Kodak 2006 Annual Report Download - page 98

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Warranty Costs
The Company has warranty obligations in connection with the sale of its equipment. The original warranty period for equipment products is gener-
ally one year or less. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of
sale. The Company estimates its warranty cost at the point of sale for a given product based on historical failure rates and related costs to repair. The
change in the Company’s accrued warranty obligations balance, which is reflected in accounts payable and other current liabilities in the accompany-
ing Consolidated Statement of Financial Position, was as follows:
(in millions)
Accrued warranty obligations at December 31, 2004 $ 62
Actual warranty experience during 2005 (79)
2005 warranty provisions 72
Liabilities assumed from acquisitions 7
Adjustments for changes in estimates (4)
Accrued warranty obligations at December 31, 2005 $ 58
Actual warranty experience during 2006 (79)
2006 warranty provisions 82
Adjustments for changes in estimates (1)
Accrued warranty obligations at December 31, 2006 $ 60
The Company also offers its customers extended warranty arrangements that are generally one year, but may range from three months to three
years after the original warranty period. The Company provides repair services and routine maintenance under these arrangements. The Company
has not separated the extended warranty revenues and costs from the routine maintenance service revenues and costs, as it is not practicable to
do so. Therefore, these revenues and costs have been aggregated in the presentation below. Costs incurred under these arrangements for the year
ended December 31, 2006 amounted to $281 million. The change in the Company’s deferred revenue balance in relation to these extended warranty
arrangements from December 31, 2005 to December 31, 2006, which is reflected in accounts payable and other current liabilities in the accompany-
ing Consolidated Statement of Financial Position, was as follows:
(in millions)
Deferred revenue at December 31, 2004 $ 141
New extended warranty arrangements in 2005 484
Liabilities assumed from acquisitions 45
Recognition of extended warranty arrangement revenue in 2005 (487)
Deferred revenue at December 31, 2005 $ 183
New extended warranty arrangements in 2006 567
Recognition of extended warranty arrangement revenue in 2006 (557)
Deferred revenue at December 31, 2006 $ 193
Costs incurred under these extended warranty arrangements for the year ended December 31, 2006 and December 31, 2005 amounted to $281 mil-
lion and $256 million, respectively.