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0000031235 EASTMAN KODAK CO false --12-31 Q1 2024 7 8 471 450 0 0 100 100 0.01 0.01 63 5 1 1 1 3 6 1 0.75 1 10 1 1 1 0 1.0 1.0 1.0 3 5 4 0 false false false false In the first quarter of 2024, Kodak sold certain assets in the U.S. and recognized a gain of $17 million. Includes $9 million of 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". There are 60 million shares of no-par value preferred stock authorized, 2.1 million of which are issued and outstanding at December 31, 2022. 2.0 million shares of preferred stock were issued and outstanding at December 31, 2021 and 2020. Refer to Note 2, “Cash, Cash Equivalents and Restricted Cash” for the components of cash, cash equivalents and restricted cash. Core includes the Print segment and the Motion Picture and Industrial Film and Chemicals businesses within the Advanced Materials and Chemicals segment, excluding coating and product commercialization services ("Coating Services"). Growth consists of Coating Services and Advanced Materials and Functional Printing within the Advanced Materials and Chemicals segment. Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives, investigations and litigation. Consulting and other costs in the three months ended March 31, 2023 included $10 million of income in representing insurance reimbursement of legal costs previously paid by the Company associated with investigations and litigation matters. As reported in the Consolidated Statement of Operations. 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:   

March 31, 2024

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 May 1, 2024, the registrant had 80.1 million shares of common stock, par value $0.01 per share, outstanding.



 

 

EASTMAN KODAK COMPANY

Form 10-Q

 

March 31, 2024

 

Table of Contents

 

    Page
  Part I.Financial Information  
     

Item 1.

Financial Statements

3
 

Consolidated Statement of Operations (Unaudited)

3

 

Consolidated Statement of Comprehensive 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

27

 

Liquidity and Capital Resources

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

     
  Part II. Other Information  
     
     

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 5. Other Information 42

Item 6.

Exhibits

43

 

Index to Exhibits

43

 

Signatures

45

 

 

 

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

 

(in millions, except per share data)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Revenues

               

Sales

  $ 206     $ 224  

Services

    43       54  

Total revenues

    249       278  

Cost of revenues

               

Sales

    168       192  

Services

    32       36  

Total cost of revenues

    200       228  

Gross profit

    49       50  

Selling, general and administrative expenses

    45       34  

Research and development costs

    9       9  

Restructuring costs and other

    5       1  

Other operating (income) expense, net

    (17 )     1  

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

    7       5  

Interest expense

    15       11  

Pension income excluding service cost component

    (41 )     (40 )

Other income, net

    (2 )     (7 )

Earnings from operations before income taxes

    35       41  

Provision for income taxes

    3       8  

NET EARNINGS

  $ 32     $ 33  
                 

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

  $ 0.31     $ 0.33  

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

  $ 0.30     $ 0.30  
                 

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

               

Basic

    79.7       79.1  

Diluted

    91.3       92.2  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

(in millions)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

NET EARNINGS

  $ 32     $ 33  

Other comprehensive loss, net of tax:

               

Currency translation adjustments

    (6 )     (1 )

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

    (6 )     (6 )

Other comprehensive loss, net of tax

    (12 )     (7 )

COMPREHENSIVE INCOME, NET OF TAX

  $ 20     $ 26  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

  

March 31,

  

December 31,

 

(in millions)

 

2024

  

2023

 

ASSETS

        

Cash and cash equivalents

 $262  $255 

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

  139   195 

Inventories, net

  230   217 

Other current assets

  46   45 

Total current assets

  677   712 

Property, plant and equipment, net of accumulated depreciation of $471 and $450, respectively

  171   169 

Goodwill

  12   12 

Intangible assets, net

  23   24 

Operating lease right-of-use assets

  31   30 

Restricted cash

  106   110 

Pension and other postretirement assets

  1,247   1,216 

Other long-term assets

  80   82 

TOTAL ASSETS

 $2,347  $2,355 
         

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

        

Accounts payable, trade

 $129  $125 

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

  1   1 

Current portion of operating leases

  11   13 

Other current liabilities

  133   144 

Total current liabilities

  274   283 

Long-term debt, net of current portion

  447   457 

Pension and other postretirement liabilities

  229   237 

Operating leases, net of current portion

  26   24 

Other long-term liabilities

  208   213 

Total liabilities

  1,184   1,214 
         

Commitments and Contingencies (Note 6)

          
         

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

  212   210 
         

EQUITY

        

Common stock, $0.01 par value

      

Additional paid in capital

  1,156   1,156 

Treasury stock, at cost

  (11)  (11)

Accumulated deficit

  (463)  (495)

Accumulated other comprehensive income

  269   281 

Total shareholders’ equity

  951   931 

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY

 $2,347  $2,355 

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

    Three Months Ended  
    March 31,  

(in millions)

  2024     2023  

Cash flows from operating activities:

               

Net earnings

  $ 32     $ 33  

Adjustments to reconcile to net cash provided by operating activities:

               

Depreciation and amortization

    7       8  

Pension and postretirement income

    (36 )     (36 )

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

          1  

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

    (1 )     1  

Stock based compensation

    3       4  

Net gain from sale of assets

    (17 )      

Provision for deferred income taxes

    1        

Decrease in trade receivables

    53       12  

(Increase) decrease in miscellaneous receivables

    (2 )     7  

Increase in inventories

    (15 )     (13 )

Increase in trade payables

    7       3  

Decrease in liabilities excluding borrowings and trade payables

    (19 )     (13 )

Other items, net

    4       7  

Total adjustments

    (15 )     (19 )

Net cash provided by operating activities

    17       14  

Cash flows from investing activities:

               

Additions to properties

    (10 )     (5 )

Proceeds from sale of assets

    17        

Net cash provided by (used in) investing activities

    7       (5 )

Cash flows from financing activities:

               

Repayment of Amended and Restated Term Loan Agreement

    (17 )      

Preferred stock cash dividend payments

    (1 )     (1 )

Net cash used in financing activities

    (18 )     (1 )

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

    (3 )      

Net increase in cash, cash equivalents and restricted cash

    3       8  

Cash, cash equivalents and restricted cash, beginning of period

    377       286  

Cash, cash equivalents and restricted cash, end of period

  $ 380     $ 294  

 

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

 

 

 

EASTMAN KODAK COMPANY

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT) (Unaudited)

 

(in millions)

 

   

Three-Month Period Ending March 31, 2024

 
   

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, 2023

  $     $ 1,156     $ (495 )   $ 281     $ (11 )   $ 931     $ 210  

Net earnings

                32                   32        

Other comprehensive loss, (net of tax):

                                                       

Currency translation adjustments

                      (6 )           (6 )      

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

          3                         3        

Equity (deficit) as of March 31, 2024

  $     $ 1,156     $ (463 )   $ 269     $ (11 )   $ 951     $ 212  

 

 

EASTMAN KODAK COMPANY

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

 

(in millions)

 

   

Three-Month Period Ending March 31, 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 (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  

 

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, 2023 (the “2023 Form 10-K”).

 

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

There are no accounting pronouncements recently adopted by Kodak.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disclosure of additional categories of information about federal, state and foreign income taxes in the rate reconciliation table and more details about the reconciling items in some categories if items meet a quantitative threshold. The ASU requires entities to disclose income taxes paid, net of refunds, disaggregated by federal (national), state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance makes several other changes to the disclosure requirements. The ASU is required to be applied prospectively, with the option to apply it retrospectively. The ASU is effective for Kodak for fiscal years beginning after December 15, 2024 ( January 1, 2025 for Kodak).


In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the ASU enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. The ASU does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The ASU is required to be applied retrospectively to all periods presented in the financial statements. The ASU is effective for Kodak for fiscal years beginning after December 15, 2023 ( January 1, 2024 for Kodak) and interim periods within fiscal years beginning after December 15, 2024 ( January 1, 2025 for 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:

 

  

March 31,

  

December 31,

 

(in millions)

 

2024

  

2023

 

Cash and cash equivalents

 $262  $255 

Restricted cash reported in Other current assets

  12   12 

Restricted cash

  106   110 

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

 $380  $377 

 

Restricted cash reported in Other current assets on the Consolidated Statement of Financial Position primarily represented amounts that support hedging activities and an escrow of $2 million and $3 million as of March 31, 2024 and December 31, 2023, respectively, in China to secure ongoing obligations under a supply agreement associated with the strategic relationship with Lucky HuaGuang Graphics Co. Ltd. ("HuaGuang"). The agreement with HuaGuang expires in the third quarter of 2024. 

 

Restricted cash included $29 million and $32 million as of March 31, 2024 and December 31, 2023, respectively, representing the cash collateral required to be posted by the Company under the Letter of Credit Facility. In addition, restricted cash as of both  March 31, 2024 and December 31, 2023 included $63 million representing cash collateral supporting the Company’s undiscounted actuarial workers’ compensation obligations with the New York State Workers’ Compensation Board ("NYS WCB"). Restricted cash as of  March 31, 2024 and December 31, 2023 also included $7 million and $8 million, respectively, of security posted related to Brazilian legal contingencies and $5 million of cash collateral posted in the United Kingdom for a letter of credit for aluminum purchases.

 

 

NOTE 3: INVENTORIES, NET

 

   

March 31,

   

December 31,

 

(in millions)

 

2024

   

2023

 

Finished goods

  $ 94     $ 85  

Work in process

    76       68  

Raw materials

    60       64  

Total

  $ 230     $ 217  

 

[10]

 
 

NOTE 4: REDEEMABLE, CONVERTIBLE PREFERRED STOCK

 

Redeemable convertible preferred stock was as follows:

 

  

March 31,

  

December 31,

 

(in millions)

 

2024

  

2023

 

Series B preferred stock

 $97  $96 

Series C preferred stock

  115   114 

Total

 $212  $210 

 

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 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 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. Dividends owed on the Series B Preferred Stock have been declared and paid when due. 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.

 

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.

 

 

[11]

 

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 income, net in the Consolidated Statement of Operations. The fair value of the Series B Preferred Stock embedded derivative as of both March 31, 2024 and December 31, 2023 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. 

 

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

 

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 May 28, 2026, 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.  

 

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. 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 has the right to cause the mandatory conversion of the Series C Preferred Stock into shares of Common Stock 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.

 

[12]

 

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 income, net in the Consolidated Statement of Operations. The fair value of the Series C Preferred Stock derivative as of both  March 31, 2024 and December 31, 2023 was a liability of $1 million and is included in Other long-term liabilities in the accompanying Consolidated Statement of Financial Position. 

 

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 5: LEASES

 

Income recognized on operating lease arrangements for the three months ended March 31, 2024 and 2023 is presented below. Income recognized for sales-type lease arrangements for the three months ended March 31, 2024 and 2023 was $1 million and less than $1 million.

 

   

Three Months Ended

 
   

March 31,

 

(in millions)

 

2024

   

2023

 

Lease income - operating leases:

               

Lease income

  $ 2     $ 2  

Variable lease income

    2       1  

Total lease income

  $ 4     $ 3  

  

 

NOTE 6: COMMITMENTS AND CONTINGENCIES

 

As of March 31, 2024, the Company had outstanding letters of credit of $27 million issued under the Amended and Restated Letter of Credit Facility Agreement ("L/C Facility Agreement") as well as bank guarantees and letters of credit of $1 million, surety bonds in the amount of $27 million, and restricted cash of $118 million, primarily related to cash collateral supporting the Company’s undiscounted actuarial workers’ compensation obligations with the NYS WCB, cash collateral to ensure payment of possible casualty and workers’ compensation claims, for the outstanding letters of credit under the L/C Facility Agreement, to ensure payment of possible 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 March 31, 2024, Kodak’s Brazilian operations maintained accruals of approximately $4 million for claims aggregating approximately $93 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 $5 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 March 31, 2024, Kodak’s Brazilian operations have posted security composed of $7 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 $43 million. Generally, any encumbrances on the Brazilian assets would be removed to the extent the matter is resolved in favor of Kodak’s Brazilian operations.  The matter securing the lien on the non-cash assets was resolved in favor of Kodak’s Brazilian operations on March 12, 2024 and those operations are in the process of having the lien on those assets removed.

 

[13]

 

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 was completed, and the Company and individual defendants formally filed their motions to dismiss/for summary judgment 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. A hearing with respect to the motions to dismiss/for summary judgment was held on August 9, 2023, and the lawsuit was dismissed in its entirety with prejudice on September 26, 2023. The plaintiffs/appellants filed a notice of appeal of the dismissal on October 25, 2023 and filed their brief on appeal on March 21, 2024.

 

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.

 

[14]

 

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.

 

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 7: 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.

 

Extended Warranty Arrangements

 

Kodak offers its customers extended warranty arrangements that are generally one year but may range from three months to six 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, 2023 to March 31, 2024, 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, 2023

  $ 17  

New extended warranty and maintenance arrangements deferred

    21  

Recognition of extended warranty and maintenance arrangement revenue

    (22 )

Deferred revenue on extended warranties as of March 31, 2024

  $ 16  

   

[15]

 
 

NOTE 8: REVENUE

 

Disaggregation of Revenue

 

The following tables present revenue disaggregated by major product and geography:

 

Major Product:

 

Three Months Ended

 

March 31, 2024

 
                     
      

Advanced

             
      

Materials

             
      

and

             

(in millions)

 

Print

  

Chemicals

  

Brand

  

All Other

  

Total

 

Core products (1)

 

Plates, inks and other consumables

 $128  $7  $  $  $135 

Ongoing service arrangements

  41            41 

Total annuities

  169   7         176 

Equipment & software

  13            13 

Film and chemicals

     51         51 

Total Core

  182   58         240 

Growth products (2)

     1         1 

Other (3)

        4   4   8 

Total

 $182  $59  $4  $4  $249 

 

 

Three Months Ended

 

March 31, 2023

 
                     
      

Advanced

             
      

Materials

             
      

and

             

(in millions)

 

Print

  

Chemicals

  

Brand

  

All Other

  

Total

 

Core products (1)

                    

Plates, inks and other consumables

 $144  $6  $  $  $150 

Ongoing service arrangements

  51            51 

Total annuities

  195   6         201 

Equipment & software

  14            14 

Film and chemicals

     52         52 

Total Core

  209   58         267 

Growth products (2)

     3         3 

Other (3)

        4   4   8 

Total

 $209  $61  $4  $4  $278 

 

(1)

Core includes the Print segment and the Motion Picture and Industrial Film and Chemicals businesses within the Advanced Materials and Chemicals segment, excluding coating and product commercialization services (“Coating Services”).

 

(2)

Growth consists of Coating Services and Advanced Materials and Functional Printing within the Advanced Materials and Chemicals segment.

 

(3)

Other consists of Intellectual Property Licensing ("IP Licensing"), Brand Licensing and Eastman Business Park. 

 

[16]

 

Geography (1):

 

Three Months Ended

 

March 31, 2024

 
                     
      

Advanced

             
      

Materials

             
      and             

(in millions)

 

Print

  

Chemicals

  

Brand

  

All Other

  

Total

 

United States

 $57  $47  $4  $4  $112 

Canada

  3            3 

North America

  60   47   4   4   115 

Europe, Middle East and Africa

  80   5         85 

Asia Pacific

  38   7         45 

Latin America

  4            4 

Total

 $182  $59  $4  $4  $249 

 

Three Months Ended

 

March 31, 2023

 
                     
      

Advanced

             
      

Materials

             
      

and

             

(in millions)

 

Print

  

Chemicals

  

Brand

  

All Other

  

Total

 

United States

 $66  $48  $4  $4  $122 

Canada

  3   1         4 

North America

  69   49   4   4   126 

Europe, Middle East and Africa

  89   5         94 

Asia Pacific

  45   7         52 

Latin America

  6            6 

Total

 $209  $61  $4  $4  $278 

 

(1)

Sales are reported in the geographic area in which they originate.

 

[17]

  

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 both  March 31, 2024 and December 31, 2023 was $1 million and is reported in Other current assets in the Consolidated Statement of Financial Position. The contract liabilities primarily relate to brand licensing agreements, prepaid service contracts or upfront payments for certain equipment purchases. The amount recorded for contract liabilities in the Consolidated Statement of Financial Position at  March 31, 2024 and December 31, 2023 was $97 million and $100 million, respectively, of which $35 million and $37 million, respectively, was reported in Other current liabilities and $61 million and $63 million, respectively, was reported in Other long-term liabilities.

 

Revenue recognized for both the three months ended March 31, 2024 and 2023 that was included in the contract liability balance at the beginning of the year was $21 million and primarily represented revenue from prepaid service contracts and equipment revenue recognition. Contract liabilities as of March 31, 2024 and  March 31, 2023 included $18 million and $21 million of cash payments received during the three months ended March 31, 2024 and 2023, respectively.

 

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 March 31, 2024, there was approximately $95 million of unrecognized revenue from unsatisfied performance obligations. Approximately 10% of the revenue from unsatisfied performance obligations is expected to be recognized in the remainder of 2024, 15% in 2025, 10% in each of 2026 and 2027 and 55% thereafter.

 

 

 

NOTE 9: OTHER OPERATING (INCOME) EXPENSE

 

   

Three Months Ended

 
   

March 31,

 

(in millions)

 

2024

   

2023

 

Gain on sale of assets (1)

  $ (17 )   $  

Other

          1  

Total

  $ (17 )   $ 1  

 

(1) In the first quarter of 2024, Kodak sold certain assets in the U.S. and recognized a gain of $17 million.

 

 

NOTE 10: OTHER INCOME, NET

 

   

Three Months Ended

 
   

March 31,

 

(in millions)

 

2024

   

2023

 

Interest income (1)

  $ (4 )   $ (9 )

Change in fair value of embedded conversion features derivative liability

          1  

Other

    2       1  

Total

  $ (2 )   $ (7 )

 

(1)

The first quarter of 2023 includes $9 million of interest income associated with a refund received 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.

 

[18]

 
 

NOTE 11: INCOME TAXES

 

Kodak’s income tax provision and effective tax rate were as follows:

 

   

Three Months Ended

 
   

March 31,

 

(in millions)

 

2024

   

2023

 

Earnings from operations before income taxes

  $ 35     $ 41  

Effective tax rate

    8.6 %     19.5 %

Provision for income taxes

    3       8  

Provision for income taxes at U.S. statutory tax rate

    7       9  

Difference between tax at effective vs. statutory rate

  $ (4 )   $ (1 )

 

For the three months ended March 31, 2024, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses, and (2) the results from operations in jurisdictions outside the U.S.

 

In December 2021, the Organisation for Economic Cooperation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%.  Many participating countries enacted changes which take effect in 2024. After considering the applicable tax law changes in the Pillar 2 implementation, Kodak determined there was no material impact to its tax provision for the three months ended March 31, 2024.

 

For the three months ended March 31, 2023, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses, (2) the results from operations in jurisdictions outside the U.S., and (3) a provision associated with foreign withholding taxes on undistributed earnings. 

 

 

[19]

 
 

NOTE 12: 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

 
  

March 31,

 
  

2024

  

2023

 

(in millions)

 

U.S.

  

Non-U.S.

  

U.S.

  

Non-U.S.

 

Major defined benefit plans:

                

Service cost

 $3  $1  $3  $1 

Interest cost

  27   5   29   5 

Expected return on plan assets

  (62)  (5)  (64)  (5)

Amortization of:

                

Prior service cost

  3      2    

Actuarial gain

  (9)     (7)   

Net pension (income) expense before special termination benefits

  (38)  1   (37)  1 

Special termination benefits

  1          

Total net pension (income) expense

 $(37) $1  $(37) $1 

 

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.

 

[20]

 
 

NOTE 13: 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 months ended March 31, 2024 and 2023 follows:

 

   

Three Months Ended

 
   

March 31,

 

(in millions)

 

2024

   

2023

 

Net earnings

  $ 32     $ 33  

Less: Series B Preferred stock cash dividends

    (1 )     (1 )

Less: Series C Preferred stock in-kind dividends

    (1 )     (1 )

Less: Preferred stock deemed dividends

    (1 )     (1 )

Less: Earnings attributable to Series C Preferred shareholders

    (4 )     (4 )

Net earnings available to common shareholders - basic

  $ 25     $ 26  
                 

Effect of dilutive securities:

               

Add back: Series B preferred stock cash and deemed dividends

  $ 2     $ 1  

Add back: Convertible Notes interest expense

          1  

Net earnings available to common shareholders - diluted

  $ 27     $ 28  

 

   

Three Months Ended

 
   

March 31,

 

(in millions of shares)

 

2024

   

2023

 

Weighted average shares — basic

    79.7       79.1  

Effect of dilutive securities

               

Employee stock options

    0.6       0.4  

Unvested restricted stock units

    1.5       0.7  

Series B Preferred Stock

    9.5       9.5  

Convertible Notes

          2.5  

Weighted average shares — diluted

    91.3       92.2  

 

The computation of diluted earnings per share for the three months ended March 31, 2024 excluded the impact of (1) the assumed conversion of 1.2 million shares of Series C Preferred Stock, (2) the assumed vesting of 0.1 million unvested restricted stock units and (3) the assumed exercise of 3.9 million outstanding employee stock options because the effects would have been anti-dilutive. 

 

The computation of diluted earnings per share for the three months ended March 31, 2023 excluded the impact of (1) the assumed conversion of 1.1 million shares of Series C Preferred Stock, (2) the assumed vesting of 0.1 million unvested restricted stock units and (3) the assumed exercise of 4.3 million outstanding employee stock options because the effects would have been anti‐dilutive.

 

 

[21]

 
 

NOTE 14: SHAREHOLDERS EQUITY

 

The Company has 560 million shares of authorized stock, consisting of: (i) 500 million shares of common stock, par value $0.01 per share and (ii) 60 million shares of preferred stock, no par value, issuable in one or more series.

 

Common Stock

As of March 31, 2024 and December 31, 2023, there were 79.9 million and 79.6 million shares of common stock outstanding, respectively.

 

Preferred Stock

Series B Preferred stock issued and outstanding as of both  March 31, 2024 and  December 31, 2023 consisted of 1.0 million shares. Series C Preferred stock issued and outstanding as of March 31, 2024 and  December 31, 2023 consisted of 1.2 million shares and 1.1 million shares, respectively. 

 

Treasury Stock

Treasury stock consisted of approximately 1.0 million shares as of both  March 31, 2024 and December 31, 2023.

 

 

NOTE 15: OTHER COMPREHENSIVE LOSS

 

The changes in Other comprehensive loss by component, were as follows:

 

  

Three Months Ended

 
  

March 31,

 

(in millions)

 

2024

  

2023

 

Currency translation adjustments

        

Currency translation adjustments

 $(6) $(1)
         

Pension and other postretirement benefit plan changes

        

Reclassification adjustments:

        

Amortization of prior service cost (1)

  3   1 

Amortization of actuarial gains (1)

  (9)  (7)

Total reclassification adjustments

  (6)  (6)

Tax provision

      

Reclassification adjustments, net of tax

  (6)  (6)

Pension and other postretirement benefit plan changes, net of tax

  (6)  (6)

Other comprehensive loss

 $(12) $(7)

 

(1)

Reclassified to Total Net Periodic Benefit Cost - refer to Note 12, "Retirement Plans and Other Postretirement Benefits".

 

[22]

  
 

NOTE 16: SEGMENT INFORMATION

 

Kodak has three reportable segments: Print, Advanced Materials and Chemicals and Brand. A description of Kodak’s reportable segments follows.

 

Print: The Print segment is comprised of five lines of business: the Prepress Solutions business, the PROSPER business, the Software business, the Electrophotographic Printing Solutions business and the VERSAMARK business.

 

Advanced Materials and Chemicals: The Advanced Materials and Chemicals segment is comprised of four lines of business: the Industrial Film and Chemicals business, the Motion Picture business, the Advanced Materials and Functional Printing business and the IP Licensing and Analytical Services business.

 

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 1,200-acre technology center and industrial complex.

 

Segment financial information is shown below:

 

Segment Revenues

 

  

Three Months Ended

 
  

March 31,

 

(in millions)

 

2024

  

2023

 

Print

 $182  $209 

Advanced Materials and Chemicals

  59   61 

Brand

  4   4 

All Other

  4   4 

Total

 $249  $278 

 

[23]