kodk-10q_20210331.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 March 31, 2021

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 1-00087

 

EASTMAN KODAK COMPANY

(Exact name of registrant as specified in its charter)

 

NEW JERSEY

 

16-0417150

(State or other jurisdiction of incorporation or organization)

 

(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 May 3, 2021, the registrant had 78,503,476 shares of common stock, par value $0.01 per share, outstanding.

 

[1]


EASTMAN KODAK COMPANY

Form 10-Q

March 31, 2021

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

 

 

Consolidated Statement of Equity (Deficit) (Unaudited)

 

7

 

 

Notes to Financial Statements (Unaudited)

 

9

Item 2.

 

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

 

30

 

 

Liquidity and Capital Resources

 

36

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

Part II. —Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

Item 1A.

 

Risk Factors

 

40

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

Item 6.

 

Exhibits

 

41

 

 

 

 

 

 

 

Index to Exhibits

 

41

 

 

Signatures

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

Sales

 

$

209

 

 

$

210

 

Services

 

 

56

 

 

 

57

 

Total revenues

 

 

265

 

 

 

267

 

Cost of revenues

 

 

 

 

 

 

 

 

Sales

 

 

185

 

 

 

191

 

Services

 

 

40

 

 

 

40

 

Total cost of revenues

 

 

225

 

 

 

231

 

Gross profit

 

 

40

 

 

 

36

 

Selling, general and administrative expenses

 

 

46

 

 

 

48

 

Research and development costs

 

 

8

 

 

 

9

 

Restructuring costs and other

 

 

1

 

 

 

7

 

Other operating income, net

 

 

(1

)

 

 

(7

)

Loss from operations before interest expense, pension

   income excluding service cost component, other

   income, net and income taxes

 

 

(14

)

 

 

(21

)

Interest expense

 

 

4

 

 

 

4

 

Pension income excluding service cost component

 

 

(25

)

 

 

(26

)

Other income, net

 

 

 

 

 

(53

)

Earnings from operations before income taxes

 

 

7

 

 

 

54

 

Provision for income taxes

 

 

1

 

 

 

165

 

Net income (loss)

 

$

6

 

 

$

(111

)

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share attributable to

   Eastman Kodak Company common shareholders

 

$

0.17

 

 

$

(2.66

)

Diluted net income (loss) per share attributable to

   Eastman Kodak Company common shareholders

 

$

0.16

 

 

$

(2.66

)

 

 

 

 

 

 

 

 

 

Number of common shares used in basic and diluted

    net income (loss) per share

 

 

 

 

 

 

 

 

Basic

 

 

77.8

 

 

 

43.6

 

Diluted

 

 

80.6

 

 

 

43.6

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

NET INCOME (LOSS)

 

$

6

 

 

$

(111

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

(1

)

 

 

(12

)

Pension and other postretirement benefit plan obligation activity,

   net of tax

 

 

6

 

 

 

3

 

Other comprehensive income (loss), net of tax

 

 

5

 

 

 

(9

)

COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

$

11

 

 

$

(120

)

 

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

 

 

[4]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

 

 

March 31,

 

 

December 31,

 

(in millions)

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

401

 

 

$

196

 

Trade receivables, net of allowances of $9 and $10, respectively

 

 

165

 

 

 

177

 

Inventories, net

 

 

224

 

 

 

206

 

Other current assets

 

 

42

 

 

 

46

 

Current assets held for sale

 

 

2

 

 

 

2

 

Total current assets

 

 

834

 

 

 

627

 

Property, plant and equipment, net of accumulated depreciation of $431 and $430,

   respectively

 

 

143

 

 

 

152

 

Goodwill

 

 

12

 

 

 

12

 

Intangible assets, net

 

 

38

 

 

 

39

 

Operating lease right-of-use assets

 

 

47

 

 

 

48

 

Restricted cash

 

 

69

 

 

 

53

 

Other long-term assets

 

 

346

 

 

 

317

 

TOTAL ASSETS

 

$

1,489

 

 

$

1,248

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

141

 

 

$

118

 

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

 

 

2

 

 

 

2

 

Current portion of operating leases

 

 

18

 

 

 

12

 

Other current liabilities

 

 

134

 

 

 

164

 

Total current liabilities

 

 

295

 

 

 

296

 

Long-term debt, net of current portion

 

 

246

 

 

 

17

 

Pension and other postretirement liabilities

 

 

389

 

 

 

406

 

Operating leases, net of current portion

 

 

41

 

 

 

49

 

Other long-term liabilities

 

 

222

 

 

 

212

 

Total liabilities

 

 

1,193

 

 

 

980

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable, convertible preferred stock, no par value, $100 per share

   liquidation preference

 

192

 

 

191

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Additional paid in capital

 

 

1,169

 

 

 

1,152

 

Treasury stock, at cost

 

 

(10

)

 

 

(9

)

Accumulated deficit

 

 

(614

)

 

 

(620

)

Accumulated other comprehensive loss

 

 

(441

)

 

 

(446

)

Total shareholders’ equity

 

 

104

 

 

 

77

 

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

 

$

1,489

 

 

$

1,248

 

 

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

 

[5]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in millions)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6

 

 

$

(111

)

Adjustments to reconcile to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8

 

 

 

10

 

Pension income

 

 

(21

)

 

 

(22

)

Change in fair value of embedded derivatives in the Series A, Series B and Series C

   Preferred Stock and Convertible Notes

 

 

1

 

 

 

(53

)

Net gain on sales of assets

 

 

 

 

 

(8

)

Asset impairments

 

 

 

 

 

3

 

Stock based compensation

 

 

3

 

 

 

1

 

Provision for deferred income taxes

 

 

 

 

 

161

 

Decrease in trade receivables

 

 

8

 

 

 

19

 

Increase in inventories

 

 

(22

)

 

 

(26

)

Increase in trade payables

 

 

24

 

 

 

1

 

Decrease in liabilities excluding borrowings and trade payables

 

 

(22

)

 

 

(27

)

Other items, net

 

 

(1

)

 

 

11

 

Total adjustments

 

 

(22

)

 

 

70

 

Net cash used in operating activities

 

 

(16

)

 

 

(41

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to properties

 

 

(1

)

 

 

(4

)

Net proceeds from sales of assets/businesses

 

 

 

 

 

2

 

Net proceeds from return on equity investment

 

 

 

 

 

1

 

Net cash used in investing activities

 

 

(1

)

 

 

(1

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from Term Loan Credit Agreement

 

 

215

 

 

 

 

Net proceeds from Convertible Notes

 

 

25

 

 

 

 

Net proceeds from Series C Preferred Stock

 

 

99

 

 

 

 

Proceeds from sale of common stock

 

 

10

 

 

 

 

Repurchase of Series A Preferred Stock

 

 

(100

)

 

 

 

Debt issuance costs

 

 

(2

)

 

 

 

Preferred stock cash dividend payments

 

 

(4

)

 

 

(3

)

Treasury stock purchases

 

 

(1

)

 

 

 

Net cash provided by (used in) financing activities

 

 

242

 

 

 

(3

)

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

 

 

(4

)

 

 

(4

)

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

 

 

221

 

 

 

(49

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

256

 

 

 

290

 

Cash, cash equivalents and restricted cash, end of period

 

$

477

 

 

$

241

 

 

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

[6]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)

 

 

 

Three-Month Period Ending March 31, 2021

 

 

 

Eastman Kodak Company Common Shareholders

 

 

 

 

 

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive Loss

 

 

Treasury

Stock

 

 

Total

 

 

Redeemable Convertible Preferred Stock

 

Equity (deficit) as of December 31, 2020

 

$

 

 

$

1,152

 

 

$

(620

)

 

$

(446

)

 

$

(9

)

 

$

77

 

 

$

191

 

Net income

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

Other comprehensive income (loss) (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

 

 

 

Repurchase of Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100

)

Exchange of Series A preferred stock

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

(92

)

Expiration of Series A preferred stock embedded

   derivative

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

Issuance of convertible, redeemable Series B

   preferred stock, net

 

 

 

 

 

 

(95

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(95

)

 

 

93

 

Issuance of common stock

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

Issuance of convertible, redeemable Series C

   preferred stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

Preferred stock cash dividends

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

Preferred stock deemed dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

2

 

Series C Preferred stock in-kind dividends

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Purchase of treasury stock (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

Stock-based compensation

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

Equity (deficit) as of March 31, 2021

 

$

 

 

$

1,169

 

 

$

(614

)

 

$

(441

)

 

$

(10

)

 

$

104

 

 

$

192

 

 

 

(1)

Represents purchases of common stock to satisfy tax withholding obligations.

 

[7]


EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited) (cont’d)

 

 

 

Three-Month Period Ending March 31, 2020

 

 

 

Eastman Kodak Company Common Shareholders

 

 

 

 

 

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive Loss

 

 

Treasury

Stock

 

 

Total

 

 

Redeemable Convertible Preferred Stock

 

Equity (deficit) as of December 31, 2019

 

$

 

 

$

604

 

 

$

(79

)

 

$

(417

)

 

$

(9

)

 

$

99

 

 

$

182

 

Net loss

 

 

 

 

 

 

 

 

(111

)

 

 

 

 

 

 

 

 

(111

)

 

 

 

Other comprehensive (loss) income (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

Pension and other postretirement

   liability adjustments

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

Series A preferred stock cash dividends

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

Series A preferred stock deemed

   dividends

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

2

 

Stock-based compensation

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Equity (deficit) as of March 31,

   2020

 

$

 

 

$

600

 

 

$

(190

)

 

$

(426

)

 

$

(9

)

 

$

(25

)

 

$

184

 

 

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

[8]


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 for a fair statement of the results of operations, financial position and cash flows of Eastman Kodak Company (“EKC” or the “Company”) and all companies directly or indirectly controlled, either through majority ownership or otherwise (collectively, “Kodak”). The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These consolidated interim statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

 

Reclassifications

 

Certain amounts for prior periods have been reclassified to conform to the current period classification in the disaggregated revenue information for the Advanced Materials and Chemicals segment.

 

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments. More convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted EPS calculation in certain circumstances.  The ASU is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, (January 1, 2024 for Kodak).  Early adoption is permitted for all entities for fiscal years beginning after December 15, 2020.  The ASU allows entities to use either a modified retrospective or full retrospective transition method. Kodak adopted this ASU on January 1, 2021 using the modified retrospective method, under which companies apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings.  The adoption of this standard had no impact on Kodak’s financial statements.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which removes certain exceptions related to intra-period tax allocations and deferred tax accounting on outside basis differences in foreign subsidiaries and equity method investments. Additionally, it provides other simplifying measures for the accounting for income taxes. The new standard is effective for fiscal years beginning after December 15, 2020 (January 1, 2021 for Kodak).  Kodak adopted this ASU prospectively on January 1, 2021 and it did not have any impact on Kodak’s consolidated financial statements.  

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2016-13 (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02 and 2020-03) requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  In addition, the ASU requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses.  The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The ASU is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, (January 1, 2023 for Kodak).  Early adoption is permitted. Kodak is currently evaluating the impact of this ASU.  

 

[9]


NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Financial Position that sums to the total of such amounts shown in the Statement of Cash Flows:

 

 

 

March 31,

 

 

December 31,

 

(in millions)

 

2021

 

 

2020

 

Cash and cash equivalents

 

$

401

 

 

$

196

 

Restricted cash reported in Other current assets

 

 

7

 

 

 

7

 

Restricted cash

 

 

69

 

 

 

53

 

Total cash, cash equivalents and restricted cash shown in

   the Statement of Cash Flows

 

$

477

 

 

$

256

 

 

Restricted cash reported in Other current assets on the Consolidated Statement of Financial Position primarily represents amounts that support hedging activities.  

 

Restricted cash includes $49 million as of March 31, 2021 representing the cash collateral required to be posted by the Company under the Letter of Credit Facility (“L/C Cash Collateral”).  Restricted cash included $35 million as of December 31, 2020, supporting compliance with the Excess Availability threshold under the ABL Credit Agreement, as defined therein (Refer to Note 5, “Debt and Finance Leases” for information on the Restricted cash supporting the L/C Cash Collateral and the Excess Availability threshold).  In addition, Restricted cash as of March 31, 2021 and December 31, 2020 includes an escrow of $15 million and $12 million, respectively, in China to secure various ongoing obligations under the agreements for the strategic relationship with Lucky HuaGuang Graphics Co. Ltd.  Restricted cash also included $3 million and $4 million of security posted related to Brazilian legal contingencies as of March 31, 2021 and December 31, 2020, respectively.  

 

NOTE 3: INVENTORIES, NET

 

 

 

March 31,

 

 

December 31,

 

(in millions)

 

2021

 

 

2020

 

Finished goods

 

$

110

 

 

$

97

 

Work in process

 

 

59

 

 

 

54

 

Raw materials

 

 

55

 

 

 

55

 

Total

 

$

224

 

 

$

206

 

 

NOTE 4: OTHER LONG-TERM ASSETS

 

 

 

March 31,

 

 

December 31,

 

(in millions)

 

2021

 

 

2020

 

Pension assets

 

$

290

 

 

$

262

 

Estimated workers' compensation recoveries

 

 

18

 

 

 

18

 

Long-term receivables

 

 

11

 

 

 

11

 

Other

 

 

27

 

 

 

26

 

Total

 

$

346

 

 

$

317

 

 

The Other component above consists of other miscellaneous long-term assets that, individually, were less than 5% of the total assets component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X.

 

 

[10]


NOTE 5:  DEBT AND FINANCE LEASES

 

Debt and finance leases and related maturities and interest rates were as follows at March 31, 2021 and December 31, 2020:

 

(in millions)

 

Type

 

Maturity

 

Weighted-Average

Effective Interest Rate

 

 

March 31, 2021

 

 

December 31, 2020

 

Current portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RED-Rochester, LLC

 

2033

 

11.46%

 

 

$

1

 

 

$

1

 

 

 

Finance leases

 

Various

 

Various

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Non-current portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term note

 

2026

 

13.96%

 

 

 

216

 

 

 

 

 

 

Convertible debt

 

2026

 

17.09%

 

 

 

13

 

 

 

 

 

 

RED-Rochester, LLC

 

2033

 

11.46%

 

 

 

12

 

 

 

12

 

 

 

Finance leases

 

Various

 

Various

 

 

 

3

 

 

 

3

 

 

 

Other debt

 

Various

 

Various

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

246

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

$

248

 

 

$

19

 

 

Annual maturities of debt and finance leases outstanding at March 31, 2021 were as follows:

 

 

 

Carrying

Value

 

 

Maturity

Value

 

Q2 -Q4 2021

 

$

2

 

 

$

2

 

2022

 

 

2

 

 

 

2

 

2023

 

 

1

 

 

 

1

 

2024

 

 

1

 

 

 

1

 

2025

 

 

1

 

 

 

1

 

2026 and thereafter

 

 

241

 

 

 

439

 

Total

 

$

248

 

 

$

446

 

 

Term Loan Credit Agreement

 

On February 26, 2021, the Company entered into a Credit Agreement (the “Term Loan Credit Agreement”) with certain funds affiliated with Kennedy Lewis Investment Management LLC (“KLIM”) as lenders (the “Term Loan Lenders”) and Alter Domus (US) LLC, as administrative agent. Pursuant to the Term Loan Credit Agreement, the Term Loan Lenders provided the Company with (i) an initial term loan in the amount of $225 million, which was drawn in full on the same date, and (ii) a commitment to provide delayed draw term loans in an aggregate principal amount of up to $50 million on or before February 26, 2023 (collectively, the “Term Loans”). Net proceeds from the Term Loan Credit Agreement were $215 million ($225 million aggregate principal less $10 million in debt transaction costs).  The Term Loans have a five-year maturity and are non-amortizing.

 

The Term Loans bear interest at a rate of 8.5% per annum payable quarterly in cash and 4.0% per annum Paid-In-Kind interest (“PIK”) or in cash quarterly, at the Company’s option, for an aggregate interest rate of 12.5% per annum.  The Company expects to elect the 4.0% per annum in PIK which will be added to the carrying value of the debt through the term and interest expense will be recorded using the effective interest method. The Term Loans are guaranteed by the Company and certain of its domestic subsidiaries (the “Subsidiary Guarantors”), and are secured by (i) a first priority lien on substantially all assets of the Company and the Subsidiary Guarantors (subject to certain exceptions) not constituting ABL Priority Collateral or L/C Cash Collateral (see below for definitions of ABL Priority Collateral and L/C Cash Collateral), including 100% of the stock of material U.S. subsidiaries and 65% of the stock of material foreign subsidiaries (the “Term Loan Priority Collateral”) and (ii) a third priority lien on the ABL Priority Collateral and L/C Cash Collateral. The Term Loan Credit Agreement limits, among other things, the ability of the Company and its Restricted Subsidiaries (as defined in the Term Loan Credit Agreement) to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments and (v) make investments, and also contains customary affirmative covenants including delivery of certain of the Company’s financial statements set forth therein.  The Term Loan Credit Agreement does not include a financial maintenance covenant.

 

[11]


Board Rights Agreement

On February 26, 2021, in connection with the execution of the Term Loan Credit Agreement, the Company entered into a letter agreement with KLIM (the “Board Rights Agreement”). Pursuant to the Board Rights Agreement, the Company’s Board of Directors (“Board”) appointed an individual designated by KLIM as a member of the Board effective April 1, 2021.  The individual appointed has been nominated for reelection at the next annual meeting on May 19, 2021.  KLIM also has the right to nominate one (1) director at each annual or special meeting of the Company’s shareholders until the third anniversary of the execution of the Board Rights Agreement or until KLIM ceases to hold at least 50% of the original principal amount of the Term Loans and commitments under the Term Loan Credit Agreement, whichever is earlier.

 

Until KLIM ceases to hold at least 50% of the original principal amount of the Term Loans and commitments under the Term Loan Credit Agreement, at any time that KLIM’s designated director is not serving on the Board, KLIM will have the right to designate a non-voting observer to the Board. Such observer will have the right to attend meetings of the Board and, under certain circumstances, committees and subcommittees of the Board and to receive information and materials made available to the Board, in each case, subject to certain restrictions and exceptions.

 

Securities Purchase Agreement

On February 26, 2021, the Company and the Term Loan Lenders (the “Buyers”), entered into a Securities Purchase Agreement (the

“Securities Purchase Agreement”) pursuant to which the Company sold to the Buyers (i) an aggregate of 1,000,000 shares (the “Purchased Shares”) of the Company’s common stock (“Common Stock”) for a purchase price of $10.00 in cash per share for an aggregate purchase price of $10 million and (ii) $25 million aggregate principal amount of the Company’s newly issued 5.0% unsecured convertible promissory notes due May 28, 2026 (the “Convertible Notes”) in a private placement transaction. The issuance and sale of the Purchased Shares and Convertible Notes were consummated on February 26, 2021.

 

Convertible Notes

 

The Convertible Notes bear interest at a rate of 5.0% per annum, which will be payable in cash on the maturity date and in additional shares of Common Stock on any conversion date. The payment of interest only at the maturity date has the same effect as delivering additional debt instruments to the Holders of the Convertible Notes and therefore is considered PIK.  Therefore, PIK will be added to the carrying value of the debt through the term and interest expense will be recorded using the effective interest method. The maturity date of the Convertible Notes is May 28, 2026.

 

Conversion Features

The Buyers will have the right to elect at any time to convert the Convertible Notes into shares of Common Stock at an initial conversion rate equal to 100 shares of Common Stock per each $1,000 principal amount of the Convertible Notes (based on an initial conversion price equal to $10.00 per share of Common Stock). The conversion rate and conversion price will be subject to certain customary anti-dilution adjustments.

 

If the closing price of the Common Stock equals or exceeds $14.50 (subject to adjustment in the same manner as the conversion price) for 45 trading days within any period of 60 consecutive trading days, the Company will have the right to cause the mandatory conversion of the Convertible Notes into shares of Common Stock.

 

In the event of certain fundamental transactions, the Buyers will have the right, within a period of 30 days following the occurrence of such transaction (“Holder Fundamental Transaction Election Period”), to elect to either require prepayment of the Convertible Notes at par plus accrued and unpaid interest or convert all or a portion of the Convertible Notes into shares of Common Stock at the conversion rate then in effect plus any additional shares based on the price per share of Common Stock in connection with the fundamental transaction, or to receive the shares of a successor entity, if any.

 

Embedded Derivatives

The Convertible Notes were considered more akin to a debt-type instrument and the economic characteristics and risks of the embedded conversion features are not considered clearly and closely related to the Convertible Notes. Accordingly, these embedded features were bifurcated from the Convertible Notes and separately accounted for on a combined basis at fair value as a single derivative liability. Kodak allocated $12 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded features on the date of issuance which reduced the net carrying value of the Convertible Notes. The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other income, net in the Consolidated Statement of Operations. The fair value of the Convertible Notes embedded derivative as of March 31, 2021 was a liability of $11 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position.  Refer to Note 20, “Financial Instruments” for information on the valuation of the derivative.

 

The carrying value of the Convertible Notes as of March 31, 2021 and at the time of issuance was $13 million ($25 million aggregate gross proceeds less $12 million allocated to the derivative liability).  The estimated fair value of the Convertible Notes as of March 31, 2021 was $24 million (Level 3).  The carrying value is being accreted to the aggregate principal amount using the effective interest method from the date of issuance through the maturity date.

[12]


Securities Registration Rights Agreement

 

On February 26, 2021, the Company and the Buyers entered into a Registration Rights Agreement (the “Securities Registration Rights Agreement”) providing the Buyers with registration rights in respect of the Purchased Shares and the Common Stock issuable upon conversion of the Convertible Notes. The Securities Registration Rights Agreement contains other customary terms and conditions, including certain customary indemnification obligations; however, the Securities Registration Rights Agreement does not obligate the Company to facilitate an underwritten offering of the registered Common Stock by the Buyers.

 

Amended and Restated ABL Credit Agreement

 

On February 26, 2021, the Company and the Subsidiary Guarantors entered into an amendment to the Amended and Restated Credit Agreement, dated as of May 26, 2016, among the Company, the Subsidiary Guarantors, the lenders party thereto, Bank of America, N.A., as agent (the “Agent”), and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as arrangers (the “ABL Credit Agreement” and, as amended by the Amended ABL Credit Agreement, the “Amended ABL Credit Agreement”), with the Agent and the Required Lenders.  Each of the capitalized and undefined terms have the meaning ascribed to such term in the ABL Credit Agreement.

 

The Amended ABL Credit Agreement amends the ABL Credit Agreement to, among other things, (i) extend the maturity date to February 26, 2024 or the date that is 90 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s Term Loan Credit Agreement, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the foregoing and (ii) decrease the aggregate amount of commitments from $110 million to $90 million. Commitments under the Amended ABL Credit Agreement continue to be able to be used in the form of revolving loans or letters of credit.  The Company had issued approximately $42 million letters of credit under the Amended ABL Credit Agreement as of March 31, 2021 and $90 million letters of credit under the ABL Credit Agreement as of December 31, 2020.  

 

The revolving loans bear interest at the rate of LIBOR plus 3.50%-4.00% per annum (subject to provisions providing for a replacement benchmark rate upon the discontinuation of LIBOR) or a floating Base Rate (as defined in the Amended ABL Credit Agreement) plus 2.50%-3.00% per annum, based on Excess Availability (as defined in the Amended ABL Credit Agreement). The Company will pay an unused line fee of 37.5-50 basis points per annum, depending on whether the unused portion of the maximum amount available is less than or equal to 50% or greater than 50%, respectively.  The Company will pay a letter of credit fee of 3.50%-4.00% per annum, based on Excess Availability, on issued and outstanding letters of credit, in addition to a fronting fee of 25 basis points on such letters of credit.

 

Obligations under the Amended ABL Credit Agreement continue to be secured by: (i) a first priority lien on assets of the Company and the Subsidiary Guarantors constituting cash (other than L/C Cash Collateral, as defined below), accounts receivable, inventory, machinery and equipment and certain other assets (the “ABL Priority Collateral”) and (ii) a second priority lien on substantially all assets of the Company and the Subsidiary Guarantors (subject to certain exceptions) other than the ABL Priority Collateral, including the L/C cash collateral and 100% of the stock of material U.S. subsidiaries and 65% of the stock of material foreign subsidiaries.

 

The Amended ABL Credit Agreement continues to limit, among other things, the ability of the Company and its Restricted Subsidiaries (as defined in the Amended ABL Credit Agreement) to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments and (v) make investments. The Amended ABL Credit Agreement leaves in place customary affirmative covenants, including delivery of certain of the Company’s financial statements set forth therein.

 

Under the Amended ABL Credit Agreement the Company is required to maintain Minimum Liquidity of at least $80 million, which is tested at the end of each quarter.  Minimum Liquidity was $284 million at March 31, 2021.  If Minimum Liquidity falls below $80 million an Event of Default would occur and the Agent has the right to declare the obligation of each Lender to make Revolving Loans and of the Issuing Banks to issue Letters of Credit to be terminated, and declare the Revolving Loans, all interest thereon and all other amounts payable under the Amended ABL Credit Agreement to be due and payable.

 

Under the Amended ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($11.25 million and $13.75 million as of March 31, 2021 and December 31, 2020, respectively), which is tested at the end of each month.  Excess Availability was $41 million and $20 million as of March 31, 2021 and December 31, 2020, respectively.  If Excess Availability falls below 12.5% of lender commitments a Fixed Charge Coverage Ratio Trigger Event would occur.  During any Fixed Charge Coverage Ratio Trigger Event, the Company would be required to maintain a Fixed Charge Coverage Ratio of greater than or equal to 1.0 to 1.0. If Excess Availability falls below 12.5% of lender commitments, Kodak may, in addition to the requirement to be in compliance with the minimum Fixed Charge Coverage Ratio, become subject to cash dominion control.  Since Excess Availability was greater than 12.5% of lender commitments at March 31, 2021 and December 31, 2020, Kodak is not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. The Amended ABL Credit Agreement also removed Eligible Cash from the Borrowing Base.  Therefore, amounts funded into the Eligible Cash account will no longer increase Excess Availability for purposes of compliance reporting. As of December 31, 2020, to maintain Excess Availability of greater than 12.5% of lender commitments, Kodak funded $35 million to the Eligible Cash account held with the ABL Credit Agreement Administrative Agent, which was classified as Restricted Cash in the Consolidated Statement of Financial Position.

 

[13]


If Excess Availability falls below 12.5% of lender commitments and the Fixed Charge Coverage Ratio is less than 1.0 to 1.0, an Event of Default would occur and the Agent has the right to declare the obligation of each Lender to make Revolving Loans and of the Issuing Banks to issue Letters of Credit to be terminated, and declare the Revolving Loans, all interest thereon and all other amounts payable under the Amended ABL Credit Agreement to be due and payable.

 

Letter of Credit Facility Agreement

 

On February 26, 2021, the Company and the Subsidiary Guarantors entered into a Letter of Credit Facility Agreement (the “L/C Facility Agreement”, and together with the Term Loan Credit Agreement and the Amended ABL Credit Agreement the “Credit Agreements”) among the Company, the Subsidiary Guarantors, the lenders party thereto (the “L/C Lenders”), Bank of America, N.A., as agent, and Bank of America, N.A., as issuing bank. Pursuant to the L/C Facility Agreement, the L/C Lenders committed to issue letters of credit on the Company’s behalf in an aggregate amount of up to $50 million, provided that the Company posts cash collateral in an amount greater than or equal to 103% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”).

 

The term of the L/C Facility Agreement is three years, subject to the same automatic springing maturity as the Amended ABL Credit Agreement. The Company had issued approximately $48 million letters of credit under the L/C Facility Agreement as of March 31, 2021. The current balance on deposit in the L/C Cash Collateral account is approximately $49 million, of which $14 million was deposited into the L/C Cash Collateral account from proceeds of the financing transactions described herein and the remainder of which was cash collateral previously used to secure letters of credit under the ABL Credit Agreement. The L/C Facility Agreement has the same requirement to maintain Minimum Liquidity of $80 million as is contained in the Amended ABL Credit Agreement.

 

NOTE 6: REDEEMABLE, CONVERTIBLE PREFERRED STOCK

 

Redeemable convertible preferred stock was as follows at March 31, 2021 and December 31, 2020

 

 

 

March 31,

 

 

December 31,

 

(in millions)

 

2021

 

 

2020

 

Series A preferred stock

 

$