Eastman Kodak

Source: Kodak Website — PROSPER Imprinting System

Disclaimer: The content below is for educational and entertainment purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. I own shares of Eastman Kodak (NYSE:KODK).

Summary Thesis

Kodak emerged from bankruptcy protection in late 2013 and is currently an unloved and underfollowed stock. Execution disappointments, macro headwinds, and a very small free float have converged to cause an over-correction in the stock price. I believe fair value is over 3x higher than the current price and the leadership team is incentivized to extract this value.


Eastman Kodak is a science and technology company with several disparate businesses and assets. Most investors are familiar with the 100+ year old brand, their photography and film origins, and prior management’s inability to transition the business in a digital era. It’s a classic example of the Innovator’s Dilemma that culminated in a 2012 bankruptcy filing. However, many are less familiar with the restructured company that emerged from Chapter 11 protection in late 2013. In its current form, Kodak is focused on commercial printing, packaging, and other advanced technologies utilizing materials science.

Despite the brand recognition, Kodak is a microcap security. The current market cap is ~$280 million but the free float is much smaller as top shareholders own two-thirds of the company (See Exhibit A). Approximately 150 thousand shares trade each day, which equates to ~$1 million in daily volume. Therefore, this idea is only actionable for individual investors and smaller funds.

As shown in Exhibit B, the stock price is at the lowest levels since Kodak exited bankruptcy and is down over 50% in the past year due to a cascade of negative activity, including execution missteps, increased competitive pressures, and macro headwinds. Here are a few major contributors:

  • Reduced guidance and continued cash burn: Financial results have shown deterioration in certain segments over the past year, particularly in the Print Systems Division. Increased competition has led to pricing pressure, rising input costs have squeezed margins, and foreign exchange headwinds have magnified the decline.
  • Inability to complete PROSPER sale: In March 2016, management announced they were in discussions with potential bidders to sell the PROSPER enterprise inkjet business. However, after exploring various alternatives for over a year and receiving multiple bids, the company ultimately decided to retain this business as the offers were below their estimate of fair value.
  • Micro 3D printing failure: Kodak’s Research Lab developed metal mesh sensors using silver and copper for use in touchscreen displays. However, the endeavor failed to gain sufficient traction despite ~$50 million of investment over the past decade. In August 2017, management ultimately announced the decision to stop investment in this initiative.

The convergence of negative sentiment, the small free float, and a complex investment thesis has led to an over-correction in the stock price. It’s a variant perspective, but I believe Kodak has over 3x potential upside. There is also substantial asset value to protect investors in the majority of downside scenarios, but the combination of a high fixed cost base and financial leverage does create some risk.

Operating Segments

Print Systems Division (PSD)

PSD is Kodak’s largest segment, comprising ~62% of revenue. The business develops printing solutions for a variety of commercial industries, primarily related to high volume info graphics (e.g. direct mail, book publishing, newspapers, and magazines). According to management, these end markets have dominant share of print volume:

“In recent years, about 66 trillion pages are printed throughout the world. 60 trillion of those are printed using technologies associated with graphic communications.” — CEO Jeff Clarke via May 2017 Annual Meeting transcript

Kodak manufactures aluminum plates which are sold to commercial printing companies for use in the offset printing process. The business also manufactures and sells Computer to Plate (CTP) equipment, which can image the plates with a laser. Collectively, Kodak refers to the plates and CTP equipment as Prepress Solutions. SONORA Process Free Plates are Kodak’s premier product family in this segment. These plates can be prepared directly with a CTP device which leads to substantial cost savings for printers due to the elimination of processing chemicals and the reduction of water, electricity, and equipment. I estimate SONORA will contribute ~$150–200 million in 2017 revenue as plate volume grew ~18% in the second quarter.

Kodak’s PSD division also sells Electrophotographic printing solutions (EPS), which offer high-quality digital printing using electrically charged toner-based technology. The NEXPRESS branded printers specialize in short-run print applications (e.g. direct mail, some books, marketing collateral, and photo products). This segment also contains the legacy DIGIMASTER brand which is in a planned decline. Electrophotographic products and related service comprise ~15–20% of PSD revenue.

Kodak estimates the addressable market for PSD products is ~$6 billion and is expected to be relatively stable over time. Despite the rise of digital media, global print volume is likely to increase due to growth in emerging markets where the printing industry is correlated with literacy rates and GDP growth. Additionally, conventional offset printing equipment remains the dominant technology for high volume printing. Digital technologies have seen some modest market share gains but tend to be higher cost alternatives and printing houses are seeing higher efficiency and increased ROI from the latest offset plates.

However, Kodak’s PSD business has deteriorated rapidly in recent years due to a perfect storm of headwinds. Relentless competition, from both incumbents such as Fuji and Agfa as well as newer entrants, has led to annual pricing pressure in the ~4–5% range. Additionally, plate volumes have declined ~3% industry wide. Lastly, as shown in Exhibit C, rising aluminum costs have squeezed margins as it’s a major input cost.

PSD segment financials are summarized below:

Sources: Company filings, investor presentations, and earnings call transcripts

Enterprise Inkjet Solutions Division (EISD)

EISD provides commercial inkjet printing systems, consumables (primarily ink), inkjet components, and services. PROSPER is their flagship brand featuring ultrafast inkjet droplet generation. Kodak’s latest Stream technology delivers a continuous flow of ink that enables constant and consistent operation even at very high print speeds. Current applications include publishing, direct mail, and corrugated packaging. In fact, Kodak has a partnership with Swiss packaging specialist Bobst for a corrugated press where every package can be customized.

PROSPER presses drive recurring revenue via a typical razor-razorblade business model. The ~$2–3 million presses are sold at a loss or leased to customers in order to drive an annual annuity stream of ~$1 million in consumables. With the current installed base at over 60 presses, this has been a significant use of capital the past few years and has masked long-term unit economics.

PROSPER S-Series components can be retrofitted onto existing offset presses. Customers see many advantages from creating hybrid presses, including the speed and quality of traditional offset printing coupled with the variable printing advantages of inkjet. The components are ~$150K and are sold to customers at a healthy margin and also generate ongoing revenue from consumables and service. Kodak is the leader in this space (See Exhibit D) and expects significant growth as the components allow printing customers to extend their capabilities into higher value applications (e.g. personalized and targeted direct mail).

Kodak’s next generation inkjet system is branded ULTRASTREAM. The technology was debuted at the drupa conference in 2016 and is scheduled for a go-to-market release in 2019. The market has reacted positively so far and 17 OEMs (including FujiKikai, GOSS China, Matti, Mitsubishi Heavy Industries Printing & Packaging, and Uteco) have signed letters of intent to explore the integration of ULTRASTREAM into their future printing solutions. The speed and accuracy is expected to rival the print quality of traditional offset printing and is aimed at printers demanding sharper image quality.

The EISD segment also includes the sale of VERSAMARK products, which is the predecessor brand to PROSPER. Although in a planned decline, customers continue to purchase ink and other consumables. VERSAMARK contributed ~$76 million to 2016 sales at high flow-through margins of ~30%. I expect the business to decline ~20% in 2017.

In March 2016, Kodak announced it was in discussions with potential buyers to sell PROSPER and the related next generation ULTRASTREAM technology. Management said they had received inbound interest and believed there would be significant synergies with buyers, particularly by leveraging an existing salesforce and larger balance sheet to help fund the upfront investment in presses. The announcement was well received by the market as investors expected proceeds of ~$150–200 million which would be used to pay down expensive debt. However, the sale process dragged into 2017 and Kodak announced it would streamline costs by refocusing the business on print head components and the development of ULTRASTREAM. A few months later in April 2017, Kodak announced the decision to retain PROSPER despite having received multiple offers as they didn’t match management’s estimate of fair value.

Based on the unsuccessful sale process, a skeptic may come to the conclusion that PROSPER isn’t worth much. I think there is more to the story. In 2016, Kodak was in danger of breaching their Secured Leverage Ratio covenant, which stipulates that the ratio (secured debt net of U.S. cash / LTM EBITDA) may not exceed 2.75x. Selling PROSPER would have benefitted both the numerator and denominator by using the proceeds to pay down debt and stripping out the losses from the income statement. In fact, EBITDA received a lift just by announcing the sale process and accounting for the losses in discontinued operations. However, in November 2016 Kodak raised $200 million in convertible preferred stock and the proceeds were used to pay down debt. This refinancing transaction gave the company more flexibility under the covenant and potentially allowed management to hold off on the PROSPER sale.

Below is a financial summary for EISD:

Sources: Company filings, investor presentations, and earnings call transcripts

Flexographic Packaging Division (FPD)

Kodak sells flexographic printing equipment along with related consumables and service to enable graphic customization of a wide variety of packaging materials (e.g. CPG products found in supermarkets such as potato chip bags). FLEXCEL NX is their leading brand and has outperformed expectations in recent years. The system delivers superior image quality (brighter colors and sharper features) and is also more efficient by reducing ink and substrate waste. FLEXCEL NX has been gaining market share over the past few years with annual growth in the mid-teens compared to the overall industry at ~4%. Management expects continued market share gains and also hopes to grow the overall market by replacing other packaging printing technologies. Kodak is a relatively small player currently going after the ~$8+ billion flexographic printing market but they are the only competitor offering a fully integrated solution by selling both the plate setter and the plates.

FLEXCEL’s growing installed base is currently around 550–600 presses which will continue to generate recurring revenue from the sale of consumables, replacement parts, and service. To support the strong growth and market demand, Kodak broke ground on a $15 million capital investment earlier this year in Oklahoma. The new plant will add additional manufacturing capacity for FLEXCEL NX plates.

FPD is firing on all cylinders with strong topline growth and healthy profit margins. Below is a financial summary:

Sources: Company filings, investor presentations, and earnings call transcripts

Software and Solutions Division (SSD)

PRINERGY makes up the majority of this segment. The open architecture workflow production software is used by customers to manage print content from file creation to output. It’s sold via a direct salesforce in developed countries and through channel partners in emerging markets. Kodak believes they have leading market share in production workflow solutions for the commercial print and packaging industries with over 5,000 systems installed. PRINERGY is very strong in the offset printing segment and has significant synergies with the PSD division as it’s often sold as an add-on with CTP devices. Similar to the PSD business, PRINERGY experienced a reduction in volume in 2016 (low to mid-single digits). Key priorities for management include transitioning the business to the cloud with a SaaS business model while also gaining traction in the digital and packaging printing segments.

The segment also consists of Kodak Technology Solutions which helps customers in the government and financial services sectors with the capture, archiving, retrieval, and delivery of documents (i.e. digitization and document management). This business is lumpy based on various project engagements and was the main reason for SSD’s steep revenue decline in 2016.

SSD segment financials are summarized below:

Sources: Company filings, investor presentations, and earnings call transcripts

Consumer and Film Division (CFD)

CFD is comprised of three sub divisions, described below:

  • Consumer Products: Kodak continues to develop various consumer products, including the Super 8 camera. Additionally, the company licenses the Kodak brand to third parties for a range of products including batteries, cameras, camera accessories, printers, and recordable media. Kodak also sells ink to the legacy installed base of consumer inkjet printers, which is profitable but also rapidly declining as it’s in a runoff mode.
  • Industrial Film and Chemicals: Kodak sells industrial film used by the electronics industry to produce printed circuit boards. They also manufacture professional and consumer still photographic film.
  • Motion Picture Film: With the rise of digital imaging technologies, this business has declined over 90% since its peak. However, Kodak is the sole company still making motion picture film and finalized a deal with Hollywood studios in 2014 to operate profitably. JJ Abrams, Christopher Nolan, Quentin Tarantino, and Judd Apatow are some of the leading filmmakers who are passionate supporters. This business is a relatively small contributor as it generates ~$40–45 million of revenue.

Collectively, the CFD segment operated at a loss of $8 million in the first half of 2017 but management expects a positive contribution for the full year. If the segment can operate at breakeven or a slight loss, CFD is still valuable because it absorbs substantial fixed costs related to Eastman Business Park (e.g. legacy electricity contracts).

Advanced Materials and 3D Printing Technology Division (AM3D)

AM3D includes the Kodak Research Laboratories, associated new business opportunities, intellectual property licensing not directly related to other business segments, and Micro 3D Printing.

Kodak Research Labs is the company’s R&D incubator located at the Rochester, NY headquarters. Their scientists and technicians are focused on innovations in materials science. For example, Kodak has a new solution for light blocking materials using small particle technology that will be cheaper and easier to produce. They plan to bring this technology to market via an alliance with a major textile manufacturer. Additionally, Kodak is developing new materials for 3D printing and has supply agreement with industry leaders such as Carbon and 3D Systems. Other areas of focus include printed electronics and materials for potential healthcare applications. It’s also possible Kodak can monetize their patent portfolio as ~30% of the company’s 5,000+ patents are attributed to the AM3D segment. An interview with CTO Terry Taber from June 2016 describes the Research Labs in more detail (link here).

Kodak’s Micro 3D printing endeavor was a disaster from a commercial perspective. The company made metal mesh sensors using silver and copper technology for use in both consumer and industrial touchscreen displays. However, the technology failed to gain sufficient traction despite ~$50 million of investment over the past decade. In March 2016, management announced they were exiting silver metal mesh development due to customer feedback but would continue to invest in copper. Then in August 2017, the company announced the decision to shut down investment in copper metal mesh as well. The sensors failed to meet the requisite milestones for an attractive return on investment. Kodak expects to save ~$5 million annually by cancelling this program.

Pro forma for the Micro 3D printing savings, I expect AM3D to burn ~$20–25 million annually. This segment can be thought of as an internal venture capital arm with Kodak making many high-risk, high-reward bets in materials science.

Eastman Business Park Division (EBPD)

Kodak owns a massive 1,200 acre campus in Rochester, NY that includes 16 million square feet of manufacturing, distribution, labs, and office space. A large portion of the campus is still used for internal operations but as Kodak’s business and manufacturing footprint declined, the company began leasing some of this space to external tenants. Rented space has increased to 1.5 million square feet and there are close to 70 tenants.

As Kodak brings in more tenants, the real estate business will continue to grow at very high incremental margins. The park contributed ~$2 million of EBITDA in the first half of 2017.

Non-Operating Assets and Liabilities


Year end 2016 cash and equivalents totaled $469 million, including $36 million of restricted cash which was primarily required to support a working capital credit line. Roughly 50% of the cash is held internationally.

As of June 30, 2017, the cash balance declined to $381 million. However, Q2 marks a seasonal low for Kodak and requires a significant working capital buildup. For the full year, management expects cash burn of $15–25 million. At the conservative end of the range, YE 2017 cash and equivalents should come in around $444 million.

Debt + Preferred

Kodak has total debt outstanding of $411 million. This includes an outstanding balance on the senior secured first lien term loan of $398 million. The effective interest rate is ~7.6% and the loan matures in September 2019. Additionally, Kodak has $13 million of capital leases outstanding.

In November 2016, the company sold $200 million of convertible preferred stock to Southeastern Asset Management. The preferred is entitled to 5.5% annual cash dividends, has a five year mandatory redemption date, and is convertible into ~11.5 million shares at a stock price of $17.40. This transaction was beneficial for Kodak as the proceeds, along with cash on hand, were used to pay down ~$275 million of 11% second lien term loans. The refinancing reduces annual interest expense and gives Kodak more room to operate under their debt covenants.

Pension and OPEB

Kodak has defined benefit pension plans and other post-employment benefit obligations that were underfunded by $452 million at year end 2016. However, low interest rates have magnified this liability. The $4.8 billion of projected benefit obligations are being discounted back at a weighted average rate of 3.45%. Disclosure in the 2016 10K implies that the liability would decrease by over $100 million for every 25 basis point increase in the discount rate. Additionally, the company forecasts $18 million of net contributions to the plan in 2017. Therefore, as shown in Exhibit E, the funding shortfall is reduced to ~$221 million if the discount rate is increased by 50bps and the liability is essentially wiped out if the discount rate increases by 1%.

Net Operating Losses

Kodak has domestic and foreign net operating loss carry-forwards (NOLs) of ~$1,657 million in addition to ~$406 million of unused tax and investment credits. Close to $500 million have an indefinite life and the remaining expire between 2017 and 2036. The ultimate value of these assets will depend on the magnitude and timing of pretax profits Kodak is able to generate.

Sum of the Parts Valuation

As you can see, this is a complex story with several business units that have different underlying fundamentals. Therefore, I think a “sum of the parts” framework is the most appropriate way to value Kodak. The below table summarizes a Downside Case and an Investment Case:

Key assumptions are described in more detail below:

  • Print Systems: I attribute a 3x EBITDA multiple in the Downside Case. This is in line with Agfa’s current multiple and suggests continued price erosion and volume declines. However, my baseline is more optimistic and I value PSD at 5x EBITDA in the Investment Case. There will likely be a meaningful re-rating if fundamentals improve (e.g. pricing conditions stabilize due to industry wide capacity reductions or aluminum headwinds subside). Additionally, I think there is a chance Kodak will sell this division to either Fuji or Agfa. Pro forma EBITDA would likely double or triple due to cost synergies and industry consolidation would likely curb pricing pressure. A buyer can therefore pay 5–8x EBITDA and the transaction would still be very attractive. Agfa, in particular, seems motivated to explore M&A alternatives based on this disclosure in their most recent annual report, “Agfa Graphics is convinced that the prepress market will see further consolidation waves in the years to come. As one of the market leaders in CtP printing plates, the business group aims to be the driving force behind the consolidation, and to expand its share in a market under pressure.”
  • EISD — PROSPER: Due to the lack of current profitability, I value this segment based on recurring revenue. Assuming steady-state EBITDA margins of ~25%, the 1.5–2.0x recurring revenue equates to ~6–8x EBITDA. Further supporting this range, management said they believe PROSPER is worth more than its net book value which is in the $85–100 million range (book value was $102 million at YE 2016 but the company took some restructuring charges in January 2017). This segment also includes the ULTRASTREAM technology slated for a 2019 release which provides upside option value.
  • EISD — VERSAMARK: A legacy business in runoff mode that appears to be declining by 10–20% per year. However, it continues to generate cash and I am attributing a modest 1.0–1.5x EBITDA multiple.
  • Flexographic Packaging: This may be Kodak’s most valuable segment. Revenue is growing at a low double-digit rate and margins are very healthy in the 20–25% range. According to PMCF Mergers & Acquisitions, the average packaging transaction in 2016 was valued at ~8x EBITDA. I use this multiple in the downside case but it’s worth noting that Kodak is growing the division at a much faster rate than the overall industry. Additionally, as shown in Exhibit F, public packaging companies with at least some exposure to flexo are trading at ~10–14x forward EBITDA.
  • SSD — PRINERGY: Despite the lack of current profitability, this is a valuable business due to the recurring nature of enterprise software. The 1.0–2.0x revenue multiple range equates to ~6–11x EBITDA assuming steady state margins are in the high teens.
  • SSD — Other: As described above, this is a lumpy, project-based business. Due to the lack of visibility and small scale I have applied a conservative valuation range of 0.5–1.0x revenue.
  • Consumer and Film: I ascribe zero value to this segment as it’s expected to be close to break even this year and is unlikely to generate significant profits going forward.
  • Advanced Materials: In the Downside Case, I capitalize cash burn at 2.0x. This assumes Kodak receives no payoff from the R&D investment and it takes a couple of years to wind down the losses. I estimate zero value in the Investment Case, which assumes the company is able to generate some small wins to offset the investment. Any big commercial success out of AM3D provides investors with upside option value.
  • Eastman Business Park: The 1,200 acre campus obviously has significant value. However, it’s uncertain when Kodak will be able to monetize the land so I have chosen to value the division similar to a REIT based only on current earnings. The 10–15x EBITDA multiple translates to a cap rate in the 7–10% range.
  • Cash: At the conservative end of management’s 2017 forecast, cash and equivalents will be ~$444 million at year end. About half of the balance is held overseas but Kodak should be able to repatriate tax-free through the use of their large NOL balance.
  • Future Restructuring Expenses: Kodak has been in a continuous state of restructuring for two decades. Although the heavy lifting is largely complete, the company should still incur additional charges as their footprint continues to decline due to divestitures and/or further business deterioration. In both cases, I use a very rough placeholder of $50 million.
  • Debt: As described above, there is $411 million of debt and capital leases outstanding.
  • Convertible Preferred: In the Downside Case, the $200 million liquidation preference is treated as a liability. In the Investment Case, the preferred converts to ~11.5 million common shares and is accounted for in the fully diluted share count.
  • Pension & OPEB: The Downside Case assumes a liability of $220 million. As shown in Exhibit E, this equates to a modest rise in the discount rate of 50 basis points. Additionally, the company made contributions of $17 million in 2016 and expects to contribute $18 million in 2017. The $220 million liability implies a 12–13x capitalization multiple on the recent annual cash contributions. In the Investment Case, I have assumed zero liability which equates to a ~1% increase in the discount rate. It’s also possible that this liability turns into an asset down the road if discount rates rise more than 1%.
  • Net Operating Losses: I am assuming a value of ~$50 million in the Downside Case and ~$140 million in the Investment Case. This is a very illustrative range and value will ultimately depend on Kodak’s ability to generate pretax profits. As shown in Exhibit G, the estimates assume Kodak generates $25 million and $75 million, respectively, for the next 15 years. I assume a blended tax rate of 25% to account for lower tax rates in foreign jurisdictions and I discount the savings back at a 10% rate.
  • Fully diluted shares: Kodak currently has ~43 million shares outstanding inclusive of unvested restricted shares. Kodak also has options, warrants, and convertible preferred stock outstanding although all are currently way out of the money. Here is a summary of the securities: 2.6 million options with a weighted average exercise price around $17, 1.8 million warrants with a $14.93 exercise price that expire in September 2018, 1.8 million warrants with a $16.12 exercise price that expire in September 2018, and preferred stock that is convertible into ~11.5 million shares at a price of $17.40. The Investment Case accounts for all these dilutive securities using the treasury stock method.


Many investors are intimately familiar with a “sum of the parts” investing thesis that didn’t pan out. These complex stories can often be value traps and therefore management execution and aligned incentives are crucial. Fortunately, Kodak has a CEO and board with proven track records and strong economic incentives to maximize value for all shareholders.

Jeff Clarke was named CEO in March 2014, shortly after the company emerged from Chapter 11 protection. Blackstone likely helped orchestrate the hire as Clarke was previously CEO and Chairman of Travelport, a Blackstone portfolio company. His involvement spanned Blackstone’s eight year holding period from 2006–2014 and he helped oversee the Orbitz spin out, other significant M&A transactions, a debt refinancing, and ultimately the 2014 IPO. Clarke also has significant and relevant restructuring experience. From 2004–2006, he helped CA Technologies recover from a rampant accounting fraud scandal as their COO. Additionally, he co-led the merger between HP and Compaq in the early 2000s.

Over the past two years, Jeff Clarke has purchased ~$630 thousand of Kodak stock in various open market transactions. As shown in Exhibit H, his weighted average price is $10.90 and he was most recently purchasing shares in August 2017 at slightly over $7 per share. On the margin, these purchases give me confidence in the thesis and Clarke’s ability to extract value.

In addition to Clarke, Blackstone and Southeastern Asset Management have the most influence from a governing perspective. Blackstone has been the largest shareholder since Kodak exited bankruptcy and currently owns ~21% of the equity. Southeastern is a relatively new shareholder and owns ~12% of the equity in addition to the $200 million convertible preferred. One of Southeastern’s flagship funds, the Longleaf Partners Small-Cap Fund, lists Kodak (common + preferred) as their 8th largest holding making up ~4.8% of the portfolio as of September 30, 2017. Other top shareholders are listed in Exhibit A.

BlueMountain Capital was the second largest shareholder behind Blackstone the past few years owning ~17.5%. However, earlier in the year they exited their entire position selling to George Karfunkel, Moses Marx, and Southeastern Asset Management. I don’t read too much into the sale since the buyers largely consist of insiders.

It’s worth noting that several board members own warrants expiring in September 2018. As described above, they are currently way out of the money with strike prices of $14.93 and $16.12. However, the board is definitely incentivized to explore ways to highlight Kodak’s significant asset value before the warrants expire in less than a year.

Potential Catalysts

As previously described, investor sentiment around Kodak is extremely bearish. The stock is similar to a coiled spring where any positive announcement can propel significant momentum. Here are some potential catalysts:

  • The stabilization in PSD financials due to reduced pricing pressure and/or input cost headwinds.
  • The sale of PSD would be even more significant and could potentially generate proceeds in excess of Kodak’s entire market cap.
  • Recurring revenue growth and cash flow generation from PROSPER, led by increased adoption of imprinting components.
  • Significant interest or pre-orders for ULTRASTREAM as the 2019 go-to-market launch approaches.
  • Commercial success from any of the AM3D ventures.

Key Risks

As shown in the valuation section, I believe the market is currently pricing in a Downside Case. However, the combination of many moving pieces increases the overall risk profile, especially when paired with operating and financial leverage. My primary concerns are listed below:

  • Economic slowdown: Kodak operates businesses that are cyclical by nature. A global slowdown may reduce EBITDA to levels where debt covenants are breached.
  • Management execution: As certain segments continue to decline or are divested, Kodak will be forced to further reduce their employee base and footprint. Management’s speed and ability to execute these restructuring initiatives will be crucial. Otherwise, the large fixed cost base has the potential to swallow the majority of value.
  • Inability to monetize assets: This is a complex thesis and may require the divestiture of certain segments for the market to recognize fair value.
  • Failure of R&D investment: Kodak is investing heavily in PROSPER, ULTRASTREAM, and various AM3D initiatives. At this point, it’s too early to tell if the investments will ultimately payoff.


Exhibit A: Top Shareholders

Source: Company filings

Exhibit B: Kodak’s Trading History

Source: Yahoo Finance

Exhibit C: Historical Aluminum Price (US Dollars per Metric Ton)

Source: http://www.macrotrends.net/2539/aluminum-prices-historical-chart-data

Exhibit D: EISD Component Market Share

Source: October 2015 Analyst and Investor Day Presentation

Exhibit E: Pension & OPEB

Source: Company filings

Exhibit F: Packaging Comps (TEV / Forward EBITDA)

Source: CapitalIQ

Exhibit G: NOL Valuation

Exhibit H: Jeff Clarke Open Market Purchases

Source: Form 4 SEC filings
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