Eastman Kodak prepares to terminate U.S. pension plan

GaryPageau
Getting your Trinity Audio player ready...

Eastman Kodak Co. is preparing to terminate its overfunded U.S. pension plan to unlock value from the fund, according to the Wall Street Journal. The defined-benefit pension has 35,000 participants, and the move could ultimately result in a cash gain of as much as $585 million that Kodak would use to reduce debt and invest in its business, executives said, while preserving the benefits for retirees. A final decision on whether to terminate the pension plan is subject to board approval. The company’s U.S. pension plan covers about 2,000 current employees. The company has roughly 4,000 employees worldwide.

Kodak would book an after-tax cash gain of between $530 million and $585 million following a series of moves that involve selling illiquid assets held by the plan, settling liabilities, terminating the plan, and then replacing it with a new one for employees. It could take more than a year for the company to complete the process, the company said.

Jim Continenza is the Executive Chairman of Eastman Kodak

“The intent is to strengthen the health of the business,” said Jim Continenza, CEO and chairman, Eastman Kodak Co. Kodak operates a defined-benefit plan, in which retirees receive payouts that have been funded by the company.  Kodak had $214 million in cash on its balance sheet as of Sept. 30. Its pension plan has $3.5 billion in assets, boosted by market performance and contributions made by previous executive teams, and $2.3 billion in liabilities, according to the company. Kodak paid $14 million in interest expenses during the latest quarter; by comparison, it generated a profit of $18 million.

Under the proposal, Kodak retirees would receive an annuity from an insurance company similar to what they currently receive. Current employees, as well as former employees who haven’t yet reached retirement, would be given an option to either receive a lump sum of their balance or an annuity once they retire.

“It really won’t look different to them,” Continenza said, according to the WSJ report.

Kodak agreed to sell private-equity and other illiquid assets held by the pension plan, according to a regulatory filing Monday. The largest buyer, Mastercard Foundation, a philanthropic organization established by the credit-card company, agreed to purchase interests with a net asset value of $764.4 million, while four additional unnamed buyers agreed to purchase $87.3 million, the filing said.

Kodak’s pension plan also holds hedge-fund investments with a net asset value of $917.2 million, and is in the process of redeeming a majority of those investments, according to the filing.

A replacement retirement plan would have assets totaling between $220 million and $245 million, according to the filing. That amount should be enough to cover benefits for current employees without additional cash contributions from the company, the filing said.