kodk-10q_20190630.htm

 

 

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 June 30, 2019

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

 

Securities registered pursuant to Section 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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

As of August 1, 2019, the registrant had 43,015,101 shares of common stock, par value $0.01 per share, outstanding.

[1]


 

EASTMAN KODAK COMPANY

Form 10-Q

June 30, 2019

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)

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

Liquidity and Capital Resources

 

46

Item 4.

 

Controls and Procedures

 

48

 

 

 

 

 

Part II. —Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

49

Item 1A.

 

Risk Factors

 

49

Item 2.

 

Unregistered Sales of Securities and Use of Proceeds

 

62

Item 5.

 

Other Information

 

63

Item 6.

 

Exhibits

 

63

 

 

 

 

 

 

 

Index to Exhibits

 

64

 

 

Signatures

 

65

 

 

[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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

240

 

 

$

261

 

 

$

464

 

 

$

509

 

Services

 

 

67

 

 

 

71

 

 

 

134

 

 

 

141

 

Total revenues

 

 

307

 

 

 

332

 

 

 

598

 

 

 

650

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

218

 

 

 

237

 

 

 

423

 

 

 

468

 

Services

 

 

47

 

 

 

50

 

 

 

93

 

 

 

99

 

Total cost of revenues

 

 

265

 

 

 

287

 

 

 

516

 

 

 

567

 

Gross profit

 

 

42

 

 

 

45

 

 

 

82

 

 

 

83

 

Selling, general and administrative expenses

 

 

54

 

 

 

59

 

 

 

113

 

 

 

117

 

Research and development costs

 

 

11

 

 

 

12

 

 

 

22

 

 

 

25

 

Restructuring costs and other

 

 

2

 

 

 

2

 

 

 

4

 

 

 

4

 

Other operating income, net

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Loss from continuing operations before interest expense,

   pension income excluding service cost component,

   other (income) charges, net and income taxes

 

 

(25

)

 

 

(26

)

 

 

(57

)

 

 

(61

)

Interest expense

 

 

5

 

 

 

2

 

 

 

8

 

 

 

4

 

Pension income excluding service cost component

 

 

(26

)

 

 

(32

)

 

 

(53

)

 

 

(64

)

Other (income) charges, net

 

 

 

 

 

1

 

 

 

1

 

 

 

17

 

(Loss) earnings from continuing operations before

   income taxes

 

 

(4

)

 

 

3

 

 

 

(13

)

 

 

(18

)

Provision for income taxes

 

 

2

 

 

 

 

 

 

5

 

 

 

4

 

(Loss) earnings from continuing operations

 

 

(6

)

 

 

3

 

 

 

(18

)

 

 

(22

)

Income from discontinued operations, net of income taxes

 

 

207

 

 

 

1

 

 

 

201

 

 

 

1

 

Net income (loss)

 

$

201

 

 

$

4

 

 

$

183

 

 

$

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (loss) income per share attributable

   to Eastman Kodak Company common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.25

)

 

$

(0.04

)

 

$

(0.65

)

 

$

(0.75

)

Discontinued operations

 

 

4.81

 

 

 

0.02

 

 

 

4.67

 

 

 

0.02

 

Total

 

$

4.56

 

 

$

(0.02

)

 

$

4.02

 

 

$

(0.73

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of common shares used in basic and diluted net

   loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

43.0

 

 

 

42.7

 

 

 

43.0

 

 

 

42.6

 

Diluted

 

 

43.0

 

 

 

42.7

 

 

 

43.0

 

 

 

42.6

 

 

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

[3]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

NET INCOME (LOSS)

 

$

201

 

 

$

4

 

 

$

183

 

 

$

(21

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

1

 

 

 

(20

)

 

 

4

 

 

 

(7

)

Pension and other postretirement benefit plan obligation activity,

   net of tax

 

 

 

 

 

 

 

 

(1

)

 

 

 

Other comprehensive income (loss), net of tax

 

 

1

 

 

 

(20

)

 

 

3

 

 

 

(7

)

COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

$

202

 

 

$

(16

)

 

$

186

 

 

$

(28

)

 

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

 

 

[4]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

 

 

June 30,

 

 

December 31,

 

(in millions)

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

216

 

 

$

246

 

Trade receivables, net of allowances of $8 and $9, respectively

 

 

204

 

 

 

232

 

Inventories, net

 

 

251

 

 

 

236

 

Other current assets

 

 

57

 

 

 

51

 

Current assets held for sale

 

 

1

 

 

 

113

 

Total current assets

 

 

729

 

 

 

878

 

Property, plant and equipment, net of accumulated depreciation of $443 and $422,

   respectively

 

 

229

 

 

 

246

 

Goodwill

 

 

12

 

 

 

12

 

Intangible assets, net

 

 

56

 

 

 

60

 

Operating lease right-of-use assets

 

 

44

 

 

 

 

Restricted cash

 

 

19

 

 

 

11

 

Deferred income taxes

 

 

154

 

 

 

160

 

Other long-term assets

 

 

188

 

 

 

144

 

TOTAL ASSETS

 

$

1,431

 

 

$

1,511

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

156

 

 

$

149

 

Short-term borrowings and current portion of long-term debt

 

 

2

 

 

 

396

 

Current portion of operating leases

 

 

26

 

 

 

 

Other current liabilities

 

 

198

 

 

 

213

 

Current liabilities held for sale

 

 

 

 

 

20

 

Total current liabilities

 

 

382

 

 

 

778

 

Long-term debt, net of current portion

 

 

104

 

 

 

5

 

Pension and other postretirement liabilities

 

 

365

 

 

 

379

 

Operating leases, net of current portion

 

 

28

 

 

 

 

Other long-term liabilities

 

 

192

 

 

 

179

 

Total Liabilities

 

 

1,071

 

 

 

1,341

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable, convertible Series A preferred stock, no par value, $100 per share liquidation preference

 

177

 

 

173

 

 

 

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Additional paid in capital

 

 

612

 

 

 

617

 

Treasury stock, at cost

 

 

(9

)

 

 

(9

)

Accumulated deficit

 

 

(12

)

 

 

(200

)

Accumulated other comprehensive loss

 

 

(408

)

 

 

(411

)

Total shareholders’ equity (deficit)

 

 

183

 

 

 

(3

)

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (DEFICIT)

 

$

1,431

 

 

$

1,511

 

 

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

 

 


[5]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

(in millions)

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

183

 

 

$

(21

)

Adjustments to reconcile to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

29

 

 

 

39

 

Pension income

 

 

(45

)

 

 

(54

)

Change in fair value of embedded derivatives in the Series A Preferred Stock and

   Convertible Notes

 

 

(2

)

 

 

7

 

Net gain on sales of assets/businesses

 

 

(209

)

 

 

(2

)

Stock based compensation

 

 

5

 

 

 

3

 

Provision for deferred income taxes

 

 

4

 

 

 

5

 

Decrease in trade receivables

 

 

22

 

 

 

31

 

Increase in inventories

 

 

(14

)

 

 

(34

)

Increase (decrease) in trade payables

 

 

9

 

 

 

(11

)

Decrease in liabilities excluding borrowings and trade payables

 

 

(5

)

 

 

(22

)

Other items, net

 

 

10

 

 

 

10

 

Total adjustments

 

 

(196

)

 

 

(28

)

Net cash used in operating activities

 

 

(13

)

 

 

(49

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to properties

 

 

(5

)

 

 

(17

)

Net proceeds from sales of businesses/assets

 

 

302

 

 

 

1

 

Net cash provided by (used in) investing activities

 

 

297

 

 

 

(16

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of Term Credit Agreement

 

 

(395

)

 

 

 

Proceeds from Convertible Notes

 

98

 

 

 

 

Proceeds from borrowings

 

14

 

 

 

 

Repayment of finance leases

 

 

(1

)

 

 

(2

)

Preferred stock dividend payments

 

 

 

 

 

(6

)

Payment of contingent consideration related to the sale of a business

 

 

(10

)

 

 

 

Net cash used in financing activities

 

 

(294

)

 

 

(8

)

Effect of exchange rate changes on cash

 

 

1

 

 

 

(3

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(9

)

 

 

(76

)

Cash, cash equivalents, restricted cash and cash in assets held for sale, beginning of period

 

 

267

 

 

 

369

 

Cash, cash equivalents, restricted cash and cash in assets held for sale, end of period

 

$

258

 

 

$

293

 

 

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


[6]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)

 

 

 

Six-Month Period Ending June 30, 2019

 

 

 

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

 

Equity (deficit) as of December 31, 2018

 

$

 

 

$

617

 

 

$

(200

)

 

$

(411

)

 

$

(9

)

 

$

(3

)

 

$

173

 

Net loss

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

 

 

 

(18

)

 

 

 

Other comprehensive loss (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Series A preferred stock cash dividends

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

Series A preferred stock deemed dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

2

 

Stock-based compensation

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock cash

   dividends

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

Series A preferred stock deemed

   dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

2

 

Stock-based compensation

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

Equity (deficit) as of June 30, 2019

 

$

 

 

$

612

 

 

$

(12

)

 

$

(408

)

 

$

(9

)

 

$

183

 

 

$

177

 

[7]


 

 

 

Six-Month Period Ending June 30, 2018

 

 

 

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

 

Equity (deficit) as of December 31, 2017

 

$

 

 

$

631

 

 

$

(174

)

 

$

(391

)

 

$

(9

)

 

$

57

 

 

$

164

 

Net loss

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

Other comprehensive loss (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock cash dividends

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

Series A preferred stock deemed dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

2

 

Stock-based compensation

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock cash

   dividends

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

Series A preferred stock deemed

   dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2