Note 20: Retirement Plans

12 Months Ended

Dec. 31, 2012

NOTE 20: RETIREMENT PLANS

Substantially all U.S. employees are covered by a noncontributory defined benefit plan, the Kodak Retirement Income Plan (“KRIP”), which is funded by the Company contributions to an irrevocable trust fund. The funding policy for KRIP is to contribute amounts sufficient to meet minimum funding requirements as determined by employee benefit and tax laws plus any additional amounts the Company determines to be appropriate. Generally, benefits are based on a formula recognizing length of service and final average earnings. Assets in the trust fund are held for the sole benefit of participating employees and retirees. They are composed of corporate equity and debt securities, U.S. government securities, partnership investments, interests in pooled funds, commodities, real estate, and various types of interest rate, foreign currency, debt, and equity market financial instruments.

In March 1999, the Company amended KRIP to include a separate cash balance formula for all U.S. employees hired after February 1999 (the “Cash Balance Plan”). All U.S. employees hired prior to that date were granted the option to choose the traditional KRIP plan or the Cash Balance Plan. Written elections were made by employees in 1999, and were effective January 1, 2000. The Cash Balance Plan credits employees' hypothetical accounts with an amount equal to 4% of their pay, plus interest based on the 30-year treasury bond rate. In addition, for employees participating in the Cash Balance Plan and the Company's defined contribution plan, the Savings and Investment Plan (“SIP”), the Company matches dollar-for-dollar on the first 1% contributed to SIP and $.50 for each dollar on the next 4% contributed. The Company contributions to SIP were $8 million and $10 million for 2012 and 2011, respectively.

The Company also sponsors unfunded defined benefit plans for certain U.S. employees, primarily executives. The benefits of these plans are obtained by applying KRIP provisions to all compensation, including amounts being deferred, and without regard to the legislated qualified plan maximums, reduced by benefits under KRIP. Employees covered by the Cash Balance Plan also receive an additional benefit equal to 3% of their annual pensionable earnings.

Many subsidiaries and branches operating outside the U.S. have defined benefit retirement plans covering substantially all employees. Contributions by Kodak for these plans are typically deposited under government or other fiduciary-type arrangements. Retirement benefits are generally based on contractual agreements that provide for benefit formulas using years of service and/or compensation prior to retirement. The actuarial assumptions used for these plans reflect the diverse economic environments within the various countries in which Kodak operates.

The measurement date used to determine the pension obligation for all funded and unfunded U.S. and Non-U.S. defined benefit plans is December 31.

Information regarding the major funded and unfunded U.S. and Non-U.S. defined benefit plans follows:

(in millions)	2012						2011
	U.S.			Non-U.S.			U.S.			Non-U.S.
Change in Benefit Obligation
Projected benefit obligation at January 1	$	5,259		$	3,652		$	5,071		$	3,636
Acquisitions/divestitures/other transfers		-			-			(1	)		2
Service cost		48			10			50			16
Interest cost		206			156			254			180
Participant contributions		-			2			-			4
Plan amendments		-			-			-			(4	)
Benefit payments		(422	)		(226	)		(535	)		(226	)
Actuarial loss		385			560			392			160
Curtailments		-			(34	)		-			-
Settlements		-			(8	)		-			(86	)
Special termination benefits		99			-			28			1
Currency adjustments		-			152			-			(31	)
Projected benefit obligation at December 31	$	5,575		$	4,264		$	5,259		$	3,652

Change in Plan Assets
Fair value of plan assets at January 1	$	4,763		$	2,436		$	4,861		$	2,634
Acquisitions/divestitures		-			-			-			1
Actual gain on plan assets		500			157			412			47
Employer contributions		7			29			25			78
Participant contributions		-			2			-			4
Settlements		-			(8	)		-			(86	)
Benefit payments		(422	)		(226	)		(535	)		(226	)
Currency adjustments		-			89			-			(16	)
Fair value of plan assets at January 1	$	4,848		$	2,479		$	4,763		$	2,436

Under Funded Status at December 31	$	(727	)	$	(1,785	)	$	(496	)	$	(1,216	)

Accumulated benefit obligation at December 31	$	5,497		$	4,233		$	5,112		$	3,584

Amounts recognized in the Consolidated Statement of Financial Position for all major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:

	As of December 31,
(in millions)	2012						2011
	U.S.			Non-U.S.			U.S.			Non-U.S.

Other long-term assests	$	-		$	2		$	-		$	-
Other current liabilities		-			-			(18	)		-
Pension and other postretirement liabilities		-			(1,787	)		(478	)		(1,216	)
Liabilities subject to compromise		(727	)		-			-			-
Net amount recognized	$	(727	)	$	(1,785	)	$	(496	)	$	(1,216	)

Information with respect to the major funded and unfunded U.S. and Non-U.S. defined benefit plans with an accumulated benefit obligation in excess of plan assets follows:

	As of December 31,
(in millions)	2012				2011
	U.S.		Non-U.S.		U.S.		Non-U.S.

Projected benefit obligation	$	5,575	$	4,229	$	5,259	$	3,652
Accumulated benefit obligation		5,497		4,198		5,112		3,584
Fair value of plan assets		4,848		2,441		4,763		2,436

Amounts recognized in Accumulated other comprehensive loss for all major funded and unfunded U.S. and Non-U.S. defined benefit plans consisted of:

	As of December 31,
(in millions)	2012						2011
	U.S.			Non-U.S.			U.S.			Non-U.S.

Prior service cost	$	(5	)	$	(25	)	$	(6	)	$	(26	)
Net actuarial loss		(2,237	)		(2,202	)		(2,135	)		(1,663	)
Total	$	(2,242	)	$	(2,227	)	$	(2,141	)	$	(1,689	)

Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for all major funded and unfunded U.S. and Non-U.S. defined benefit plans follows:

	2012						2011
(in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.

Newly established loss	$	(275	)	$	(567	)	$	(414	)	$	(322	)
Newly established prior service cost		-			-			-			4
Amortization of:
Prior service cost		1			3			1			4
Net actuarial loss		173			66			69			52
Prior service cost recognized due to curtailment		-			(1	)		-			4
Net curtailment gain not recognized in expense		-			34			-			-
Net loss recognized in expense due to settlements		-			3			-			10
Acquisitions, divestitures and other transfers		-			-			-			(1	)
Total amount recognized in Other comprehensive loss	$	(101	)	$	(462	)	$	(344	)	$	(249	)

The actuarial loss and prior service cost estimated to be amortized from Accumulated other comprehensive loss into net periodic pension cost over the next year for all major plans is $284 million and $3 million, respectively.

Pension (income) expense from continuing operations for all defined benefit plans included:

	For the Year Ended December 31,
(in millions)	2012						2011						2010
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Major defined benefit plans:
Service cost	$	48		$	10		$	50		$	16		$	48		$	14
Interest cost		206			156			254			180			263			177
Expected return on plan assets		(389	)		(164	)		(435	)		(209	)		(475	)		(210	)
Amortization of:
Prior service cost		1			3			1			4			1			1
Actuarial loss		173			66			69			52			5			37
Pension (income) expense before special termination benefits, curtailments and settlements		39			71			(61	)		43			(158	)		19

Special termination benefits		99			-			28			1			27			1
Curtailment (gains) losses		-			(1	)		-			4			-			(7	)
Settlement losses		-			3			-			10			-			1
Net pension (income) expense for major defined benefit plans		138			73			(33	)		58			(131	)		14
Other plans including unfunded plans		-			11			-			12			-			11
Net pension (income) expense from continuing operations	$	138		$	84		$	(33	)	$	70		$	(131	)	$	25

The special termination benefits of $99 million, $29 million, and $28 million for the years ended December 31, 2012, 2011, and 2010, respectively, were incurred as a result of Kodak's restructuring actions and, therefore, have been included in Restructuring costs and other in the Consolidated Statement of Operations for those respective periods.

For 2011, $3 million of the curtailment losses and $1 million of the settlement losses were incurred as a result of Kodak’s restructuring actions and, therefore, have been included in Restructuring costs and other in the Consolidate Statement of Operations for 2011. For 2012, $1 million of the settlement losses were incurred as a result of Kodak’s restructuring actions and, therefore, have been included in Restructuring costs and other in the Consolidated Statement of Operations for 2012.

The weighted-average assumptions used to determine the benefit obligation amounts as of the end of the year for all major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:

	As of December 31,
	2012						2011
	U.S.			Non-U.S.			U.S.			Non-U.S.

Discount rate		3.50	%		3.55	%		4.25	%		4.37	%
Salary increase rate		3.40	%		2.84	%		3.45	%		2.99	%

The weighted-average assumptions used to determine net pension (income) expense for all the major funded and unfunded U.S. and Non-U.S. defined benefit plans were as follows:

	For the Year Ended December 31,
	2012						2011						2010
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.

Discount rate		4.25	%		4.41	%		5.24	%		4.95	%		5.75	%		5.39	%
Salary increase rate		3.45	%		2.98	%		3.99	%		3.89	%		4.05	%		3.87	%
Expected long-term rate of return on plan assets		8.52	%		7.02	%		8.43	%		7.64	%		8.73	%		7.76	%

Plan Asset Investment Strategy

The investment strategy underlying the asset allocation for the pension assets is to achieve an optimal return on assets with an acceptable level of risk while providing for the long-term liabilities, and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plans. This is primarily achieved by investing in a broad portfolio constructed of various asset classes including equity and equity-like investments, debt and debt-like investments, real estate, private equity and other assets and instruments. Long duration bonds and treasury bond futures are used to partially match the long-term nature of plan liabilities. Other investment objectives include maintaining broad diversification between and within asset classes and fund managers, and managing asset volatility relative to plan liabilities.

Every three years, or when market conditions have changed materially, each of Kodak’s major pension plans will undertake an asset allocation or asset and liability modeling study. The asset allocation and expected return on the plans’ assets are individually set to provide for benefits and other cash obligations and within each country’s legal investment constraints.

Actual allocations may vary from the target asset allocations due to market value fluctuations, the length of time it takes to implement changes in strategy, and the timing of cash contributions and cash requirements of the plans. The asset allocations are monitored, and are rebalanced in accordance with the policy set forth for each plan.

Of the total plan assets attributable to the major U.S. defined benefit plans at December 31, 2012, 96% relate to KRIP. The expected long-term rate of return on plan assets assumption (“EROA”) is based on a combination of formal asset and liability studies that include forward-looking return expectations given the current asset allocation. A review of the EROA as of December 31, 2012, based upon the current asset allocation and forward-looking expected returns for the various asset classes in which KRIP invests, resulted in an EROA of 8.20%.

As with KRIP, the EROA assumptions for certain of Kodak’s other pension plans were reassessed as of December 31, 2012. The annual expected return on plan assets for the major non-U.S. pension plans range from 3.70% to 7.30% based on the plans’ respective asset allocations as of December 31, 2012.

Plan Asset Risk Management

Kodak evaluates its defined benefit plans’ asset portfolios for the existence of significant concentrations of risk. Types of concentrations that are evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2012 and 2011, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in Kodak’s defined benefit plan assets.

Kodak's weighted-average asset allocations for its major U.S. defined benefit pension plans, by asset category, are as follows:

	As of December 31,
Asset Category	2012			2011			2012 Target

Equity securities		25	%		17	%	13%	-	27%
Debt securities		38	%		38	%	35%	-	47%
Real estate		4	%		4	%	2%	-	10%
Cash		2	%		7	%	0%	-	6%
Global balanced asset allocation funds		11	%		6	%	5%	-	12%
Other		20	%		28	%	19%	-	29%
Total		100	%		100	%

Kodak's weighted-average asset allocations for its major non-U.S. defined benefit pension plans, by asset category are as follows:

	As of December 31,
Asset Category	2012			2011			2012 Target

Equity securities		13	%		16	%	11%	-	18%
Debt securities		40	%		44	%	40%	-	48%
Real estate		2	%		3	%	0%	-	9%
Cash		2	%		4	%	0%	-	6%
Global balance asset allocation funds		3	%		0	%	0%	-	6%
Other		40	%		33	%	33%	-	43%
Total		100	%		100	%

The Other asset category in the tables above is primarily composed of private equity, venture capital, and other investments.

Fair Value Measurements

Kodak’s asset allocations by level within the fair value hierarchy at December 31, 2012 and 2011 are presented in the tables below for Kodak’s major defined benefit plans. Kodak’s plan assets were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Kodak’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value of assets and their placement within the fair value hierarchy levels.

Major U.S. Plans

December 31, 2012

(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	-		$	83	$	-	$	83

Equity Securities		221			804		163		1,188

Debt Securities:
Government Bonds		-			538		201		739
Inflation-Linked Bonds		-			111		104		215
Investment Grade Bonds		-			386		-		386
Global High Yield & Emerging Market Debt		-			324		201		525

Other:
Real Estate		-			-		198		198
Private Equity		-			-		1,002		1,002
Insurance Contracts		-			1		-		1
Global Balanced Asset Allocation Funds		-			530		-		530
Derivatives with unrealized gains		7			-		-		7
Derivatives with unrealized losses		(26	)		-		-		(26	)
	$	202		$	2,777	$	1,869	$	4,848

Major U.S. Plans

December 31, 2011

(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	-	$	321	$	-	$	321

Equity Securities		192		488		136		816

Debt Securities:
Government Bonds		-		487		237		724
Inflation-Linked Bonds		-		231		260		491
Investment Grade Bonds		-		449		-		449
Global High Yield & Emerging Market Debt		-		132		-		132

Other:
Absolute Return		-		210		135		345
Real Estate		-		-		213		213
Private Equity		-		-		971		971
Insurance Contracts		-		1		-		1
Global Balanced Asset Allocation Funds		-		288		-		288
Derivatives with unrealized gains		12		-		-		12
	$	204	$	2,607	$	1,952	$	4,763

For Kodak’s major U.S. defined benefit pension plans, equity investments are invested broadly in U.S. equity, developed international equity, and emerging markets. Fixed income investments are comprised primarily of long duration U.S. Treasuries and global government bonds, U.S. below investment-grade corporate bonds, as well as U.S. and emerging market companies’ debt securities diversified by sector, geography, and through a wide range of market capitalizations. Real estate investments include investments in office, industrial, retail and apartment properties. Other investments include private equity, hedge funds and natural resource investments. Private equity investments are primarily comprised of limited partnerships and fund-of-fund investments that invest in distressed investments, venture capital, leveraged buyout and special situation funds. Natural resource investments in oil and gas partnerships and timber funds are also included in this category.

Major Non-U.S. Plans

December 31, 2012

(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	-		$	57	$	-	$	57

Equity Securities		43			276		13		332

Debt Securities:
Government Bonds		-			145		7		152
Inflation-Linked Bonds		-			275		251		526
Investment Grade Bonds		-			74		-		74
Global High Yield & Emerging Market Debt		-			229		-		229

Other:
Absolute Return		-			324		-		324
Real Estate		-			5		44		49
Private Equity		-			2		322		324
Insurance Contracts		-			338		-		338
Global Balanced Asset Allocation Funds		-			71		-		71
Derivatives with unrealized gains		4			-		-		4
Derivatives with unrealized losses		(1	)		-		-		(1	)
	$	46		$	1,796	$	637	$	2,479

Major Non-U.S. Plans

December 31, 2011

(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	-	$	101	$	-	$	101

Equity securities		58		330		6		394

Debt securities:
Government Bonds		-		151		6		157
Inflation-Linked Bonds		-		356		251		607
Investment Grade Bonds		-		97		-		97
Global High Yield & Emerging Market Debt		-		223		-		223

Other:
Absolute Return		-		145		-		145
Real Estate		-		4		55		59
Private Equity		-		2		312		314
Insurance Contracts		-		339		-		339
	$	58	$	1,748	$	630	$	2,436

For Kodak’s major non-U.S. defined benefit pension plans, equity investments are invested broadly in local equity, developed international and emerging markets. Fixed income investments are comprised primarily of long duration government and corporate bonds with some emerging market debt. Real estate investments include investments in primarily office, industrial, and retail properties. Other investments include private equity, hedge funds, and insurance contracts. Private equity investments are comprised of limited partnerships and fund-of-fund investments that invest in distressed investments, venture capital and leveraged buyout funds.

Cash and cash equivalents are valued utilizing cost approach valuation techniques. Equity securities and debt securities are valued using a market approach based on the closing price on the last business day of the year (if the securities are traded on an active market), or based on the proportionate share of the estimated fair value of the underlying assets (net asset value). Other investments are valued using a combination of market, income, and cost approaches, based on the nature of the investment. Absolute return investments are primarily valued based on net asset value derived from observable market inputs. Real estate investments are valued primarily based on independent appraisals and discounted cash flow models, taking into consideration discount rates and local market conditions. Private equity investments are valued primarily based on independent appraisals, discounted cash flow models, cost, and comparable market transactions, which include inputs such as discount rates and pricing data from the most recent equity financing. Insurance contracts are primarily valued based on contract values, which approximate fair value.

Some of the plans’ assets, primarily absolute return, real estate, and private equity, do not have readily determinable market values due to the nature of these investments. For these investments, fund manager or general partner estimates were used where available. The estimates for the absolute return assets are derived from observable inputs, based on the fair value of the underlying positions, which have readily available market prices. For investments with lagged pricing, Kodak used the available net asset values, and also considered expected return, subsequent cash flows and material events.

For all of Kodak’s major defined benefit pension plans, investment managers are selected that are expected to provide best-in-class asset management for their particular asset class, and expected returns greater than those expected from existing salable assets, especially if this would maintain the aggregate volatility desired for each plan’s portfolio. Investment managers are retained for the purpose of managing specific investment strategies within contractual investment guidelines. Certain investment managers are authorized to invest in derivatives such as futures, swaps, and currency forward contracts. Investments in futures and swaps are used to obtain targeted exposure to a particular asset, index or bond duration and only require a portion of the cash to gain exposure to the notional value of the underlying investment. The remaining cash is available to be deployed and in some cases is invested in a diversified portfolio of various uncorrelated hedge fund strategies that provide added returns at a lower level of risk. Of the investments shown in the major U.S. plans table as of December 31, 2012 above, 11%, 15% and 4% of the total U.S. assets reported within equity securities, government bonds, and inflation-linked bonds, respectively, are reflective of the exposures gained from the use of derivatives, and are invested in a diversified portfolio of hedge funds using equity, debt, commodity, and currency strategies. Of the investments shown in the major U.S. plans table as of December 31, 2011 above, 9% and 15% of the total U.S. assets reported within equity securities and government bonds, respectively, are reflective of the exposures gained from the use of derivatives, and are invested in a diversified portfolio of hedge funds using equity, debt, commodity, and currency strategies. Of the investments shown in the major Non-U.S. plans table as of December 31, 2012 above, 3%, 4% and 20% of the total Non-U.S. assets reported within equity securities, government bonds, and inflation-linked bonds, respectively, are reflective of the exposures gained from the use of derivatives, and are invested in a diversified portfolio of hedge funds using equity, debt, commodity, and currency strategies. Of the investments shown in the major Non-U.S. plans table as of December 31, 2011 above, 5%, 3%, and 19% of the total Non-U.S. assets reported within equity securities, government bonds, and inflation-linked bonds, respectively, are reflective of the exposures gained from the use of derivatives, and are invested in a diversified portfolio of hedge funds using equity, debt, commodity, and currency strategies. Foreign currency contracts and swaps are used to partially hedge foreign currency risk. Additionally, Kodak’s major defined benefit pension plans invest in government bond futures or local government bonds to partially hedge the liability risk of the plans.

The following is a reconciliation of the beginning and ending balances of level 3 assets of Kodak’s major U.S. defined benefit pension plans (in millions):

	Balance at January 1, 2012		Net Realized and Unrealized Gains/(Losses)			Net Purchases and Sales			Net Transfer Into/(Out of) Level 3			Balance at December 31, 2012

Equity Securities	$	136	$	16		$	11		$	-		$	163
Government Bonds		231		27			(63	)		-			201
Inflation-Linked Bonds		260		21			(177	)		-			104
Global High Yield & Emerging Market Debt		-		24			177			-			201
Absolute Return		135		10			20			(165	)		-
Real Estate		213		(9	)		(6	)		-			198
Private Equity		971		126			(95	)		-			1,002
Total	$	1,952	$	215		$	(133	)	$	(165	)	$	1,869

	U.S.
	Balance at January 1, 2011		Net Realized and Unrealized Gains/(Losses)		Net Purchases and Sales			Net Transfer Into/(Out of) Level 3		Balance at December 31, 2011

Equity Securities	$	162	$	3	$	(29	)	$	-	$	136
Government Bonds		292		8		(63	)		-		237
Inflations-Linked Bonds		221		39		-			-		260
Absolute Return		-		-		135			-		135
Real Estate		240		18		(45	)		-		213
Private Equity		1,063		139		(231	)		-		971
Total	$	1,978	$	207	$	(233	)	$	-	$	1,952

The following is a reconciliation of the beginning and ending balances of level 3 assets of Kodak’s major Non-U.S. defined benefit pension plans (in millions):

	Balance at January 1, 2012		Net Realized and Unrealized Gains/(Losses)		Net Purchases and Sales			Net Transfer Into/(Out of) Level 3			Balance at December 31, 2012

Equity Securities	$	6	$	1	$	6		$	-		$	13
Government Bonds		6		1		-			-			7
Inflation-Linked Bonds		251		21		13			(34	)		251
Real Estate		55		2		(13	)		-			44
Private Equity		312		28		(18	)		-			322
Total	$	630	$	53	$	(12	)	$	(34	)	$	637

	Non-U.S.
	Balance at January 1, 2011		Net Realized and Unrealized Gains/(Losses)			Net Purchases and Sales			Net Transfer Into/(Out of) Level 3		Balance at December 31, 2011

Equity Securities	$	6	$	-		$	-		$	-	$	6
Government Bonds		208		(3	)		(199	)		-		6
Inflation-Linked Bonds		65		6			180			-		251
Real Estate		81		(12	)		(14	)		-		55
Private Equity		307		37			(32	)		-		312
Total	$	667	$	28		$	(65	)	$	-	$	630

Kodak expects to contribute approximately $1 million and $34 million in 2013 for U.S. and Non-U.S. defined benefit pension plans, respectively. These estimates exclude any payments to be determined through the Bankruptcy Proceedings for the U.S. non-qualified pension plans, as well as payments subject to negotiation for the KPP.

The following pension benefit payments, which reflect expected future service, are expected to be paid from the plans:

(in millions)		U.S.		Non-U.S.
2013	(1)	$	928	$	204
2014			359		200
2015			351		202
2016			341		195
2017			333		193
2018-2022			1,560		977

(1) Assumes that the prohibited payment restriction currently in effect for the U.S. qualified pension plans will be lifted upon funding certification in 2013 and excludes any payments to be determined through the Bankruptcy Proceedings for the U.S. non-qualified pension plans.