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Tuesday, 30 April 2013


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It's probably a scheme to evade taxes, taking advantage of eventual exemptions that pension funds may benefit in the UK. But I'm just guessing. It could be anything else.

But wasn't the document imaging business sold to Brother? How could it have two owners unless, as you speculated, it is the UK units of document imaging and (consumer/personal) photography? The UK units would be worth, what, 30 pence? That would seem like a pretty poor deal for the pensioners.

But the article makes it pretty clear that it's the entirety of those Kodak units. Perhaps they will bring in Ilford/Harman to run the analog film and photo business, while simply selling the digital assets, if any or left, for another 30P.

On second read, Perez is quoted as speaking of operations "outside the United State", so perhaps this referring only to the UK business, but it is still very confusing. A poorly written article.

From what I understand this means the worldwide businesses. A Kodak representative stated that Kodak will still manufacture the film in the US and a UK paper coating plant will continue to run. Bascially the pension fund has bought the distribution business which had a good turnover and was in profit.

As part of the deal Kodak have committed to keeping the film production for a 'long period'. Who knows what that means but I think the deal wouldn't be tractable if it was less than five years.

In summary I think it's a good thing for film. The film business will now be "standalone" and unlikely to be rationalised in the same way that it might be as a small component of a bigger business.

Company's remaining "assets" to be held against its' liabilities to its' pensioners ahead of some other claimants ??

Basically, Kodak has swapped *part* of its film division to the UK pension fund, for cash and writing off $2.8 beelion. The pension fund managers are expected to run it as a cash business to fund the pensioners. This part of Kodak included producing consumer photographic paper. Apparently the commercial division produces photographic film. (There's a big thread on APUG about this, of course)

Basically, Kodak owed its traditional pension fund, it's largest creditor, $2.8billion in present and future obligations. Bankrupt Kodak offered, and fund managers accepted (as the best deal they could get under the circumstances), what it could--assets.

For similar reasons, the owners of Smirnoff and Johnny Walker paid its retirement fund $78 million worth of whiskey, and other pension plans own diamonds and breweries.

Underfunded pension plans are everywhere. It's a long, complex story rooted in the spectacular successes and failures of American capitalism. Today, collectively, the S&P 500 owes $355 billion to its pension funds.

As explained in this free article at TIME: http://business.time.com/2013/04/30/kodak-to-pay-retired-workers-in-film-and-other-adventures-in-creative-pension-funding/

A story both amusing and harrowing.

A quick summary of the WSJ article: Kodak is backing out of the deal with Brother, which hadn't been approved yet, and is selling “personal imaging” (including film and paper) and “document imaging” (scanners and copiers) to the pension fund. They're getting debt forgiveness (the pension fund is their largest creditor by far) as well as roughly $325 million in cash.

This leaves Kodak with just commercial printers and services as a line of business.

KPP says they plan to operate the film and paper business for at least 10-15 years.

Sorry, Mike, I should read more carefully. To answer the questions you actually asked:

Yes, presumably the whole enchiladas, which have been consolidated in Rochester (film) and Harrow (paper).


And, yes, the pension plan plans to run the businesses for profit.



Dear Mike,

Back in the 1980's I was trying to make sense out of some of Kodak's high-level decisions. I was talking about my puzzlement with a friend who was well connected in the high-finance world (though not specifically into Kodak's).

He said to me, "What you don't understand is that Kodak is a very peculiar company. It's run by their pension plan. Nobody [else] does that!"

I did not understand the import of that remark then, nor do I now. Corporate finance and decision-making on the BoD level is something I'm pretty ignorant about.

I pass it along solely because it might be relevant and I'm sure there is some TOP reader who does understand that world very well and can explain what my friend meant.

pax / Ctein

I'm long since over caring what happens to Kodak. It was a gem for a long time, now it isn't. Years of bad management and hubris did them in. What I do care about are the emulsions and processing chemicals. Kodak has an enormous amount of intellectual property at hand and I'm anxious that that information get passed on to someone who can do something with it. If Tri-X is called some other name and comes in a box that doesn't have a prominent red and yellow graphic, I'm okay with that. Maybe we'll see some runs of their chemical papers again. A return of Kodachrome? It's not impossible to imagine a vastly smaller company producing of some of these products. Kodak is dead, let's just move on already.

[A valid point of view. I don't care about BMW any more, despite having been almost religious about them at one time. Not the same company any more, so what would be the point? --Mike]

Re Ctein's comment -- back in the 70s and 80s, the leaders of a number of big public companies discovered that they (the leaders) could make a lot of money personally using several different unsustainable strategies. Among these strategies were pumping ostensible profits (and therefore stock prices) by underfunding pension plans. They could do this with the help of amenable actuaries who were willing to propose that the average return on investment would be 8% or 9% forever, which was absurd, but which allowed the underfunding. (And for those interested, this still goes on with huge pension plans like California's stat e retirement system, CalPERS, which is still projecting returns on investment in the range of 7+%, when the current returns on even the longest US bonds is in the neighborhood of 2%, and has been for years, and probably will be for even more years.) These great "profits" disguised the fact that there was a huge debt coming down the the pipe. This did not concern the company leaders so much, because they were focused on the very short term, i.e. the few years that they'd be running the place and cashing their stock options. But when the debt did come due...the pension debt was so large that the pension plans essentially owned the company. This same thing was true of the car companies, which were run through bankruptcy mostly to get rid of that debt (much of it involving medical care plans -- the exploding cost of medical care was another thing not foreseen by the actuaries.)

If I were a UK pensioner, I'd welcome the settlement, is lieu of getting nothing from a shell that has nothing, but I'd also unload that pig at the first possible opportunity.

For those interested, here is a news story about the California retirement system from a year ago about how these things get done...

"CalPERS' board on March 14 voted to reduce the retirement system's assumed investment return to 7.5% from 7.75%, effective July 1. [2012.]

"During the March 13 meeting, Alan Milligan, CalPERS chief actuary, said that if the discount rate is lowered to 7.5%, CalPERS would have a 50% chance of achieving its return goal. It would have a 54% chance of achieving the mark if it reduced the discount rate to 7.25%."

Let me translate that last bit: there's a 50% chance that CalPERS won't be able to pa y its pensioners their full pension without a huge bailout from the taxpayers.

Dear robert e,

It also speaks to the increasing wealth inequity in the US. Roughly the 5% of wealthiest households in the US have an aggregate financial (non-home) wealth in the neighborhood of $20 trillion (give or take 30%, I said it was rough). In the past four years, their wealth has increased by about $5 trillion (again, very rough).

Most of which is in the form of business holdings of one kind or another. That is significant to the discussion.

The first number is 60 times the SP500 unfunded pensions. The gain, all by itself, is 15 times.

If they were content with 1.6% less wealth (oh, the horror, the horror), or alternately, a 5% tax on their gains over the past four years (more horror!) the pension programs would be entirely funded.

As Tim Bradshaw points out, much of the original cause of the problem lies with greedy/stupid investment plans. It's hard to go back and change history, but the problem created by those idiots could be fixed if the wealthy were just a tad less greedy.

Might as well wish for pigs to fly.

pax / Ctein

The Toronto Maple Leafs hockey team were owned by a teachers' pension fund for several years, and it brought high profits and low quality. I hope that's not going to be the model here:)

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