Kodak 2005 Annual Report Download - page 122

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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. As a result of the
sale of RSS, the Company transferred the related employees’ plan assets of the Company’s pension plan. This transfer was subject to a true-up
provision, which was completed in the fourth quarter of 2005 and resulted in a settlement loss of $54 million being recognized in earnings from
discontinued operations for the year ended December 31, 2005.
The contract with ITT also included a provision under which Kodak could receive up to $35 million in cash (the “Cash Amount”) from ITT depending on
the amount of pension plan assets that were 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 transferred to ITT was actuarially determined in accordance with the applicable sections under the Treasury Regulations and
ERISA (the “Transferred Assets”). The Cash Amount was 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 Standards (the “CAS Assets”),
up to $35 million. Based on preliminary actuarial valuations, the estimated Cash Amount was approximately $30 million. Accordingly, the after-tax
gain from the sale of RSS included an estimated pre-tax amount of $30 million, representing the Company’s estimate of the Cash Amount that would
be received following the transfer of the pension plan assets to ITT. This amount was recorded in assets of discontinued operations in the Company’s
Consolidated Statement of Financial Position as of December 31, 2004. The actual Cash Amount received during the fourth quarter of 2005 was
approximately $29 million. Accordingly, the difference in the estimated Cash Amount and the actual Cash Amount received of approximately
$1 million was recorded in earnings from discontinued operations for the year ended December 31, 2005.
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 Digital & Film Imaging Systems 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 excluded the ultimate impact from the settlement loss
that was incurred in connection with the Company’s pension plan of approximately $55 million, as this amount was not recognizable until the fi nal
transfer of plan assets occurred, which was in the fourth quarter of 2005.
The contract with ITT included a provision under which Kodak could receive up to $35 million in cash (the “Cash Amount”) from ITT depending on the
amount of pension plan assets that were 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 transferred to ITT was actuarially determined in accordance with the applicable sections under the Treasury Regulations and
ERISA (the “Transferred Assets”). The Cash Amount was 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 Standards (the “CAS Assets”),
up to $35 million. Based on preliminary actuarial valuations, the estimated Cash Amount was approximately $30 million. Accordingly, the after-tax
gain from the sale of RSS included an estimated pre-tax amount of $30 million, representing the Company’s estimate of the Cash Amount that would
be received following the transfer of the pension plan assets to ITT. This amount was recorded in assets of discontinued operations in the Company’s
Consolidated Statement of Financial Position as of December 31, 2004.
Earnings from discontinued operations for the years ended December 31, 2004 and 2003 of approximately $36 million (excluding the $439 million
RSS after-tax gain) and $64 million, respectively, were net of provisions for income taxes of $6 million and $10 million, respectively.
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 eliminated 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 approximately $15 million through earnings from discontinued operations in the
accompanying Consolidated Statement of Operations 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
Statement of Operations 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.