       169  
Total cost of revenues
    423       450       818       895  
   Gross profit
    102       133       191       282  
Selling, general and administrative expenses
    85       115       172       233  
Research and development costs
    26       25       53       50  
Restructuring costs and other
    20       29       33       40  
Other operating income, net
    -       (1 )     -       (495 )
(Loss) earnings from continuing operations before interest expense, other income (charges), net, reorganization items, net and income taxes
    (29 )     (35 )     (67 )     454  
Interest expense
    16       47       32       72  
Loss on early extinguishment of debt
    -       -       -       6  
Other charges, net
    (2 )     (3 )     (3 )     (10 )
Reorganization items, net
    5       72       10       192  
(Loss) earnings from continuing operations before income taxes
    (52 )     (157 )     (112 )     174  
Provision for income taxes
    8       51       -       58  
(Loss) earnings from continuing operations
    (60 )     (208 )     (112 )     116  
(Loss) earnings from discontinued operations, net of income taxes
    (2 )     (16 )     17       (57 )
Net (loss) earnings
    (62 )     (224 )     (95 )     59  
  Less: Net income attributable to noncontrolling interests
    -       -       3       -  
NET (LOSS) EARNINGS ATTRIBUTABLE TO EASTMAN KODAK COMPANY
  $ (62 )   $ (224 )   $ (98 )   $ 59  
Basic and diluted net (loss) earnings per share attributable to Eastman Kodak Company common shareholders:
                               
  Continuing operations
  $ (1.44 )   $ (0.76 )   $ (2.76 )   $ 0.43  
  Discontinued operations
    (0.05 )     (0.06 )     0.41       (0.21 )
  Total
  $ (1.49 )   $ (0.82 )   $ (2.35 )   $ 0.22  
                                 
Number of common shares used in basic and diluted net (loss) earnings per share
    41.7       272.8       41.7       272.7  
                                 


 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
3

 

 
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
 
(in millions)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
   
2014
   
2013
   
2014
   
2013
 
NET (LOSS) EARNINGS
  $ (62 )   $ (224 )   $ (95 )   $ 59  
Other comprehensive (loss) income, net of tax:
                               
Currency translation adjustments
    6       (16 )     7       15  
                                 
Unrealized gains from investment, net of tax of $0 for all periods presented
    1       -       1       -  
                                 
Pension and other postretirement benefit plan obligation activity, net of tax of $1 and $23 for the three months ended June 30, 2014 and 2013, respectively, and $1 and $30 for the six months ended June 30, 2014 and 2013, respectively
    (15 )     407       (15 )     448  
Total comprehensive (loss) income, net of tax
    (70 )     167       (102 )     522  
Less: comprehensive income attributable to noncontrolling interest
    -       -       3       -  
COMPREHENSIVE (LOSS) INCOME, NET OF TAX ATTRIBUTABLE TO EASTMAN KODAK COMPANY
  $ (70 )   $ 167     $ (105 )   $ 522  
                                 


 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
4

 

EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
 
(in millions)
 
   
As of
   
As of
 
                                                                             
 
June 30,
   
December 31,
 
   
2014
   
2013
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 768     $ 844  
Restricted cash
    15       35  
Receivables, net
    464       571  
Inventories, net
    416       358  
Deferred income taxes
    44       48  
Assets held for sale
    33       95  
Other current assets
    22       20  
Total current assets
    1,762       1,971  
Property, plant and equipment, net of accumulated depreciation of $163 and $67, respectively
    600       684  
Goodwill
    96       88  
Intangible assets, net of accumulated amortization of $21 and $8, respectively
    206       219  
Restricted cash
    39       79  
Deferred income taxes
    51       54  
Other long-term assets
    99       105  
TOTAL ASSETS
  $ 2,853     $ 3,200  
LIABILITIES AND EQUITY
               
Current Liabilities
               
Accounts payable, trade
  $ 234     $ 281  
Current portion of long-term debt
    4       4  
Liabilities held for sale
    21       38  
Other current liabilities
    486       562  
Total current liabilities
    745       885  
Long-term debt, net of current portion
    673       674  
Pension and other postretirement liabilities
    523       572  
Other long-term liabilities
    364       421  
Total Liabilities
    2,305       2,552  
                 
Commitments and Contingencies (Note 5)
               
                 
Equity
               
Common stock, $0.01 par value
    -       -  
Additional paid in capital
    615       613  
Accumulated deficit
    (179 )     (81 )
Accumulated other comprehensive income
    92       99  
 
    528       631  
Less: Treasury stock, at cost
    (3 )     (3 )
Total Eastman Kodak Company shareholders’ equity
    525       628  
Noncontrolling interests
    23       20  
Total equity
    548       648  
TOTAL LIABILITIES AND EQUITY
  $ 2,853     $ 3,200  
                 

The accompanying notes are an integral part of these consolidated financial statements.
 

 
5

 

 

EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
 
(in millions)

   
Six Months Ended
 
   
June 30,
 
   
Successor
   
Predecessor
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net (loss) earnings
  $ (98 )   $ 59  
Adjustments to reconcile to net cash used in operating activities:
               
Depreciation and amortization
    112       95  
Net gain on sales of businesses/assets
    (22 )     (569 )
Loss on early extinguishment of debt
    -       6  
Non-cash restructuring costs, asset impairments and other charges
    2       81  
Non-cash reorganization items, net
    (8 )     91  
Provision for deferred income taxes
    2       32  
Decrease in receivables
    113       73  
Increase in inventories
    (58 )     (18 )
Decrease in liabilities excluding borrowings
    (190 )     (258 )
Other items, net
    15       6  
Total adjustments
    (34 )     (461 )
Net cash used in operating activities
    (132 )     (402 )
Cash flows from investing activities:
               
Additions to properties
    (13 )     (16 )
Proceeds from sales of businesses/assets
    16       537  
Release of restricted cash
    60       2  
Marketable securities - sales
    -       18  
Marketable securities - purchases
    -       (17 )
Net cash provided by investing activities
    63       524  
Cash flows from financing activities:
               
Repayment of emergence credit facilities
    (2 )     -  
Proceeds from DIP Credit Agreements
    -       450  
Repayment of term loans under Original Senior DIP Credit Agreement
    -       (664 )
Repayment of term loans under Junior DIP Credit Agreement
    -       (4 )
Net cash used in financing activities
    (2 )     (218 )
Effect of exchange rate changes on cash
    (5 )     (24 )
Net decrease in cash and cash equivalents
    (76 )     (120 )
Cash and cash equivalents, beginning of period
    844       1,135  
Cash and cash equivalents, end of period
  $ 768     $ 1,015  
                 

The accompanying notes are an integral part of these consolidated financial statements.
 

 
6

 

 

EASTMAN KODAK COMPANY
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 to present fairly 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 financial statements should be read in conjunction with Kodak’s Annual Report on Form 10-K for the year ended December 31, 2013.
 
Effective August 31, 2013, Kodak sold certain utilities and related facilities and entered into utilities supply and servicing arrangements with RED-Rochester, LLC (“RED”), a variable interest entity (“VIE”). Kodak determined that it was the primary beneficiary of the VIE. Therefore, Kodak consolidates RED’s assets, liabilities and results of operations.  Consolidated assets and liabilities of RED are $79 million and $2 million, respectively, as of June 30, 2014 and $85 million and $3 million, respectively, as of December 31, 2013.  RED’s equity in those net assets as of June 30, 2014 and December 31, 2013 is $21 million and $18 million, respectively.  The results of operations and cash flows of RED are immaterial to Kodak.  RED’s results of operations are reflected in net income attributable to noncontrolling interest in the accompanying Consolidated Statement of Operations.
 
On January 19, 2012 (the “Petition Date”), the Company and its U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The cases (the “Chapter 11 Cases”) were jointly administered as Case No. 12-10202 (ALG) under the caption “In re Eastman Kodak Company.”  The Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of chapter 11 of the Bankruptcy Code and the orders of the Bankruptcy Court until their emergence from bankruptcy. The Company’s foreign subsidiaries (collectively, the “Non-Filing Entities”) were not part of the Chapter 11 Cases, and continued to operate in the ordinary course of business.
 
Upon emergence from bankruptcy on September 3, 2013, Kodak applied the provisions of fresh start accounting which resulted in Kodak becoming a new entity for financial reporting purposes.  Kodak applied fresh start accounting as of September 1, 2013.  Accordingly, the consolidated financial statements on or after September 1, 2013 are not comparable to the consolidated financial statements prior to that date. References to “Successor” or “Successor Company” relate to the reorganized Kodak subsequent to September 3, 2013.  References to “Predecessor” or “Predecessor Company” relate to Kodak prior to September 3, 2013.

Reclassifications and Adjustments
Certain amounts for prior periods have been reclassified to conform to the current period classification.  In the first quarter of 2014, Kodak increased the value of goodwill determined as part of fresh start accounting by $8 million to correct for a liability that should have been recorded at emergence.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).”  ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and most industry-specific guidance.  The core principal of ASU 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 (January 1, 2017 for Kodak) and allows either a full retrospective adoption to all periods presented or a modified retrospective adoption approach with the cumulative effect of initial application of the revised guidance recognized at the date of initial application.  Kodak is currently evaluating the impact of this ASU.
 
In April 2014, the FASB issued ASU No. 2014-08 (“ASU 2014-08”), “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360).”  ASU 2014-08 defines a discontinued operation as a disposal of a component (or group of components) of an entity that was disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A business activity that, upon acquisition, qualifies as held for sale will also be a discontinued operation.  Presentation as a discontinued operation will no longer be precluded if there are operations and cash flows of the component that have not been eliminated from ongoing operations or if there is significant continuing involvement with the component.  ASU 2014-08 introduces several new disclosures including disclosing cash flow information of discontinued operations either in the statement of cash flows or in a note, expanded disclosure when an entity retains a significant continuing involvement with a discontinued operation as well as for disposals of individually material components that do not qualify as discontinued operations.  The amendments in the update are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014 (January 1, 2015 for Kodak) to new disposals and new classifications of disposal groups as held for sale after the effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. Kodak does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.
 

 
 
7

 
 
 
NOTE 2: REORGANIZATION ITEMS, NET
 
A summary of reorganization items, net is presented in the following table:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Professional fees
  $ 3     $ 41     $ 8     $ 99  
Provision for expected allowed claims
    (1 )     38       (1 )     100  
Other items, net
    3       (7 )     3       (7 )
Reorganization items, net
  $ 5     $ 72     $ 10     $ 192  
Cash payments for reorganization items
  $ 8     $ 58     $ 18     $ 101  
                                 

Costs directly attributable to the implementation of the plan of reorganization are reported as Reorganization items, net.
 
NOTE 3: RECEIVABLES, NET
 
   
As of
 
   
June 30,
   
December 31,
 
 (in millions)                                                        
 
2014
   
2013
 
Trade receivables
  $ 381     $ 473  
Miscellaneous receivables
    83       98  
Total (net of allowances of $9 and $6 as of June 30, 2014 and December 31, 2013, respectively)
  $ 464     $ 571  
 
               

Approximately $31 million and $39 million of the total trade receivable amounts as of June 30, 2014 and December 31, 2013, respectively, will potentially be settled through customer deductions in lieu of cash payments. Such deductions represent rebates owed to customers and are included in Other current liabilities in the accompanying Consolidated Statement of Financial Position.
 
NOTE 4: INVENTORIES, NET
 
   
As of
 
   
June 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Finished goods
  $ 224     $ 185  
Work in process
    94       94  
Raw materials
    98       79  
           Total
  $ 416     $ 358  
                 


 
8

 

 
NOTE 5: COMMITMENTS AND CONTINGENCIES
 
Environmental
 
Kodak’s undiscounted accrued liabilities for future environmental investigation, remediation and monitoring costs are composed of the following items:
 
   
As of
 
   
June 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Eastman Business Park site, Rochester, NY
  $ -     $ 49  
Other current operating sites
    8       8  
Sites associated with former operations
    12       13  
Sites associated with the non-imaging health businesses sold in 1994
    11       12  
           Total
  $ 31     $ 82  
                 

These amounts are reported in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position.
 
Cash expenditures for investigation, remediation and monitoring activities are expected to be incurred over the next thirty years for most of the sites. For these known environmental liabilities, the accrual reflects Kodak’s best estimate of the amount it will incur under the agreed-upon or proposed work plans. Kodak’s cost estimates were determined using the ASTM Standard E 2137-06, “Standard Guide for Estimating Monetary Costs and Liabilities for Environmental Matters,” and have not been reduced by possible recoveries from third parties. The overall method includes the use of a probabilistic model, which forecasts a range of cost estimates and a single most probable cost estimate for the remediation required at individual sites. For the purposes of establishing company-level environmental reserves, the single most probable cost estimate for each site is used. All projects are closely monitored and the models are reviewed at least once a year and as significant events occur. Kodak’s estimate includes investigations, equipment and operating costs for remediation and long-term monitoring of the sites.
 
On June 17, 2013, the Company, the New York State Department of Environmental Conservation and the New York State Urban Development Corporation, d/b/a Empire State Development entered into a settlement agreement, subsequently amended on August 6, 2013 (the “Amended EBP Settlement Agreement”).  The Amended EBP Settlement Agreement was subject to the satisfaction or waiver of certain conditions including a covenant not to sue from the U.S. Environmental Protection Agency (“EPA”).  On May 13, 2014, the Bankruptcy Court approved the U.S. Environmental Settlement, which contained the EPA covenant not to sue, and on May 20, 2014 the Amended EBP Settlement Agreement was implemented and became effective. The Amended EBP Settlement Agreement included a settlement of certain of the Company’s historical environmental liabilities at Eastman Business Park (“EBP”) through the establishment of the EBP Trust as follows:  (i) the EBP Trust is responsible for investigation and remediation at EBP arising from the Company’s historical subsurface environmental liabilities in existence prior to the effective date of the Amended EBP Settlement Agreement, (ii) the Company funded the EBP Trust on the effective date with a $49 million cash payment and transferred certain equipment and fixtures used for remediation at EBP and (iii) in the event the historical liabilities exceed $99 million, the Company will become liable for 50% of the portion above $99 million.  Prior to the implementation of the Amended EBP Settlement Agreement, $49 million was already held in a separate trust and escrow account.
 
Estimates of the amount and timing of future costs of environmental remediation requirements are by their nature imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of presently unknown remediation sites and the allocation of costs among the potentially responsible parties. Based on information presently available, Kodak does not believe that losses for known exposures could reasonably be expected to exceed current accruals by material amounts, although costs could be material to a particular quarter or year.
 
 
 
9

 
 
Other Commitments and Contingencies
 
As of June 30, 2014, the Company had outstanding letters of credit of $120 million issued under the Asset Based Revolving Credit Agreement (the “ABL Credit Agreement”), as well as bank guarantees and letters of credit of $7 million, surety bonds in the amount of $22 million, and cash deposits of $60 million, primarily to ensure the payment of possible casualty and workers’ compensation claims, legal contingencies, rental payments, foreign exchange contracts and to support various customs, tax and trade activities. The cash deposits are recorded within Restricted cash and Other long-term assets in the Consolidated Statement of Financial Position.
 
Kodak’s Brazilian operations are involved in governmental assessments of indirect and other taxes in various stages of litigation, primarily related to federal and state value-added taxes. Kodak is disputing these matters and intends 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 June 30, 2014, 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 $51 million.
 
In connection with assessments in Brazil, local regulations may require Kodak to post security for a portion of the amounts in dispute. As of June 30, 2014, Kodak has posted security composed of $10 million of pledged cash reported within long-term Restricted cash in the Consolidated Statement of Financial Position and liens on certain Brazilian assets with a net book value of approximately $111 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 and proceedings, including commercial, customs, employment, environmental, and health and safety matters, which are being handled and defended in the ordinary course of business.  Kodak is also subject 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. Kodak is in the process of resolving any remaining litigation that was stayed as a result of the chapter 11 filing, in accordance with the Bankruptcy Code and the orders of the Bankruptcy Court. Kodak does not believe that it is probable that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, although litigation is inherently unpredictable.  Therefore, 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 6: GUARANTEES
 
Kodak guarantees debt and other obligations of certain customers. The debt and other obligations are primarily due to banks and leasing companies in connection with financing of customers’ purchases of equipment and product from Kodak. At June 30, 2014, the maximum potential amount of future payments (undiscounted) that Kodak could be required to make under these customer-related guarantees was $6 million. At June 30, 2014, the carrying amount of any liability related to these customer guarantees was not material.
 
The customer financing agreements and related guarantees, which mature between 2014 and 2017, typically have a term of 90 days for product and short-term equipment financing arrangements, and up to five years for long-term equipment financing arrangements.  These guarantees would require payment from Kodak only in the event of default on payment by the respective customer.  In some cases, particularly for guarantees related to equipment financing, Kodak has collateral or recourse provisions to recover and sell the equipment to reduce any losses that might be incurred in connection with the guarantees.  However, any proceeds received from the liquidation of these assets may not cover the maximum potential loss under these guarantees.
 
EKC also guarantees obligations to third parties for some of its consolidated subsidiaries. The maximum amount guaranteed, and the outstanding amount for those guarantees, is $68 million.
 
In connection with the settlement of certain of the Company’s historical environmental liabilities at EBP and in accordance with the terms of the Amended EBP Settlement Agreement, 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.
 
 
10

 
 
 
Warranty Costs
 
Kodak has warranty obligations in connection with the sale of its products and equipment. The original warranty period is generally one year or less. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. Kodak estimates its warranty cost at the point of sale for a given product based on historical failure rates and related costs to repair.
 
The change in Kodak’s accrued warranty obligations balance, which is reflected in Other current liabilities in the accompanying Consolidated Statement of Financial Position, was as follows:
 
(in millions)

Accrued warranty obligations as of December 31, 2013
  $ 13  
Actual warranty experience during 2014
    (10 )
2014 warranty provisions
    4  
Accrued warranty obligations as of June 30, 2014
  $ 7  
         

Kodak also offers its customers extended warranty arrangements that are generally one year, but may range from three months to three years after the original warranty period. Kodak provides repair services and routine maintenance under these arrangements. Kodak has not separated the extended warranty revenues and costs from the routine maintenance service revenues and costs, as it is not practicable to do so. Therefore, these revenues and costs have been aggregated in the discussion that follows. The change in Kodak’s deferred revenue balance in relation to these extended warranty and maintenance arrangements from December 31, 2013 to June 30, 2014, 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, 2013
  $ 30  
New extended warranty and maintenance arrangements in 2014
    99  
Recognition of extended warranty and maintenance arrangement revenue in 2014
    (100 )
Deferred revenue on extended warranties as of June 30, 2014
  $ 29  
         

 
 
11

 
 
NOTE 7: OTHER OPERATING INCOME, NET
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
(Income) expenses:
                       
Gain on sale of digital imaging patent portfolio
  $ -     $ -     $ -     $ (535 )
Goodwill impairment (1)
    -       -       -       77  
Gain on sale of property in Mexico (2)
    -       -       -       (34 )
Other
    -       (1 )     -       (3 )
   Total
  $ -     $ (1 )   $ -     $ (495 )
                                 
 
(1)  
Kodak recorded an impairment charge of $77 million related to the Intellectual Property and Brand Licensing reporting unit related to the sale of its digital imaging patents during the first quarter of 2013.
 
(2)  
In March 2012, Kodak sold a property in Mexico for approximately $41 million and leased back the property for a one-year term.  The pre-tax gain on the property sale of approximately $34 million was deferred due to Kodak’s continuing involvement in the property for the remainder of the lease term.  
In March 2013, the deferred gain was recognized as the lease term expired.
 

 
 
12

 

 
NOTE 8: INCOME TAXES
 
Kodak’s income tax provision (benefit) and effective tax rate were as follows:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
(Loss) earnings from continuing operations before income taxes
  $ (52 )   $ (157 )   $ (112 )   $ 174  
Effective tax rate
    (15.7 )%     (32.5 )%     0.0 %     33.3 %
Provision for income taxes
    8       51       -       58  
(Benefit) provision for income taxes @ 35%
    (18 )     (55 )     (39 )     61  
Difference between tax at effective vs. statutory rate
  $ 26     $ 106     $ 39     $ (3 )
                                 

For the three months ended June 30, 2014, the difference between the Company’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) losses generated within the U.S. and certain jurisdictions outside the U.S. for which no benefit was recognized due to management’s conclusion that it was more likely than not that the tax benefits would not be realized.
 
For the six months ended June 30, 2014, the difference between the Company’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) losses generated within the U.S. for which no benefit was recognized, offset by income in certain jurisdictions outside the U.S. for which no provision was recognized due to management’s conclusion that it was more likely than not that the tax benefits would not be realized, (2) a benefit as a result of Kodak reaching a settlement with a taxing authority in a location outside the U.S. related to withholding taxes, and (3) a benefit associated with foreign withholding taxes on undistributed earnings.
 
For the three months ended June 30, 2013, the difference between the Company’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) losses generated within the U.S. and certain jurisdictions outside the U.S. for which no benefit was recognized due to management’s conclusion that it was more likely than not that the tax benefits would not be realized, (2) a provision associated with withholding taxes on foreign dividends paid, (3) a benefit associated with foreign withholding taxes on undistributed earnings, and (4) a provision associated with the establishment of a deferred tax asset valuation allowance outside the U.S.
 
During the three months ended June 30, 2013, the Company determined that it is more likely than not that a portion of the deferred tax assets outside the U.S. would not be realized and, accordingly, recorded a tax provision of $45 million associated with the establishment of a valuation allowance on those deferred tax assets.
 
For the six months ended June 30, 2013, the difference between the Company’s recorded provision and the provision that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) income generated within the U.S for which no provision was recognized, offset by losses generated within certain jurisdictions outside the U.S. for which no benefit was recognized due to management’s conclusion that it was more likely than not that the tax benefits would not be realized, (2) a provision associated with withholding taxes on the sale of intellectual property, (3) a benefit associated with the tax impact of the goodwill impairment recognized during the six-month period (4) a provision associated with withholding taxes on foreign dividends paid, (5) a benefit associated with foreign withholding taxes on undistributed earnings, (6) a provision associated with the establishment of a deferred tax asset valuation allowance outside the U.S., and (7) changes in audit reserves.
 
 
13

 
 
 
NOTE 9: 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 half of 2014 included steps toward exiting a plate manufacturing facility in the UK.  In addition, actions were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included a workforce reduction in France, manufacturing capacity reductions in the U.S. and various targeted reductions in service, sales, research and development and other administrative functions.
 
Restructuring Reserve Activity
 
The activity in the accrued balances and the non-cash charges and credits incurred in relation to restructuring activities for the three and six months ended June 30, 2014 were as follows:
 
               
Long-lived Asset
       
         
Exit
   
Impairments and
       
   
Severance
   
Costs
   
Inventory
       
(in millions)
 
Reserve
   
Reserve
   
Write-downs
   
Total
 
Balance as of December 31, 2013
  $ 26     $ 8     $ -     34  
                                 
Q1 2014 charges - continuing operations
    11       1       1       13  
Q1 utilization/cash payments
    (11 )     (3 )     (1 )     (15 )
Balance as of March 31, 2014
  $ 26     $ 6     $ -     $ 32  
                                 
Q2 2014 charges - continuing operations
    19       1       -       20  
Q2 utilization/cash payments
    (9 )     (1 )     -       (10 )
Balance as of June 30, 2014
  $ 36     $ 6     $ -     $ 42  
                                 

For the three months ended June 30, 2014, the $20 million of charges were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations. The severance and exit costs reserves require the outlay of cash.
 
The severance costs for the three months ended June 30, 2014 related to the elimination of approximately 200 positions, including approximately 100 manufacturing/service positions, 25 research and development positions and 75 administrative positions. The geographic composition of these positions includes approximately 50 in the United States and Canada and 150 throughout the rest of the world.
 
For the six months ended June 30, 2014, the $33 million of charges were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations. The severance and exit costs reserves require the outlay of cash, while long-lived asset impairments and inventory write-downs represent non-cash items.
 
The severance costs for the six months ended June 30, 2014 related to the elimination of approximately 400 positions, including approximately 225 manufacturing/service positions, 50 research and development positions and 125 administrative positions. The geographic composition of these positions includes approximately 200 in the United States and Canada and 200 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 2014. However, in some instances, the employees whose positions were eliminated can elect or are required to receive their payments over an extended period of time. In addition, certain exit costs, such as long-term lease payments, will be paid over periods throughout 2014 and beyond.
 

 
14

 

 
NOTE 10: RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
 
Components of the net periodic benefit cost for all major U.S. and Non-U.S. defined benefit plans are as follows:

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
   
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
  $ 5     $ 1     $ 8     $ 3     $ 9     $ 3     $ 16     $ 5  
  Interest cost
    47       8       43       35       94       16       86       71  
  Expected return on plan assets
    (77 )     (10 )     (86 )     (40 )     (154 )     (20 )     (173 )     (80 )
  Amortization of:
                                                               
Prior service cost
    -       -       -       -       -       -       -       1  
Net actuarial loss
    -       -       50       21       -       -       99       42  
Pension (income) expense before curtailments
    (25 )     (1 )     15       19       (51 )     (1 )     28       39  
  Curtailment loss
    -       -       1       13       -       -       1       13  
Net pension (income) expense
    (25 )     (1 )     16       32       (51 )     (1 )     29       52  
Other plans including unfunded plans
    -       1       -       2       -       3       -       8  
Total net pension (income) expense
  $ (25 )   $ -     $ 16     $ 34     $ (51 )   $ 2     $ 29     $ 60  
                                                                 

The pension (income) expense before curtailments reported above for the three and six months ended June 30, 2013 includes $14 million and $29 million respectively, of expense which was reported as Discontinued operations.
 
Kodak made contributions (funded plans) or paid benefits (unfunded plans) totaling approximately $5 million relating to its major U.S. and non-U.S. defined benefit pension plans for the six months ended June 30, 2014.  Kodak forecasts its contribution (funded plans) and benefit payment (unfunded plans) requirements for its major U.S. and non-U.S. defined benefit pension plans for the balance of 2014 to be approximately $11 million.
 
Postretirement benefit costs for the Company’s U.S., Canada and U.K. postretirement benefit plans, which represent the Company’s major postretirement plans, include:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Service cost
  $ -     $ -     $ -     $ -  
Interest cost
    1       1       2       2  
Amortization of:
                               
Prior service credit
    -       (29 )     -       (57 )
Net actuarial loss
    -       2       -       3  
Total net postretirement benefit expense (income)
  $ 1     $ (26 )   $ 2     $ (52 )
                                 

Kodak paid benefits, net of participant contributions, totaling $4 million relating to its major postretirement benefit plans for the six months ended June 30, 2014. Kodak expects to pay benefits, net of participant contributions, of approximately $5 million for these postretirement plans for the remainder of 2014.
 
 
 
 
15

 
 
NOTE 11: EARNINGS PER SHARE
 
Basic earnings per share computations are based on the weighted-average number of shares of common stock outstanding during the period. Weighted-average basic and diluted shares outstanding were 41.7 million and 272.8 million for the three months ended June 30, 2014 and 2013, respectively and 41.7 million and 272.7 million for the six months ended June 30, 2014 and 2013, respectively.
 
As a result of the net loss from continuing operations presented for the three months and six months ended June 30, 2014, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding for those periods, as utilizing diluted shares would be anti-dilutive to loss per share. If Kodak had reported earnings from continuing operations for the three months and six months ended June 30, 2014, the following potential shares of its common stock would have been dilutive in the computation of diluted earnings per share:
(in millions of shares)
 
Three Months Ended
   
Six Months Ended
 
   
June 30, 2014
   
June 30, 2014
 
Unvested share-based awards
    0.3       0.3  
Warrants to purchase common shares
    1.8       1.9  
   Total
    2.1       2.2  
                 
 
As a result of the net loss from continuing operations reported by the Predecessor Company for the three months ended June 30, 2013, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding for that period, as utilizing diluted shares would be anti-dilutive to loss per share.
 
If the Predecessor Company had reported earnings from continuing operations for the quarter ended June 30, 2013, no additional shares of common stock from unvested share-based awards and assumed conversion of (1) approximately 7.6 million outstanding employee stock options, (2) approximately 40.0 million outstanding detachable warrants to purchase common shares, and (3) approximately $400 million of convertible senior notes due 2017 would have been included in the computation of diluted earnings per share since they were all anti-dilutive.
 
The Predecessor Company reported earnings from continuing operations for the six months ended June 30, 2013.  However, no additional shares of common stock from unvested share-based awards and the assumed conversion of (1) approximately 7.6 million outstanding employee stock options, (2) approximately 40.0 million outstanding detachable warrants to purchase common shares, and (3) approximately $400 million of convertible senior notes due 2017 were included in the computation of diluted earnings per share, as these securities were anti dilutive.
 

 
16

 
 
 
NOTE 12: SHAREHOLDERS’ EQUITY
 
Kodak 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 June 30, 2014 and December 31, 2013, there were 41.7 and 41.6 million shares of common stock and no shares of preferred stock issued and outstanding, respectively. Treasury stock consisted of approximately 0.2 million shares at both June 30, 2014 and December 31, 2013.
 
NOTE 13: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The changes in Accumulated other comprehensive income (loss) by component, net of tax, were as follows:

(in millions)
 
Three Months Ended June 30, 2014 (Successor)
 
   
Unrealized Gains (Losses) Related to Available-for-Sale Securities
   
Currency Translation Adjustments
   
Pension and Other Postretirement Benefit Plan Obligation Changes
   
Total
 
Beginning balance
  $ -     $ 2     $ 98     $ 100  
Other comprehensive income before reclassifications
    1       6       (15 )     (8 )
Amounts reclassified from accumulated other comprehensive income
    -       -       -       -  
Net current-period other comprehensive income
    1       6       (15 )     (8 )
Ending balance
  $ 1     $ 8     $ 83     $ 92  
                                 
 

 
(in millions)
 
Six Months Ended June 30, 2014 (Successor)
 
   
Unrealized Gains (Losses) Related to Available-for-Sale Securities
   
Currency Translation Adjustments
   
Pension and Other Postretirement Benefit Plan Obligation Changes
   
Total
 
Beginning balance
  $ -     $ 1     $ 98     $ 99  
Other comprehensive income before reclassifications
    1       7       (15 )     (7 )
Amounts reclassified from accumulated other comprehensive income
    -       -       -       -  
Net current-period other comprehensive income
    1       7       (15 )     (7 )
Ending balance
  $ 1     $ 8     $ 83     $ 92  
                                 
 

 
(in millions)
 
Three Months Ended June 30, 2013 (Predecessor)
 
   
Unrealized Gains (Losses) Related to Available-for-Sale Securities
   
Unrealized Gains (Losses) from Hedging Activity
   
Currency Translation Adjustments
   
Pension and Other Postretirement Benefit Plan Obligation Changes
   
Total
 
Beginning balance
  $ 1     $ (2 )   $ 349     $ (2,892 )   $ (2,544 )
Other comprehensive income before reclassifications
    -       -       (16 )     361       345  
Amounts reclassified from accumulated other comprehensive income
    -       -       -       46       46  
Net current-period other comprehensive income
    -       -       (16 )     407       391  
Ending balance
  $ 1     $ (2 )   $ 333     $ (2,485 )   $ (2,153 )
                                         


(in millions)
 
Six Months Ended June 30, 2013 (Predecessor)
 
   
Unrealized Gains (Losses) Related to Available-for-Sale Securities
   
Unrealized Gains (Losses) from Hedging Activity
   
Currency Translation Adjustments
   
Pension and Other Postretirement Benefit Plan Obligation Changes
   
Total
 
Beginning balance
  $ 1     $ (2 )   $ 318     $ (2,933 )   $ (2,616 )
Other comprehensive income before reclassifications
    -       -       15       362       377  
Amounts reclassified from accumulated other comprehensive income
    -       -       -       86       86  
Net current-period other comprehensive income
    -       -       15       448       463  
Ending balance
  $ 1     $ (2 )   $ 333     $ (2,485 )   $ (2,153 )
                                         


 
17

 

The following amounts were reclassified out of Accumulated other comprehensive income (loss):
 
   
Three Months Ended
     
   
June 30,
     
   
Successor
   
Predecessor
     
(in millions)
 
2014
   
2013
     
   
Amount Reclassified from Accumulated Other Comprehensive Income
   
Amount Reclassified from Accumulated Other Comprehensive Income
   
Affected Line Item in the Consolidated Statement of Operations
Pension and other postretirement benefit obligation changes:
               
Amortization of prior-service credit
  $ -     $ (29 )
(a)
 
Amortization of actuarial losses
    -       73  
(a)
 
Recognition of losses due to settlements
    -       14  
(a)
 
      -       58    
Total before tax
      -       12    
Tax provision
Reclassifications for the period
  $ -     $ 46    
Net of tax
                     
 

   
Six Months Ended
     
   
June 30,
     
   
Successor
   
Predecessor
     
(in millions)
 
2014
   
2013
     
   
Amount Reclassified from Accumulated Other Comprehensive Income
   
Amount Reclassified from Accumulated Other Comprehensive Income
   
Affected Line Item in the Consolidated Statement of Operations
Pension and other postretirement benefit obligation changes:
               
Amortization of prior-service credit
  $ -     $ (56 )
(a)
 
Amortization of actuarial losses
    -       144  
(a)
 
Recognition of losses due to settlements
    -       17  
(a)
 
      -       105    
Total before tax
      -       19    
Tax provision
Reclassifications for the period
  $ -     $ 86    
Net of tax
                     
 
(a)
See Note 10, “Retirement Plans and Other Postretirement Benefits,” regarding the pensions and other postretirement plan obligation changes.
 

 
 
18

 

 
NOTE 14: DISCONTINUED OPERATIONS
 
 
On April 26, 2013, Eastman Kodak Company, the KPP Trustees Limited (“KPP” or the “Trustee”), as trustee for the U.K. Pension Plan, and certain other Kodak entities entered into a global settlement agreement (the “Global Settlement”) that resolved all liabilities of Kodak with respect to the U.K. Pension Plan. The Global Settlement also provided for the acquisition by KPP and/or its subsidiaries of certain assets, and the assumption by KPP and/or its subsidiaries of certain liabilities of Kodak’s Personalized Imaging and Document Imaging businesses (together the “Business”) under a Stock and Asset Purchase Agreement dated April 26, 2013 (the “SAPA”). On August 30, 2013, the Company entered into an agreement (the “Amended SAPA”) amending and restating the SAPA.
 
Upon emergence from bankruptcy, as a part of the Global Settlement and pursuant to the Amended SAPA, Kodak consummated the sale of certain assets of the Business to KPP Holdco Limited (“KPP Holdco”), a wholly owned subsidiary of KPP, and certain direct and indirect subsidiaries of KPP Holdco (together with KPP Holdco, the “KPP Purchasing Parties”), for net cash consideration, in addition to the assumption by the KPP Purchasing Parties of certain liabilities of the Business, of $325 million. Up to $35 million in aggregate of the purchase price is subject to repayment to KPP if the Business does not achieve certain annual adjusted EBITDA targets over the four-year period ending December 31, 2018. Certain assets and liabilities of the Business in certain jurisdictions were not transferred at the initial closing, which took place upon emergence, but are being transferred in a series of deferred closings in accordance with the Amended SAPA. Kodak is operating the Business relating to the deferred closing jurisdictions, subject to certain covenants, until the applicable deferred closing occurs, and delivers to (or receives from) a KPP subsidiary at each deferred closing a true-up payment reflecting the actual economic benefit (or detriment) to the Business in the applicable deferred closing jurisdiction(s) from the time of the initial closing through the time of the applicable deferred closing. Up to the time of the deferred closing, the results of the operations of the Business are reported as (Loss) earnings from discontinued operations, net of income taxes in the Consolidated Statement of Operations and the assets and liabilities of the Business are categorized as Assets held for sale or Liabilities held for sale in the Consolidated Statement of Financial Position, as appropriate.
 
On March 17, 2014, the KPP Purchasing Parties agreed to pay Kodak $20 million of incremental consideration ($13 million was paid in March of 2014 and the remainder is owed within one year of March 2014) in lieu of working capital adjustments contemplated by the Amended SAPA.
 
The following table summarizes the major classes of assets and liabilities related to the disposition of the Business which have been segregated and included in Assets held for sale and Liabilities held for sale in the Consolidated Statement of Financial Position:
 
   
As of
 
   
June 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Receivables, net
  $ 10     $ 16  
Inventories, net
    9       62  
Property, plant and equipment, net
    7       10  
Other assets
    7       7  
Assets held for sale
  $ 33     $ 95  
                 
Trade payables
  $ 10     $ 24  
Miscellaneous payables and accruals
    11       14  
Liabilities held for sale
  $ 21     $ 38  
                 

Discontinued operations of Kodak include the Business (excluding the consumer film business, for which Kodak has entered into an ongoing supply arrangement with Kodak Alaris, the new entity formed by the KPP Purchasing Parties) and other miscellaneous businesses.
 
 
19

 
 
The significant components of revenues and (loss) earnings from discontinued operations, net of income taxes, are as follows:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Revenues from Personalized and Document Imaging
  $ 29     $ 289     $ 59     $ 537  
Revenues from other discontinued operations
    -       10       1       20  
Total revenues from discontinued operations
  $ 29     $ 299     $ 60     $ 557  
                                 
Pre-tax (loss) earnings from Personalized and Document Imaging
  $ (1 )   $ (19 )   $ 18     $ (48 )
Pre-tax (loss) earnings from other discontinued operations
    -       1       1       (15 )
(Provision) benefit for income taxes related to discontinued operations
    (1 )     2       (2 )     6  
(Loss) earnings from discontinued operations, net of income taxes
  $ (2 )   $ (16 )   $ 17     $ (57 )
                                 

Kodak was required to use a portion of the proceeds from the divestiture of the Business to repay $200 million of the Junior Debtor-In-Possession Credit Agreement. Interest expense on the debt that was required to be repaid as a result of the sale of the Personalized Imaging and Document Imaging businesses has therefore been allocated to discontinued operations ($0 million and $5 million for the three months ended June 30, 2014 and 2013, respectively and $0 million and $10 million for the six months ended June 30, 2014 and 2013, respectively).
 
Depreciation and amortization of long-lived assets of the Personalized Imaging and Document Imaging businesses included in discontinued operations ceased as of July 1, 2013.
 
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.
 
 
20

 
 
 
NOTE 15: SEGMENT INFORMATION
 
Current Segment Reporting Structure
 
Kodak has two reportable segments: the Graphics, Entertainment and Commercial Films Segment and the Digital Printing and Enterprise Segment. The balance of Kodak’s continuing operations, which do not meet the criteria of a reportable segment, are reported in All Other.  A description of the segments follows.
 
Graphics, Entertainment and Commercial Films: The Graphics, Entertainment and Commercial Films Segment encompasses Graphics, Entertainment Imaging & Commercial Films, and Kodak’s intellectual property and brand licensing activities. Product and service offerings include: digital plates, computer to plate output devices, digital controllers, unified workflow solutions, and entertainment imaging and commercial films.
 
Digital Printing and Enterprise: The Digital Printing and Enterprise Segment encompasses Digital Printing, Packaging and Functional Printing, Enterprise Services & Solutions, and Consumer Inkjet Systems.
 
All Other: All Other is composed of Kodak’s consumer film business in countries where that business has not yet transferred ownership to the KPP Purchasing Parties, and a utilities variable interest entity. Effective August 31, 2013, the Company sold certain utilities and related facilities and entered into utilities supply and servicing arrangements with RED, a variable interest entity.
 
Segment financial information is shown below:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Revenues from continuing operations:
                       
Graphics, Entertainment & Commercial Films
  $ 357     $ 371     $ 675     $ 757  
Digital Printing and Enterprise
    168       198       334       395  
All Other
    -       14       -       25  
  Consolidated total
  $ 525     $ 583     $ 1,009     $ 1,177  
                                 
 
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Segment (loss) earnings and Consolidated (loss) earnings from continuing operations before income taxes
                       
Graphics, Entertainment and Commercial Films
  $ (8 )   $ (6 )   $ (35 )   $ 10  
Digital Printing and Enterprise
    (27 )     (11 )     (52 )     (29 )
  Total of reportable segments
    (35 )     (17 )     (87 )     (19 )
All Other
    (4 )     -       (7 )     (2 )
Restructuring costs and other
    (20 )     (33 )     (33 )     (46 )
Corporate components of pension and
  OPEB income (1)
    30       14       60       26  
Other operating income, net
    -       1       -       495  
Loss on early extinguishment of debt, net
    -       -       -       6  
Interest expense
    16       47       32       72  
Other charges, net
    (2 )     (3 )     (3 )     (10 )
Reorganization items, net
    5       72       10       192  
Consolidated (loss) earnings  from continuing
  operations before income taxes
  $ (52 )   $ (157 )   $ (112 )   $ 174  
                                 
 
(1)
Composed of interest cost, expected return on plan assets, amortization of actuarial gains and losses, amortization of prior service credits related to the U.S. Postretirement Benefit Plan and special termination benefits, curtailments and settlement components of pension and other postretirement benefit expenses, except for settlements in connection with the chapter 11 bankruptcy proceedings that are recorded in Reorganization items, net and curtailments and settlements included in (Loss) earnings from discontinued operations, net of income taxes in the Consolidated Statement of Operations.
 
 
 
 
21

 
 
NOTE 16: FINANCIAL INSTRUMENTS
 
The following tables present the carrying amounts, estimated fair values, and location in the Consolidated Statement of Financial Position for Kodak’s financial instruments:
 
     
Value Of Items Recorded At Fair Value
 
(in millions)
   
As of June 30, 2014
 
     
Total
   
Level 1
   
Level 2
   
Level 3
 
ASSETS
                         
Derivatives
                         
Short-term foreign exchange contracts
Receivables, net
  $ 1     $ -     $ 1     $ -  
                                   
LIABILITIES
                                 
                                   
Derivatives
                                 
Short-term foreign exchange contracts
Other current liabilities
    1       -       1       -  


(in millions)
     
Value Of Items Not Recorded At Fair Value
 
       
As of June 30, 2014
 
       
Total
   
Level 1
   
Level 2
   
Level 3
 
LIABILITIES
                           
Debt
                           
Short-term debt
Current portion of long-term debt
Carrying value
  $ 4     $ -     $ 4     $ -  
   
Fair value
    4       -       4       -  
                                     
Long-term debt
Long-term debt, net of current portion
Carrying value
    673       -       673       -  
   
Fair value
    703       -       703       -  


     
Value Of Items Recorded At Fair Value
 
(in millions)
   
As of December 31, 2013
 
     
Total
   
Level 1
   
Level 2
   
Level 3
 
ASSETS
                         
Derivatives
                         
Short-term foreign exchange contracts
Receivables, net
  $ 1     $ -     $ 1     $ -  
                                   
LIABILITIES
                                 
Derivatives
                                 
Short-term foreign exchange contracts
Other current liabilities
    3       -       3       -  

 
       
Value Of Items Not Recorded At Fair Value
 
(in millions)
     
As of December 31, 2013
 
       
Total