Kodak 2008 Annual Report Download - page 64

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In instances where the Company provides slotting fees or similar arrangements, this incentive is recognized as a reduction in
revenue when payment is made to the customer (or at the time the Company has incurred the obligation, if earlier) unless the
Company receives a benefit over a period of time, in which case the incentive is recorded as an asset and is amortized as a
reduction of revenue over the term of the arrangement. Arrangements in which the Company receives an identifiable benefit include
arrangements that have enforceable exclusivity provisions and those that provide a clawback provision entitling the Company to a
pro rata reimbursement if the customer does not fulfill its obligations under the contract.
The Company may offer customer financing to assist customers in their acquisition of Kodak’s products. At the time a financing
transaction is consummated, which qualifies as a sales-type lease, the Company records equipment revenue equal to the total lease
receivable net of unearned income. Unearned income is recognized as finance income using the effective interest method over the
term of the lease. Leases not qualifying as sales-type leases are accounted for as operating leases. The Company recognizes
revenue from operating leases on an accrual basis as the rental payments become due.
The Company’s sales of tangible products are the only class of revenues that exceeds 10% of total consolidated net sales. All other
sales classes are individually less than 10%, and therefore, have been combined with the sales of tangible products on the same line
in accordance with Regulation S-X.
Incremental direct costs (i.e. costs that vary with and are directly related to the acquisition of a contract which would not have been
incurred but for the acquisition of the contract) of a customer contract in a transaction that results in the deferral of revenue are
deferred and netted against revenue in proportion to the related revenue recognized in each period if: (1) an enforceable contract for
the remaining deliverable items exists; and (2) delivery of the remaining items in the arrangement is expected to generate positive
margins allowing realization of the deferred costs. Otherwise, these costs are expensed as incurred and included in cost of goods
sold in the accompanying Consolidated Statement of Operations.
Research and Development Costs
Research and development (“R&D”) costs, which include costs in connection with new product development, fundamental and
exploratory research, process improvement, product use technology and product accreditation, are expensed in the period in which
they are incurred. In connection with a business combination, the purchase price allocated to research and development projects
that have not yet reached technological feasibility and for which no alternative future use exists is expensed in the period of
acquisition. This will change when the Company adopts SFAS No. 141R, “Business Combinations,” effective January 1, 2009, as
SFAS No. 141R will require the acquirer to recognize the acquisition-date fair value of research and development assets acquired in
a business combination.
Advertising
Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the accompanying
Consolidated Statement of Operations. Advertising expenses amounted to $350 million, $394 million, and $366 million in 2008, 2007
and 2006, respectively.
Shipping and Handling Costs
Amounts charged to customers and costs incurred by the Company related to shipping and handling are included in net sales and
cost of goods sold, respectively, in accordance with EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
Impairment of Long-Lived Assets
The Company applies the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under the
guidance of SFAS No. 144, the Company reviews the carrying values of its long-lived assets, other than goodwill and purchased
intangible assets with indefinite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying
values may not be recoverable. The Company assesses the recoverability of the carrying values of long-lived assets by first
grouping its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities (the asset group) and, secondly, by estimating the undiscounted future
cash flows that are directly associated with and that are expected to arise from the use of and eventual disposition of such asset
group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset
group. If the carrying value of the asset group exceeds the estimated undiscounted cash flows, the Company records an impairment
charge to the extent the carrying value of the long-lived asset exceeds its fair value. The Company determines fair value through
quoted market prices in active markets or, if quoted market prices are unavailable, through the performance of internal analyses of
discounted cash flows.
In connection with its assessment of recoverability of its long-lived assets and its ongoing strategic review of the business and its
operations, the Company continually reviews the remaining useful lives of its long-lived assets. If this review indicates that the
remaining useful life of the long-lived asset has changed significantly, the Company adjusts the depreciation on that asset to
facilitate full cost recovery over its revised estimated remaining useful life.