Eastman Kodak Company (NYSE: KODK) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared primarily with 2022. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement.
Business context
Kodak manufactures products focused on commercial printing and advanced materials and chemicals, and licenses the Kodak brand. Its reportable segments are Print, Advanced Materials and Chemicals, and Brand; All Other primarily comprises Eastman Business Park. Print generated 74% of 2023 revenue. Kodak reported approximately 4,000 employees in 34 countries.
Key financial results
| Metric (US$ millions, except per-share data) | 2023 | 2022 |
|---|---|---|
| Revenue | $1,117 | $1,205 |
| Gross profit / gross margin | $210 / 19% | $170 / 14% |
| Pre-interest, pension, debt-extinguishment and tax earnings (loss) | $4 | $(26) |
| Earnings from continuing operations before tax | $87 | $31 |
| Net earnings | $75 | $26 |
| Diluted EPS attributable to common shareholders | $0.67 | $0.16 |
| Cash provided by (used in) operating activities | $38 | $(116) |
| Capital expenditures | $32 | $31 |
Revenue by segment: Print $828 million (down $110 million); Advanced Materials and Chemicals $255 million (up $21 million); Brand $17 million (unchanged); All Other $17 million (up $1 million).
Margins and segment performance: Gross margin increased to 19% from 14%. Segment Operational EBITDA was $45 million versus $18 million: Print $20 million (up from $5 million), Advanced Materials and Chemicals $10 million (up from a $1 million loss), and Brand $15 million (up from $14 million). Operational EBITDA is Kodak’s non-GAAP segment measure.
Cash, liquidity and debt: Year-end cash and cash equivalents were $255 million, up from $217 million. Cash, cash equivalents and restricted cash totaled $377 million, including $122 million of restricted cash. Carrying value of debt and finance leases was $458 million, including $446 million of term loans; the filing lists $593 million of total contractual debt maturity value. The term loans carry 7.5% cash interest plus 5.0% payable in kind or in cash at Kodak’s option, and mature in 2028 subject to earlier triggers tied to preferred-stock maturities. Long-term debt was $457 million. Series B and C preferred stock totaled $210 million and is subject to mandatory redemption in 2026 if not converted or otherwise extended.
Current assets were $712 million and current liabilities $283 million. Kodak says liquidity is adequate for operating and investing needs, but long-term liquidity depends on positive operating cash flow, access to cash held internationally, and managing debt and preferred-stock obligations. Some foreign cash may not be readily transferable. A Hong Kong subsidiary’s $80 million intercompany loan from a Chinese subsidiary had installments due in 2023–24; Kodak reported a partial $2 million payment in January 2024 and was evaluating alternatives.
Material changes versus 2022
- Revenue declined 7%, principally from lower Print volumes, partially offset by pricing and product mix improvements.
- Print revenue fell 12%, with lower plate volumes the main driver. Advanced Materials and Chemicals revenue increased 9%, largely from pricing and mix.
- Gross profit rose $40 million as pricing, product mix and lower aluminum costs more than offset higher manufacturing costs and lower volumes.
- Operating cash flow improved by $154 million to positive $38 million. Kodak cited improved earnings, insurance proceeds, a government refund, lower inventory investment and higher deferred revenue, partly offset by higher receivables and lower trade payables.
- Net earnings included $161 million of pension income excluding service cost, compared with $98 million in 2022, and a $27 million loss on early extinguishment of debt. Interest expense increased to $52 million from $40 million. These items materially affect how reported profit compares with underlying operating performance.
Outlook, management commentary and risks
- Kodak provided no specific consolidated revenue or earnings guidance in the supplied filing text. It expects 2024 capital expenditures of approximately $45–$65 million and estimates about $9 million of annual cash savings from 2023 restructuring, with most savings expected by the end of the second quarter of 2024.
- Management’s cash-flow plan includes pricing actions, cost controls, working-capital improvements, organizational streamlining, IT investment, asset sales or leases, and additional brand licensing. Long-term licensing agreements signed in 2023 generated approximately $57 million of deferred revenue; Kodak received $12 million in 2023 and expected $40 million in first-quarter 2024 and $5 million in 2025.
- Macroeconomic uncertainty, inflation, geopolitical conflicts, supply constraints, higher labor and distribution costs, and weaker customer demand remain risks. Kodak noted that more than half of sales are generated outside the U.S.
- Competitive pressure from low-priced imported printing plates led Kodak to seek U.S. trade relief. In February 2024, Commerce announced a preliminary 38.50% countervailing duty on practically all Chinese plates; final relief and anti-dumping findings were uncertain.
- Advanced Materials and Chemicals faces capacity constraints and backorders in consumer film. Growth initiatives include battery-material coating, light-blocking textiles, transparent antennas, and diagnostic reagents; these require further investment and may not reach commercial scale.
- Kodak is winding down direct Russian operations; the subsidiary represented less than 1% of consolidated revenue and assets. A leased warehouse in Israel was destroyed, with no employee injuries reported; Kodak said operations had adapted without material disruption.
- The DFC’s proposed $765 million pharmaceutical-project loan was closed in 2022 after the DFC said it could not consider the project further. Related shareholder litigation and government investigations remain relevant: a federal derivative lawsuit was dismissed with prejudice in September 2023, but an appeal was filed; a New York Attorney General threatened claim remains unresolved.
- Other investor risks include non-investment-grade credit status, covenant/default and refinancing exposure, collateral needs, preferred-stock redemption and dilution, and potential limits on using tax attributes if a Section 382 ownership change occurs. Kodak disclosed a $1.2 billion overfunded U.S. pension plan, but any reversion to the company is uncertain, subject to taxes and obligations, and required first to reduce term loans under the credit agreement.
- Environmental remediation accruals were described as not material, but Kodak has extensive environmental obligations and a guarantee that could require payment if specified historical Eastman Business Park liabilities exceed $99 million. Brazilian proceedings include approximately $127 million of asserted claims; Kodak accrued $4 million and disclosed a further $6 million of reasonably possible unreserved losses.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective; the internal-control assessment excluded the acquired Graphic Systems Services, Inc., which was under 1% of assets and revenue.
Important facts for investors to verify
- Whether operating cash flow remains positive without relying on financing proceeds, licensing advances, insurance reimbursements, or asset monetizations.
- Debt-service capacity under the 12.5% stated term-loan interest rate, maturity provisions, required asset-sale prepayments, and 2026 preferred-stock redemption obligations.
- How much cash is actually available for U.S. operations after restricted cash, overseas operating needs and transfer limitations, including resolution of the intercompany loan installments.
- Whether Print volumes and margins stabilize amid digital substitution, pricing pressure, and the outcome of U.S. trade investigations concerning imported plates.
- Whether Advanced Materials and Chemicals growth projects can overcome manufacturing capacity constraints and generate returns sufficient to justify investment.
- The progress and ultimate cost of DFC-related proceedings, Brazilian claims, environmental obligations, pension-plan asset valuation and any potential pension reversion.
- The potential dilution and market overhang from convertible preferred stock and registered resales; Kodak disclosed that conversion of all convertible preferred securities could represent approximately 21% of common shares after conversion.