Kodak 2003 Annual Report Download - page 25

Financials
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that will be used until their abandonment. The Company will incur acceler-
ated depreciation charges of $10 million, $8 million and $3 million in the
first, second and third quarters of 2004, respectively, as a result of the ini-
tiatives implemented under the Third Quarter, 2003 Restructuring
Program.
The charges of $402 million recorded in 2003 included $210 million
applicable to the Photography segment, $20 million to the Health Imaging
segment and $9 million to the Commercial Imaging segment. The remain-
ing $163 million was applicable to manufacturing, research and develop-
ment and administrative functions, which are shared across segments.
With respect to the Third Quarter, 2003 Program, the Company antic-
ipates completing the remaining initiatives originally contemplated under
the Program by the end of the second quarter of 2004. As a result of these
initiatives, an additional 1,700 to 1,900 positions will be eliminated
throughout the world by the end of the second quarter of 2004. The esti-
mated cost to complete these remaining initiatives will be in the range of
$150 million to $170 million. The Company expects the 2004 cost savings
as a result of all actions contemplated under the Third Quarter, 2003
Restructuring Program to be $250 million to $300 million in 2004, with
annual savings of $275 million to $375 million thereafter.
First Quarter, 2003 Restructuring Program
In the early part of the first quarter of 2003, as part of its continuing
focused cost reduction efforts and in addition to the remaining initiatives
under the Fourth Quarter, 2002 Restructuring Program, the Company
announced its First Quarter, 2003 Restructuring Program that included
new initiatives to further reduce employment within a range of 1,800 to
2,200 employees. A significant portion of these new initiatives relates to
the rationalization of the Company’s photofinishing operations in the U.S.
and Europe. Specifically, as a result of declining film and photofinishing
volumes and in response to global economic and political conditions, the
Company began to implement initiatives to 1) close certain photofinishing
operations in the U.S. and EAMER, 2) rationalize manufacturing capacity
by eliminating manufacturing positions on a worldwide basis, and 3) elimi-
nate selling, general and administrative positions, particularly in the
Photography segment.
The total restructuring charge for continuing operations recorded in
2003 relating to the First Quarter, 2003 Restructuring Program was $81
million, which was composed of severance, exit costs, long-lived asset
impairments and inventory write-downs of $67 million, $8 million, $5 mil-
lion and $1 million, respectively. The severance charge related to the elim-
ination of 1,850 positions, including approximately 1,225 photofinishing,
325 administrative and 300 manufacturing positions. The geographic
composition of the 1,850 positions to be eliminated includes approximate-
ly 1,100 in the United States and Canada and 750 throughout the rest of
the world. The reduction of 1,850 positions and the total severance and
exit charges of $75 million are reflected in the First Quarter, 2003
Restructuring Program table below. The remaining actions anticipated
under the First Quarter, 2003 Restructuring Program are expected to be
completed during the first quarter of 2004.
The following table summarizes the activity with respect to the sev-
erance and exit costs charges recorded in connection with the focused
cost reductions that were announced in the first quarter of 2003 and the
remaining balances in the related reserves at December 31, 2003:
(dollars in millions) Number of Employees Severance Reserve Exit Costs Reserve Total
Q1, 2003 charges 425 $ 28 $ — $ 28
Q1, 2003 utilization (150) (2) — (2)
Balance at 3/31/03 275 26 — 26
Q2, 2003 charges 500 20 4 24
Q2, 2003 utilization (500) (13) — (13)
Balance at 6/30/03 275 33 4 37
Q3, 2003 charges 925 19 4 23
Q3, 2003 utilization (400) (12) (1) (13)
Balance at 9/30/03 800 40 7 47
Q4, 2003 utilization (625) (17) (3) (20)
Balance at 12/31/03 175 $ 23 $ 4 $ 27
The charges of $80 million for severance, long-lived asset impair-
ments and exit costs reserves were reported in restructuring costs and
other in the accompanying Consolidated Statement of Earnings for the
year ended December 31, 2003. The charges taken for inventory write-
downs of $1 million were reported in cost of goods sold in the accompa-
nying Consolidated Statement of Earnings for the year ended December
31, 2003. The severance and exit costs require the outlay of cash, while
the inventory write-downs and long-lived asset impairments represent
non-cash items. Severance payments will be paid during the period
through 2005 since, in many instances, the employees whose positions
were eliminated can elect or are required to receive their severance pay-
ments over an extended period of time. Most exit costs are expected to be
paid during 2004. However, certain costs, such as long-term lease pay-
ments, will be paid over periods after 2004.
As a result of initiatives implemented under the First Quarter, 2003
Restructuring Program, the Company recorded $24 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,
2003. The accelerated depreciation relates to long-lived assets accounted
for under the held and used model of SFAS No. 144. The year-to-date