Kodak 2006 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. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition and represents
the final allocation of the purchase price.
At June 15, 2005 — (in millions):
Current assets
  $ 352
Intangible assets (including in-process R&D) 292
Other non-current assets (including PP&E) 180
Goodwill 445
Total assets acquired $ 1,269
Current liabilities $ 241
Non-current liabilities 61
Total liabilities assumed $ 302
Net assets acquired $ 967
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 initially 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 identified to be in progress was determined by estimating the future cash flows from the
projects once commercialized, less costs to complete development and discounting these net cash flows 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 rang-
ing from six to eight years. The $445 million of goodwill is assigned to the Company’s Graphic Communications Group segment.
As of the acquisition date, management began to assess and formulate restructuring plans at Creo. As of June 30, 2006, management has completed
its assessment and approved actions on these plans. Accordingly, the Company recorded a related liability of approximately $38 million. This liability
is included in the current liabilities amount reported above and represents restructuring charges related to Creo net assets acquired. Refer to Note 16,
“Restructuring Costs and Other,” for further discussion of these restructuring charges.
Kodak Polychrome Graphics
Through April 1, 2005, the Company held a 50% interest in Kodak Polychrome Graphics (KPG). This joint venture between the Company and Sun
Chemical Corporation was accounted for using the equity method of accounting. Summarized unaudited income statement information for KPG for the
three months ended March 31, 2005 is as follows:
(in millions):
Net sales $ 439
Gross profit 149
Income from continuing operations 34
Net income 34
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 $8 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 (which has been paid during the third quarter 2006), and