Kodak 2004 Annual Report Download - page 46

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Financials
44
E A S T M A N฀ K OD A K ฀ C O M PA N Y
This฀material฀weakness฀resulted฀in฀adjustments฀that฀were฀included฀in฀the฀restatement฀of฀the฀Company’s฀consolidated฀financial฀statements฀for฀2003,฀for฀
each฀of฀the฀quarters฀in฀the฀year฀ended฀December฀31,฀2003฀and฀for฀the฀first,฀second฀and฀third฀quarters฀for฀2004,฀and฀in฀the฀Company฀recording฀adjust-
ments฀to฀the฀fourth฀quarter฀2004฀financial฀statements.฀Additionally,฀if฀this฀material฀weakness฀is฀not฀corrected,฀it฀could฀result฀in฀a฀material฀misstatement฀of฀
the฀pension฀and฀postretirement฀accounts฀that฀would฀result฀in฀a฀material฀misstatement฀to฀annual฀or฀interim฀financial฀statements฀that฀might฀not฀be฀prevented฀
or฀detected.฀฀
The฀Company’s฀independent฀registered฀public฀accounting฀firm฀has฀audited฀management’s฀assessment฀of฀the฀effectiveness฀of฀the฀Company’s฀internal฀
control฀over฀financial฀reporting฀as฀of฀December฀31,฀2004,฀as฀stated฀in฀their฀report฀which฀appears฀on฀page฀45฀under฀the฀heading,฀Report฀of฀Independent฀
Registered฀Public฀Accounting฀Firm.
Remediation฀Plans฀for฀Material฀Weaknesses฀in฀Internal฀Control฀over฀Financial฀Reporting
Accounting฀for฀Income฀Taxes
The฀Company฀is฀implementing฀enhancements฀to฀its฀internal฀control฀over฀financial฀reporting฀to฀provide฀reasonable฀assurance฀that฀errors฀and฀control฀defi-
ciencies฀in฀its฀accounting฀for฀income฀taxes฀will฀not฀recur.฀These฀steps฀include:
•฀฀The฀creation฀and฀staffing฀of฀a฀Tax฀Accounting฀Manager฀in฀the฀Controllers฀organization฀to฀provide฀oversight฀over฀the฀income฀tax฀accounting฀performed฀by฀
the฀tax฀organization฀as฀well฀as฀other฀actions฀to฀strengthen฀the฀income฀tax฀accounting฀function฀within฀the฀tax฀organization.฀
•฀฀The฀Company,฀in฀conjunction฀with฀external฀advisors,฀has฀completed฀a฀review฀of฀all฀significant฀income฀tax฀related฀accounts฀on฀the฀balance฀sheet฀including฀
a฀review฀of฀income฀tax฀accounting฀relating฀to฀significant฀restructuring฀and฀acquisition฀or฀divestiture฀transactions.
•฀฀The฀Company฀is฀implementing฀definitive฀standards฀for฀detailed฀documentation฀and฀reconciliations฀supporting฀the฀deferred฀tax฀balances฀including฀the฀
review฀and฀approval฀of฀related฀journal฀entries฀by฀appropriate฀subject฀matter฀experts.
•฀฀The฀Company฀has฀engaged฀third฀party฀advisors฀to฀complete฀an฀initiative฀to฀clarify฀and฀enhance฀roles฀and฀responsibilities฀across฀the฀function฀including฀
levels฀of฀authority฀based฀on฀an฀assessment฀of฀the฀qualifications฀of฀staff฀and฀management.฀In฀connection฀with฀this฀initiative,฀the฀Company฀will฀be฀upgrad-
ing฀its฀tax฀personnel.฀
•฀฀The฀Company฀is฀investigating฀the฀implementation฀of฀an฀IT฀solution฀to฀enhance฀controls฀with฀respect฀to฀the฀collection,฀tracking฀and฀bookkeeping฀of฀
detailed฀deferred฀tax฀information฀on฀a฀global฀basis.
•฀฀The฀Company฀will฀develop฀comprehensive฀income฀tax฀accounting฀training฀programs฀for฀tax฀and฀certain฀finance฀personnel.
•฀The฀Company฀will฀enhance฀audit฀procedures฀surrounding฀accounting฀for฀income฀taxes.
Accounting฀for฀Pension฀and฀Other฀Postretirement฀Benefit฀Plans
The฀Company฀is฀implementing฀enhancements฀to฀its฀internal฀control฀over฀financial฀reporting฀for฀pensions฀and฀other฀postretirement฀benefits฀to฀provide฀
reasonable฀assurance฀that฀errors฀and฀control฀deficiencies฀of฀this฀type฀will฀not฀recur.฀These฀steps฀include:
•฀฀The฀Company฀has฀obtained฀actual฀payment฀data฀for฀other฀postretirement฀benefits฀and฀in฀conjunction฀with฀its฀actuary,฀recorded฀the฀appropriate฀financial฀
statement฀adjustments.฀On฀a฀prospective฀basis,฀quarterly฀reports฀of฀actual฀payment฀data฀will฀be฀utilized฀in฀the฀Company’s฀financial฀reporting฀procedures.
•฀฀The฀Company฀will฀complete฀the฀installation฀and฀operational฀execution฀of฀a฀global฀IT฀system฀created฀with฀the฀assistance฀of฀external฀advisors฀to฀enhance฀
controls฀with฀respect฀to฀the฀collection,฀tracking฀and฀validation฀of฀benefit฀arrangements,฀census฀data฀and฀other฀assumptions฀related฀to฀pension฀and฀other฀
postretirement฀benefit฀plans฀on฀a฀global฀basis.฀This฀system฀was฀developed฀during฀2004฀and฀was฀partially฀effective฀during฀the฀fourth฀quarter฀closing฀process.
•฀฀The฀Company฀has฀completed฀reconciliations฀of฀census฀data฀between฀Company฀source฀records฀and฀plan฀actuary฀models฀for฀material฀pension฀and฀postre-
tirement฀benefit฀plans.฀Financial฀adjustments฀required฀as฀a฀result฀of฀these฀reconciliations฀were฀recorded฀in฀the฀2004฀financial฀results.
•฀฀Actions฀will฀be฀undertaken฀to฀strengthen฀the฀functions฀responsible฀for฀the฀reconciliation฀of฀pension฀and฀postretirement฀benefit฀plan฀census฀data฀including฀
appropriate฀training฀of฀personnel.
Until฀these฀changes฀are฀completed,฀the฀material฀weaknesses฀will฀continue฀to฀exist.฀Management฀presently฀anticipates฀that฀the฀changes฀necessary฀to฀
remediate฀these฀weaknesses฀will฀be฀in฀place฀by฀the฀end฀of฀the฀third฀quarter฀of฀2005.
Daniel฀A.฀Carp฀ Robert฀H.฀Brust
Chairman฀and฀Chief฀Executive฀Officer฀ Chief฀Financial฀Officer฀and฀Executive฀Vice฀President