Eastman Kodak(KODK) - 2020 Q2 - Quarterly Report

Part I - Financial Information Financial Statements The company reported a significant revenue decline and net loss for H1 2020, raising substantial doubt about its ability to continue as a going concern Consolidated Statement of Operations Summary (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $213 | $307 | $480 | $598 | | Gross Profit | $21 | $42 | $57 | $82 | | Loss from Continuing Operations | $(5) | $(6) | $(116) | $(18) | | Net (Loss) Income | $(5) | $201 | $(116) | $183 | | (Loss) Income Per Share (Diluted) | $(0.23) | $4.56 | $(2.88) | $4.02 | Consolidated Statement of Financial Position Summary (in millions) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $589 | $706 | | Total Assets | $1,160 | $1,415 | | Total Current Liabilities | $275 | $368 | | Total Liabilities | $1,004 | $1,134 | | Total Shareholders' (Deficit) Equity | $(30) | $99 | Consolidated Statement of Cash Flows Summary (in millions) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(64) | $(13) | | Net Cash (Used in) Provided by Investing Activities | $(5) | $297 | | Net Cash Used in Financing Activities | $(6) | $(294) | | Net Decrease in Cash | $(78) | $(9) | - The company's ability to continue as a going concern is in substantial doubt due to a history of negative operating cash flow, upcoming debt maturities, and pandemic-related challenges[20][25] - Subsequent to the quarter end, holders converted $95 million of convertible notes into 29,922,956 shares of common stock, discharging the majority of the notes[26] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes poor performance to COVID-19, discusses cost-saving measures, and highlights the uncertain potential $765 million DFC loan - The COVID-19 pandemic had a material impact on sales, prompting cost-reduction measures that saved approximately $12 million in Q2 2020[164] - On July 28, 2020, the U.S. DFC signed a non-binding letter of interest for a potential $765 million loan to launch Kodak Pharmaceuticals, but there is no assurance the loan will be approved[161][168] - Effective January 1, 2020, Kodak changed its organizational structure to four new reportable segments: Traditional Printing, Digital Printing, Advanced Materials and Chemicals, and Brand[129][168] Results of Operations Q2 2020 revenues and gross profit declined significantly due to the pandemic, though cost-cutting measures reduced SG&A expenses Consolidated Results of Operations (in millions) | Metric | Q2 2020 | Q2 2019 | $ Change | YTD 2020 | YTD 2019 | $ Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $213 | $307 | $(94) | $480 | $598 | $(118) | | Gross Profit | $21 | $42 | $(21) | $57 | $82 | $(25) | | SG&A Expenses | $34 | $54 | $(20) | $82 | $113 | $(31) | | Loss from Continuing Operations | $(5) | $(6) | $1 | $(116) | $(18) | $(98) | - The Q2 2020 revenue decline of $94 million was driven by volume and pricing declines in Traditional Printing ($57M and $3M) and volume declines in other key segments[197] - SG&A expenses decreased by $20 million in Q2 2020 and $31 million YTD, reflecting reduced investments and cost-saving initiatives like furloughs and pay cuts[201] Segment Analysis All segments saw revenue declines due to COVID-19, with Traditional Printing most affected, while cost controls improved operational losses in other segments Segment Revenues (in millions) | Segment | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Traditional Printing | $119 | $181 | -34.3% | | Digital Printing | $52 | $69 | -24.6% | | Advanced Materials and Chemicals | $38 | $52 | -26.9% | | Brand | $2 | $2 | 0.0% | Segment Operational EBITDA (in millions) | Segment | Q2 2020 | Q2 2019 | $ Change | | :--- | :--- | :--- | :--- | | Traditional Printing | $1 | $9 | $(8) | | Digital Printing | $(3) | $(4) | $1 | | Advanced Materials and Chemicals | $(7) | $(8) | $1 | | Brand | $2 | $2 | $0 | - Traditional Printing's revenue decline of $62 million in Q2 was driven by volume and pricing declines in Prepress Solutions consumables due to lower customer demand[207] - Advanced Materials and Chemicals revenue fell $14 million in Q2, mainly from a $10 million volume decline in Motion Picture as productions halted[218] Liquidity and Capital Resources The company faces significant liquidity challenges and going concern doubts, with falling cash reserves and upcoming debt and preferred stock maturities - The company faces liquidity challenges and substantial doubt about its ability to continue as a going concern due to operating losses and upcoming 2021 maturities[241][243] - As of June 30, 2020, Kodak held $95 million of its cash in the U.S. and $85 million outside the U.S, with foreign cash not readily available for transfer[21][250] - In July 2020, the company paid $11 million in preferred stock dividends that were in arrears[259] Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(64) | $(13) | | Net cash (used in) provided by investing activities | $(5) | $297 | | Net cash used in financing activities | $(6) | $(294) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes during the quarter - Management, including the Executive Chairman and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2020[264] - There were no material changes in Kodak's internal control over financial reporting during the second quarter of 2020[265] Part II - Other Information Legal Proceedings The company faces ongoing tax litigation in Brazil and new investigations by the SEC and congressional committees related to the potential DFC loan - Kodak's Brazilian operations are involved in tax litigation with claims of approximately $110 million, for which the company has accrued about $3 million[267] - The company is subject to new investigations by several congressional committees and the SEC related to the potential DFC Loan and its Pharmaceutical Initiative[269] Risk Factors Key risks include the ongoing impact of COVID-19 and significant new uncertainties surrounding the potential, but unassured, $765 million DFC loan - The full impact of the COVID-19 pandemic remains highly uncertain and could have a material adverse effect on business operations, results, and financial position[270] - There is no assurance the potential $765 million DFC loan will be consummated, and failure to secure it could damage Kodak's reputation[271] - The company's stock price has been and may continue to be volatile, particularly in response to news about the potential DFC loan and related investigations[275] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold, and no company equity was repurchased during the second quarter of 2020 - There were no sales of unregistered securities or issuer purchases of equity securities during the quarter ended June 30, 2020[277] Exhibits This section lists filed exhibits, including corporate governance documents, incentive plans, and required officer certifications - The exhibits filed with this report include corporate governance documents, incentive plans, and required officer certifications under the Sarbanes-Oxley Act[280]