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Note 9 - Leases | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
Leases | NOTE 9: LEASES Kodak as lessee Kodak determines if an arrangement is a lease at inception. Kodak’s operating lease agreements are primarily for real estate space and vehicles and are included within operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Statement of Financial Position. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. Many of the leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments if reasonably assured to be exercised. Kodak does not separate lease and non-lease components of contracts for real estate leases. When available, the rate implicit in the lease is used to discount lease payments to present value; however, many leases do not provide a readily determinable implicit rate. Therefore, Kodak applies its incremental borrowing rate to discount the lease payments at lease commencement. The table below presents the lease-related assets and liabilities on the balance sheet:
|  | Classification in the |  | September 30, |
(in millions) |  | Consolidated Statement of Financial Position |  | 2019 |
Assets |  |  |  |  |  |
Operating lease assets |  | Operating lease right-of-use assets |  | $ | 49 |
Finance lease assets |  | Property, plant and equipment, net |  |  | 5 |
Total lease assets |  |  |  | $ | 54 |
Liabilities |  |  |  |  |  |
Current |  |  |  |  |  |
Operating |  | Current portion of operating leases |  | $ | 26 |
Finance |  | Short-term borrowings and current portion of long-term debt |  |  | 1 |
Noncurrent |  |  |  |  |  |
Operating |  | Operating leases, net of current portion |  |  | 34 |
Finance |  | Long-term debt, net of current portion |  |  | 3 |
Total lease liabilities |  |  |  | $ | 64 |
Weighted-average remaining lease term |  |  |  |
Operating |  |  |  | 6 years |
Finance (1) |  |  |  | 319 years |
Weighted-average discount rate |  |  |  |
Operating (2) |  |  |  |  | 16.50 | %
Finance |  |  |  |  | 6.75 | %
| (1) | One finance lease has a remaining term of 968 years. The weighted-average lease term excluding the lease with a remaining term of 968 years is 4 years.
| (2) | Upon adoption of ASC 842, Kodak’s incremental borrowing rate used for existing operating leases was established at January 1, 2019.
Lease Costs The table below presents certain information related to the lease costs for finance and operating leases. Lease costs are presented gross of sublease income. See “Kodak as Lessor” section below for income from subleases.
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(in millions) |  | 2019 |  |  | 2019 |
Finance lease cost |  |  |  |  |  |  |  |
Amortization of leased assets |  | $ | 1 |  |  | $ | 3 |
Interest on lease liabilities |  |  | — |  |  |  | — |
Operating lease cost |  |  | 6 |  |  |  | 19 |
Variable lease cost |  |  | 2 |  |  |  | 5 |
Total lease cost |  | $ | 9 |  |  | $ | 27 |
Other Information The table below presents supplemental cash flow information related to leases.
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(in millions) |  | 2019 |  |  | 2019 |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |  |  |  |  |
Operating cash flows for operating leases |  | $ | 6 |  |  | $ | 19 |
Operating cash flow for finance leases |  |  | — |  |  |  | — |
Financing cash flow for finance leases |  |  | 1 |  |  |  | 2 |
|  | $ | 7 |  |  | $ | 21 |
Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for the next five years and thereafter to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
(in millions) |  | Operating Leases |  |  | Finance Leases |
Q4 2019 |  | $ | 6 |  |  | $ | — |
2020 |  |  | 27 |  |  |  | 1 |
2021 |  |  | 11 |  |  |  | 1 |
2022 |  |  | 8 |  |  |  | 1 |
2023 |  |  | 7 |  |  |  | — |
Thereafter |  |  | 34 |  |  |  | 110 |
Total minimum lease payments |  |  | 93 |  |  |  | 113 |
Less: amount of lease payments representing interest |  |  | 33 |  |  |  | (110 | )
Present value of future minimum lease payments |  |  | 60 |  |  |  | 3 |
Less: current obligations under leases |  |  | (26 | ) |  |  | — |
Long-term lease obligations |  | $ | 34 |  |  | $ | 3 |
Future minimum contractual lease payments for operating leases having initial or remaining noncancelable lease terms in excess of one year as of December 31, 2018 were as follows:
(in millions) |  | At December 31, 2018 |
2019 |  | $ | 20 |
2020 |  |  | 21 |
2021 |  |  | 13 |
2022 |  |  | 3 |
2023 |  |  | 3 |
Thereafter |  |  | 7 |
|  | $ | 67 |
Kodak as Lessor Kodak places its own equipment at customer sites under sales-type and operating lease arrangements. Arrangements classified as sales-type leases with revenue recognition at inception generally transfer title to the equipment by the end of the lease term or have a lease term that is for a major part of the remaining economic life of the equipment; and collectability is considered probable. If the arrangement meets the criteria for a sales-type lease but collectability is not considered probable, Kodak will not derecognize the asset and will record all payments received as a liability until the earlier of collectability becoming probable or the lease is terminated. Contracts with customers may include multiple performance obligations including equipment, optional software licenses and service agreements. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Kodak has no direct financing leases. The Eastman Business Park segment’s core operations are to lease real estate. Kodak also leases underutilized portions of other real estate properties to third parties under both operating lease and sublease agreements. Payments received under operating lease agreements as part of the Eastman Business Park segment are reported in Revenues in the Consolidated Statement of Operations. Payments received under lease agreements for underutilized space are reported as cost reductions in Cost of revenues, SG&A expenses, R&D costs and Other charges, net. The lease arrangements are for various periods and are generally renewable. Renewal options and/or termination options are factored into the determination of lease payments if considered probable. Kodak does not separate lease and non-lease components of contracts for real estate leases. The lease and non-lease components of real estate leases are accounted for as lease costs per ASU 2016-02, Leases (Topic 842). Kodak’s net investment in sales-type leases as of September 30, 2019 and December 31, 2018 were $4 million and $3 million, respectively. The current portion of the net investment in sales-type leases is included in Trade receivables in the Consolidated Statement of Financial Position. The portion of the net investment in sales-type leases due after one year is included in Other long-term assets. The table below reconciles the undiscounted cash flows to be received for the next five years and thereafter to the net investment in sales-type leases recorded on the balance sheet:
(in millions) |  |  |  |
Q4 2019 |  | $ | 1 |
2020 |  |  | 2 |
2021 |  |  | 1 |
2022 and thereafter |  |  | 1 |
Total minimum lease payments |  |  | 5 |
Less: unearned interest |  |  | (1 | )
Less: allowance for doubtful accounts |  |  | — |
Net investment in sales-type leases |  | $ | 4 |
Undiscounted cash flows to be received for the next five years and thereafter for operating leases and subleases are:
(in millions) |  |  |  |
Q4 2019 |  | $ | 4 |
2020 |  |  | 9 |
2021 |  |  | 7 |
2022 |  |  | 6 |
2023 |  |  | 4 |
Thereafter |  |  | 17 |
Total minimum lease payments |  | $ | 47 |
Equipment subject to operating leases and the related accumulated depreciation were as follows:
|  | September 30, |  |  | December 31, |
(in millions) |  | 2019 |  |  | 2018 |
Equipment subject to operating leases |  | $ | 33 |  |  | $ | 34 |
Accumulated depreciation |  |  | (22 | ) |  |  | (19 | )
Equipment subject to operating leases, net |  | $ | 11 |  |  | $ | 15 |
Equipment subject to operating leases, net is included in Property, plant and equipment, net in the Consolidated Statement of Financial Position. Income recognized on operating lease arrangements for the quarter and nine months ended September 30, 2019 is presented below (income recognized for sales-type lease arrangements is $0 million):
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(in millions) |  | 2019 |  |  | 2019 |
Lease income - operating leases: |  |  |  |  |  |  |  |
Lease income |  | $ | 3 |  |  | $ | 7 |
Sublease income |  |  | 1 |  |  |  | 5 |
Variable lease income |  |  | 1 |  |  |  | 3 |
Total lease income |  | $ | 5 |  |  | $ | 15 |

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