Kodak 2014 Annual Report Download - page 11

If Kodak
’s commercialization and manufacturing processes fail to prevent product reliability, yield and quality issues, our product launch plans may be delayed, our
financial results may be adversely impacted, and our reputation may be harmed.
In developing, commercializing and manufacturing Kodak’s products and services, we must adequately address reliability, yield and other quality issues, including defects in
our engineering, design and manufacturing processes, as well as defects in third-party components included in our products. Because Kodak’s products are sophisticated and
complicated to develop and commercialize with rapid advances in technologies, the occurrence of defects may increase, particularly with the introduction of new product lines.
Unanticipated issues with product performance may delay product launch plans which could result in additional expenses, lost revenue and earnings. Although we have
established internal procedures to minimize risks that may arise from product quality issues, there can be no assurance that we will be able to eliminate or mitigate occurrences
of these issues and associated liabilities. Product reliability, yield and quality issues can impair our relationships with new or existing customers and adversely affect our brand
image, product quality issues can result in recalls, warranty, or other service obligations and litigation, and our reputation as a producer of high quality products could suffer,
which could adversely affect our business as well as our financial results.
Our ability to generate positive operating cash flows will be necessary for us to continue to operate our business.
While Kodak has significantly reduced its rate of negative operating cash flow over the past two years, we continue to generate net negative operating cash flow. There is no
assurance that Kodak will be able to generate positive cash flow from operations in the future, which could have a material adverse effect on Kodak’s liquidity and financial
position.
Continued investment, capital needs, restructuring payments and servicing the Company’
s debt require a significant amount of cash and we may not be able to generate
cash necessary to finance these activities, which could adversely affect our business, operating results and financial condition.
Kodak’s business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on our indebtedness, or to fund Kodak’s other liquidity
needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, restructuring actions and other general
corporate requirements.
Kodak’s ability to generate cash is subject to general economic, financial, competitive, litigation, regulatory and other factors that are beyond our control. We cannot assure
you that:
If we cannot fund our liquidity needs, we will have to take actions, such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, and
investments and alliances; selling additional assets; restructuring or refinancing the Company’s debt; or seeking additional equity capital. Such actions could increase the
Company’s debt, negatively impact customer confidence in our ability to provide products and services, reduce the Company’s ability to raise additional capital and delay
sustained profitability. We cannot assure you that any of these actions could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us
to meet the Company’s scheduled debt service obligations. In addition, if we incur additional debt, the risks associated with the Company’s substantial leverage, including the
risk that we will be unable to service the Company’s debt, generate cash flow sufficient to fund our liquidity needs, or maintain compliance with the covenants in our various
credit facilities, could intensify.
There can be no assurance that the Company will be able to comply with the terms of our various credit facilities.
A breach of any of the financial or other covenants contained in the Senior Secured First Lien Term Credit Agreement (the “First Lien Term Credit Agreement”), Senior
Secured Second Lien Term Credit Agreement (the “Second Lien Term Credit Agreement”, and together with the First Lien Term Credit Agreement, the “Term Credit
Agreements”) or the ABL Credit Agreement (and together with the Term Credit Agreements the “Credit Agreements”)
could result in an event of default under these facilities.
If any event of default occurs and we are not able to either cure it or obtain a waiver from the requisite lenders under each of these facilities, the administrative agent of each
credit facility may, and at the request of the requisite lenders for that facility shall, declare all of our outstanding obligations under the applicable credit facility, together with
accrued interest and fees, to be immediately due and payable and the agent under the ABL Credit Agreement may, and at the request of the requisite lenders shall, terminate
the lenders’ commitments under that facility and cease making further loans, and if applicable, each respective agent could institute foreclosure proceedings against our
pledged assets. Any of these outcomes could adversely affect our operations and our ability to satisfy our obligations as they come due.
•
Kodak’s businesses will generate sufficient cash flow from operations;
•
Kodak will be able to repatriate or move cash to locations where and when it is needed;
•
Kodak will meet all the conditions associated with making borrowings or issuing letters of credit under the Asset Based Revolving Credit Agreement (the “
ABL Credit
Agreement
”
);
•
Kodak will realize cost savings, earnings growth and operating improvements resulting from the execution of our business and restructuring plan;
•
Kodak will not have to expend cash defending litigations regardless of the merits of any claims raised; or
•
future sources of funding will be available in amounts sufficient to enable funding of our liquidity needs.
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