Material Weakness at Kodak

Somehow, $15 million worth of accounting changes are linked to one employee.
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Kodak

(EK)

added a pending restatement to its mounting woes late Wednesday.

The Rochester, N.Y., photo giant said it had found accounting errors involving restructuring accruals associated with severance and special pension-related termination benefits.

The company said fixing the errors would expand its third-quarter loss by $9 million and reduce previously announced first- and second-quarter losses by a total of $15 million. The company blamed "an incorrect calculation of a severance accrual for one employee, the only such error out of approximately 6,000 employee reductions made this year," and said the problem constitutes a material weakness in its internal controls. Finance chief Robert Brust promised to fix the problem by year-end.

Wednesday's announcement comes less than a month after Kodak posted another dizzyingly bad quarter, swinging to a billion-dollar loss and missing Wall Street revenue targets. The poor showing was the third in a row for Kodak, which has made much of its efforts to shift to a digital business model but which continues to shock investors with its steep decline.

Kodak said Wednesday's errors, which represent noncash items, total $15 million after tax. While the $15 million of restructuring-related adjustments increased the company's third-quarter loss, they also reduced the losses recorded in the first and second quarters of 2005 by an equivalent amount because the adjustments should have been recorded in the first and second quarters. There is no effect on periods prior to 2005.

In addition, the company increased the previously reported gain on the third-quarter sale of real estate by approximately $6 million after tax. The $6 million gain on the real-estate sale does not affect any prior periods.

As a result of the changes, Kodak lost $1.04 billion for the third quarter, not the previously reported $1.03 billion. Its first-quarter loss was $140 million, not $142 million, and its second-quarter loss was $141 million, not $154 million.

Late Wednesday, shares of Kodak fell 14 cents to $22.43.