UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| For the quarterly period ended: | |
| or |
For the transition period from to
| Commission File Number | ||
| |
| EASTMAN KODAK COMPANY | ||
| (Exact name of registrant as specified in its charter) | ||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
| ( | ||
| (Registrant’s telephone number, including area code) | ||
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 |
| | | |
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.
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).
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 | ☐ | | ☒ | |||
| 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
As of November 1, 2022, the registrant had
Form 10-Q
September 30, 2022
Table of Contents
| Page | ||
| Part I.—Financial Information | ||
| Item 1. |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| Part II. —Other Information | ||
| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 6. |
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CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in millions, except per share data)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
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| Revenues |
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| Sales |
$ | $ | $ | $ | ||||||||||||
| Services |
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| Total revenues |
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| Cost of revenues |
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| Sales |
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| Services |
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| Total cost of revenues |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Research and development costs |
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| Restructuring costs and other |
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| Other operating expense (income), net |
( |
) | ||||||||||||||
| Loss from operations before interest expense, pension income excluding service cost component, other (income) charges, net and income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense |
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| Pension income excluding service cost component |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other (income) charges, net |
( |
) | ( |
) | ||||||||||||
| Earnings from operations before income taxes |
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| Provision for income taxes |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Basic net (loss) income per share attributable to Eastman Kodak Company common shareholders |
$ | ( |
) | $ | $ | $ | ||||||||||
| Diluted net (loss) income per share attributable to Eastman Kodak Company common shareholders |
$ | ( |
) | $ | $ | $ | ||||||||||
| Number of common shares used in basic and diluted net income per share |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| NET INCOME | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Pension and other postretirement benefit plan obligation activity, net of tax | ||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||
| COMPREHENSIVE INCOME, NET OF TAX | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
| September 30, | December 31, | |||||||
| (in millions) | 2022 | 2021 | ||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade receivables, net of allowances of $ and $, respectively | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Current assets held for sale | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net of accumulated depreciation of $ and $, respectively | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Restricted cash | ||||||||
| Pension and other postretirement assets | ||||||||
| Other long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY | ||||||||
| Accounts payable, trade | $ | $ | ||||||
| Short-term borrowings and current portion of long-term debt | ||||||||
| Current portion of operating leases | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Pension and other postretirement liabilities | ||||||||
| Operating leases, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Redeemable, convertible preferred stock, par value, $ per share liquidation preference | ||||||||
| Equity | ||||||||
| Common stock, $ par value | ||||||||
| Additional paid in capital | ||||||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| Nine Months Ended |
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| September 30, |
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| (in millions) |
2022 |
2021 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile to net cash used in operating activities: |
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| Depreciation and amortization |
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| Pension income |
( |
) | ( |
) | ||||
| Change in fair value of the Preferred Stock and Convertible Notes embedded derivatives |
( |
) | ( |
) | ||||
| Net loss on sales of assets |
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| Non-cash changes in workers' compensation reserves |
( |
) | ( |
) | ||||
| Stock based compensation |
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| Benefit from deferred income taxes |
( |
) | ( |
) | ||||
| (Increase) decrease in trade receivables |
( |
) | ||||||
| Increase in inventories |
( |
) | ( |
) | ||||
| Increase in trade payables |
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| Decrease in liabilities excluding borrowings and trade payables |
( |
) | ( |
) | ||||
| Other items, net |
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| Total adjustments |
( |
) | ( |
) | ||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
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| Additions to properties |
( |
) | ( |
) | ||||
| Purchase of preferred equity interest |
( |
) | ||||||
| Net proceeds from sales of assets |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Net proceeds from Term Loan Credit Agreement |
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| Net proceeds from Convertible Notes |
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| Net proceeds from Series C Preferred Stock |
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| Proceeds from sale of common stock |
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| Repurchase of Series A Preferred Stock |
( |
) | ||||||
| Debt issuance costs |
( |
) | ||||||
| Preferred stock cash dividend payments |
( |
) | ( |
) | ||||
| Treasury stock purchases |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash |
( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period |
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| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)
(in millions)
| Nine-Month Period Ending September 30, 2022 | ||||||||||||||||||||||||||||
| Eastman Kodak Company Common Shareholders | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Treasury Stock | Total | Redeemable Convertible Preferred Stock | ||||||||||||||||||||||
| Equity (deficit) as of December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||||||
| Currency translation adjustments | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock deemed dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Equity (deficit) as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||||||||||||||
| Pension and other postretirement liability adjustments | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Equity (deficit) as of June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||||||||||||||
| Pension and other postretirement liability adjustments | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Treasury stock purchases (1) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Equity (deficit) as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited) (cont’d)
(in millions)
| Nine-Month Period Ending September 30, 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||||||||||||||
| Pension and other postretirement liability adjustments | ||||||||||||||||||||||||||||
| Repurchase of Series A preferred stock | ( | ) | ||||||||||||||||||||||||||
| Exchange of Series A preferred stock | ( | ) | ||||||||||||||||||||||||||
| Expiration of Series A preferred stock embedded derivative | ||||||||||||||||||||||||||||
| Issuance of convertible, redeemable Series B preferred stock, net | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||
| Issuance of convertible, redeemable Series C preferred stock, net | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock deemed dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of treasury stock (1) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Equity (deficit) as of March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
| Currency translation adjustments | ||||||||||||||||||||||||||||
| Pension and other postretirement liability adjustments | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Equity (deficit) as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) (net of tax): | ||||||||||||||||||||||||||||
| Pension and other postretirement liability adjustments | ||||||||||||||||||||||||||||
| Series B Preferred stock cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Series C Preferred stock in-kind dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock deemed dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Equity (deficit) as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| (1) |
Represents purchases of common stock to satisfy tax withholding obligations. |
The accompanying notes are an integral part of these consolidated financial statements.
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 and all companies directly or indirectly controlled, either through majority ownership or otherwise (“Kodak” or the “Company”). 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, 2021 (the “2021 Form 10-K”).
Reclassifications
Certain amounts from previous periods have been reclassified to conform to the current period classification in the disaggregated revenue information for the Digital Printing segment.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
No accounting pronouncements have been adopted in 2022.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“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, 2020-03 and 2022-02) 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 January 1, 2023, for Kodak, and interim periods within that fiscal year. Early adoption is permitted. Kodak is currently evaluating the impact of this ASU.
NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Financial Position that sums to the total of such amounts shown in the Statement of Cash Flows:
| September 30, |
December 31, |
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| (in millions) |
2022 |
2021 |
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| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash reported in Other current assets |
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| Restricted cash |
||||||||
| Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows |
$ | $ | ||||||
Restricted cash reported in Other current assets on the Consolidated Statement of Financial Position primarily represents amounts that support hedging activities.
Restricted cash includes $
NOTE 3: INVENTORIES, NET
| September 30, |
December 31, |
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| (in millions) |
2022 |
2021 |
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| Finished goods |
$ | $ | ||||||
| Work in process |
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| Raw materials |
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| Total |
$ | $ | ||||||
NOTE 4: OTHER LONG-TERM ASSETS
| September 30, |
December 31, |
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| (in millions) |
2022 |
2021 |
||||
| Preferred equity investment |
$ | $ | ||||
| Estimated workers' compensation recoveries |
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| Long-term receivables |
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| Other |
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| Total |
$ | $ | ||||
On July 13, 2022 Kodak invested $
NOTE 5: DEBT AND FINANCE LEASES
Debt and finance leases and related maturities and interest rates were as follows:
| Weighted-Average | September 30, | December 31, | |||||||||||||
| (in millions) | Type | Maturity | Effective Interest Rate | 2022 | 2021 | ||||||||||
| Current portion: | |||||||||||||||
| RED-Rochester, LLC |
| % | $ | $ | |||||||||||
| Non-current portion: | |||||||||||||||
| Term loans | 2026 | % | |||||||||||||
| Convertible debt | 2026 | % | |||||||||||||
| RED-Rochester, LLC | 2033 | % | |||||||||||||
| Finance leases | Various | Various | |||||||||||||
| Other debt | Various | Various | |||||||||||||
| $ | $ | ||||||||||||||
Annual maturities of debt and finance leases outstanding at September 30, 2022 were as follows:
| Carrying | Maturity | |||||||
| Value | Value | |||||||
| Q4 2022 | $ | — | $ | — | ||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 and thereafter | ||||||||
| Total | $ | $ | ||||||
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 $
The Term Loans bear interest at a rate of
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 (as defined in the Amended and Restated Asset Based Revolving Credit Agreement) or L/C Cash Collateral (as defined in the Letter of Credit Facility Agreement), including
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.
2021 Convertible Notes
On February 26, 2021, the Company entered into a Securities Purchase Agreement with certain funds affiliated with Kennedy Lewis Investment Management LLC (“KLIM”) as lenders (the “Buyers”) pursuant to which the Company sold to the Buyers $
Conversion Features
The Buyers 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
If the closing price of the Common Stock equals or exceeds $
In the event of certain fundamental transactions, the Buyers will have the right, within a period of
Embedded Derivatives
The Company allocated $
The carrying value of the Convertible Notes at September 30, 2022 and December 31, 2021 was $
NOTE 6: REDEEMABLE, CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock was as follows:
| September 30, | December 31, | |||||||
| (in millions) | 2022 | 2021 | ||||||
| Series B preferred stock | $ | $ | ||||||
| Series C preferred stock | ||||||||
| Total | $ | $ | ||||||
Series B Preferred Stock
On February 26, 2021 the Company agreed to exchange the remaining shares of Series A Preferred Stock held by Southeastern Asset Management, Inc. (“Southeastern”) and Longleaf Partners Small-Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern (such investment funds, collectively, the “Purchasers”), for shares of the Company’s newly created
Dividends
The holders of Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of
Conversion Features
Each share of Series B Preferred Stock is convertible, at the option of each holder at any time, into shares of Common Stock at the initial conversion rate of
The Company will have the right to cause the mandatory conversion of the Series B Preferred Stock into shares of Common Stock at any time after the initial issuance of the Series B Preferred Stock if the closing price of the Common Stock has equaled or exceeded $
Embedded Conversion Features
The Company allocated $
The carrying value of the Series B Preferred Stock is being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date, May 28, 2026.
Series C Preferred Stock
Purchase Agreement
On February 26, 2021, the Company and GO EK Ventures IV, LLC (the “Investor”) entered into a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor, and the Investor agreed to purchase from the Company, an aggregate of
Dividends
The holders of Series C Preferred Stock are entitled to cumulative dividends payable quarterly “in‐kind” in the form of additional shares of Series C Preferred Stock at a rate of
Conversion Features
Each share of Series C Preferred Stock is convertible, at the option of each holder at any time, into shares of Common Stock at the initial conversion price of $
The Company will have the right to cause the mandatory conversion of the Series C Preferred Stock into shares of Common Stock (i) at any time after February 26, 2023 if the closing price of the Common Stock has equaled or exceeded
Embedded Conversion Features
The Company allocated $
The carrying value of the Series C Preferred Stock is being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date.
NOTE 7: LEASES
Income recognized on operating lease arrangements for the three and nine months ended September 30, 2022 and 2021 is presented below. Income recognized for sales-type lease arrangements for both the three and nine months ended September 30, 2022 was $
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Lease income - operating leases: | ||||||||||||||||
| Lease income | $ | $ | $ | $ | ||||||||||||
| Variable lease income | ||||||||||||||||
| Total lease income | $ | $ | $ | $ | ||||||||||||
NOTE 8: COMMITMENTS AND CONTINGENCIES
As of September 30, 2022, the Company had outstanding letters of credit of $
Kodak’s Brazilian operations are involved in various litigation matters in Brazil and have received or been the subject of numerous governmental assessments related to indirect and other taxes in various stages of litigation, as well as civil litigation and disputes associated with former employees and contract labor. The tax matters, which comprise the majority of the litigation matters, are primarily related to federal and state value-added taxes. Kodak’s Brazilian operations are disputing these matters and intend to vigorously defend its position. Kodak routinely assesses all these matters as to the probability of ultimately incurring a liability in its Brazilian operations and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of September 30, 2022, Kodak’s Brazilian Operations maintained accruals of approximately $
In connection with assessments in Brazil, local regulations may require Kodak’s Brazilian operations to post security for a portion of the amounts in dispute. As of September 30, 2022, Kodak’s Brazilian operations have posted security composed of $
On August 13, 2020 Tiandong Tang commenced a class action lawsuit against the Company, its Executive Chairman and Chief Executive Officer and its Chief Financial Officer in Federal District Court in the District of New Jersey, and on August 26, 2020 Jimmie A. McAdams and Judy P. McAdams commenced a class action lawsuit against the Company and its Executive Chairman and Chief Executive Officer in Federal District Court in the Southern District of New York (collectively, the “Securities Class Actions”). The Securities Class Actions seek damages and other relief based on alleged violations of federal securities laws in the context of the U.S. International Development Finance Corporation (the “DFC”) announcement (the “DFC Announcement”) of the signing of a non-binding letter of interest to provide a subsidiary of the Company with a potential $
The Company has also received five requests under New Jersey law demanding, among other things, that the Company take certain actions in response to alleged breaches of fiduciary duty relating to option grants and securities transactions in the context of the DFC Announcement and alleged proxy statement disclosure deficiencies (each a “Derivative Demand”, and collectively the “Derivative Demands”). On May 19, 2021 Louis Peters, one of the persons making a Derivative Demand (“Peters”), commenced a derivative lawsuit on behalf of the Company against certain officers and current and former directors of the Company and the Company as a nominal defendant in the Supreme Court of the State of New York in Monroe County seeking damages and equitable relief based on alleged breaches of fiduciary duty and unjust enrichment resulting from stock trades, option grants and a charitable contribution in the context of the DFC Announcement of the potential DFC Loan and DFC Pharmaceutical Project (the “State Derivative Lawsuit”). The plaintiff filed an amended complaint in the State Derivative Lawsuit on August 23, 2021, and the Company and individual defendants filed motions to dismiss (or alternatively, in the case of the Company, a motion for summary judgment) in the State Derivative Lawsuit on October 22, 2021. On March 17, 2022, the Court issued an order staying the State Derivative Lawsuit pending the resolution of the Federal Derivative Lawsuit described below.
On September 2, 2021 Herbert Silverberg, another person making a Derivative Demand (“Silverberg”), commenced a derivative lawsuit on behalf of the Company against one current and one former director of the Company and the Company as a nominal defendant in the Federal District Court for the Western District of New York seeking damages and equitable relief on a basis overlapping with the State Derivative Lawsuit and alleged proxy statement misrepresentations and omissions. On October 4, 2021 Peters commenced a derivative lawsuit on behalf of the Company against the same parties named in the State Derivative Lawsuit in the Federal District Court for the Western District of New York seeking damages and equitable relief on a basis overlapping with the State Derivative Lawsuit and alleged violations of Section 10(b) of the Exchange Act. The Federal derivative lawsuits filed by Silverberg and Peters were consolidated into a single proceeding (the “Federal Derivative Lawsuit”) on January 18, 2022, and Peters was appointed as lead plaintiff in the Federal Derivative Lawsuit. An amended consolidated complaint combining the allegations contained in the Federal derivative lawsuits filed by Silverberg and Peters was filed in the Federal Derivative Lawsuit on February 16, 2022, and the Company and individual defendants served motions to dismiss or, in the alternative in the case of the Company, for summary judgment on April 15, 2022. Threshold discovery in the case has been completed, and the Company and individual defendants formally filed their motions to dismiss on September 30, 2022.
Additional shareholder derivative lawsuits may be brought based on the other Derivative Demands (any such lawsuits, collectively with the State Derivative Lawsuit, the Federal Derivative Lawsuit and the Fiduciary Class Action, the “Fiduciary Matters”). The Company, acting through a Special Committee of Independent Directors, previously determined that there was no merit to the claims alleged by the Derivative Demands made through the time of its determination (except with respect to the charitable contribution, which was not fully considered by the Special Committee). See the Company’s Current Report on Form 8‐K filed with the SEC on September 16, 2020. The Company, acting through a separate Special Litigation Committee of Independent Directors, concurred with the first Special Committee’s findings and further concluded it is not in the Company’s interest to bring or allow any other shareholder to assert any of the claims alleged by the State Derivative Lawsuit or Federal Derivative Lawsuit (with the exception of the Peters claim purportedly arising under Section 10(b) of the Exchange Act, which was not addressed as no demand was made with respect to such claim). The second Special Litigation Committee will carefully review any other additional complaints constituting Fiduciary Matters which may be filed.
The DFC Announcement has also prompted investigations by several congressional committees, the SEC and the New York Attorney General’s office. The Company has cooperated in those investigations.
As previously reported, the Attorney General of the State of New York (the “NYAG”) has threatened to file a lawsuit against the Company and its Chief Executive Officer alleging violations of New York State’s Martin Act (the “Threatened Claim”). In connection with the Threatened Claim, on June 15, 2021 the Supreme Court of the State of New York in New York County issued an order providing for additional document production by the Company to the NYAG and the taking by the NYAG of investigative testimony of the Company’s Chief Executive Officer and General Counsel. The Company has completed its document production and its officers provided the testimony as contemplated by such order on October 8, 2021 and October 1, 2021, respectively. The Company had discussions with the NYAG regarding a potential resolution of the Threatened Claim in the spring of 2022, but those discussions did not result in a resolution. If the Threatened Claim is not resolved and is ultimately brought by the NYAG, the Company intends to vigorously defend itself against the Threatened Claim.
In addition, Kodak is involved in various lawsuits, claims, investigations, remediations and proceedings, including, from time to time, commercial, customs, employment, environmental, tort and health and safety matters, which are being handled and defended in the ordinary course of business. Kodak is also subject, from time to time, to various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum of Kodak’s products. These matters are in various stages of investigation and litigation and are being vigorously defended. Based on information currently available, Kodak does not believe that it is probable that the outcomes in these various matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations. Litigation is inherently unpredictable, and judgments could be rendered or settlements entered that could adversely affect Kodak’s operating results or cash flows in a particular period. Kodak routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
NOTE 9: GUARANTEES
In connection with the settlement of certain of the Company’s historical environmental liabilities at Eastman Business Park, a more than
Extended Warranty Arrangements
Kodak offers its customers extended warranty arrangements that are generally year but may range from months to years after the original warranty period. The change in Kodak’s deferred revenue balance in relation to these extended warranty and maintenance arrangements from December 31, 2021 to September 30, 2022, 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, 2021 | $ | |||
| New extended warranty and maintenance arrangements deferred | ||||
| Recognition of extended warranty and maintenance arrangement revenue | ( | ) | ||
| Deferred revenue on extended warranties as of September 30, 2022 | $ |
NOTE 10: REVENUE
Disaggregation of Revenue
The following tables present revenue disaggregated by major product, portfolio summary and geography
Major Product
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Plates, inks and other consumables | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ongoing service arrangements (1) | ||||||||||||||||||||||||
| Total annuities | ||||||||||||||||||||||||
| Equipment & software | ||||||||||||||||||||||||
| Film and chemicals | ||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Plates, inks and other consumables | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ongoing service arrangements (1) | ||||||||||||||||||||||||
| Total annuities | ||||||||||||||||||||||||
| Equipment & software | ||||||||||||||||||||||||
| Film and chemicals | ||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Plates, inks and other consumables | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ongoing service arrangements (1) | ||||||||||||||||||||||||
| Total annuities | ||||||||||||||||||||||||
| Equipment & software | ||||||||||||||||||||||||
| Film and chemicals | ||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| (in millions) | Traditional Printing | Digital Printing | Advanced Materials and Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Plates, inks and other consumables | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ongoing service arrangements (1) | ||||||||||||||||||||||||
| Total annuities | ||||||||||||||||||||||||
| Equipment & software | ||||||||||||||||||||||||
| Film and chemicals | ||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Service revenue in the Consolidated Statement of Operations includes the ongoing service revenue shown above as well as one-time service revenue. |
| (2) | Other includes revenue from non-recurring engineering services, tenant rent and related property management services and licensing. |
Product Portfolio Summary:
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Growth engines (1) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Strategic other businesses (2) | ||||||||||||||||||||||||
| Planned declining businesses (3) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Growth engines (1) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Strategic other businesses (2) | ||||||||||||||||||||||||
| Planned declining businesses (3) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Growth engines (1) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Strategic other businesses (2) | ||||||||||||||||||||||||
| Planned declining businesses (3) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| Growth engines (1) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Strategic other businesses (2) | ||||||||||||||||||||||||
| Planned declining businesses (3) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Growth engines consist of Sonora in the Traditional Printing segment, PROSPER and Software in the Digital Printing segment, and Advanced Materials and Functional Printing in the Advanced Materials and Chemicals segment, excluding intellectual property (“IP”) licensing. |
| (2) | Strategic other businesses include plates (excluding Sonora plates) and Computer to Plate (“CTP”) equipment and related service in the Traditional Printing segment; Nexpress and related toner business in the Digital Printing segment and Motion Picture and Industrial Film and Chemicals (including external inks) and IP licensing in the Advanced Materials and Chemicals segment; the Brand segment and All Other. |
| (3) | Planned declining businesses are product lines where the decision has been made to stop new product development and manage an orderly expected decline in the installed product and annuity base or are otherwise not strategic to Kodak. These product families consist of VERSAMARK and Digimaster in the Digital Printing segment. |
Geography (1):
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| North America | ||||||||||||||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||
| Latin America | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| North America | ||||||||||||||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||
| Latin America | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| North America | ||||||||||||||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||
| Latin America | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Advanced | ||||||||||||||||||||||||
| Materials | ||||||||||||||||||||||||
| Traditional | Digital | and | ||||||||||||||||||||||
| (in millions) | Printing | Printing | Chemicals | Brand | All Other | Total | ||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| North America | ||||||||||||||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||
| Latin America | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Sales are reported in the geographic area in which they originate. |
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed trade receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) in the Consolidated Statement of Financial Position. The contract assets are transferred to trade receivables when the rights to consideration become unconditional. The amount recorded for contract assets at September 30, 2022 and December 31, 2021 was $
Revenue recognized for the three and nine months ended September 30, 2022 and 2021 that was included in the contract liability balance at the beginning of the year was $
Kodak does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less or for which revenue is recognized at the amount to which Kodak has the right to invoice for services performed. Performance obligations with an original expected length of greater than one year generally consist of deferred service contracts, operating leases and licensing arrangements. As of September 30, 2022, there was approximately $
NOTE 11: OTHER OPERATING EXPENSE (INCOME)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| (in millions) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Expense (income): |
||||||||||||||||
| Legal settlements |
$ | $ | $ | $ | ( |
) | ||||||||||
| Loss on sale of assets |
||||||||||||||||
| Total |
$ | $ | $ | $ | ( |
) | ||||||||||
NOTE 12: OTHER (INCOME) CHARGES
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| (in millions) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Change in fair value of embedded conversion features derivative liability (1) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Loss on foreign exchange transactions |
||||||||||||||||
| Other |
||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| (1) |
Refer to Note 19, “Financial Instruments”. |
NOTE 13: INCOME TAXES
Kodak’s income tax provision and effective tax rate were as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| (in millions) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Earnings from operations before income taxes |
$ | $ | $ | $ | ||||||||||||
| Effective tax rate |
% | % | % | % | ||||||||||||
| Provision for income taxes |
||||||||||||||||
| Provision for income taxes at U.S. statutory tax rate |
||||||||||||||||
| Difference between tax at effective vs. statutory rate |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
For the three months ended September 30, 2022, the difference between Kodak’s effective tax rate and the U.S. statutory rate of
For the nine months ended September 30, 2022, the difference between Kodak’s effective tax rate and the U.S. statutory rate of
During the quarter ended March 31, 2022, Kodak agreed to terms with a taxing authority outside the U.S. and settled open tax audits for years 2015 through 2018. This settlement included a cash payment of $
For the three months ended September 30, 2021, the difference between Kodak’s effective tax rate and the U.S. statutory rate of
For the nine months ended September 30, 2021, the difference between Kodak’s effective tax rate and the U.S. statutory rate of
During the quarter ended March 31, 2021, Kodak agreed to terms with a taxing authority outside the U.S. and settled open tax audits for years prior to and including 2014. For these years, Kodak originally recorded liabilities for unrecognized tax positions totaling $
NOTE 14: 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 | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (in millions) | 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Amortization of: | ||||||||||||||||||||||||||||||||
| Prior service credit | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Actuarial loss | ||||||||||||||||||||||||||||||||
| Net pension (income) expense before special termination benefits | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Special termination benefits | ||||||||||||||||||||||||||||||||
| Total net pension (income) expense | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||
The special termination benefits were incurred as a result of Kodak's restructuring actions and have been included in Restructuring costs and other in the Consolidated Statement of Operations for that period.
The Kodak Retirement Income Plan (“KRIP”) was remeasured on May 31, 2022 due to a plan amendment. The plan amendment increased the employees’ crediting rates from
As a result of the remeasurement, KRIP’s projected benefit obligation decreased $
NOTE 15: EARNINGS PER SHARE
Basic earnings per share computations are based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share computations include any dilutive effect of potential common shares. In periods with a net loss available to common shareholders, diluted earnings per share are calculated using weighted-average basic shares for that period, as utilizing diluted shares would be anti-dilutive to loss per share.
A reconciliation of the amounts used to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Less: Preferred stock cash dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock in-kind dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock deemed dividends | ( | ) | ( | ) | ( | ) | ||||||||||
| Plus: Expiration of Series A preferred stock embedded derivative | ||||||||||||||||
| Less: Earnings attributable to Series C Preferred shareholders | ( | ) | ||||||||||||||
| Net (loss) income available to common shareholders - basic and diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions of shares) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Weighted average shares — basic | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Employee stock options | ||||||||||||||||
| Unvested restricted stock units | ||||||||||||||||
| Weighted average shares — diluted | ||||||||||||||||
As a result of the net loss available to common shareholders for the three months ended September 30, 2022, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding. If Kodak reported income available to common shareholders for the three months ended September 30, 2022, the calculation of diluted earnings per share would have included the assumed vesting of
The computation of diluted earnings per share for the three and nine months ended September 30, 2022 excluded the impact of (1) the assumed conversion of $
The computation of diluted earnings per share for the three and nine months ended September 30, 2021 excluded the impact of (1) the assumed conversion of $
NOTE 16: SHAREHOLDERS’ EQUITY
The Company has
Common Stock
As of September 30, 2022 and December 31, 2021, there were
Preferred Stock
Preferred stock issued and outstanding as of September 30, 2022 consisted of
Treasury Stock
Treasury stock consisted of approximately
NOTE 17: OTHER COMPREHENSIVE INCOME
The changes in Other comprehensive income (loss), by component, were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Currency translation adjustments | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Pension and other postretirement benefit plan changes | ||||||||||||||||
| Newly established net actuarial gain (loss) | ( | ) | ||||||||||||||
| Tax Provision | ||||||||||||||||
| Newly established net actuarial gain (loss), net of tax | ( | ) | ||||||||||||||
| Reclassification adjustments: | ||||||||||||||||
| Amortization of prior service credit (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of actuarial losses (1) | ||||||||||||||||
| Total reclassification adjustments | ||||||||||||||||
| Tax provision | ||||||||||||||||
| Reclassification adjustments, net of tax | ||||||||||||||||
| Pension and other postretirement benefit plan changes, net of tax | ||||||||||||||||
| Other comprehensive income | $ | $ | $ | $ | ||||||||||||
| (1) |
Reclassified to Total Net Periodic Benefit Cost - refer to Note 14, "Retirement Plans and Other Postretirement Benefits". |
NOTE 18: SEGMENT INFORMATION
Kodak has reportable segments: Traditional Printing, Digital Printing, Advanced Materials and Chemicals and Brand. A description of Kodak’s reportable segments follows.
Traditional Printing: The Traditional Printing segment is comprised of Prepress Solutions.
Digital Printing: The Digital Printing segment is comprised of
Advanced Materials and Chemicals: The Advanced Materials and Chemicals segment is comprised of
Brand: The Brand segment contains the brand licensing business.
All Other: All Other is comprised of the operations of the Eastman Business Park, a more than
Segment financial information is shown below:
Segment Revenues
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Traditional Printing | $ | $ | $ | $ | ||||||||||||
| Digital Printing | ||||||||||||||||
| Advanced Materials and Chemicals | ||||||||||||||||
| Brand | ||||||||||||||||
| All Other | ||||||||||||||||
| Consolidated total | $ | $ | $ | $ | ||||||||||||
Segment Operational EBITDA and Consolidated Earnings from Operations Before Income Taxes
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Traditional Printing | $ | $ | $ | $ | ||||||||||||
| Digital Printing | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Advanced Materials and Chemicals | ( | ) | ||||||||||||||
| Brand | ||||||||||||||||
| Total of reportable segments | ||||||||||||||||
| All other | ||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Restructuring costs and other | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock based compensation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consulting and other costs (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Idle costs (2) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other operating (expense) income, net (3) | ( | ) | ||||||||||||||
| Interest expense (3) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Pension income excluding service cost component (3) | ||||||||||||||||
| Other income (charges), net (3) | ( | ) | ||||||||||||||
| Consolidated earnings from operations before income taxes | $ | $ | $ | $ | ||||||||||||
| (1) | Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives, investigations and litigation. |
| (2) | Consists of third-party costs such as security, maintenance and utilities required to maintain land and buildings in certain locations not used in any Kodak operations and the costs, net of any rental income received, of underutilized portions of certain properties. |
| (3) | As reported in the Consolidated Statement of Operations. |
Kodak decreased workers’ compensation reserves by approximately $
Kodak decreased workers’ compensation reserves by approximately $
Segment Measure of Profit and Loss
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”).
As demonstrated in the above table, Operational EBITDA represents the earnings from operations excluding the provision for income taxes; non-service cost components of pension and other postemployment benefits (“OPEB”) income; depreciation and amortization expense; restructuring costs and other; stock-based compensation expense; consulting and other costs; idle costs; other operating (expense) income, net (unless otherwise indicated); interest expense and other income (charges), net.
Kodak’s segments are measured using Operational EBITDA both before and after allocation of corporate SG&A. The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and Development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
NOTE 19: FINANCIAL INSTRUMENTS
Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates, which may adversely affect its results of operations and financial position. Kodak manages such exposures, in part, with derivative financial instruments. Foreign currency forward contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities. Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Kodak does not utilize financial instruments for trading or other speculative purposes.
Kodak’s foreign currency forward contracts are not designated as hedges and are marked to market through net income at the same time that the exposed assets and liabilities are remeasured through net income (both in Other (income) charges, net in the Consolidated Statement of Operations). The notional amount of such contracts open at September 30, 2022 and December 31, 2021 was approximately $
The net effect of foreign currency forward contracts in the results of operations is shown in the following table:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net loss (gain) from derivatives not designated as hedging instruments | $ | $ | ( | ) | $ | $ | ||||||||||
Kodak had
In the event of a default under the Company’s Credit Agreements, or a default under any derivative contract or similar obligation of Kodak, subject to certain minimum thresholds, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset positions with the same counterparty.
The Company concluded that the 2021 Convertible Notes are considered more akin to a debt-type instrument and that the economic characteristics and risks of certain of the embedded conversion features are not considered clearly and closely related to the Convertible Notes. The embedded conversion features not considered clearly and closely related are the conversion at the option of the holder (“Optional Conversion”), the mandatory conversion by Kodak (“Mandatory Conversion”) and the conversion in the event of a fundamental transaction by the holder at the then applicable conversion rate (“Fundamental Change”). Accordingly, these embedded conversion features were bifurcated from the Convertible Notes and separately accounted for on a combined basis as a single derivative asset or liability. The derivative was in a liability position at September 30, 2022 and December 31, 2021 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations.
The Company concluded that the Series B Preferred Stock and the Series C Preferred Stock are considered more akin to a debt-type instrument and that the economic characteristics and risks of the conversion in the event of a Fundamental Change is not considered clearly and closely related to the Series B and Series C Preferred Stock. Accordingly, this embedded conversion feature was bifurcated from both the Series B and Series C Preferred Stock and both are separately accounted for as a single derivative asset or liability. Both derivatives were in a liability position at September 30, 2022 and December 31, 2021 and were reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivatives are being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations.
Fair Value
Fair values of Kodak’s foreign currency forward contracts are determined using observable inputs (Level 2 fair value measurements) and are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using discount rates appropriate for the duration of the contracts. The gross fair value of foreign currency forward contracts in an asset position are reported in Other current assets and the gross fair value of foreign currency forward contracts in a liability position are reported in Other current liabilities in the Consolidated Statement of Financial Position. The gross fair value of forward contracts in an asset position as of both September 30, 2022 and December 31, 2021 was $
Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the three and nine months ended September 30, 2022.
The fair value of the embedded conversion features derivatives was calculated using unobservable inputs (Level 3 fair measurements). The value of the embedded derivatives associated with the Convertible Notes and Series B and Series C Preferred Stock were calculated using a binomial lattice model.
The following tables present the key inputs in the determination of fair value for the embedded conversion features:
2021 Convertible Notes:
| Valuation Date | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Total value of embedded derivative liability ($ millions) | $ | $ | ||||||
| Kodak's closing stock price | $ | $ | ||||||
| Expected stock price volatility | % | % | ||||||
| Risk free rate | % | % | ||||||
| Implied credit spread on the Convertible Notes | % | % | ||||||
Series B Preferred Stock:
| Valuation Date | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Total value of embedded derivative liability ($ millions) | $ | $ | ||||||
| Kodak's closing stock price | $ | $ | ||||||
| Expected stock price volatility | % | % | ||||||
| Risk free rate | % | % | ||||||
| Implied credit spread on the preferred stock | % | % | ||||||
Series C Preferred Stock:
| Valuation Date | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Total value of embedded derivative liability ($ millions) | $ | $ | ||||||
| Kodak's closing stock price | $ | $ | ||||||
| Expected stock price volatility | % | % | ||||||
| Risk free rate | % | % | ||||||
| Implied credit spread on the preferred stock | % | % | ||||||
The Fundamental Change values at issuance were calculated as the difference between the total value of the Convertible Notes, Series B or Series C Preferred Stock, as applicable, and the sum of the net present value of the cash flows if the Convertible Notes are repaid at their maturity date or Series B and Series C Preferred Stock are redeemed on their redemption date and the values of the other embedded derivatives. The Fundamental Change values reduce the value of the embedded conversion features derivative liability. Other than events that alter the likelihood of a fundamental change or reorganization event, the value of the Fundamental Change reflects the value as of the issuance date, amortized for the passage of time.
The fair values of long-term debt (Level 2 fair value measurements) are determined by reference to quoted market prices of similar instruments, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates. The fair values of long-term borrowings were $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report on Form 10-Q includes “forward–looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995.
Forward–looking statements include statements concerning Kodak’s plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, liquidity, investments, financing needs and business trends and other information that is not historical information. When used in this document, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “predicts,” “forecasts,” “strategy,” “continues,” “goals,” “targets” or future or conditional verbs, such as “will,” “should,” “could,” or “may,” and similar words and expressions, as well as statements that do not relate strictly to historical or current facts, are intended to identify forward–looking statements. All forward–looking statements, including management’s examination of historical operating trends and data, are based upon Kodak’s current expectations and assumptions. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in or implied by such forward-looking statements. Important factors that could cause actual events or results to differ materially from the forward-looking statements include, among others, the risks and uncertainties described in more detail in the Company’s Annual Report on Form 10–K for the year ended December 31, 2021 under the headings “Business,” “Risk Factors,” “Legal Proceedings,” and/or “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources,” in the corresponding sections of this report on Form 10-Q and the Company’s quarterly reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, and in other filings the Company makes with the SEC from time to time, as well as the following:
| ● |
Kodak’s ability to improve and sustain its operating structure, cash flow, profitability and other financial results; |
| ● |
Kodak’s ability to achieve strategic objectives, cash forecasts, financial projections, and projected growth; |
| ● |
Kodak’s ability to achieve the financial and operational results contained in its business plans; |
| ● |
Kodak’s ability to comply with the covenants in its various credit facilities; |
| ● |
Kodak’s ability to fund continued investments, capital needs and restructuring payments and service its debt and Series B Preferred Stock and Series C Preferred Stock; |
| ● |
The impact of the global economic environment, including inflationary pressures, or medical epidemics such as the COVID-19 pandemic, including the restrictions and other actions taken in response to the COVID-19 pandemic, and Kodak’s ability to effectively mitigate associated increased costs of materials, labor, shipping and operations, and fluctuations in demand; |
| ● |
The performance by third parties of their obligations to supply products, components or services to Kodak and Kodak’s ability to address supply chain disruptions and continue to obtain raw materials and components available from single or limited sources of supply, which may be adversely affected by the COVID-19 pandemic; |
| ● |
The impacts of the war in Ukraine and the international response thereto on Kodak’s business and operations, including the cost of and availability of aluminum and other raw materials and components, shipping costs, transit times and energy costs; |
| ● |
Changes in foreign currency exchange rates, commodity prices, interest rates and tariff rates; |
| ● |
Continued sufficient availability of borrowings and letters of credit under the Amended ABL Credit Agreement and L/C Facility Agreement, Kodak’s ability to obtain additional or alternate financing if and as needed, Kodak’s continued ability to manage world-wide cash through inter-company loans, distributions and other mechanisms, and Kodak's ability to provide or facilitate financing for its customers; |
| ● |
The impact of the investigations, litigation and claims arising out of the circumstances surrounding the announcement on July 28, 2020, by the U.S. International Development Finance Corporation of the signing of a non‐binding letter of interest to provide a subsidiary of Kodak with a potential loan to support the launch of an initiative for the manufacture of pharmaceutical ingredients for essential generic drugs; |
| ● |
Kodak’s ability to effectively anticipate technology and industry trends and develop and market new products, solutions and technologies, including products based on its technology and expertise that relate to industries in which it does not currently conduct material business; |
| ● |
Kodak’s ability to effectively compete with large, well-financed industry participants; |
| ● |
Kodak’s ability to effect strategic transactions, such as investments, acquisitions, strategic alliances, divestitures and similar transactions, or to achieve the benefits sought to be achieved from such strategic transactions; and |
| ● |
The potential impact of force majeure events, cyber‐attacks or other data security incidents that could disrupt or otherwise harm Kodak’s operations. |
Future events and other factors may cause Kodak’s actual results to differ materially from the forward–looking statements. All forward–looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included or referenced in this document.
Kodak undertakes no obligation to update or revise forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, except as required by law.
EXECUTIVE OVERVIEW
Kodak is a global manufacturer focused on commercial print and advanced materials and chemicals. Kodak provides industry-leading hardware, software, consumables and services primarily to customers in commercial print, packaging, publishing, manufacturing and entertainment. With 31,000 patents earned over 130 years of R&D, Kodak believes in the power of technology and science to enhance what the world sees and creates. Kodak’s innovative, award-winning products, combined with its customer-first approach, allows Kodak to attract customers worldwide. Kodak is committed to environmental stewardship, including industry leadership in developing sustainable solutions for print.
Consolidated revenues in the three and nine months ended September 30, 2022 were $289 million and $900 million, respectively, improvements of $2 million (1%) and $57 million (7%) when compared to the three and nine months ended September 30, 2021, respectively. Currency impacted revenue unfavorably in the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 ($22 million and $51 million, respectively).
Traditional Printing’s revenues, which accounted for 58% and 59% of Kodak’s total revenues for the three and nine months ended September 30, 2022, respectively, improved by $3 million (2%) and $52 million (11%) compared to the prior year quarter and year-to-date periods, respectively. For the three months ended September 30, 2022, volume for SONORA Process Free Plates declined by 10% compared to the prior year period due to a slowdown in demand in the current year quarter as a result of global economic conditions. For the nine months ended September 30, 2022, volume for SONORA Process Free Plates increased by 6% compared to the prior year period. Digital Printing revenues declined $3 million (5%) and $15 million (8%) in the three and nine months ended September 30, 2022, respectively, while Advanced Materials and Chemicals revenue improved $3 million (5%) and $18 million (12%), respectively.
Impact of COVID‐19 and Other Global Events:
Kodak's products are sold and serviced in numerous countries across the globe with more than half of sales generated outside the U.S. Current global economic conditions remain highly volatile due to the ongoing COVID‐19 pandemic, heightened levels of inflation, unfavorable foreign exchange rates, the war in Ukraine, and other global events which impact Kodak’s operations. Kodak is experiencing supply chain disruptions, shortages in materials and labor, and increased labor, material and distribution costs as well as volume declines for certain businesses.
Kodak has implemented numerous measures to mitigate the challenges associated with supply chain disruptions and shortages in materials, including increasing safety stock on certain materials, increasing lead‐times, providing suppliers with longer forecasts of future demand and certifying additional sources or substitute materials where possible. These measures have enabled Kodak to largely meet current demand. Kodak has also implemented various pricing actions in response to increased labor, material and distribution costs.
The ongoing impact of the COVID‐19 pandemic, the war in Ukraine, changes in global economic conditions and other global events on Kodak’s operations and financial performance remains uncertain and will depend on several factors such as the duration of supply chain disruptions, duration of the slowdown in customer demand, the ability to secure raw materials and components, the ability to offset higher labor, material and distribution costs through pricing actions and the duration of the COVID‐19 pandemic, including vaccination coverage, infection rates, as well as local government restrictions. Kodak expects the ability to continue to secure raw materials and components, the ability to offset higher raw material costs through surcharges, and the potential impact of economic conditions on customer demand will remain a challenge in future periods.
Kodak continues to work closely with government and health officials in the jurisdictions where it operates to protect employees worldwide, with particular measures in place for those working in plants and distribution facilities. Kodak closed its manufacturing facility located in Shanghai, China in April 2022 in response to a mandatory government lockdown. The mandatory government lockdown ended on June 1, 2022 and Kodak’s Shanghai, China manufacturing facility has resumed operations. The temporary closure did not have a material impact on Kodak’s financial statements. None of Kodak’s other manufacturing facilities have been ordered to close by governmental authorities.
Kodak also continues to monitor the rapidly evolving events surrounding the war in Ukraine and the various sanctions imposed in response to the war. Kodak is in compliance with all sanctions. Kodak is experiencing worldwide supply constraints for aluminum and electronic components, and increased energy and transportation costs due in part to the war in Ukraine. The extent to which the military conflict in Ukraine will impact the global economy and Kodak's business and operations remains uncertain.
The war in Ukraine and the international response have disrupted Kodak’s ability to operate its Russian subsidiary in the ordinary course, affecting its ability to pay vendors and employees, receive amounts owed from customers in Russia and deliver product. The direct operations of Kodak’s Russian subsidiary are not material to the Company’s financial statements (less than 1% of total consolidated revenues for 2021), and there were no material impacts to the consolidated results as of and for the quarter and year-to-date periods ended September 30, 2022. Kodak is in the process of an orderly winding down of its Russian subsidiary and direct Russian operations.
Both the Traditional Printing and Digital Printing segments have been impacted by supply chain disruptions, travel restrictions, higher raw material costs and increased labor costs. To mitigate the impact of higher aluminum, energy and packaging costs, the Traditional Printing segment implemented certain pricing actions including surcharges on purchases of plates largely beginning in the latter part of the second quarter of 2021 that continue to be periodically reviewed and adjusted accordingly. Due to current global economic conditions and pricing actions, the Traditional Printing Segment is experiencing a slowdown in customer demand that negatively impacted volume. Kodak has implemented actions in response to a potential slowdown in customer demand, including supply chain and workforce optimization, productivity improvements and other cost savings projects. However, the potential worsening of economic conditions and the negative impact on customer demand due to pricing actions could unfavorably impact net sales, gross margin and cash flows in future periods.
The Advanced Materials and Chemicals segment has experienced supply chain disruptions, shortages associated with raw materials as well as labor shortages in certain manufacturing areas. Increased demand for consumer film products along with manufacturing equipment limitations and labor shortages have contributed to increased backorders. Kodak has increased headcount in this segment to better meet demand, but supply will continue to be constrained by manufacturing equipment limitations without further capital improvements.
Kodak’s strategy:
The film industry and segments within the print industry face competition from digital substitution. Kodak’s strategy is to:
| ● |
Focus product investment in core competency areas of print and advanced materials, leveraging Kodak’s proprietary technologies to deliver technologically advanced products in the product goods packaging, graphic communications, and functional printing markets; |
| ● |
Grow revenues through a focus on customers across Kodak’s print divisions, increasing overall share; |
| ● |
Promote the use of film and expand the applications of Kodak’s film and chemicals to best utilize the existing infrastructure; and |
| ● |
Continue to streamline processes to drive cost reductions and improve operating leverage. |
A discussion of opportunities and challenges related to Kodak’s strategy follows:
| ● |
Traditional Printing’s digital plate products include traditional digital plates and KODAK SONORA Process Free Plates. SONORA Process Free Plates allow Kodak customers to skip the plate processing step prior to mounting plates on a printing press. This improvement in the printing process saves time and costs for customers. Also, SONORA Process Free Plates reduce the environmental impact of the printing process because they eliminate the use of chemicals (including solvents), water and power that is otherwise required to process a traditional plate. The segment is experiencing challenges from higher prices and availability of raw materials, digital substitution and competitive pricing pressures. Kodak seeks to mitigate the impact of increases in manufacturing costs, including aluminum prices, through a combination of surcharges and price increases, improved production efficiency and cost reduction initiatives. In addition, Kodak seeks to offset the impact of short-term and long‐term market dynamics on pricing and volume pressures through innovations in Kodak product lines, including investing in digital print technologies. |
| ● |
In Digital Printing, the PROSPER business is expected to grow as the legacy VERSAMARK business continues to decline as a percentage of the segment’s total revenue. The PROSPER Inkjet Systems business is expected to continue to build profitability. Kodak launched the PROSPER 7000 Turbo Press in June 2022. The PROSPER 7000 Turbo Press enables commercial, publishing and newspaper printers to compete more effectively with offset and to shift more long run jobs from conventional printing processes to inkjet. Investment in the next generation technology, ULTRASTREAM, is focused on the ability to place ULTRASTREAM writing systems in Kodak branded presses and in various original equipment manufacturers in applications ranging from commercial print to packaging. The first flexible packaging printing system utilizing Kodak’s ULTRASTREAM inkjet technology was placed during the second quarter of 2022. In addition, Kodak officially launched the KODAK PROSPER ULTRA 520 Digital Press utilizing Kodak’s ULTRASTREAM inkjet technology, which offers offset print quality in a smaller footprint. The Electrophotographic Printing Solutions business launched a new digital press at the end of the second quarter of 2022, the KODAK ASCEND, aimed at the growing retail, point of purchase and small packaging markets. |
| ● |
Advanced Materials and Chemicals is using Kodak’s deep expertise in chemistry and strengths in deposition and coating processes that come from decades of experience in film manufacturing to work on new initiatives: |
| o |
Electric Vehicle (“EV”)/Energy Storage Battery Material Manufacturing - Coating of substrates is a critical aspect of manufacturing materials for batteries and Kodak plans to capitalize on its expertise in coating technology to develop opportunities in this area. Kodak is currently in the process of expanding its pilot coating facility. On July 13, 2022, Kodak invested $25 million to acquire a minority preferred equity interest in Wildcat Discovery Technologies, Inc. (“Wildcat”), a private technology company that uses proprietary methods to research and develop new battery materials, including an EV battery. Kodak has also entered into an agreement to provide coating and engineering services in collaboration with Wildcat to develop and scale film coating technologies. Wildcat has granted Kodak certain rights to negotiate a production or licensing arrangement with Wildcat when and if Wildcat’s technology reaches commercial readiness. |
| o |
Light-Blocking Technology - Kodak plans to leverage a proprietary technology initially developed for electrophotographic toners to commercialize a carbon‐less fabric coating designed to offer superior light management, from complete blackout to selective light filtering, and coating compatibility with an unmatched range of fabrics. Kodak is installing a production-scale coating machine to coat fabrics in Eastman Business Park, located in Rochester, NY. |
| o |
Transparent Antennas - Kodak plans to leverage its proprietary copper micro‐wire technologies and high‐resolution printing expertise to contract‐manufacture custom transparent antennas for automotive, commercial construction, and other applications requiring excellent radio frequency (“RF”) and optical performance. The integration of antennas is growing worldwide due to the rapid expansion of 5G and an overall increase in RF communications, and the ubiquity of glass surfaces makes transparent antennas attractive for multiple end‐use markets. |
| o |
Reagent Manufacturing - Kodak plans to capitalize on its existing chemical manufacturing expertise, including current production of unregulated Key Starting Materials for pharmaceuticals, to implement an expansion into manufacturing Diagnostic Test Reagent solutions. Kodak has started construction of a lab and manufacturing facility to manufacture reagents for healthcare applications within an existing building located at Eastman Business Park. |
| ● |
Film and related component manufacturing operations and Kodak Research Laboratories utilize capacity at Eastman Business Park, which helps cost absorption for both Kodak operations and tenants at Eastman Business Park. |
| ● |
Kodak plans to capitalize on its intellectual property through new business or licensing opportunities in 3D printing materials, smart material applications, and printed electronics markets. |
RESULTS OF OPERATIONS
2022 COMPARED TO 2021
THIRD QUARTER RESULTS OF OPERATIONS
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||||||||||
| % of |
% of |
% of |
% of |
|||||||||||||||||||||||||||||||||||||
| (in millions) |
2022 |
Sales |
2021 |
Sales |
$ Change |
2022 |
Sales |
2021 |
Sales |
$ Change |
||||||||||||||||||||||||||||||
| Revenues |
$ | 289 | $ | 287 | $ | 2 | $ | 900 | $ | 843 | $ | 57 | ||||||||||||||||||||||||||||
| Cost of revenues |
246 | 244 | 2 | 773 | 712 | 61 | ||||||||||||||||||||||||||||||||||
| Gross profit |
43 | 15 | % | 43 | 15 | % | — | 127 | 14 | % | 131 | 16 | % | (4 | ) | |||||||||||||||||||||||||
| Selling, general and administrative expenses |
39 | 13 | % | 43 | 15 | % | (4 | ) | 123 | 14 | % | 131 | 16 | % | (8 | ) | ||||||||||||||||||||||||
| Research and development costs |
8 | 3 | % | 8 | 3 | % | — | 26 | 3 | % | 24 | 3 | % | 2 | ||||||||||||||||||||||||||
| Restructuring costs and other |
3 | 1 | % | — | 0 | % | 3 | 3 | 0 | % | 1 | 0 | % | 2 | ||||||||||||||||||||||||||
| Other operating expense (income), net |
— | 0 | % | 1 | 0 | % | (1 | ) | — | 0 | % | (6 | ) | (1 | )% | 6 | ||||||||||||||||||||||||
| Loss from operations before interest expense, pension income excluding service cost component, other (income) charges, net and income taxes |
(7 | ) | (2 | )% | (9 | ) | (3 | )% | 2 | (25 | ) | (3 | )% | (19 | ) | (2 | )% | (6 | ) | |||||||||||||||||||||
| Interest expense |
10 | 3 | % | 9 | 3 | % | 1 | 29 | 3 | % | 23 | 3 | % | 6 | ||||||||||||||||||||||||||
| Pension income excluding service cost component |
(20 | ) | (7 | )% | (25 | ) | (9 | )% | 5 | (77 | ) | (9 | )% | (76 | ) | (9 | )% | (1 | ) | |||||||||||||||||||||
| Other (income) charges, net |
— | 0 | % | (2 | ) | (1 | )% | 2 | 2 | 0 | % | (1 | ) | (0 | )% | 3 | ||||||||||||||||||||||||
| Income from operations before income taxes |
3 | 1 | % | 9 | 3 | % | (6 | ) | 21 | 2 | % | 35 | 4 | % | (14 | ) | ||||||||||||||||||||||||
| Provision for income taxes |
1 | 0 | % | 1 | 0 | % | — | 2 | 0 | % | 5 | 1 | % | (3 | ) | |||||||||||||||||||||||||
| Net income |
$ | 2 | 1 | % | $ | 8 | 3 | % | $ | (6 | ) | $ | 19 | 2 | % | $ | 30 | 4 | % | $ | (11 | ) | ||||||||||||||||||
Revenue
Current Quarter
For the three months ended September 30, 2022 revenues improved $2 million compared with the same period in 2021, driven by improved pricing within Traditional Printing ($39 million), improved pricing and product mix within Advanced Materials and Chemicals ($6 million) and improved product mix in Digital Printing ($2 million). Partially offsetting these favorable impacts was lower volume in Traditional Printing and Advanced Materials and Chemicals ($21 million and $3 million, respectively) and unfavorable foreign currency ($22 million). See segment discussions for additional details.
Year-to-Date
For the nine months ended September 30, 2022 revenues improved $57 million compared with the same period in 2021, primarily due to improved pricing within Traditional Printing ($112 million), improved pricing and product mix as well as increased volume within Advanced Materials and Chemicals ($11 million and $8 million, respectively), improved product mix in Digital Printing ($3 million) and improved volume in Brand ($2 million). Partially offsetting these favorable impacts was lower volume in Traditional Printing and Digital Printing ($19 million and $9 million, respectively) and unfavorable foreign currency ($51 million). See segment discussions for additional details.
Gross Profit
Current Quarter
Gross profit for the three months ended September 30, 2022 was flat compared with the same period in 2021, primarily due to improved pricing within Traditional Printing ($42 million), improved pricing and product mix in Advanced Materials and Chemicals ($5 million) and a decrease in workers' compensation reserves ($2 million). Partially offsetting these favorable impacts was higher aluminum costs in Traditional Printing ($20 million), higher manufacturing costs and lower volume in Traditional Printing ($20 million), higher manufacturing costs in Digital Printing ($3 million) and unfavorable foreign currency ($6 million). See segment discussions for additional details.
Year-to-Date
Gross profit for the nine months ended September 30, 2022 declined approximately $4 million compared with the same period in 2021, primarily due to higher aluminum costs in Traditional Printing ($64 million), higher manufacturing costs and lower volumes in Traditional Printing ($47 million), higher manufacturing costs in Digital Printing ($9 million) and Advanced Materials and Chemicals ($8 million) and unfavorable foreign currency ($12 million). Partially offsetting these unfavorable impacts was improved pricing in Traditional Printing ($112 million), improved pricing and product mix as well as higher volume in Advanced Materials and Chemicals ($9 million and $4 million, respectively), higher margins in Digital Printing and improved volume in Brand (each $2 million) and a decrease in workers’ compensation reserves ($5 million). See segment discussions for additional details.
Selling, General and Administrative Expenses
Consolidated SG&A decreased $4 million and $8 million in the three and nine months ended September 30, 2022, respectively. The decrease in the three months ending September 30, 2022 compared to the prior year period was primarily due to lower consulting and other costs primarily associated with investigations and litigation ($2 million) and a decrease in workers' compensation reserves ($1 million). The decrease in the nine months ended September 30, 2022 was primarily due to lower consulting and other costs primarily associated with investigations and litigation ($6 million), a decrease in workers’ compensation reserves ($3 million), lower equity based compensation ($1 million) and favorable foreign currency ($2 million) partially offset by an increase in selling and administrative costs ($4 million).
Research and Development Costs
Consolidated R&D expenses were flat for the three months ended September 30, 2022 and increased $2 million in the nine months ended September 30, 2022.
Pension Income Excluding Service Cost Component
Pension income excluding service cost component decreased $5 million in the three months ended September 30, 2022 and increased $1 million in the nine months ended September 30, 2022. As a result of the remeasurement of the KRIP plan on May 31, 2022, total pension income from continuing operations before special termination benefits, curtailments and settlements is expected to be approximately $88 million in 2022, a decrease of $25 million from the previous estimate driven by an increase in the discount rate.
REPORTABLE SEGMENTS
Kodak has four reportable segments: Traditional Printing, Digital Printing, Advanced Materials and Chemicals, and Brand. The balance of Kodak’s operations, which do not meet the criteria of a reportable segment, are reported in All Other and primarily represent the Eastman Business Park operations. Refer to the 2021 Form 10-K for a description of the Company’s segments.
Segment Revenues
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| (in millions) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Traditional Printing |
$ | 169 | $ | 166 | $ | 535 | $ | 483 | ||||||||
| Digital Printing |
55 | 58 | 169 | 184 | ||||||||||||
| Advanced Materials and Chemicals |
58 | 55 | 173 | 155 | ||||||||||||
| Brand |
3 | 4 | 11 | 10 | ||||||||||||
| All Other |
4 | 4 | 12 | 11 | ||||||||||||
| Consolidated total |
$ | 289 | $ | 287 | $ | 900 | $ | 843 | ||||||||
Segment Operational EBITDA and Consolidated Earnings from Operations Before Income Taxes
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| (in millions) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Traditional Printing |
$ | 7 | $ | 5 | $ | 15 | $ | 16 | ||||||||
| Digital Printing |
(6 | ) | (2 | ) | (15 | ) | (2 | ) | ||||||||
| Advanced Materials and Chemicals |
3 | — | 1 | (3 | ) | |||||||||||
| Brand |
3 | 3 | 10 | 8 | ||||||||||||
| All other |
1 | — | 2 | 1 | ||||||||||||
| Depreciation and amortization |
(8 | ) | (7 | ) | (22 | ) | (23 | ) | ||||||||
| Restructuring costs and other |
(3 | ) | — | (3 | ) | (1 | ) | |||||||||
| Stock based compensation |
(1 | ) | (2 | ) | (4 | ) | (6 | ) | ||||||||
| Consulting and other costs (1) |
(2 | ) | (4 | ) | (7 | ) | (13 | ) | ||||||||
| Idle costs (2) |
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
| Other operating (expense) income, net (3) |
— | (1 | ) | - | 6 | |||||||||||
| Interest expense (3) |
(10 | ) | (9 | ) | (29 | ) | (23 | ) | ||||||||
| Pension income excluding service cost component (3) |
20 | 25 | 77 | 76 | ||||||||||||
| Other income (charges), net (3) |
— | 2 | (2 | ) | 1 | |||||||||||
| Consolidated earnings from operations before income taxes |
$ | 3 | $ | 9 | $ | 21 | $ | 35 | ||||||||
| (1) |
Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives, investigations and litigation. |
| (2) |
Consists of third-party costs such as security, maintenance and utilities required to maintain land and buildings in certain locations not used in any Kodak operations and the costs, net of any rental income received, of underutilized portions of certain properties. |
| (3) |
As reported in the Consolidated Statement of Operations. |
Kodak decreased workers’ compensation reserves by approximately $5 million and $13 million in the three and nine months ended September 30, 2022, respectively, driven by changes in discount rates. The decrease in reserves in the three months ended September 30, 2022 impacted gross profit by approximately $3 million and R&D expenses and SG&A expenses each by approximately $1 million. The decrease in reserves in the nine months ended September 30, 2022 impacted gross profit by approximately $8 million, R&D expenses by approximately $1 million and SG&A expenses by approximately $4 million.
Kodak decreased workers’ compensation reserves by approximately $1 million and $4 million in the three and nine months ended September 30, 2021, respectively, driven by changes in discount rates. The decrease in reserves in the three and nine months ended September 30, 2021 impacted gross profit by approximately $1 million and $3 million, respectively. SG&A expenses were not impacted in the three months ended September 30, 2021 and were impacted by approximately $1 million in the nine months ended September 30, 2021.
Segment Measure of Profit and Loss
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”). Operational EBITDA represents the earnings from operations excluding the provision for income taxes; non-service cost components of pension and OPEB income; depreciation and amortization expense; restructuring costs and other; stock-based compensation expense; consulting and other costs; idle costs; other operating (expense) income, net (unless otherwise indicated); interest expense and other income (charges), net.
Kodak’s segments are measured using Operational EBITDA both before and after the allocation of corporate SG&A expenses. The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
TRADITIONAL PRINTING SEGMENT
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
| (in millions) |
2022 |
2021 |
$ Change |
2022 |
2021 |
$ Change |
||||||||||||||||||
| Revenues |
$ | 169 | $ | 166 | $ | 3 | $ | 535 | $ | 483 | $ | 52 | ||||||||||||
| Operational EBITDA |
$ | 7 | $ | 5 | $ | 2 | $ | 15 | $ | 16 | $ | (1 | ) | |||||||||||
Revenues
Current Quarter
The increase in Traditional Printing revenues for the three months ended September 30, 2022 of approximately $3 million reflected improved pricing in Prepress Solutions consumables ($42 million) and improved volumes in Prepress Solutions equipment ($2 million) partially offset by reduced volumes in Prepress Solutions consumables ($23 million), less favorable product mix in Prepress Solutions equipment ($2 million) and unfavorable foreign currency ($16 million).
Year-to-Date
The increase in Traditional Printing revenues for the nine months ended September 30, 2022 of approximately $52 million reflected improved pricing in Prepress Solutions consumables ($113 million) partially offset by reduced volumes in Prepress Solutions consumables ($19 million), less favorable product mix in Prepress Solutions equipment ($2 million) and unfavorable foreign currency ($39 million).
Operational EBITDA
Current Quarter
Traditional Printing Operational EBITDA for the three months ended September 30, 2022 improved $2 million reflecting price improvements in Prepress Solutions consumables ($42 million) partially offset by higher aluminum costs ($20 million), increased manufacturing costs ($20 million) driven by lower volumes and increases in other costs such as utilities, transportation and supplies and unfavorable foreign currency ($2 million).
Year-to-Date
Traditional Printing Operational EBITDA for the nine months ended September 30, 2022 decreased by $1 million compared to the prior year period reflecting higher aluminum costs ($64 million), increased manufacturing costs ($47 million) driven by increases in other costs such as utilities, transportation and supplies and lower volumes as well as unfavorable foreign currency ($4 million). The higher costs were partially offset by pricing improvements ($113 million) in Prepress Solutions consumables.
DIGITAL PRINTING SEGMENT
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
| (in millions) |
2022 |
2021 |
$ Change |
2022 |
2021 |
$ Change |
||||||||||||||||||
| Revenues |
$ | 55 | $ | 58 | $ | (3 | ) | $ | 169 | $ | 184 | $ | (15 | ) | ||||||||||
| Operational EBITDA |
$ | (6 | ) | $ | (2 | ) | $ | (4 | ) | $ | (15 | ) | $ | (2 | ) | $ | (13 | ) | ||||||
Revenues
Current Quarter
The decline in Digital Printing revenues for the three months ended September 30, 2022 of approximately $3 million primarily reflected volume declines in Electrophotographic Printing Solutions consumables and service ($2 million) and unfavorable foreign currency ($5 million) partially offset by improved volume in PROSPER equipment ($3 million) and more favorable product mix in Electrophotographic Printing Solutions equipment ($1 million).
Year-to-Date
The decline in Digital Printing revenues for the nine months ended September 30, 2022 of approximately $15 million primarily reflected volume declines in Electrophotographic Printing Solutions equipment as well as consumables and service ($3 million and $2 million, respectively), volume declines in PROSPER equipment ($1 million), volume declines in VERSAMARK consumables and service ($1 million) and unfavorable foreign currency ($10 million). The unfavorable impacts were partially offset by improved product mix in PROSPER annuities and Electrophotographic Printing Solutions equipment (each $2 million).
Operational EBITDA
Current Quarter
Digital Printing Operational EBITDA for the three months ended September 30, 2022 declined $4 million primarily reflecting increased manufacturing costs and unfavorable foreign exchange (each $3 million) partially offset by higher margins on PROSPER equipment ($1 million) and a reduction in workers' compensation reserves ($2 million).
Year-to-Date
Digital Printing Operational EBITDA for the nine months ended September 30, 2022 declined $13 million primarily reflecting increased manufacturing costs ($9 million), increased spending on R&D projects ($2 million), unfavorable product mix in Electrophotographic Printing Solutions consumables and service ($1 million) and unfavorable foreign currency ($4 million) partially offset by higher margins on Electrophotographic Printing Solutions equipment ($1 million) and a decrease in workers’ compensation reserves ($3 million).
ADVANCED MATERIALS AND CHEMICALS SEGMENT
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
| (in millions) |
2022 |
2021 |
$ Change |
2022 |
2021 |
$ Change |
||||||||||||||||||
| Revenues |
$ | 58 | $ | 55 | $ | 3 | $ | 173 | $ | 155 | $ | 18 | ||||||||||||
| Operational EBITDA |
$ | 3 | $ | — | $ | 3 | $ | 1 | $ | (3 | ) | $ | 4 | |||||||||||
Revenues
Current Quarter
Advanced Materials and Chemicals revenues for the three months ended September 30, 2022 improved $3 million primarily from pricing and product mix improvements in Industrial Film and Chemicals ($5 million) partially offset by reduced volume in Industrial Film and Chemicals ($3 million).
Year-to-Date
Advanced Materials and Chemicals revenues for the nine months ended September 30, 2022 improved $18 million primarily from improved pricing and product mix in Industrial Film and Chemicals ($10 million) and volume improvements in Motion Picture and Industrial Film and Chemicals ($5 million and $4 million, respectively) partially offset by unfavorable foreign currency ($2 million).
Operational EBITDA
Current Quarter
Advanced Materials and Chemicals Operational EBITDA improved $3 million for the three months ended September 30, 2022 reflecting pricing and product mix improvements in Industrial Film and Chemicals ($5 million) and a reduction in workers' compensation reserves ($2 million), partially offset by increased manufacturing costs for Industrial Film and Chemicals and unfavorable foreign currency (each $1 million).
Year-to-Date
Advanced Materials and Chemicals Operational EBITDA improved $4 million for the nine months ended September 30, 2022 reflecting improved pricing and product mix and increased volume in Industrial Film and Chemicals ($8 million and $3 million, respectively), and a reduction in workers’ compensation reserves ($4 million). The favorable impacts were partially offset by increased manufacturing costs for Industrial Film and Chemicals ($8 million) and unfavorable foreign currency ($2 million).
BRAND SEGMENT
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
| (in millions) |
2022 |
2021 |
$ Change |
2022 |
2021 |
$ Change |
||||||||||||||||||
| Revenues |
$ | 3 | $ | 4 | $ | (1 | ) | $ | 11 | $ | 10 | $ | 1 | |||||||||||
| Operational EBITDA |
$ | 3 | $ | 3 | $ | — | $ | 10 | $ | 8 | $ | 2 | ||||||||||||
There were no material changes in Brand revenues or operational EBITDA for the three and nine months ended September 30, 2022 compared to the prior year quarter and year-to-date period.
RESTRUCTURING COSTS AND OTHER
Kodak recorded $3 million of charges for both the three and nine months ended September 30, 2022 in Restructuring costs and other in the Consolidated Statement of Operations.
Kodak made cash payments related to restructuring of approximately $1 million and $4 million during the three and nine months ended September 30, 2022, respectively.
The restructuring actions implemented in the first nine months of 2022 are expected to generate future annual cash savings of approximately $7 million, which are expected to reduce future annual SG&A and Cost of revenues expenses by $6 million and $1 million, respectively. The majority of the annual savings are expected to be in effect by the end of the year as actions are completed.
LIQUIDITY AND CAPITAL RESOURCES
Management’s Assessment of Liquidity
Kodak ended the quarter with a cash balance of $216 million, a decrease of $146 million from December 31, 2021. On June 15, 2022, Kodak exercised its right to draw down in full an additional $50 million in aggregate principal pursuant to the Term Loan Credit Agreement and received net proceeds of $49 million. On July 13, 2022, Kodak invested $25 million of the proceeds received from the Delayed Draw Term Loans to acquire a minority preferred equity interest in Wildcat.
The financing transactions entered into during the first quarter of 2021 and the full draw down of the Delayed Draw Term Loans in the second quarter of 2022 provided additional liquidity to the Company to fund on‐going operations and obligations, invest in growth opportunities in Kodak’s businesses of print and advanced materials and chemicals and for corporate infrastructure investments expected to contribute to improvements in cash flow.
Available liquidity includes cash balances and the Excess Availability under the Amended ABL Credit Agreement (see below for the definition of Excess Availability). The amount of available liquidity is subject to fluctuations and includes cash balances held by various entities worldwide. At September 30, 2022 and December 31, 2021 approximately $145 million and $250 million, respectively, of cash and cash equivalents were held within the U.S. and approximately $71 million and $112 million, respectively, of cash and cash equivalents were held outside the U.S. Cash balances held outside the U.S. are generally required to support local country operations and may have high tax costs or other limitations that delay the ability to repatriate, and therefore may not be readily available for transfer to other jurisdictions. Kodak utilizes cash balances outside the U.S. to fund needs in the U.S. through the use of inter-company loans.
As of September 30, 2022 and December 31, 2021, outstanding inter-company loans to the U.S. were $386 million and $418 million, respectively, which includes short-term inter-company loans from Kodak’s international finance center of $88 million and $119 million, respectively. In China, where approximately $28 million and $42 million of cash and cash equivalents was held as of September 30, 2022 and December 31, 2021, respectively, there are limitations related to net asset balances that may impact the ability to make cash available to other jurisdictions in the world. Under the terms of the Amended ABL Credit Agreement, the Company is permitted to invest up to $75 million in Restricted Subsidiaries that are not Loan Parties and in joint ventures or Unrestricted Subsidiaries that are not party to the Amended ABL Credit Agreement.
As of September 30, 2022, the Company’s Hong Kong subsidiary had an $89 million inter-company loan from one of the Company’s Chinese subsidiaries with a maturity date of November 16, 2022, the proceeds of which were in turn loaned to the Company. The Hong Kong and Chinese subsidiaries have agreed to extend the maturity date of this loan by two years consistent with past practices, which extension is subject to approval from local regulators. While the Company has routinely obtained such approval over the last several years, the local regulators have objected to this extension and the Company is in discussions with the local regulators and local lenders regarding alternatives. Based on prior experience the Company believes it will be able to reach an acceptable extension arrangement; however, given the current macro-economic conditions there are no assurances the maturity date or payment terms of this inter-company loan can be extended, or the loan refinanced, or that cash will be able to be repatriated if payment of the inter-company loan is made. If the inter-company loan is not extended, refinanced or paid by the end of the 30-day grace period following notice by the Chinese subsidiary after a failure to pay on maturity, the Hong Kong subsidiary would default on the inter-company loan, however, such default would not constitute a cross-default under the Company’s Term Loan Credit Facility or Convertible Notes because the Company has obtained an advance waiver for such occurrence under such facilities. If necessary, the Company intends to prevent a cross-default under its other credit facilities by either obtaining requisite waivers under such facilities or paying down the principal balance of the inter-company loan to a level that would prevent any default on the inter-company loan from resulting in a cross-default under such facilities. Any default under the inter-company loan may adversely affect the operations of the Company’s Chinese subsidiaries or the Company’s interaction with those subsidiaries.
The Company had issued approximately $43 million and $44 million letters of credit under the L/C Facility Agreement as of September 30, 2022 and December 31, 2021, respectively. The letters of credit under the L/C Facility Agreement are collateralized by cash collateral (L/C Cash Collateral). The L/C Cash Collateral was $44 million and $45 million at September 30, 2022 and December 31, 2021, respectively, which was classified as Restricted Cash.
The Company had issued approximately $51 million and $46 million letters of credit under the Amended ABL Credit Agreement as of September 30, 2022 and December 31, 2021, respectively. Under both the Amended ABL Credit Agreement and the ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($11.25 million as of both September 30, 2022 and December 31, 2021), which is tested at the end of each month. Excess Availability was $30 million and $27 million as of September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, Kodak is not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0.
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.
Kodak intends to continue to maintain Excess Availability above the minimum threshold. The borrowing base is supported by Eligible Receivables, Eligible Inventory and Eligible Equipment. As noted above, since Excess Availability was greater than 12.5% of lender commitments Kodak was not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. As of September 30, 2022 Fixed Charges (as defined in the ABL Credit Agreement) exceeded EBITDA by approximately $76 million, therefore the Fixed Charges Coverage Ratio was less than 1.0 to 1.0.
Under the Amended ABL Credit Agreement and L/C Facility Agreement the Company is required to maintain Minimum Liquidity of at least $80 million, which is tested on the last day of each fiscal quarter. Minimum Liquidity was $143 million and $250 million at September 30, 2022 and December 31, 2021, respectively. 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.
The maturity date of the Amended ABL Credit Agreement is 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 Loans, 2021 Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the foregoing. Should the Company not amend, refinance or extend the Amended ABL Credit Agreement prior to its maturity date, then upon the occurrence of the termination date under the Amended ABL Credit Agreement the obligations thereunder will become due, and the Company will need to provide alternate collateral in place of the letters of credit issued under the Amended ABL Credit Agreement.
Kodak is experiencing negative cash flows due to supply chain disruptions, shortages in materials and labor, increased labor, commodity and distribution costs and slowdown in customer demand related to global economic conditions. The economic uncertainty surrounding the COVID-19 pandemic, the war in Ukraine, the current inflationary environment, and other global events represents an additional element of complexity in Kodak’s plans to return to sustainable positive cash flow. The Company cannot predict the duration and scope of the COVID-19 pandemic, the war in Ukraine, as well as other factors such as the ability to continue to secure raw materials and components, the impact of rising costs of labor, commodity and distribution costs, or how quickly and to what extent normal economic and operating conditions can resume.
Kodak's plans to return to sustainable positive cash flow include growing revenues profitably, implementing effective working capital utilization, reducing operating expenses, continuing to simplify the organizational structure, generating cash from selling and leasing underutilized assets and implementing ways to reduce cash collateral needs.
Kodak believes that its liquidity position is adequate to fund its operating and investing needs for the next twelve months and to provide the flexibility to respond as necessary to ordinary changes in the business and economic environment. Kodak’s ability to adequately fund its long-term liquidity and capital requirements will be dependent on amending, refinancing or extending the maturity date of the Amended ABL Credit Agreement, or finding alternative collateral in place of the letters of credit issued under the Amended ABL Credit Agreement, managing world-wide cash through intercompany loans, distributions or other mechanisms, generating positive cash flows from operations or obtaining additional financing to fund its growth investments.
| September 30, |
December 31, |
|||||||
| (in millions) |
2022 |
2021 |
||||||
| Cash, cash equivalents and restricted cash |
$ | 280 | $ | 423 | ||||
Cash Flow Activity
| Nine Months Ended |
||||||||||||
| September 30, |
||||||||||||
| (in millions) |
2022 |
2021 |
Year-Over-Year Change |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net cash used in operating activities |
$ | (130 | ) | $ | (33 | ) | $ | (97 | ) | |||
| Cash flows from investing activities: |
||||||||||||
| Net cash used in investing activities |
(44 | ) | (9 | ) | (35 | ) | ||||||
| Cash flows from financing activities: |
||||||||||||
| Net cash provided by financing activities |
45 | 240 | (195 | ) | ||||||||
| Effect of exchange rate changes on cash and restricted cash |
(14 | ) | (3 | ) | (11 | ) | ||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash |
$ | (143 | ) | $ | 195 | $ | (338 | ) | ||||
Operating Activities
Net cash used in operating activities increased $97 million for the nine months ended September 30, 2022 as compared with the corresponding period in 2021 primarily due to increased investment in inventory to strengthen the ability to supply customers, an increase in trade receivables driven by revenue growth, and lower cash earnings partially offset by a decrease in cash used for accounts payable.
Investing Activities
Net cash used in investing activities increased $35 million for the nine months ended September 30, 2022 as compared with the corresponding period in 2021 due to the investment in Wildcat and an increase in capital expenditures.
Financing Activities
The change in net cash provided by financing activities for the nine months ended September 30, 2022 compared to corresponding period in 2021 was primarily driven by the net proceeds of $247 million received in the prior year period from the refinancing transactions partially offset by net proceeds of $49 million received in the second quarter of 2022 from the Delayed Draw Term Loans as well as lower preferred stock dividend payments in the current year period.
Borrowing Resources
The Term Loan Credit Agreement included a commitment to provide Delayed Draw Term Loans in an aggregate principal amount of $50 million on or before February 26, 2023. The Company drew down the $50 million of Delayed Draw Term Loans on June 15, 2022.
Other Uses of Cash Related to Financing Transactions
The holders of the Term Loans are entitled to quarterly cash interest payments at a rate of 8.5% per annum and holders of the Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4.0% per annum. The Convertible Notes do not require any debt service until maturity on May 28, 2026 and holders of the Series C Preferred Stock are entitled to cumulative dividends payable quarterly “in-kind” in the form of additional shares of Series C Preferred Stock at a rate of 5.0% per annum. All dividends have been paid when due.
Other Collateral Requirements
The New York State Workers’ Compensation Board (“NYSWCB”) requires security deposits related to self-insured workers’ compensation obligations. The security deposit required by NYSWCB is based on actuarial calculations of the Company’s obligations and company specific factors such as its declining workforce and reducing exposure. The NYSWCB calculation also includes a financial contingency based on the employer’s credit rating and a calculation of unallocated loss adjustment expenses. In 2020 the NYSWCB waived both of these charges to provide employers relief while they managed the economic impacts of the COVID-19 pandemic. In 2021 the NYSWCB waived the financial contingency based on the Company’s credit rating. The waived security deposit was $17 million in 2020 and increased to $39 million in 2021. After excluding the waived amount for 2021, the increase to the security deposit required by NYSWCB was $19 million. The Company agreed to post additional collateral of approximately $4 million over a five-year period, starting in 2021, to satisfy the security deposit obligation. For 2022, the NYSWCB waived 50 percent of the financial contingency amount based on the Company's credit rating, or $38 million. After excluding the waived amount for 2022, the maximum increase to the security deposit required by NYSWCB could be $13 million. The due date for payment of the 2022 increase in the security deposit is November 15, 2022. The collateral obligation can be satisfied by issuing letters of credit or through other means. The security deposit required by NYSWCB will be re-calculated annually. Therefore, the amount of additional collateral required may change each year.
As a result of the Company’s credit ratings, during the second quarter of 2020 two surety bond holders notified the Company they required approximately $9 million of incremental collateral. The Company reduced the surety bond value by approximately $9 million in July 2020 with an equivalent increase to an existing letter of credit with the New York Workers’ Compensation Board. The Company could be required to provide up to $3 million of letters of credit to the issuers of certain surety bonds in the future to fully collateralize the bonds.
Defined Benefit Pension and Postretirement Plans
Kodak made net contributions (funded plans) or paid benefits (unfunded plans) totaling approximately $9 million to its defined benefit pension and postretirement benefit plans in the first nine months of 2022. For the balance of 2022, the forecasted contribution (funded plans) and benefit payment (unfunded plans) requirements for its pension and postretirement plans are approximately $6 million.
Capital Expenditures
Cash flow from investing activities included $19 million of capital expenditures for the nine months ended September 30, 2022. Kodak expects approximately $25 million to $35 million of total capital expenditures for 2022. The expected increase in capital expenditures in 2022 is driven by investments in growth initiatives and back‐office automation.
U.S. International Development Finance Corporation Non-Binding Letter of Interest
On July 28, 2020, the U.S. International Development Finance Corporation (“DFC”) signed a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs. The letter of interest was entered into by the DFC pursuant to authority under the Defense Production Act granted to the DFC by Presidential Executive Order 13922. The Company has previously reported that, given the time that has elapsed and the changes in administration at the federal government and the DFC, the Company has been operating on the basis that the DFC Loan as envisioned at the time of the DFC Announcement would not proceed. On April 22, 2022, the Company received a letter from the DFC advising the Company that the authority conferred on the DFC by Executive Order 13922 expired on March 27, 2022 and that, consequently, the DFC is unable to consider the project further and the Company’s application has been closed.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As noted in the 2021 Form 10-K, Kodak operates and conducts business in many foreign countries and as a result is exposed to fluctuations between the U.S. dollar and other currencies. Volatility in the global financial markets could increase the volatility of foreign currency exchange rates which would, in turn, impact sales and net income. For a discussion of the Company's exposure to market risk and how market risk is mitigated, refer to Part I, Item 1A "Risk Factors" and Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", contained in the 2021 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Kodak maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Kodak’s reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including Kodak’s Executive Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Kodak’s management, with the participation of Kodak’s Executive Chairman and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Kodak’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, Kodak’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in Kodak’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, Kodak’s internal control over financial reporting.
See Note 8, “Commitments and Contingencies” in the Notes to the Financial Statements included in Part I, Item 1, “Financial Statements and Supplementary Data” for information regarding certain legal proceedings in which Kodak is involved.
See the Risk Factors set forth in Part I, Item 1A. of the 2021 Form 10-K for a detailed discussion of risk factors that could materially affect Kodak’s business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) |
Sales of unregistered securities during the quarter ended September 30, 2022 |
None.
| (b) |
Issuer purchases of equity securities during the quarter ended September 30, 2022 |
| Maximum Number |
||||||||||||||||
| of Shares |
||||||||||||||||
| Total Number of Shares |
That May Yet |
|||||||||||||||
| Total Number |
Average |
Purchased as Part of |
Be Purchased |
|||||||||||||
| of Shares |
Price Paid |
Publicly Announced |
under the Plans or |
|||||||||||||
| Purchased (1) |
per Share |
Plans or Programs (2) |
Programs (2) |
|||||||||||||
| July 1 through 31 |
33,065 | $ | 4.96 | n/a | n/a | |||||||||||
| August 1 through 31 |
9,552 | 6.37 | n/a | n/a | ||||||||||||
| September 1 through 30 |
9,935 | 5.48 | n/a | n/a | ||||||||||||
| Total |
52,552 | $ | 5.31 | |||||||||||||
| (1) |
These purchases were made to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees. |
| (2) |
Kodak does not have a publicly announced repurchase plan or program. |
Eastman Kodak Company
Index to Exhibits
| Exhibit Number |
|
| (3.1) |
|
| (3.2) |
|
| (3.3) |
|
| (3.4) |
|
| (3.5) |
|
| (3.6) |
|
| (3.7) |
|
| (3.8) |
|
| (31.1) |
Certification signed by James V. Continenza, filed herewith. |
| (31.2) |
Certification signed by David E. Bullwinkle, filed herewith. |
| (32.1) |
|
| (32.2) |
|
| (101.CAL) |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
| (101.INS) |
Inline XBRL Instance Document. |
| (101.LAB) |
Inline XBRL Taxonomy Extension Label Linkbase. |
| (101.PRE) |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
| (101.SCH) |
Inline XBRL Taxonomy Extension Schema Linkbase. |
| (101.DEF) |
Inline XBRL Taxonomy Extension Definition Linkbase |
| (104) |
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| EASTMAN KODAK COMPANY |
|
| (Registrant) |
|
| Date: November 8, 2022 |
/s/ Richard T. Michaels |
| Richard T. Michaels |
|
| Chief Accounting Officer and Corporate Controller |
|
| (Chief Accounting Officer and Authorized Signatory) |
Exhibit (31.1)
CERTIFICATION
I, James V. Continenza, certify that:
|
1) |
I have reviewed this Form 10-Q of Eastman Kodak Company; |
|
2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4) |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5) |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ James V. Continenza |
|
|
James V. Continenza |
|
|
Executive Chairman and |
|
|
Chief Executive Officer |
|
|
Date: November 8, 2022 |
Exhibit (31.2)
CERTIFICATION
I, David E. Bullwinkle, certify that:
|
1) |
I have reviewed this Form 10-Q of Eastman Kodak Company; |
|
2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4) |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5) |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ David E. Bullwinkle |
|
|
David E. Bullwinkle |
|
|
Chief Financial Officer |
|
|
Date: November 8, 2022 |
Exhibit (32.1)
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Eastman Kodak Company (the "Company") on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James V. Continenza, Executive Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ James V. Continenza |
|
James V. Continenza |
|
Executive Chairman and |
|
Chief Executive Officer |
|
Date: November 8, 2022 |
Exhibit (32.2)
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Eastman Kodak Company (the "Company") on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David E. Bullwinkle, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ David E. Bullwinkle |
|
David E. Bullwinkle |
|
Chief Financial Officer |
|
Date: November 8, 2022 |