Kodak 2004 Annual Report Download - page 93

Financials
91
2004 SUMMARY ANNUAL REPORT
in this subsidiary for approximately $44 million in cash. Due to the timing
of this acquisition, the purchase price allocation was not complete as of
December 31, 2002. Accordingly, the purchase price in excess of the fair
value of the net assets acquired of approximately $18 million was recorded
in other long-term assets in the Company’s 2002 Consolidated Statement
of Financial Position. During 2003, the Company completed the purchase
price allocation. As a result of this allocation, the Company recorded good-
will of approximately $13 million and recognized approximately $5 million in
amortizable intangible assets.
Other During 2002, the Company completed a number of additional
acquisitions with an aggregate purchase price of approximately $14 million,
which were individually immaterial to the Company’s fi nancial position,
results of operations or cash fl ows.
NOTE 22: DISCONTINUED
OPERATIONS
2004
On August 13, 2004, the Company completed the sale of 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, was part of the Company’s commercial and government
systems’ operation within the Commercial Imaging segment. Its customers
include NASA, other U.S. government agencies, and aerospace and defense
companies. The sale was completed on August 13, 2004. RSS had net
sales for the years ended December 31, 2004 and 2003 of approximately
$312 million and $424 million, respectively. RSS had earnings before taxes
for the years ended December 31, 2004 and 2003 of approximately $44
million and $66 million, respectively.
The sale of RSS resulted in an after-tax gain of approximately
$439 million. The after-tax gain excludes the potential impacts from any
settlement gains or losses that may be incurred in connection with the
Company’s pension plan of approximately $55 million, as this amount will
be recognized upon fi nal transfer of plan assets, which is expected to occur
during 2005.
The contract with ITT includes a provision under which Kodak may
receive up to $35 million in cash (the “Cash Amount”) from ITT depend-
ing on the amount of pension plan assets that are ultimately transferred
from Kodak’s defi ned benefi t pension plan trust in the U.S. to ITT. The total
amount of assets that Kodak will ultimately transfer to ITT will be actuari-
ally determined in accordance with the applicable sections under the Trea-
sury Regulations and ERISA (the “Transferred Assets”). The Cash Amount
will be equal to 50% of the amount by which the Transferred Assets exceed
the maximum amount of assets that would be required to be transferred
in accordance with the applicable U.S. Government Cost Accounting Stan-
dards (the “CAS Assets”), up to $35 million. Based on preliminary actuarial
valuations, the estimated Cash Amount is approximately $30 million.
Accordingly, the after-tax gain from the sale of RSS includes an estimated
pre-tax amount of $30 million, representing the Company’s estimate of the
Cash Amount that will be received following the transfer of the pension plan
assets to ITT. This amount has been recorded in assets of discontinued
operations in the Company’s Consolidated Statement of Financial Position
as of December 31, 2004. Upon completion of the fi nal actuarial valuation
(expected during 2005), which will determine the Transferred Assets, the
gain will be adjusted accordingly.
Total Company earnings from discontinued operations for the years
ended December 31, 2004 and 2003 of approximately $36 million (exclud-
ing the $439 million RSS after-tax gain) and $64 million, respectively, were
net of provisions for income taxes of $6 million and $10 million, respec-
tively.
2003
During the three-month period ended March 31, 2003, the Company
repurchased certain properties that were initially sold in connection with
the 1994 divestiture of Sterling Winthrop Inc., which represented a portion
of the Company’s non-imaging health businesses. The repurchase of these
properties allows the Company to directly manage the environmental
remediation that the Company is required to perform in connection with
those properties, which will result in better overall cost control (see Note
11, “Commitments and Contingencies”). In addition, the repurchase elimi-
nated the uncertainty regarding the recoverability of tax benefi ts associated
with the indemnifi cation payments that were previously being made to the
purchaser. Accordingly, the Company reversed a tax reserve of approxi-
mately $15 million through earnings from discontinued operations in the
accompanying Consolidated Statement of Earnings for the twelve months
ended December 31, 2003, which was previously established through
discontinued operations.
During the three month period ended March 31, 2003, the Company
received cash relating to the favorable outcome of litigation associated with
the 1994 sale of Sterling Winthrop Inc. The related gain of $19 million was
recognized in loss from discontinued operations in the Consolidated State-
ment of Earnings for the year ended December 31, 2002. The cash receipt
is refl ected in the net cash provided by (used in) discontinued operations
component in the accompanying Consolidated Statement of Cash Flows for
the year ended December 31, 2003.
During the fourth quarter of 2003, the Company recorded a net of
tax credit of $7 million through discontinued operations for the reversal
of an environmental reserve, which was primarily attributable to positive
developments in the Company’s remediation efforts relating to a formerly
owned manufacturing site in the U.S. In addition, during the fourth quarter
of 2003, the Company reversed state income tax reserves of $3 million, net
of tax, through discontinued operations due to the favorable outcome of tax
audits in connection with a formerly owned business.
2002
The net loss from discontinued operations of $23 million in the accompa-
nying Consolidated Statement of Earnings for the twelve months ended
December 31, 2002 refl ects losses incurred from the shutdown of Kodak
Global Imaging, Inc., which amounted to $35 million net of tax, partially
offset by net of tax earnings of $12 million related to the favorable outcome
of litigation associated with the 1994 sale of Sterling Winthrop Inc.