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Kodak seeks to cut retiree benefits

by Aviva Gat | Published February 28, 2012 at 3:21 PM

Eastman Kodak Co. plans to save about $223 million by slashing healthcare benefits to about 16,030 retired employees and their dependents.

Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan is scheduled on March 20 to consider allowing the Rochester, N.Y., photography icon to terminate the retiree benefits.

According to the request, filed Monday, Feb. 27, Kodak's liabilities for retired medical and survivor benefits total $1.2 billion, and its annual cost for the benefits is about $118 million.

Should Gropper approve the motion, Kodak's liabilities would be reduced by $223 million, with annual cost savings for fiscal 2012 totaling $13.7 million and $20.5 million for every fiscal year thereafter. Kodak asked to terminate certain benefits effective May 1.

Kodak said it "regrettably" needs to reduce benefits but would maintain critical benefits "within the bounds of affordability."

Benefits would be reduced only for employees who retired on or after Oct. 1, 1991. Kodak had already limited company contributions for medical benefits for the post-1991 retires in 1994 and several times thereafter, documents show.

Kodak provides healthcare benefits to about 56,000 retired employees, long-term disability recipients, survivors anddependents. Only 16,030 of those are included in the post-1991 group.

Kodak said it needed to adjust the benefits to ensure they are properly scaled for the company's size. Documents show that since 2003 Kodak has reduced its workforce from 63,900 to 17,000, and consolidated revenue has declined from $14.4 billion to $6 billion.

Meanwhile, Apple Inc., a leading maker of computers and digital media players, has requested relief from the automatic Chapter 11 stay to file complaints against Kodak with the International Trade Commission -- a quasi-judicial federal agency -- and the U.S. District Court for the Southern District of New York regarding Kodak's alleged use of its patents in daily operations postpetition, according to a Feb. 14 motion.

Apple said the infringed patents cover technology used in Kodak's printers, digital cameras, video cameras and digital picture frames that Kodak imports and sells in the U.S. The technologies are generally related to the hardware and software used to implement photos and device management.

Gropper was scheduled to consider Apple's motion on Tuesday but adjourned the hearing to March 8, documents show.

Kodak, founded in 1880 by George Eastman, was once the world's leading producer of film and cameras and today has a diverse collection of mature and growth businesses. Kodak has been working to transform itself from a film and consumer photography company to a smaller business focused on the commercialization of proprietary digital imaging and printing technologies.

Restructuring costs and the recession have continued to negatively impact liquidity since 2008, however. As a result, last year the company issued $250 million in senior secured notes, amended its credit agreement with its lenders and sold nonstrategic businesses and assets.

Kodak filed for Chapter 11 on Jan. 19 after long-term transformation and other restructuring moves failed to reverse a protracted decline.

Kodak also blamed its Chapter 11 filing on market conditions, which have caused losses to its business and reduced revenue. The company further cited legacy post-employment benefits as consuming a substantial amount of its cash ($245 million in 2011). Lastly, negative publicity and other external issues at the end of 2011 strained its trade credit, Kodak said.

Andrew G. Dietderich, John J. Jerome, Michael H. Torkin and Mark U. Schneiderman at Sullivan & Cromwell LLP and Pauline K. Morgan and Joseph M. Barry at Young Conaway Stargatt & Taylor LLP are debtor counsel. James A. Mesterharm of AlixPartners LLP is Kodak's chief restructuring officer.

Matthew J. Hart of Lazard is the company's investment banker.

James H.M. Sprayregen, Paul M. Basta, Brian S. Lennon and David R. Seligman of Kirkland & Ellis LLP represent Apple.

Dennis F. Dunne, Tyson M. Lomazow and Brian Kinney of Milbank, Tweed, Hadley & McCloy LLP are counsel to the official committee of unsecured creditors.

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