Eastman Kodak Company — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; compared with the corresponding 2022 periods. Dollar amounts are in millions unless stated otherwise. Kodak manufactures products and provides services focused on commercial print and advanced materials and chemicals.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $295 | $321 | $573 | $611 |
| Gross profit | $63 | $51 | $113 | $84 |
| Gross margin | 21% | 16% | 20% | 14% |
| Net earnings | $35 | $20 | $68 | $17 |
| Diluted EPS attributable to common shareholders | $0.32 | $0.19 | $0.63 | $0.12 |
| Operating cash flow | Not separately provided for Q2 | $21 | $(103) |
- Q2 revenue fell 8%; first-half revenue fell 6%. Print revenue declined 15% in Q2 and 12% for the first half, primarily due to lower volumes. Advanced Materials and Chemicals revenue rose 18% and 16%, respectively, largely on improved pricing.
- Gross profit improved despite lower sales, supported by pricing and product mix, lower aluminum costs, and stronger Advanced Materials and Chemicals results. Kodak reported Q2 operating income before interest, pension income, other charges and taxes of $10, versus $1 a year earlier; first-half results were $15, versus a loss of $18.
- Net earnings included substantial pension income excluding service cost: $41 in Q2 and $81 for the first half, compared with $27 and $57 in 2022. First-half results also benefited from $16 of insurance reimbursements for legal costs and a $9 governmental refund; these items may not recur.
- First-half operating cash flow improved by $124 year over year. Investing cash outflow was $11, mainly capital expenditures; financing cash outflow was $2. Cash, cash equivalents and restricted cash totaled $292 at June 30, up $6 from year-end, including $223 of cash and equivalents and $69 of restricted cash.
Balance sheet, debt and liquidity
- At June 30, cash and equivalents were $223; current assets were $672 and current liabilities $292. Total assets were $2,221, total liabilities $1,047, and shareholders’ equity $967. Redeemable convertible preferred stock was $207.
- Reported debt at June 30 was $325: $324 long-term and $1 current. This preceded the July refinancing. Management said liquidity was adequate for operating and investing needs, while noting that long-term funding depends on generating positive operating cash flow and managing cash across jurisdictions.
- On July 21, 2023, Kodak borrowed $450 under a refinanced term loan and received approximately $435 net proceeds. Proceeds refinanced existing term debt, repaid the $25 original-principal convertible notes and ABL borrowings, funded additional letter-of-credit collateral, and left approximately $29 for general corporate and working-capital needs. The new loan matures no later than August 15, 2028, subject to earlier maturity triggers, and bears 12.5% annual interest (7.5% cash and 5.0% payable in kind or cash at Kodak’s option). It is secured by substantially all company and guarantor assets and includes restrictive covenants, but no financial maintenance covenant.
- The ABL facility was terminated upon repayment. The amended letter-of-credit facility can provide commitments up to $100 through August 30, 2023, then reduces to $50; collateral must equal at least 104% of outstanding letters of credit. Kodak reported $58 of letters of credit under the ABL and $41 under the prior L/C facility at June 30.
Outlook, management commentary and risks
- No quantified revenue or earnings guidance is provided in the supplied filing text. Kodak expects 2023 capital expenditures of approximately $30–$40. First-half restructuring actions are expected to generate about $7 of annual cash savings, mostly in effect by the end of Q2 2024.
- Management cited inflation, supply-chain disruption, labor and material shortages, higher distribution and energy costs, geopolitical uncertainty and weaker demand for print plates. Pricing actions and cost reductions have helped offset costs, but higher prices may further pressure plate demand. Film demand is strong, but manufacturing constraints and labor shortages contribute to backorders.
- Kodak is winding down its Russian subsidiary and has ceased direct operations there; the company reported no material effect on Q2 2023 consolidated results from the wind-down. It is pursuing growth initiatives in digital printing, battery materials, specialty coatings, transparent antennas and diagnostic reagents. Its first PROSPER 7000 Turbo Press and PROSPER ULTRA 520 were placed in Q2 and were expected to enter production in Q3 2023.
- A May 2023 pension-plan remeasurement and amendment reduced the Kodak Retirement Income Plan’s funded status by $118, contributing to a $123 Q2 pension and postretirement loss in other comprehensive income. Comprehensive loss was $99 for Q2 and $73 for the first half, despite net earnings.
- Brazilian operations had approximately $125 of disputed claims, primarily tax matters; Kodak accrued approximately $2 and disclosed another $6 for which loss was reasonably possible. A guarantee related to historical environmental liabilities at Eastman Business Park could require Kodak to pay 50% of amounts above $99, without a stated maximum; no liability was recorded. The filing also describes shareholder derivative litigation and a threatened New York Attorney General claim connected to the 2020 pharmaceutical-loan announcement. Kodak says it intends to defend the matters and does not currently believe the broader litigation will materially harm its financial condition or results, while acknowledging outcomes are unpredictable.
Most important facts for investors to verify
- Whether the July refinancing and its 12.5% cost improve near-term liquidity enough to offset increased interest expense, collateral needs and restrictive terms.
- Whether Print volume stabilizes and pricing, lower input costs and restructuring savings can sustain margins as sales decline.
- How much of operating cash flow depended on the $16 insurance reimbursement and $9 governmental refund, and whether cash generation remains positive without those items.
- Progress on cash collateral requirements, the planned reduction of letter-of-credit commitments, and repayment or movement of intercompany funds—particularly the $80 China/Hong Kong-related loan and potential effects on U.S. liquidity.
- Developments in the Brazilian claims, environmental guarantee, fiduciary matters and threatened NYAG claim, along with pension funding and preferred-stock redemption or conversion obligations.