Eastman Kodak(KODK) - 2019 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Presents unaudited consolidated financial statements for Q3 2019, covering operations, financial position, cash flows, and equity Consolidated Statement of Operations | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $315 million | $329 million | $913 million | $979 million | | Gross Profit | $53 million | $50 million | $135 million | $133 million | | (Loss) Earnings from Continuing Operations | ($10) million | $20 million | ($28) million | ($2) million | | Income (Loss) from Discontinued Operations | $5 million | ($1) million | $206 million | $0 million | | Net (Loss) Income | ($5) million | $19 million | $178 million | ($2) million | | Total EPS | ($0.23) | $0.33 | $3.79 | ($0.40) | - For the nine months ended September 30, 2019, the company reported a significant net income of $178 million, primarily driven by $206 million in income from discontinued operations, which includes the gain on the sale of the Flexographic Packaging business[8] Consolidated Statement of Financial Position | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $721 million | $910 million | | Total Assets | $1,409 million | $1,510 million | | Total Current Liabilities | $371 million | $778 million | | Total Liabilities | $1,058 million | $1,340 million | | Total Shareholders' Equity (Deficit) | $171 million | ($3) million | - Total liabilities decreased significantly from $1,340 million at year-end 2018 to $1,058 million as of September 30, 2019, largely due to the repayment of the Term Credit Agreement. Shareholders' equity improved from a deficit of $3 million to a positive $171 million[11] Consolidated Statement of Cash Flows | Cash Flow Activity (Nine Months Ended Sep 30) | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($4) million | ($79) million | | Net Cash Provided by (Used in) Investing Activities | $315 million | ($16) million | | Net Cash Used in Financing Activities | ($295) million | ($10) million | | Net Increase (Decrease) in Cash | $12 million | ($113) million | - Investing activities provided $315 million in cash, primarily from $326 million in net proceeds from the sale of businesses/assets. This inflow was largely used for financing activities, including a $395 million repayment of the Term Credit Agreement, offset by $98 million in proceeds from new Convertible Notes[12] Notes to Financial Statements Provides detailed disclosures for consolidated financial statements, including going concern, lease accounting, debt refinancing, and the Flexographic Packaging business sale - The company's financial statements are prepared on a going concern basis, but management notes that operating losses, negative cash flow, and significant upcoming cash requirements raise substantial doubt about Kodak's ability to continue as a going concern[21][24] - On January 1, 2019, Kodak adopted the new lease accounting standard (ASU 2016-02), resulting in the recognition of $52 million in operating lease right-of-use assets and $61 million in operating lease liabilities on the Consolidated Statement of Financial Position[28][29] - In 2019, Kodak repaid its Term Credit Agreement using proceeds from the sale of its Flexographic Packaging business (FPD) and refinanced the remainder by issuing $100 million of 5.00% Secured Convertible Notes due 2021[43][44] - The sale of the Flexographic Packaging business (FPD) was consummated in April and July 2019 for net cash consideration of approximately $326 million, resulting in an after-tax gain of $212 million, which is reported in discontinued operations[150][152] Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses financial condition and results, highlighting Q3 and YTD 2019 revenue declines, segment performance, and ongoing liquidity challenges raising going concern doubts Overview and Strategy - Kodak's strategy focuses on investment in growth engines like Sonora, Ultrastream, and Software, while maintaining cash flow from its core Print Systems business and managing the decline of mature businesses. The company also aims to drive cost reductions and monetize its asset base[189] - The company faces significant liquidity challenges and has plans to return to positive cash flow by growing revenues, reducing expenses, simplifying its structure, and selling underutilized assets[189][257] Results of Operations | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $315M | $329M | $913M | $979M | | Gross Profit | $53M | $50M | $135M | $133M | | Gross Profit % | 17% | 15% | 15% | 14% | | Net (Loss) Income | ($5M) | $19M | $178M | ($2M) | - Q3 2019 revenue declined by $14 million YoY, driven by volume and pricing declines in Print Systems and Enterprise Inkjet Systems, and a $5 million unfavorable currency impact. This was partially offset by $13 million in intellectual property licensing revenue[222] - Gross profit for Q3 2019 improved by $3 million YoY, mainly due to the $13 million high-margin licensing revenue and lower depreciation, which offset volume declines and unfavorable pricing[224] Segment Analysis Segment Revenues (in millions) | Segment | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Print Systems | $213 | $217 | $612 | $660 | | Enterprise Inkjet Systems | $29 | $39 | $90 | $103 | | Kodak Software | $14 | $15 | $42 | $47 | | Brand, Film and Imaging | $56 | $54 | $159 | $159 | | Advanced Materials & 3D Printing | $1 | $1 | $3 | $3 | | Eastman Business Park | $2 | $3 | $7 | $7 | Segment Operational EBITDA (in millions) | Segment | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Print Systems | $20 | $11 | $32 | $20 | | Enterprise Inkjet Systems | ($3) | $2 | ($6) | $3 | | Kodak Software | $2 | $1 | $1 | $3 | | Brand, Film and Imaging | ($1) | ($3) | ($10) | ($15) | | Advanced Materials & 3D Printing | ($4) | ($2) | ($9) | ($10) | | Eastman Business Park | $0 | $0 | ($1) | ($3) | - Print Systems: Q3 Operational EBITDA improved by $9 million YoY, primarily due to $13 million in licensing revenue from the HuaGuang relationship, which offset volume and pricing declines[233] - Enterprise Inkjet Systems: Q3 Operational EBITDA declined by $5 million YoY, driven by equipment inventory write-downs and lower volumes[239] - Brand, Film and Imaging: Q3 Operational EBITDA improved by $2 million YoY, reflecting higher volumes in the Motion Picture business[248] Liquidity and Capital Resources Addresses Kodak's significant liquidity challenges from operating losses and negative cash flow, despite debt refinancing, detailing cash position and ongoing cash needs - Management states that the current cash balance outside of China, recent negative operating cash flow, and uncertainty regarding a return to positive cash flow raise substantial doubt about Kodak's ability to continue as a going concern[257] | Cash Position (in millions) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Cash, Equivalents & Restricted Cash | $279 | $267 | | - Held in U.S. | $84 | $117 | | - Held outside U.S. | $141 | $131 | | - Held in China | $71 | $59 | - For the first nine months of 2019, net cash used in operating activities improved to ($4 million) from ($79 million) in the prior year, largely due to proceeds from brand/IP licensing and a prepayment for transition services related to divestitures[260][261] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - Kodak's Executive Chairman and Chief Financial Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the third quarter of 2019[274] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[275] Part II. Other Information Legal Proceedings Details Kodak's involvement in various litigation, primarily significant tax-related assessments in Brazilian operations, with $3 million accrued for $145 million in claims - Kodak's Brazilian operations face numerous governmental assessments related to indirect and other taxes. The company has accrued $3 million for these claims, which aggregate to approximately $145 million, and is actively disputing them[277] Risk Factors Refers to previously disclosed Q2 2019 Form 10-Q risk factors, noting implementation of a tax asset protection plan and stock transfer restrictions - The company has implemented a Tax Asset Protection Plan and amended its certificate of incorporation to restrict certain transfers of common stock. This is intended to protect the company's ability to use its net operating loss and tax credit carryforwards[116][279] Unregistered Sales of Securities and Use of Proceeds Details Q3 2019 repurchase of 34,284 common shares at an average price of $2.38 per share, for tax withholding related to the 2013 Omnibus Incentive Plan | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 2,093 | $2.40 | | August 2019 | 0 | $0.00 | | September 2019 | 32,191 | $2.38 | | Total Q3 2019 | 34,284 | $2.38 | Exhibits Lists exhibits filed with Form 10-Q, including Certificate of Incorporation amendments, Tax Asset Protection Plan, and CEO/CFO certifications