The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1: BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
BASIS OF PRESENTATION
The consolidated interim financial statements are unaudited, and certain information and footnote disclosures related thereto normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results of operations, financial position and cash flows of Eastman Kodak Company (“EKC” or the “Company”) and all companies directly or indirectly controlled, either through majority ownership or otherwise (collectively, “Kodak”). The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These consolidated interim statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
GOING CONCERN
The consolidated interim financial statements have been prepared on the going concern basis of accounting, which assumes Kodak will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
As of June 30, 2020 and December 31, 2019, Kodak had approximately $180 million and $233 million, respectively, of cash and cash equivalents. $95 million and $72 million were held in the United States (“U.S.”) as of June 30, 2020 and December 31, 2019, respectively, and $85 million and $161 million 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. Outstanding inter-company loans to the U.S. as of June 30, 2020 and December 31, 2019 were $429 million and $408 million, respectively, which includes short-term intercompany loans from Kodak’s international finance center of $130 million and $110 million as of June 30, 2020 and December 31, 2019, respectively. In China, where approximately $23 million and $89 million of cash and cash equivalents was held as of June 30, 2020 and December 31, 2019, respectively, there are limitations related to net asset balances that may impact the ability to make cash available to other jurisdictions in the world. On May 12, 2020, a Chinese subsidiary of Kodak transferred approximately $70 million to a U.S. subsidiary of Kodak associated with an inter-company transaction. Kodak had a net decrease in cash, cash equivalents, restricted cash and cash in assets held for sale of $78 million and $9 million for the six months ended June 30, 2020 and 2019, respectively, and a net increase in cash, cash equivalents, restricted cash and cash in assets held for sale of $23 million for the year ended December 31, 2019. Kodak used cash of $64 million and $13 million in operating activities for the six months ended June 30, 2020 and 2019, respectively, and generated cash from operating activities for the year ended December 31, 2019 of $12 million. Cash flow from operations in 2019 benefitted from working capital improvements and individual transactions that occurred during the year.
U.S. GAAP requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued or prior to the conditions or events that create the going concern risk.
Kodak is facing liquidity challenges due to operating losses, low or negative cash flow from operations and collateral needs. Kodak has $80 million of letters of credit issued under the Amended and Restated Credit Agreement (the “ABL Credit Agreement”) which matures on May 26, 2021. The Company’s 5.50% Series A Convertible Preferred Stock (the “Series A Preferred Stock”) must be redeemed on November 15, 2021 if not converted prior to then. Additionally, Kodak has significant cash requirements to fund ongoing operations, restructuring programs, pension and other postretirement obligations, and other obligations. 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 paring investment in new technology by eliminating or delaying product development programs as needed. Additionally, the Company looks to implement ways to reduce collateral needs in the U.S.
Kodak’s products are sold and serviced in numerous countries across the globe with more than half of sales generated outside the United States. Current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in market size contractions in many countries due to economic slowdowns and government restrictions on movement. The economic uncertainties surrounding the COVID-19 pandemic are adding complexity to Kodak’s plans to return to sustainable positive cash flow. To mitigate the economic impacts of the pandemic Kodak is employing temporary furloughs and pay reductions and scaling manufacturing volumes due to expectations of reduced demand.
[9]
The recent history of negative operating cash flow, maturity of the ABL Credit Agreement in 2021, redemption date in 2021 for the Series A Preferred Stock, increased challenges in managing cash during the COVID-19 pandemic and general lack of certainty regarding the return to positive cash flow raise substantial doubt about Kodak’s ability to continue as a going concern.
SUBSEQUENT EVENTS
On July 29, 2020, the Company received conversion notices from holders of the Company’s 5.00% Secured Convertible Notes due 2021 (the “Notes”) exercising their rights to convert an aggregate of $95 million of principal amount of the Notes (the “Converted Notes”) into shares of the Company’s common stock, par value $.01 per share (“Common Stock”). Under the terms of the Notes, the conversion date of the Converted Notes is July 29, 2020 (the “Conversion Date”) and the Company was obligated to deliver an aggregate of 29,922,956 shares of Common Stock (the “Conversion Shares”) to the holders of the Converted Notes within five trading days after the Conversion Date. The Company issued the Conversion Shares on August 3, 2020 and has paid the $5.6 million of accumulated interest on the Converted Notes in cash. As a result, the Company’s obligations under the Converted Notes were fully discharged and the remaining outstanding principal amount of the Notes is $5 million.
The Company issued stock-based compensation grants for 2.4 million stock options on July 27, 2020. The terms of 1.8 million of the options awarded on July 27, 2020 provide for immediate vesting or vesting upon conversion of the Notes. The terms of 0.6 million of those options provide for vesting terms of between two and three years. As 95% of the Notes were converted on August 3, 2020, 1.7 million of the 1.8 million options with the accelerated vesting terms (all the options which vested immediately and 95% of the of the options that vested upon conversion of the Notes) vested by August 3, 2020. The valuation of the stock options granted on July 27, 2020 could result in material compensation expense being recognized in the three months ended September 30, 2020.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to the current period classification due to Kodak’s new organization structure as of January 2020. Refer to Note 22, “Segment Information” for additional information.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This guidance amended Topic 808 and Topic 606 to clarify that transactions in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The amendments preclude an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The new standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 (January 1, 2020 for Kodak). The amendments should be applied retrospectively to the date of initial application of Topic 606. Kodak adopted this ASU on January 1, 2020, and it did not have any impact on Kodak’s consolidated financial statements.
In September 2018 the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements in Topic 820 by adding, changing, or removing certain disclosures about recurring or nonrecurring fair value measurements. The additional and/or modified disclosures relate primarily to Level 3 fair value measurements while removing certain disclosures related to transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU is effective retrospectively, for fiscal years beginning after December 15, 2019 (January 1, 2020 for Kodak) and interim periods within those fiscal years. Entities are permitted to early adopt any removed or modified disclosures but can delay adoption of the new disclosures until their effective date. Kodak retrospectively early adopted the provisions of the ASU that removed or modified disclosures in the fourth quarter of 2018 and prospectively adopted the provisions related to new disclosures January 1, 2020. The standard addresses disclosures only and did not have an impact on Kodak’s consolidated financial statements.
In September 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements in ASC 715-20 by adding, clarifying, or removing certain disclosures. ASU 2018-14 requires all entities to disclose (1) the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU also clarifies certain disclosure requirements for entities with two or more defined benefit pension plans when aggregate disclosures are presented. The ASU removes other disclosures from the existing guidance, such as the requirement to disclose the effects of a one-percentage-point change in the assumed health care cost trend rates. The ASU is effective retrospectively for fiscal years ending after December 15, 2020 (the year ended December 31, 2020 for Kodak). Kodak adopted this ASU on January 1, 2020. The standard addresses disclosures only and did not have an impact on Kodak’s consolidated financial statements.
[10]
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which addresses how a customer should account for the costs of implementing a cloud computing service arrangement (also referred to as a “hosting arrangement”). Under ASU 2018-15, entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract in the same way as implementation costs associated with a software license; implementation costs incurred in the application development stage, such as costs for the cloud computing arrangement’s integration with on-premise software, coding, and configuration or customization, should be capitalized and amortized over the term of the cloud computing arrangement, including periods covered by certain renewal options. The ASU is effective in fiscal years beginning after December 15, 2019 (January 1, 2020 for Kodak) including interim periods within those fiscal years. The ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Kodak adopted this ASU prospectively on January 1, 2020, and it did not have any impact on Kodak’s consolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional relief through specific exceptions and practical expedients for transitioning away from reference rates that are expected to be discontinued. The relief generally applies to eligible modifications of contractual terms that change (or have the potential to change) the amount or timing of contractual cash flows related to replacement of a reference rate. The relief allows such modifications to be accounted for as continuations of existing contracts without additional analysis. The optional relief is available from March 2020 through December 31, 2022. Kodak is currently evaluating the impact of this ASU.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which removes certain exceptions related to intra-period tax allocations and deferred tax accounting on outside basis differences in foreign subsidiaries and equity method investments. Additionally, it provides other simplifying measures for the accounting for income taxes. The new standard is effective for fiscal years beginning after December 15, 2021 (January 1, 2022 for Kodak) with early adoption permitted. Kodak is currently evaluating the impact of this ASU.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02 and 2020-03) requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In addition, the ASU requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The ASU is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, (January 1, 2023 for Kodak). Early adoption is permitted. Kodak is currently evaluating the impact of this ASU.
NOTE 2: CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Financial Position that sums to the total of such amounts shown in the Statement of Cash Flows:
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
180
|
|
|
$
|
233
|
|
Restricted cash - current portion
|
|
|
7
|
|
|
|
12
|
|
Restricted cash
|
|
|
25
|
|
|
|
45
|
|
Total cash, cash equivalents and restricted cash shown in
the Statement of Cash Flows
|
|
$
|
212
|
|
|
$
|
290
|
|
Restricted cash - current portion on the Consolidated Statement of Financial Position primarily represents amounts that support hedging activities. In addition, as of December 31, 2019, it also contained collateral for a guaranty provided to MIR Bidco, SA (the “Purchaser”) who purchased Kodak’s Flexographic Packaging business (“FPD”). On April 16, 2019 the Purchaser of FPD paid Kodak $15 million in the U.S. as a prepayment for transition services and products and services to be provided by Kodak to the Purchaser. Kodak provided a $15 million guaranty, supported by cash collateral in China, to the Purchaser. The Purchaser had the option to satisfy its payment obligations to Kodak through a reduction of the prepayment balance or in cash. When the Purchaser satisfied its payment obligations to Kodak by utilizing its prepayment balance, Kodak followed a guaranty amendment process to reduce the amount of its guaranty and cash collateral supporting the prepayment balance. As of June 30, 2020 and December 31, 2019, the remaining prepayment balance was $0 million and $3 million, respectively, and the cash collateral supporting Kodak’s guaranty was $0 million and $4 million, respectively.
[11]
Restricted cash includes $9 million and $22 million as of June 30, 2020 and December 31, 2019, respectively, supporting compliance with the Excess Availability threshold under the ABL Credit Agreement, as defined therein (Refer to Note 8, “Debt and Finance Leases” for information on the decrease in Restricted cash supporting the Excess Availability threshold). In addition, Restricted cash as of both June 30, 2020 and December 31, 2019 includes an escrow of $10 million and $14 million, respectively, in China to secure various ongoing obligations under the agreements for the strategic relationship with Lucky HuaGuang Graphics Co. Ltd. Restricted cash also included $3 million and $5 million of security posted related to Brazilian legal contingencies as of June 30, 2020 and December 31, 2019, respectively.
NOTE 3: INVENTORIES, NET
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
Finished goods
|
|
$
|
107
|
|
|
$
|
105
|
|
Work in process
|
|
|
60
|
|
|
|
54
|
|
Raw materials
|
|
|
61
|
|
|
|
56
|
|
Total
|
|
$
|
228
|
|
|
$
|
215
|
|
NOTE 4: OTHER LONG-TERM ASSETS
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
Pension assets
|
|
$
|
225
|
|
|
$
|
173
|
|
Estimated workers' compensation recoveries
|
|
|
18
|
|
|
|
18
|
|
Long-term receivables, net of reserve of $4 and $4, respectively
|
|
|
10
|
|
|
|
11
|
|
Series A Preferred Stock embedded conversion option derivative asset
|
|
|
5
|
|
|
|
—
|
|
Other
|
|
|
27
|
|
|
|
26
|
|
Total
|
|
$
|
285
|
|
|
$
|
228
|
|
The Other component above consists of other miscellaneous long-term assets that, individually, were less than 5% of the total assets component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X.
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the carrying value of goodwill by reportable segment.
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
Total
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
56
|
|
|
$
|
6
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
76
|
|
Accumulated impairment losses
|
|
|
(56
|
)
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(64
|
)
|
Balance as of December 31, 2019
|
|
|
—
|
|
|
|
6
|
|
|
|
6
|
|
|
|
—
|
|
|
|
12
|
|
Goodwill reallocation
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
6
|
|
|
|
—
|
|
Balance as of June 30, 2020
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
12
|
|
As a result of the change in segments that became effective as of January 1, 2020, Kodak’s goodwill reporting units changed. Refer to Note 22, “Segment Information” for additional information on the change to Kodak’s organizational structure. The Digital Printing segment has three goodwill reporting units: Electrophotographic Printing Solutions; Prosper and Versamark; and Software. The Advanced Materials and Chemicals segment has three goodwill reporting units: Motion Picture and Industrial Films and Chemicals; Advanced Materials and Functional Printing; and Kodak Services for Business. The Traditional Printing segment and Brand segment each have one goodwill reporting unit.
As of December 31, 2019, the goodwill balance of $12 million under the prior year segment reporting structure was comprised of $6 million for the Brand, Film and Imaging segment and $6 million for the Kodak Software segment, which had only one reporting unit (Software). The goodwill in the Brand, Film and Imaging segment was reported in the Consumer Products reporting unit.
[12]
The goodwill previously reported in the Consumer Products goodwill reporting unit was transferred to the Brand goodwill reporting unit using a relative fair value allocation to affected reporting units. Goodwill previously reported in the Software reporting unit was transferred to the Digital Printing segment where it continues to remain its own reporting unit.
Kodak performed interim tests of impairment for goodwill as of June 30, 2020 due to the continued uncertainty regarding the negative impact of the COVID-19 pandemic on its operations, and as of March 31, 2020, due to the decline in market capitalization as of that date since the last goodwill impairment test (December 31, 2019) and the uncertainty regarding the negative impact of the COVID-19 pandemic at that time. Based on the results of the June 30, 2020 and March 31, 2020 analyses, no impairment of goodwill was indicated. As of June 30, 2020 and March 31, 2020, the Brand reporting unit had negative carrying value.
The gross carrying amount and accumulated amortization by major intangible asset category as of June 30, 2020 and December 31, 2019 were as follows:
|
|
June 30, 2020
|
(in millions)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted-Average
Amortization Period
|
Technology-based
|
|
$
|
99
|
|
|
$
|
79
|
|
|
$
|
20
|
|
|
5 years
|
Kodak trade name
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
|
Indefinite life
|
Customer-related
|
|
|
11
|
|
|
|
8
|
|
|
|
3
|
|
|
3 years
|
Total
|
|
$
|
128
|
|
|
$
|
87
|
|
|
$
|
41
|
|
|
|
|
|
December 31, 2019
|
(in millions)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted-Average
Amortization Period
|
Technology-based
|
|
$
|
99
|
|
|
$
|
76
|
|
|
$
|
23
|
|
|
5 years
|
Kodak trade name
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
|
Indefinite life
|
Customer-related
|
|
|
11
|
|
|
|
8
|
|
|
|
3
|
|
|
4 years
|
Total
|
|
$
|
131
|
|
|
$
|
84
|
|
|
$
|
47
|
|
|
|
In the first quarter of 2020, due to the uncertainty regarding the negative impact of the COVID-19 pandemic at that time, Kodak performed an interim test of impairment for the Kodak trade name. Based on the result of the interim impairment test, Kodak concluded the carrying value of the Kodak trade name exceeded its fair value. Pre-tax impairment charges of $3 million are included in Other operating income, net in the six months ended June 30, 2020 in the Consolidated Statement of Operations.
Kodak also performed an interim test of impairment for the Kodak trade name as of June 30, 2020 due to the continued uncertainty regarding the negative impact of the COVID-19 pandemic. The interim impairment tests of the Kodak trade name used the income approach, specifically the relief from royalty method. Based on the result of the interim impairment test as of June 30, 2020, Kodak concluded the fair value of the Kodak trade name exceeded its’ carrying value resulting in no additional impairment.
Amortization expense related to intangible assets was $2 million for the three months ended June 30, 2020 and 2019 and $3 million for the six months ended June 30, 2020 and 2019.
Estimated future amortization expense related to intangible assets that are currently being amortized as of June 30, 2020 was as follows:
(in millions)
|
|
|
|
|
Q3 - Q4 2020
|
|
$
|
3
|
|
2021
|
|
|
5
|
|
2022
|
|
|
4
|
|
2023
|
|
|
4
|
|
2024
|
|
|
4
|
|
2025 and thereafter
|
|
|
3
|
|
Total
|
|
$
|
23
|
|
[13]
NOTE 6: OTHER CURRENT LIABILITIES
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
Deferred revenue
|
|
$
|
40
|
|
|
$
|
43
|
|
Employee related liabilities
|
|
|
37
|
|
|
|
38
|
|
Customer rebates (1)
|
|
|
17
|
|
|
|
23
|
|
Series A Preferred Stock dividends payable
|
|
|
14
|
|
|
|
14
|
|
Workers compensation
|
|
|
10
|
|
|
|
10
|
|
Restructuring liabilities
|
|
|
8
|
|
|
|
12
|
|
Deferred consideration on disposed businesses (2)
|
|
|
—
|
|
|
|
14
|
|
Transition services agreement prepayment
|
|
|
—
|
|
|
|
3
|
|
Other (3)
|
|
|
35
|
|
|
|
44
|
|
Total
|
|
$
|
161
|
|
|
$
|
201
|
|
|
(1)
|
The customer rebate amounts will potentially be settled through customer deductions applied to outstanding trade receivables in lieu of cash payments.
|
|
(2)
|
On September 3, 2013, Kodak consummated the sale of certain assets and the assumption of certain liabilities of the Personalized Imaging and Document Imaging Businesses (“PI/DI Businesses”) to the trustee of the U. K. pension plan (and/or its subsidiaries) for net cash consideration of $325 million. Up to $35 million in aggregate of the purchase price was subject to repayment if the PI/DI Business did not achieve certain annual adjusted EBITDA targets over the four-year period ending December 31, 2018. The PI/DI Business did not achieve the adjusted annual EBITDA target for any year in the four-year period. The amounts owed for 2015, 2016 and 2017 were paid in 2016, 2017 and 2019, respectively. The maximum potential payment related to the year ending December 31, 2018 of $14 million was accrued at the time of the divestiture of the business. The Company did not consider the procedural requirements giving rise to the obligation to pay the amount relating to the year ended December 31, 2018 to have been met. The PI/DI Businesses (operating as Kodak Alaris) filed suit against the Company alleging breach of contract based on the failure to pay the $14 million amount with respect to 2018. The Company filed counterclaims seeking contractual penalties related to late payments for goods and services provided by Kodak under various separate agreements. The Company and Kodak Alaris reached a settlement in June 2020 dismissing the actions and all claims and counterclaims asserted against each other and also amended existing supply agreements. As a part of the settlement agreement, $11 million of the deferred consideration on disposed businesses was offset against receivables of $11 million for goods and services owed to the Company by Kodak Alaris. Income of $3 million from the release of the remaining deferred consideration on disposed businesses will be recognized as revenue over the term of the amended supply agreements.
|
|
(3)
|
The Other component above consists of other miscellaneous current liabilities that, individually, were less than 5% of the current liabilities component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X.
|
NOTE 7: OTHER LONG-TERM LIABILITIES
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
Workers compensation
|
|
$
|
81
|
|
|
$
|
84
|
|
Asset retirement obligations
|
|
|
40
|
|
|
|
48
|
|
Deferred brand licensing revenue
|
|
|
16
|
|
|
|
18
|
|
Deferred taxes
|
|
|
30
|
|
|
|
13
|
|
Environmental liabilities
|
|
|
9
|
|
|
|
10
|
|
Convertible Notes embedded conversion option
derivative liability
|
|
|
9
|
|
|
|
52
|
|
Other
|
|
|
12
|
|
|
|
6
|
|
Total
|
|
$
|
197
|
|
|
$
|
231
|
|
The Other component above consists of other miscellaneous long-term liabilities that, individually, were less than 5% of the total liabilities component within the Consolidated Statement of Financial Position as of the end of the preceding year, and therefore have been aggregated in accordance with Regulation S-X.
[14]
NOTE 8: DEBT AND FINANCE LEASES
Amended and Restated Credit Agreement
On January 27, 2020 Kodak exercised its right under the ABL Credit Agreement to permanently reduce lender commitments, reducing the commitments from $150 million to $120 million. As a result, the minimum Excess Availability decreased to $15 million from the previous minimum of $18.75 million.
On March 27, 2020, the Company and the subsidiaries of the Company that are guarantors (the “Subsidiary Guarantors”) entered into Amendment No. 3 to the ABL Credit Agreement (the “Amendment”) with the lenders party thereto (the “Lenders”), Bank of America, N.A., as administrative and collateral agent, and Bank of America, N.A. and each of the parties to the ABL Credit Agreement as lenders. Each of the capitalized but undefined terms used in the context of describing the ABL Credit Agreement and the Amendment has the meaning ascribed to such term in the ABL Credit Agreement and the Amendment.
The Amendment decreased the available asset-based revolving loans (the “ABL Loans”) and letters of credit from an aggregate amount of up to $120 million to $110 million, subject to the Borrowing Base. As a result of the additional reduction in lender commitments, the minimum Excess Availability decreased to $13.75 million from the previous amount of $15 million.
The Amendment also changed Equipment Availability from (i) the lesser of 75% of Net Orderly Liquidation Value of Eligible Equipment or $6 million to (ii) the lesser of 70% of Net Orderly Liquidation Value of Eligible Equipment or $14.75 million as of March 31, 2020. The Equipment Availability was $14.75 million for June 30, 2020. The $14.75 million amount decreases by $1 million per quarter starting on July 1, 2020 until maturity or the amount is decreased to $0, whichever comes first.
The changes effected by the Amendment to the Excess Availability and Equipment Availability combined with increases in Available Accounts Receivable and Inventory allowed the Company to decrease Eligible Cash by $13 million without causing Excess Availability to fall below 12.5 % of lender commitments. Available Accounts Receivable and Inventory and Eligible Equipment have the meaning ascribed to these terms in the ABL Credit Agreement.
The Company had issued approximately $80 million of letters of credit under the ABL Credit Agreement as of both June 30, 2020 and December 31, 2019. Under the ABL Credit Agreement the Company is required to maintain Excess Availability above 12.5% of lender commitments ($13.75 million at June 30, 2020). If Excess Availability is below 12.5% of lender commitments the Company has the ability to fund amounts into the Eligible Cash account which will increase Excess Availability for purposes of the previous month-end compliance reporting. On July 20, 2020 the Company funded $5 million to the Eligible Cash account. Including the July 20, 2020 Eligible Cash funding in the June 30, 2020 compliance calculation the Company had approximately $17 million of Excess Availability under the ABL Credit Agreement for the June 30, 2020 compliance reporting and $22 million of Excess Availability under the ABL Credit Agreement as of December 31, 2019. To maintain Excess Availability of greater than 12.5% of lender commitments ($13.75 million and $18.75 million as of June 30, 2020 and December 31, 2019, respectively), incremental to the $5 million funding of the Eligible Cash account on July 20, 2020, Kodak funded $9 million and $22 million to the Eligible Cash account held with the ABL Credit Agreement Administrative Agent as of June 30, 2020 and December 31, 2019, respectively, which is classified as Restricted Cash in the Consolidated Statement of Financial Position.
In addition to the changes discussed above, the Amendment increased the interest rate charged on the ABL Loans. The interest rate on the ABL Loans (which is based on Excess Availability) increased to LIBOR plus 3.50% - 4.00% per annum from LIBOR plus 2.25% - 2.75% per annum or the Base Rate plus 2.50% - 3.00% per annum from the Base Rate plus 1.25% - 1.75% per annum.
Convertible Notes
On May 20, 2019, the Company and Longleaf Partners Small Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern Asset Management, Inc. (the “Notes Purchasers”), entered into a Notes Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to issue and sell to the Notes Purchasers, and the Notes Purchasers agreed to purchase from the Company, $100 million aggregate principal amount of the Convertible Notes. The transaction closed on May 24, 2019. The proceeds were used to repay the remaining first lien term loans outstanding ($83 million) under the Senior Secured First Lien Term Credit Agreement (the “Term Credit Agreement”), which was terminated with the repayment. The remaining proceeds were used for general corporate purposes. The Notes Purchasers also hold all outstanding shares of the Series A Preferred Stock, which vote with the shares of common stock on an as-converted basis, and are holders of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”).
The Convertible Notes bear interest at a rate of 5.00% per annum, which will be payable in cash on their maturity date and, at the option of the Company, in either cash or additional shares of Common Stock on any conversion date. The payment of interest only at the maturity date has the same effect as delivering additional debt instruments to the holders of the Convertible Notes and therefore is considered paid-in-kind interest (“PIK”). Therefore, PIK will be added to the carrying value of the debt through the term and interest expense will be recorded using the effective interest method.
[15]
The maturity date of the Convertible Notes is initially November 1, 2021. The Company has the option to extend the maturity of the Convertible Notes by up to three years in the event that the Series A Preferred Stock is refinanced with debt or equity or the mandatory redemption date of the Series A Preferred Stock is extended.
Embedded Derivatives
Kodak allocated $14 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded features and term extension on the date of issuance which reduced the net carrying value of the Convertible Notes (refer to Note 24, “Financial Instruments”).
The carrying value of the Convertible Notes at the time of issuance, $84 million ($100 million aggregate gross proceeds less $14 million allocated to the derivative liability and $2 million in transaction costs), is being accreted to the face amount using the effective interest method from the date of issuance through the maturity date.
As of June 30, 2020, none of the Convertible Notes had been converted.
NOTE 9: REDEEMABLE, CONVERTIBLE SERIES A PREFERRED STOCK
On November 15, 2016, the Company issued 2,000,000 shares of Series A Preferred Stock for an aggregate purchase price of $200 million, or $100 per share pursuant to a Series A Preferred Stock Purchase Agreement with Southeastern Asset Management, Inc. (“Southeastern”) and Longleaf Partners Small-Cap Fund, C2W Partners Master Fund Limited and Deseret Mutual Pension Trust, which are investment funds managed by Southeastern (such investment funds, collectively, the “Purchasers”), dated November 7, 2016. The Company has classified the Series A Preferred Stock as temporary equity in the Consolidated Statement of Financial Position.
Kodak allocated $43 million of the net proceeds received to a derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance which reduced the net carrying value of the Series A Preferred Stock (see Note 24, “Financial Instruments”). The carrying value of the Series A Preferred Stock at the time of issuance, $155 million ($200 million aggregate gross proceeds less $43 million allocated to the derivative liability and $2 million in transaction costs), is being accreted to the mandatory redemption amount using the effective interest method to Additional paid in capital in the Consolidated Statement of Financial Position as a deemed dividend from the date of issuance through the mandatory redemption date, November 15, 2021.
The holders of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 5.50% per annum. Until the third quarter of 2018 all dividends owed on the Series A Preferred Stock were declared and paid when due. No quarterly dividend was declared in the third or fourth quarters of 2018 or the first and second quarters of 2019. The Company declared quarterly cash dividends in the third and fourth quarters of 2019 and the first and second quarters of 2020 that were paid when due. In July 2020, the Company declared and paid the four quarterly dividends that were in arrears. The total amount of dividends in arrears was $11 million.
The Purchasers have the right to nominate members to the Company’s board of directors proportional to their ownership on an as converted basis, which initially allowed the Purchasers to nominate two members to the board. If dividends on any Series A Preferred Stock are in arrears for six or more consecutive or non-consecutive dividend periods, the holders of Series A Preferred Stock, voting with holders of all other preferred stock of the Company whose voting rights are then exercisable, will be entitled to vote for the election of two additional directors in the next annual meeting and all subsequent meetings until all accumulated dividends on such Series A Preferred Stock and other voting preferred stock have been paid or set aside. The nomination right of the Purchasers will be reduced by two nominees at any time the holders of Series A Preferred Stock have the right to elect, or participate in the election of, two additional directors. Two of the directors on the Company’s current board of directors were nominated by the Purchasers although the holders of the Series A Preferred Stock currently have the contractual right to nominate only one director based on the results of the ownership formula.
As of June 30, 2020, the Series A Preferred Stock has not been converted and none of the anti-dilution provisions have been triggered. Any shares of Series A Preferred Stock not converted prior to the fifth anniversary of the initial issuance of the Series A Preferred Stock are required to be redeemed at $100 per share plus the amount of accrued and unpaid dividends.
[16]
NOTE 10: LEASES
Income recognized on operating lease arrangements for the three months ended June 30, 2020 and 2019 and is presented below (income recognized for sales-type lease arrangements is $0 million for both periods):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Lease income - operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease income
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Sublease income
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
Variable lease income
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
Total lease income
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
10
|
|
NOTE 11: COMMITMENTS AND CONTINGENCIES
As of June 30, 2020, the Company had outstanding letters of credit of $80 million issued under the ABL Credit Agreement, as well as bank guarantees and letters of credit of $2 million, surety bonds in the amount of $38 million, and restricted cash of $32 million, primarily to address the payment of possible casualty and workers’ compensation claims, support legal contingencies, hedging activities, compliance with the Excess Availability threshold under the ABL Credit Agreement, environmental liabilities, rental payments and to support various customs, tax and trade activities.
Kodak’s Brazilian operations are involved in various litigation matters in Brazil and have received or been the subject of numerous governmental assessments related to indirect and other taxes in various stages of litigation, as well as civil litigation and disputes associated with former employees and contract labor. The tax matters, which comprise the majority of the litigation matters, are primarily related to federal and state value-added taxes. Kodak’s Brazilian operations are disputing these matters and intend to vigorously defend its position. Kodak routinely assesses all these matters as to the probability of ultimately incurring a liability in its Brazilian operations and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of June 30, 2020, the unreserved portion of these contingencies, inclusive of any related interest and penalties, for which there was at least a reasonable possibility that a loss may be incurred, amounted to approximately $5 million.
In connection with assessments in Brazil, local regulations may require Kodak’s Brazilian operations to post security for a portion of the amounts in dispute. As of June 30, 2020, Kodak’s Brazilian operations have posted security composed of $3 million of pledged cash reported within Restricted cash in the Consolidated Statement of Financial Position and liens on certain Brazilian assets with a net book value of approximately $41 million. Generally, any encumbrances on the Brazilian assets would be removed to the extent the matter is resolved in Kodak's favor.
Kodak is involved in various lawsuits, claims, investigations, remediations and proceedings, including, from time to time, commercial, customs, employment, environmental, tort and health and safety matters, which are being handled and defended in the ordinary course of business. Kodak is also subject, from time to time, to various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum of Kodak’s products and claims arising out of Kodak’s licensing its brand. These matters are in various stages of investigation and litigation and are being vigorously defended. Based on information currently available, Kodak does not believe that it is probable that the outcomes in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations. Litigation is inherently unpredictable, and judgments could be rendered or settlements entered that could adversely affect Kodak’s operating results or cash flows in a particular period. Kodak routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
NOTE 12: GUARANTEES
In connection with the settlement of certain of the Company’s historical environmental liabilities at Eastman Business Park, a more than 1,200-acre technology center and industrial complex in Rochester, New York, in the event the historical liabilities exceed $99 million, the Company will become liable for 50% of the portion above $99 million with no limitation to the maximum potential future payments. There is no liability recorded for this guarantee.
[17]
Extended Warranty Arrangements
Kodak offers its customers extended warranty arrangements that are generally one year, but may range from three months to six years after the original warranty period. The change in Kodak’s deferred revenue balance in relation to these extended warranty and maintenance arrangements from December 31, 2019 to June 30, 2020, which is reflected in Other current liabilities in the accompanying Consolidated Statement of Financial Position, was as follows:
(in millions)
|
|
|
|
|
Deferred revenue on extended warranties as of December 31, 2019
|
|
$
|
21
|
|
Extended warranty and maintenance arrangements deferred in 2020
|
|
|
45
|
|
Recognition of extended warranty and maintenance arrangement
revenue in 2020
|
|
|
(47
|
)
|
Deferred revenue on extended warranties as of June 30, 2020
|
|
$
|
19
|
|
NOTE 13: REVENUE
Disaggregation of Revenue
The following tables present revenue disaggregated by major product, portfolio summary and geography.
Three Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Plates, inks and other
consumables
|
|
$
|
90
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
Ongoing service
arrangements (1)
|
|
|
20
|
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
Total annuities
|
|
|
110
|
|
|
|
41
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152
|
|
Equipment & software
|
|
|
9
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Film and chemicals
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
Other (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
8
|
|
Total
|
|
$
|
119
|
|
|
$
|
52
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Plates, inks and other
consumables
|
|
$
|
216
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
250
|
|
Ongoing service
arrangements (1)
|
|
|
41
|
|
|
|
64
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105
|
|
Total annuities
|
|
|
257
|
|
|
|
95
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
355
|
|
Equipment & software
|
|
|
16
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
Film and chemicals
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
Other (2)
|
|
|
|
|
|
|
—
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
16
|
|
Total
|
|
$
|
273
|
|
|
$
|
117
|
|
|
$
|
80
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
480
|
|
[18]
Three Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Plates, inks and other consumables
|
|
$
|
146
|
|
|
$
|
21
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
170
|
|
Ongoing service arrangements (1)
|
|
|
22
|
|
|
|
39
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
Total annuities
|
|
|
168
|
|
|
|
60
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
232
|
|
Equipment & software
|
|
|
13
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
Film and chemicals
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
Other (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
Total
|
|
$
|
181
|
|
|
$
|
69
|
|
|
$
|
52
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Plates, inks and other consumables
|
|
$
|
283
|
|
|
$
|
42
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
331
|
|
Ongoing service arrangements (1)
|
|
|
43
|
|
|
|
79
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
Total annuities
|
|
|
326
|
|
|
|
121
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
455
|
|
Equipment & software
|
|
|
21
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41
|
|
Film and chemicals
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
Other (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
5
|
|
|
|
5
|
|
|
|
22
|
|
Total
|
|
$
|
347
|
|
|
$
|
141
|
|
|
$
|
100
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
598
|
|
(1)
|
Service revenue in the Consolidated Statement of Operations includes the ongoing service revenue shown above as well as revenue from project-based document management and managed print services businesses, which is included in Other above.
|
(2)
|
Other includes revenue from professional services, non-recurring engineering services, print and managed media services, tenant rent and related property management services and licensing.
|
[19]
Product Portfolio Summary:
Three Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Growth engines (1)
|
|
$
|
27
|
|
|
$
|
30
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
60
|
|
Strategic other businesses (2)
|
|
|
92
|
|
|
|
10
|
|
|
|
35
|
|
|
|
—
|
|
|
|
2
|
|
|
|
139
|
|
Planned declining
businesses (3)
|
|
|
—
|
|
|
|
12
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
Total
|
|
$
|
119
|
|
|
$
|
52
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Growth engines (1)
|
|
$
|
71
|
|
|
$
|
66
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
143
|
|
Strategic other businesses (2)
|
|
|
202
|
|
|
|
25
|
|
|
|
74
|
|
|
|
—
|
|
|
|
5
|
|
|
|
306
|
|
Planned declining
businesses (3)
|
|
|
|
|
|
|
26
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
Total
|
|
$
|
273
|
|
|
$
|
117
|
|
|
$
|
80
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
480
|
|
Three Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Growth engines (1)
|
|
$
|
45
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
79
|
|
Strategic other businesses (2)
|
|
|
136
|
|
|
|
19
|
|
|
|
44
|
|
|
|
—
|
|
|
|
3
|
|
|
|
202
|
|
Planned declining
businesses (3)
|
|
|
—
|
|
|
|
18
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
Total
|
|
$
|
181
|
|
|
$
|
69
|
|
|
$
|
52
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
Growth engines (1)
|
|
$
|
84
|
|
|
$
|
67
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
158
|
|
Strategic other businesses (2)
|
|
|
263
|
|
|
|
36
|
|
|
|
83
|
|
|
|
—
|
|
|
|
5
|
|
|
|
387
|
|
Planned declining
businesses (3)
|
|
|
—
|
|
|
|
38
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53
|
|
Total
|
|
$
|
347
|
|
|
$
|
141
|
|
|
$
|
100
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
598
|
|
[20]
(1)
|
Growth engines consist of Sonora in the Traditional Printing segment, PROSPER and Software in the Digital Printing segment, brand licensing and Advanced Materials and Functional Printing in the Advanced Materials and Chemicals segment, excluding intellectual property (IP) licensing.
|
(2)
|
Strategic other businesses include plates in the Traditional Printing segment; Computer to Plate (“CTP”) equipment and related service and Nexpress and related toner business in the Digital Printing segment and Motion Picture and Industrial Film and Chemicals (including external inks) and IP licensing in the Advanced Materials and Chemicals segment.
|
(3)
|
Planned declining businesses are product lines where the decision has been made to stop new product development and manage an orderly expected decline in the installed product and annuity base or are otherwise not strategic to Kodak. These product families consist of Consumer Inkjet, Kodak Services for Business and Kodakit in the Advanced Materials and Chemicals segment and Versamark and Digimaster in the Digital Printing segment.
|
Geography (1):
Three Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
United States
|
|
$
|
26
|
|
|
$
|
24
|
|
|
$
|
25
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
79
|
|
Canada
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
North America
|
|
|
29
|
|
|
|
25
|
|
|
|
26
|
|
|
|
2
|
|
|
|
2
|
|
|
|
84
|
|
Europe, Middle East and Africa
|
|
|
49
|
|
|
|
18
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
Asia Pacific
|
|
|
36
|
|
|
|
8
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
Latin America
|
|
|
5
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
Total
|
|
$
|
119
|
|
|
$
|
52
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
United States
|
|
$
|
61
|
|
|
$
|
52
|
|
|
$
|
55
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
178
|
|
Canada
|
|
|
6
|
|
|
|
3
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
North America
|
|
|
67
|
|
|
|
55
|
|
|
|
56
|
|
|
|
5
|
|
|
|
5
|
|
|
|
188
|
|
Europe, Middle East and Africa
|
|
|
117
|
|
|
|
42
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
Asia Pacific
|
|
|
75
|
|
|
|
18
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112
|
|
Latin America
|
|
|
14
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Total
|
|
$
|
273
|
|
|
$
|
117
|
|
|
$
|
80
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
480
|
|
[21]
Three Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
United States
|
|
$
|
41
|
|
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
110
|
|
Canada
|
|
|
3
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
North America
|
|
|
44
|
|
|
|
35
|
|
|
|
32
|
|
|
|
2
|
|
|
|
3
|
|
|
|
116
|
|
Europe, Middle East and Africa
|
|
|
75
|
|
|
|
23
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
Asia Pacific
|
|
|
51
|
|
|
|
9
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
Latin America
|
|
|
11
|
|
|
|
2
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
Total
|
|
$
|
181
|
|
|
$
|
69
|
|
|
$
|
52
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Traditional Printing
|
|
|
Digital Printing
|
|
|
Advanced Materials and Chemicals
|
|
|
Brand
|
|
|
All Other
|
|
|
Total
|
|
United States
|
|
$
|
77
|
|
|
$
|
71
|
|
|
$
|
62
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
220
|
|
Canada
|
|
|
5
|
|
|
|
4
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
North America
|
|
|
82
|
|
|
|
75
|
|
|
|
63
|
|
|
|
5
|
|
|
|
5
|
|
|
|
230
|
|
Europe, Middle East and Africa
|
|
|
147
|
|
|
|
43
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
Asia Pacific
|
|
|
96
|
|
|
|
19
|
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
141
|
|
Latin America
|
|
|
22
|
|
|
|
4
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
Total
|
|
$
|
347
|
|
|
$
|
141
|
|
|
$
|
100
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
598
|
|
|
(1)
|
Sales are reported in the geographic area in which they originate.
|
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed trade receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) in the Consolidated Statement of Financial Position. The contract assets are transferred to trade receivables when the rights to consideration become unconditional. The amounts recorded for contract assets at June 30, 2020 and December 31, 2019 were $2 million and $4 million, respectively, and are reported in Other current assets in the Consolidated Statement of Financial Position. The contract liabilities primarily relate to prepaid service contracts, upfront payments for certain equipment purchases or prepaid royalties on intellectual property arrangements. The amounts recorded for contract liabilities at June 30, 2020 and December 31, 2019 were $55 million and $61 million, respectively, of which $40 million and $43 million are reported in Other current liabilities, respectively, and $15 million and $18 million, respectively, are reported in Other long-term liabilities in the Consolidated Statement of Financial Position.
Revenue recognized for the three and six months ended June 30, 2020 and 2019 that was included in the contract liability balance at the beginning of the year was $5 million and $31 million in 2020, respectively, and $5 million and $30 million in 2019, respectively, and primarily represented revenue from prepaid service contracts and equipment revenue recognition. Contract liabilities as of June 30, 2020 included $19 million and $21 million of cash payments received during the three and six months ended June 30, 2020, respectively. Contract liabilities as of June 30, 2019 included $20 million and $23 million of cash payments received during the three and six months ended June 30, 2019, respectively.
[22]
Kodak does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less or for which revenue is recognized at the amount to which Kodak has the right to invoice for services performed. Performance obligations with an original expected length of greater than one year generally consist of deferred service contracts, operating leases and licensing arrangements. As of June 30, 2020, there was approximately $65 million of unrecognized revenue from unsatisfied performance obligations. Approximately 20% of the revenue from unsatisfied performance obligations is expected to be recognized in the rest of 2020, 25% in 2021, 20% in 2022 and 35% thereafter.
NOTE 14: OTHER OPERATING INCOME, NET
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets (1)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
|
$
|
1
|
|
Asset impairments (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
Transition services agreement income
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Other
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Total
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
(1)
|
In March 2020 Kodak sold a property in the U.S.
|
|
(2)
|
Refer to Note 5, “Goodwill and Other Intangible Assets”.
|
NOTE 15: OTHER CHARGES (INCOME), NET
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Change in fair value of embedded conversion features
derivative liability (1)
|
|
$
|
4
|
|
|
$
|
(3
|
)
|
|
$
|
(49
|
)
|
|
$
|
(2
|
)
|
Loss on foreign exchange transactions
|
|
|
3
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1
|
|
Loss on early retirement of debt
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1
|
|
Total
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
(45
|
)
|
|
$
|
1
|
|
|
(1)
|
Refer to Note 24, “Financial Instruments”.
|
NOTE 16: INCOME TAXES
Kodak’s income tax provision and effective tax rate were as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Loss) earnings from continuing operations before
income taxes
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
50
|
|
|
$
|
(13
|
)
|
Effective tax rate
|
|
|
(25.0
|
)%
|
|
|
(50.0
|
)%
|
|
|
332.0
|
%
|
|
|
(38.5
|
)%
|
Provision for income taxes
|
|
|
1
|
|
|
|
2
|
|
|
|
166
|
|
|
|
5
|
|
(Benefit) provision for income taxes at U.S. statutory tax
rate
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
(3
|
)
|
Difference between tax at effective vs. statutory rate
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
155
|
|
|
$
|
8
|
|
For the three months ended June 30, 2020, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings, (2) the results from operations in jurisdictions outside the U.S and (3) a provision associated with foreign withholding taxes on undistributed earnings.
[23]
For the six months ended June 30, 2020, the difference between Kodak’s effective tax rate and the U.S. statutory rate of 21.0% is primarily attributable to: (1) a provision of $167 million associated with the establishment of valuation allowances in certain outside U.S. jurisdictions, (2) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses and (3) the results from operations in jurisdictions outside the U.S.
Kodak establishes valuation allowances for deferred income tax assets in accordance with U.S. GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, Kodak considers the scheduled reversal of deferred tax liabilities and assets, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment.
As of December 31, 2019, Kodak’s deferred tax asset valuation allowance is $821 million. Of this amount, $168 million was attributable to the Company’s net deferred tax assets outside the U.S. of $322 million, and $653 million related to the Company’s net deferred tax assets in the U.S. of $633 million, for which Kodak believed it was more likely than not that the assets would not be realized.
As of March 31, 2020, Kodak determined that it was more likely than not that deferred tax assets outside the U.S. which were not offset with valuation allowances as of March 31, 2020 would not be realized due to reductions in estimates of future profitability as a result of the COVID-19 pandemic in locations outside the U.S. Accordingly, Kodak recorded a provision of $167 million associated with the establishment of a valuation allowance on those deferred tax assets.
Additionally, on February 21, 2020, Kodak agreed to terms with the IRS and settled the federal audit for calendar years 2013 and 2014. For these years, Kodak originally recorded a federal unrecognized tax position totaling $41 million, which was fully offset by tax attributes. This settlement resulted in an increase in net deferred tax assets and was fully offset by a corresponding increase in Kodak’s U.S. valuation allowance, resulting in no net tax benefit.
For the three and six months ended June 30, 2019, the difference between Kodak’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 21.0%, is primarily attributable to: (1) the impact related to existing valuation allowances associated with changes in net deferred tax assets from current earnings and losses, (2) the results from operations in jurisdictions outside the U.S. and (3) a provision associated with foreign withholding taxes on undistributed earnings.
NOTE 17: RESTRUCTURING LIABILITIES
Charges for restructuring activities are recorded in the period in which Kodak commits to a formalized restructuring plan, or executes the specific actions contemplated by the plan, and all criteria for liability recognition under the applicable accounting guidance have been met. Restructuring actions taken in the first six months of 2020 were initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included various targeted reductions in manufacturing, service, sales and other administrative functions.
Restructuring Reserve Activity
The activity in the accrued balances and the non-cash charges and credits incurred in relation to restructuring activities for the six months ended June 30, 2020 were as follows:
(in millions)
|
|
Severance
Reserve (1)
|
|
|
Exit
Costs
Reserve (1)
|
|
|
Long-lived Asset
Impairments and
Inventory
Write-downs (1)
|
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Q1 charges
|
|
|
6
|
|
|
|
1
|
|
|
|
—
|
|
|
|
7
|
|
Q1 utilization/cash payments
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
Q1 other adjustments and reclasses (2)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
Balance as of March 31, 2020
|
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
10
|
|
Q2 charges
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Q2 utilization/cash payments
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
Balance as of June 30, 2020
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
8
|
|
(1)
|
The severance and exit costs reserves require the outlay of cash, while long-lived asset impairments and inventory write-downs represent non-cash items.
|
(2)
|
Includes $(1) million of severance charges funded from pension plan assets, which were reclassified to Pension and other postretirement liabilities and $(1) million of currency translation impacts.
|
[24]
The $1 million and $7 million of charges for the three and six months ended June 30, 2020, respectively, were reported as Restructuring costs and other in the Consolidated Statement of Operations.
The severance costs for the 3 months ended June 30, 2020 related to the elimination of 3 administrative positions outside of the U.S. The severance costs for the six months ended June 30, 2020 related to the elimination of approximately 90 positions including approximately 20 manufacturing/service positions, and 70 administrative and sales positions. The geographic composition of these positions includes approximately 40 in the U.S. and Canada and 50 throughout the rest of the world.
As a result of these initiatives, the majority of the severance will be paid during periods through the end of the year.
NOTE 18: RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of the net periodic benefit cost for all major U.S. and non-U.S. defined benefit plans are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(in millions)
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Major defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
2
|
|
Interest cost
|
|
|
22
|
|
|
|
2
|
|
|
|
31
|
|
|
|
3
|
|
|
|
43
|
|
|
|
4
|
|
|
|
61
|
|
|
|
6
|
|
Expected return on plan assets
|
|
|
(49
|
)
|
|
|
(4
|
)
|
|
|
(54
|
)
|
|
|
(5
|
)
|
|
|
(98
|
)
|
|
|
(9
|
)
|
|
|
(107
|
)
|
|
|
(11
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
Actuarial loss
|
|
|
3
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
7
|
|
|
|
3
|
|
|
|
—
|
|
|
|
2
|
|
Net pension income before
special termination benefits
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(45
|
)
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
(1
|
)
|
Special termination benefits
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
Net pension income from major
plans
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
(1
|
)
|
Other plans
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
(4
|
)
|
Total net pension (income)
expense
|
|
$
|
(22
|
)
|
|
$
|
1
|
|
|
$
|
(23
|
)
|
|
$
|
(3
|
)
|
|
$
|
(44
|
)
|
|
$
|
1
|
|
|
$
|
(44
|
)
|
|
$
|
(5
|
)
|
For the three and six months ended June 30, 2020 and 2019 the special termination benefits charges were incurred as a result of Kodak’s restructuring actions and have been included in Restructuring costs and other in the Consolidated Statement of Operations for those periods.
[25]
NOTE 19: EARNINGS PER SHARE
Basic earnings per share computations are based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include any dilutive effect of potential common shares. In periods with a net loss from continuing operations available to common shareholders, diluted earnings per share are calculated using weighted-average basic shares for that period, as utilizing diluted shares would be anti-dilutive to loss per share.
A reconciliation of the amounts used to calculate basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 follows (in millions):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Loss from continuing operations
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
$
|
(116
|
)
|
|
$
|
(18
|
)
|
Less: Series A convertible preferred stock cash dividend
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Less: Series A convertible preferred stock deemed dividend
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Loss from continuing operations available to common
shareholders - basic and diluted
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
|
$
|
(126
|
)
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5
|
)
|
|
$
|
201
|
|
|
$
|
(116
|
)
|
|
$
|
183
|
|
Less: Series A convertible preferred stock cash dividend
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Less: Series A convertible preferred stock deemed dividend
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net (loss) income available to common shareholders
- basic and diluted
|
|
$
|
(10
|
)
|
|
$
|
196
|
|
|
$
|
(126
|
)
|
|
$
|
173
|
|
(in millions of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares — basic and diluted
|
|
|
43.7
|
|
|
|
43.0
|
|
|
|
43.7
|
|
|
|
43.0
|
|
As a result of the net loss from continuing operations available to common shareholders for the three and six months ended June 30, 2020 and 2019, Kodak calculated diluted earnings per share using weighted-average basic shares outstanding. If Kodak reported earnings from continuing operations available to common shareholders for the three and six months ended June 30, 2020 and 2019, the calculation of diluted earnings per share would have included the assumed conversion of 0.5 million unvested restricted stock units for both periods in 2020 and 0.5 million and 0.4 million unvested restricted stock units for the periods in 2019, respectively.
The computation of diluted earnings per share for the three and six months ended June 30, 2020 and 2019 also excluded the impact of (1) the assumed conversion of 2.0 million shares of Series A Preferred Stock and (2) the assumed conversion of outstanding employee stock options of 7.1 million for both periods in 2020 and 7.2 million for both periods in 2019 because the effects would have been anti-dilutive. In addition, the computation of diluted earnings per share for the three and six months ended June 30, 2020 and the three months ended June 30, 2019 also excluded the assumed conversion of $100 million of Convertible Notes because the effect would have been anti-dilutive.
NOTE 20: SHAREHOLDERS’ EQUITY
The Company has 560 million shares of authorized stock, consisting of: (i) 500 million shares of common stock, par value $0.01 per share and (ii) 60 million shares of preferred stock, no par value, issuable in one or more series. As of June 30, 2020 and December 31, 2019, there were 43.7 million and 43.2 million shares of common stock outstanding, respectively, and 2.0 million shares of Series A Preferred Stock issued and outstanding. Treasury stock consisted of approximately 0.7 million shares as of both June 30, 2020 and December 31, 2019.
[26]
NOTE 21: OTHER COMPREHENSIVE (LOSS) INCOME
The changes in Other comprehensive (loss) income, by component, were as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Currency translation adjustments
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
(16
|
)
|
|
$
|
4
|
|
Pension and other postretirement benefit plan changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newly established net actuarial gain
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
5
|
|
Tax Provision
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
Newly established net actuarial gain, net of tax
|
|
|
5
|
|
|
|
3
|
|
|
|
6
|
|
|
|
3
|
|
Reclassification adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit (a)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Amortization of actuarial losses (a)
|
|
|
5
|
|
|
|
2
|
|
|
|
10
|
|
|
|
2
|
|
Recognition of losses (gains) due to curtailments and settlements
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
Total reclassification adjustments
|
|
|
4
|
|
|
|
(3
|
)
|
|
|
7
|
|
|
|
(4
|
)
|
Tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
Reclassification adjustments, net of tax
|
|
|
4
|
|
|
|
(3
|
)
|
|
|
6
|
|
|
|
(4
|
)
|
Pension and other postretirement benefit plan changes,
net of tax
|
|
|
9
|
|
|
|
—
|
|
|
|
12
|
|
|
|
(1
|
)
|
Other comprehensive income (loss)
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
(4
|
)
|
|
$
|
3
|
|
|
(a)
|
Reclassified to Total Net Periodic Benefit Cost - refer to Note 18, "Retirement Plans and Other Postretirement Benefits".
|
NOTE 22: SEGMENT INFORMATION
Change in Segments
Effective January 1, 2020 Kodak changed its organizational structure. Prepress Solutions, formerly part of the Print Systems segment, operates as a separate segment named the Traditional Printing segment. Electrophotographic Printing Solutions, formerly part of the Print Systems segment, was combined with the Enterprise Inkjet Systems segment and Kodak Software segment to form the Digital Printing segment. The Brand, Film and Imaging segment, except for the licensing of the Kodak brand to third parties, was combined with the Advanced Materials and 3D Printing segment to form the Advanced Materials and Chemicals segment. The licensing of the Kodak brand to third parties operates as a separate segment named the Brand segment. The Eastman Business Park segment is no longer a reportable segment. A description of Kodak’s reportable segments follows.
Traditional Printing: The Traditional Printing segment is comprised of Prepress Solutions.
Digital Printing: The Digital Printing segment is comprised of four lines of business: the Electrophotographic Printing Solutions business, the Prosper business, the Versamark business and the Kodak Software business.
Advanced Materials and Chemicals: The Advanced Materials and Chemicals segment is comprised of five lines of business: Industrial Film and Chemicals, Motion Picture, Advanced Materials and Functional Printing Technology and Kodak Services for Business.
Brand: The Brand segment contains the brand licensing business.
All Other: All Other is comprised of the operations of the Eastman Business Park, a more than 1,200-acre technology center and industrial complex.
[27]
Segment financial information is shown below:
Segment Revenues
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Traditional Printing
|
|
$
|
119
|
|
|
$
|
181
|
|
|
$
|
273
|
|
|
$
|
347
|
|
Digital Printing
|
|
|
52
|
|
|
|
69
|
|
|
|
117
|
|
|
|
141
|
|
Advanced Materials and Chemicals
|
|
|
38
|
|
|
|
52
|
|
|
|
80
|
|
|
|
100
|
|
Brand
|
|
|
2
|
|
|
|
2
|
|
|
|
5
|
|
|
|
5
|
|
All Other
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
5
|
|
Consolidated total
|
|
$
|
213
|
|
|
$
|
307
|
|
|
$
|
480
|
|
|
$
|
598
|
|
Segment Operational EBITDA and Consolidated (Loss) Income from Continuing Operations Before Income Taxes
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Traditional Printing
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
2
|
|
|
$
|
15
|
|
Digital Printing
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Advanced Materials and Chemicals
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
(16
|
)
|
|
|
(18
|
)
|
Brand
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
3
|
|
Total of reportable segments
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
All Other
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Depreciation and amortization
|
|
|
(10
|
)
|
|
|
(14
|
)
|
|
|
(20
|
)
|
|
|
(29
|
)
|
Restructuring costs and other
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(4
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Consulting and other costs (1)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Idle costs (2)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Former CEO separation agreement compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
Other operating (loss) income, net, excluding income from
transition services agreement (3)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(2
|
)
|
Interest expense (4)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Pension income excluding service cost component (4)
|
|
|
27
|
|
|
|
26
|
|
|
|
53
|
|
|
|
53
|
|
Other (charges) income, net (4)
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
45
|
|
|
|
(1
|
)
|
Consolidated (loss) income from continuing operations
before income taxes
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
50
|
|
|
$
|
(13
|
)
|
|
(1)
|
Consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives.
|
|
(2)
|
Consists of 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)
|
$2 million of income from the transition services agreement with the Purchaser was recognized in the three months ended June 30, 2020 and the three and six months ended June 30, 2019. $4 million of income from the transition services agreement was recognized in the six months ended June 30, 2020. The income was reported in Other operating income, net in the Consolidated Statement of Operations. Other operating income, net is typically excluded from the segment measure. However, the income from the transition services agreement was included in the segment measure.
|
|
(4)
|
As reported in the Consolidated Statement of Operations.
|
Segment Measure of Profit and Loss
Kodak’s segment measure of profit and loss is an adjusted earnings before interest, taxes, depreciation and amortization (“Operational EBITDA”).
[28]
As demonstrated in the above table, Operational EBITDA represents the earnings (loss) from continuing 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; former Chief Executive Officer (“CEO”) separation agreement compensation; other operating (loss) income, net (unless otherwise indicated); interest expense; and other (charges) income, net.
Kodak’s segments are measured using Operational EBITDA both before and after allocation of corporate selling, general and administrative expenses (“SG&A”). The segment earnings measure reported is after allocation of corporate SG&A as this most closely aligns with U.S. GAAP. Research and Development activities not directly related to the other segments are reported within the Advanced Materials and Chemicals segment.
NOTE 23: DISCONTINUED OPERATIONS
Discontinued operations of Kodak include the former Flexographic Packaging segment comprised of Kodak’s Flexographic Packaging Business (“FPD”).
Kodak consummated the sale of certain assets of FPD to the Purchaser on April 8, 2019 for net cash consideration at closing, in addition to the assumption by Purchaser of certain liabilities of FPD, of $320 million, pursuant to the Stock and Asset Purchase Agreement (“SAPA”) signed in November 2018 and amended in March 2019. Assets and liabilities of FPD in China were transferred at a deferred closing on July 1, 2019 for net cash consideration of $5.9 million at closing and a promissory note for $1.4 million in addition to the assumption by Purchaser of certain liabilities of FPD, in accordance with the SAPA. Kodak operated FPD in China, subject to certain covenants, until the deferred closing occurred. The promissory note was reduced by a true-up payment of $0.2 million owed by Kodak to the Purchaser which reflected the actual economic benefit attributable to the operation of FPD in China from the time of the initial closing through the time of the deferred closing.
Kodak recognized an after- tax gain on the sale of FPD of $207 million in the quarter ended June 30, 2019 and $212 million in the year ended December 31, 2019.
The results of operations of FPD are classified as discontinued operations in the Consolidated Statement of Operations for all periods presented. Direct operating expenses of the discontinued operations are included in the results of discontinued operations. Indirect expenses that were historically allocated to the discontinued operations have been included in the results of continuing operations.
The results of operations of FPD are presented below:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
44
|
|
Cost of revenues
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
28
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
10
|
|
Research and development costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Gain on divestiture
|
|
|
—
|
|
|
|
(210
|
)
|
|
|
—
|
|
|
|
(210
|
)
|
Income from discontinued operations before taxes
|
|
|
—
|
|
|
|
211
|
|
|
|
—
|
|
|
|
207
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
6
|
|
Income from discontinued operations
|
|
$
|
—
|
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
201
|
|
After the initial closing, Kodak was required to use a portion of the proceeds from the sale of FPD to repay $312 million of the loans under the Term Credit Agreement. Interest expense on debt that was required to be repaid as a result of the sale was allocated to discontinued operations.
NOTE 24: FINANCIAL INSTRUMENTS
Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates, which may adversely affect its results of operations and financial position. Kodak manages such exposures, in part, with derivative financial instruments. Foreign currency forward contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities. Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Kodak does not utilize financial instruments for trading or other speculative purposes.
Kodak’s foreign currency forward contracts are not designated as hedges and are marked to market through net (loss) earnings at the same time that the exposed assets and liabilities are remeasured through net (loss) earnings (both in Other (income) charges, net in the Consolidated Statement of Operations). The notional amount of such contracts open at June 30, 2020 and December 31, 2019 was approximately $329 million and $332 million, respectively. The majority of the contracts of this type held by Kodak as of June 30, 2020 and December 31, 2019 are denominated in euros, Japanese yen, Chinese renminbi and Swiss francs.
[29]
The net effect of foreign currency forward contracts in the results of operations is shown in the following table:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net (gain) loss from derivatives not designated as hedging
instruments
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
Kodak had no derivatives designated as hedging instruments for the three and six months ended June 30, 2020 and 2019.
In the event of a default under the ABL Credit Agreement, or a default under any derivative contract or similar obligation of Kodak, subject to certain minimum thresholds, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset positions with the same counterparty.
As discussed in Note 8, “Debt and Finance Leases”, the Company concluded that the Convertible Notes are considered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features and term extension option were not considered clearly and closely related to the Convertible Notes. The embedded conversion features not considered clearly and closely related are the conversion at the option of the holder (“Optional Conversion”) and the conversion in the event of a fundamental change or reorganization (“Fundamental Change or Reorganization Conversion”). Accordingly, these embedded conversion features and term extension option were bifurcated from the Convertible Notes and separately accounted for on a combined basis as a single derivative asset or liability.
The derivative is in a liability position at June 30, 2020 and December 31, 2019 and is reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value being reported in Other charges (income), net in the Consolidated Statement of Operations.
As discussed in Note 9, “Redeemable, Convertible, Series A Preferred Stock”, the Company concluded that the Series A Preferred Stock is considered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features, except where the conversion price was increased to the liquidation preference, were not considered clearly and closely related to the Series A Preferred Stock. The embedded conversion features not considered clearly and closely related are the conversion at the option of the holder (“Optional Conversion”); the ability of Kodak to automatically convert the stock after the second anniversary of issuance (“Mandatory Conversion”) and the conversion in the event of a fundamental change or reorganization (“Fundamental Change or Reorganization Conversion”). Accordingly, these embedded conversion features were bifurcated from the Series A Preferred Stock and separately accounted for on a combined basis as a single derivative asset or liability. The derivative was in an asset position at June 30, 2020 and is reported in Other long-term assets in the Consolidated Statement of Financial Position. The derivative was in a liability position at December 31, 2019 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value being reported in Other charges (income), net in the Consolidated Statement of Operations.
Fair Value
Fair values of Kodak’s foreign currency forward contracts are determined using observable inputs (Level 2 fair value measurements) and are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using discount rates appropriate for the duration of the contracts. The gross fair value of foreign currency forward contracts in an asset position are reported in Other current assets and the gross fair value of foreign currency forward contracts in a liability position are reported in Other current liabilities in the Consolidated Statement of Financial Position. The gross fair value of forward contracts in an asset position as of both June 30, 2020 and December 31, 2019 was $1 million. The gross fair value of foreign currency forward contracts in a liability position as of both June 30, 2020 and December 31, 2019 was $0 million.
Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the three and six months ended June 30, 2020.
[30]
The fair value of the embedded conversion features and term extension option derivatives are calculated using unobservable inputs (Level 3 fair measurements). The value of the Optional Conversion associated with both the Convertible Notes and Series A Preferred Stock is calculated using a binomial lattice model. The value of the term extension option reflects the probability weighted average value of the Convertible Notes using the original maturity date and a hypothetical extended maturity date, with all other contractual terms unchanged.
The following tables present the key inputs in the determination of fair value for the embedded conversion features and termination option derivatives:
Convertible Notes:
|
|
Valuation Date
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total value of embedded derivative liability ($ millions)
|
|
$
|
9
|
|
|
$
|
51
|
|
Kodak's closing stock price
|
|
$
|
2.23
|
|
|
$
|
4.65
|
|
Expected stock price volatility
|
|
|
98.82
|
%
|
|
|
104.61
|
%
|
Risk free rate
|
|
|
0.16
|
%
|
|
|
1.58
|
%
|
Yield on the convertible notes
|
|
|
11.15
|
%
|
|
|
11.52
|
%
|
Series A Preferred Stock:
|
|
Valuation Date
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total value of embedded derivative (asset) liability ($ millions)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
Kodak's closing stock price
|
|
$
|
2.23
|
|
|
$
|
4.65
|
|
Expected stock price volatility
|
|
|
98.82
|
%
|
|
|
104.61
|
%
|
Risk free rate
|
|
|
0.16
|
%
|
|
|
1.58
|
%
|
Yield on the preferred stock
|
|
|
15.51
|
%
|
|
|
16.27
|
%
|
The Fundamental Change and Reorganization Conversion values at issuance were calculated as the difference between the total value of the Convertible Notes or Series A Preferred Stock, as applicable, and the sum of the net present value of the cash flows if the Convertible Notes are repaid at their initial maturity date or Series A Preferred Stock is redeemed on its fifth anniversary and the values of the other embedded derivatives. The Fundamental Change and Reorganization Conversion values reduce the value of the embedded conversion features and term extension option derivative liability. Other than events that alter the likelihood of a fundamental change or reorganization event, the value of the Fundamental Change and Reorganization Conversion reflects the value as of the issuance date, amortized for the passage of time. The Fundamental Change and Reorganization Conversion value for the Series A Preferred Stock exceeded the value of the Optional Conversion and Mandatory Conversion values at June 30, 2020 resulting in the Series A Preferred Stock derivative being reported as an asset.
The fair values of long-term debt (Level 2 fair value measurements) are determined by reference to quoted market prices of similar instruments, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates. The fair values of long-term borrowings were $119 million and $111 million at June 30, 2020 and December 31, 2019, respectively.
The carrying values of cash and cash equivalents, restricted cash and the current portion of long-term debt approximate their fair values at both June 30, 2020 and December 31, 2019.
[31]