Kodak 2004 Annual Report Download - page 31

Financials
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2 0 0 4 ฀ S U M M A R Y ฀ A N N U A L ฀ R E P O R T
The฀severance฀charges฀of฀$418฀million฀and฀the฀exit฀costs฀of฀$99฀
million฀were฀reported฀in฀restructuring฀costs฀and฀other฀in฀the฀accompany-
ing฀Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀ended฀December฀31,฀
2004.฀Included฀in฀the฀$418฀million฀charge฀taken฀for฀severance฀costs฀was฀a฀
net฀curtailment฀gain฀of฀$6฀million.฀This฀net฀curtailment฀gain฀is฀disclosed฀in฀
Note฀17,฀“Retirement฀Plans”฀and฀Note฀18,฀“Other฀Postretirement฀Benefits.”฀฀
Included฀in฀the฀$99฀million฀charge฀taken฀for฀exit฀costs฀was฀a฀$16฀million฀
charge฀for฀environmental฀remediation฀associated฀with฀the฀closures฀of฀the฀
manufacturing฀facility฀in฀Coburg,฀Australia฀and฀Toronto,฀Canada,฀and฀the฀
closure฀of฀a฀Qualex฀wholesale฀photofinishing฀lab฀in฀the฀U.S.฀The฀liability฀re-
lated฀to฀this฀charge฀is฀disclosed฀in฀Note฀11,฀“Commitments฀and฀Contingen-
cies”฀under฀“Environmental.”฀During฀2004,฀the฀Company฀made฀$169฀million฀
of฀severance฀payments฀and฀$47฀million฀of฀exit฀cost฀payments฀related฀to฀
the฀2004-2006฀Restructuring฀Program.฀In฀the฀fourth฀quarter฀of฀2004,฀the฀
Company฀reversed฀$6฀million฀of฀severance฀reserves,฀as฀severance฀pay-
ments฀were฀less฀than฀originally฀estimated.฀The฀$1฀million฀exit฀costs฀reserve฀
reversal฀recorded฀in฀the฀third฀quarter฀of฀2004฀resulted฀from฀the฀settlement฀
of฀a฀lease฀obligation฀for฀an฀amount฀that฀was฀less฀than฀originally฀estimated.฀฀
These฀reserve฀reversals฀were฀included฀in฀restructuring฀costs฀and฀other฀in฀
the฀accompanying฀Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀ended฀
December฀31,฀2004.฀As฀a฀result฀of฀the฀initiatives฀already฀implemented฀
under฀the฀2004-2006฀Restructuring฀Program,฀severance฀payments฀will฀be฀
paid฀during฀periods฀through฀2007฀since,฀in฀many฀instances,฀the฀employees฀
whose฀positions฀were฀eliminated฀can฀elect฀or฀are฀required฀to฀receive฀their฀
payments฀over฀an฀extended฀period฀of฀time.฀Most฀exit฀costs฀were฀paid฀dur-
ing฀2004.฀However,฀certain฀costs,฀such฀as฀long-term฀lease฀payments,฀will฀
be฀paid฀over฀periods฀after฀2004.฀฀
฀As฀a฀result฀of฀initiatives฀implemented฀under฀the฀2004-2006฀Re-
structuring฀Program,฀the฀Company฀recorded฀$152฀million฀of฀accelerated฀
depreciation฀on฀long-lived฀assets฀in฀cost฀of฀goods฀sold฀in฀the฀accompany-
ing฀Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀ended฀December฀31,฀
2004.฀The฀accelerated฀depreciation฀relates฀to฀long-lived฀assets฀accounted฀
for฀under฀the฀held฀and฀used฀model฀of฀SFAS฀No.฀144.฀The฀year-to-date฀
amount฀of฀$152฀million฀relates฀to฀$49฀million฀of฀photofinishing฀facilities฀and฀
equipment,฀$102฀million฀of฀manufacturing฀facilities฀and฀equipment,฀and฀
$1฀million฀of฀administrative฀facilities฀and฀equipment฀that฀will฀be฀used฀until฀
their฀abandonment.฀The฀Company฀will฀record฀approximately฀$142฀million฀
of฀additional฀accelerated฀depreciation฀in฀2005฀related฀to฀the฀initiatives฀
implemented฀in฀2004.฀Additional฀amounts฀of฀accelerated฀depreciation฀may฀
be฀recorded฀in฀2005฀and฀2006฀as฀the฀Company฀continues฀to฀execute฀its฀
2004-2006฀Restructuring฀Program.฀฀
฀The฀charges฀of฀$826฀million฀recorded฀in฀2004฀included฀$435฀million฀
applicable฀to฀the฀D&FIS฀segment,฀$8฀million฀applicable฀to฀the฀Health฀seg-
ment,฀$5฀million฀applicable฀to฀the฀Graphic฀Communications฀segment฀and฀
$2฀million฀applicable฀to฀the฀Commercial฀Imaging฀segment.฀The฀balance฀of฀
$376฀million฀was฀applicable฀to฀manufacturing,฀research฀and฀development,฀
and฀administrative฀functions,฀which฀are฀shared฀across฀all฀segments.฀฀
Third฀Quarter,฀2003฀Restructuring฀Program
During฀the฀third฀quarter฀of฀2003,฀the฀Company฀announced฀its฀intention฀to฀
implement฀a฀series฀of฀cost฀reduction฀actions฀during฀the฀last฀two฀quarters฀
of฀2003฀and฀the฀first฀two฀quarters฀of฀2004,฀which฀were฀expected฀to฀result฀
in฀pre-tax฀charges฀totaling฀$350฀million฀to฀$450฀million.฀It฀was฀anticipated฀
that฀these฀actions฀would฀result฀in฀a฀reduction฀of฀approximately฀4,500฀to฀
6,000฀positions฀worldwide,฀primarily฀relating฀to฀the฀rationalization฀of฀global฀
manufacturing฀assets,฀reduction฀of฀corporate฀administration฀and฀research฀
and฀development,฀and฀the฀consolidation฀of฀the฀infrastructure฀and฀admin-
istration฀supporting฀the฀Company’s฀consumer฀imaging฀and฀professional฀
products฀and฀services฀operations.฀฀
The฀Company฀implemented฀certain฀actions฀under฀this฀Program฀during฀
2004.฀As฀a฀result฀of฀these฀actions,฀the฀Company฀recorded฀charges฀of฀$58฀
million฀in฀2004,฀which฀was฀composed฀of฀severance,฀exit฀costs,฀long-lived฀
asset฀impairments฀and฀inventory฀write-downs฀of฀$45฀million,฀$7฀million,฀
$4฀million฀and฀$2฀million,฀respectively.฀The฀severance฀costs฀related฀to฀the฀
elimination฀of฀approximately฀2,000฀positions,฀including฀approximately฀850฀
photofinishing฀positions,฀775฀manufacturing฀positions฀and฀375฀administra-
tive฀positions.฀The฀geographic฀composition฀of฀the฀positions฀to฀be฀eliminated฀
includes฀approximately฀1,100฀in฀the฀United฀States฀and฀Canada฀and฀900฀
throughout฀the฀rest฀of฀the฀world.฀The฀reduction฀of฀the฀2,000฀positions฀and฀
the฀$52฀million฀charges฀for฀severance฀and฀exit฀costs฀are฀reflected฀in฀the฀
Third฀Quarter,฀2003฀Restructuring฀Program฀table฀below.฀The฀$4฀million฀
charge฀for฀long-lived฀asset฀impairments฀was฀included฀in฀restructuring฀costs฀
and฀other฀in฀the฀accompanying฀Consolidated฀Statement฀of฀Earnings฀for฀the฀
year฀ended฀December฀31,฀2004.฀The฀charges฀taken฀for฀inventory฀write-
downs฀of฀$2฀million฀were฀reported฀in฀cost฀of฀goods฀sold฀in฀the฀accompany-
ing฀Consolidated฀Statement฀of฀Earnings฀for฀the฀year฀ended฀December฀31,฀
2004.฀฀