This excerpt taken from the CSK 10-K filed Mar 10, 2006.
4 Loss (Gain) on Divestitures
In connection with the 2001 divestiture of Consumer Promotions International, Inc. (CPI), a component of our former Merchandising and Specialty Packaging segment, Chesapeake provided seller financing for a portion of the purchase price through receipt of subordinated promissory notes. Included in the promissory notes were term notes of approximately $5.0 million and performance notes payable based on the post-sale performance of CPI of approximately $13.6 million. The performance notes were fully reserved from the date of divestiture because payments due on the notes were contingent on future events which were not viewed as probable and determinable.
Notes to Consolidated Financial Statements
The $5.0 million term notes were recorded at fair value on the date of sale and, under the terms of the notes, were adjusted to reflect accrued interest through December 31, 2003. CPI paid interest on the term notes on a timely basis during 2004 and through the first quarter of 2005.
In July 2005, CPI informed us of its inability to continue interest payments under the term notes. Also, CPI provided us with updated financial information that indicated a significant deterioration in the operating results of CPI. These factors resulted in a change in our estimate as to the recovery of these notes. Due to the subordinated nature of our position as a creditor and the risks associated with pursuing recovery, the notes were written down from $3.4 million to zero in the second quarter of 2005. During the fourth quarter of 2005, the Company reached a settlement with CPI in the amount of $0.6 million for the balance of the outstanding notes. The second quarter charge and fourth quarter recovery have been classified as loss (gain) on divestitures in the accompanying consolidated statements of income.
On April 18, 2005, Chesapeake completed the sale of the assets of its French wine and spirits label operation, Bourgeot Etiqso Lesbats (Bourgeot), to Autajon Group. The sale price was 1.16 million (approximately $1.5 million at the sale date). The Company incurred a pre-tax and after-tax loss on the sale of $3.0 million in the second quarter of 2005, which is included in loss (gain) on divestitures in the accompanying consolidated statements of income. The transaction was a sale of substantially all of the assets of the operation, including machinery, equipment and inventory, and an assignment by the Company of the rights, and an assumption by the buyer of the obligations, under certain contracts related to the Bourgeot operation, including a lease for the plant building and substantially all of the post-closing employee obligations and contracts. The Company retained the pre-closing trade accounts receivable and trade accounts payable of Bourgeot, as well as employee obligations pertaining to the operations of Bourgeot prior to the sale date.
During 2003 we settled substantially all of our indemnification obligations to St. Laurent Paperboard (U.S.) Inc. related to the 1997 sale of our former kraft products mill in West Point, Virginia. As a result of the settlement, we reduced our accrual for estimated environmental liabilities by $22.2 million during 2003, which resulted in a gain on sale of business of approximately $11.2 million or $7.7 million net of income taxes.