Kodak 2005 Annual Report Download - page 116

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Of the $292 million of acquired intangible assets, approximately $36 million was assigned to in-process research and development assets that were
written off at the date of acquisition. Approximately $48 million was assigned to in-process research and development assets during the second
quarter of 2005, which was offset by a $12 million adjustment during the third quarter of 2005 due to a change in the third party valuation. These
amounts were determined by identifying research and development projects that had not yet reached technological feasibility and for which no
alternative future use existed. The value of the projects identifi ed to be in progress was determined by estimating the future cash fl ows from the
projects once commercialized, less costs to complete development and discounting these net cash fl ows back to their present value. The discount
rate used for these research and development projects was 23%. The charges for the write-off were included as research and development costs in
the Company’s Consolidated Statement of Operations for the year ended December 31, 2005.
The remaining $256 million of intangible assets, which relate to developed technology, trademarks and customer relationships, have useful lives
ranging from six to eight years. The $462 million of goodwill is assigned to the Company’s Graphic Communications Group segment. Because
the fi nal purchase price allocation has not been completed, the deductibility for tax purposes of the goodwill balance, or any portion of the goodwill
balance, has not been determined.
As of the acquisition date, management began to assess and formulate restructuring plans at Creo. As of December 31, 2005, management has
completed its assessment and approved actions on some of the plans. Accordingly, the Company recorded a related liability of approximately
$27 million. This liability is included in the current liabilities amount reported above and represents restructuring charges related to Creo and net
assets acquired. As of December 31, 2005, management had not approved all plans and actions to be taken and, therefore, the Company was not
committed to specifi c actions. Accordingly, the amount related to future actions is not estimable and has not been recorded. However, once
management approves and commits the Company to the plans, the accounting for the restructuring charges will be refl ected in the purchase
accounting as an increase to goodwill to the extent the actions relate to Creo and the net assets acquired. Refer to Note 16, “Restructuring Costs and
Other,” for further discussion of these restructuring charges.
Kodak Polychrome Graphics
On April 1, 2005, the Company completed its acquisition of Kodak Polychrome Graphics (KPG) through the redemption of Sun Chemical Corporation’s
50 percent interest in the joint venture. The transaction further established the Company as a leader in the graphic communications industry and
will complement the Company’s existing business in this market. Under the terms of the transaction, the Company redeemed all of Sun Chemical
Corporation’s shares in KPG by providing $317 million in cash (excluding $7 million in transaction costs) at closing and by entering into two notes
payable arrangements, one that will be payable within the U.S. (the U.S. note) and one that will be payable outside of the U.S. (the non-U.S. note),
that will require principal and interest payments of $200 million in the third quarter of 2006, and $50 million annually from 2008 through 2013.
The total payments due under the U.S note and the non-U.S. note are $100 million and $400 million, respectively. The aggregate fair value of these
note payable arrangements of approximately $395 million was recorded in the Company’s Consolidated Statement of Financial Position as of the
acquisition date and was presented as a non-cash investing activity in the Consolidated Statement of Cash Flows. KPG now operates within the
Company’s Graphic Communications Group segment.
The following represents the total purchase price of the acquisition (in millions):
Cash paid at closing $ 317
Estimated transaction costs 7
Notes payable 395
Total purchase price $ 719