Discontinued operations of Kodak include the former Flexographic Packaging segment comprised of Kodak’s Flexographic Packaging Business (“FPD”).

Kodak consummated the sale of certain assets of FPD to the Purchaser on April 8, 2019 for net cash consideration at closing, in addition to the assumption by Purchaser of certain liabilities of FPD, of $320 million, pursuant to the Stock and Asset Purchase Agreement (“SAPA”) signed in November 2018 and amended in March 2019. Assets and liabilities of FPD in China were transferred at a deferred closing on July 1, 2019 for net cash consideration of $5.9 million at closing and a promissory note for $1.6 million in addition to the assumption by Purchaser of certain liabilities of FPD, in accordance with the SAPA. Kodak operated FPD in China, subject to certain covenants, until the deferred closing occurred. Kodak will deliver to (or receive from) the Purchaser a true-up payment reflecting the actual economic benefit (or detriment) attributable to the operation of FPD in China from the time of the initial closing through the time of the deferred closing.

The divested business has the right to use Kodak’s corporate brand for a 10-year period related to Covered Products (as defined in the SAPA) for no additional consideration. Therefore, $10 million of consideration received for the sale of FPD has been recognized as deferred revenue related to the brand license. The deferred revenue is reported in Long-term liabilities in the Consolidated Statement of Financial Condition and will be recognized as revenue over the term of the license. Proceeds were allocated between the sale of FPD and the brand license based on their relative fair values.

Kodak recognized a gain on the sale of FPD of $207 million during the second quarter of 2019. The gain excluded recognition of the portion of the purchase price related to the deferred closing of $7.5 million.

Simultaneously with entering into the SAPA, the Company and the Purchaser entered into an Earn-out Agreement, pursuant to which the Company will be entitled to an aggregate of up to $35 million in additional cash consideration if FPD achieves agreed EBITDA targets for 2018 ($10 million earn-out), 2019 ($10 million earn-out) and 2020 ($15 million earn-out). The EBITDA target for 2018 was not achieved.

On April 16, 2019 the Purchaser paid Kodak $15 million as a prepayment for services and products to be provided by Kodak to the Purchaser. The Purchaser has the option to satisfy its payment obligations to Kodak through a reduction of the prepayment balance or in cash. As of June 30, 2019, the remaining prepayment balance is $13 million.

The results of operations of FPD are classified as discontinued operations in the Consolidated Statement of Operations for all periods presented. Direct operating expenses of the discontinued operations are included in the results of discontinued operations. Indirect expenses that were historically allocated to the discontinued operations have been included in the results of continuing operations. Prior period results have been reclassified to conform to the current period presentation. Additionally, the assets and liabilities associated with FPD in China are classified as held for sale in the Consolidated Statement of Financial Position as of June 30, 2019 and the assets and liabilities associated with FPD are classified as held for sale December 31, 2018.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in millions)	2019			2018		2019			2018
Revenues	$	5		$	38	$	44		$	75
Cost of revenues		2			22		28			44
Selling, general and administrative expenses		2			4		10			8
Research and development costs		—			2		2			4
Interest expense		—			7		7			13
Gain on divestiture		(210	)		—		(210	)		—
Income (loss) from discontinued operations before taxes		211			3		207			6
Provision for income taxes		4			2		6			5
Income (loss) from discontinued operations	$	207		$	1	$	201		$	1

After the initial closing, Kodak was required to use a portion of the proceeds from the sale of FPD to repay $312 million of the loans under the Term Credit Agreement. Interest expense on debt that was required to be repaid as a result of the sale was allocated to discontinued operations.

Approximately $2 million and $6 million of transaction costs are included in Selling, general and administrative expenses in the quarter and year-to-date period ending June 30, 2019, respectively.

The following table presents the aggregate carrying amount of major assets and liabilities of FPD:

	June 30,		December 31,
(in millions)	2019		2018
ASSETS
Cash and cash equivalents	$	—	$	2
Trade receivables, net		1		28
Inventories, net		—		33
Property, plant and equipment, net		—		28
Goodwill		—		20
Intangible assets		—		1
Other assets		—		1
Assets of business held for sale	$	1	$	113

LIABILITIES
Accounts payable, trade	$	—	$	9
Pension and other postretirement liabilities		—		4
Other current liabilities		—		7
Liabilities of business held for sale	$	—	$	20

A dedicated entity of FPD had intercompany receivables with Kodak of approximately $5 million as of December 31, 2018 that are part of the proposed transaction but are not reflected in the table above as these amounts have been eliminated in deriving the consolidated financial statements.

	June 30,
(in millions)	2019		2018
Depreciation	$	—	$	1
Amortization		—		—
Capital expenditures		—		2

Depreciation and amortization of long-lived assets of FPD included in discontinued operations ceased as of December 1, 2018.