EASTMAN KODAK CO SEC 10-Q Report

Eastman Kodak Co., a global technology company focused on imaging and printing solutions, has released its Form 10-Q report for the third quarter of 2024. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces in the current economic environment.

Financial Highlights

Eastman Kodak Co. reported the following key financial metrics for the third quarter and the first nine months of 2024:

• Total Revenues: $261 million for the three months ended September 30, 2024, a decrease of $8 million (3%) compared to the same period in 2023. For the nine months ended September 30, 2024, Total Revenues were $777 million, a decrease of $65 million (8%) compared to the same period in 2023.
• Gross Profit: $45 million for the three months ended September 30, 2024, a decrease of $5 million compared to the same period in 2023. For the nine months ended September 30, 2024, Gross Profit was $152 million, a decrease of $11 million compared to the same period in 2023.
• (Loss) earnings from operations before interest expense, pension income excluding service cost component, loss on extinguishment of debt, other (income) charges, net and income taxes: $(8) million for the three months ended September 30, 2024, compared to $2 million for the same period in 2023. For the nine months ended September 30, 2024, this metric was $1 million, compared to $17 million for the same period in 2023.
• Net Earnings: $18 million for the three months ended September 30, 2024, compared to $2 million for the same period in 2023. For the nine months ended September 30, 2024, Net Earnings were $76 million, compared to $70 million for the same period in 2023.
• Basic net earnings per share attributable to Eastman Kodak Company common shareholders: $0.16 for the three months ended September 30, 2024, compared to $0.00 for the same period in 2023. For the nine months ended September 30, 2024, Basic net earnings per share were $0.73, compared to $0.68 for the same period in 2023.
• Diluted net earnings per share attributable to Eastman Kodak Company common shareholders: $0.15 for the three months ended September 30, 2024, compared to $0.00 for the same period in 2023. For the nine months ended September 30, 2024, Diluted net earnings per share were $0.67, compared to $0.64 for the same period in 2023.

Business Highlights

Eastman Kodak Co. provided an overview of its business performance across various segments and regions:

• Print Segment Performance: Print revenues in the three and nine months ended September 30, 2024, were $182 million and $550 million, respectively, representing decreases of 7% and 11% compared to the prior year periods. The segment accounted for 70% and 71% of Kodak’s total revenues for the three and nine months ended September 30, 2024, respectively.
• Advanced Materials and Chemicals Segment Performance: Advanced Materials and Chemicals revenues in the three and nine months ended September 30, 2024, were $71 million and $203 million, respectively, showing increases of 11% and 3% compared to the prior year periods.
• Geographical Performance: The United States accounted for $120 million and $358 million of total revenues in the three and nine months ended September 30, 2024, respectively. Europe, Middle East, and Africa contributed $80 million and $251 million, while Asia Pacific regions generated $51 million and $141 million for the same periods.
• Electrophotographic Printing Solutions Business: The EPS Business within the Print Segment experienced higher than expected volume declines in 2024 due to the negative impact of recent pricing actions and ceasing the manufacturing of NEXFINITY printers effective December 2022. An inventory reserve adjustment of $4 million was recorded to reflect lower forecasted demand for certain component and service parts.
• New Product Launches: Kodak launched the PROSPER 7000 Turbo Press in June 2022 and the KODAK PROSPER ULTRA 520 Digital Press utilizing Kodak’s ULTRASTREAM inkjet technology, which offers offset print quality in a smaller footprint.
• New Production Launches: Kodak has increased headcount and improved infrastructure in the Advanced Materials and Chemicals segment to better meet demand for consumer film products, despite manufacturing equipment limitations and labor shortages.
• Supply Chain and Workforce Optimization: Kodak implemented various pricing actions, customer-focused initiatives, supply chain and workforce optimization, productivity improvements, and other cost savings activities to mitigate the impact of increased manufacturing costs and lower volumes.
• Impact of Global Events: The war in Ukraine, conflicts involving Israel, and other global events have impacted Kodak’s operations, leading to increased manufacturing costs, supply chain disruptions, and shortages in materials and labor. Kodak has taken measures to mitigate these challenges, including increasing safety stock, extending lead times, and certifying additional sources or substitute materials.
• Trade Relief Measures: Following the cessation of U.S. plate manufacturing operations by key competitors, Kodak filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission requesting relief from unfairly traded imports of plates from China and Japan. Duties are now being imposed on U.S. imports of plates from these countries.
• Future Outlook: Kodak continues to monitor the impact of global economic conditions and other events on its operations. The company is focused on leveraging its proprietary technologies in print and advanced materials, growing revenues through customer focus, promoting the use of film, and streamlining processes to drive cost reductions and improve operating leverage.

Strategic Initiatives

Eastman Kodak Co. outlined several strategic initiatives and capital management activities aimed at driving long-term growth and financial stability:

• Strategic Initiatives: Kodak's strategic initiatives focus on leveraging its proprietary technologies in print and advanced materials. Key initiatives include the development of electric vehicle (EV) battery materials, light-blocking technology, transparent antennas, and reagent manufacturing. Kodak invested $25 million in Wildcat Discovery Technologies to advance EV battery materials and entered into a collaboration agreement for coating and engineering services. Additionally, Kodak is enhancing its infrastructure to increase capacity in the film business and has implemented various pricing actions and customer-focused initiatives to mitigate increased manufacturing costs.
• Capital Management: Kodak's capital management activities include managing its debt and equity structure. As of September 30, 2024, Kodak had $460 million in long-term debt and $1 million in short-term borrowings. The company has classified its Series B and Series C Preferred Stock as temporary equity, with mandatory redemption dates in 2026. Kodak paid cumulative dividends on its preferred stock and repurchased treasury stock to satisfy tax withholding obligations. The company also increased its employee benefit reserves due to changes in discount rates. Additionally, Kodak filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission to impose anti-dumping and countervailing duties on imported plates from China and Japan.
• Future Outlook: Kodak plans to continue focusing on its core competencies in print and advanced materials, leveraging its proprietary technologies to drive growth. The company aims to expand its applications in the EV battery materials market, light-blocking technology, and transparent antennas. Kodak is also exploring opportunities to enhance its manufacturing capabilities and increase capacity in the film business. The company will continue to monitor global economic conditions, including the impact of the war in Ukraine and conflicts involving Israel, and adjust its operations and strategies accordingly. Kodak's future capital management efforts will include managing its debt and equity structure, optimizing its supply chain, and implementing cost-saving measures to improve profitability.

Challenges and Risks

Eastman Kodak Co. faces several challenges and risks that could impact its operations and financial performance:

• Market Risks:
  • Foreign Currency Fluctuations: Kodak operates in many foreign countries and is exposed to fluctuations between the U.S. dollar and other currencies. Volatility in global financial markets could increase the volatility of foreign currency exchange rates, impacting sales and net income.
  • Global Economic Environment: Current global economic conditions remain highly volatile due to inflationary pressures, geopolitical issues such as the war in Ukraine and conflicts involving Israel, and other global events. These factors have led to increased manufacturing costs, supply chain disruptions, and shortages in materials and labor.
  • Competition: Kodak faces increasing competition in the U.S. from low-priced plates imported from China and Japan. Despite the imposition of anti-dumping and countervailing duties on these imports, there is no assurance that these measures will provide effective relief.
• Operational Risks:
  • Supply Chain Disruptions: Kodak is experiencing supply chain disruptions and shortages in materials, including aluminum, which have increased manufacturing costs. The company has implemented measures such as increasing safety stock and certifying additional sources to mitigate these challenges.
  • Labor Shortages: The Advanced Materials and Chemicals segment has experienced labor shortages in certain manufacturing areas, impacting production capacity and leading to increased backorders.
  • Customer Demand: The Print segment is experiencing a slowdown in customer demand for plates, negatively impacting volume due to global economic conditions and pricing actions.
  • Inventory Management: The Electrophotographic Printing Solutions business is facing higher than expected volume declines and has recorded an inventory reserve adjustment due to lower forecasted demand.
• Regulatory Risks:
  • Sanctions and Compliance: Kodak is monitoring the events surrounding the war in Ukraine and the various sanctions imposed in response. The company believes it is in compliance with all sanctions but is experiencing worldwide supply constraints for aluminum and increased energy and transportation costs due in part to the war.
  • Environmental Regulations: Kodak is committed to environmental stewardship and developing sustainable solutions for print. However, compliance with environmental regulations may pose additional operational challenges and costs.
• New and Emerging Risks:
  • Geopolitical Conflicts: The conflicts involving Israel and the war in Ukraine have created uncertainties that could impact Kodak's operations. The destruction of a leased warehouse in Israel and the winding down of operations in Russia are examples of the direct impact of these conflicts.
  • Cybersecurity: The potential impact of force majeure events, cyber-attacks, or other data security incidents could disrupt or harm Kodak’s operations.
• Management’s Strategies:
  • Pricing Actions and Cost Reductions: Kodak has implemented various pricing actions and customer-focused initiatives to mitigate the impact of increased manufacturing costs. The company is also focusing on supply chain and workforce optimization, productivity improvements, and other cost savings activities.
  • Investment in Technology: Kodak is investing in information technology systems to drive operational efficiencies and improve cash flow. The company is also focusing on developing new products and technologies in areas such as electric vehicle battery materials, light-blocking technology, and transparent antennas.
  • Strategic Transactions: Kodak is exploring strategic transactions such as investments, acquisitions, strategic alliances, divestitures, and licensing opportunities to enhance its business and financial position.
  • Capital Improvements: To address manufacturing equipment limitations and labor shortages, Kodak is increasing headcount and improving infrastructure in the film business. The company is also evaluating expansion or enhancement of its production facilities to meet demand.

SEC Filing: EASTMAN KODAK CO [ KODK ] - 10-Q - Nov. 12, 2024