Kodak 2006 Annual Report Download - page 122

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2006
The loss from discontinued operations for the year ended December 31, 2006 of approximately $1 million was due to a pension liability true-up related
to the 1994 sale of Sterling Winthrop Inc., the Company’s pharmaceutical, consumer health, and household products businesses.
2005
Earnings from discontinued operations for the year ended December 31, 2005 of approximately $150 million was due to the items discussed below.
During the fourth quarter of 2005, the Company was informed that the United States Congress Joint Committee on Taxation had approved, and the
Internal Revenue Service had signed, a settlement between the Company and the Internal Revenue Service concerning the audit of the tax years
1993-1998. As a result of the settlement, the Company was able to reverse certain tax accruals relating to the aforementioned years under audit. The
reversal of the tax accruals of approximately $203 million, which primarily relates to and which was established in 1994 in connection with the sale
of Sterling Winthrop Inc., the Company’s pharmaceutical, consumer health, and household products businesses during that year, was recognized in
earnings from discontinued operations for the year ended December 31, 2005.
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 defined benefit 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 ap-
proximately $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 approxi-
mately $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 final
transfer of plan assets occurred, which was in the fourth quarter of 2005.
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.