Kodak releases 2020 financials and agrees new financing

Kodak has announced its financial results for 2020, which show a distinct improvement in the second half of the year, broadly in line with most other vendors in the graphic arts. Despite this, the company put new capital in place and restructured its debt just a few weeks earlier.

Kodak’s Eastman business park in Rochester, New York, USA.

For the full year, Kodak managed to pull in revenues of $1018 million, down from the $1232 million of 2019. This translated into a net loss of $541 million, according to Generally Accepted Accounting Practices, a significant drop from the net profit of $116 million for 2019. The press release helpfully pointed out that the 2020 figures included some financial engineering, namely a charge of $416 million to reflect the increased value of the derivative liability from Q3 and $167 million from deferring tax valuation allowances for operations outside the US during the first quarter of 2020. Also, Kodak took a $1 million loss on its operational EBITDA, compared with $13 million gain in 2019.

However, the notes in the 10-K filing identify issues with pricing and the product mix as well as the general fall in sales that everyone has experienced through the pandemic. Traditional printing still accounts for the bulk of Kodak’s revenues and consequently this is also where the worst of the decline was, from revenues of $727 million in 2019 to $592 million in 2020, with the operational Earnings Before Interest Tax Depreciation and Amortisation falling from $48 million to $21 million. Kodak has mostly blamed this fall on a drop in demand for its plates and related consumables due to the pandemic, though it notes that this was offset by lower aluminium costs and foreign currency effects. Also, the previous year figures did include $13 million of intellectual property licensing revenue from the HuaGuang relationship.

Kodak’s digital printing earned $241 million in 2020, down from $293 million in 2019, leading to an EBITDA loss of $10 million, only marginally worse than the $9 million loss from the year before. This is down to a drop in demand for presses, consumables and servicing of both the Prosper inkjet and Nexpress dry toner due to the pandemic. However, the pandemic also seems to have accelerated a drop in demand for service and consumables for the Versamark inkjet systems.

Kodak’s third major business unit is Advanced Materials and Chemicals, which  brought in $172 million, down from $200 million in 2019. This led to an EBITDA loss of $23 million, which is actually an improvement on the $34 million loss from 2019. Kodak attributed the fall in revenue mainly to a fall in demand for motion picture film and associated chemicals caused by film productions having been halted as a result of the pandemic. However, Kodak also highlighted a fall in demand for ink for its consumer inkjet solutions though it’s worth noting that other vendors have seen sales of consumer inkjet going up as more people worked from home. 

Kodak’s main solution seems to have been a reduction in staff numbers and temporary furlough payments and pay cuts. Jim Continenza, Kodak’s executive chairman and CEO, commented: “We mitigated the impact of Covid with cost-saving initiatives, launched several innovative print-business products and generated cash in the third and fourth quarters. More recently, we announced a series of financial transactions which significantly strengthened our balance sheet and set the stage for growth through investments in our core businesses in print and advanced materials and chemicals, and new initiatives.”

The financial transactions he referred to are a series of new investments and debt restructuring. The bulk of the new money – an initial $225 million term loan and a commitment to provide delayed-draw term loans of up to an additional $50 million, which may be drawn on or before February 26 2023 – comes from Kennedy Lewis Investment Management LLC. In addition, Kennedy Lewis has purchased one million shares of Kodak’s common stock at a price of $10 per share, as well as $25 million of the Company’s newly issued 5% unsecured convertible promissory notes. This also allows Kennedy Lewis to nominate one person to Kodak’s board of directors.

Another investment firm, Grand Oaks Capital, is to invest a further $100 million, having bought $75 million of Kodak’s 5.0% Series C convertible preferred stock and agreed to buy another $25 million of the same shares subject to HSR Act clearance. Grand Oaks will also be able to nominate one person to be elected to the company’s board of directors.

Kodak has used this money to repurchase one million shares of its own 5.50% series A convertible preferred stock from funds managed by Southeastern Asset Management that were due to mature on November 15, 2021. This has cost Kodak $100 million plus accrued and unpaid dividends. In addition, the company has issued the Southeastern-managed funds one million shares of series B preferred stock in exchange for its remaining series A preferred stock, plus payment of accrued and unpaid dividends.

In addition, Kodak has also taken out a $50 million credit line and amended its ABL Credit Agreement to extend the maturity date to February 26, 2024 and decrease the aggregate commitments from $110 million to $90 million.

These arrangements basically re-engineer Kodak’s debt structure as well as giving it up to $310 million of incremental cash to invest further. However, in my opinion, the need for such arrangements also underscores how fragile Kodak’s financial structure is. You can find further information on the company from kodak.com.

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