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Note 20 - Financial Instruments | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Financial Instruments | NOTE 20: FINANCIAL INSTRUMENTS Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates, which may adversely affect its results of operations and financial position. Kodak manages such exposures, in part, with derivative financial instruments. Foreign currency forward contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities. Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Kodak does not utilize financial instruments for trading or other speculative purposes. Kodak’s foreign currency forward contracts are not designated as hedges and are marked to market through net income (loss) at the same time that the exposed assets and liabilities are remeasured through net income (loss) (both in Other (income) charges, net in the Consolidated Statement of Operations). The notional amount of such contracts open at September 30, 2021 and December 31, 2020 was approximately $317 million and $361 million, respectively. The majority of the contracts of this type held by Kodak as of September 30, 2021 and December 31, 2020 are denominated in euros, Chinese renminbi and Japanese yen. The net effect of foreign currency forward contracts in the results of operations is shown in the following table:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(in millions) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net (gain) loss from derivatives not designated as hedging instruments |  | $ | (1 | ) |  | $ | (4 | ) |  | $ | 1 |  |  | $ | (6 | )
Kodak had no derivatives designated as hedging instruments for the three and nine months ended September 30, 2021 and 2020. In the event of a default under the Company’s Credit Agreements, or a default under any derivative contract or similar obligation of Kodak, subject to certain minimum thresholds, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset positions with the same counterparty. As discussed in Note 5, “Debt and Finance Leases”, the Company concluded that the Convertible Notes are c onsidered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features are not considered clearly and closely related to the Convertible Notes. The embedded conversion features not considered clea rly and closely related are the conversion at the option of the holder (“Optional Conversion”), the mandatory conversion by Kodak (“Mandatory Conversion”) and the conversion in the event of a fundamental transaction by the holder at the then applicable con version rate (“Fundamental Change”). Accordingly, these embedded conversion features were bifurcated from the Convertible Notes and separately accounted for on a combined basis as a single derivative asset or liability. The derivative was in a liability position at September 30, 2021 and was reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivative is being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations. As discussed in Note 6, “Redeemable, Convertible, Preferred Stock”, the Company concluded that the Series B Preferred Stock and the Series C Preferred Stock are considered more akin to a debt-type instrument and that the economic characteristics and risks of the conversion in the event of a Fundamental Change is not considered clearly and closely related to the Series B and Series C Preferred Stock. Accordingly, this embedded conversion feature was bifurcated from both the Series B and Series C Preferred Stock and both are separately accounted for as a single derivative asset or liability. Both derivatives were in a liability position at September 30, 2021 and were reported in Other long-term liabilities in the Consolidated Statement of Financial Position. The derivatives are being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations. As discussed in Note 6, “Redeemable, Convertible, Preferred Stock”, the Company concluded that the Series A Preferred Stock was considered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features, except where the conversion price was increased to the liquidation preference, were not considered clearly and closely related to the Series A Preferred Stock. The embedded conversion features not considered clearly and closely related are the conversion at the option of the holder (“Optional Conversion”); the ability of Kodak to automatically convert the stock after the second anniversary of issuance (“Mandatory Conversion”) and the conversion in the event of a fundamental change or reorganization (“Fundamental Change or Reorganization Conversion”). Accordingly, these embedded conversion features were bifurcated from the Series A Preferred Stock and separately accounted for on a combined basis as a single derivative asset or liability. The embedded conversion features were revalued as of February 26, 2021 when the Company repurchased one million of the Series A Preferred Stock and exchanged the remaining one million shares of Series A Preferred Stock for Series B Preferred Stock. The revaluation as of February 26, 2021 resulted in the recognition of $2 million of net expense which was included in Other (income) charges, net in the Consolidated Statement of Operations. With the repurchase and exchange of the shares of the Series A Preferred Stock the embedded conversion features derivative liability expired. The derivative was in a liability position at December 31, 2020 and was reported in Other current liabilities in the Consolidated Statement of Financial Position. The derivative was being accounted for at fair value with changes in fair value included in Other (income) charges, net in the Consolidated Statement of Operations. Fair Value Fair values of Kodak’s foreign currency forward contracts are determined using observable inputs (Level 2 fair value measurements) and are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using discount rates appropriate for the duration of the contracts. The gross fair value of foreign currency forward contracts in an asset position are reported in Other current assets and the gross fair value of foreign currency forward contracts in a liability position are reported in Other current liabilities in the Consolidated Statement of Financial Position. The gross fair value of forward contracts in an asset position as of both September 30, 2021 and December 31, 2020 was $1 million. The gross fair value of foreign currency forward contracts in a liability position as of both September 30, 2021 and December 31, 2020 was $0 million. Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between levels of the fair value hierarchy during the three and nine months ended September 30, 2021. The fair value of the embedded conversion features derivatives was calculated using unobservable inputs (Level 3 fair measurements). The value of the embedded derivatives associated with the Convertible Notes and Series A, Series B and Series C Preferred Stock were calculated using a binomial lattice model. The following tables present the key inputs in the determination of fair value for the embedded conversion features: Convertible Notes:
|  | Valuation Date |
|  |  |  |  |  | February 26, |
|  | September 30, |  |  | 2021 |
|  | 2021 |  |  | (Inception) |
Total value of embedded derivative liability ($ millions) |  | $ | 7 |  |  | $ | 12 |
Kodak's closing stock price |  | $ | 6.81 |  |  | $ | 8.62 |
Expected stock price volatility |  |  | 47.50 | % |  |  | 70.00 | %
Risk free rate |  |  | 0.90 | % |  |  | 0.80 | %
Implied credit spread on the Convertible Notes |  |  | 18.41 | % |  |  | 18.25 | %
Series B Preferred Stock:
|  | Valuation Date |
|  |  |  |  |  | February 26, |
|  | September 30, |  |  | 2021 |
|  | 2021 |  |  | (Inception) |
Total value of embedded derivative liability ($ millions) |  | $ | 1 |  |  | $ | 1 |
Kodak's closing stock price |  | $ | 6.81 |  |  | $ | 8.62 |
Expected stock price volatility |  |  | 47.50 | % |  |  | 70.00 | %
Risk free rate |  |  | 0.90 | % |  |  | 0.80 | %
Implied credit spread on the preferred stock |  |  | 19.91 | % |  |  | 19.75 | %
Series C Preferred Stock:
|  | Valuation Date |
|  |  |  |  |  | March 30, |  |  | February 26, |
|  |  |  |  |  | 2021 |  |  | 2021 |
|  | September 30, 2021 |  |  | (Inception - Final Sale) |  |  | (Inception - Initial Sale) |
Total value of embedded derivative liability ($ millions) |  | $ | 2 |  |  | $ | 1 |  |  | $ | 1 |
Kodak's closing stock price |  | $ | 6.81 |  |  | $ | 8.05 |  |  | $ | 8.62 |
Expected stock price volatility |  |  | 47.50 | % |  |  | 70.00 | % |  |  | 70.00 | %
Risk free rate |  |  | 0.90 | % |  |  | 0.94 | % |  |  | 0.80 | %
Implied credit spread on the preferred stock |  |  | 21.91 | % |  |  | 21.75 | % |  |  | 21.75 | %
Series A Preferred Stock:
|  | Valuation Date |
|  | February 26, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Total value of embedded derivative liability ($ millions) |  | $ | 11 |  |  | $ | 9 |
Kodak's closing stock price |  | $ | 8.62 |  |  | $ | 8.14 |
Expected stock price volatility |  |  | 137.53 | % |  |  | 133.44 | %
Risk free rate |  |  | 0.07 | % |  |  | 0.10 | %
Implied credit spread on the preferred stock |  |  | 14.02 | % |  |  | 11.97 | %
The Fundamental Change values at issuance were calculated as the difference between the total value of the Convertible Notes, Series B or Series C Preferred Stock, as applicable, and the sum of the net present value of the cash flows if the Convertible Not es are repaid at their maturity date or Series B and Series C Preferred Stock are redeemed on their redemption date and the values of the other embedded derivatives. The Fundamental Change values reduce the value of the embedded conversion features deriva tive liability. Other than events that alter the likelihood of a fundamental change or reorganization event, the value of the Fundamental Change reflects the value as of the issuance date, amortized for the passage of time. The fair values of long-term debt (Level 2 fair value measurements) are determined by reference to quoted market prices of similar instruments, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates. The fair values of long-term borrowings were $276 million and $17 million at September 30, 2021 and December 31, 2020, respectively. The carrying values of cash and cash equivalents, restricted cash and the current portion of long-term debt approximate their fair values at both September 30, 2021 and December 31, 2020.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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