A month after it filed for Chapter 11 bankruptcy protection, Eastman Kodak Co. asked a federal court Monday to allow it to cut health care benefits for thousands of retirees.
Kodak said in a letter to its retirees that ever since it filed for bankruptcy protection, it had sought to "balance the needs of our retirees with the needs of the Company."
Now, however, it is "clearer than ever that in order to remain a participant in the market tomorrow, we must put Kodak on a sustainable financial path today," said the letter, which was obtained by NBC station WHEC of Rochester, N.Y., Kodak's hometown.
In a motion scheduled to be heard March 20 in U.S. Bankruptcy Court in New York, Kodak said it wants to discontinue benefits under Kodak's medical plan for all retirees 65 and over and any who are under 65 but are eligible for Medicare. The motion says it would also affect current employees who are retirement eligible when they leave the company, along with their survivors and dependents.
The changes would go into effect May 1 if they're approved by U.S. Bankruptcy Judge Allan Gropper.
In its court filing, Kodak said the changes would affect about 16,000 retirees — those who retired after Sept. 30, 1991, meaning those over age 85 or so wouldn't be affected. The company would save about $13.5 million this year and about $20.5 million a year afterward, it said.
Read the full court filing (.pdf)
Kodak told its retirees that the change is "one of many difficult but necessary decisions the Company needs to make in order to establish a financially sustainable course for the future," saying retirees' health care payments were "legacy costs" that shouldn't transfer to whatever new company emerges from bankruptcy proceedings.
In an attached set of questions and answers, it referred retirees to "local insurance companies to find out what options are available in your area" or to the Medicare website.
The Eastman Kodak Retirees Association, a nonprofit group representing about 63,000 retired Kodak workers, dependents and beneficiaries, said it doesn't intend to fight for reinstatement of lost benefits.
"We are only focusing on how to manage any possible further declines in the future," it said on its website.
The motion doesn't affect Kodak's pension plan, which is being overseen by the federal Pension Benefit Guaranty Corp.
Kodak filed for Chapter 11 protection on Jan. 19 as part of an arrangement to obtain a $950 million credit line to allow it to stay open while it reorganizes. Two weeks ago, it said it was getting out of the film and camera business altogether, focusing on printing and licensing its brand to other camera makers.
Here's the entire Kodak letter:
Dear Kodak Retiree, LTD Recipient or Survivor:
Eastman Kodak Company and its U.S. subsidiaries filed for Chapter 11 reorganization on January 19, 2012 with the following objectives:
To enhance the Company's liquidity position in order to maintain the confidence of and relationships with our vendors, suppliers, and customers;
To spur the monetization of the Company's valuable intellectual property and fully enforce our intellectual property rights against industry participants that have infringed our proven and valuable digital imaging patents;
To fairly apportion our legacy costs for a company of the size we are today; and
To maximize the value of the Kodak enterprise for all of our stakeholders by reorganizing around our commercial and consumer business units.
Among the legacy costs that must be addressed as part of our reorganization are retiree health care costs that are not borne by many of the companies we compete against in the marketplace. As we have changed these benefits over time, we have always tried to balance the needs of our retirees with the needs of the Company. It is now clearer than ever that in order to remain a participant in the market tomorrow, we must put Kodak on a sustainable financial path today.
You are receiving the enclosed legal motion because there is an important hearing scheduled on March 20, 2012, at which time the U.S. Bankruptcy Court will consider a planned change in Kodak retiree medical coverage that we believe will affect you. This letter summarizes the proposed change, which we believe represents a necessary step in Kodak's efforts to become a competitive and sustainable enterprise during and after its Chapter 11 reorganization process. We urge you to read the entire legal motion enclosed with this letter and to consult an attorney with any questions you may have.
The motion filed by the Company would discontinue retiree benefits under Kodak's medical plan (defined in the motion as "Medicare Enhanced Benefits") for the following individuals who have attained age 65 (regardless of Medicare eligibility) or are under age 65 and Medicare eligible:
Former employees who retired on or after October 1, 1991;
Former employees who became eligible for long-term disability benefits on or after October 1, 1991;
Current employees who are retirement eligible when they leave the Company; and
Survivors and dependents of these individuals.
A hearing to consider the motion is scheduled to occur in the United States Bankruptcy Court for the Southern District of New York (located at One Bowling Green, New York, New York 10004) on March 20, 2012. Pending approval of the Bankruptcy Court, this change will become effective on May 1, 2012.
Our ultimate objective is to preserve a set of retiree benefits that are most critical to our retiree population and which would be difficult to replace. Preserving these most critical benefits must be accomplished within the bounds of affordability for the Kodak that will emerge from Chapter 11. As such, this proposed change to retiree medical benefits represents one important step in an ongoing process to address Kodak's legacy costs and enable the Company to move toward a more sustainable path.
We understand that this change will be difficult. However, individuals affected by this change who have Medicare coverage will continue to be covered by Medicare, and will typically have access to a variety of other insurance options available in their community to supplement their Medicare coverage. In some cases, the costs associated with these options may be lower than what you are now paying under the Kodak plan. All affected individuals will also have the opportunity to elect COBRA continuation coverage under the Kodak plan. More details on COBRA coverage will be provided at a later date.
We are committed to keeping you informed throughout this process. To help us deliver timely communications to you, we need your help. If you would like to receive such communications electronically, please go to the retiree tab of the Kodak Transforms website at www.kodaktransforms.com and look for instructions for how to subscribe to future e-mail notifications.
Sincerely,
Patrick M. Sheller
Senior Vice President, General Counsel,
Secretary & Chief Administrative Officer
Eastman Kodak Company
NBC station WHEC of Rochester, N.Y., contributed to this report.
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