Kodak 2006 Annual Report Download - page 105

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2004-2007 Restructuring Program
The Company announced on January 22, 2004 that it planned to develop and execute a comprehensive cost reduction program throughout the 2004
to 2006 timeframe. The objective of these actions was to achieve a business model appropriate for the Company’s traditional businesses, and to
sharpen the Company’s competitiveness in digital markets.
The program was 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
related to severance, with the remainder relating to the disposal of buildings and equipment. Overall, Kodak’s worldwide facility square footage was
expected to be reduced by approximately one-third. Approximately 12,000 to 15,000 positions worldwide were expected to be eliminated through
these actions primarily in global manufacturing, selected traditional businesses and corporate administration.
On July 20, 2005, the Company announced that it would extend the restructuring activity, originally announced in January 2004, as part of its efforts
to accelerate its digital transformation and to respond to a faster-than-expected decline in consumer film sales. As a result of this announcement, the
overall restructuring program was renamed the “2004-2007 Restructuring Program.” Under the 2004-2007 Restructuring Program, the Company
expected to increase the total employment reduction to a range of 22,500 to 25,000 positions, and to reduce its traditional manufacturing infrastruc-
ture to approximately $1 billion, compared with $2.9 billion as of December 31, 2004. These changes were expected to increase the total charges
under the program to a range of $2.7 billion to $3.0 billion. Based on the actual actions taken through the end of the fourth quarter of 2006 under
this program and an understanding of the estimated remaining actions to be taken, the Company expected that the employment reductions and total
charges under this program would be within the ranges of 25,000 to 27,000 positions and $3.0 billion to $3.4 billion, respectively. On February 8,
2007, the Company updated the ranges for anticipated restructuring activity. The Company now expects that the total employment reductions will be
in the range of 28,000 to 30,000 positions and total charges will be in the range of $3.6 billion to $3.8 billion.
The Company implemented certain actions under this program during 2006. As a result of these actions, the Company recorded charges of $768
million in 2006, net of reversals, which were composed of severance, long-lived asset impairments, exit costs, accelerated depreciation, and inventory
write-downs of $315 million, $88 million, $68 million, $285 million and $12 million, respectively. The severance costs related to the elimination of ap-
proximately 5,625 positions, including approximately 500 photofinishing, 2,950 manufacturing, 375 research and development and 1,800 administra-
tive positions. The geographic composition of the positions to be eliminated includes approximately 2,675 in the United States and Canada and 2,950
throughout the rest of the world. The reduction of the 5,625 positions and the $387 million charges for severance and exit costs are reflected in the
2004-2007 Restructuring Program table below. The $88 million charge for long-lived asset impairments was included in restructuring costs and other
in the accompanying Consolidated Statement of Operations for the year ended December 31, 2006. The charges taken for inventory write-downs of
$12 million were reported in cost of goods sold in the accompanying Consolidated Statement of Operations for the year ended December 31, 2006.
As a result of initiatives implemented under the 2004-2007 Restructuring Program, the Company recorded $285 million of accelerated deprecia-
tion on long-lived assets in cost of goods sold in the accompanying Consolidated Statement of Operations for the year ended December 31, 2006.
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
$285 million relates to $11 million of photofinishing facilities and equipment, $271 million of manufacturing facilities and equipment, and $3 million of
administrative facilities and equipment that will be used until their abandonment. The Company will record approximately $33 million of additional ac-
celerated depreciation in 2007 related to the initiatives implemented in 2006. Additional amounts of accelerated depreciation may be recorded in 2007
as the Company continues to execute its 2004-2007 Restructuring Program.
Under this program, on a life-to-date basis as of December 31, 2006, the Company has recorded charges of $2,731 million, which were composed of
severance, long-lived asset impairments, exit costs, inventory write-downs and accelerated depreciation of $1,233 million, $350 million, $252 million,
$68 million and $828 million, respectively. The severance costs related to the elimination of approximately 23,375 positions, including approximately
6,200 photofinishing, 10,900 manufacturing, 1,375 research and development and 4,900 administrative positions.