Kodak 2011 Annual Report Download - page 28

or to the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a
going concern.
Revenue Recognition
The Company's revenue transactions include sales of the following: products, equipment, software, services, integrated solutions, and intellectual
property licensing. The Company recognizes revenue when it is realized or realizable and earned. 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. For the sale of multiple-element arrangements, including whereby equipment or intellectual property is combined in a
revenue generating transaction with other elements, the Company allocates to, and recognizes revenue from, the various elements based on their
relative selling price. As of January 1, 2011, the Company allocates to, and recognizes revenue from, the various elements of multiple-element
arrangements based on relative selling price of a deliverable, using: vendor-specific objective evidence, third-party evidence, and best estimated
selling price in accordance with the selling price hierarchy.
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. For those incentives that require the
estimation of sales volumes or redemption rates, such as for volume rebates, the Company uses historical experience and both internal and customer
data to estimate the sales incentive at the time revenue is recognized. In the event that the actual results of these items differ from the estimates,
adjustments to the sales incentive accruals would be recorded.
Valuation of Long-Lived Assets, Including Goodwill and Intangible Assets
The Company tests goodwill for impairment annually on September 30, and whenever events occur or circumstances change that would more likely
than not reduce the fair value of the reporting unit below its carrying amount.
The Company tests goodwill for impairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating segment or one level
below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and segment management regularly reviews the operating results of that component. When two or
more components of an operating segment have similar economic characteristics, the components are aggregated and deemed a single reporting unit. An
operating segment is deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if the segment
comprises only a single component.
For goodwill testing purposes, the components of the FPEG operating segment are similar and, therefore, the segment meets the requirement of a reporting
unit. Likewise, the components of the CDG are similar and, therefore, the segment meets the definition of a reporting unit. The GCG operating segment
has two reporting units: the Business Services and Solutions Group (“BSSG”) reporting unit and the Commercial Printing reporting unit (consisting of the
Prepress Solutions and Digital Printing Solutions strategic product groups). The Commercial Printing reporting unit consists of components that have
similar economic characteristics and, therefore, have been aggregated into a single reporting unit.
Goodwill is tested by initially comparing the fair value of each of the Company’s reporting units to their related carrying values. If the fair value of the
reporting unit is less than its carrying value, the Company must determine the implied fair value of the goodwill associated with that reporting unit. The
implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the
excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair
value of goodwill, such excess represents the amount of goodwill impairment charge that must be recognized.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company estimates the fair value of its
reporting units utilizing an income approach. To estimate fair value utilizing the income approach, the Company establishes an estimate of future cash
flows for each reporting unit and discounts those estimated future cash flows to present value. Key assumptions used in the income approach for the
September 30, 2011 goodwill impairment tests were: (a) expected cash flows for the period from October 1, 2011 to December 31, 2018; and (b) discount
rates of 19% to 25%, which were based on the Company’s best estimates of the after-tax weighted-average cost of capital of each reporting unit.
Based upon the results of the Company’s September 30, 2011 goodwill impairment tests, the Company concluded that the carrying value of goodwill for its
Commercial Printing reporting unit exceeded the implied fair value of goodwill. The Company recorded a pre-tax
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