Kodak 2004 Annual Report Download - page 41
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2 0 0 4 S U M M A R Y A N N U A L R E P O R T
awardismodifiedafterthegrantdate,incrementalcompensationcost
willberecognizedinanamountequaltotheexcessofthefairvalueofthe
modifiedawardoverthefairvalueoftheoriginalawardimmediatelybefore
themodification.
Excesstaxbenefits,asdefinedbySFASNo.123R,willberecognized
asanadditiontopaid-incapital.Cashretainedasaresultofthoseexcess
taxbenefitswillbepresentedinthestatementofcashflowsasfinancing
cashinflows.Thewrite-offofdeferredtaxassetsrelatingtounrealizedtax
benefitsassociatedwithrecognizedcompensationcostwillberecognized
asincometaxexpenseunlessthereareexcesstaxbenefitsfromprevious
awardsremaininginpaid-incapitaltowhichitcanbeoffset.
SFASNo.123Rappliestoallawardsgrantedaftertherequiredeffec-
tivedateandtoawardsmodified,repurchased,orcancelledafterthatdate.
Asoftherequiredeffectivedate,companiesthatusedthefair-value-based
methodforeitherrecognitionordisclosureunderSFASNo.123willapply
SFASNo.123Rusingamodifiedversionofprospectiveapplication.Under
thattransitionmethod,compensationcostisrecognizedonorafterthe
requiredeffectivedatefortheportionofoutstandingawardsforwhichthe
requisiteservicehasnotyetbeenrendered,basedonthegrant-datefair
valueofthoseawardscalculatedunderSFASNo.123foreitherrecognition
orproformadisclosure.ThecumulativeeffectofinitiallyapplyingSFASNo.
123R,ifany,isrecognizedasoftherequiredeffectivedate.SFASNo.123R
iseffectiveasofthebeginningofthefirstinterimorannualreportingperiod
thatbeginsafterJune15,2005.
Earlyapplicationisencouraged;consequently,theCompanyadopted
themodifiedversionofprospectiveapplicationofSFASNo.123Rasof
January1,2005.Thecumulativeeffectofinitialadoptiontoberecognized
inthefirstinterimconsolidatedstatementofearningsfortheperiodended
March31,2005,isimmaterial.Managementestimatesthattheadoption
ofSFASNo.123RwillreduceEPSbyapproximately$.02pershareforthe
yearendedDecember31,2005.
InDecember2004,FASBissuedSFASNo.151,“InventoryCosts”
thatamendstheguidanceinAccountingResearchBulletinNo.43,Chapter
4,“InventoryPricing,”(ARBNo.43)toclarifytheaccountingforabnormal
amountsofidlefacilityexpense,freight,handlingcosts,andwastedmate-
rial(spoilage).Inaddition,thisStatementrequiresthatanallocationoffixed
productionoverheadstothecostsofconversionbebasedonthenormal
capacityoftheproductionfacilities.SFASNo.151iseffectiveforinventory
costsincurredduringfiscalyearsbeginningafterJune15,2005.Early
applicationispermittedforinventorycostsincurredduringfiscalyears
beginningafterNovember23,2004.TheCompanyisevaluatingtheimpact
ofSFASNo.151.
InDecember2004,FASBissuedFASBStaffPosition(FSP)No.109-1,
“ApplicationofFASBStatementNo.109,AccountingforIncomeTaxes,
totheTaxDeductiononQualifiedProductionActivitiesProvidedbythe
AmericanJobsCreationActof2004(the“Act”).”TheAct,whichwas
signedintolawonOctober22,2004,authorizesataxdeductionofupto
9percent(whenfullyphased-in)ofthelesserof(a)“qualifiedproduction
activitiesincome,”asdefinedintheAct,or(b)taxableincome(afterthe
deductionfortheutilizationofanynetoperatinglosscarryforwards),lim-
itedto50percentofW-2wagespaidbythetaxpayer.Accordingly,theFSP
providesguidanceonaccountingforthedeductionasaspecialdeduction
inaccordancewithStatement109,“AccountingforIncomeTaxes.”Further,
acompanyshouldconsiderthespecialdeductionin(a)measuringdeferred
taxeswhengraduatedtaxratesareasignificantfactorand(b)assessing
whetheravaluationallowanceisnecessaryasrequiredbyparagraph232
ofStatement109.TheprovisionsofFSP109-1wereeffectiveinthefourth
quarterof2004.TheadoptionofFSP109-1didnothaveamaterialeffect
ontheCompany’sfinancialposition,resultsofoptionsorcashflows.
InDecember2004,FASBissuedFSPNo.109-2,“Accountingand
DisclosureGuidancefortheForeignEarningsRepatriationProvisionwithin
theAmericanJobsCreationActof2004(the“Act”).”TheAct,whichwas
signedintolawonOctober22,2004,providesforaspecialone-timetax
deductionof85percentofcertainforeignearningsthatarerepatriated(as
definedintheAct)ineitheracompany’slasttaxyearthatbeganbefore
theenactmentdate,orthefirsttaxyearthatbeginsduringtheone-year
periodbeginningonthedateofenactment.Accordingly,theFSPprovides
guidanceonaccountingforincometaxesthatrelatedtotheaccounting
treatmentforunremittedearningsinaforeigninvestment(aconsolidated
subsidiaryorcorporatejointventurethatisessentiallypermanentin
nature).Further,theFSPpermitsacompanytimebeyondthefinancial
reportingperiodofenactmenttoevaluatetheeffectoftheActonitsplan
forreinvestmentorrepatriationofforeignearningsforpurposesofapplying
FASBStatementNo.109,“AccountingforIncomeTaxes.”Accordingly,
anenterprisethathasnotyetcompleteditsevaluationoftherepatriation
provisionforpurposesofapplyingStatement109isrequiredtodisclose
certaininformation,foreachperiodforwhichfinancialstatementscovering
periodsaffectedbytheActarepresented.Subsequently,thetotaleffect
onincometaxexpense(orbenefit)foramountsthathavebeenrecognized
undertherepatriationprovisionmustbeprovidedinacompany’sfinan-
cialstatementsfortheperiodinwhichitcompletesitsevaluationofthe
repatriationprovision.TheprovisionsofFSP109-2areeffectiveimmedi-
ately.AsofandfortheyearendedDecember31,2004,theCompanyhas
notyetcompleteditsevaluation;consequently,therequiredinformationis
disclosedinNote15,“IncomeTaxes.”
RISKFACTORS
Setforthbelowandelsewhereinthisreportandinotherdocumentsthat
theCompanyfileswiththeSecuritiesandExchangeCommissionarerisks
anduncertaintiesthatcouldcausetheactualfutureresultsoftheCompany
todifferfromthoseexpressedorimpliedintheforward-lookingstatements
containedinthisdocumentandotherpublicstatementstheCompany
makes.Additionally,becauseofthefollowingrisksanduncertainties,as
wellasothervariablesaffectingouroperatingresults,theCompany’spast
financialperformanceshouldnotbeconsideredanindicatoroffutureper-
formanceandinvestorsshouldnotusehistoricaltrendstoanticipateresults
ortrendsinfutureperiods.
Ifwedonoteffectivelyimplementournewdigitallyorientedgrowth
strategy,thiscouldadverselyaffectouroperations,revenueand
abilitytocompete.
Kodakisemphasizingdigitaltechnologyandexpandingintoarangeof
commercialbusinessesinordertocreateamorebalancedanddiversified
businessportfoliowhileacceleratingtheimplementationofitsexisting
digitalproductstrategiesintheconsumermarkets.Kodakexpectstoincur
restructuringchargesinrelationtotheseinitiatives.Theexpectedbenefits
fromtheseinitiativesaresubjecttomanyestimatesandassumptions,
includingassumptionsregarding:(1)theamountandtimingofcostsavings