Kodak 2005 Annual Report Download - page 117

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Upon closing of an acquisition, the Company estimates the fair values of assets and liabilities acquired in order to consolidate the acquired balance
sheet. Given the time it takes to obtain pertinent information to fi nalize the acquired balance sheet, it is not uncommon for initial estimates to be
revised in subsequent quarters. The Company is currently in the process of fi nalizing the purchase price allocation with respect to the acquisition
of KPG and must complete (1) the fi nal review of the independent third party valuation prepared, and (2) the allocation of the purchase price to the
proper tax jurisdictions, which will allow the Company to complete the fi nal valuation of the deferred tax liability associated with the acquisition. The
purchase price allocation, including the allocation to the proper tax jurisdictions, will be completed in the fi rst quarter of 2006. A preliminary estimate
of the deferred tax liability has been calculated and is included in the preliminary purchase price allocation, which is as follows:
At April 1, 2005 — (in millions):
Current assets $ 485
Intangible assets (including in-process R&D) 159
Other non-current assets (including PP&E) 189
Goodwill 218
Total assets acquired $ 1,051
Current liabilities $ 260
Non-current liabilities 72
Total liabilities assumed $ 332
Net assets acquired $ 719
Of the $159 million of acquired intangible assets, approximately $16 million was assigned to research and development assets that were written off
at the date of acquisition. This amount was determined by identifying research and development projects that had not yet reached technological
feasibility and for which no alternative future uses exist. 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 22%. 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 $143 million of intangible assets, which relate to developed technology, trademarks and customer relationships, have useful lives
ranging from three to sixteen years. The $218 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 KPG. 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
$5 million on those approved actions. This liability is included in the current liabilities amount reported above and represents restructuring
charges related to the net assets acquired. To the extent such actions related to the Company’s historical ownership in the KPG joint venture, the
restructuring charges will be refl ected in the Company’s Consolidated Statement of Operations. 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 the
net assets acquired. Refer to Note 16, “Restructuring Costs and Other,” for further discussion of these restructuring charges.