Kodak 2002 Annual Report Download - page 63

Financials
63
The total restructuring charge of $116 million for continuing
operations for the fourth quarter of 2002 was composed of
severance, inventory write-downs, long-lived asset impairments
and exit costs of $55 million, $7 million, $37 million and $17
million, respectively, with $109 million of those charges reported
in restructuring costs (credits) and other in the accompanying
Consolidated Statement of Earnings. The $7 million charge for
inventory write-downs for product discontinuances was reported
in cost of goods sold in the accompanying Consolidated Statement
of Earnings. The severance and exit costs require the outlay of
cash, while the inventory write-downs and long-lived asset
impairments represent non-cash items.
The severance charge related to the termination of 1,150
employees, including approximately 525 manufacturing and
logistics, 300 service and photofinishing, 175 administrative and
150 research and development positions. The geographic
composition of the employees terminated included approximately
775 in the United States and Canada and 375 throughout the rest
of the world. The charge for the long-lived asset impairments
includes the write-off of $13 million relating to equipment used in
the manufacture of cameras and printers, $13 million for
sensitized manufacturing equipment, $5 million for lab equipment
used in photofinishing and $6 million for other assets that were
scrapped or abandoned immediately. In addition, charges of $9
million related to accelerated depreciation on long-lived assets
accounted for under the held for use model of SFAS No. 144, was
included in cost of goods sold in the accompanying Consolidated
Statement of Earnings. The accelerated depreciation of $9 million
was comprised of $5 million relating to equipment used in the
manufacture of cameras, $2 million for sensitized manufacturing
equipment and $2 million for lab equipment used in photofinishing
that will be used until their abandonment in 2003. The Company
will incur accelerated depreciation charges of $16 million, $6
million and $3 million in the first, second and third quarters,
respectively, of 2003 as a result of the actions implemented in
the Fourth Quarter, 2002 Restructuring Plan.
In connection with the charges recorded in the Fourth
Quarter, 2002 Restructuring Plan, the Company has 900 positions
remaining to be eliminated as of December 31, 2002. These
positions will be eliminated as the Company completes the
closure of photofinishing labs and completes the planned
downsizing of manufacturing and administrative positions. These
positions are expected to be eliminated by the end of the second
quarter of 2003. Severance payments will continue beyond the
second quarter of 2003 since, in many instances, the terminated
employees can elect or are required to receive their severance
payments over an extended period of time. The Company expects
the actions contemplated by the reserve for exit costs to be
completed by the end of the third quarter of 2003. Most exit
costs are expected to be paid during 2003. However, certain
costs, such as long-term lease payments, will be paid over
periods after 2003.
In addition to the severance actions included in the $55
million charge described above, further actions will be required
related to the relocations of the Rochester, New York one-time-use
camera assembly operations and the Mexican sensitizing
operations. Upon completion of the final severance action plans, it
is expected that an additional 500 to 700 manufacturing
employees will be terminated. The total charge for these
additional severance actions is expected to be approximately $15
million to $20 million.
As part of the Company’s focused cost-reduction efforts, the
Company announced on January 22, 2003 that it intended to
incur additional charges in 2003 to terminate 1,800 to 2,200
employees, in addition to the employees included in the Fourth
Quarter, 2002 Restructuring Plan. A significant portion of these
reductions is related to the rationalization of the Company’s
photofinishing operations in the U.S. and EAMER. The total
charges in 2003 are expected to be in the range of $75 million to
$100 million.
Third Quarter, 2002 Restructuring Plan
During the third quarter of 2002, the Company consolidated and
reorganized its photofinishing operations in Japan by closing 8
photofinishing laboratories and transferring the remaining 7
laboratories to a joint venture it entered into with an independent
third party. Beginning in the fourth quarter of 2002, the Company
outsourced its photofinishing operations to this joint venture. The
restructuring charge of $20 million relating to the Photography
segment recorded in the third quarter included a charge for
termination-related benefits of approximately $14 million relating
to the elimination of approximately 175 positions, which were not
transferred to the joint venture, and other statutorily required
payments. The positions were eliminated as of September 30,
2002 and the related payments were made by the end of 2002.
The remaining restructuring charge of $6 million recorded in the
third quarter represents the write-down of long-lived assets held
for sale to their fair values based on independent valuations. An
additional $3 million was recorded in the fourth quarter for the
write-down of these long-lived assets held for sale based on
quotes obtained from potential buyers. All charges applicable to
the Third Quarter, 2002 Restructuring Plan were included in the
restructuring costs (credits) and other line in the accompanying
Consolidated Statement of Earnings.