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kodk-corresp.htm

December 28, 2021

Securities and Exchange Commission

Division of Corporation Finance

Office of Life Sciences

100 F Street, N.E.

Washington, D. C.  20549

Attention:

Terence O’Brien, Branch Chief

Al Pavot, Staff Accountant

Regarding:

EASTMAN KODAK COMPANY

Form 10-K filed March 16, 2021

Form 10-Q filed August 10, 2021

File No.  001-00087

Please find attached Eastman Kodak Company’s response to the staff’s letter addressed to Roger Byrd, General Counsel of Eastman Kodak Company dated November 15, 2021.

If you have any questions, please do not hesitate to call me at (585) 726-3576 or David E. Bullwinkle, Chief Financial Officer, at (585) 726-3471.

Sincerely,

Eastman Kodak Company

/s/ Richard T. Michaels

Richard T. Michaels

Chief Accounting Officer and

Corporate Controller

1

In connection with its response to the staff’s comments, Eastman Kodak Company (the “Company”) acknowledges the following:

•

The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

•

Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

•

The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

The staff’s comments are noted below in bold. The Company’s responses are directly below each of the staff’s comments.

Response Letter filed October 14, 2021

Form 10-K filed March 16, 2021

Note 20 -- Retirement Plans, page 83

1.

ASC 715-20-50-1d states that the objectives of benefit plan asset disclosures include providing users of the financial statements with an understanding of the classes of plan assets and any significant concentrations of risk therein. It is not clear whether your existing disclosures, or your proposed revisions, fully satisfy these objectives. For example, your disclosure on page 88 reports that $1.1 billion of Plan Assets are invested in government bonds, but three pages later you disclose that the entire balance is comprised of derivatives. You now propose to revise your table of Plan Assets to recharacterize these assets as Hedge Funds. This proposed revision does not clearly communicate that the hedge fund assets appear to be primarily comprised of derivative instruments. Please provide us with a schedule that segregates your December 31, 2020, hedge fund investments into more detailed asset classes so we can better understand the nature of your Plan investments and whether your proposed revisions are consistent with the cited objectives. The detailed asset classes should be consistent with the relevant risk factors that materially impact each investment. For example, it may be appropriate to separate your hedge fund investments based on their primary underlying assets, e.g. interest rate derivative instrument hedge funds, foreign exchange derivative instrument hedge funds, distressed investments hedge funds, natural resource investment hedge funds, etc. Please see ASC 715-20-50-1d.5 and the examples provided in ASC 820-10-55-100 and 107 as well as the analogous guidance in ASC 820-10-50-2.

Response:  The Company classified its investments in the table of plan assets to align to the Plan’s investment allocation strategy which is described in the Plan Asset Risk Management section on page 87 of the Company’s 2020 Form 10-K.  As a result of this approach, the Company allocated the total net asset value (“NAV”) of a pool of hedge fund investments and associated liquidity cash reserves to the equity securities and government bonds asset classes.  As disclosed on page 91 of the Company’s 2020 Form 10-K, the amount of hedge funds included in the equity securities and government bond asset classes were 4% and 29%, respectively, of Total U.S. Plan assets as of December 31, 2020.  Please refer to the Company’s response to comment number 4 below on how these percentages were calculated.

2

Derivative Instruments:

The Company’s U.S. pension plan uses derivatives investments primarily to hedge liability interest rate risk to U.S. government bonds or to gain exposure to equity markets.  The Plan’s derivative portfolio consists of exchange traded futures contracts.  As of December 31, 2020, the notional amount of these derivative instruments approximated $1.6 billion.  Equity derivative exposure is to U.S. and non-U.S. major equity indices.  Government bond exposure is via U.S. government bond futures.  The fair value of these derivative instruments is included in the derivative line items in the table of plan assets and amount to $3 million for derivatives with unrealized gains, and $(7) million for derivatives with unrealized losses, as of December 31, 2020.

As previously provided in our response letter dated October 14, 2021, in response number 4, an increase in interest rates is the primary factor that could precipitate material losses in the Company’s existing derivatives portfolio.  For example, a 25-basis point increase in interest rates would cause a loss from the government bond derivatives of approximately $30 million.  However, as disclosed on page 32 in the Company’s 2020 Form 10-K, a 25-basis point increase in the discount rate used to measure the projected benefit obligation (“PBO”) of the U.S. Plan would cause a $74 million decrease in the PBO.  Accordingly, while an increase in interest rates would expose the Company’s derivative investments included in the U.S. Plan to losses, it would also likely result in an offsetting decrease in the U.S. Plan’s PBO.

The Plan is required to maintain cash on deposit to collateralize its obligations under its futures contracts.  As of December 31, 2020, approximately $40 million in cash was on deposit to fulfill these requirements and was included in the total NAV value that was allocated to the equity securities and government bonds asset classes.

Disclosure similar to the preceding paragraphs will be included in future Form 10-K filings.

Hedge Funds Investments:

Hedge fund investments are managed by the Plan in two separate portfolios:

1)

Incremental Return Hedge Funds - When derivative investments are used as described above, the Plan will also invest in hedge funds to generate returns in addition to the return generated by the derivatives. This investment strategy is described in the Company’s 2020 Form 10-K on page 91 as follows “where exposures are obtained via derivatives, the majority of the exposure value is available to be invested, and is typically invested, in a diversified portfolio of hedge fund strategies.”

As an example, a change in interest rates is the primary risk factor that impacts the U.S. Plan’s projected benefit obligation.  To hedge this risk the Plan purchases U.S. government bond futures contracts which requires less capital than purchasing the same amount of U.S. government bonds.  The majority of the excess capital, which represents the difference between the capital needed to purchase these futures contracts and the portion of capital allocated to the government bonds asset class associated with this type of structure, is invested in a diversified portfolio of hedge funds.  A similar structure is used to help achieve the Plan’s desired exposure to equity markets.

The term “derivative-linked hedge funds” was used by the Company to distinguish this portfolio of hedge funds investments from the absolute return hedge funds discussed below.  These hedge fund investments are not derivative instruments, and they are not focused on derivatives-oriented investment strategies.  In future Form 10-K filings, the Company will discontinue using the term “derivative linked investments” when describing the nature of these investments.

3

As noted above, the net asset values of these hedge fund investments and liquidity cash reserves were allocated to the equity securities and government bond asset classes in the table of plan assets.

2)

Absolute Return Hedge Funds - the Plan invests in a separate portfolio of hedge funds without the use of corresponding derivative instruments. The objective of this portfolio is to seek a higher absolute return.  The net asset value of these stand-alone hedge fund investments was reported in the absolute return asset class.

Classes of Plan Assets:

The Company’s proposal to separately disclose investments in hedge funds from other equity and debt securities was not to recharacterize the nature of these investments but to clarify the amount of hedge funds in these categories.

Determining the appropriate classes of assets requires significant judgment and we acknowledge the staff’s comments.  In future Form 10-K filings we will separately disclose hedge funds as a separate asset class in the table of plan assets. The table below represents the U.S. Plan revised asset classes as of December 31, 2020:

U.S.

(in millions)

Quoted Prices
in Active
Markets for
Identical

 Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant Unobservable
Inputs
(Level 3)

Assets Measured
at
NAV

Total

Cash and cash equivalents

 $              194

 $           —

 $             —

 $            —

 $    194

Global Equity Securities Funds

                        —

               —

                    —

                       253

       253

Debt Securities:

Government Bonds

                          1

               —

                    —

                           2

           3

Investment Grade Bonds

                        —

             446

                    —

                          —

       446

Real Estate

                        —

               —

                    —

                         37

         37

Global Balanced Asset Allocation Funds

                        —

               —

                    —

                       514

       514

Other:

Hedge Funds

                        —

                 5

                    —

                    1,485

    1,490

Private Equity

                        —

               —

                      5

                       769

       774

Derivatives with unrealized gains

                          3

               —

                    —

                          —

           3

Derivatives with unrealized losses

                        (7)

               —

                    —

                          —

         (7)

 $              191

 $         451

 $               5

 $      3,060

 $ 3,707

4

The portfolio of hedge funds that was previously included in the absolute return asset class is now reported as part of the hedge funds asset class in the above table.  The hedge fund line item will include both portfolios of hedge funds and additional disclosure will be provided regarding the two hedge fund strategies similar to what is described above.  In addition, the Company reclassified $40 million cash on deposit to collateralize its obligations under its futures contracts and $89 million of cash liquidity reserves associated with hedge funds to cash and cash equivalents.  Further, in response to the staff’s comment number 11, the Company changed the classification of these investments from NAV to level 1 as the underlying investments are determined to have a readily determinable fair value.  Please refer to the Company’s response to comment number 11 for additional information.  Lastly, the revised table of plan assets reflects a reclassification of $58 million related to a fund included in hedge funds to the private equity asset class.

In determining the asset classes, the Company also considers significant concentrations of risk within plan assets. As disclosed on page 87 in the 2020 Form 10-K, there is no individual fund that exceeded 10% of plan assets as of December 31, 2020.

However, an investment manager of a hedge fund and a fund included in the global balanced asset allocation funds asset class managed 12% of U.S. Plan Assets as of December 31, 2020.  No other investment manager manages over 10% of plan assets as of December 31, 2020.  The Company will supplement its disclosures in future filings to discuss whether there are any significant concentrations of plan assets (i.e., concentrations > 10% of plan assets) where the management of those assets resides with a single investment manager.

In accordance with ASC 715-20-50-1d.5 and the examples provided in ASC 820-10-55-100 and 107, the Company will provide in future Form 10-K filings further disaggregation of hedge fund investments by type as discussed below.

The Plan evaluates several factors for investing in hedge funds including investment strategy, return, risk, liquidity, correlation to other funds and number of funds in order to achieve a diversified portfolio of hedge funds.  The table below summarizes the Plan’s investments in hedge funds by type for those investments valued at NAV:

(in millions)

Net Asset Value

as of

December 31, 2020

Redemption Frequency

Redemption Notice Period

Multi-strategy hedge funds

$     530

Monthly, Quarterly

15-90 days

Relative value hedge funds

312

Bi-monthly, Quarterly

6-365 days

Directional hedge funds

222

Bi-monthly, monthly

5-30 days

Equity long/short hedge funds

207

Quarterly

45-90 days

Long-biased hedge funds

121

Quarterly, Annually

60-75 days

Event driven hedge funds

93

Quarterly

90 days

  Total

$   1,485

5

These investments are made through direct investments in individual hedge funds.  These investments substantially consist of a diversified portfolio of hedge funds that use equity, debt, commodity, currency strategies and derivative instruments.  Certain investments include restrictions on redemption requests that extend beyond the redemption terms outlined in the table above.  As of December 31, 2020, these investments with such restrictions represent approximately 5% of the hedge funds investments valued at NAV.

As previously provided in our response letter dated September 13, 2021, in response number 3, hedge funds are primarily valued by each fund’s third-party administrator based upon the valuation of the underlying securities and instruments and primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held.  As of December 31, 2020, there were no material unfunded commitments for these investments.

Disclosure similar to the preceding paragraphs will be included in future Form 10-K filings.

2.

In your response number 4 you state that the notional amount of your government bonds futures contracts was $1.6 billion at December 31, 2020. Please expand your footnote disclosure to include this information and to clarify whether the net carrying value of these contracts is the ($4m) reported in the table on page 88.

Response:  As discussed under response number 1, in future filings, the Company will disclose the notional amount of government bonds futures contracts and clarify that the fair value of these derivative instruments is included in the derivatives line items in the table of plan assets.

3.

Please provide the disclosures required by ASC 715-20-50-1.n regarding related party transactions and the amount of the Registrant's securities that are included in Plan Assets, if any.

Response:  We respectfully submit the following in response to the Staff’s comment:  ASC 715-20-50-1. n states that if applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts, including annuity contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period.

As there is no Kodak stock included in the Plan Assets, no insurance