Kodak 2004 Annual Report Download - page 91

Financials
89
2004 SUMMARY ANNUAL REPORT
Chinon Industries, Inc. On January 22, 2004, the Company announced
an offer to tender the outstanding common shares of Chinon Industries, Inc.
(Chinon), a 59% majority owned subsidiary of Kodak. Chinon is engaged in
the research, development and manufacturing of digital cameras. Acquiring
the remaining interest helped Kodak increase its worldwide design and
manufacturing capability for consumer digital cameras and accessories.
Kodak completed its tender offer during the second quarter. As a result of
the tender, Kodak increased its ownership of Chinon to 100% by acquiring
9.4 million shares for approximately $32 million, inclusive of transaction
costs. Approximately $19 million of the purchase price was recorded as a
reduction in minority interest and the remainder reported as goodwill in the
Company’s Consolidated Statement of Financial Position.
Algotec Systems Ltd. During the second quarter of 2004, the Company
completed the purchase price allocation related to its November 2003
acquisition of Algotec Systems Ltd. (Algotec). As part of this allocation, the
Company recorded intangible assets of approximately $15 million related to
acquired developed technology and approximately $36 million of goodwill.
2003
Burrell Companies The Company had a commitment under a put option
arrangement with the Burrell Companies, unaffi liated entities, whereby the
shareholders of those Burrell Companies had the ability to put 100% of the
stock to Kodak for a fi xed price plus the assumption of debt. The option
fi rst became exercisable on October 1, 2002 and was ultimately exercised
during the Company’s fourth quarter ended December 31, 2002. Accord-
ingly, on February 5, 2003, the Company acquired the Burrell Companies
for a total purchase price of approximately $63 million, which was com-
posed of approximately $54 million in cash and $9 million in assumed debt.
As the Company did not want to operate the business, they immediately
entered into negotiations to sell the operations. As negotiations proceeded,
the Company determined that the consideration expected in connection
with the sale would not be suffi cient to recover the carrying value of the
assets.
Accordingly, the Company recorded an impairment charge of $9
million in the second quarter of 2003. This charge is refl ected in the selling,
general and administrative component within the accompanying Consoli-
dated Statement of Earnings for the year ended December 31, 2003. The
Company ultimately closed on the sale of the Burrell Companies on October
6, 2003. The difference between the sale proceeds and the carrying value
of the net assets in the Burrell Companies upon disposition was not mate-
rial.
Applied Science Fiction During the second quarter, the Company
purchased Applied Science Fiction’s proprietary rapid fi lm processing
technology and other assets for approximately $32 million in cash. Of
the $32 million in purchase price, approximately $16 million represented
goodwill. The balance of the purchase price of approximately $16 million
was allocated to the acquired intangible assets, consisting of developed
technologies, which have useful lives ranging from two to six years. The
goodwill and intangible assets were written off in 2004 as the Company
has canceled its program to market an automatic fi lm processing station
due to diminishing market opportunity.
PracticeWorks, Inc. On October 7, 2003, Kodak acquired all of the out-
standing shares of PracticeWorks, Inc. (PracticeWorks), a leading provider
of dental practice management software (DPMS) and digital radiographic
imaging systems, for approximately $475 million in cash, inclusive of trans-
action costs. Accordingly, Kodak also became the 100% owner of Paris-
based subsidiary, Trophy Radiologie, S.A., a developer and manufacturer
of dental digital radiography equipment, which PracticeWorks acquired in
December 2002. This acquisition will enable Kodak’s Health business to
offer its customers a full spectrum of dental imaging products and services
from traditional fi lm to digital radiography and photography. Earnings from
continuing operations for 2003 include the results of PracticeWorks from
the date of acquisition.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition and represents
the fi nal allocation of the purchase price.
At October 7, 2003 (in millions)
Current assets $ 52
Intangible assets (including in-process R&D) 179
Other non-current assets (including PP&E) 53
Goodwill 350
Total assets acquired $ 634
Current liabilities $ 71
Long-term debt 23
Other non-current liabilities 65
Total liabilities assumed $ 159
Net assets acquired $ 475
Of the $179 million of acquired intangible assets, $10 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. As of the acquisition date,
there were two projects that met these criteria. 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 projects was 14%. The charges
for the write-off were included as research and development costs in the
Company’s Consolidated Statement of Earnings for the year ended Decem-
ber 31, 2003.
The remaining $169 million of intangible assets have useful lives
ranging from three to eighteen years. The intangible assets that make
up that amount include customer relationships of $123 million (eighteen-
year weighted-average useful life), developed technology of $44 million
(seven-year weighted-average useful life), and other assets of $2 million
(three-year weighted-average useful life). The $350 million of goodwill will
be assigned to the Health segment and is not expected to be deductible for
tax purposes.