Eastman Kodak Company — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts are in millions unless noted. Kodak manufactures products and provides services focused primarily on commercial printing and advanced materials and chemicals.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $321 | $291 | $611 | $556 |
| Gross profit (margin) | $51 (15.9%) | $48 (16.5%) | $84 (13.7%) | $88 (15.8%) |
| Net income | $20 | $16 | $17 | $22 |
| Basic / diluted EPS attributable to common shareholders | $0.20 / $0.19 | $0.17 / $0.16 | $0.13 / $0.12 | $0.33 / $0.32 |
| Operating cash flow | Not presented separately for the quarter | $(103) | $(21) |
- Q2 revenue rose 10% year over year; six-month revenue also rose 10%. Traditional Printing and Advanced Materials and Chemicals grew, while Digital Printing declined. Unfavorable currency reduced revenue by $19 in Q2 and $29 year to date.
- Q2 gross profit increased $3, but six-month gross profit fell $4 as higher aluminum and manufacturing costs outweighed pricing gains. Q2 income before taxes was $19, unchanged year over year; six-month income before taxes was $18 versus $26.
- Segment Operational EBITDA was $11 in Q2 versus $10, but $4 for the first half versus $13. Digital Printing posted losses of $4 in Q2 and $9 year to date.
- Cash and cash equivalents were $289 at June 30, down from $362 at year-end. Cash, cash equivalents and restricted cash totaled $353, down from $423. Operating cash use worsened mainly due to higher receivables and inventory, accounts-payable cash use and lower cash earnings. Capital expenditures were $9 for the first half.
- Total debt was approximately $309, versus $254 at year-end; long-term debt was $308. The increase followed a June $50 delayed-draw loan (net proceeds $49). Term loans mature in 2026 and carry a 12.5% stated rate, of which 4% is elected as payment-in-kind. Debt maturities in 2026 total $295 carrying value and $367 maturity value.
- Current assets were $788 and current liabilities $318. Shareholders’ equity was $901; redeemable convertible preferred stock was separately reported at $199. Restricted cash included $45 of collateral for the letter-of-credit facility.
Material changes and unusual items
- Traditional Printing revenue increased $25 in Q2 and $49 year to date, supported by pricing; its first-half Operational EBITDA nevertheless fell $3 as aluminum and other manufacturing costs rose. Advanced Materials and Chemicals revenue increased $7 in Q2 and $15 year to date.
- Kodak reduced workers’ compensation reserves by $4 in Q2 and $8 year to date, benefiting reported results; the reductions were driven by discount-rate changes.
- A May 2022 pension-plan remeasurement increased the U.S. plan’s funded status by $109, largely reflecting a higher discount rate. The resulting pension and postretirement adjustment contributed $110 to other comprehensive income in the first half. Management estimated 2022 pension income at approximately $88, $25 below its prior estimate.
- Q2 2021 included $6 of legal-settlement income in other operating income; there was no comparable amount in Q2 2022.
Outlook, liquidity and risks
- Kodak forecast 2022 capital expenditures of approximately $35–$50, for growth initiatives and back-office automation. It gave no specific consolidated revenue or earnings guidance in the provided filing text.
- Management said cash, expected operating cash flows, ABL availability and other liquidity measures should be sufficient for short- and long-term requirements, while also describing a goal of returning to sustainable positive cash flow. Plans include profitable revenue growth, cost reduction, asset sales or leasing, and reducing cash-collateral needs.
- Minimum Liquidity was $203 at quarter-end against an $80 minimum; ABL excess availability was $35 against an $11.25 trigger threshold. Fixed charges exceeded EBITDA by approximately $67, leaving the fixed-charge coverage ratio below 1.0, but the ratio test was not triggered because excess availability remained above its threshold. A decline in availability could activate testing, cash dominion or default remedies.
- Management cited supply-chain disruption, material and labor shortages, inflation, higher aluminum, energy and transport costs, COVID-19 impacts, and uncertainty from the war in Ukraine. Pricing actions and surcharges may not fully offset costs. Kodak’s Shanghai facility resumed operations after a temporary lockdown; the closure was not material. Kodak was winding down its Russian subsidiary, whose direct operations were less than 1% of 2021 consolidated revenue.
- On July 13, 2022, Kodak invested $25 in Wildcat Discovery Technologies using delayed-draw loan proceeds and agreed to provide coating and engineering services. Kodak may negotiate production or licensing rights if Wildcat technology becomes commercially ready.
- Contingencies include Brazilian tax and other claims aggregating approximately $118, with $2 accrued and $4 of additional reasonably possible loss exposure. Kodak also disclosed securities and derivative litigation and a threatened New York Attorney General claim related to the 2020 DFC announcement. A fiduciary class action was dismissed with prejudice and not appealed; other matters remained ongoing. A separate environmental guarantee could require Kodak to pay 50% of historical liabilities above $99, with no stated maximum; no liability was recorded.
- The DFC advised in April 2022 that its authority had expired and closed Kodak’s application for the potential $765 loan. The filing states Kodak had already been operating on the basis that the loan would not proceed.
Most important facts for investors to verify
- Whether pricing can continue to offset higher input, labor and distribution costs without further erosion in gross margin.
- Whether working-capital investment and operating cash use improve, and whether forecast capital spending remains within the $35–$50 range.
- Current ABL excess availability, minimum-liquidity compliance, borrowing capacity and the implications of fixed charges exceeding EBITDA.
- Debt service and maturity exposure, including the 2026 maturity amount and the effect of PIK interest and preferred-stock dividends.
- Developments in the DFC-related litigation, threatened NYAG claim, Brazilian disputes and uncapped environmental guarantee.
- Progress, funding and commercial milestones for Wildcat and other growth initiatives, including whether they generate returns sufficient to justify investment.