In a recent press conference, Eastman Kodak announced it's intention to purchase Heidelberg's 50% interest in NexPress and the equity of Heidelberg Digital. According to Chairman and Chief Operating Officer, Daniel Carp, these acquisitions are an extension of Kodak's standing strategy to become a major business presence in the digital market and it secures the company's place as a leading player in the digital industry. NexPress is a supplier of high-end color printing systems and Heidelberg a supplier of digital black and white variable data printing systems.

With the acquisition, there will be no payment of up front cash, but rather Heidelberg will gain value by an earn out of increased unit sales. Over the next two years, the potential earn out could reach $150 million. A five-year earn-out option will also be put in place; again depending upon attaining established sales volume goals. Although there will be no up front cash payout, Kodak is likely to post a negative goodwill figure on its balance sheet. The acquisition may also produce restructuring charges, however, the magnitude of these costs will not be known until the May 1, 2004 closing date of the deal.

For the remainder of 2004, Heidelberg and NexPress are expected to generate $175 million in revenues. Kodak has revised its operational earnings guidance downward as a result of the acquisition and operation dilution from the previously stated $2.25-$2.55 per share to $2.05-2.35 per share.

Kodak will build its scale and breadth of product offerings through the acquisition along with realizing significant opportunities to improve financial performance. The company will accomplish this through 1) consolidating NexPress/Heidelberg Digital direct sales and service teams into a single structure; 2) exploiting activities across the entire commercial printing portfolio with expanded sales channels; and, 3) reaping the benefits of the annuity earnings model of NexPress.

Q & A

  1. For 2004, the operating loss for the company is expected in the $0.30-.035 per share range or $150 million. The tax rate is at 19%.
  2. With the acquisition of Heidelberg, the number of sales professionals impacted is in the range of 200-325 employees on a worldwide basis. Kodak plans to make employment offers to the Heidelberg employees as Heidelberg will not maintain an active sales force going forward. Kodak has contracted for transitional sales support services for an additional 6-9 months after the business deal closes.
  3. As of today's call, Kodak officials stated synergistic opportunities exist to collapse the service units into one service organization. The company is currently looking at similar opportunities in the sales organization.
  4. From a Heidelberg distribution standpoint, Kodak plans to keep the current relationships intact stating that current partnerships are good and offer advantages.
  5. Kodak would not disclose the earn-out parameters Heidelberg could reach under the terms of the acquisition and reiterated the earlier prepared remarks on the earn out being tied to performance of sales.
  6. With the acquisition, Kodak officials stated the company's competitors as Hewlett Packard and Xerox as both companies offer similar products in the digital market segment.
  7. Kodak's commercial printing portfolio was said to be robust during today's call with examples of web products, black and white, color, inkjet and consumables. The company plans to concentrate and build on the current portfolio prior to discussing areas for expansion in this segment.
  8. Kodak will announce any plans for NexPress/Heidelberg product improvements and strategy at the upcoming Drupa conference.