kodk-10q_20190930.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 September 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 November 1, 2019, the registrant had 43,223,181 shares of common stock, par value $0.01 per share, outstanding.

[1]


 

EASTMAN KODAK COMPANY

Form 10-Q

September 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

 

39

 

 

Liquidity and Capital Resources

 

49

Item 4.

 

Controls and Procedures

 

51

 

 

 

 

 

Part II. —Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

52

Item 1A.

 

Risk Factors

 

52

Item 2.

 

Unregistered Sales of Securities and Use of Proceeds

 

52

Item 6.

 

Exhibits

 

52

 

 

 

 

 

 

 

Index to Exhibits

 

53

 

 

Signatures

 

54

 

 

[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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

249

 

 

$

259

 

 

$

713

 

 

$

768

 

Services

 

 

66

 

 

 

70

 

 

 

200

 

 

 

211

 

Total revenues

 

 

315

 

 

 

329

 

 

 

913

 

 

 

979

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

216

 

 

 

232

 

 

 

639

 

 

 

700

 

Services

 

 

46

 

 

 

47

 

 

 

139

 

 

 

146

 

Total cost of revenues

 

 

262

 

 

 

279

 

 

 

778

 

 

 

846

 

Gross profit

 

 

53

 

 

 

50

 

 

 

135

 

 

 

133

 

Selling, general and administrative expenses

 

 

48

 

 

 

53

 

 

 

161

 

 

 

170

 

Research and development costs

 

 

11

 

 

 

12

 

 

 

33

 

 

 

37

 

Restructuring costs and other

 

 

3

 

 

 

9

 

 

 

7

 

 

 

13

 

Other operating expense (income), net

 

 

10

 

 

 

(10

)

 

 

10

 

 

 

(12

)

Loss from continuing operations before interest expense,

   pension income excluding service cost component,

   other charges (income), net and income taxes

 

 

(19

)

 

 

(14

)

 

 

(76

)

 

 

(75

)

Interest expense

 

 

4

 

 

 

2

 

 

 

12

 

 

 

6

 

Pension income excluding service cost component

 

 

(26

)

 

 

(35

)

 

 

(79

)

 

 

(99

)

Other charges (income), net

 

 

6

 

 

 

(4

)

 

 

7

 

 

 

13

 

(Loss) earnings from continuing operations before

   income taxes

 

 

(3

)

 

 

23

 

 

 

(16

)

 

 

5

 

Provision for income taxes

 

 

7

 

 

 

3

 

 

 

12

 

 

 

7

 

(Loss) earnings from continuing operations

 

 

(10

)

 

 

20

 

 

 

(28

)

 

 

(2

)

Income (loss) from discontinued operations, net of

   income taxes

 

 

5

 

 

 

(1

)

 

 

206

 

 

 

 

Net (loss) income

 

$

(5

)

 

$

19

 

 

$

178

 

 

$

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (loss) income per share attributable

   to Eastman Kodak Company common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.35

)

 

$

0.35

 

 

$

(1.00

)

 

$

(0.40

)

Discontinued operations

 

 

0.12

 

 

 

(0.02

)

 

 

4.79

 

 

 

 

Total

 

$

(0.23

)

 

$

0.33

 

 

$

3.79

 

 

$

(0.40

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of common shares used in basic and diluted net

   loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

43.0

 

 

 

42.7

 

 

 

43.0

 

 

 

42.7

 

Diluted

 

 

43.0

 

 

 

43.0

 

 

 

43.0

 

 

 

42.7

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

NET INCOME (LOSS)

 

$

(5

)

 

$

19

 

 

$

178

 

 

$

(2

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

(2

)

 

 

(12

)

 

 

2

 

 

 

(19

)

Pension and other postretirement benefit plan obligation activity,

   net of tax

 

 

(1

)

 

 

3

 

 

 

(2

)

 

 

3

 

Other comprehensive income (loss), net of tax

 

 

(3

)

 

 

(9

)

 

 

 

 

 

(16

)

COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

$

(8

)

 

$

10

 

 

$

178

 

 

$

(18

)

 

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

 

 

[4]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

 

 

September 30,

 

 

December 31,

 

(in millions)

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

225

 

 

$

233

 

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

 

 

195

 

 

 

232

 

Inventories, net

 

 

242

 

 

 

231

 

Other current assets

 

 

57

 

 

 

47

 

Current assets held for sale

 

 

2

 

 

 

167

 

Total current assets

 

 

721

 

 

 

910

 

Property, plant and equipment, net of accumulated depreciation of $419 and $395,

   respectively

 

 

186

 

 

 

216

 

Goodwill

 

 

12

 

 

 

12

 

Intangible assets, net

 

 

53

 

 

 

58

 

Operating lease right-of-use assets

 

 

49

 

 

 

 

Restricted cash

 

 

36

 

 

 

11

 

Deferred income taxes

 

 

147

 

 

 

160

 

Other long-term assets

 

 

205

 

 

 

143

 

TOTAL ASSETS

 

$

1,409

 

 

$

1,510

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

140

 

 

$

130

 

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

 

 

2

 

 

 

396

 

Current portion of operating leases

 

 

26

 

 

 

 

Other current liabilities

 

 

203

 

 

 

209

 

Current liabilities held for sale

 

 

 

 

 

43

 

Total current liabilities

 

 

371

 

 

 

778

 

Long-term debt, net of current portion

 

 

106

 

 

 

5

 

Pension and other postretirement liabilities

 

 

352

 

 

 

379

 

Operating leases, net of current portion

 

 

34

 

 

 

 

Other long-term liabilities

 

 

195

 

 

 

178

 

Total liabilities

 

 

1,058

 

 

 

1,340

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

180

 

 

173

 

 

 

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Additional paid in capital

 

 

608

 

 

 

617

 

Treasury stock, at cost

 

 

(9

)

 

 

(9

)

Accumulated deficit

 

 

(17

)

 

 

(200

)

Accumulated other comprehensive loss

 

 

(411

)

 

 

(411

)

Total shareholders’ equity (deficit)

 

 

171

 

 

 

(3

)

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

 

$

1,409

 

 

$

1,510

 

 

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

 


[5]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(in millions)

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

178

 

 

$

(2

)

Adjustments to reconcile to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

43

 

 

 

58

 

Pension income

 

 

(72

)

 

 

(81

)

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

   Convertible Notes

 

 

3

 

 

 

2

 

Net gain on sales of assets/businesses

 

 

(202

)

 

 

(7

)

Stock based compensation

 

 

6

 

 

 

5

 

Non-cash changes in workers' compensation and legal reserves

 

 

2

 

 

 

(10

)

Provision for deferred income taxes

 

 

6

 

 

 

6

 

Decrease in trade receivables

 

 

30

 

 

 

28

 

Increase in inventories

 

 

(18

)

 

 

(42

)

Increase (decrease) in trade payables

 

 

13

 

 

 

(25

)

Decrease in liabilities excluding borrowings and trade payables

 

 

(5

)

 

 

(20

)

Other items, net

 

 

12

 

 

 

9

 

Total adjustments

 

 

(182

)

 

 

(77

)

Net cash used in operating activities

 

 

(4

)

 

 

(79

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to properties

 

 

(11

)

 

 

(24

)

Net proceeds from sales of businesses/assets

 

 

326

 

 

 

8

 

Net cash provided by (used in) investing activities

 

 

315

 

 

 

(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

 

 

(2

)

 

 

(2

)

Preferred stock dividend payments

 

 

 

 

 

(8

)

Payment of contingent consideration related to the sale of a business

 

 

(10

)

 

 

 

Net cash used in financing activities

 

 

(295

)

 

 

(10

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(4

)

 

 

(8

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

12

 

 

 

(113

)

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

 

$

279

 

 

$

256

 

 

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


[6]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)

 

 

 

Nine-Month Period Ending September 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

 

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

 

 

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

[7]


 

 

Nine-Month Period Ending September 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