Kodak 2013 Annual Report Download - page 66

Table of Contents
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the sales price is fixed or determinable; and (4) collectability is
reasonably assured. If Kodak 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. At the time revenue is recognized, Kodak provides
for the estimated costs of customer incentive programs, warranties and estimated returns and reduces revenue accordingly. For those incentives
that require the estimation of sales volumes or redemption rates, such as for volume rebates, Kodak uses historical experience and internal and
customer data to estimate the sales incentive at the time revenue is recognized. Kodak accrues the estimated cost of post-sale obligations,
including basic product warranties, based on historical experience at the time Kodak recognizes revenue.
For product sales, the revenue recognition criteria are generally met when title and risk of loss have transferred from Kodak 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.
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 the equipment has stand-alone value to the customer, 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, Kodak does not consider these customer acceptance clauses
to be substantive because Kodak 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 from the sale of software licenses is recognized when (1) Kodak enters into a legally binding arrangement with a customer for the
license of software; (2) Kodak 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 probable. Software maintenance and support revenue is recognized ratably
over the term of the related maintenance contract.
Revenue from services includes extended warranty, customer support and maintenance agreements, consulting, business process services,
training and education. Service revenue is recognized over the contractual period or as services are performed. In service arrangements where
final acceptance of a system or solution by the customer is required, revenue is deferred until all acceptance criteria have been met.
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. Revenue is only recognized after all of the following
criteria are met: (1) Kodak enters into a legally binding arrangement with a licensee of Kodak’s intellectual property, (2) Kodak 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.
Kodak’s transactions may involve the sale of equipment, software, and related services under multiple element arrangements. Kodak allocates
revenue at the inception of an arrangement to the various elements based on available vendor specific objective evidence (“VSOE”), third-
party
evidence (“TPE”), or best estimated selling price (“BESP”) on the basis of the relative selling price. When applying the relative selling price
method, the selling price for each deliverable is based on its VSOE if available, TPE if VSOE is not available, or BESP if neither VSOE nor
TPE is available. Kodak establishes VSOE of selling price using the price charged for a deliverable when sold separately. TPE of selling price
is established by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated
customers. The BESP is established by considering internal factors such as margin objectives, pricing practices and controls, customer segment
pricing strategies and the product life cycle. Consideration is also given to geographies, market conditions such as competitor pricing strategies
and industry technology life cycles. Revenue allocated to an individual element is recognized when all revenue recognition criteria are met for
that element. Kodak limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery
of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Kodak evaluates each deliverable in an arrangement to determine whether they represent separate units of accounting. A deliverable constitutes
a separate unit of accounting when it has stand-alone value to the customer, and if the arrangement includes a general right of return relative to
the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in Kodak’s control. If these
criteria are not met, the arrangement is accounted for as one unit of accounting and the recognition of revenue occurs upon delivery/completion
or ratably as a single unit of accounting over the contractual service period.
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