Kodak 2004 Annual Report Download - page 63

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฀is฀evaluated฀regularly฀by฀the฀chief฀operating฀decision฀maker฀in฀deciding฀
how฀to฀allocate฀resources฀and฀in฀assessing฀performance.฀In฀September฀
2004,฀the฀Company฀announced฀an฀organizational฀realignment฀that฀will฀
change฀the฀current฀reportable฀segment฀structure.฀See฀Note฀23,฀“Segment฀
Information,”฀for฀a฀discussion฀of฀this฀change.
Recently฀Issued฀Accounting฀Standards฀฀In฀December฀2004,฀the฀FASB฀
issued฀Statement฀No.฀123R,฀a฀revision฀to฀SFAS฀No.฀123.฀฀SFAS฀No.฀123R฀
eliminates฀the฀alternative฀to฀use฀the฀Accounting฀Principles฀Board฀Opinion฀
25’s฀(Opinion฀25)฀intrinsic฀value฀method฀of฀accounting฀that฀was฀provided฀in฀
SFAS฀No.฀123฀as฀originally฀issued.฀
Under฀Opinion฀25,฀issuing฀stock฀options฀to฀employees฀generally฀
resulted฀in฀recognition฀of฀no฀compensation฀cost.฀SFAS฀No.฀123R฀requires฀
companies฀to฀measure฀the฀cost฀of฀employee฀services฀received฀in฀exchange฀
for฀an฀award฀of฀equity฀instruments฀based฀on฀the฀grant-date฀fair฀value฀of฀the฀
award฀(with฀limited฀exceptions).฀That฀cost฀will฀be฀recognized฀over฀the฀
period฀during฀which฀an฀employee฀is฀required฀to฀provide฀service,฀in฀exchange฀
for฀the฀award฀-฀the฀requisite฀service฀period฀(usually฀the฀vesting฀period).฀No฀
compensation฀cost฀is฀recognized฀for฀equity฀instruments฀for฀which฀employees฀
do฀not฀render฀the฀requisite฀service.
Companies฀will฀initially฀measure฀the฀cost฀of฀employee฀services฀
received฀in฀exchange฀for฀an฀award฀of฀instruments฀classified฀as฀liabilities฀
(Leadership฀stock,฀Stock฀Appreciation฀Rights฀(SARs))฀based฀on฀its฀current฀
fair฀value;฀the฀fair฀value฀of฀the฀awards฀classified฀as฀a฀liability฀will฀be฀remea-
sured฀subsequently฀at฀each฀reporting฀date฀through฀the฀settlement฀date.฀฀
Changes฀in฀fair฀value฀during฀the฀requisite฀service฀period฀will฀be฀recognized฀
as฀compensation฀cost฀over฀that฀period.฀
The฀grant-date฀fair฀value฀of฀employee฀share฀options,฀or฀the฀Company’s฀
restricted฀stock฀and฀similar฀instruments฀classified฀in฀the฀Statement฀of฀
Financial฀Position฀as฀equity฀will฀be฀estimated฀using฀option-pricing฀models฀
adjusted฀for฀the฀unique฀characteristics฀of฀those฀instruments฀(unless฀observ-
able฀market฀prices฀for฀the฀same฀or฀similar฀instruments฀are฀available);฀the฀
fair฀value฀of฀awards฀classified฀as฀equity฀will฀not฀be฀remeasured.฀If฀an฀equity฀
award฀is฀modified฀after฀the฀grant฀date,฀incremental฀compensation฀cost฀
will฀be฀recognized฀in฀an฀amount฀equal฀to฀the฀excess฀of฀the฀fair฀value฀of฀the฀
modified฀award฀over฀the฀fair฀value฀of฀the฀original฀award฀immediately฀before฀
the฀modification.฀฀
Excess฀tax฀benefits,฀as฀defined฀by฀SFAS฀No.฀123R,฀will฀be฀recognized฀
as฀an฀addition฀to฀paid-in฀capital.฀Cash฀retained฀as฀a฀result฀of฀those฀excess฀
tax฀benefits฀will฀be฀presented฀in฀the฀statement฀of฀cash฀flows฀as฀financing฀
cash฀inflows.฀The฀write-off฀of฀deferred฀tax฀assets฀relating฀to฀unrealized฀tax฀
benefits฀associated฀with฀recognized฀compensation฀cost฀will฀be฀recognized฀
as฀income฀tax฀expense฀unless฀there฀are฀excess฀tax฀benefits฀from฀previous฀
awards฀remaining฀in฀paid-in฀capital฀to฀which฀it฀can฀be฀offset.฀
SFAS฀No.฀123R฀applies฀to฀all฀awards฀granted฀after฀the฀required฀effec-
tive฀date฀and฀to฀awards฀modified,฀repurchased,฀or฀cancelled฀after฀that฀date.฀฀
As฀of฀the฀required฀effective฀date,฀companies฀that฀used฀the฀fair-value-based฀
method฀for฀either฀recognition฀or฀disclosure฀under฀SFAS฀No.฀123฀will฀apply฀
SFAS฀No.฀123R฀using฀a฀modified฀version฀of฀prospective฀application.฀Under฀
that฀transition฀method,฀compensation฀cost฀is฀recognized฀on฀or฀after฀the฀
required฀effective฀date฀for฀the฀portion฀of฀outstanding฀awards฀for฀which฀the฀
requisite฀service฀has฀not฀yet฀been฀rendered,฀based฀on฀the฀grant-date฀fair฀
value฀of฀those฀awards฀calculated฀under฀SFAS฀No.฀123฀for฀either฀recognition฀
or฀pro฀forma฀disclosure.฀The฀cumulative฀effect฀of฀initially฀applying฀SFAS฀No.฀
123R,฀if฀any,฀is฀recognized฀as฀of฀the฀required฀effective฀date.฀SFAS฀No.฀123R฀
is฀effective฀as฀of฀the฀beginning฀of฀the฀first฀interim฀or฀annual฀reporting฀period฀
that฀begins฀after฀June฀15,฀2005.฀฀
Early฀application฀is฀encouraged;฀consequently,฀the฀Company฀adopted฀
the฀modified฀version฀of฀prospective฀application฀of฀SFAS฀No.฀123R฀as฀of฀
January฀1,฀2005.฀The฀cumulative฀effect฀of฀initial฀adoption฀to฀be฀recognized฀
in฀the฀first฀interim฀consolidated฀statement฀of฀earnings฀for฀the฀period฀ended฀
March฀31,฀2005,฀is฀immaterial.฀Management฀estimates฀that฀the฀adoption฀
of฀SFAS฀No.฀123R฀will฀reduce฀EPS฀by฀approximately฀$.02฀per฀share฀for฀the฀
year฀ended฀December฀31,฀2005.฀
In฀December฀2004,฀FASB฀issued฀SFAS฀No.฀151,฀“Inventory฀Costs”฀
that฀amends฀the฀guidance฀in฀Accounting฀Research฀Bulletin฀No.฀43,฀Chapter฀
4,฀“Inventory฀Pricing,”฀(ARB฀No.฀43)฀to฀clarify฀the฀accounting฀for฀abnormal฀
amounts฀of฀idle฀facility฀expense,฀freight,฀handling฀costs,฀and฀wasted฀mate-
rial฀(spoilage).฀In฀addition,฀this฀Statement฀requires฀that฀an฀allocation฀of฀fixed฀
production฀overheads฀to฀the฀costs฀of฀conversion฀be฀based฀on฀the฀normal฀
capacity฀of฀the฀production฀facilities.฀SFAS฀No.฀151฀is฀effective฀for฀inven-
tory฀costs฀incurred฀during฀fiscal฀years฀beginning฀after฀June฀15,฀2005.฀The฀
Company฀is฀evaluating฀the฀impact฀of฀SFAS฀No.฀151.฀
฀In฀December฀2004,฀FASB฀issued฀FASB฀Staff฀Position฀(FSP)฀No.฀
109-1,฀“Application฀of฀FASB฀Statement฀No.฀109,฀Accounting฀for฀Income฀
Taxes,฀to฀the฀Tax฀Deduction฀on฀Qualified฀Production฀Activities฀Provided฀by฀
the฀American฀Jobs฀Creation฀Act฀of฀2004฀(the฀“Act”).”฀The฀Act,฀which฀was฀
signed฀into฀law฀on฀October฀22,฀2004,฀authorizes฀a฀tax฀deduction฀of฀up฀to฀
9฀percent฀(when฀fully฀phased-in)฀of฀the฀lesser฀of฀(a)฀“qualified฀production฀
activities฀income,”฀as฀defined฀in฀the฀Act,฀or฀(b)฀taxable฀income฀(after฀the฀
deduction฀for฀the฀utilization฀of฀any฀net฀operating฀loss฀carryforwards),฀lim-
ited฀to฀50฀percent฀of฀W-2฀wages฀paid฀by฀the฀taxpayer.฀Accordingly,฀the฀FSP฀
provides฀guidance฀on฀accounting฀for฀the฀deduction฀as฀a฀special฀deduction฀
in฀accordance฀with฀Statement฀109,฀“Accounting฀for฀Income฀Taxes.”฀Further,฀
a฀company฀should฀consider฀the฀special฀deduction฀in฀(a)฀measuring฀deferred฀
taxes฀when฀graduated฀tax฀rates฀are฀a฀significant฀factor฀and฀(b)฀assessing฀
whether฀a฀valuation฀allowance฀is฀necessary฀as฀required฀by฀paragraph฀232฀
of฀Statement฀109.฀The฀provisions฀of฀FSP฀109-1฀were฀effective฀in฀the฀fourth฀
quarter฀of฀2004.฀The฀adoption฀of฀FSP฀109-1฀did฀not฀have฀a฀material฀effect฀
on฀the฀Company’s฀financial฀position,฀results฀of฀options฀or฀cash฀flows.฀
In฀December฀2004,฀FASB฀issued฀FSP฀No.฀109-2,฀“Accounting฀and฀
Disclosure฀Guidance฀for฀the฀Foreign฀Earnings฀Repatriation฀Provision฀within฀
the฀American฀Jobs฀Creation฀Act฀of฀2004฀(the฀“Act”).”฀The฀Act,฀which฀was฀
signed฀into฀law฀on฀October฀22,฀2004,฀provides฀for฀a฀special฀one-time฀tax฀
deduction฀of฀85฀percent฀of฀certain฀foreign฀earnings฀that฀are฀repatriated฀(as฀
defined฀in฀the฀Act)฀in฀either฀a฀company’s฀last฀tax฀year฀that฀began฀before฀
the฀enactment฀date,฀or฀the฀first฀tax฀year฀that฀begins฀during฀the฀one-year฀
period฀beginning฀on฀the฀date฀of฀enactment.฀Accordingly,฀the฀FSP฀provides฀
guidance฀on฀accounting฀for฀income฀taxes฀that฀related฀to฀the฀accounting฀
treatment฀for฀unremitted฀earnings฀in฀a฀foreign฀investment฀(a฀consolidated฀
subsidiary฀or฀corporate฀joint฀venture฀that฀is฀essentially฀permanent฀in฀
nature).฀Further,฀the฀FSP฀permits฀a฀company฀time฀beyond฀the฀financial฀
reporting฀period฀of฀enactment฀to฀evaluate฀the฀effect฀of฀the฀Act฀on฀its฀plan฀
for฀reinvestment฀or฀repatriation฀of฀foreign฀earnings฀for฀purposes฀of฀applying฀
FASB฀Statement฀No.฀109,฀“Accounting฀for฀Income฀Taxes.”฀Accordingly,฀
an฀enterprise฀that฀has฀not฀yet฀completed฀its฀evaluation฀of฀the฀repatriation฀
provision฀for฀purposes฀of฀applying฀Statement฀109฀is฀required฀to฀disclose฀
certain฀information,฀for฀each฀period฀for฀which฀financial฀statements฀covering฀