Annual Report 1996

 

Manufacturing Development Costs:
In addition to the research, engineering and development costs included in marketing, research, engineering and administrative expenses, there were planned manufacturing development costs for major new products included in costs of sales of approximately $10 million in 1996, $35 million in 1995 and $30 million in 1994.

Advertising Costs:
Effective for fiscal 1995, the Company became subject to Statement of Position 93-7, "Reporting on Advertising Costs" (SOP 93-7) issued by the American Institute of Certified Public Accountants. SOP 93-7 had no impact on how the Company accounts for advertising costs. Prior to 1995, certain costs were considered to be promotional expenses and were included in marketing overhead. Under the provisions of SOP 93-7, these promotional expenses are considered to be advertising costs and accordingly, amounts for 1994 have been restated to conform with current year presentation. Advertising costs were:

At December 31, 1996, $5.4 million of advertising costs were reported as prepaid expenses on the consolidated balance sheet. There were no advertising costs reported as assets as of December 31, 1995 and 1994.

Interest Capitalization:
The Company has capitalized interest costs relating to certain qualifying assets. In 1996, 1995 and 1994, the amounts of interest costs capitalized were $5.1 million, $4.8 million and $9.7 million, respectively.

Cash Flow Information:
Cash payments for interest and income taxes were:

 

Other non-cash items include $44.6 million for 1996 and $18.0 million for 1995 related to enhanced pension benefits provided under the Company's early retirement programs, offered in the fourth quarter of 1995 and the first quarter of 1995, respectively, that will be funded from the Company's pension plans. In 1996, the Company also recorded as other non-cash items $25.8 million for fixed asset and inventory write-offs associated with the sale of the Company's Helios diagnostic equipment line and the cancellation of a printer project. In 1995, the Company also recorded as other non-cash items $85.0 million for certain assembly equipment and fixed asset write-offs and $30.0 million for inventory write-offs and other costs, all of which were related to the Company's plan to make fundamental changes in its operating structure announced in December 1995. As part of the December 1995 plan, the Company also recorded as other non-cash items $10.0 million for additional inventory write-offs in the first quarter of 1996.

Restructuring Charges and Other:
In the first quarter of 1995, the Company implemented a restructuring plan which resulted in a pre-tax charge of $77.0 million. The Company offered an early retirement program to certain qualified employees and a voluntary severance program to all employees, both of which were open from February 13, 1995 to March 31, 1995. As a result of these programs, approximately 930 employees (approximately 560 from manufacturing and 370 from marketing, research, engineering, and administrative functions) terminated their employment in 1995. The pre-tax costs related to the voluntary severance program were $56.0 million, of which $47.0 million of cash severance payments were made in 1995. The remaining cash severance payments of approximately $9.0 million were paid in the first quarter of 1996. Additionally, $18.0 million represents enhanced retirement benefits provided under the early retirement program that will be funded from the Company's pension plans. The remainder of the charge was approximately $3.0 million for exit costs related to the shutdown of certain facilities.

In December 1995, the Company announced a plan to make fundamental changes in its operating structure. This plan features three principal components - program reductions in certain product, research and manufacturing areas; strategic refocusing of the Company's digital imaging businesses for the medical diagnostic and graphic arts markets; and a reduction in corporate overhead expenses. The total pre-tax charge for restructuring and other expenses related to this plan was $280.0 million. Of that amount, $110.0 million was recorded in the first quarter of 1996 and $170.0 million was recorded in the fourth quarter of 1995. The December 1995 early retirement and severance programs are expected to result in the elimination of a total of approximately 1,570 positions worldwide (approximately 810 from manufacturing and 760 from marketing, research, engineering and administrative functions).

The 1995 fourth quarter pre-tax charge of $170.0 million included $85.0 million to write-off certain assembly equipment and fixed assets and $30.0 million to write-off inventory and accrue other costs, all of which were primarily related to the Captiva product line. The remaining $55.0 million of the charge was related to the estimated cost of involuntary severance benefits for the Company's domestic employees who were expected to terminate in 1996. This amount does not include severance costs for international employees, and incremental voluntary severance benefits and pension enhancement benefits.

The 1996 first quarter pre-tax charge of $110.0 million represents the balance of severance and pension enhancement costs and inventory write downs related to the December 1995 program. In the first quarter of 1996, the pre-tax costs related to the severance program were approximately $55.4 million. Additionally, approximately $44.6 million represents enhanced retirement benefits provided under the early retirement program that will be funded from the Company's pension plans.

Total cash severance payments related to the December 1995 program will be approximately $110.4 million. As of December 31, 1996, 1,247 of these terminations and $67.4 million of related cash severance payments were made. Approximately $13.0 million and $14.0 million of related severance payments are expected to be paid in the first and second quarter of 1997, respectively. The remaining balance of cash severance payments of $16.0 million is expected to be paid in the second half of 1997.

Special Charges:
In 1996, the Company recorded a $40.0 million pre-tax cost which includes $25.0 million related to the previously announced costs associated with the sale of the Company's Helios medical diagnostic imaging equipment line and $15.0 million to write down parts and capital equipment under development for a printer project and other costs. Inventory write-offs of $7.0 million related to these matters were recorded in cost of sales, in accordance with new accounting guidelines and $33.0 million was reported as special charges. The $33.0 million special charge reflects the write-offs of fixed assets, severance and other costs. In connection with the Helios sale, the Company is also acquiring a minority interest in the buyer and its parent company.

Reclassification:
Certain prior year information has been reclassified to conform with current year presentation of data.

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