Eastman Kodak, an American icon that is struggling to survive, could find that one of its costliest problems hails from overseas. The bill is coming due for years of generous pensions and other benefits that the photography company promised employees, especially in the UK where it has manufacturing operations dating to the 1800s and still supports thousands of retirees.
Whatever Kodak's fate as it grapples with a global shift to digital photography, five consecutive years of annual net losses and a consistent cash drain as it spends on new businesses, the UK pension problems are not going away.
Kodak has promised to spend about $800 million over the next decade to shore up its UK pension fund. Unlike its UK counterpart, Kodak's US fund has gotten no such pledges from the company, and as of the end of 2010 was fully funded.
The UK Pensions Regulator can seek legal authority under UK law to take aim beyond its borders - its so-called moral hazard powers - setting up a scenario in which UK pension interests could be a major factor in any Kodak restructuring. UK pension fund trustees and regulators have increasingly tried, with some success, to maneuver US companies into paying more into underfunded UK plans in recent years. There could be "substantial pensions claims" from the UK against Kodak if the company lands in bankruptcy, said attorney Paul Silverstein of law firm Andrews Kurth LLP. He is advising some Kodak creditors who may have claims against the company. Bankruptcy is a possible outcome, this person said.
Kodak spokesman Christopher Veronda this week declined to comment on the possibility of bankruptcy or on the role of the UK pension in the company's current restructuring. The company said on January 10 it was reorganising into two business units, commercial and consumer, down from three. The move came weeks after three board members resigned without explanation.
Talk of a Kodak meltdown heated up in September after the company drew down $160 million in cash from a credit line, an unprecedented move for Kodak.
Kodak had $862 million in cash as of late September, down from $1.4 billion a year earlier. It warned in a November filing with the US Securities and Exchange Commission that its ability to keep operating over the next 12 months depended on its ability to issue new debt or sell patents.
Pensions have been a looming issue for Kodak, which like many US manufacturers offered extensive medical benefits and pension payouts for workers when times were better and such perks were standard.
Kodak's ties to the UK began in the 1800s and continued in the 1900s. Whole communities were built around the plants, similar to its hometown of Rochester.
Kodak opened a sales office in London in 1885 and built its first UK manufacturing plant in 1891 in Harrow, in north-west London.