Kodak 2004 Annual Report Download - page 78

Financials
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EASTMAN KODAK COMPANY
The costs incurred, net of reversals, which total $889 million for the
year ended December 31, 2004, include $183 million and $21 million of
charges related to accelerated depreciation and inventory write-downs,
respectively, which were reported in cost of goods sold in the accompany-
ing Consolidated Statement of Earnings for the year ended December 31,
2004. The remaining costs incurred, net of reversals, of $685 million, were
reported as restructuring costs and other in the accompanying Consoli-
dated Statement of Earnings for the year ended December 31, 2004. The
severance costs and exit costs require the outlay of cash, while long-lived
asset impairments, accelerated depreciation and inventory write-downs
represent non-cash items.
2004-2006 Restructuring Program
In addition to completing the remaining initiatives under the Third Quarter,
2003 Restructuring Program, the Company announced on January 22,
2004 that it planned to develop and execute a comprehensive cost reduc-
tion program throughout the 2004 to 2006 timeframe. The objective of
these actions is to achieve a business model appropriate for the Company’s
traditional businesses, and to sharpen the Company’s competitiveness in
digital markets.
The Program is expected to result in total charges of $1.3 billion
to $1.7 billion over the three-year period, of which $700 million to $900
million are related to severance, with the remainder relating to the disposal
of buildings and equipment. Overall, Kodak’s worldwide facility square
footage is expected to be reduced by approximately one-third. Approxi-
mately 12,000 to 15,000 positions worldwide are expected to be eliminated
through these actions primarily in global manufacturing, selected traditional
businesses and corporate administration. Maximum single year cash usage
under the new program is expected to be approximately $250 million.
The Company implemented certain actions under this program during
2004. As a result of these actions, the Company recorded charges of $674
million in 2004, which was composed of severance, long-lived asset im-
pairments, exit costs and inventory write-downs of $418 million, $138 mil-
lion, $99 million and $19 million, respectively. The severance costs related
to the elimination of approximately 9,625 positions, including approximately
4,700 photofi nishing, 3,575 manufacturing, 425 research and development
and 925 administrative positions. The geographic composition of the posi-
tions to be eliminated includes approximately 5,075 in the United States
and Canada and 4,550 throughout the rest of the world. The reduction of
the 9,625 positions and the $517 million charges for severance and exit
costs are refl ected in the 2004-2006 Restructuring Program table below.
The $138 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 $19 million were reported in cost of goods sold in
the accompanying Consolidated Statement of Earnings for the year ended
December 31, 2004.
The following table summarizes the activity with respect to the
charges recorded in connection with the focused cost reduction actions
that the Company has committed to under the 2004-2006 Restructuring
Program and the remaining balances in the related reserves at December
31, 2004:
Long-lived Asset
Exit Impairments
Number of Severance Costs and Inventory Accelerated
(dollars in millions) Employees Reserve Reserve Total Write-downs Depreciation
Q1, 2004 charges — $ — $ — $ — $ 1 $ 2
Q1, 2004 utilization — — — — (1) (2)
Balance at 3/31/04 — — — — — —
Q2, 2004 charges 2,700 98 17 115 28 23
Q2, 2004 utilization (800) (12) (11) (23) (28) (23)
Q2, 2004 other adj.
& reclasses — (2) — (2) — —
Balance at 6/30/04 1,900 84 6 90 — —
Q3, 2004 charges 3,200 186 20 206 27 31
Q3, 2004 reversal — — (1) (1) — —
Q3, 2004 utilization (2,075) (32) (14) (46) (27) (31)
Q3, 2004 other adj.
& reclasses — — (5) (5) — —
Balance at 9/30/04 3,025 238 6 244 — —
Q4, 2004 charges 3,725 134 62 196 101 96
Q4, 2004 reversal — (6) — (6) — —
Q4, 2004 utilization (2,300) (125) (22) (147) (101) (96)
Q4, 2004 other adj.
& reclasses — 26 (10) 16 — —
Balance at 12/31/04 4,450 $ 267 $ 36 $ 303 $ — $ —