Eastman Kodak(KODK) - 2022 Q3 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited interim financial statements and management's analysis Financial Statements This section presents Eastman Kodak Company's unaudited consolidated interim financial statements, including key operational and financial position data Consolidated Statement of Operations Total revenues increased to $900 million for the nine months ended September 30, 2022, while net income decreased to $19 million Consolidated Statement of Operations Highlights (in millions) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $900 | $843 | $289 | $287 | | Gross Profit | $127 | $131 | $43 | $43 | | Loss from Operations | $(25) | $(19) | $(7) | $(9) | | Net Income | $19 | $30 | $2 | $8 | | Diluted EPS | $0.11 | $0.39 | $(0.01) | $0.06 | Consolidated Statement of Financial Position Total assets increased to $2.26 billion as of September 30, 2022, while cash and cash equivalents decreased to $216 million Key Balance Sheet Items (in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $216 | $362 | | Inventories, net | $273 | $219 | | Total current assets | $699 | $807 | | Total Assets | $2,259 | $2,171 | | Total current liabilities | $297 | $309 | | Long-term debt, net | $312 | $253 | | Total Liabilities | $1,157 | $1,194 | | Total shareholders' equity | $901 | $781 | Consolidated Statement of Cash Flows Net cash used in operating activities significantly increased to $130 million for the nine months ended September 30, 2022 Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(130) | $(33) | | Net cash used in investing activities | $(44) | $(9) | | Net cash provided by financing activities | $45 | $240 | | Net (decrease) increase in cash | $(143) | $195 | | Cash, cash equivalents and restricted cash, end of period | $280 | $451 | Notes to Financial Statements The notes provide detailed explanations of financial statements, covering investments, debt, segment revenue, and legal contingencies - On July 13, 2022, Kodak invested $25 million to acquire a minority preferred equity interest in Wildcat Discovery Technologies, Inc., a private company developing new battery materials. Kodak will also provide coating and engineering services to Wildcat[26] - The company is involved in a consolidated securities class action lawsuit related to the 2020 DFC loan announcement. The lawsuit was dismissed with prejudice on September 28, 2022, but the plaintiffs filed a notice of appeal on October 27, 2022[59] - As of September 30, 2022, the company had approximately $60 million of unrecognized revenue from unsatisfied performance obligations, with about 30% expected to be recognized in 2023[98] Revenue by Segment - Nine Months Ended Sep 30 (in millions) | Segment | 2022 Revenue | 2021 Revenue | | :--- | :--- | :--- | | Traditional Printing | $535 | $483 | | Digital Printing | $169 | $184 | | Advanced Materials and Chemicals | $173 | $155 | | Brand | $11 | $10 | | All Other | $12 | $11 | | Consolidated Total | $900 | $843 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth, global economic challenges, strategic focus areas, and liquidity position Executive Overview and Global Impacts Consolidated revenues increased by 7% to $900 million despite unfavorable currency impacts and global economic challenges - For the nine months ended Sep 30, 2022, revenues improved by $57 million (7%) year-over-year, but were unfavorably impacted by currency fluctuations of $51 million[150] - Kodak is experiencing supply chain disruptions, shortages in materials and labor, and increased costs. It has implemented mitigation measures like increasing safety stock and pricing actions[152][153] - The war in Ukraine has disrupted the company's Russian subsidiary, which is being wound down. It has also caused worldwide supply constraints for aluminum and electronic components and increased energy and transportation costs[156][157] Company Strategy Kodak's strategy focuses on core print and advanced materials, aiming for revenue growth and expansion into new markets like EV battery materials - Strategic focus areas include: investing in print and advanced materials; growing revenue through customer focus and market share gains; promoting film use and expanding applications for film and chemicals; driving cost reductions through process streamlining[161] - New initiatives in Advanced Materials and Chemicals leverage expertise in coating and chemistry for applications in: EV/Energy Storage Battery Materials (in collaboration with Wildcat); Light-Blocking Technology for fabrics; Transparent Antennas using copper micro-wire technologies; Reagent Manufacturing for healthcare applications[163] Reportable Segments Analysis Traditional Printing revenue grew 11% to $535 million, while Digital Printing revenue declined 8% to $169 million for the nine months ended September 30, 2022 Segment Performance - Nine Months Ended Sep 30, 2022 vs 2021 (in millions) | Segment | Revenue 2022 | Revenue 2021 | Operational EBITDA 2022 | Operational EBITDA 2021 | | :--- | :--- | :--- | :--- | :--- | | Traditional Printing | $535 | $483 | $15 | $16 | | Digital Printing | $169 | $184 | $(15) | $(2) | | Advanced Materials & Chemicals | $173 | $155 | $1 | $(3) | | Brand | $11 | $10 | $10 | $8 | - Traditional Printing's performance was characterized by significant pricing improvements ($113 million YTD) being largely offset by higher aluminum costs ($64 million YTD) and other manufacturing cost increases ($47 million YTD)[185] - Digital Printing's Operational EBITDA declined by $13 million YTD, primarily due to increased manufacturing costs ($9 million), higher R&D spending ($2 million), and unfavorable foreign currency ($4 million)[190] Liquidity and Capital Resources Cash balance decreased to $216 million at Q3 2022, with $130 million net cash used in operations, while liquidity is deemed adequate for the next 12 months Cash Position (in millions) | Date | Cash and Cash Equivalents | Restricted Cash | Total | | :--- | :--- | :--- | :--- | | Sep 30, 2022 | $216 | $64 | $280 | | Dec 31, 2021 | $362 | $61 | $423 | - Net cash used in operating activities increased by $97 million year-over-year, primarily due to increased investment in inventory to ensure customer supply[218] - The company must maintain Minimum Liquidity of at least $80 million (was $143 million at Sep 30, 2022) and Excess Availability above 12.5% of lender commitments under its ABL Credit Agreement (was $30 million at Sep 30, 2022)[207][211] - The Amended ABL Credit Agreement matures on February 26, 2024. The company's ability to fund long-term requirements depends on amending, refinancing, or extending this agreement[212][215] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily from foreign currency exchange rate fluctuations due to its global operations - The company is exposed to market risk from fluctuations in foreign currency exchange rates due to its extensive international business operations[229] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective[230] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[231] Part II. Other Information This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings This section refers to Note 8 of the financial statements for details on the company's legal proceedings - For information on legal proceedings, the report refers to Note 8, "Commitments and Contingencies" in the financial statements[233] Risk Factors This section refers to the 2021 Form 10-K for a detailed discussion of the company's risk factors - The report refers to the Risk Factors section of the 2021 Form 10-K for a detailed discussion of risks affecting the company[234] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred in Q3 2022, though the company purchased 52,552 shares for tax withholding obligations - There were no sales of unregistered securities in Q3 2022[235] Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 33,065 | $4.96 | | August 2022 | 9,552 | $6.37 | | September 2022 | 9,935 | $5.48 | | Total | 52,552 | $5.31 | - Share purchases were made to satisfy tax withholding obligations for employee restricted stock units and not as part of a formal repurchase program[236][237] Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including certifications and XBRL data files - This section lists exhibits filed with the report, including certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files[238][240]