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Kodak to Acquire NexPress Solutions L.L.C. and Heidelberg Digital

Press release from the issuing company

March 8, 2004--Eastman Kodak Company announced that it has agreed to acquire two lines of business from Heidelberger Druckmaschinen AG, the world's largest maker of offset printing machines. Kodak will purchase Heidelberg's 50 percent interest in NexPress Solutions L.L.C., a 50/50 joint venture of Kodak and Heidelberg that makes digital color printing systems, and the equity of Heidelberg Digital L.L.C., a leading maker of digital black-and-white printing systems. Kodak also will acquire NexPress GmbH, Heidelberg's German subsidiary, and certain inventory and assets held by Heidelberg's regional operations, or market centers, as well as offer employment to sales and service employees currently with Heidelberg's market centers. This move advances Kodak's strategy of diversifying its business portfolio and accelerates its participation in the digital commercial printing industry. Earlier this year, Kodak completed the purchase of Scitex Digital Printing, the world's leader in high-speed, variable-data inkjet printing, and renamed the company Kodak Versamark, Inc. "Consistent with our digitally oriented growth strategy, Kodak is rapidly assembling the components to become an industry leader in digital commercial printing," said Daniel A. Carp, Chairman and Chief Executive Officer, Eastman Kodak Company. "This acquisition reflects our plan to broaden our product portfolio and expand our lines of digital businesses in a selective, disciplined manner. As I indicated on January 22, I continue to anticipate that our acquisition activity in 2004 will be significantly lower than the approximately $1 billion of total actions announced in 2003. Our focus for the remainder of 2004 will be the integration of the acquisitions we have already announced, all of which are on, or ahead of, plan." Under the terms of the acquisition, the companies agreed to use a performance-based earn-out formula whereby Kodak will make periodic payments to Heidelberg over a two-year period, if certain sales goals are met. If all sales goals are met during the next two calendar years ending Dec. 31, 2005, Kodak will pay a maximum of $150 million in cash. Additional sales-related earn-out payments over a five-year period are agreed if certain sales targets are achieved. Kodak will not pay any cash at closing for the businesses being acquired. NexPress and Heidelberg Digital are leading suppliers of high-end, on-demand color printing systems and black-and-white variable-data printing systems, respectively. NexPress has installed more than 300 NexPress 2100 digital presses throughout the world, making it a leader in high-end, on-demand color printing. Heidelberg Digital has 4,000 Digimaster black and white systems installed worldwide, serving a variety of customer applications. Combined, the businesses being acquired employ approximately 2,000 people. "Our strategy involves the smart application of resources to complement Kodak's own technology and internal strengths, including a leading portfolio of intellectual property related to electrophotography and inkjet printing," said Antonio Perez, President and Chief Operating Officer, Eastman Kodak Company. "Through the purchase, Kodak intends to increase its share in the $17 billion digital commercial printing market in which the company participates. The move strategically positions Kodak in the market for digital production color printing, which is growing at double-digit rates." The planned acquisition of NexPress and Heidelberg Digital complements Kodak's existing businesses--including Kodak Versamark, Inc., the leader in variable, on-demand continuous inkjet printing; Encad, Inc., a leading maker of wide-format inkjet printers; and its Kodak Polychrome Graphics joint venture, which is the number one supplier of film, plates and other products to the graphic arts industry. "We plan on building upon the early success of NexPress by expanding its product line to provide customers with a greater array of systems for their digital commercial printing needs," said James Langley, President, Commercial Printing and Senior Vice President, Eastman Kodak Company. "We will continue our R&D investment to extend the leadership position of the NexPress 2100 and expand our product offerings. Kodak is creating one of the broadest digital commercial printing portfolios in the industry, which will enable us to better serve our customers' printing needs--from wide-format inkjet printing and transactional black and white and color printing, to high-end on-demand color publishing and continuous inkjet. "Ownership of NexPress and Heidelberg Digital by one company will streamline the management process and enable faster decision making," Langley said. "Customers will work with a more efficient organization that is dedicated to developing, marketing and supporting digital printing solutions." Kodak expects the NexPress and Heidelberg Digital operations to increase revenue incrementally by approximately $175 million during the remainder of 2004. Kodak's 50 percent interest in NexPress diluted 2003 full-year operational earnings by 15 cents per share. Upon completion of the acquisition, Kodak expects an incremental operational dilution of between 15 cents and 20 cents per share in 2004, for a total operational dilution of 30 cents to 35 cents per share, inclusive of any NexPress losses already considered in previously announced 2004 operational guidance. As a result, Kodak has revised the full-year 2004 operational earnings guidance of $2.25 - $2.55 per share to $2.05 - $2.35 per share. Kodak expects that it will significantly reduce this operational dilution in 2005 and again in 2006. The company anticipates that the acquired operations will add to earnings by 2007. Kodak remains confident of its ability to generate operational earnings of $3 per share in 2006, consistent with the strategy discussed in September 2003. Kodak anticipates that this acquisition will result in some restructuring actions, which are difficult to estimate at this time. Kodak will be in a better position to discuss the final accounting details and magnitude of any restructuring once the acquisition closes and the operations are consolidated. Therefore, Kodak's 2004 GAAP guidance of $2.25 to $2.75 per share will be affected, but the degree of any change can't be properly estimated until Kodak completes the acquisition. Kodak is assessing plans to significantly reduce costs in the acquired operations by taking advantage of synergies in research and development, sales, marketing and other back-office functions. By managing these businesses together rather than individually, Kodak will create a leaner cost structure and a simplified operation better positioned to serve customers' needs. "Today's action reflects Kodak's determination to make the investment required to develop new products and to maximize our return in a market that offers great promise," Perez said. "Digital printing is a young market characterized by higher margins for consumables - such as toner and replacement parts - that benefit from the placement of machines. As the number of machines in the market increases, the consumables business will accelerate, creating an attractive annuity stream." "Although Heidelberger Druckmaschinen is reorganizing to focus on our core business, we believe that digital commercial printing will be a profitable segment and that NexPress is extremely well positioned in the market," said Bernhard Schreier, Chief Executive Officer of Heidelberger Druckmaschinen. "We are so confident in NexPress's prospects that we are willing to forego cash at closing in return for a short-term earn-out package. We fully intend to work with NexPress and Kodak to ensure a continuity of service and support for all of our customers during this transition." Upon closing, Kodak plans to operate the NexPress and Heidelberg Digital subsidiaries as a combined business, under the leadership of Venkat Purushotham, President and CEO of NexPress. Purushotham will report to Kodak's Langley. Kodak plans to locate the combined headquarters at Heidelberg Digital's Manitou Road facilities in Rochester. "Commercial printers will continue to profit with their NexPress 2100 digital production color presses," Purushotham said. "And, as part of the Kodak team, the NexPress and Heidelberg Digital organizations will continue to develop, produce and market the industry's most advanced solutions for digital print production. We are looking forward to an exciting Drupa trade show in May, where we will have new announcements." The agreement is subject to customary regulatory approvals. The agreement does not require shareholder approval from either company. Closing will occur after all required approvals have been obtained and certain other conditions are satisfied, which is expected at the beginning of May. Dan Carp, Kodak's Chairman and CEO, will host a conference call on Monday, March 8, to discuss the acquisition. Antonio Perez, Kodak's President and Chief Operating Officer, Bob Brust, Kodak's Chief Financial Officer, and James Langley will join Mr. Carp on the call.