Kodak 2008 Annual Report Download - page 61

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Eastman Kodak Company
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally
accepted in the United States of America. The following is a description of the significant accounting policies of Eastman Kodak
Company.
Basis of Consolidation
The consolidated financial statements include the accounts of Eastman Kodak Company, its wholly owned subsidiaries, and its
majority owned subsidiaries (collectively “the Company”). The Company accounts for investments in companies over which it has the
ability to exercise significant influence, but does not hold a controlling interest, under the equity method of accounting, and the
Company records its proportionate share of income or losses in Other income (charges), net in the accompanying Consolidated
Statements of Operations. The Company accounts for investments in companies over which it does not have the ability to exercise
significant influence under the cost method of accounting. These investments are carried at cost and are adjusted only for other-
than-temporary declines in fair value. The Company has eliminated all significant intercompany accounts and transactions, and net
earnings are reduced by the portion of the net earnings of subsidiaries applicable to minority interests.
Reclassifications and Segment Reorganization
The Company has made certain organizational realignments in order to optimize its operating structure. Reclassifications of prior
year financial information have been made to conform to the current year presentation. None of the changes impact the Company’s
previously reported consolidated net sales, loss from continuing operations, net (loss) earnings, or net (loss) earnings per share. See
Note 23, “Segment Information.”
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at year end, and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Change in Estimate
In the first quarter of 2008, the Company performed an updated analysis of expected industry-wide declines in the traditional film and
paper businesses and its useful lives on related assets. This analysis indicated that the assets will continue to be used in these
businesses for a longer period than previously anticipated. As a result, the Company revised the useful lives of certain existing
production machinery and equipment, and manufacturing-related buildings effective January 1, 2008. These assets, which were
previously set to fully depreciate by mid-2010, are now being depreciated with estimated useful lives ending from 2011 to 2015. The
change in useful lives reflects the Company’s estimate of future periods to be benefited from the use of the property, plant, and
equipment. As a result of these changes, for full year 2008 the Company reduced depreciation expense by approximately $107
million, of which approximately $95 million benefited loss from continuing operations before income taxes. The net impact of the
change in estimate to loss from continuing operations for the year ended December 31, 2008 was a decreased loss of $93 million, or
$.33 on a fully-diluted loss per share basis.
Foreign Currency
For most subsidiaries and branches outside the U.S., the local currency is the functional currency. In accordance with the Statement
of Financial Accounting Standards (“SFAS”) No. 52, "Foreign Currency Translation," the financial statements of these subsidiaries
and branches are translated into U.S. dollars as follows: assets and liabilities at year-end exchange rates; income, expenses and
cash flows at average exchange rates; and shareholders’ equity at historical exchange rates. For those subsidiaries for which the
local currency is the functional currency, the resulting translation adjustment is recorded as a component of Accumulated other
comprehensive (loss) income in the accompanying Consolidated Statement of Financial Position. Translation adjustments related to
investments that are permanent in nature are not tax-effected.