Kodak 2004 Annual Report Download - page 59

Financials
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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
that฀material฀payments฀will฀be฀required฀under฀any฀of฀its฀guarantee฀arrange-
ments.฀See฀Note฀12,฀“Guarantees.”
Cash฀Equivalents฀฀All฀highly฀liquid฀investments฀with฀a฀remaining฀maturity฀
of฀three฀months฀or฀less฀at฀date฀of฀purchase฀are฀considered฀to฀be฀cash฀
equivalents.
Marketable฀Securities฀and฀Noncurrent฀Investments฀฀The฀Company฀
classifies฀its฀investment฀securities฀as฀either฀held-to-maturity,฀available-for-
sale฀or฀trading.฀The฀Company’s฀debt฀and฀equity฀investment฀securities฀are฀
classified฀as฀held-to-maturity฀and฀available-for-sale,฀respectively.฀Held-to-
maturity฀investments฀are฀carried฀at฀amortized฀cost฀and฀available-for-sale฀
securities฀are฀carried฀at฀fair฀value,฀with฀the฀unrealized฀gains฀and฀losses฀
reported฀in฀shareholders’฀equity฀under฀the฀caption฀accumulated฀other฀
comprehensive฀(loss)฀income.฀The฀Company฀records฀losses฀that฀are฀other฀
than฀temporary฀to฀earnings.
At฀December฀31,฀2004฀and฀2003,฀the฀Company฀had฀short-term฀
investments฀classified฀as฀held-to-maturity฀of฀$3฀million฀and฀$11฀million,฀
respectively.฀These฀investments฀were฀included฀in฀other฀current฀assets฀in฀
the฀accompanying฀Consolidated฀Statement฀of฀Financial฀Position.฀In฀addition,฀
at฀December฀31,฀2004฀and฀2003,฀the฀Company฀had฀available-for-sale฀
equity฀securities฀of฀$25฀million฀and฀$34฀million,฀respectively,฀included฀in฀
other฀long-term฀assets฀in฀the฀accompanying฀Consolidated฀Statement฀of฀
Financial฀Position.
Inventories฀฀Inventories฀are฀stated฀at฀the฀lower฀of฀cost฀or฀market.฀The฀
cost฀of฀most฀inventories฀in฀the฀U.S.฀is฀determined฀by฀the฀“last-in,฀first-out”฀
(LIFO)฀method.฀The฀cost฀of฀all฀of฀the฀Company’s฀remaining฀inventories฀in฀
and฀outside฀the฀U.S.฀is฀determined฀by฀the฀“first-in,฀first-out”฀(FIFO)฀or฀aver-
age฀cost฀method,฀which฀approximates฀current฀cost.฀The฀Company฀provides฀
inventory฀reserves฀for฀excess,฀obsolete฀or฀slow-moving฀inventory฀based฀on฀
changes฀in฀customer฀demand,฀technology฀developments฀or฀other฀economic฀
factors.
Properties฀฀Properties฀are฀recorded฀at฀cost,฀net฀of฀accumulated฀deprecia-
tion.฀The฀Company฀principally฀calculates฀depreciation฀expense฀using฀the฀
straight-line฀method฀over฀the฀assets’฀estimated฀useful฀lives,฀which฀are฀as฀
follows:
฀Years
Buildings฀and฀building฀equipment฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10-40
Land฀improvements฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10-20
Leasehold฀improvements฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3-10
Machinery฀and฀production฀equipment฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3-20
Power฀plant฀equipment฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 5-20
Transportation฀equipment฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀3-5
Tooling฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3
Office฀equipment,฀including฀computers฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3-7
Furniture฀and฀fixtures฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3-15
Maintenance฀and฀repairs฀are฀charged฀to฀expense฀as฀incurred.฀Upon฀
sale฀or฀other฀disposition,฀the฀applicable฀amounts฀of฀asset฀cost฀and฀accumu-
lated฀depreciation฀are฀removed฀from฀the฀accounts฀and฀the฀net฀amount,฀less฀
proceeds฀from฀disposal,฀is฀charged฀or฀credited฀to฀income.
Goodwill฀฀Goodwill฀represents฀the฀excess฀of฀purchase฀price฀over฀the฀
fair฀value฀of฀net฀assets฀acquired.฀The฀Company฀applies฀the฀provisions฀of฀
SFAS฀No.฀142,฀“Goodwill฀and฀Other฀Intangible฀Assets.”฀In฀accordance฀with฀
SFAS฀No.฀142,฀goodwill฀is฀not฀amortized,฀but฀is฀required฀to฀be฀assessed฀for฀
impairment฀at฀least฀annually.฀The฀Company฀has฀elected฀to฀make฀September฀
30฀the฀annual฀impairment฀assessment฀date฀for฀all฀of฀its฀reporting฀units,฀
and฀will฀perform฀additional฀impairment฀tests฀when฀events฀or฀changes฀in฀
circumstances฀occur฀that฀would฀more฀likely฀than฀not฀reduce฀the฀fair฀value฀
of฀the฀reporting฀unit฀below฀its฀carrying฀amount.฀SFAS฀No.฀142฀defines฀a฀re-
porting฀unit฀as฀an฀operating฀segment฀or฀one฀level฀below฀an฀operating฀seg-
ment.฀The฀Company฀estimates฀the฀fair฀value฀of฀its฀reporting฀units฀through฀
internal฀analyses฀and฀external฀valuations,฀which฀utilize฀income฀and฀market฀
approaches฀through฀the฀application฀of฀capitalized฀earnings,฀discounted฀
cash฀flow฀and฀market฀comparable฀methods.฀The฀assessment฀is฀required฀
to฀be฀performed฀in฀two฀steps,฀step฀one฀to฀test฀for฀a฀potential฀impairment฀
of฀goodwill฀and,฀if฀potential฀losses฀are฀identified,฀step฀two฀to฀measure฀the฀
impairment฀loss.฀The฀Company฀completed฀step฀one฀in฀its฀fourth฀quarter฀
and฀determined฀that฀there฀were฀no฀such฀impairments.฀Accordingly,฀the฀
performance฀of฀step฀two฀was฀not฀required.฀฀
Revenue฀฀The฀Company’s฀revenue฀transactions฀include฀sales฀of฀the฀
following:฀products;฀equipment;฀software;฀services;฀equipment฀bundled฀
with฀products฀and/or฀services;฀and฀integrated฀solutions.฀The฀Company฀
recognizes฀revenue฀when฀realized฀or฀realizable฀and฀earned,฀which฀is฀when฀
the฀following฀criteria฀are฀met:฀persuasive฀evidence฀of฀an฀arrangement฀
exists;฀delivery฀has฀occurred;฀the฀sales฀price฀is฀fixed฀or฀determinable;฀and฀
collectibility฀is฀reasonably฀assured.฀At฀the฀time฀revenue฀is฀recognized,฀the฀
Company฀provides฀for฀the฀estimated฀costs฀of฀customer฀incentive฀programs,฀
warranties฀and฀estimated฀returns฀and฀reduces฀revenue฀accordingly.
฀฀฀For฀product฀sales,฀the฀recognition฀criteria฀are฀generally฀met฀when฀
title฀and฀risk฀of฀loss฀have฀transferred฀from฀the฀Company฀to฀the฀buyer,฀which฀
may฀be฀upon฀shipment฀or฀upon฀delivery฀to฀the฀customer฀site,฀based฀on฀con-
tract฀terms฀or฀legal฀requirements฀in฀foreign฀jurisdictions.฀฀Service฀revenues฀
are฀recognized฀as฀such฀services฀are฀rendered.
For฀equipment฀sales,฀the฀recognition฀criteria฀are฀generally฀met฀when฀
the฀equipment฀is฀delivered฀and฀installed฀at฀the฀customer฀site.฀Revenue฀is฀
recognized฀for฀equipment฀upon฀delivery฀as฀opposed฀to฀upon฀installation฀
when฀there฀is฀objective฀and฀reliable฀evidence฀of฀fair฀value฀for฀the฀installa-
tion,฀and฀the฀amount฀of฀revenue฀allocable฀to฀the฀equipment฀is฀not฀legally฀
contingent฀upon฀the฀completion฀of฀the฀installation.฀In฀instances฀in฀which฀
the฀agreement฀with฀the฀customer฀contains฀a฀customer฀acceptance฀clause,฀
revenue฀is฀deferred฀until฀customer฀acceptance฀is฀obtained,฀provided฀the฀
customer฀acceptance฀clause฀is฀considered฀to฀be฀substantive.฀For฀certain฀
agreements,฀the฀Company฀does฀not฀consider฀these฀customer฀acceptance฀
clauses฀to฀be฀substantive฀because฀the฀Company฀can฀and฀does฀replicate฀
the฀customer฀acceptance฀test฀environment฀and฀performs฀the฀agreed฀upon฀
product฀testing฀prior฀to฀shipment.฀In฀these฀instances,฀revenue฀is฀recognized฀
upon฀installation฀of฀the฀equipment.
Revenue฀for฀the฀sale฀of฀software฀licenses฀is฀recognized฀when:฀(1)฀the฀
Company฀enters฀into฀a฀legally฀binding฀arrangement฀with฀a฀customer฀for฀the฀
license฀of฀software;฀(2)฀the฀Company฀delivers฀the฀software;฀(3)฀customer฀
payment฀is฀deemed฀fixed฀or฀determinable฀and฀free฀of฀contingencies฀or฀
significant฀uncertainties;฀and฀(4)฀collection฀from฀the฀customer฀is฀prob-
able.฀If฀the฀Company฀determines฀that฀collection฀of฀a฀fee฀is฀not฀reasonably฀