EASTMAN KODAK COMPANY CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report on Form 10-Q includes "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerningKodak 's plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, liquidity, investments, financing needs and business trends and other information that is not historical information. When used in this document, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "predicts," "forecasts," "strategy," "continues," "goals," "targets" or future or conditional verbs, such as "will," "should," "could," or "may," and similar words and expressions, as well as statements that do not relate strictly to historical or current facts, are intended to identify forward-looking statements. All forward-looking statements, including management's examination of historical operating trends and data, are based uponKodak 's current expectations and assumptions. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in or implied by such forward-looking statements. Important factors that could cause actual events or results to differ materially from the forward-looking statements include, among others, the risks and uncertainties described in more detail in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 under the headings "Business," "Risk Factors," "Legal Proceedings," and/or "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources," in the corresponding sections of this report on Form 10-Q and in other filings the Company makes with theSEC from time to time, as well as the following:
•
profitability and other financial results;
•
projections, and projected growth;
•
in its business plans;
•
facilities;
• Kodak 's ability to fund continued investments, capital needs and
restructuring payments and service its debt and Series B Preferred Stock
and Series C Preferred Stock;
• The performance by third parties of their obligations to supply products,
components or services to
chain disruptions and continue to obtain raw materials and components
available from single or limited sources of supply, which may be adversely
affected by the COVID-19 pandemic;
• The impact of the global economic environment or medical epidemics such as
the COVID-19 pandemic, including the restrictions and other actions taken
in response to the COVID-19 pandemic, and
mitigate or recoup associated increased costs of materials, labor,
shipping and operations;
• The impacts of the war in
on
of aluminum and other raw materials and components, shipping costs,
transit times and energy costs;
• Changes in foreign currency exchange rates, commodity prices, interest
rates and tariff rates;
• The impact of the investigations, litigation and claims arising out of the
circumstances surrounding the announcement on
nonbinding letter of interest to provide a subsidiary of
potential loan to support the launch of an initiative for the manufacture
of pharmaceutical ingredients for essential generic drugs;
•
and develop and market new products, solutions and technologies, including
products based on its technology and expertise that relate to industries
in which it does not currently conduct material business;
•
participants;
[26]
--------------------------------------------------------------------------------• Continued sufficient availability of borrowings and letters of credit
under the Amended ABL Credit Agreement and L/C Facility Agreement,
ability to obtain additional financing if and as needed and Kodak 's
ability to provide or facilitate financing for its customers;
•
strategic alliances, divestitures and similar transactions, or to achieve
the benefits sought to be achieved from such strategic transactions; and
• The potential impact of force majeure events, cyberattacks or other data
security incidents that could disrupt or otherwise harm
operations.
Future events and other factors may causeKodak 's actual results to differ materially from the forward-looking statements. All forward-looking statements attributable toKodak or persons acting on its behalf apply only as of the date of this report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included or referenced in this document.Kodak undertakes no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, except as required by law.
EXECUTIVE OVERVIEW
Kodak is a global manufacturer focused on commercial print and advanced materials and chemicals.Kodak provides industry-leading hardware, software, consumables and services primarily to customers in commercial print, packaging, publishing, manufacturing and entertainment. With 31,000 patents earned over 130 years of R&D,Kodak believes in the power of technology and science to enhance what the world sees and creates.Kodak 's innovative, award-winning products, combined with its customer-first approach, allowsKodak to attract customers worldwide.Kodak is committed to environmental stewardship, including industry leadership in developing sustainable solutions for print. Consolidated revenues in the three months endedMarch 31, 2022 were$290 million , an improvement of$25 million (9%) when compared to the three months endedMarch 31, 2021 . Currency impacted revenue unfavorably in 2022 compared to 2021 ($10 million ). Traditional Printing's revenues, which accounted for 59% ofKodak 's total revenues three months endedMarch 31, 2022 , improved by$24 million (16%) compared to the three months endedMarch 31, 2021 . Volume for SONORA Process Free Plates improved by 24% compared to the same period in 2021. Digital Printing revenues declined$8 million (13%) in three months endedMarch 31, 2022 with revenues for PROSPER annuities growing by 2% when compared to the same period in 2021. Advanced Materials and Chemicals revenue improved$8 million (17%) from 2021 to 2022. Impact of COVID19 and Other Global Events: The ongoing global impacts associated with the COVID19 pandemic, the war inUkraine and other global events continue to impactKodak 's operations.Kodak is experiencing supply chain disruptions, shortages in materials and labor, and increased labor, material and distribution costs.Kodak has implemented numerous measures to mitigate these challenges, including increasing safety stock on certain solesourced materials, increasing leadtimes, providing suppliers with longer forecasts of future demand, certifying additional sources or substitute materials where possible and implementing pricing actions. WhileKodak has been able to meet current demand and has implemented numerous measures to mitigate these challenges, the full impact of the COVID19 pandemic, the war inUkraine and other global events onKodak 's operations and financial performance remains uncertain and will depend on several factors such as the duration of supply chain disruptions, the ability to secure raw materials and components, the ability to offset higher labor, material and distribution costs through pricing actions and the duration of the COVID19 pandemic, including vaccination coverage, infection rates, as well as local government restrictions.Kodak continues to work closely with government and health officials in the jurisdictions where it operates to protect employees worldwide, with particular measures in place for those working in plants and distribution facilities. Beginning inApril 2022 ,Kodak closed its manufacturing facility located inShanghai, China in response to a mandatory government lockdown. The lockdown is on-going and its potential impact onKodak 's operations will depend on its duration. None ofKodak 's other manufacturing facilities have been ordered to close by governmental authorities.Kodak continues to monitor the rapidly evolving events surrounding the war inUkraine and the various sanctions imposed in response to the war. This military conflict and the international response has disruptedKodak 's ability to operate its Russian subsidiary in the ordinary course, affecting its ability to pay vendors and employees, receive amounts owed from customers inRussia and deliver product. [27] --------------------------------------------------------------------------------Kodak is currently assessing the strategic options of its Russian subsidiary and is in compliance with all sanctions. The direct operations ofKodak 's Russian subsidiary are not material to the Company's financial statements (less than 1% of total consolidated revenues for 2021), and there were no material impacts to the consolidated results as of and for the quarter endedMarch 31, 2022 . The worldwide supply of aluminum and electronic components is expected to decrease as suppliers divert from Russian sources, which may further constrainKodak 's ability to secure these materials directly from the Company's suppliers. As a result,Kodak may face increased costs and manufacturing and shipping delays.Kodak is anticipating increased costs for energy and transportation as a result of the conflict. The extent to which the military conflict inUkraine will impact the global economy andKodak 's business and operations remains uncertain. Both the Traditional Printing and Digital Printing segments have been impacted by supply chain disruptions, travel restrictions, higher raw material costs and increased labor costs. To mitigate the impact of higher aluminum, energy and packaging costs, the Traditional Printing segment implemented certain pricing actions including surcharges on purchases of plates largely beginning in the latter part of the second quarter of 2021 that continue to be periodically reviewed and adjusted accordingly. Both segments have implemented numerous measures to mitigate the supply chain disruptions while meeting current demand, butKodak expects the ability to continue to secure raw materials and components, and the ability to offset higher raw material costs through surcharges for the Traditional Printing segment, will remain a challenge throughout 2022. The Advanced Materials and Chemicals segment has experienced supply chain disruptions and shortages associated with raw materials as well as labor shortages in certain manufacturing areas. The segment has implemented numerous measures to mitigate these challenges while meeting current demand, however, the duration and extent of supply chain disruptions and labor shortages remain unclear.Kodak 's strategy: The film industry and segments within the print industry face competition from digital substitution.Kodak 's strategy is to:
• Focus product investment in core competency areas of print and advanced
materials, leveraging
technologically advanced products in the product goods packaging, graphic
communications, and functional printing markets;
• Grow revenues through a focus on customers across
increasing overall share;
• Promote the use of film and expand the applications of
chemicals to best utilize the existing infrastructure; and
• Continue to streamline processes to drive cost reductions and improve
operating leverage.
A discussion of opportunities and challenges related to
• Traditional Printing's digital plate products include traditional digital
plates and
allow
plates on a printing press. This improvement in the printing process saves
time and costs for customers. Also, SONORA Process Free Plates reduce the
environmental impact of the printing process because they eliminate the
use of chemicals (including solvents), water and power that is otherwise
required to process a traditional plate. The segment is experiencing
challenges from higher prices and availability of raw materials, digital
substitution and competitive pricing pressures.
the impact of increases in manufacturing costs, including aluminum prices,
through a combination of surcharges and price increases, improved
production efficiency and cost reduction initiatives. In addition, Kodak
seeks to offset the impact of longterm market dynamics on pricing and
volume pressures through innovations in Kodak product lines.
• In Digital Printing, the PROSPER business is expected to grow as the
legacy VERSAMARK business continues to decline as a percentage of thesegment's total revenue. The PROSPER Inkjet Systems business is expected
to continue to build profitability. Investment in the next generation
technology, Ultrastream, is focused on the ability to place Ultrastream
writing systems in
manufacturers in applications ranging from commercial print to
packaging. The Electrophotographic Printing Solutions business expects to
introduce a new printer in 2022, ASCEND, aimed at the retail, point of
purchase and packaging markets.
[28]--------------------------------------------------------------------------------
• Advanced Materials and Chemicals is using
chemistry and strengths in deposition and coating processes that come from
decades of experience in film manufacturing to work on new initiatives:
o Electric Vehicle ("EV")/Energy Storage Battery Material Manufacturing -
Coating of substrates is a critical aspect of manufacturing materials
for batteries and
technology to develop opportunities in this area.
o Light-Blocking Technology - Kodak plans to leverage a proprietary
technology initially developed for electrophotographic toners tocommercialize a carbonless fabric coating designed to offer superior
light management, from complete blackout to selective light filtering,
and coating compatibility with an unmatched range of fabrics.
o Transparent Antennas -
microwire technologies and highresolution printing expertise to
contractmanufacture custom transparent antennas for automotive,
commercial construction, and other applications requiring excellent
radio frequency ("RF") and optical performance. The integration of
antennas is growing worldwide due to the rapid expansion of 5G and an
overall increase in RF communications, and the ubiquity of glasssurfaces makes transparent antennas attractive for multiple enduse
markets.
o Reagent Manufacturing - Kodak plans to capitalize on its existing
chemical manufacturing expertise, including current production ofunregulated Key Starting Materials for pharmaceuticals, to implement an
expansion into manufacturing Diagnostic Test Reagent solutions.
• Film and related component manufacturing operations and
Laboratories utilize capacity at
absorption for both
• Kodak plans to capitalize on its intellectual property through new
business or licensing opportunities in 3D printing materials, smart
material applications, and printed electronics markets.
RESULTS OF OPERATIONS
2022 COMPARED TO 2021
FIRST QUARTER RESULTS OF OPERATIONS
Three Months Ended March 31,
% of % of
(in millions) 2022 Sales 2021 Sales $ Change
Revenues $ 290 $ 265 $ 25
Cost of revenues 257 225 32
Gross profit 33 11 % 40 15 % (7 )
Selling, general and administrative
expenses 43 15 % 46 17 % (3 )
Research and development costs 9 3 % 8 3 % 1
Restructuring costs and other - 0 % 1 0 % (1 )
Other operating income, net - 0 % (1 ) (0 )% 1
Loss from operations before interest
expense,
pension income excluding service cost
component,
other charges, net and income taxes (19 ) (7 )% (14 ) (5 )%
(5 )
Interest expense 9 3 % 4 2 % 5
Pension income excluding service cost
component (30 ) (10 )% (25 ) (9 )% (5 )
Other charges, net 3 1 % - 0 % 3
(Loss) earnings from operations before
income taxes (1 ) (0 )% 7 3 % (8 )
Provision for income taxes 2 1 % 1 0 % 1
Net (loss) income $ (3 ) (1 )% $ 6 2 % $ (9 )
[29]--------------------------------------------------------------------------------
Revenue
For the three months endedMarch 31, 2022 revenues improved$25 million compared with the same period in 2021, driven by improved pricing and increased volume within Traditional Printing ($22 million and$10 million , respectively) and increased volume within Advanced Materials and Chemicals ($8 million ). Offsetting these favorable impacts was lower volume in Digital Printing ($6 million ) and unfavorable foreign currency ($10 million ). See segment discussions for additional details.
Gross Profit
Gross profit for the three months endedMarch 31, 2022 declined approximately$7 million compared with the same period in 2021, primarily due to higher aluminum costs in Traditional Printing ($15 million ), higher manufacturing costs in Traditional Printing ($14 million ), Digital Printing ($5 million ) and Advanced Materials and Chemicals ($3 million ) and unfavorable foreign currency ($2 million ). Partially offsetting these unfavorable impacts was improved pricing and higher volumes in Traditional Printing ($22 million and$1 million , respectively), higher volume in Advanced Materials and Chemicals ($4 million ) and a decrease in workers' compensation reserves ($3 million ). See segment discussions for additional details. Selling, General and Administrative Expenses Consolidated SG&A decreased$3 million in the three months endedMarch 31, 2022 . The decrease was primarily due to lower consulting and other costs primarily associated with investigations and litigation compared to the prior year period. Research and Development Costs Consolidated R&D expenses increased$1 million .
REPORTABLE SEGMENTS
Kodak has four reportable segments: Traditional Printing, Digital Printing, Advanced Materials and Chemicals, and Brand. The balance ofKodak 's operations, which do not meet the criteria of a reportable segment, are reported in All Other and primarily represent theEastman Business Park operations. Refer to the 2021 Form 10-K for a description of the Company's segments. Segment Revenues Three Months Ended March 31, (in millions) 2022 2021 Traditional Printing$ 172 $ 148 Digital Printing 56 64 Advanced Materials and Chemicals 54 46 Brand 4 3 All Other 4 4 Consolidated total$ 290 $ 265 [30]
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Segment Operational EBITDA and Consolidated (Loss) Income from Operations Before
Income Taxes
Three Months Ended
March 31,
(in millions) 2022 2021
Traditional Printing $ (2 ) $ 5
Digital Printing (5 ) -
Advanced Materials and Chemicals (3 ) (4 )
Brand 3 2
Depreciation and amortization (7 ) (8 )
Restructuring costs and other - (1 )
Stock based compensation (2 ) (3 )
Consulting and other costs (1) (2 ) (5 )
Idle costs (2) (1 ) (1 )
Other operating income, net (3) - 1
Interest expense (3) (9 ) (4 )
Pension income excluding service cost
component (3) 30 25 Other charges, net (3) (3 ) -
Consolidated (loss) income from operations
before income taxes$ (1 ) $ 7
(1) Consulting and other costs are primarily professional services and internal
costs associated with certain corporate strategic initiatives,
investigations and litigation.
(2) Consists of third-party costs such as security, maintenance and utilities
required to maintain land and buildings in certain locations not used in any
Kodak operations and the costs, net of any rental income received, of underutilized portions of certain properties. (3) As reported in the Consolidated Statement of Operations.Kodak decreased workers' compensation reserves by approximately$4 million in the three months endedMarch 31, 2022 , driven by changes in discount rates. The decrease in reserves in the three months endedMarch 31, 2022 impacted gross profit by approximately$3 million and Selling, general and administrative expenses ("SG&A") by approximately$1 million . Segment Measure of Profit and LossKodak 's segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization ("Operational EBITDA"). Operational EBITDA represents the (loss) earnings from operations excluding the provision for income taxes; non-service cost components of pension and OPEB income; depreciation and amortization expense; restructuring costs; stock-based compensation expense; consulting and other costs; idle costs; other operating income, net (unless otherwise indicated); interest expense and other charges, net.Kodak 's segments are measured using Operational EBITDA both before and after the allocation of corporate SG&A expenses. The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns withU.S. GAAP. Research and development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
TRADITIONAL PRINTING SEGMENT
Three Months Ended March 31,
(in millions) 2022 2021 $ Change
Revenues $ 172 $ 148 $ 24
Operational EBITDA $ (2 ) $ 5 $ (7 )
[31]--------------------------------------------------------------------------------
Revenues
The increase in Traditional Printing revenues for the three months ended
Operational EBITDA
Traditional Printing Operational EBITDA for the three months endedMarch 31, 2022 declined$7 million compared to the prior year quarter reflecting higher aluminum costs ($15 million ), increased manufacturing costs ($14 million ) driven by increases in other costs such as utilities, transportation and supplies as well as higher selling and administrative costs ($2 million ). The higher costs were partially offset by pricing and volume improvements ($22 million and$1 million , respectively) in Prepress Solutions consumables and a decrease in workers' compensation reserves ($1 million ).
DIGITAL PRINTING SEGMENT
Three Months Ended March 31,
(in millions) 2022 2021 $ Change
Revenues $ 56 $ 64 $ (8 )
Operational EBITDA $ (5 ) $ - $ (5 )
Revenues
The decline in Digital Printing revenues for the three months ended March 31,
2022 of approximately $8 million primarily reflected volume declines in PROSPER
equipment and components ($4 million and $1 million , respectively), volume
declines in Electrophotographic Printing Solutions equipment ($1 million ),
unfavorable pricing in Electrophotographic Printing Solutions consumables and
service ($1 million ) and unfavorable foreign currency ($2 million ).
Operational EBITDA
Digital Printing Operational EBITDA for the three months ended
ADVANCED MATERIALS AND CHEMICALS SEGMENT
Three Months Ended March 31,
(in millions) 2022 2021 $ Change
Revenues $ 54 $ 46 $ 8
Operational EBITDA $ (3 ) $ (4 ) $ 1
Revenues
Advanced Materials and Chemicals revenues for the three months ended March 31,
2022 improved $8 million primarily from volume improvements in Industrial Film
and Chemicals and Motion Picture ($5 million and $3 million , respectively).
[32]
--------------------------------------------------------------------------------Operational EBITDA
Advanced Materials and Chemicals Operational EBITDA improved$1 million for the three months endedMarch 31, 2022 reflecting volume improvements in Industrial Film and Chemicals and Motion Picture ($2 million and$1 million , respectively) and a reduction in workers' compensation reserves ($2 million ), partially offset by increased manufacturing costs for Industrial Film and Chemicals ($3 million ). BRAND SEGMENT Three Months Ended March 31, (in millions) 2022 2021 $ Change Revenues$ 4 $ 3 $ 1 Operational EBITDA$ 3 $ 2 $ 1
Brand revenues and operational EBITDA improved
RESTRUCTURING COSTS AND OTHER
The restructuring actions implemented in the first three months of 2022 are expected to generate future annual cash savings of approximately$1 million , which are expected to reduce future annual SG&A expenses.Kodak began realizing a portion of these savings in the first three months of 2022 and expects the majority of the annual savings to be in effect by the end of the second quarter of 2022 as these actions are completed.
LIQUIDITY AND CAPITAL RESOURCES
Management's Assessment of LiquidityKodak ended the quarter with a cash balance of$309 million , a decrease of$53 million fromDecember 31, 2021 . The financing transactions entered into during the first quarter of 2021 provided additional liquidity to the Company to fund ongoing operations and obligations, invest in growth opportunities inKodak 's businesses of print and advanced materials and chemicals and for corporate infrastructure investments expected to contribute to improvements in cash flow.Kodak 's plans to return to sustainable positive cash flow include growing revenues profitably, reducing operating expenses, continuing to simplify the organizational structure, generating cash from selling and leasing underutilized assets and implementing ways to reduce cash collateral needs.Kodak believes the expected cash provided from operating activities, together with the current levels of cash and cash equivalents, available borrowing capacity under the Amended ABL Credit Agreement, available borrowing resources under the Term Loan Credit Agreement and additional liquidity measures will be sufficient to meet the Company's shortterm and longterm cash requirements, as further described below. [33]
--------------------------------------------------------------------------------Kodak 's products are sold and serviced in numerous countries across the globe with more than half of sales generated outside theU.S. Current global economic conditions remain highly volatile due to conditions associated with the on-going COVID-19 pandemic, the war inUkraine and other global events.Kodak businesses are experiencing supply chain disruptions, shortages in materials and labor, and increased labor, commodity and distribution costs. While manufacturing volumes have improved since 2020 at the height of the pandemic, the economic uncertainty surrounding the COVID-19 pandemic, the war inUkraine and other global events represents an additional element of complexity inKodak 's plans to return to sustainable positive cash flow. The Company cannot predict the duration and scope of the COVID-19 pandemic, the war inUkraine , as well as other factors such as the ability to continue to secure raw materials and components, the impact of rising costs of raw materials, or how quickly and to what extent normal economic and operating conditions can resume. March 31, December 31, (in millions) 2022 2021
Cash, cash equivalents and restricted cash
Cash Flow Activity
March 31,
(in millions) 2022 2021 Year-Over-Year Change
Cash flows from operating activities:
Net cash used in operating activities $ (43 ) $ (16 ) $ (27 )
Cash flows from investing activities:
Net cash used in investing activities (5 ) (1 ) (4 )
Cash flows from financing activities:
Net cash (used in) provided by financing
activities (1 ) 242 (243 )
Effect of exchange rate changes on cash and
restricted cash - (4 ) 4
Net (decrease) increase in cash, cash
equivalents and restricted cash $ (49 ) $ 221 $ (270 )
Operating Activities
Net cash used in operating activities increased $27 million for the three months
ended March 31, 2022 as compared with the corresponding period in 2021 primarily
due to a decline in earnings, lower reductions of accounts receivable and
increased investment in inventory partially offset by decreases in cash used for
accounts payable and other liabilities.
Investing Activities
Net cash used in investing activities increased $4 million for the three months
ended March 31, 2022 as compared with the corresponding period in 2021 due to an
increase in capital expenditures.
Financing Activities
The change in net cash (used in) provided by financing activities for the three
months ended March 31, 2022 compared to corresponding period in 2021 was
primarily driven by the net proceeds of $247 million received in the prior year
period due to the refinancing transactions partially offset by lower preferred
stock dividend payments in the current year period.
Sources of Liquidity
Available liquidity includes cash balances and the unused portion of the Amended
ABL Credit Agreement. The amount of available liquidity is subject to
fluctuations and includes cash balances held by various entities worldwide. At
March 31, 2022 and December 31, 2021 approximately $210 million and
$250 million , respectively, of cash and cash equivalents were held within the
U.S. and approximately $99 million and $112 million , respectively, of cash and
cash equivalents were held outside the U.S.
Cash balances held outside the U.S. are generally required to support local
country operations and may have high tax costs or other limitations that delay
the ability to repatriate, and therefore may not be readily available for
transfer to other jurisdictions. Kodak utilizes cash balances outside the U.S.
to fund needs in the U.S. through the use of inter-company loans.
[34]
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As of March 31, 2022 and December 31, 2021 , outstanding inter-company loans to
the U.S. were $409 million and $418 million , respectively, which includes
short-term inter-company loans from Kodak 's international finance center of $110
million and $119 million , respectively. In China , where approximately $39
million and $42 million of cash and cash equivalents was held as of March 31,
2022 and December 31, 2021 , respectively, there are limitations related to net
asset balances that may impact the ability to make cash available to other
jurisdictions in the world. Under the terms of the Amended ABL Credit Agreement,
the Company is permitted to invest up to $75 million in Restricted Subsidiaries
that are not Loan Parties and in joint ventures or Unrestricted Subsidiaries
that are not party to the Amended ABL Credit Agreement.
The Company had issued approximately $46 million letters of credit under the
Amended ABL Credit Agreement and $44 million letters of credit under the L/C
Facility Agreement as of March 31, 2022 and December 31, 2021 . The letters of
credit under the L/C Facility Agreement are collateralized by cash collateral
(L/C Cash Collateral). The L/C Cash Collateral was $45 million at March 31, 2022
which was classified as Restricted Cash.
Under the Amended ABL Credit Agreement and L/C Facility Agreement the Company is
required to maintain Minimum Liquidity of at least $80 million , which is tested
on the last day of each fiscal quarter. Minimum Liquidity was $210 million and
$250 at March 31, 2022 and December 31, 2021 , respectively. If Minimum
Liquidity falls below $80 million an Event of Default would occur and the Agent
has the right to declare the obligation of each Lender to make Revolving Loans
and of the Issuing Banks to issue Letters of Credit to be terminated, and
declare the Revolving Loans, all interest thereon and all other amounts payable
under the Amended ABL Credit Agreement to be due and payable.
Under both the Amended ABL Credit Agreement and the ABL Credit Agreement the
Company is required to maintain Excess Availability above 12.5% of lender
commitments ($11.25 million as of both March 31, 2022 and December 31, 2021 ),
which is tested at the end of each month. Excess Availability was $31 million
and $27 million as of March 31, 2022 and December 31, 2021 , respectively. If
Excess Availability falls below 12.5% of lender commitments a Fixed Charge
Coverage Ratio Trigger Event would occur. During any Fixed Charge Coverage
Ratio Trigger Event, the Company would be required to maintain a Fixed Charge
Coverage Ratio of greater than or equal to 1.0 to 1.0.
If Excess Availability falls below 12.5% of lender commitments, Kodak may, in
addition to the requirement to be in compliance with the minimum Fixed Charge
Coverage Ratio, become subject to cash dominion control. Since Excess
Availability was greater than 12.5% of lender commitments at March 31, 2022 and
December 31, 2021 , Kodak is not required to have a minimum Fixed Charge Coverage
Ratio of 1.0 to 1.0.
If Excess Availability falls below 12.5% of lender commitments and the Fixed
Charge Coverage Ratio is less than 1.0 to 1.0, an Event of Default would occur
and the Agent has the right to declare the obligation of each Lender to make
Revolving Loans and of the Issuing Banks to issue Letters of Credit to be
terminated, and declare the Revolving Loans, all interest thereon and all other
amounts payable under the Amended ABL Credit Agreement to be due and payable.
Kodak intends to continue to maintain Excess Availability above the minimum
threshold. The borrowing base is supported by Eligible Receivables, Eligible
Inventory and Eligible Equipment. As noted above, since Excess Availability was
greater than 12.5% of lender commitments Kodak was not required to have a
minimum Fixed Charge Coverage Ratio of 1.0 to 1.0. As of March 31, 2022 Fixed
Charges (as defined in the ABL Credit Agreement) exceeded EBITDA by
approximately $48 million , therefore the Fixed Charges Coverage Ratio was less
than 1.0 to 1.0.
Available Borrowing Resources
The Term Loan Credit Agreement includes a commitment to provide delayed draw
term loans in an aggregate principal amount of $50 million on or before February
26, 2023 . As of March 31, 2022 , the Company has not drawn down any of the
delayed draw term loans.
Other Uses of Cash Related to Financing Transactions
The holders of the Term Loans are entitled to quarterly cash interest payments
at a rate of 8.5% per annum and holders of the Series B Preferred Stock are
entitled to cumulative dividends payable quarterly in cash at a rate of 4.0% per
annum. The Convertible Notes do not require any debt service until maturity on
May 28, 2026 and holders of the Series C Preferred Stock are entitled to
cumulative dividends payable quarterly "in-kind" in the form of additional
shares of Series C Preferred Stock at a rate of 5.0% per annum. All dividends
have been paid when due.
[35]--------------------------------------------------------------------------------
Other Collateral RequirementsThe New York State Workers' Compensation Board ("NYSWCB") requires security deposits related to self-insured workers' compensation obligations. The security deposit required by NYSWCB is based on actuarial calculations of the Company's obligations and company specific factors such as its declining workforce and reducing exposure. The NYSWCB calculation also includes a financial contingency based on the employer's credit rating and a calculation of unallocated loss adjustment expenses. In 2020 the NYSWCB waived both of these charges to provide employers relief while they managed the economic impacts of the COVID-19 pandemic. In 2021 the NYSWCB waived the financial contingency based on the Company's credit rating. The waived security deposit was$17 million in 2020 and increased to$39 million in 2021. After excluding the waived amount for 2021, the increase to the security deposit required by NYSWCB is$19 million . The Company agreed to post additional collateral of approximately$4 million over a five-year period, starting in 2021, to satisfy the security deposit obligation. The collateral obligation can be satisfied by issuing letters of credit or through other means. The security deposit required by NYSWCB will be re-calculated annually. Therefore, the amount of additional collateral required may change each year. As a result of the Company's current credit ratings, during the second quarter of 2020 two surety bond holders notified the Company they required approximately$9 million of incremental collateral. The Company reduced the surety bond value by approximately$9 million inJuly 2020 with an equivalent increase to an existing letter of credit with theNew York Workers' Compensation board. The Company could be required to provide up to$3 million of letters of credit to the issuers of certain surety bonds in the future to fully collateralize the bonds. Defined Benefit Pension and Postretirement PlansKodak made net contributions (funded plans) or paid benefits (unfunded plans) totaling approximately$4 million to its defined benefit pension and postretirement benefit plans in the first three months of 2022. For the balance of 2022, the forecasted contribution (funded plans) and benefit payment (unfunded plans) requirements for its pension and postretirement plans are approximately$11 million . Capital Expenditures Cash flow from investing activities included$5 million of capital expenditures for the three months endedMarch 31, 2022 .Kodak expects approximately$45 million to$60 million of total capital expenditures for 2022. The expected increase in capital expenditures in 2022 is driven by investments in growth initiatives and backoffice automation.U.S. International Development Finance Corporation Non-Binding Letter of Interest OnJuly 28, 2020 , theU.S. International Development Finance Corporation ("DFC") signed a non-binding letter of interest to provide a subsidiary of the Company with a potential$765 million loan to support the launch ofKodak Pharmaceuticals , an initiative that would manufacture pharmaceutical ingredients for essential generic drugs. The letter of interest was entered into by the DFC pursuant to authority under the Defense Production Act granted to the DFC by Presidential Executive Order 13922. The Company has previously reported that, given the time that has elapsed and the changes in administration at the federal government and the DFC, the Company has been operating on the basis that the DFC Loan as envisioned at the time of the DFC Announcement would not proceed. OnApril 22, 2022 , the Company received a letter from the DFC advising the Company that the authority conferred on the DFC by Executive Order 13922 expired onMarch 27, 2022 and that, consequently, the DFC is unable to consider the project further and the Company's application has been closed.
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