The onetime consumer photography giant would offer a new retirement plan for U.S. employees.
Eastman Kodak is planning to terminate its U.S. pension plan to capitalize on its surplus value, which has surged due to strong market performance and contributions made during its prime as a leader in print photography.
The pension, which supports around 35,000 participants, could yield up to $585 million in cash gains. Executives plan to use this amount to reduce debt and reinvest in the business. However, the decision remains contingent on board approval.
The move is driven by the pension plan's significant overfunding, coupled with the financial pressure of rising interest rates, according to company executives.
Kodak expects to secure an after-tax cash gain of $530 million to $585 million through a series of steps that include selling illiquid assets held by its pension plan, settling liabilities, terminating the plan, and introducing a new retirement plan for employees. The entire process is expected to take over a year to complete, according to the company.
“The goal is to strengthen the company’s financial health,” said Chairman and CEO Jim Continenza.
Kodak’s current retirement plan is a defined-benefit model, which guarantees payouts funded by the company. Once common in corporate America, these plans have declined in favor of defined-contribution models, such as 401(k)s, where employees contribute to their own retirement savings.
Following the transition from print to digital photography, Kodak faced significant challenges, ultimately filing for bankruptcy in 2012. The company subsequently sold assets, exited unprofitable ventures, and experimented with diversifications like cellphones and digital currency. Today, Kodak’s primary revenue streams include commercial printing products, motion picture film, and specialty industrial chemicals.
As of September 30, Kodak reported $214 million in cash and a pension fund with $3.5 billion in assets and $2.3 billion in liabilities, buoyed by past contributions and strong market performance. During the latest quarter, the company paid $14 million in interest expenses and posted an $18 million profit.
To terminate the pension plan, all liabilities must be resolved. The plan currently supports around 35,000 participants, including approximately 2,000 current U.S. employees. Kodak’s global workforce totals about 4,000 employees.
Kodak retirees would transition to receiving annuities through an insurance company, while current employees and former employees who have not yet retired would have the option to choose between a lump-sum payout of their balance or an annuity upon retirement. Executives assured that the value of the promised benefits will remain unchanged.
“It really won’t look different to them,” said Chairman and CEO Jim Continenza.
If the pension plan is terminated, Kodak plans to implement a new retirement plan for its current employees. The type of plan—whether a defined-benefit structure or a defined-contribution model like a 401(k)—has yet to be determined. Executives aim to finalize and launch the new plan within a year.
As part of its preparation for the pension plan termination, Kodak has agreed to sell private-equity and other illiquid assets held by the fund. According to a regulatory filing, the Mastercard Foundation has purchased $764.4 million in assets, with an additional $87.3 million sold to four unnamed buyers.
The pension fund also holds hedge fund investments worth $917.2 million, most of which are in the process of being liquidated. The replacement retirement plan is expected to have assets of $220 million to $245 million, sufficient to cover employee benefits without requiring additional contributions from Kodak.
Kodak carries $460 million in long-term debt, primarily a term loan with a 12.5% interest rate. Under its credit agreement, the company must reduce its principal balance to $200 million if it receives significant cash proceeds from the pension plan.
Executives indicated that any additional cash from the termination could be reinvested into the business, including capital investments and ongoing efforts to expand into pharmaceutical chemical production.
“The key is to continue to strengthen the shareholders’ value of the company,” Continenza said.
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