Kodak 2009 Annual Report Download - page 66

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Revenue
The Company’s revenue transactions include sales of the following: products; equipment; software; services; equipment bundled
with products and/or services and/or software; integrated solutions; and intellectual property licensing. 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 contract terms or legal requirements in certain
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 installation, 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 reasonably assured. If the Company
determines that collection of a fee is not reasonably assured, the fee is deferred and revenue is recognized at the time collection
becomes reasonably assured, which is generally upon receipt of payment. Software maintenance and support revenue is recognized
ratably over the term of the related maintenance period.
The Company's transactions may involve the sale of equipment, software, and related services under multiple element
arrangements. The Company allocates revenue to the various elements based on their fair value. Revenue allocated to an individual
element is recognized when all other revenue recognition criteria are met for that element.
The timing and the amount of revenue recognized from the licensing of intellectual property depend upon a variety of factors,
including the specific terms of each agreement and the nature of the deliverables and obligations. When the Company has
continuing obligations related to a licensing arrangement, revenue related to the ongoing arrangement is recognized over the period
of the obligation. Revenue is only recognized after all of the following criteria are met: (1) the Company enters into a legally binding
arrangement with a licensee of Kodak’s intellectual property, (2) the Company delivers the technology or intellectual property rights,
(3) licensee payment is deemed fixed or determinable and free of contingencies or significant uncertainties, and (4) collection from
the licensee is reasonably assured.
At the time revenue is recognized, the Company also records reductions to revenue for customer incentive programs. Such incentive
programs include cash and volume discounts, price protection, promotional, cooperative and other advertising allowances, and
coupons. For those incentives that require the estimation of sales volumes or redemption rates, such as for volume rebates or
coupons, the Company uses historical experience and internal and customer data to estimate the sales incentive at the time revenue
is recognized.
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.