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0000031235 EASTMAN KODAK CO false --12-31 Q2 2023 8 7 463 450 0 0 100 100 0.01 0.01 5 6 5 0.01 3.50 37.5 37.5 50 1000000 1 1 1 1 1 1 3 6 1 0.5 1 1 1 21.0 2013 2014 2015 2016 2017 2015 2016 2017 2018 3 9 1.1 4.1 25 1.1 3.6 7 10 0 1.0 1.1 1.1 0.9 4 0 0 0 Includes interest income associated with a refund received in the first quarter of 2023 from a governmental authority in a location outside the U.S that was previously held in order to guarantee potential tax disputes in that jurisdiction. Reclassified to Total Net Periodic Benefit Cost - refer to Note 12, "Retirement Plans and Other Postretirement Benefits". Core includes the Print business, Motion Picture, Industrial Film and Chemicals, and excludes coating and product commercialization services (“Coating Services”) and analytical services within the Advanced Materials and Chemicals segment. Refer to Note 2, “Cash, Cash Equivalents and Restricted Cash” for the components of cash, cash equivalents and restricted cash. Refer to Note 19, "Financial Instruments". Growth consists of Coating Services and Advanced Materials and Functional Printing within the Advanced Materials and Chemicals segment. As reported in the Consolidated Statement of Operations. Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives, investigations and litigation. Consulting and other costs includes $1 million and $11 million of income in the three and six months ended June 30, 2023, respectively, representing insurance reimbursement of legal costs previously paid by the Company associated with investigations and litigation matters. Kodak received $16 million of insurance reimbursement proceeds in the first six months of 2023, of which $5 million was recorded in Other current assets in the Consolidated Statement of Financial Position as of December 31, 2022. Other consists of Intellectual Property Licensing ("IP Licensing"), Brand Licensing and Eastman Business Park. Sales are reported in the geographic area in which they originate. Variable lease income primarily represents operating costs under real estate leases and incremental variable income based on usage under equipment leases. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

         Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended:   

June 30, 2023

or

         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to            

Commission File Number

1-00087

EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
  
New Jersey16-0417150
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
  
343 STATE STREET, ROCHESTER, New York14650
(Address of principal executive offices)(Zip Code)
(800) 356-3259
(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

Common stock, par value $0.01 per share

KODK

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒          No ☐

 

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

    

 

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

 

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

 

As of August 1, 2023, the registrant had 79,473,557 shares of common stock, par value $0.01 per share, outstanding.

 



 

 

EASTMAN KODAK COMPANY

Form 10-Q

 

June 30, 2023

 

Table of Contents

 

    Page
  Part I.Financial Information  
     

Item 1.

Financial Statements

3
 

Consolidated Statement of Operations (Unaudited)

3

 

Consolidated Statement of Comprehensive (Loss) Income (Unaudited)

4

 

Consolidated Statement of Financial Position (Unaudited)

5

 

Consolidated Statement of Cash Flows (Unaudited)

6

 

Consolidated Statement of Equity (Deficit) (Unaudited)

7

 

Notes to Financial Statements (Unaudited)

9

Item 2.

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

36

 

Liquidity and Capital Resources

46

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

51

     
  Part II. Other Information  
     

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 6.

Exhibits

53

 

Index to Exhibits

53

 

Signatures

55

 

 

 

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

 

(in millions, except per share data)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues

                               

Sales

  $ 242     $ 266     $ 468     $ 500  

Services

    53       55       105       111  

Total revenues

    295       321       573       611  

Cost of revenues

                               

Sales

    195       234       388       454  

Services

    37       36       72       73  

Total cost of revenues

    232       270       460       527  

Gross profit

    63       51       113       84  

Selling, general and administrative expenses

    40       41       74       84  

Research and development costs

    9       9       18       18  

Restructuring costs and other

    5             6        

Other operating income

    (1 )                  

Earnings (loss) from operations before interest expense, pension income excluding service cost component, other charges (income), net and income taxes

    10       1       15       (18 )

Interest expense

    11       10       22       19  

Pension income excluding service cost component

    (41 )     (27 )     (81 )     (57 )

Other charges (income), net

    3       (1 )     (4 )     2  

Earnings from operations before income taxes

    37       19       78       18  

Provision (benefit) for income taxes

    2       (1 )     10       1  

NET EARNINGS

  $ 35     $ 20     $ 68     $ 17  
                                 

Basic net earnings per share attributable to Eastman Kodak Company common shareholders

  $ 0.35     $ 0.20     $ 0.68     $ 0.13  

Diluted net earnings per share attributable to Eastman Kodak Company common shareholders

  $ 0.32     $ 0.19     $ 0.63     $ 0.12  
                                 

Number of common shares used in basic and diluted net earnings per share

                               

Basic

    79.4       78.9       79.3       78.8  

Diluted

    93.0       90.2       92.7       80.4  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

 

(in millions)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

NET EARNINGS

  $ 35     $ 20     $ 68     $ 17  

Other comprehensive (loss) income, net of tax:

                               

Currency translation adjustments

    (11 )     (10 )     (12 )     (5 )

Pension and other postretirement benefit plan obligation activity, net of tax

    (123 )     110       (129 )     110  

Other comprehensive (loss) income, net of tax

    (134 )     100       (141 )     105  

COMPREHENSIVE (LOSS) INCOME, NET OF TAX

  $ (99 )   $ 120     $ (73 )   $ 122  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

  

June 30,

  

December 31,

 

(in millions)

 

2023

  

2022

 

ASSETS

        

Cash and cash equivalents

 $223  $217 

Trade receivables, net of allowances of $8 and $7, respectively

  161   177 

Inventories, net

  252   237 

Other current assets

  36   48 

Current assets held for sale

     2 

Total current assets

  672   681 

Property, plant and equipment, net of accumulated depreciation of $463 and $450, respectively

  155   154 

Goodwill

  12   12 

Intangible assets, net

  26   28 

Operating lease right-of-use assets

  36   39 

Restricted cash

  62   62 

Pension and other postretirement assets

  1,179   1,233 

Other long-term assets

  79   76 

TOTAL ASSETS

 $2,221  $2,285 
         

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

        

Accounts payable, trade

 $129  $134 

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

  1   1 

Current portion of operating leases

  14   15 

Other current liabilities

  148   143 

Total current liabilities

  292   293 

Long-term debt, net of current portion

  324   316 

Pension and other postretirement liabilities

  231   230 

Operating leases, net of current portion

  28   31 

Other long-term liabilities

  172   171 

Total liabilities

  1,047   1,041 
         

Commitments and Contingencies (Note 7)

          
         

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

  207   203 
         

Equity

        

Common stock, $0.01 par value

      

Additional paid in capital

  1,159   1,160 

Treasury stock, at cost

  (11)  (11)

Accumulated deficit

  (502)  (570)

Accumulated other comprehensive income

  321   462 

Total shareholders’ equity

  967   1,041 

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

 $2,221  $2,285 

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

      Six Months Ended  
      June 30,  

(in millions)

    2023       2022  

Cash flows from operating activities:

               

Net earnings

  $ 68     $ 17  

Adjustments to reconcile to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    16       14  

Pension income

    (72 )     (49 )

Change in fair value of the Preferred Stock and Convertible Notes embedded derivatives

    2       (1 )

Non-cash changes in workers' compensation and employee benefit reserves

          (8 )

Stock based compensation

    5       3  

Gain on sale of assets

    (1 )      

Increase (decrease) in deferred taxes

    1       (2 )

Decrease (increase) in trade receivables

    17       (26 )

Decrease in miscellaneous receivables

    7       2  

Increase in inventories

    (11 )     (54 )

(Decrease) increase in trade payables

    (7 )     17  

Decrease in liabilities excluding borrowings and trade payables

    (9 )     (17 )

Other items, net

    5       1  

Total adjustments

    (47 )     (120 )

Net cash provided by (used in) operating activities

    21       (103 )

Cash flows from investing activities:

               

Additions to properties

    (11 )     (9 )

Net cash used in investing activities

    (11 )     (9 )

Cash flows from financing activities:

               

Net proceeds from Term Loan Credit Agreement

          49  

Preferred stock cash dividend payments

    (2 )     (2 )

Net cash (used in) provided by financing activities

    (2 )     47  

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

    (2 )     (5 )

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

    6       (70 )

Cash, cash equivalents and restricted cash, beginning of period

    286       423  

Cash, cash equivalents and restricted cash, end of period

  $ 292     $ 353  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)

 

(in millions)

 

   

Six-Month Period Ending June 30, 2023

 
   

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, 2022

  $     $ 1,160     $ (570 )   $ 462     $ (11 )   $ 1,041     $ 203  

Net earnings

                33                   33        

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

                                                       

Currency translation adjustments

                      (1 )           (1 )      

Pension and other postretirement liability adjustments

                      (6 )           (6 )      

Preferred stock cash dividends

          (1 )                       (1 )      

Preferred stock in-kind dividends

          (1 )                       (1 )     1  

Preferred stock deemed dividends

          (1 )                       (1 )     1  

Stock-based compensation

          4                         4        

Equity (deficit) as of March 31, 2023

  $     $ 1,161     $ (537 )   $ 455     $ (11 )   $ 1,068     $ 205  

Net earnings

                35                   35        

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

                                                       

Currency translation adjustments

                      (11 )           (11 )      

Pension and other postretirement liability adjustments

                      (123 )           (123 )      

Preferred stock cash dividends

          (1 )                       (1 )      

Preferred stock in-kind dividends

          (2 )                       (2 )     2  

Stock-based compensation

          1                         1        

Equity (deficit) as of June 30, 2023

  $     $ 1,159     $ (502 )   $ 321     $ (11 )   $ 967     $ 207  

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited) (contd)

 

(in millions)

 

   

Six-Month Period Ending June 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

  $     $ 1,166     $ (596 )   $ 221     $ (10 )   $ 781     $ 196  

Net loss

                (3 )                 (3 )      

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

                                                       

Currency translation adjustments

                      5             5        

Preferred stock cash dividends

          (1 )                       (1 )      

Preferred stock in-kind dividends

          (1 )                       (1 )     1  

Preferred stock deemed dividends

          (1 )                       (1 )     1  

Stock-based compensation

          2                         2        

Equity (deficit) as of March 31, 2022

  $     $ 1,165     $ (599 )   $ 226     $ (10 )   $ 782     $ 198  

Net income

                20                   20        

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

                                                       

Currency translation adjustments

                      (10 )           (10 )      

Pension and other postretirement liability adjustments

                      110             110        

Preferred stock cash dividends

          (1 )                       (1 )      

Preferred stock in-kind dividends

          (1 )                       (1 )     1  

Stock-based compensation

          1                         1        

Equity (deficit) as of June 30, 2022

  $     $ 1,164     $ (579 )   $ 326     $ (10 )   $ 901     $ 199  

 

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, 2022 (the “2022 Form 10-K”).

 

Reclassifications

 

Certain amounts from previous periods have been reclassified to conform to the current period classification due to Kodak's new organization structure as of February 2023.  Refer to Note 17, "Segment Information" and Note 9, "Revenue" for additional information.

 

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

In June 2016, the Financial Accounting Standards Board ("FASB") 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 for Kodak for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 ( January 1, 2023 for Kodak). Kodak adopted the new standard on January 1, 2023 using the modified retrospective approach and it did not have a material impact on Kodak’s consolidated financial statements. 

 

Allowance for Credit Losses

Kodak records allowance for credit losses for the current expected credit losses inherent in the asset over its expected life.  The allowance for credit losses is maintained based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount.  Kodak records a specific reserve for individual accounts when Kodak becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer's operating results or financial position.  

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

There are no recently issued accounting pronouncements that are applicable to Kodak.

 

[9]

 
 

NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

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

 

  

June 30,

  

December 31,

 

(in millions)

 

2023

  

2022

 

Cash and cash equivalents

 $223  $217 

Restricted cash reported in Other current assets

  7   7 

Restricted cash

  62   62 

Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows

 $292  $286 

 

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

 

Restricted cash included $43 million and $44 million as of June 30, 2023 and December 31, 2022, respectively, representing the cash collateral required to be posted by the Company under the Letter of Credit Facility (“L/C Cash Collateral”). In addition, Restricted cash as of both  June 30, 2023 and December 31, 2022 included an escrow of $5 million in China to secure various ongoing obligations under the agreements for a strategic relationship with Lucky HuaGuang Graphics Co. Ltd. Restricted cash also included $6 million of security posted related to Brazilian legal contingencies as of both  June 30, 2023 and December 31, 2022, respectively, and $5 million of cash collateral posted in the United Kingdom for a letter of credit for aluminum purchases as of both  June 30, 2023 and  December 31, 2022, respectively.

 

 

NOTE 3: INVENTORIES, NET

 

  

June 30,

  

December 31,

 

(in millions)

 

2023

  

2022

 

Finished goods

 $108  $98 

Work in process

  73   64 

Raw materials

  71   75 

Total

 $252  $237 

 

 

NOTE 4: DEBT AND CREDIT FACILITIES

 

Term Loan Credit Agreement

 

On February 26, 2021, the Company entered into a Credit Agreement (the “Existing 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 (the “Agent”). Pursuant to the Existing Term Loan Credit Agreement, the Term Loan Lenders provided the Company with (i) an initial term loan in the amount of $225 million, which was drawn in full on the same date, and (ii) a commitment to provide delayed draw term loans in an aggregate principal amount of up to $50 million on or before February 26, 2023 (collectively, the “Term Loans”). The delayed draw term loans were drawn in full on June 15, 2022. The maturity date of the Term Loans was February 26, 2026, and the Term Loans were non‐amortizing. 

 

On June 30, 2023, the Company and certain of its subsidiaries (the “Subsidiary Guarantors”) entered into an amendment (the “Term Loan Amendment”) to the Existing Term Loan Credit Agreement (the Existing Term Loan Credit Agreement, as amended and restated by the Term Loan Amendment, the “Amended and Restated Term Loan Credit Agreement”), with certain funds affiliated with KLIM as lenders (the “Refinancing Term Loan Lenders”) and the Agent.

 

[10]

 

Subject to the terms and conditions of the Term Loan Amendment, the Refinancing Term Loan Lenders provided the Company with a commitment to provide term loans in an aggregate principal amount of $450 million (the “Refinancing Term Loans”).

 

On July 21, 2023, the Amended and Restated Term Loan Credit Agreement became effective and the Company completed its borrowing of the Refinancing Term Loans. The Company received net proceeds of $435 million from the Refinancing Term Loans which were used to (i) refinance the obligations under the Existing Term Loan Credit Agreement, (ii) repay in full and terminate the commitments under the Company’s asset-based revolving credit facility made available pursuant to the 2023 Amended ABL Credit Agreement as defined below, (iii) repay in full the Company’s outstanding 5.0% unsecured convertible promissory notes due May 28, 2026 (the "Convertible Notes") held by the Term Loan Lenders, (iv) pay certain fees and expenses related to the foregoing and the Amended and Restated L/C Facility Agreement (defined below), (v) provide cash collateral in respect of the Amended and Restated L/C Facility Agreement, as described below, or other collateral obligations, and (vi) the remaining net proceeds of $29 million for general corporate purposes and working capital needs of the Company and its subsidiaries.  

 

The Term Loan Amendment also amended and restated the Existing Term Loan Credit Agreement to, among other things, (i) extend the maturity date to the earlier of August 15, 2028 or the date that is 91 days prior to the maturity date or mandatory redemption date of any of the Company’s then-outstanding Series B Preferred Stock or Series C Preferred Stock or any extensions or refinancings of any of the foregoing, (ii) make certain other changes to the terms of the Existing Term Loan Credit Agreement and (iii) make certain other changes to the terms of the Guarantee and Collateral Agreement, dated as of February 26, 2021, among the Company, the Subsidiary Guarantors and the Agent.

 

The Refinancing Term Loans bear interest at a rate of 7.5% per annum payable in cash and 5.0% per annum payable “in-kind” or in cash at the Company’s option, for an aggregate interest rate of 12.5% per annum. Obligations under the Amended and Restated Term Loan Credit Agreement are secured by a first priority lien on substantially all assets of the Company and the Subsidiary Guarantors (subject to certain exceptions) not constituting L/C Cash Collateral, as defined below (collectively, the “Term Loan Priority Collateral”) and a second priority lien on the L/C Cash Collateral.

 

The Amended and Restated Term Loan Credit Agreement continues to limit, among other things, the ability of the Company and its Restricted Subsidiaries (as defined in the Amended and Restated 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.  The Amended and Restated Term Loan Credit Agreement does contain customary affirmative covenants, including delivery of certain of the Company’s financial statements, and customary event of default provisions, including a cross-default provision that would give rise to an event of default if there is a default under or acceleration of “Material Indebtedness” other than inter-company indebtedness. Material Indebtedness includes obligations having a principal amount of at least $20 million (increasing to $25 million if the Refinancing Term Loans are paid down to $200 million, which is referred to as the “Deleveraging Milestone Date”). The Amended and Restated Term Loan Credit Agreement does not include a financial maintenance covenant or any subjective acceleration clauses.

 

On an annual basis, the Company will prepay, within 10 business days following the filing of annual Form 10-K, outstanding Loans in an amount equal to Excess Cash Flow (“ECF”) as defined in the Amended and Restated Term Loan Credit Agreement provided no such prepayment is required if such prepayment would cause U.S. liquidity to be less than $60 million, or $85 million after the Deleveraging Milestone Date.  In addition to customary prepayment covenants, the Company is also required to use the Net Proceeds from the monetization of Target Non-Core Assets as such terms are defined in the Amended and Restated Term Loan Credit Agreement to make prepayments subject to certain exceptions.

 

[11]

 

Board Rights Agreement

 

On June 30, 2023, in connection with the execution of the Term Loan Amendment, the Company entered into an amendment (the "Board Rights Agreement Amendment") to the letter agreement with KLIM, dated February 26, 2021 (the “Existing Board Rights Agreement”). Pursuant to the Board Rights Agreement Amendment, KLIM's right to nominate one individual for election as a member of the Company’s board of directors will last until the date on which KLIM ceases to hold at least $200 million of the original principal amount of Refinancing Term Loans. The individual nominated pursuant to the Existing Board Rights Agreement was appointed to the Company's Board of Directors on April 1, 2021 and has been elected to serve one‐year terms at each of the annual meetings since May 19, 2021.

 

Convertible Notes

 

On February 26, 2021, the Company entered into a Securities Purchase Agreement with certain funds affiliated with KLIM as lenders (the “Buyers”) pursuant to which the Company sold to the Buyers $25 million aggregate principal amount of the Company’s Convertible Notes in a private placement transaction. The maturity date of the Convertible Notes was  May 28, 2026.  On July 21, 2023, the Company repaid in full the Company’s outstanding Convertible Notes in an aggregate original principal amount of $25 million plus accrued paid-in-kind or unpaid cash interest. The Convertible Notes were terminated and the Company’s obligations under the Convertible Notes were cancelled.

 

The Convertible Notes bore interest at a rate of 5.0% per annum, which was payable in cash on the maturity (or repayment) date and in additional shares of Common Stock on any conversion date. The payment of interest only at the maturity date had the same effect as delivering additional debt instruments to the Holders of the Convertible Notes and therefore was considered payable-in-kind ("PIK"). PIK was being added to the carrying value of the debt through the term. Interest expense was being recorded using the effective interest method.

 

Conversion Features

The Buyers had the right to elect at any time to convert the Convertible Notes into shares of the Company's Common Stock, par value $0.01 per share ("Common Stock"), at an initial conversion rate equal to 100 shares of Common Stock per each $1,000 principal amount of the Convertible Notes (based on an initial conversion price equal to $10.00 per share of Common Stock). The conversion rate and conversion price were subject to certain customary anti-dilution adjustments.

 

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

 

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

 

Embedded Derivatives

The Company allocated $12 million of the net proceeds received from the issuance of the Convertible Notes to a derivative liability based on the aggregate fair value of the embedded features on the date of issuance which reduced the net carrying value of the Convertible Notes. The derivative was being accounted for at fair value with subsequent changes in the fair value being reported as part of Other charges (income), net in the Consolidated Statement of Operations. The fair value of the Convertible Notes embedded derivative at  June 30, 2023 and December 31, 2022 was a liability of $4 million and $2 million, respectively, and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 19, “Financial Instruments” for information on the valuation of the derivative.

 

The carrying value of the Convertible Notes at  June 30, 2023 and December 31, 2022 was $19 million and $18 million, respectively. The Convertible Notes unamortized discount at June 30, 2023 and December 31, 2022 was $8 million and $9 million, respectively. The estimated fair value of the Convertible Notes as of June 30, 2023 and  December 31, 2022 was $20 million and $16 million, respectively, (Level 3). The carrying value was being accreted to the aggregate principal amount using the effective interest method from the date of issuance through the maturity date.

 

[12]

 

Amended and Restated ABL Credit Agreement 

 

On March 14, 2023, the Company and the Subsidiary Guarantors entered into amendment No. 5 to the Amended and Restated Credit Agreement (the “2023 Amended ABL Credit Agreement") with the lenders party thereto (the “Lenders”), Bank of America, N.A., as administrative agent and collateral agent to, among other things: (i) extend the maturity date of the Company's asset based loan facility from February 26, 2024 to the earliest of June 12, 2024, the termination of the 2023 Amended L/C Facility Agreement (as defined below) or the date that is 91 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s Term Loans, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancings of any of the foregoing; (ii) require the Company to maintain daily Minimum Liquidity of $50 million, subject to certain cure rights, in addition to maintaining the existing quarterly Minimum Liquidity of $80 million, and (iii) on February 26, 2024, decrease the aggregate amount of commitments from $90 million to $81 million. Each of the capitalized but undefined terms used in the context of describing the 2023 Amended ABL Credit Agreement has the meaning ascribed to such term in the 2023 Amended ABL Credit Agreement. 

 

If Minimum Liquidity fell below the daily or quarterly required minimum an Event of Default would have occurred, in which case the Agent had 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 2023 Amended ABL Credit Agreement to be due and payable. 

 

On July 21, 2023, the Company used the net proceeds from the Refinancing Term Loans to repay in full the amounts outstanding under its 2023 Amended ABL Credit Agreement (the “ABL Prepayment”). Upon the administrative agent’s receipt in full of the ABL Prepayment, the Existing ABL Credit Agreement was terminated and the lenders’ security interest in any of the Company’s or its subsidiaries assets or property securing the Existing ABL Credit Agreement was released.

 

The revolving loans bore interest at the rate of 3.50%‐4.00% per annum based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator).  The Company paid an unused line fee of 37.5‐50 basis points per annum, depending on whether the unused portion of the maximum amount available is less than or equal to 50% or greater than 50%, respectively. The Company paid a letter of credit fee of 3.50%‐4.00% per annum, based on Excess Availability, on issued and outstanding letters of credit, in addition to a fronting fee of 25 basis points on such letters of credit. 


Obligations under the 2023 Amended ABL Credit Agreement were secured by: (i) a first priority lien on assets of the Company and the Subsidiary Guarantors constituting cash (other than L/C Cash Collateral, as defined below), accounts receivable, inventory, machinery and equipment and certain other assets (the “ABL Priority Collateral”) and (ii) a second priority lien on substantially all assets of the Company and the Subsidiary Guarantors (subject to certain exceptions) other than the ABL Priority Collateral, including the L/C cash collateral and 100% of the stock of material U.S. subsidiaries and 65% of the stock of material foreign subsidiaries. 


The 2023 Amended ABL Credit Agreement limited, among other things, the ability of the Company and its Restricted Subsidiaries to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) make restricted payments and (v) make investments. The 2023 Amended ABL Credit Agreement leaves in place customary affirmative covenants, including delivery of certain of the Company’s financial statements set forth therein. 

 

Quarterly Minimum Liquidity was $143 million and $150 million at March 31, 2023 and  December 31, 2022, respectively, and daily Minimum Liquidity exceeded the $50 million threshold.  Quarterly Minimum Liquidity as of June 30, 2023 was not required to be calculated or furnished to the Lenders as the 2023 Amended ABL Credit Agreement was terminated on July 21, 2023.

 

The Company was required to maintain Excess Availability above the greater of 12.5% of lender commitments ($11.25 million at both  May 31, 2023 and  December 31, 2022) which was tested at the end of each month. Excess Availability was $17 million and $21 million as of  May 31, 2023 and  December 31, 2022, respectively.  Excess Availability as of June 30, 2023 was not required to be calculated or furnished to the Lenders as the 2023 Amended ABL Credit Agreement was terminated on July 21, 2023.

 

[13]

 

If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million, a Fixed Charge Coverage Ratio Trigger Event would have occurred. During any Fixed Charge Coverage Ratio Trigger Event, the Company was required to maintain a Fixed Charge Coverage Ratio of greater than or equal to 1.0 to 1.0. If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million, Kodak could, in addition to the requirement to be in compliance with the minimum Fixed Charge Coverage Ratio, have become subject to cash dominion control. Since Excess Availability was greater than 12.5% of lender commitments or $11.25 million at May 31, 2023 and December 31, 2022, Kodak was not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. 


If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million and the Fixed Charge Coverage Ratio was less than 1.0 to 1.0, an Event of Default would have occurred and the Agent would have had 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 2023 Amended ABL Credit Agreement to be due and payable. 

 

As noted above, since Excess Availability was the greater of 12.5% of lender commitments or $11.25 million, Kodak was not required to have a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0.  As of March 31, 2023 Consolidated EBITDA (minus Capital Expenditures and income taxes paid in cash) (as defined in the 2023 Amended ABL Credit Agreement) exceeded Fixed Charges by approximately $9 million, therefore the Fixed Charge Coverage Ratio was more than 1.0 to 1.0.  The Fixed Charge Coverage Ratio as of June 30, 2023 was not required to be calculated or furnished to the Lenders as the 2023 Amended ABL Credit Agreement was terminated on July 21, 2023.


Each existing direct or indirect U.S. subsidiary of the Company (other than Immaterial Subsidiaries, Unrestricted Subsidiaries and certain other subsidiaries) provided an unconditional guarantee (and any such future subsidiaries were required to provide an unconditional guarantee) of the obligations of the Company under the Credit Agreements (as defined below).

 

Letter of Credit Facility Agreement 


On February 26, 2021, the Company and the Subsidiary Guarantors entered into a Letter of Credit Facility Agreement (the “L/C Facility Agreement”, and together with the 2023 Amended ABL Credit Agreement, the “Credit Agreements”) among the Company, the Subsidiary Guarantors, the lenders party thereto (the “L/C Lenders”), Bank of America, N.A., as agent, and Bank of America, N.A., as issuing bank. Pursuant to the L/C Facility Agreement, the L/C Lenders committed to issue letters of credit on the Company’s behalf in an aggregate amount of up to $50 million, provided that the Company posts cash collateral in an amount greater than or equal to 103% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”).  

 

On March 14, 2023, the Company entered into an amendment to the L/C Facility Agreement (the “2023 Amended L/C Facility Agreement") to, among other things: (i) extend the maturity date of the L/C Facility Agreement from February 26, 2024 to the earliest of June 12, 2024, the termination of the 2023 Amended ABL Credit Agreement, as applicable, or the date that is 91 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s Term Loans, Convertible Notes, Series B Preferred Stock, Series C Preferred Stock or any refinancing of any of the foregoing and (ii) require the Company to maintain daily Minimum Liquidity of $50 million, subject to certain cure rights, in addition to maintaining the existing quarterly Minimum Liquidity of $80 million.  Each of the capitalized but undefined terms used in the context of describing the 2023 Amended L/C Facility Agreement has the meaning ascribed to such term in the 2023 Amended L/C Facility Agreement. 

 

As with the 2023 Amended ABL Credit Agreement, the 2023 Amended L/C Facility Agreement required the Company to maintain Excess Availability above the greater of 12.5% of lender commitments or $11.25 million. If Excess Availability fell below the greater of 12.5% of lender commitments or $11.25 million, a Fixed Charge Coverage Ratio Trigger Event would have occurred under the 2023 Amended L/C Facility Agreement as with the 2023 Amended ABL Credit Agreement. During any Fixed Charge Coverage Ratio Trigger Event, the Company would have been required to maintain a Fixed Charge Coverage Ratio of greater than or equal to 1.0 to 1.0. 

 

The quarterly Minimum Liquidity, Excess Availability and Fixed Charge Coverage Ratio as of June 30, 2023 were not required to be calculated or furnished to the L/C Lenders as a result of the June 2023 L/C Facility Amendment.


The Company’s obligations under the 2023 Amended L/C Facility Agreement were guaranteed by the Subsidiary Guarantors and were secured by (i) a first priority lien on the L/C Cash Collateral, (ii) a second priority lien on the ABL Priority Collateral and (iii) a third priority lien on the Term Loan Priority Collateral. 

 

[14]

 

The Company issued approximately $58 million and $41 million letters of credit under the 2023 Amended ABL Agreement and L/C Facility Agreement, respectively, as of  June 30, 2023 and $58 million and $43 million, respectively, as of  December 31, 2022.  The balance on deposit in the L/C Cash Collateral account as of  June 30, 2023 and  December 31, 2022 was approximately $43 million and $44 million, respectively. 

 

On June 30, 2023, the Company and the Subsidiary Guarantors entered into an amendment (the “June 2023 L/C Facility Amendment”) to the 2023 Amended L/C Facility Agreement (as amended and restated by the June 2023 L/C Facility Amendment, the “Amended and Restated L/C Facility Agreement”), with Bank of America, N.A., as L/C Lender, L/C Agent and Issuing Bank. The June 2023 L/C Facility Amendment became effective on July 21, 2023.

 

Under the terms and conditions of the June 2023 L/C Facility Amendment, the L/C Lender committed to issue additional letters of credit on the Company’s behalf in an aggregate amount of up to $50 million, to an aggregate principal amount of commitments of up to $100 million (the “L/C Facility Commitments”), until August 30, 2023, upon which the aggregate L/C Facility Commitments will reduce to $50 million, provided that, at all times, the Company posts cash collateral in an amount greater than or equal to 104% of the aggregate amount of letters of credit issued and outstanding at any given time (the “L/C Cash Collateral”).  With the funding of the Refinancing Term Loans on July 21, 2023, the balance on deposit in the L/C Cash Collateral account was increased by $59 million.

 

The June 2023 L/C Facility Amendment also amended and restated the 2023 Amended L/C Facility Agreement to, among other things, (i) extended the maturity date to the earliest of (x) the fifth anniversary of the Restatement Date (as defined therein), (y) the date that is 90 days prior to the maturity of the Amended and Restated Term Loan Credit Agreement, as such date may be extended pursuant to the terms thereof (or the maturity date of any refinancing thereof), or (z) the date that is 90 days prior to the earliest scheduled maturity date or mandatory redemption date of any of the Company’s then-outstanding Series B Preferred Stock or Series C Preferred Stock or any refinancings of any of the foregoing, (ii) eliminated the existing cash maintenance requirements, and (iii) made certain other changes to the terms of the 2023 Amended L/C Facility Agreement.

 

The Company’s obligations under the Amended and Restated L/C Facility Agreement are guaranteed by the Subsidiary Guarantors and are secured by (i) a first priority lien on the L/C Cash Collateral and (ii) a second priority lien on certain Term Loan Priority Collateral of the Company and U.S. subsidiary guarantors.

 

The L/C Facility Agreement contains certain affirmative and negative covenants similar to the affirmative and negative covenants contained in the Amended and Restated Term Loan Credit Agreement. The L/C Facility Agreement does not include a minimum liquidity or financial maintenance covenant.

 

The Company will pay an unused line fee of 37.5‐50 basis points per annum, depending on whether the unused portion of the maximum commitments is less than or equal to 50% or greater than 50% of such commitments, respectively. The Company will pay a letter of credit fee of 3.75% per annum on issued and outstanding letters of credit, in addition to a fronting fee of 25 basis points on such letters of credit. Amounts drawn under any letter of credit will be reimbursed from the L/C Cash Collateral. If not so reimbursed, and not otherwise repaid by the Company to the L/C Lender, such amounts will accrue interest, to be paid monthly, at a floating Base Rate (as defined in the Amended and Restated L/C Facility Agreement) plus 2.75% per annum until repaid. 

 

 

NOTE 5: REDEEMABLE, CONVERTIBLE PREFERRED STOCK

 

Redeemable convertible preferred stock was as follows:

 

  

June 30,

  

December 31,

 

(in millions)

 

2023

  

2022

 

Series B preferred stock

 $96  $95 

Series C preferred stock

  111   108 

Total

 $207  $203 

 

[15]

 

Series B Preferred Stock

 

On February 26, 2021 the Company agreed to exchange one million 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 4.0% Series B Convertible Preferred Stock, no par value (the “Series B Preferred Stock”), on a one-for-one basis plus accrued and unpaid dividends. The fair value of the Series B Preferred Stock at the time of issuance approximated $95 million. The Company has classified the Series B Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.  If any shares of Series B Preferred Stock have not been converted prior to May 28, 2026 (the “Redemption Date”), the Company is required to redeem such shares at $100 per share plus the amount of accrued and unpaid dividends.

 

Dividend and Other Rights

The Series B Preferred Stock ranks senior to the Common Stock and pari passu with the Series C Preferred Stock with respect to dividend rights and rights on liquidation, winding-up and dissolution. The Series B Preferred Stock has a liquidation preference of $100 per share, and the holders of Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4.0% per annum.  If dividends on any Series B Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holders of the Series B Preferred Stock will be entitled to nominate one director at the next annual shareholder meeting and all subsequent shareholder meetings until all accumulated dividends on such Series B Preferred Stock have been paid or set aside. Dividends owed on the Series B Preferred Stock have been declared and paid when due.

 

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 9.5238 shares of Common Stock for each share of Series B Preferred Stock (equivalent to an initial conversion price of $10.50 per share of Common Stock). The initial conversion rate and the corresponding conversion price are subject to certain customary anti-dilution adjustments. If a holder elects to convert any shares of Series B Preferred Stock during a specified period in connection with a fundamental change (as defined in the Series B Certificate of Designations), such holder can elect to have the conversion rate adjusted and can elect to receive a cash payment in lieu of shares for a portion of the shares. Such holder will also be entitled to a payment in respect of accumulated dividends. In addition, the Company will have the right to require holders to convert any shares of Series B Preferred Stock in connection with certain reorganization events in which case the conversion rate will be adjusted, subject to certain limitations.

 

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 $14.50 (subject to adjustment in the same manner as the conversion price) for 45 trading days within a period of 60 consecutive trading days.

 

Embedded Conversion Features

The Company allocated $1 million to a derivative liability based on the aggregate fair value of the embedded conversion feature of the Series B Preferred Stock on the date of issuance which reduced the original carrying value of the Series B Preferred Stock. The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other charges (income), net in the Consolidated Statement of Operations. The fair value of the Series B Preferred Stock embedded derivative as of both June 30, 2023 and December 31, 2022 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 19, “Financial Instruments” for information on the valuation of the derivative.

 

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.

 

[16]

 

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 1,000,000 shares of the Company’s newly created 5.0% Series C Convertible Preferred Stock, no par value per share (the “Series C Preferred Stock”), for a purchase price of $100 per share, representing $100 million of gross proceeds to the Company. The Investor is a fund managed by Grand Oaks Capital. The Company has classified the Series C Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.  If any shares of Series C Preferred Stock have not been converted prior to the Redemption Date, the Company is required to redeem such shares at $100 per share plus the amount of accrued and unpaid dividends thereon; provided that the holders of the Series C Preferred Stock have the right to extend such redemption date by up to two years.

 

Dividend and Other Rights

The Series C Preferred Stock has a liquidation preference of $100 per share, and 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 5.0% per annum. Dividends owed on the Series C Preferred Stock have been declared and additional Series C shares issued when due. Holders of the Series C Preferred Stock are also entitled to participate in any dividends paid on the Common Stock (other than stock dividends) on an as-converted basis, with such dividends on any shares of the Series C Preferred Stock being payable upon conversion of such shares of Series C Preferred Stock to Common Stock.  

 

Holders of Series C Preferred Stock are entitled to vote together with the holders of the Common Stock as a single class, in each case, on an as‐converted basis, except where a separate class vote is required by law. Holders of Series C Preferred Stock have certain limited special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company.  The Investor has the right to nominate one director at each annual or special meeting of the Company’s shareholders until the earlier of the third anniversary of the execution of the Purchase Agreement and such time as the Investor and its Affiliates (as defined in the Purchase Agreement) do not hold at least a majority of the Series C Preferred Stock purchased under the Purchase Agreement.  The Investor’s nominee pursuant to this right was elected to serve one‐year terms at each of the annual meetings since May 19, 2021. 

 

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 $10 per share of Common Stock. The initial conversion price and the corresponding conversion rate are subject to certain customary anti-dilution adjustments and to proportional increase in the event the liquidation preference of the Series C Preferred Stock is automatically increased as described above. If a holder elects to convert any shares of Series C Preferred Stock during a specified period in connection with a fundamental change (as defined in the Series C Certificate of Designations), such holder can elect to have the conversion rate adjusted and can elect to receive a cash payment in lieu of shares for a portion of the shares of Common Stock. Such holder will also be entitled to a payment in respect of accumulated dividends and a payment based on the present value of all required remaining dividend payments through May 28, 2026, the mandatory redemption date. Such additional payments will be payable at the Company’s option in cash or in additional shares of Common Stock. In addition, the Company will have the right to require holders to convert any shares of Series C Preferred Stock in connection with certain reorganization events in which case the conversion rate will be adjusted, subject to certain limitations.

 

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 200% of the then-effective conversion price for 45 trading days within a period of 60 consecutive trading days, or (ii) at any time after February 26, 2024 if the closing price of the Common Stock has equaled or exceeded 150% of the then-effective conversion price for 45 trading days within a period of 60 consecutive trading days.

 

[17]

 

Embedded Conversion Features

The Company allocated $2 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded conversion feature of the Series C Preferred Stock on the dates of issuance which reduced the original carrying value of the Series C Preferred Stock. The derivative is being accounted for at fair value with subsequent changes in the fair value being reported as part of Other charges (income), net in the Consolidated Statement of Operations. The fair value of the Series C Preferred Stock derivative as of both  June 30, 2023 and December 31, 2022 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. Refer to Note 19, “Financial Instruments” for information on the valuation of the derivative.

 

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 6: LEASES

 

Income recognized on operating lease arrangements for the three and six months ended June 30, 2023 and 2022 is presented below. Income recognized for sales-type lease arrangements for the three and six months ended June 30, 2023 and 2022 was less than $1 million.

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 

(in millions)

 

2023

  

2022

  

2023

  

2022

 

Lease income - operating leases:

                

Lease income

 $2  $3  $4  $5 

Variable lease income

  2   1   3   2 

Total lease income

 $4  $4  $7  $7 

  

 

NOTE 7: COMMITMENTS AND CONTINGENCIES

 

As of June 30, 2023, the Company had outstanding letters of credit of $58 million and $41 million issued under the 2023 Amended ABL Credit Agreement and the 2023 Amended L/C Facility Agreement, respectively, as well as bank guarantees and letters of credit of $1 million, surety bonds in the amount of $28 million, and restricted cash of $69 million, primarily related to cash collateral for the outstanding letters of credit under the 2023 Amended L/C Facility Agreement, to ensure payment of possible casualty and workers’ compensation claims, legal contingencies, hedging activities, environmental liabilities, rental payments and to support various customs, tax and trade activities.

 

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 June 30, 2023, Kodak’s Brazilian Operations maintained accruals of approximately $2 million for claims aggregating approximately $125 million inclusive of interest and penalties where appropriate. The unreserved portion of the indirect taxes, civil litigation and disputes associated with former employees and contract labor claims, inclusive of any related interest and penalties, for which there was at least a reasonable possibility that a loss may be incurred, amounted to approximately $6 million.

 

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 June 30, 2023, Kodak’s Brazilian operations have posted security composed of $6 million of pledged cash reported within Restricted cash in the Consolidated Statement of Financial Position and liens on certain Brazilian assets with a net book value of approximately $45 million. Generally, any encumbrances on the Brazilian assets would be removed to the extent the matter is resolved in Kodak's favor.

 

[18]

 

The Company has 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 and alleged proxy statement disclosure deficiencies (each a “Derivative Demand”, and collectively the “Derivative Demands”) in the context of an announcement on July 28, 2020 (the “DFC Announcement”) by the U.S. International Development Finance Corporation (the “DFC”) regarding the signing of a non-binding letter of interest to provide a subsidiary of the Company with a potential $765 million loan (the “DFC Loan”) to support the launch of Kodak Pharmaceuticals, an initiative that would manufacture pharmaceutical ingredients for essential generic drugs (the “DFC Pharmaceutical Project”).

 

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. The plaintiffs filed an opposition to the motions to dismiss/for summary judgment on November 14, 2022, and the Company and the individual defendants filed responses to the plaintiffs’ opposition on December 27, 2022 and December 23, 2022, respectively.

 

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 that 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.

 

[19]

 

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 and pursuant to a special process under New York law, in 2021 additional documents were produced by the Company to the NYAG and the NYAG took testimony of the Company’s Chief Executive Officer and General Counsel. 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 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 8: GUARANTEES

 

In connection with the settlement of certain of the Company’s historical environmental liabilities at Eastman Business Park, a more than 1,200-acre technology center and industrial complex in Rochester, New York, in the event the historical liabilities exceed $99 million, the Company will become liable for 50% of the portion above $99 million with no limitation to the maximum potential future payments. There is no liability recorded for this guarantee.

 

Exten