The Virtual CFO - Ep 1: Strategic Business Transformation | David Bullwinkle, CFO, Kodak

Thanks for having me, Raph. It's a pleasure to be here.

Sure, of course. Thanks again for having me. My name's David Bullwinkle. I'm a resident here in Victor, New York, not very far from Rochester. I have a wife and three kids. We very much enjoy the area. I went to school at Geneseo and got my undergrad degree there. My MBA came from St. John Fisher here in the area also. I grew up actually in the Niagara Falls area in a town called Sanborn. I left Sanborn to come to Geneseo and just really fell in love with the area, so that's why I'm here in Rochester. I worked out of Geneseo, and my first job was at Coopers & Lybrand in Rochester, New York, before the merger with Price Waterhouse, which of course is now PricewaterhouseCoopers. I spent about six years there, and from there went to Birds Eye Foods, a pretty well-known brand in the frozen food area, in internal and external reporting there. And then in 2004, came to Kodak and have been challenged ever since. Walking in the door, it's been an incredible experience, really, with all the complexities of at the time, of course, it was a Fortune 500 company in Rochester, New York. I've really enjoyed all the experiences I've been able to participate in. I've really enjoyed learning and growing over that period of time through all of its challenges and opportunities.

I guess let's say it's been hard would be an understatement. Difficult, hard, whatever word you want to use. There's been a lot of assets for a company that's so rich in tradition and rich in its legacy and certainly its culture. Those are all assets I believe of Kodak. If you step back and think about what we were really trying to do, it was to remove ourselves from a hundred-plus-year product cycle, and that in and of itself is unusual, if not even unheard of, for a product that has that much longevity to it. And then, of course, referring to film, the commitment of Kodak people, the work ethic and determination that I've enjoyed has been tremendous. It really is special. I can recall coming in the door and reading through the values, and the one thing that has always stuck in my mind is the value of trust and the ability to count on your counterpart, count on your co-workers to get the job done, do what you say you're going to do, and really to provide that trust in others. That's been incredibly refreshing from my experience since I walked in the door here. The hard parts, of course, are the difficult decisions that have had to be made over that period of time. We've removed a lot of people, but those were all necessary to position us to compete, and that's what we needed to do. And of course, to remove ourselves from businesses, you can always look back on it with hindsight and say we shouldn't have done that or should have done that, but we made choices. Our management made choices, and I continue to come back to the way in which the employee base executed on those choices is something to be really proud of. But again, it wasn't always clear that we were in the right positions and in the right choice set. I hear an awful lot about the digital camera, why did Kodak not convert to the digital camera? Well, I don't know if we could have gained a stronghold in the digital camera space and been the only provider of digital cameras. I don't suspect that would have been true. I can say that the issue with the digital camera is that you can capture a picture, but what do you do with it? What's the output of it? People don't generally print digital photos anymore, so you can understand the resistance from the company at that point in time to make that leap into that technology. The company didn't really ever make money on the digital devices, and I don't think many companies ever really made money on the digital device until you get up into the high-end space. That's just one example of the choices the company made. I think we're now at a point where we've got great technology again and are really converting and transforming an industry, and in several industries where we play right now. We're not really just a film company. We're nowhere near that. We're a print, advanced materials, and chemicals company. A lot of those things are what we've always done, but we have really transformed the company to deliver technology again to our customers, and that's what it's all about.

Well, of course, I started as an SEC reporting manager in 2004, and my first year-end we had a restatement. So I think I had said in my interview I was looking for a bigger challenge and I wanted more complexity, and so of course the very first year-end to have to live through a restatement and a difficult restatement at that was maybe not exactly what I was talking about when I spoke about a challenge. So certainly at that level, I had not as much influence on management decisions. But as I progressed through the years, the focus on attention, the focus on data, that's why from my perspective, one of finance's key roles or the finance team's key roles is providing that data, making sure that it's a single version of the truth. That's difficult in an organization that's large, in an organization that has multiple layers of accountability, multiple structures as well. Over the years, we've struggled at that: what is the single version of truth when you start looking at statutory reporting and management reporting and those sorts of things? That's evolved for me personally and for the company. So as I progressed through and got into the FP&A space, that's been the mantra: we need to hold people accountable and hold them accountable to the data, such that the data is one version, it doesn't speak different languages in terms of what the user wants it to say. That's been a difficult challenge, and we're still transforming there as we've focused the company on the customer and on bringing all of our products to the customer rather than a divisional structure, which is more independent from your typical centralized organization.

Well, that was another one. I tend to get put into positions for the most difficult portions of them. I was appointed into the FP&A director role from a corporate perspective at the end of 2011, and then of course in January of 2012, we declared Chapter 11 bankruptcy. That was a difficult period of time, and it's very finance-centric because you're dealing with creditors; they really do have control of the company. That's why they call it debtor-in-possession financing, referred to as the DIP. I learned a lot. Obviously, I had not been through a bankruptcy before that, and it was incredibly challenging. I think the overall assumption when we entered bankruptcy was that it would be a quick reorganization based on at the time there were a lot of transactions for intellectual property patents where they were selling for crazy amounts of money. That didn't happen for us, mostly because it had been so heavily licensed already at that point. So we learned a lot about how to pivot, how to work with creditors and other parties, and negotiating difficult situations. Ultimately, the way the company removed itself from bankruptcy was we had to shut down some things that we would have preferred to continue, and we had to relinquish a couple of businesses we would have liked to have kept in order to satisfy some pension liabilities, most notably in the UK. That was a creative and unique transaction where we sold the business to the pension plan basically. Not that that happens every day. There was a clear desire and commitment from everybody involved to maintain employment for our employees, maintain important businesses to the industries we were participating in, and to help the company emerge from bankruptcy, which happened in September of 2013. So about 20 months of bankruptcy, typically it's much shorter than that. From a CFO perspective, I often joke about it, but it is really true that lots of companies can't afford to go bankrupt. The level of consultants, lawyers, and accountants that you need to have to advise you through a very complex process is absolutely staggering. I think we paid and spent in excess of $150 million on fees and things like that, which speaks volumes in terms of the complexity that exists at Kodak and certainly the complexity of the process in the American business system.

Absolutely. We emerged with pretty much the businesses we have today, give or take a couple. It goes back to we're still that print, advanced materials, and chemicals company, and we're well on the road to transforming that into a growing company as well.

Sure. When we started into the COVID pandemic, we as a management team recognized that in these types of crises, these are opportunities to in some ways reinvent yourselves or to find new opportunities where you can be successful. We had stepped back and made some difficult decisions to take pay reductions at the management levels, to furlough employees in manufacturing areas where volumes were incredibly low given the impacts of the pandemic. But then we were thinking about what we were going to be when we come out the other side of this. Pretty quickly, we became important to the hand sanitizers from the state perspective, providing IPA or isopropyl alcohol as a material into that process. That's something the company has done for a long time, recovering IPA from various materials in our solvent recovery business, which is core to the company. That was a relatively easy one because of our customers' needs. We also started to make face shields with our STAR product, which is our film base basically, and provided that for free to customers. We were then looking at what else we could do with our chemical processes. We had been talking and investigating the pharmaceutical area more from what we need to do to become a GMP-compliant provider, GMP being Good Manufacturing Processes required by the FDA to produce pharmaceuticals. We have for several years prior to the pandemic been making unregulated KSMs, key starting materials, which are chemical processes. It sounds strange to be talking about pharmaceuticals as chemicals, but that's really what it is. The process of film involves multiple different components and materials coated onto film, so the way film is manufactured requires many different materials to be mixed in batches or in reactors. The company has those assets available, and we had been reutilizing those assets for the KSMs. What became apparent was because of the supply chain reliance on overseas production to create pharmaceuticals in the U.S., generic and branded drugs are produced using a lot of these materials or key starting materials that are produced in areas of the world where it's not always clear there will be an unlimited supply. We saw that as an opportunity, became involved in some of the early RFPs for low supply of drugs or materials, and really just started working our way through that. At some point, we became noticed by the administration and by the U.S. government as an area where we have a lot of capacity and infrastructure that could support significant scale, and from there it kind of mushroomed. It's still a very valid argument that a chemical company can do some pharmaceutical work. We were never in the position where we wanted, and still don't want, to change Kodak into a pharmaceutical company. We will be a print, advanced materials, and chemicals company that does some pharma. We continue to explore it. The issues surrounding the loan application or the right to apply for a loan with the government in the DFC are pretty well documented, and we intend to continue to pursue that and to utilize our assets. That's a lot of what we're doing in Eastman Business Park: finding new ways to utilize our assets. We find different things almost every week where we realize we had that capability, whether it's the pharmaceutical opportunity or coating machines. We do a lot of roll-to-roll manufacturing; there are a lot of applications there where we can coat different things on various substrates. That's an opportunity for us. We've got the ability to automate storage for paper rolls, so coating paper and those sorts of things would keep our print business as another opportunity. Those are just a few examples of the different ways we want to reutilize those assets in the business park.

I've only really been involved for the last couple of years, so it is a little bit overwhelming to think about how utilized the park was at one point over a long period of time. It helps to put in perspective how incredible that film product was. The park itself is 1,200 acres, which sounds easy to say, but it's bigger than Central Park in New York. You can put several Empire State Buildings in terms of the square footage available in the park. We've got access to water right out of Lake Ontario, we have an industrial sewer, we have that solvent recovery operation, and we have its own utility infrastructure and utility generation facility where we can supply natural gas, electricity, steam, all sorts of different steam to any user. The infrastructure itself has really been invested in, and that's why it's a great area for startup manufacturing. At some point, we had every square inch of the place with a building on it, and over time we've removed those kind of special-purpose buildings that were really not suitable for utilizing as more standard manufacturing space. We've got probably about 200 acres still that could be developed, and the rest is occupying additional space. I think we've done a pretty good job of attracting new users into Eastman Business Park. Our core areas are really food production, you'll see that with LiDestri Foods; energy production or energy businesses; Life Cycle is building at Eastman Business Park; we've got a number of other companies in the solar and battery space that have done work there. Batteries is a good opportunity for roll-to-roll manufacturing because that involves coating aluminum and copper foil, and we intend to play in that space. The other areas that are good where you need a lot of water, a lot of steam, fermentation-type applications, is another area we're pretty excited about. And of course, in chemical production, we have solvent recovery processes and the permitting that exists for the most part, so there are far fewer barriers to entry into manufacturing at Eastman Business Park given all the investment the company has made there for years and years. That footprint has evolved; we've sold off some of the perimeter assets and buildings which are more general purpose, and really focused on how we can utilize the park to the best use of those assets. When I first started there about three years ago to become more responsible directly for Eastman Business Park, I think we had vacancy somewhere around 30%, and we're now having conversations about whether we provide a tenant with this space or do we maintain the space and utilize it as a Kodak business opportunity for our own manufacturing. That chemical manufacturing is really starting to pick up at Eastman Business Park, and I expect the company to reutilize those assets just as much as tenants are, as opposed to shrinking Kodak's business and growing the tenant space there. It's very exciting to be part of it. Some of the other things we've enjoyed are the Kodak Center, which is completely different from manufacturing. We've got almost a 2,000-seat theater there on Ridge Road, we've got a visitor center we put in a few years ago that celebrates the history of the company, it's free to the public assuming COVID restrictions allow the public to enter. We've got a number of other opportunities there to be more public-facing and invite the community back into Kodak, which has been rewarding to work on, to remind people of the rich history here, educate them of what we're doing today, and generate some excitement about the future of Kodak.

We're incredibly excited to have the opportunity to work with Mr. Golisano and his team. The investment was part of a series of transactions that recapitalized the company. We were able to attract a new term loan and address some maturities that were coming up in 2021. We replaced the preferred stock of $200 million with a term loan and with two new series of preferred stock, Series B and Series C preferred stock. Grand Oaks Capital, which is Mr. Golisano's fund, is investing $100 million in Series C preferred stock, which is convertible at certain price levels of the stock and has a term of five years and 91 days. It picks the dividend into additional shares of common, which is really very helpful for the company from a cash flow perspective. We'll utilize the funds for growth opportunities in those growth areas. We haven't been very public about them quite yet, but they're in the areas of print, advanced materials, and chemicals, including some of these new initiatives we've talked about and disclosed publicly. You mentioned one with respect to the pharmaceutical opportunity; we're going to continue to explore that. We already produce unregulated KSMs, so we're talking about expansion of that. We have other opportunities, like our light-blocking materials, which we've got into a product called Codeluxe, an area we expect to expand. And then there will be new areas we've not yet really disclosed. We're also open to acquisition and merger opportunities and those sorts of things in order to position the company to have a growing business and create sustainable employment for the next generation of Kodak workers. We're very excited about it. Mr. Golisano is incredibly important to the Rochester community, and we believe Kodak is important to the Rochester community as well. We expect it to be a really beneficial partnership to increasing employment in Rochester.

My view of being a good leader is being real, being transparent with people, being honest. Every one of us has had somebody who's tried to spin us on something. I kind of equate that to the used car salesman, somebody who tries to tell you that it's either not that important or that this is really good. That spin lacks credibility, and it would make me question whether they really know what they're talking about if they're trying to convince me this is a good thing. I value somebody who's honest. I think at Kodak, our leaders now share everything with each other; no one's trying to hide anything, and we're very transparent. Jim Continenza, Executive Chairman, who I regard as a very good leader, is very honest with people. I think I'm very honest with people also. I'd rather tell you the facts and provide you the data, then let's have a discussion about what we're going to do with it. That's a whole other conversation: how do we create this as an opportunity, how do we make something good happen out of perhaps what might be viewed as a negative situation? Obviously, a leader is somebody who rolls up their sleeves when they need to, all those different things, but ultimately it comes down to practicing what you preach. It's the stuff that my parents told me as a kid: you reward hard work. I respect leaders who do that, who work hard and reward hard work. I think somebody who's willing to be open-minded and listen to their people is also very important. I've been blessed with a great team here at Kodak over the years, an incredibly committed set of leaders and employees who maybe don't have all the right answers but really want to see it be successful and get the job done. So the key characteristic of a good leader for me is honesty, integrity, relying on the data to guide us. The really special leaders are people who can look at that and then create opportunities out of difficult situations. I think we've got that here at Kodak. The turning point for me in terms of realizing we're actually going to be able to do this was when Jim Continenza stepped into the role two years ago. We were able to pretty quickly create a clear vision, and every organization needs that. We were going to monetize the packaging business, get a loan for the stub, and then work on removing the additional debt, and that's exactly what we did. Now we're into that kind of maybe not the last phase but closer to the last phase on a transformation around how you create that growing company. We have some great businesses, some incredible technology, participating in portions of the industry that are not growing rapidly. In traditional print, printing plates and the chemicals around it will always be there for a long time, but it reduces about 4% every year. The digital print side is very exciting, and we have great technologies there. There is growth there as the conversion occurs from offset to digital. Unlike the film transition from analog to digital, where there wasn't a lot of profit on the digital side, in this there's ink and service profit on the digital side, which is very exciting. One very interesting example is inkjet printing on flexible packaging. That has not been done in the past with any reliability, and we've created a press with a partner that will do that, allowing you to print inkjet on film. We have water-based inks, and the film is oil-based, so you're literally mixing oil and water, and that doesn't happen. The way we treat that material is how we've unlocked that value. You get into packaging, and you start to think about what the world economy is doing again absent COVID; packaging is going to grow. That's a great place for Kodak to play with innovative technology, and our inkjet technology is really second to none. We're very excited about that, and it's an example of recognizing that and being more aggressive in our investment there than where we were headed previously.

I tell people that hard work is something you can't replace. There are no shortcuts. You need to put in the work, you need to put in the effort, you need to study the data, you need to study your industry, you need to become really a business expert, not just a financial expert. That's what's allowed for my success. Obviously, some of that is opportunity, but being open to new opportunities is also very important. When I first took over the FP&A role, I didn't view myself as a finance professional; I viewed myself as an accountant or a controller. But I was willing to put in the effort, I was willing to learn, I was willing to develop myself, so I invested in myself and I took on that role. Investor relations was similar when I had that opportunity; I didn't think I had any special ability to communicate, but I grew from every single one of those things. Ultimately, I reached my goal of CFO of Kodak, which I'm really proud to say today. So I guess that's what I would tell somebody: just focus on the opportunities and be willing to put in the work.

Thanks very much, Raph. I really appreciate the ability to be the inaugural speaker. It was great to have a conversation with you.