Kodak 2004 Annual Report Download - page 79

Financials
77
2004 SUMMARY ANNUAL REPORT
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 Benefi ts.”
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 photofi nishing 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 photofi nishing 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 fi rst 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
photofi nishing 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 refl ected 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.