Kodak Reports Smaller Loss for Third Quarter

Table 1 – Kodak Earnings Summary (condensed)  

Millions of dollars	3Q 2013[1]	3Q 2012	First Nine Months 2013[2]	First Nine Months 2012
Sales and other operating revenues	$ 563	$ 660	$ 1,740	$ 1,980
Net income (loss)[3]	1,989	(312)	2,048	(977)
Operational EBITDA[4]	3	(23)	87	(165)
Operational EBITDA excluding fresh-start accounting adjustments	30	(23)	114	(165)

As of September 30th, the company’s financial position reflected approximately $839 million of cash and cash equivalents and debt of $679 million (a reduction of $1.44 billion from December 31, 2012). During the quarter, selling, general, and administrative expenses declined to $93 million from $148 million in the prior-year quarter.

“We are pleased with our progress on earnings this quarter, with Operational EBITDA on track with expectations. Further, our customers are telling us they are impressed with our technologies, and increasingly ready to adopt and apply our solutions to help grow their businesses,” commented Kodak Chief Executive Officer Antonio M. Perez. “Our strengths in imaging for business markets, including packaging, functional printing, graphic communications and professional services, position us well to move forward on our strategy with increasing momentum.”

Kodak operates its Commercial Imaging portfolio as two business segments: Graphics, Entertainment & Commercial Films (GECF) and Digital Printing & Enterprise (DP&E).  

Graphics, Entertainment & Commercial Films (GECF): The GECF segment consists of the Graphics and Entertainment Imaging & Commercial Films groups, as well as Kodak’s intellectual property and brand licensing activities.

Table 2 – GECF Segment Financial Overview

Millions of dollars	3Q 2013[1]	3Q 2012	First Nine Months 2013[2]	First Nine Months 2012
Revenue	$ 353	$ 404	$ 1,110	$ 1,230
Gross Profit	44	52	191	115
Selling, General and Administrative (“SG&A”)	56	78	183	251
Research and Development(“R&D”)	5	8	14	30
Segment (Loss) Earnings	(17)	(34)	(6)	(166)
Operational EBITDA	13	12	93	(21)
Operational EBITDA excluding fresh-start accounting adjustments	27	12	107	(21)

3Q13 vs. 3Q12 discussion – The decrease in the GECF segment net sales for the third quarter was primarily due to lower demand for digital plates within Graphics, and lower demand for motion picture film within Entertainment Imaging & Commercial Films. Also contributing to the decline was unfavorable price/mix within Graphics due to industry pricing pressures. Partially offsetting these declines was favorable product price/mix within Entertainment Imaging & Commercial Films due to pricing actions impacting the current-year quarter.

The change in the GECF segment gross profit for the third quarter was primarily driven by the Entertainment Imaging & Commercial Films pricing actions, and strong manufacturing productivity and other cost improvements in Graphics. Partially offsetting these improvements was unfavorable product price/mix within Graphics due to industry pricing pressures. Inventory revaluation due to fresh-start accounting had a $12 million negative impact on segment gross profit in the quarter.

In the Graphics business, a large number of customers continued to convert to KODAK SONORA Process Free Plates, which provide cost savings and production efficiencies. SONORA Plates also enable printers to improve their sustainability profile by eliminating the use of processing chemistry.

Digital Printing & Enterprise (DP&E): The DP&E segment consists of four product/service groups,Digital Printing Solutions, Packaging and Functional Printing, Enterprise Services and Solutions, and Consumer Inkjet Systems.

Table 3 – DP&E Segment Financial Overview

Millions of dollars	3Q 2013[1]	3Q 2012	First Nine Months 2013[2]	First Nine Months 2012
Revenue	$ 198	$ 231	$ 593	$ 670
Gross Profit	47	35	158	83
SG&A	45	66	145	204
R&D	23	27	63	100
Segment Loss	(21)	(58)	(50)	(221)
Operational EBITDA	(10)	(35)	(6)	(144)
Operational EBITDA excluding fresh-start accounting adjustments	3	(35)	7	(144)

3Q13 vs. 3Q12 discussion – The decrease in net sales for the DP&E segment for the third quarter was primarily attributable to volume declines within Consumer Inkjet Systems, driven by the discontinuance of inkjet printer sales, and lower sales of ink to the existing installed base of inkjet printers. Partially offsetting these declines were volume improvements within Digital Printingdriven by a larger number of placements of commercial inkjet components.

In the DP&E segment, customers around the world continued to invest in KODAK PROSPER Solutions, including the U.K.’s largest order to date for PROSPER S30 Imprinting Systems.

The increase in the DP&E segment gross profit for the third quarter was primarily due to favorable price/mix within Consumer Inkjet Systems due to a greater proportion of consumer ink sales, and within Digital Printing due to favorable mix due to highercomponent placements in the current-year period. Partially offsetting these improvements were increased cost of goods sold within Consumer Inkjet Systems due to the revaluation of inventory related to fresh-start accounting. Inventory revaluation due to fresh-start accounting had a $14 million negative impact on segment gross profit in the quarter.

Key “Fresh Start” and Other Accounting Impacts

In connection with the company’s emergence from Chapter 11, Kodak applied the provisions of fresh-start accounting to its financial statements as of September 1, 2013. Upon the application of fresh-start accounting, Kodak allocated its reorganization value to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the successor company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. The major adjustments in value that have an associated impact in the successor statement of operations occurred as a result of an increase in the net book value of inventory to their estimated fair value, the revaluation of deferred revenues to the fair value of the company’s related future performance obligations, and an increase in the net book value of intangible assets and property, plant and equipment reflected in increased depreciation and amortization.

A summary of the impacts of these adjustments on the company’s Operational EBITDA follows.

Fresh-Start Impact to September Operational EBITDA^[5]

	September 2013
Amount of Inventory Step-up recognized in September[6]	$ (26)
Amount of Deferred Revenue Write-off recognized in September[7]	(1)
	(27)