EASTMAN KODAK CO

Management’s Assessment of Liquidity

Kodak ended the quarter with a cash balance of $262 million, an increase of $7 million from December 31, 2023.

The financing transactions entered into during 2023, cash proceeds related to brand licensing arrangements and improvements in cash flow relating to pricing rationalization, cost reductions and operational efficiencies provided additional liquidity to the Company to fund on‐going operations and obligations, invest in growth opportunities in Kodak’s businesses of print and advanced materials and chemicals and for corporate infrastructure investments expected to contribute to improvements in cash flow.

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Available liquidity includes existing cash balances and cash flows from operating activities. The amount of available liquidity is subject to fluctuations and includes cash balances held by various entities worldwide. At March 31, 2024 and December 31, 2023 approximately $154 million and $167 million, respectively, of cash and cash equivalents were held within the U.S. and approximately $108 million and $88 million, respectively, of cash and cash equivalents 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. Kodak utilizes cash balances outside the U.S. to fund needs in the U.S. through the use of inter-company loans.

As of March 31, 2024 and December 31, 2023, outstanding inter-company loans to the U.S. were $443 million and $460 million, respectively, which include short-term inter-company loans from Kodak’s international finance center of $158 million and $173 million, respectively**.**In China, where approximately $35 million and $29 million of cash and cash equivalents was held as of March 31, 2024 and December 31, 2023, respectively, there are limitations related to net asset balances that may impact the ability to make cash available to other jurisdictions in the world. Under the terms of the Amended and Restated Term Loan Credit Agreement, the Company is permitted to invest up to $60 million (or $75 million after the Deleveraging Milestone Date) in Restricted Subsidiaries that are not Loan Parties and in joint ventures or Unrestricted Subsidiaries that are not party to the Amended and Restated Term Loan Credit Agreement.

The Company’s Hong Kong subsidiary has an $73 million inter-company loan from one of the Company’s Chinese subsidiaries with a maturity date of November 16, 2024, the proceeds of which were in turn loaned to the Company. The inter-company loan terms provide for it to be repaid over two years in four equal $20 million installments, the first of which was due by November 16, 2023 with the remaining installments due in 2024. The Company paid $2 million in the first quarter of 2024 and $5 million in the second quarter of 2024 towards the first $20 million installment and is evaluating alternatives for the remaining installments which would allow Kodak and its subsidiaries to perform their obligations to each other while minimizing the impact on U.S. liquidity taking into account requirements imposed by Chinese regulators. Any amounts repaid to the Chinese subsidiary may not be able to be loaned, repatriated or otherwise moved back to the U.S., in which case the Company’s U.S. liquidity would be reduced. If the inter-company loan is not extended, refinanced or amended and the Hong Kong subsidiary does not pay any of the individual installments by the end of the 30-day grace period following notice by the Chinese subsidiary after a failure to pay on the due date of such installment, the Hong Kong subsidiary would default on the inter-company loan. The Chinese subsidiary has not issued notice to the Hong Kong subsidiary based on the failure to make the first full installment payment.

Kodak's cash flows continue to be negatively impacted by higher manufacturing costs due to volume declines and increased labor, material and distribution costs, supply chain disruptions and shortages in materials and labor. The impacts from price increases, continued cost reduction actions and supply chain-related cost improvements continue to positively impact Kodak’s operations. The economic uncertainties surrounding the current inflationary environment and other global events represent additional elements of complexity in Kodak’s plans to return to sustainable positive cash flow. The Company cannot predict the duration and scope of such events, including the war in Ukraine and the conflicts involving Israel, and other factors such as the ability to continue to secure raw materials and components, the impact of rising costs of labor, commodity and distribution costs, the ability to maintain current pricing levels or how quickly and to what extent normal economic and operating conditions can resume.

During the third quarter of 2023, Kodak entered into multiple long-term brand licensing arrangements and recorded total deferred revenue of approximately $57 million. Kodak received approximately $12 million of cash proceeds related to these licensing arrangements in 2023, $40 million in the first quarter of 2024 and expects to receive $5 million in 2025.

Kodak's plans to return to sustainable positive cash flow include generating profitable revenues through pricing actions and customer-focused initiatives, implementing effective working capital utilization, reducing operating expenses, continuing to simplify the organizational structure, investing in information technology systems to drive operational efficiencies, generating cash from selling and leasing underutilized assets or through new licensing opportunities and implementing ways to reduce cash collateral needs.

Kodak believes its liquidity position is adequate to fund its operating and investing needs and to provide the flexibility to respond as necessary to ordinary changes in the business and economic environment. Kodak’s ability to adequately fund its long‐term liquidity, debt servicing and capital requirements will be dependent on generating positive cash flows from operations, managing world‐wide cash through intercompany loans, distributions or other mechanisms, and the ability to convert, redeem or extend the existing Series B and Series C Preferred Stock past their current maturities of May 26, 2026.

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Amended and Restated Term Loan Credit Agreement

During the first quarter of 2024, the Company prepaid $17 million of the Term Loans with net proceeds from the sale of Target Non-Core Assets (as defined in the Amended and Restated Term Loan Agreement).

Letter of Credit Facility Agreement

Approximately $27 million and $31 million of letters of credit were issued under the Amended and Restated L/C Facility Agreement and L/C Facility Agreement as of March 31, 2024, and December 31, 2023, respectively. The letters of credit under the Amended and Restated L/C Facility Agreement are collateralized by cash collateral (the “L/C Cash Collateral”). The L/C Cash Collateral was $29 million and $32 million at March 31, 2024, and December 31, 2023, respectively, which was classified as Restricted Cash.

Cash Flow

Cash, cash equivalents and restricted cash balances were as follows:

Cash Flow Activity

Operating Activities

Net cash from operating activities improved $3 million for the three months ended March 31, 2024 as compared with the corresponding period in 2023 reflecting a decrease in trade receivables primarily due to $40 million of cash proceeds related to brand licensing partially offset by a decline in proceeds from insurance reimbursements ($15 million) and a refund from a governmental authority ($9 million) both received in the prior year period, increased investment in inventory, an increase in miscellaneous receivables and an increase in liabilities excluding borrowings and trade payables.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2024 increased $12 million compared to the corresponding period in 2023 due to proceeds from the sale of assets ($17 million) partially offset by an increase in additions to properties ($5 million).

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2024 increased $17 million compared to the corresponding period in 2023 driven by the $17 million Amended and Restated Term Loan prepayment in the three months ending March 31, 2024.

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Other Uses of Cash Related to Financing Transactions

The holders of the Term Loans are entitled to quarterly cash interest payments at a rate of 7.5% per annum and holders of the Series B Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 4.0% per annum. All interest and dividends have been paid when due.

Other Collateral Requirements

The NYS WCB requires security deposits related to self-insured workers’ compensation obligations, which security deposits are recalculated annually. Due to changes in 2019 to the manner in which the required security deposit is determined, the Company has been required to post additional collateral over the last several years. At December 31, 2022, the Company posted $75.0 million of collateral, representing 107% of the Company’s undiscounted actuarial workers’ compensation obligations. Effective May 1, 2023, the Company added New York to its existing workers compensation liability insurance policy and is no longer self-insured for future claims. As a result, the NYS WCB confirmed the Company will no longer be obligated to post any additional collateral. Further, the NYS WCB confirmed the Company can request a review of the security deposits supporting the historical liability beginning on July 1, 2025 with the submission of a current actuarial report. Based on the results of the actuarial valuation report, the required security deposits may be eligible for reduction in future periods.

Based on the legacy nature of the Company’s workers’ compensation obligations, the undiscounted actuarial obligation has been declining and the Company expects this trend to continue. While it may not be indicative of the rate of future declines, the undiscounted actuarial liability declined by an average of $5.3 million per year between 2014 and 2023. Accordingly, subject to the possibility of other changes to the calculation of required security deposits by the NYS WCB, the Company expects the amount of the required security deposits to decline over time and the gradual return of the security deposits that have been made or the capital used to support such security deposits.

As a result of the Company’s credit ratings, during the second quarter of 2020 two surety bond holders notified the Company they required approximately $9 million of incremental collateral. The Company reduced the surety bond value by approximately $9 million in July 2020 with an equivalent increase to an existing letter of credit with the NYS WCB. In the third quarter of 2023 the Company deposited $68 million directly with the NYS WCB and cancelled the corresponding letter of credit supporting the associated liability. The Company could be required to provide up to $13 million of letters of credit to the issuers of certain surety bonds in the future to fully collateralize the bonds.

Defined Benefit Pension and Postretirement Plans

Kodak made net contributions (funded plans) or paid benefits (unfunded plans) totaling approximately $3 million to its defined benefit pension and postretirement benefit plans in the first three months of 2024. For the balance of 2024, the forecasted contribution (funded plans) and benefit payment (unfunded plans) requirements for its pension and postretirement plans are approximately $12 million.

Capital Expenditures

Cash flow from investing activities included $10 million of capital expenditures for the three months ended March 31, 2024. Kodak expects approximately $40 million to $55 million of total capital expenditures for 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of the Company’s Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The accounting policies most critical to the preparation of the consolidated financial statements and that require the most difficult, subjective or complex judgments are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes in the Company's critical accounting policies or estimates since December 31, 2023.

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