Market Overview

Kodak Reports Q2 Net Earnings of $4 Million and Continued Growth in Key Products

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Retained UBS Investment Bank as its financial advisor on the sale of
its Flexographic Packaging Division

Entered into a non-binding LOI for a $400 million, 18-month loan
which would be used to refinance its existing term debt during the sale
process for the Flexographic Packaging Division

Eastman Kodak Company (NYSE:KODK) today reported financial results for
the second quarter 2018, delivering net earnings of $4 million on
revenues of $372 million and continued growth in its KODAK SONORA
Process-Free Plates, KODAK FLEXCEL NX Packaging and KODAK PROSPER Inkjet
businesses.

Second-quarter highlights include:

  • GAAP net earnings of $4 million for the quarter ended June 30, 2018.
  • Operational EBITDA for the quarter of $9 million.
  • Revenues for the quarter of $372 million.
  • Key product lines achieved strong year-over-year growth for the
    quarter:
    • Volume for KODAK SONORA Process-Free Plates grew by 19 percent.
    • Volume for KODAK FLEXCEL NX Plates grew by 8 percent.
    • Annuity revenues for the KODAK PROSPER inkjet platform grew by 3
      percent.
  • The company ended the quarter with a cash balance of $275 million and
    expects to generate cash in the second half of 2018.
  • 2018 revenue guidance remains at $1.5 billion to $1.6 billion and
    Operational EBITDA guidance revised to $55 million to $60 million to
    reflect increased aluminum supplier costs and timing of
    commercialization of new products.

Additional developments:

Kodak has

  • retained UBS Investment Bank as the company's financial adviser in the
    sale of its Flexographic Packaging Division.
  • entered into a non-binding letter of intent for a $400 million,
    18-month loan with an existing term loan lender which would be used to
    refinance its existing term debt.
  • initiated efficiency actions expected to result in $40 million of
    annualized savings and improved liquidity.
  • included disclosure of going concern assessment in its Form 10-Q
    filing for the second quarter.

Revenues for the quarter ending June 30, 2018 were $372 million, a
decline of $9 million compared with the second quarter of 2017. The
company reported second-quarter GAAP net earnings of $4 million and
Operational EBITDA of $9 million, down $3 million compared with the
second quarter of 2017. The decrease was primarily driven by the $7
million year-over-year adverse impact of the cost of aluminum, which was
partially offset by growth in key products as well as cost reductions in
Kodak's Advanced Materials and 3D Printing Technology Division.

"We continue to see growth in our SONORA plates, FLEXCEL NX and PROSPER
annuities businesses. When adjusted for aluminum and foreign exchange,
Operational EBITDA increased thirty three percent year over year," said
Jeff Clarke, Kodak Chief Executive Officer. "For the second half of 2018
our priorities will be focused on the sale process for the Flexographic
Packaging Division, improving efficiency of our operations through the
announced restructuring actions and continuing to deliver growth in
strategic areas."

The company reiterated 2018 guidance for revenues of $1.5 billion to
$1.6 billion and revised guidance for Operational EBITDA to $55 million
to $60 million to reflect increased aluminum supplier costs and timing
of commercialization of new products.

Kodak ended the quarter with a cash balance of $275 million, down $38
million from the March 31, 2018 cash balance of $313 million. The
company expects a cash balance of $300 million to $310 million at
year-end 2018.

"The company's use of cash in Q2 primarily reflects the seasonal build
of working capital. We expect to generate cash over the remainder of the
year and to address the September 2019 maturity of the term loan," said
David Bullwinkle, Kodak Chief Financial Officer. "To strengthen our
liquidity, we have initiated actions to reduce operating costs,
including driving greater efficiencies in investment spending and
operations of our mature businesses."

Print Systems Division (PSD), Kodak's largest division, had Q2
revenues of $227 million, a decrease of $9 million compared with Q2
2017. Operational EBITDA for the quarter was $8 million, compared with
$15 million for the same period a year ago. The decline was due to
higher costs for aluminum, the primary material used to manufacture the
division's offset printing plate products, and continued industry
pricing pressures.

PSD's environmentally-advantaged KODAK SONORA Process Free Plates had
continued strong performance for the quarter, delivering 19 percent
year-over-year growth in unit sales. SONORA Plates now account for 22
percent of the division's total plate unit sales.

During the quarter PSD continued its rollout of new SONORA X
Process-Free Plates, supplying over 100 customers in Asia and Europe.
The new product is expected to increase the reach of Kodak's
process-free plates from 30% to 80% of market applications.

Enterprise Inkjet Systems Division (EISD), including the KODAK
PROSPER and KODAK VERSAMARK businesses and the investment in ULTRASTREAM
inkjet technology, had second-quarter revenues of $33 million, down from
$35 million in the same period in 2017. Operational EBITDA was $1
million, flat when compared with the same period in the prior year.

For the second quarter of 2018 the PROSPER business continued to deliver
strong performance with year-over-year annuity growth of 3 percent.

The company continues to invest in the development of KODAK ULTRASTREAM,
the next-generation inkjet writing system, which is scheduled to launch
in 2019.

Flexographic Packaging Division (FPD) includes KODAK FLEXCEL NX
Systems and Plates as well as other packaging products, such as analog
flexographic plates and letterpress plates, proofing products and
services. FPD's performance for the quarter was driven by continued
growth in KODAK FLEXCEL NX Plates. Revenues for Q2 were $38 million, up
$1 million compared with the same period a year ago. Operational EBITDA
for Q2 was $9 million, an increase of $1 million compared with the
second quarter of 2017.

For the quarter, FLEXCEL NX plate volume continued to grow, increasing 8
percent year over year. The division continues to invest in new product
development and infrastructure, including a plate manufacturing line in
Weatherford, Oklahoma scheduled to be on line in early 2019.

Software and Solutions Division (SSD) revenues for Q2 were $20
million, a $2 million decline compared with the same period last year.
Operational EBITDA was negative $1 million, flat when compared to Q2
2017.

Consumer and Film Division (CFD) revenues for the second quarter
were $48 million, an increase of $1 million over Q2 2017. Operational
EBITDA was negative $4 million for the quarter, compared with negative
$5 million in Q2 2017. CFD's Industrial Film & Chemicals business
experienced strong order volume in the quarter which more than offset
the expected decline in Consumer Inkjet. The division's brand licensing
business continues to perform well, adding three new licensees during
the quarter.

Advanced Materials and 3D Print Technology Division (AM3D) had
revenue of $1 million for the quarter and Operational EBITDA of negative
$5 million, an improvement of $2 million compared with the same period
in the prior year. The division continues to focus on investments in
light-blocking particles and printed electronics.

Eastman Business Park Division (EBPD) had Q2 2018 revenues of $5
million, an increase of $1 million compared with the same prior year
period. Operational EBITDA was flat compared with the second quarter of
2017.

Going Concern Assessment

Kodak has included a disclosure regarding its going concern assessment
in its Q2 Form 10-Q filing. While the company is optimistic about the
potential sale of its Flexographic Packaging Division, as well as the
anticipated refinancing of its term debt, these plans are not solely
within Kodak's control and therefore are not deemed "probable" under
U.S. GAAP accounting rules. Please read Footnote 1 to the financial
statements contained in the company's 10-Q to see the precise disclosure
and planned mitigating actions.

 

Revenue and Operational EBITDA Q2 2018 vs. Q2 2017

 
($ millions)                
 
Q2 2018 Actuals PSD EISD FPD SSD CFD AM3D EBPD Total EK
Revenue $ 227 $ 33 $ 38 $ 20 $ 48 $ 1 $ 5 $ 372
Operational EBITDA * $ 8 $ 1 $ 9 $ (1 ) $ (4 ) $ (5 ) $ 1 $ 9
 
Q2 2017 Actuals PSD EISD FPD SSD CFD AM3D EBPD Total EK
Revenue $ 236 $ 35 $ 37 $ 22 $ 47 $ - $ 4 $ 381
Operational EBITDA * $ 15 $ 1 $ 8 $ (1 ) $ (5 ) $ (7 ) $ 1 $ 12
 
Q2 2018 Actuals vs. Q2 2017 Actuals

B/(W)

PSD EISD FPD SSD CFD AM3D EBPD Total EK
Revenue $ (9 ) $ (2 ) $ 1 $ (2 ) $ 1 $ 1 $ 1 $ (9 )
Operational EBITDA * $ (7 ) $ - $ 1 $ - $ 1 $ 2 $ - $ (3 )
 
Q2 2018 Actuals on constant currency ** vs. Q2 2017 Actuals

B/(W)

PSD EISD FPD SSD CFD AM3D EBPD Total EK
Revenue $ (17 ) $ (3 ) $ - $ (2 ) $ - $ 1 $ 1 $ (20 )
Operational EBITDA * $ (6 ) $ - $ 1 $ - $ - $ 2 $ - $ (3 )
 

*

Total Operational EBITDA is a non-GAAP financial measure. The
reconciliation between GAAP and non-GAAP measures is provided in
Appendix A of this press release.

 

**

The impact of foreign exchange represents the 2017 foreign
exchange impact using average foreign exchange rates for the three
months ended June 30, 2017, rather than the actual exchange rates
in effect for the three months ended June 30, 2018.

 

About Kodak

Kodak is a technology company focused on imaging. We provide – directly
and through partnerships with other innovative companies – hardware,
software, consumables and services to customers in graphic arts,
commercial print, publishing, packaging, entertainment and commercial
films, and consumer products markets. With our world-class R&D
capabilities, innovative solutions portfolio and highly trusted brand,
Kodak is helping customers around the globe to sustainably grow their
own businesses and enjoy their lives. For additional information on
Kodak, visit us at kodak.com,
follow us on Twitter @Kodak,
or like us on Facebook at Kodak.

Cautionary Statement Regarding Forward-Looking Statements

This press release includes "forward-looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning Kodak's plans,
objectives, goals, strategies, future events, future revenue or
performance, capital expenditures, liquidity, investments, financing
needs and business trends and other information that is not historical
information. When used in this press release, the words "estimates,"
"expects," "anticipates," "projects," "plans," "intends," "believes,"
"predicts," "forecasts," "strategy," "continues," "goals," "targets" or
future or conditional verbs, such as "will," "should," "could," or
"may," and similar expressions, as well as statements that do not relate
strictly to historical or current facts, are intended to identify
forward-looking statements. All forward-looking statements, including
management's examination of historical operating trends and data, are
based upon Kodak's expectations and various assumptions.

Future events or results may differ from those anticipated or expressed
in the forward-looking statements. Important factors that could cause
actual events or results to differ materially from the forward-looking
statements include, among others, the risks and uncertainties described
in more detail in Kodak's Annual Report on Form 10-K for the year ended
December 31, 2017 under the headings "Business," "Risk Factors," "Legal
Proceedings" and/or "Management's Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources," in
the corresponding sections of Kodak's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2018 and June 30, 2018, and in other
filings Kodak makes with the U.S. Securities and Exchange Commission
from time to time, as well as the following: Kodak's ability to improve
and sustain its operating structure, cash flow, profitability and other
financial results; Kodak's ability to achieve cash forecasts, financial
projections and projected growth; Kodak's ability to achieve the
financial and operational results contained in its business plans;
Kodak's ability to comply with the covenants in its various credit
facilities; Kodak's ability to repay, refinance or extend the maturity
of its outstanding first lien term loans prior to their maturity date of
September 3, 2019 or prior to June 5, 2019, the date on which Kodak's
revolving credit facility will terminate unless such repayment,
refinancing or extension has occurred or the revolving credit facility
has been amended; Kodak's ability to discontinue, sell or spin-off
certain businesses or operations, including its Flexographic Packaging
segment, or otherwise monetize assets; Kodak's ability to fund continued
investments, capital needs and restructuring payments and service its
debt and Series A Preferred Stock; changes in foreign currency exchange
rates, commodity prices and interest rates; Kodak's ability to
effectively anticipate technology trends and develop and market new
products, solutions and technologies; Kodak's ability to effectively
compete with large, well-financed industry participants; continued
sufficient availability of borrowings and letters of credit under
Kodak's revolving credit facility, Kodak's ability to obtain additional
financing if and as needed and Kodak's ability to provide or facilitate
financing for its customers; the performance by third parties of their
obligations to supply products, components or services to Kodak; and the
impact of the global economic environment on Kodak.

There may be other factors that may cause Kodak's actual results to
differ materially from the forward-looking statements. All
forward-looking statements attributable to Kodak or persons acting on
its behalf apply only as of the date of this press release and are
expressly qualified in their entirety by the cautionary statements
included or referenced in this press release. Kodak undertakes no
obligation to update or revise forward-looking statements to reflect
events or circumstances that arise after the date made or to reflect the
occurrence of unanticipated events.

A. NON-GAAP MEASURES

In this second quarter 2018 financial results news release, reference is
made to the following non-GAAP financial measures:

  • Operational EBITDA;
  • Revenues and Operational EBITDA on a constant currency basis; and
  • Operational EBITDA on a constant currency basis excluding the impact
    of aluminum costs.

Kodak believes that these non-GAAP measures represent important internal
measures of performance. Accordingly, where they are provided, it is to
give investors the same financial data management uses with the belief
that this information will assist the investment community in properly
assessing the underlying performance of Kodak, its financial condition,
results of operations and cash flow.

Kodak's segment measure of profit and loss is an adjusted earnings
before interest, taxes, depreciation and amortization ("Operational
EBITDA"). The change in revenues and Operational EBITDA on a constant
currency basis, as presented in this financial results news release, is
calculated by using average foreign exchange rates for the three months
ended June 30, 2017, rather than the actual exchange rates in effect for
the three months ended June 30, 2018.

This press release contains a forward-looking estimate of full-year 2018
Operational EBITDA and full-year 2018 Cash Outlook. Kodak is unable to
provide a reconciliation of full-year 2018 Operational EBITDA to a
forward-looking estimate of GAAP net income / loss and a reconciliation
of full-year 2018 Cash Use to changes in cash and cash equivalents
because projected GAAP net income / loss for the full year and changes
in cash and cash equivalents would require inclusion of the projected
impact of future excluded items, including items that are not currently
determinable or dependent on future events which may be uncertain or
outside of Kodak's control, such as asset sales, asset impairments,
foreign exchange gains / losses, changes in the fair value of the
conversion option derivative liability, unanticipated items not
reflective of ongoing operations, or other items. Due to the uncertainty
of the likelihood, amount and timing of any such items, Kodak does not
have information available to provide quantitative reconciliations of
full-year 2018 projected net income / loss and changes in cash and cash
equivalents.

The following table reconciles the most directly comparable GAAP measure
of Net Earnings to Operational EBITDA, Operational EBITDA on a constant
currency basis and Operational EBITDA on a constant currency basis
excluding the impact of aluminum costs for the three months ended June
30, 2018 and 2017, respectively:

 
(in millions)        
Q2 2018 Q2 2017

$ Change

% Change
Net earnings $ 4 $ 4 $ - 0 %
Depreciation and amortization 20 22 (2 ) -9 %
Restructuring costs and other (1) 2 11 (9 ) -82 %
Stock based compensation 1 3 (2 ) -67 %
Consulting and other costs (2) 3 - 3 n/a
Idle costs (3) 1 1 - 0 %
Manufacturing capacity expansion non-recurring costs (4) 1 - 1 n/a
Other operating (income) expense, net (1) (2 ) 2 (4 ) -200 %
Interest expense (1) 9 8 1 13 %
Pension income excluding service cost component (1) (32 ) (37 ) 5 -14 %
Other charges (income), net (1) 1 (9 ) 10 -111 %
Loss from discontinued operations, net of income tax (1) - 3 (3 ) -100 %
Provision for income taxes (1)   1     4     (3 ) -75 %
Operational EBITDA $ 9 $ 12 $ (3 ) -25 %
Impact of foreign exchange (5)   -       -    
Operational EBITDA on a constant currency basis $ 9 $ 12 $ (3 ) -25 %
Year over year impact of aluminum costs   7       7    
Operational EBITDA on a constant currency basis excluding impact
of aluminum costs
$ 16   $ 12   $ 4   33 %
 
Footnote Explanations:
 
(1)   As reported in the Consolidated Statement of Operations.
(2) Consulting and other costs are primarily professional services and
internal costs associated with certain corporate strategic
initiatives.
(3) Consists of third party costs such as security, maintenance and
utilities required to maintain land and buildings in certain
locations not used in any Kodak operations.
(4) Consists of noncapitalizable costs incurred as a result of the
Flexographic Packaging segment's expansion at the manufacturing
facility in Weatherford, Oklahoma.
(5) The impact of foreign exchange represents the foreign exchange
impact using average foreign exchange rates for the three months
ended June 30, 2017, rather than the actual exchange rates in effect
for the three months ended June 30, 2018.
 

B. FINANCIAL STATEMENTS

 
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in millions)
 
  Three Months Ended June 30,
2018   2017
Revenues
Sales $ 300 $ 307
Services   72     74  
Total net revenues   372     381  
Cost of revenues
Sales 262 257
Services   50     54  
Total cost of revenues   312     311  
Gross profit 60 70
Selling, general and administrative expenses 63 66
Research and development costs 14 18
Restructuring costs and other 2 11
Other operating (income) expense, net   (2 )   2  
Loss from continuing operations before interest expense, other
charges (income), net, and income taxes
(17 ) (27 )
Interest expense 9 8
Pension income excluding service cost component (32 ) (37 )
Other charges (income), net   1     (9 )
Earnings from continuing operations before income taxes 5 11
Provision for income taxes   1     4  
Earnings from continuing operations 4 7
Loss from discontinued operations, net of income tax       (3 )
NET EARNINGS $ 4   $ 4  
 

The notes accompanying the Company's second quarter 2018 Form 10-Q are
an integral part of these consolidated financial statements.

 
EASTMAN KODAK COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
(in millions)
 
  June 30,   December 31,
2018 2017
ASSETS
Cash and cash equivalents $ 275 $ 344
Trade receivables, net of allowances of $9 in each period 242 282
Inventories, net 301 276
Other current assets   56     56  
Total current assets 874 958
Property, plant and equipment, net of accumulated depreciation of
$418 and $394, respectively
290 314
Goodwill 32 32
Intangible assets, net 79 86
Restricted cash 11 17
Deferred income taxes 175 188
Other long-term assets   112     112  
TOTAL ASSETS $ 1,573   $ 1,707  
 
LIABILITIES, REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND EQUITY
Accounts payable, trade $ 181 $ 198
Short-term borrowings and current portion of long-term debt 3 4
Other current liabilities   208     217  
Total current liabilities 392 419
Long-term debt, net of current portion 398 399
Pension and other postretirement liabilities 405 466
Other long-term liabilities   198     202  
Total liabilities   1,393     1,486  
 
Commitments and contingencies (Note 7)
 
Redeemable, convertible Series A preferred stock, no par value, $100
per share liquidation preference
168 164
 
Equity (Deficit)
Common stock, $0.01 par value
Additional paid in capital 624 631
Treasury stock, at cost (9 ) (9 )
Accumulated deficit (205 ) (174 )
Accumulated other comprehensive loss   (398 )   (391 )
Total shareholders' equity   12     57  
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
EQUITY
$ 1,573   $ 1,707  
 

The notes accompanying the Company's second quarter 2018 Form 10-Q are
an integral part of these consolidated financial statements.

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