Kodak Stock Is Rising. It Found a Boatload of Cash -- in the Pension Plan. -- Barrons.com

Al Root

Kodak stock jumped Tuesday after it found a lot of cash -- in the company's pension plan.

Monday, Kodak said its pension plan sold "illiquid" assets worth about $764 million for about $551 million. It's selling some other assets listed at $87 million for $62 million.

There's more: Kodak is also considering ending its retiree pension plan, the Kodak Retirement Income Plan, and taking the excess cash. Workers, of course, still have to get what they are owed. They can with a new plan or an annuity purchased from an insurance company.

The reason this is possible is because Kodak's pension plan is overfunded -- by a lot.

Kodak ended 2023 with pension plan assets of about $3.5 billion and obligations of about $2.4 billion. It had $1.1 billion more than it needed to pay workers their owed retirement income, according to generally accepted accounting principles.

"Ordinarily, reverting a pension surplus is futile since the reversion can be taxed at rates as high as 75 percent," says accounting expert Robert Willens. Kodak will only be taxed at 20% for a couple of reasons, including the ability to use prior losses to offset taxes.

Kodak isn't about cameras and film anymore: The company offers some hardware and software for printing. Sales in 2023 amounted to about $1.1 billion. It reported a 2023 profit, but cumulative losses over the past 10 years amount to $740 million, according to FactSet.

"In the old days, leveraged buyout artists used to regularly terminate the pension plans of their targets, using the reverted funds to help finance the buyout," added Willens. "The excise taxes created by Congress in 1986 made this a losing proposition."

Kodak could get roughly $900 million to $1 billion, according to the filing. That's a lot for a company with a market capitalization of about $450 million.

Shares jumped 7.2% in early trading Tuesday at $6.70 apiece, while the S&P 500 and Dow Jones Industrial Average were up 0.1% and down 0.7%, respectively.

The early gains left Kodak shares up north of 70% year to date.

Write to Al Root at allen.root@dowjones.com

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November 26, 2024 11:57 ET (16:57 GMT)

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