Kodak 2012 Annual Report Download - page 46

Table of Contents
Sources of Liquidity
Kodak historically used cash received from operations, including intellectual property licensing, and the sale of non-core assets to fund its
investment in its growth businesses and its transformation from a traditional film manufacturing company to a digital technology company.
While Kodak develops its reorganization plan, the need to invest in its businesses will be balanced with the need to improve liquidity.
Kodak is focusing on its most valuable business lines to enable sustained profitability. During the third quarter of 2012 Kodak exited its digital
capture and devices and Kodak Gallery businesses. Kodak has also announced that starting in 2013, its Consumer Inkjet business will solely
consist of selling ink to its installed printer base.
One of the objectives of the Bankruptcy Filing is to resolve certain legacy liabilities that require significant uses of cash. During 2012 and 2011,
Kodak made contributions (funded plans) or paid benefits (unfunded plans) of $153 million and $217 million, respectively, relating to its major
defined benefit pension and other postretirement benefit plans. The decline in 2012 from 2011 is primarily due to the fact that the 2012
contribution to the Kodak Pension Plan (the “KPP”) in the United Kingdom has been deferred and is intended to be considered as part of the
overall resolution of the chapter 11 claims of the Trustee of the KPP and of Kodak Limited, the sponsoring employer. Kodak estimates
contributions and benefit payments relating to its major defined benefit pension and other postretirement benefit plans in 2013 of $58 million.
The expected decline in 2013 from 2012 is primarily due to the discontinuation of U.S. retiree medical, dental, life insurance, and survivor
income benefits (other than COBRA continuation coverage or conversion rights as required by the applicable benefit plans or applicable law) in
2013. See Note 1, “Bankruptcy Proceedings,” in the Notes to the Financial Statements in Item 8 for additional information.
In connection with the Bankruptcy Filing, on January 20, 2012, the Company and Kodak Canada Inc. (the “Canadian Borrower” and, together
with the Company, the “Borrowers”) entered into a Debtor-in-Possession Credit Agreement, as amended on January 25, 2012, March 5,
2012, April 26, 2012, December 19, 2012 and February 6, 2013 (the “DIP Credit Agreement”),
with certain subsidiaries of the Company and the
Canadian Borrower signatory thereto (“Subsidiary Guarantors”), the lenders signatory thereto (the “Lenders”), Citigroup Global Markets Inc., as
sole lead arranger and book-runner, and Citicorp North America, Inc., as syndication agent, administration agent and co-collateral agent (the
“Agent”).
Pursuant to the terms of the DIP Credit Agreement, the Lenders agreed to lend in an aggregate principal amount of up to $950 million,
consisting of up to $250 million super-priority senior secured asset-based revolving credit facilities and an up to $700 million super-priority
senior secured term loan facility.
During 2012 the Company borrowed $700 million in term loans, issued approximately $126 million of letters of credit, and had secured
agreements of $20 million under the revolving credit facilities. Under the DIP Credit Agreement borrowing base calculation, the Borrowers had
approximately $45 million available under the revolving credit facilities as of December 31, 2012. The DIP Credit Agreement limits, among
other things, the Borrowers’ and the Subsidiary Guarantors’ ability to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets,
(iv) prepay subordinated indebtedness and make other restricted payments, (v) enter into sale and leaseback transactions and (vi) modify the
terms of any organizational documents and certain material contracts of the Borrowers and the Subsidiary Guarantors. In addition to standard
obligations, the DIP Credit Agreement provides for specific milestones that Kodak must achieve by specific target dates. In addition, the
Company and its subsidiaries are required to maintain consolidated Adjusted EBITDA (as defined in the DIP Credit Agreement) of not less than
a specified level for certain periods, with the specified levels ranging from $(130) million to $175 million depending on the applicable period.
The Company and its subsidiaries must also maintain minimum U.S. Liquidity (as defined in the DIP Credit Agreement) ranging from $100
million to $250 million depending on the applicable period. Kodak was required to maintain U.S. Liquidity of $125 million, $250 million, and
$150 million for the periods from January 20, 2012 to February 15, 2012; February 16, 2012 to March 31, 2012; and April 1, 2012 to
September 30, 2012, respectively. From October 1, 2012 through the termination of the DIP Credit Agreement, Kodak must maintain minimum
U.S. Liquidity of $100 million, subject to increase under certain circumstances as described in the DIP Credit Agreement. Kodak was in
compliance with all covenants under the DIP Credit Agreement as of December 31, 2012. The Company must prepay the DIP Credit Agreement
with all net cash proceeds from sales of or casualty events relating to certain types of collateral consisting of accounts, inventory, equipment or
machinery that constitute collateral. In addition, all net cash proceeds from any sale in respect of the Company’s digital imaging patent portfolio
must be used to prepay the DIP Credit Agreement. With respect to all other asset sales or casualty events, or intellectual property licensing or
settlement agreements, 75% of the net cash proceeds must be used to prepay the DIP Credit Agreement and 25% may be retained by the
Company. However, once the Company’s share of these retained proceeds totals $150 million, all remaining and future net cash proceeds must
be used to prepay the DIP Credit Agreement (retained proceeds were $12 million as of December 31, 2012).
On February 1, 2013, Kodak entered into a series of agreements under which it received approximately $530 million of proceeds, net of
withholding taxes, a portion of which was paid by intellectual property licensees and a portion of which was paid by the
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