EASTMAN KODAK CO annual report, FY2022

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Eastman Kodak Company — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with fiscal 2021. This is an annual report, not a standalone fourth-quarter results filing. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.

Business context and performance

Kodak is a global manufacturer focused on commercial printing, advanced materials and chemicals, and related services. Its reporting segments were Traditional Printing, Digital Printing, Advanced Materials and Chemicals, and Brand; All Other primarily included Eastman Business Park. Effective February 2023, Traditional and Digital Printing were combined into a Print segment.

  • Revenue: $1.205 billion, up $55 million (5%) from $1.150 billion. Favorable pricing contributed, especially in Traditional Printing; unfavorable foreign exchange reduced revenue by $70 million.
  • Profitability: Gross profit was $170 million versus $164 million, with gross margin approximately 14% in both years. Net earnings were $26 million versus $24 million; reported diluted EPS was $0.16 versus $0.27.
  • Operating segments: Traditional Printing revenue rose to $711 million from $659 million and Operational EBITDA increased to $27 million from $9 million. Digital Printing revenue fell to $227 million from $249 million and Operational EBITDA worsened to a $22 million loss from a $5 million loss. Advanced Materials and Chemicals revenue increased to $234 million from $212 million, while Operational EBITDA improved to a $1 million loss from a $6 million loss. Brand revenue was $17 million and Operational EBITDA was $14 million.
  • Cash flow: Operating activities used $116 million, compared with $47 million used in 2021. Investing activities used $56 million, including $31 million of capital expenditures and a $25 million Wildcat preferred-equity investment. Financing activities provided $43 million. Cash, cash equivalents and restricted cash declined $137 million to $286 million; unrestricted cash was $217 million at year-end, down from $362 million.
  • Debt and liquidity: Balance-sheet debt was $317 million, including $286 million of term loans and $18 million of convertible notes. Term loans mature in 2026 and carry 8.5% cash interest plus 4% paid-in-kind interest. The company reported $150 million of Minimum Liquidity and $21 million of Excess Availability at year-end; $44 million of cash was collateral for letters of credit. These measures are subject to credit-agreement definitions and are not equivalent to unrestricted cash.
  • Other metrics: Current assets were $681 million and current liabilities $293 million. Common-stock dividends were not declared or paid in 2022 or 2021. Pension income excluding the service-cost component was $98 million and materially supported reported pretax earnings.

Material changes versus 2021

  • Revenue increased despite foreign-exchange headwinds, primarily because of Traditional Printing price increases and growth in Advanced Materials and Chemicals. Traditional Printing volume declined, partly reflecting customer response to pricing actions.
  • Aluminum and other manufacturing costs offset much of the benefit from higher Traditional Printing prices. Digital Printing revenue and segment earnings weakened.
  • SG&A declined $24 million, in part because of lower investigation and litigation costs and a $10 million insurance reimbursement of previously paid legal costs. Kodak also recorded a $15 million reduction in employee-benefit reserves, including approximately $13 million in workers’ compensation reserves.
  • Interest expense increased $7 million to $40 million, mainly reflecting the 2022 delayed-draw term loan and a full year of interest on 2021 financing.
  • Equity increased to $1.041 billion from $781 million, substantially reflecting pension-related other comprehensive income. The U.S. pension plan’s projected benefit obligation fell by $582 million due principally to a higher discount rate; plan assets nevertheless had a $152 million actual return loss in 2022.

Outlook, risks and unusual items

  • Management outlook: Kodak said liquidity was adequate for operating and investing needs over the next 12 months, while emphasizing that sustained positive operating cash flow and longer-term funding remain dependent on execution, financing access and cash management. It gave no specific revenue or earnings guidance in the provided filing text. Expected 2023 capital expenditures were $30 million to $40 million; 2022 restructuring actions were expected to generate about $12 million in annual cash savings, with most savings in place by the end of the second quarter of 2023.
  • Liquidity and financing risks: Kodak reported negative operating cash flow and identified the need to maintain credit-agreement liquidity requirements, manage cash across jurisdictions, and extend, refinance or replace credit facilities. A March 2023 amendment, after year-end, extended the ABL and letter-of-credit facility maturity to no later than June 12, 2024, added a $50 million daily Minimum Liquidity requirement alongside the $80 million quarterly requirement, and scheduled a commitment reduction in February 2024.
  • Operating risks: Inflation, high aluminum, energy, labor and transportation costs, supply constraints, foreign-exchange movements, digital substitution, competitive pricing and customer demand weakness could pressure revenue, margins and cash generation. Kodak also cited equipment limitations and labor shortages constraining consumer-film supply.
  • Strategy and portfolio: Kodak is investing in commercial inkjet and growth initiatives including battery-material coating, light-blocking fabric treatments, transparent antennas and diagnostic reagents. It ceased manufacturing NEXFINITY and ASCEND printers in December 2022 and plans to continue selling consumables and servicing installed equipment.
  • Unusual items and contingencies: The $765 million potential U.S. International Development Finance Corporation loan for Kodak Pharmaceuticals was not made; the agency closed its application in April 2022. The securities class action related to the announcement was dismissed with prejudice, and plaintiffs withdrew their appeal in January 2023. Derivative litigation and a threatened New York Attorney General claim remained matters to monitor. Kodak reported approximately $2 million accrued against about $114 million of Brazilian claims, with a further approximately $6 million of reasonably possible unreserved exposure.
  • Other exposures: Kodak had posted $75 million of workers’ compensation collateral; it said a state board could require up to $38 million of additional collateral as early as December 2023. Convertible preferred stock and notes could dilute existing common shareholders; Kodak estimated conversion of all such securities based on December 2022 capitalization would result in issuance equal to approximately 23% of common shares after conversion.

Most important facts for investors to verify

  1. Whether operating cash use improves and the company can fund operations without repeated financing or asset monetization.
  2. Unrestricted cash, restricted cash, ABL Excess Availability, covenant compliance and the effect of the March 2023 facility amendments.
  3. Debt service and refinancing capacity, including the term loans’ cash and paid-in-kind interest and the facilities’ 2024 maturity provisions.
  4. Whether Traditional Printing pricing can continue to offset lower volumes and input costs, and whether Digital Printing losses improve.
  5. Delivery and commercial scale of growth investments, expected restructuring savings, and capital spending requirements.
  6. Potential additional workers’ compensation collateral, litigation developments, Brazilian claims and possible common-stock dilution from convertible securities.