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Kodak to Become Sole Owner of Kodak Polychrome Graphics

Press release from the issuing company

- See exclusive analysis about this deal in the Premium Access area of WhatTheyThink.com ROCHESTER, N.Y., Jan. 12 -- Eastman Kodak Company today announced that it will become the sole owner of Kodak Polychrome Graphics (KPG) through redemption of Sun Chemical Corporation's 50 percent interest in the joint venture. Kodak and Sun Chemical each own half of KPG currently, a joint venture established in 1998. The transaction will increase immediately Kodak's sales and earnings while expanding the global distribution network for the digital printing systems made by its Graphic Communications Group and broadening the company's solutions portfolio. "Kodak Polychrome Graphics is an established leader in supplying products and solutions to the graphic communications industry," said Daniel A. Carp, Chairman and Chief Executive Officer, Eastman Kodak Company. "This transaction, which is immediately accretive to earnings, is another decisive step in the implementation of our digitally oriented growth strategy and strengthens Kodak's ability to compete in the fastest-growing segments of the industry." Under the terms of the transaction, Kodak will redeem all of Sun Chemical's shares in KPG by providing $317 million in cash at closing, $200 million in cash in the third quarter of 2006 and $50 million in cash annually from 2008 through 2013, for a total of $817 million. Kodak will fund the redemption through internally generated cash flow. The transaction is expected to close in April 2005. KPG revenues for 2004 are expected to be $1.7 billion. Kodak expects this transaction to add approximately $1.1 billion to Kodak's revenue in 2005, reflecting approximately nine months of Kodak ownership, and the elimination of inter-company sales from Kodak to KPG. In 2006, Kodak expects approximately $1.4 billion of incremental revenue, reflecting a full year of ownership and the elimination of inter-company sales. Kodak also expects the transaction will add approximately eight cents to the company's 2005 operational earnings and approximately 14 cents to its 2006 operational earnings. These figures are included in Kodak's stated goal of achieving operational earnings of $3 per share in 2006. On a Generally Accepted Accounting Principles (GAAP) basis, Kodak expects the transaction will add approximately five cents to the company's 2005 EPS and approximately 14 cents to its 2006 EPS. KPG will provide Kodak with an innovative product portfolio, a strong sales organization, and established relationships in the commercial printing segment, the largest market opportunity within the graphic communications industry. "One of the key elements of our strategy involves smart acquisitions that complement Kodak's existing capabilities and enable us to drive profitable digital growth,"said Antonio M. Perez, President and Chief Operating Officer, Eastman Kodak Company. "Bringing KPG together with Kodak's existing graphic communications businesses - Kodak Versamark, NexPress and Encad - will enhance our operations, extend significantly our coverage worldwide, complement our present portfolio, and strengthen Kodak's ability to serve our customers in the fast-growing graphic communications market." Based in Norwalk, Conn., KPG is one of the world's leading suppliers of products and services to the graphic communications market, with operations on six continents and an extensive global sales force, with nearly 1,000 employees interacting with customers. In addition to being the world leader in sales of digital computer-to-plate and monitor and remote proofing solutions, KPG supplies graphic arts film, conventional lithographic plates and digital color proofing products. KPG's customers include commercial printers, newspapers, publishers and packaging printers. KPG has approximately 4,000 employees worldwide. Sole ownership of Kodak Polychrome Graphics will further establish Kodak as a leading company in the graphic communications industry and complements Kodak's existing businesses in this market: Encad, Inc., a leading maker of wide-format inkjet printers, inks and media; Kodak Versamark, the world's number one maker of high-speed inkjet printing systems; and NexPress Solutions, Inc., a leading supplier of digital color and monochrome presses. Upon closing of the transaction, Kodak initially plans to operate KPG as a wholly owned subsidiary, part of the company's Graphic Communications Group. The KPG management team will remain intact, with KPG CEO Jeff Jacobson leading the organization and reporting to James Langley, President, Graphic Communications Group and Senior Vice President, Eastman Kodak Company. "This transaction is a major step toward delivering on our intent of presenting one face to the customer," said Langley. "KPG's innovative products, established customer relationships and world class sales and service organization will dramatically increase our solutions portfolio and global distribution capabilities. Aligning our current and future products and services with KPG's portfolio and extensive distribution capabilities will further establish Kodak as a leading provider of integrated solutions and will strengthen Kodak's position with customers as a company that can provide a broad range of offerings from pre-press to finishing." Kodak is developing plans to integrate various operations across its subsidiaries in the Graphic Communications Group. Additionally, Kodak's Document Products and Services (DPS) operations will be integrated into the Graphic Communications Group by the end of January 2005. DPS is the world's leading maker of high-speed document scanners as well as a leading provider of maintenance services for a range of sophisticated office equipment. "We are delighted to become a full partner of Kodak as the company successfully executes its digital transformation," said Jeff Jacobson. "KPG has been aggressively moving down the digital and business solutions path and this move will enable us to accelerate that strategy and provide customers with a total solution that is unmatched in our industry." The agreement is subject to customary regulatory approvals and does not require shareholder approval from either Kodak or Sun Chemical.