Kodak 2003 Annual Report Download - page 78

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Financials
78
NOTE 25: SUBSEQUENT EVENTS
On October 22, 2003, the Company announced that it signed a 20-year
agreement with China Lucky Film Corp. On February 10, 2004, the
Chinese government approved the Company’s acquisition of 20 percent of
Lucky Film Co. Ltd. (Lucky Film), the largest maker of photographic film in
China, in exchange for approximately $100 million in cash, plus approxi-
mately $30 million in additional net cash to build and upgrade manufac-
turing assets, and other Kodak assets. Also, under the arrangement, the
Company will provide Lucky Film with technical support, training and
equipment upgrades, and Lucky Film will pay Kodak a royalty fee for the
use of certain of the Company’s technologies as well as dividends on the
Lucky Film shares that Kodak will acquire.
On November 25, 2003, the Company announced that it had entered
an agreement to acquire the assets of Scitex Digital Printing (SDP) from its
parent for $250 million, net of any cash on hand at closing which totaled
approximately $13 million, resulting in a net cash price of $237 million.
SDP is the leading supplier of high-speed, continuous inkjet printing sys-
tems, primarily serving the commercial and transactional printing sectors.
Customers use SDP’s products to print utility bills, banking and credit card
statements, direct mail materials, as well as invoices, financial statements
and other transactional documents. The acquisition will provide the
Company with additional capabilities in the transactional printing and
direct mail sectors while creating another path to commercialize propri-
etary inkjet technology. The acquisition was completed on January 5,
2004. Kodak is in the process of obtaining a third-party valuation to assist
in the purchase price allocation.
On February 9, 2004, the Company announced its intent to sell the
assets and business of the Remote Sensing Systems operation, including
the stock of Kodak’s wholly owned subsidiary, Research Systems, Inc.,
collectively known as RSS, to ITT Industries for $725 million in cash. RSS,
a leading provider of specialized imaging solutions to the aerospace and
defense community, is part of the Company’s commercial & government
systems’ operation within the Commercial Imaging segment and its cus-
tomers include NASA, other U.S. government agencies, and aerospace and
defense companies. Kodak’s RSS operation had sales in 2003 of approxi-
mately $425 million. The sale of RSS is expected to result in an after-tax
gain of approxiamately $390 million (unaudited). The after-tax gain
excludes the potential impacts from any settlement or curtailment gains or
losses that may be incurred in connection with the Company’s pension
and postretirement benefit plans, as these amounts are not currently
determinable. The Company is currently evaluating whether the sale of
RSS will be accounted for as a discontinued operation beginning in the
first quarter of 2004 in accordance with SFAS No. 144.
On March 8, 2004, the Company announced that it had agreed with
Heidelberger Druckmaschinen AG (Heidelberg) to purchase Heidelberg’s 50
percent interest in NexPress, a 50/50 joint venture of Kodak and
Heidelberg that makes high-end, on-demand digital color printing sys-
tems, and the equity of Heidelberg Digital LLC, a leading maker of digital
black-and-white variable-data printing systems. Kodak also will acquire
NexPress GmbH, a German subsidiary of Heidelberg that provides engi-
neering and development support, and certain inventory, assets, and
employees of Heidelberg’s regional operations or market centers. The
Company will not pay any cash at closing for the businesses being
acquired. Under the terms of the acquisition, Kodak and Heidelberg agreed
to use a performance-based earn-out formula whereby Kodak will make
periodic payments to Heidelberg over a two-year period, if certain sales
goals are met. If all sales goals are met during the next two calendar
years ending December 31, 2005, the Company will pay a maximum of
$150 million in cash. Additional payments may also be made if certain
sales goals are met during a five-year period following the closing of the
transaction. This acquisition, which is expected to close in May 2004,
advances the Company’s strategy of diversifying its business portfolio, and
accelerates its participation in the digital commercial printing industry.