Kodak 2014 Annual Report Download - page 42

Gross Profit
Current Year
The increase in the Digital Printing and Enterprise Segment gross profit percent for the year ended December 31, 2014 was primarily due to improvements in manufacturing
and other costs due to the prior year being adversely impacted by the revaluation of inventory from the application of fresh start accounting (+4pp). This was offset by
consumer ink sales constituting a lower percentage of the segment’s gross profit dollars (-4pp).
Prior Year
The increase in the Digital Printing and Enterprise Segment gross profit percent for year ended December 31, 2013 was primarily due to favorable price/mix within
Consumer Inkjet Systems due to a greater proportion of consumer ink sales in the current year (+10pp). Increased manufacturing and other costs due to the revaluation
of inventory from the application of fresh start accounting (-5pp) was largely offset by cost reductions within Digital Printing (+3pp) due to increase in scale and
productivity improvement initiatives.
Selling, General and Administrative Expenses
The decreases in SG&A from 2013 to 2014 and 2012 to 2013 were the result of cost reduction actions. For 2012 to 2013 this included the change in strategy for Consumer
Inkjet Systems
.
Research and Development Costs
The decrease in R&D from 2012 to 2013 was primarily attributable to cost reduction actions resulting from focusing development activities on core products and certain
products reaching the commercialization stage.
RESTRUCTURING COSTS AND OTHER
2014
Restructuring actions taken in 2014 included steps toward exiting a plate manufacturing facility in the UK, as described in further detail below. In addition, actions were
initiated to reduce Kodak’s cost structure as part of its commitment to drive sustainable profitability and included a workforce reduction in France, manufacturing capacity
reductions in the U.S., a research and development site consolidation in the U.S., and various targeted reductions in service, sales, research and development and other
administrative functions.
As a result of these actions, for the year ended December 31, 2014 Kodak recorded $61 million of charges, including $2 million for accelerated depreciation which were
reported in Cost of revenues and $59 million which were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations.
The Company made cash payments related to restructuring of approximately $52 million for the year ended December 31, 2014.
The restructuring actions implemented in 2014 are expected to generate future annual cash savings of approximately $77 million. These savings are expected to reduce future
annual Cost of revenues, SG&A and R&D expenses by $29 million, $38 million and $10 million, respectively. Kodak expects the majority of the annual savings to be in effect
by the end of 2015 as actions are completed.
Leeds Plate Manufacturing Facility Exit
On March 3, 2014, Kodak announced a plan to exit its prepress plate manufacturing facility located in Leeds, England. This decision was pursuant to Kodak’s initiative to
consolidate manufacturing operations globally, and is expected to result in a more efficient delivery of its products and solutions. Kodak began the exit of the facility in the
second quarter of 2014, and expects to phase out production at the site from mid-to-late 2015 and to complete the exit of the facility by the second quarter of 2016.
As a result of the decision, Kodak originally expected to incur total charges of $30 to $40 million, including $8 to $10 million of charges related to separation benefits, $20 to
$25 million of non-cash related charges for accelerated depreciation and asset write-offs and $2 to $5 million in other cash related charges associated with this action. Based
on refinements in estimates, Kodak now expects to incur total charges of $20 to $30 million, including $10 to $15 million of non-cash related charges for accelerated
depreciation and asset write-offs. The estimates for separation benefits and other cash related charges remain unchanged.
Kodak implemented certain actions under this program during 2014. As a result of these actions, Kodak recorded severance charges of $3 million, long-
lived asset impairment
charges of $2 million, and accelerated depreciation charges of $2 million.
2013
For the four months ended December 31, 2013, Kodak recorded $17 million of charges reported as Restructuring costs and other in the accompanying Consolidated Statement
of Operations. For the eight months ended August 31, 2013, Kodak recorded $52 million of charges, including $4 million for accelerated depreciation and $2 million for
inventory write-downs which were reported in Cost of revenues, $43 million reported as Restructuring costs and other and $3 million which were reported as Earnings (loss)
from discontinued operations in the accompanying Consolidated Statement of Operations.
2012
For the year ended December 31, 2012, Kodak recorded $271 million of charges, including $13 million of charges for accelerated depreciation and $4 million of charges
for inventory write-downs, which were reported in Cost of revenues, $39 million that was reported as Earnings (loss) from discontinued operations and $215 million of
charges that were reported as Restructuring costs and other in the accompanying Consolidated Statement of Operations for the year ended December 31, 2012.
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