Kodak 2013 Annual Report Download - page 67

Table of Contents
Most of Kodak’s equipment has both software and non-software components that function together to deliver the equipment’s essential
functionality and therefore they are accounted for together as non-software deliverables. Non-essential software sold in connection with
Kodak’s equipment sales is accounted for as separate deliverables or elements. In most cases, these software products sold as part of a multiple
element arrangement include software maintenance agreements as well as unspecified upgrades or enhancements on a when-and-if-available
basis. In multiple element arrangements where non-essential software deliverables are included, revenue is allocated to non-software and to
software deliverables each as a group based on relative selling prices of each of the deliverables in the arrangement. The software deliverables
are subject to software accounting whereby revenue is allocated based on relative VSOE or based on the residual method when VSOE exists
for all undelivered software elements such as post-contract support. Revenue allocated to the software deliverables is deferred and amortized
over the contract period if VSOE does not exist for post-contract support or at the completion of the contract for non-post-contract support
undelivered elements such as specified up-grade rights. Revenue allocated to software licenses is recognized when all revenue recognition
criteria have been met. Revenue generated from maintenance and unspecified upgrades or updates on a when-and-if-available basis is
recognized over the contract period.
RESEARCH AND DEVELOPMENT COSTS
Research and development (“R&D”) costs, which include costs incurred 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. The acquisition-date fair value of R&D assets acquired in a business combination is capitalized. In connection with fresh start
accounting, Kodak capitalized the estimated fair value of certain in-process research and development projects. Refer to Note 3, “Fresh Start
Accounting” and Note 8, “Goodwill and Other Intangible Assets.”
ADVERTISING
Advertising costs are expensed as incurred and are included in Selling, general and administrative expenses in the accompanying Consolidated
Statement of Operations. Advertising expenses amounted to $6 million and $14 million for the four months ended December 31, 2013 and the
eight months ended August 31, 2013 respectively and $66 million and $135 million for the years ended December 31, 2012 and 2011,
respectively.
SHIPPING AND HANDLING COSTS
Amounts charged to customers and costs incurred by Kodak related to shipping and handling are included in net sales and cost of sales,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Kodak reviews the carrying values of its long-
lived assets, other than goodwill and intangible assets with indefinite useful lives, for impairment
whenever events or changes in circumstances indicate that the carrying values may not be recoverable. In connection with fresh start
accounting, the carrying values of long-lived assets were adjusted to estimated fair value as of September 1, 2013 and Kodak revised its
estimates of the remaining useful lives of all long-lived assets. Refer to Note 3, “Fresh Start Accounting.”
Kodak 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. Kodak 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, Kodak records an
impairment charge to the extent the carrying value of the long-lived asset exceeds its fair value. Kodak 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,
Kodak 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, Kodak adjusts the depreciation on that asset to facilitate full cost recovery over its revised estimated
remaining useful life.
In conjunction with fresh start accounting, Kodak recorded a $54 million indefinite-lived intangible asset related to the Kodak trade name. The
carrying value of the Kodak trade name is evaluated for potential impairment annually or whenever events or changes in circumstances indicate
that it is more likely than not that the asset is impaired. Kodak elected October 1 as the annual impairment assessment date. During the fourth
quarter of 2013, Kodak recorded a pre-tax impairment charge of $8 million related to the Kodak trade name. Refer to Note 8, “Goodwill and
Other Intangible Assets.”
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