Kodak 2003 Annual Report Download - page 26

Financials
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amount of $24 million relates to lab equipment used in photofinishing that
will be used until their abandonment. The Company will incur accelerated
depreciation charges of $8 million in the first quarter of 2004 and $1 mil-
lion in the second quarter of 2004 as a result of the initiatives implement-
ed under the First Quarter, 2003 Restructuring Program.
Cost savings resulting from the implementation of all First Quarter,
2003 Restructuring Program actions are in line with the original estimate
of approximately $35 million to $50 million in 2003 and are expected to
be $65 million to $85 million on an annual basis thereafter.
The total restructuring charges of $105 million recorded in 2003
under the First Quarter, 2003 Restructuring Program included $85 million
applicable to the Photography segment and $5 million applicable to the
Commercial Imaging segment. The remaining $15 million was applicable
to manufacturing, research and development, and administrative func-
tions, which are shared across all segments.
In addition to the $105 million of restructuring charges recorded in
2003 under the First Quarter, 2003 Restructuring Program, the Company
recorded $17 million of charges in the second quarter associated with the
Company’s exit from the Photography segment’s Phogenix joint venture
with Hewlett Packard. The $17 million charge included approximately $2
million of inventory write-downs, $6 million of long-lived asset impair-
ments and $9 million of exit costs. The inventory write-downs were
reported in cost of goods sold in the accompanying Consolidated
Statement of Earnings for the year ended December 31, 2003. The long-
lived asset impairments and exit costs were reported in restructuring
costs and other in the accompanying Consolidated Statement of Earnings
for the year ended December 31, 2003. The exit costs, which represent
the only cash portion of the charge, are expected to be paid during 2004.
Fourth Quarter, 2002 Restructuring Program
During the fourth quarter of 2002, the Company announced a planned
Program consisting of a number of focused cost reduction initiatives
designed to deploy manufacturing assets more effectively in order to pro-
vide competitively-priced products to the global market. In the announce-
ment, the Company discussed the restructuring initiatives under its Fourth
Quarter, 2002 Restructuring Program that would begin in the fourth quar-
ter of 2002 and extend into 2003. These initiatives were expected to affect
a total of 1,300 to 1,700 positions worldwide, including approximately 150
positions in the Company’s U.S. research and development organizations,
500 positions in its U.S. one-time-use camera assembly operations, 300
positions in its Mexico sensitizing operations and 550 positions in its glob-
al manufacturing and logistics organization. Specific initiatives included
the relocation of the one-time-use camera assembly operations in
Rochester, New York and the graphic arts and x-ray film sensitizing opera-
tions in Mexico to other Kodak locations.
The total restructuring charge for continuing operations recorded in
2002 for these initiatives that were implemented was $116 million, which
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. The severance charge related to the elimination of
1,150 positions, including approximately 525 manufacturing and logistics,
300 service and photofinishing, 175 administrative and 150 research and
development positions. The geographic composition of the 1,150 positions
eliminated 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 equip-
ment 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 aban-
doned immediately. The reduction of 1,150 positions and the $72 million
charge for severance and exit costs are reflected in the Fourth Quarter,
2002 Restructuring Program table below. These amounts exclude the
fourth quarter elimination of 150 positions and the restructuring charges
relating to the shutdown of Kodak Global Imaging, Inc., as these charges
were reflected in the loss from discontinued operations for the year ended
December 31, 2002.
During 2003, the Company recorded additional severance charges of
$21 million in continuing operations relating to 675 positions that were
contemplated under its Fourth Quarter, 2002 Restructuring Program,
including the relocation of Mexican sensitizing operations and the U.S.
one-time-use camera assembly operations. The 675 positions that were
eliminated included approximately 500 manufacturing and 175 adminis-
trative positions. The geographic composition of the 675 positions includ-
ed approximately 425 in the U.S. and Canada and 250 throughout the rest
of the world. The reduction of 675 positions and the related severance
charges of $21 million are reflected in the Fourth Quarter, 2002
Restructuring Program table below. All actions anticipated under the
Fourth Quarter, 2002 Restructuring Program were completed in the third
quarter of 2003. A total of 1,825 positions were eliminated under the
Fourth Quarter, 2002 Restructuring Program.
The table on the following page summarizes the activity with respect
to the severance and exit costs charges recorded in connection with the
focused cost reductions that were announced in the fourth quarter of
2002 and the remaining balance in the related reserves at December 31,
2003: