Kodak 2002 Annual Report Download - page 47

Financials
47
Impairment of Long-Lived Assets Effective January 1,
2002, the Company adopted the provisions of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.”
Under the guidance of SFAS No. 144, the Company’s current
policy is substantially unchanged from its previous policy. The
Company reviews the carrying value of its long-lived assets, other
than goodwill and purchased intangible assets with indefinite
useful lives, for impairment whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. The Company assesses the recoverability of the
carrying value of long-lived assets by first grouping its long-lived
assets with other assets and liabilities at the lowest level for
which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities (the asset group) and,
secondly, estimating the undiscounted future cash flows that are
directly associated with and that are expected to arise from the
use of and eventual disposition of such asset group. The Company
estimates the undiscounted cash flows over the remaining useful
life of the primary asset within the asset group. If the carrying
value of the asset group exceeds the estimated undiscounted cash
flows, the Company records an impairment charge to the extent
the carrying value of the long-lived asset exceeds its fair value.
The Company determines fair value through quoted market prices
in active markets or, if quoted market prices are unavailable,
through the performance of internal analysis of discounted cash
flows or external appraisals.
In connection with its assessment of recoverability of its
long-lived assets and its ongoing strategic review of the business
and its operations, the Company continually reviews the
remaining useful lives of its long-lived assets. If this review
indicates that the remaining useful life of the long-lived asset has
been reduced, the Company will adjust the depreciation on that
asset to facilitate full cost recovery over its revised estimated
remaining useful life.
Derivative Financial Instruments The Company adopted
SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” on January 1, 2000. All derivative
instruments are recognized as either assets or liabilities and are
measured at fair value. Certain derivatives are designated and
accounted for as hedges. The Company does not use derivatives
for trading or other speculative purposes.
The Company has cash flow hedges to manage foreign
currency exchange risk, commodity price risk, and interest rate
risk related to forecasted transactions. The Company also uses
foreign currency forward contracts to offset currency-related
changes in foreign currency denominated assets and liabilities.
These foreign currency forward contracts are not designated as
accounting hedges and all changes in fair value are recognized in
earnings in the period of change.
The fair value of foreign currency forward contracts
designated as hedges of forecasted foreign currency denominated
intercompany sales is reported in other current assets and/or
current liabilities, and is recorded in other comprehensive
income. When the related inventory is sold to third parties, the
hedge gains or losses as of the date of the intercompany sale are
transferred from other comprehensive income to cost of goods
sold.
The fair value of silver forward contracts designated as
hedges of forecasted worldwide silver purchases is reported in
other current assets and/or current liabilities, and is recorded in
other comprehensive income. When the silver-containing products
are sold to third parties, the hedge gains or losses as of the date
of the purchase of raw silver are transferred from other
comprehensive income to cost of goods sold.
The fair value of the interest rate swap designated as a
hedge of forecasted floating-rate interest payments is reported in
current liabilities, and is recorded in other comprehensive
income. As interest expense is accrued, an amount equal to the
difference between the fixed and floating-rate interest payments is
transferred from other comprehensive income to interest expense.
Environmental Expenditures Environmental expenditures that
relate to current operations are expensed or capitalized, as
appropriate. Expenditures that relate to an existing condition
caused by past operations and that do not provide future benefits
are expensed as incurred. Costs that are capital in nature and
that provide future benefits are capitalized. Liabilities are
recorded when environmental assessments are made or the
requirement for remedial efforts is probable, and the costs can be
reasonably estimated. The timing of accruing for these
remediation liabilities is generally no later than the completion of
feasibility studies.
The Company has an ongoing monitoring and identification
process to assess how the activities, with respect to the known
exposures, are progressing against the accrued cost estimates, as
well as to identify other potential remediation sites that are
presently unknown.
Income Taxes The Company accounts for income taxes in
accordance with SFAS No. 109, “Accounting for Income Taxes.”
The asset and liability approach underlying SFAS No. 109
requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences
between the carrying amounts and tax basis of the Company’s
assets and liabilities. Management provides valuation allowances
against the net deferred tax asset for amounts that are not
considered more likely than not to be realized.