Kodak 2003 Annual Report Download - page 63

Financials
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lion are related to severance, with the remainder relating to the disposal of
buildings and equipment. Overall, Kodak’s worldwide facility square
footage will be reduced by approximately one-third. Approximately 12,000
to 15,000 positions worldwide are expected to be eliminated through
these actions primarily in global manufacturing, selected traditional busi-
nesses and corporate administration. Maximum single year cash usage
under the new program is expected to be approximately $200 million.
Third Quarter, 2003 Restructuring Program
During the third quarter of 2003, the Company announced that it intends
to implement a series of cost reduction actions during the last two quar-
ters 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 is antici-
pated that these actions will 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
R&D, and the consolidation of the infrastructure and administration sup-
porting the Company’s consumer imaging and professional products and
services operations.
The Company implemented certain actions under this Program dur-
ing 2003. As a result of these actions, the Company recorded charges of
$381 million in continuing operations in 2003, which was composed of
severance, long-lived asset impairments, exit costs and inventory write-
downs of $231 million, $109 million, $40 million and $1 million, respec-
tively. The severance costs related to the elimination of approximately
3,850 positions, including approximately 1,675 manufacturing, 1,125
administrative, 800 photofinishing and 250 research and development
positions. The geographic composition of the positions to be eliminated
includes approximately 2,550 in the United States and Canada and 1,300
throughout the rest of the world. The reduction of the 3,850 positions and
the $271 million charges for severance and exit costs are reflected in the
Third Quarter, 2003 Restructuring Program table below. The $109 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, 2003. The charges taken for inventory
write-downs of $1 million were reported in cost of goods sold in the
accompanying Consolidated Statement of Earnings for the year ended
December 31, 2003.
The following table summarizes the activity with respect to the sev-
erance charges and exit costs recorded in connection with the focused
cost reductions that were announced in the third 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
Q3, 2003 charges 1,700 $ 123 $ — $ 123
Q3, 2003 utilization (100) (3) — (3)
Balance at 9/30/03 1,600 120 — 120
Q4, 2003 charges 2,150 108 40 148
Q4, 2003 utilization (2,025) (48) (28) (76)
Balance at 12/31/03 1,725 $ 180 $ 12 $ 192
The severance charges of $231 million and the exit costs of $40 mil-
lion taken in 2003 were reported in restructuring costs and other in the
accompanying Consolidated Statement of Earnings for the year ended
December 31, 2003. The severance costs and exit costs require the outlay
of cash, while the long-lived asset impairments and inventory write-downs
represent non-cash items. Severance payments relating to the third quar-
ter restructuring actions 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 payments over an
extended period of time. Most exit costs are expected to be paid during
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 Third Quarter, 2003
Restructuring Program, the Company recorded $21 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
amount of $21 million relates to $20 million of manufacturing facilities
and equipment and $1 million of photofinishing facilities and equipment
that will be used until their abandonment. The Company will incur acceler-
ated depreciation charges of $10 million, $8 million and $1 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.
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.
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 relate to the
rationalization of the Company’s photofinishing operations in the U.S. and
Europe. Specifically, as a result of declining film and photofinishing vol-
umes 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