Eastman Kodak Company — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, compared with 2019. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide a clear standalone Q4 financial results breakdown.
Business context
Kodak is a global technology company focused on print, advanced materials and chemicals. Its four reportable segments are Traditional Printing, Digital Printing, Advanced Materials and Chemicals, and Brand. Traditional Printing remained the largest segment, representing 58% of 2020 revenue. Kodak cited competition from digital substitution and the COVID-19 pandemic as significant pressures on demand.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.029 billion | $1.242 billion |
| Gross profit / gross margin | $135 million / 13% | $182 million / 15% |
| Loss from continuing operations | $544 million | $91 million |
| Net loss / earnings | $541 million loss | $116 million earnings |
| Cash from operating activities | $35 million used | $12 million provided |
| Cash, cash equivalents and restricted cash | $256 million | $290 million |
- Revenue declined $213 million, or 17%. The company attributed the decrease principally to lower volumes and pricing in Traditional Printing and lower volumes in Digital Printing and Advanced Materials and Chemicals. Favorable currency contributed $9 million.
- Segment Operational EBITDA was $21 million for Traditional Printing, negative $10 million for Digital Printing, negative $23 million for Advanced Materials and Chemicals, and $11 million for Brand. Traditional Printing EBITDA fell from $48 million; Advanced Materials and Chemicals’ loss narrowed from $34 million.
- Operating cash flow deteriorated by $47 million year over year. Investing cash flow was negative $13 million, versus positive $311 million in 2019, which benefited from business-sale proceeds. Financing cash flow was positive $10 million, versus negative $298 million in 2019.
- At year-end, reported debt and finance leases totaled $19 million, excluding preferred stock and leases presented separately. The balance sheet also reported $191 million of redeemable Series A preferred stock. Cash and cash equivalents were $196 million; restricted cash was $60 million.
- ABL availability was tight: Kodak reported $20 million of Excess Availability at December 31, 2020, against a $13.75 million minimum threshold, and had $90 million of letters of credit outstanding under the facility. Cash balances held outside the U.S. were subject to local operating needs and repatriation limitations.
- The $544 million continuing-operations loss included $386 million of other charges, primarily the $382 million change in fair value of embedded conversion derivatives associated mainly with the Convertible Notes. A $167 million tax valuation-allowance charge contributed to the $168 million income-tax provision despite the pretax loss.
Changes, outlook and material matters
- The pandemic materially reduced revenue and earnings, disrupted manufacturing and logistics, and increased customer collection risk. Management said the duration and pace of recovery were unclear. Furloughs and pay reductions produced about $25 million of 2020 cost reductions; government assistance reimbursed about $8 million of employee costs.
- 2020 restructuring charges were $17 million, with approximately $15 million of cash payments. Kodak estimated the actions would generate about $24 million in annual savings, with most expected to be in effect by the end of 2021.
- Kodak expected 2021 capital expenditures of approximately $15 million to $25 million, before any additional investments funded by subsequent financing. The filing provides no formal revenue or earnings guidance.
- On February 26, 2021, after year-end, Kodak completed financing transactions that generated approximately $235 million of net proceeds before fees. They included a $225 million term loan, up to $50 million in delayed-draw loans, preferred-stock and convertible-note issuances, and common-stock issuance. Kodak also amended and extended its ABL facility and established a cash-collateralized letter-of-credit facility. These transactions, together with the ABL maturity extension and Series A preferred-stock repurchase and exchange, led management to conclude that substantial doubt about continuing as a going concern within one year after issuance of the financial statements had been alleviated.
- The potential $765 million U.S. International Development Finance Corporation loan announced in July 2020 was non-binding; its application process was put on hold amid investigations. Kodak said it was operating on the basis that the loan as originally envisioned would not proceed, while continuing to explore pharmaceutical and healthcare-material opportunities on a smaller scale.
- The 2019 comparison included $207 million of discontinued-operations earnings, largely reflecting the Flexographic Packaging business sale; 2020 discontinued-operations earnings were $3 million. Kodak sold Kodak Services for Business in December 2020 and discontinued Kodakit.
- Two securities class actions, a fiduciary class action and related shareholder demands, plus congressional, SEC and New York Attorney General investigations, arose from the DFC announcement. Kodak said it would defend the lawsuits and was cooperating with the investigations.
- Other notable exposures include Brazilian tax and other litigation (approximately $3 million accrued against claims aggregating approximately $117 million in the legal-proceedings discussion), an uncapped guarantee for 50% of historical Eastman Business Park liabilities above $99 million, and pension obligations. The company reported no liability for the EBP guarantee.
- The auditor issued an unqualified opinion on the 2020 financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the company reported that deficiencies involving unauthorized exercises of previously forfeited stock options were remediated by December 31, 2020.
Most important facts for investors to verify
- Whether core operations can recover revenue and produce sustainable positive operating cash flow without recurring asset sales or other financing.
- Current borrowing-base availability, cash restrictions, letter-of-credit collateral requirements, and compliance with the amended ABL and new financing covenants.
- The terms, cash cost, maturity and potential dilution associated with the February 2021 debt, convertible notes and preferred securities.
- Progress on restructuring savings and on growth initiatives, including Ultrastream, specialty chemicals and pharmaceutical-related projects.
- Developments in the DFC-related investigations and litigation, and any resulting financial, governance or reputational impact.
- Potential cash needs from pension obligations, environmental matters, Brazilian claims and other contingencies.