Kodak 2015 Annual Report Download - page 29

Warranty Costs
Kodak has warranty obligations in connection with the sale of its products and equipment. The original warranty period is generally one year or less. The costs
incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. Kodak estimates its warranty cost at the
point of sale for a given product based on historical failure rates and related costs to repair. The change in Kodak’s accrued warranty obligations balance, which is
reflected in Other current liabilities in the accompanying Consolidated Statement of Financial Position, was as follows:
(in millions)
Accrued warranty obligations as of December 31, 2013 $ 13
Actual warranty experience (16)
Warranty provisions 8
Accrued warranty obligations as of December 31, 2014 5
Actual warranty experience (8)
Warranty provisions 7
Accrued warranty obligations as of December 31, 2015 $ 4
Kodak also offers its customers extended warranty arrangements that are generally one year, but may range from three months to five years after the original
warranty period. Kodak provides repair services and routine maintenance under these arrangements. Kodak has not separated the extended warranty revenues and
costs from the routine maintenance service revenues and costs, as it is not practicable to do so. Therefore, these revenues and costs have been aggregated in the
discussion that follows. The change in Kodak’s deferred revenue balance in relation to these extended warranty and maintenance arrangements, which is reflected
in Other current liabilities in the accompanying Consolidated Statement of Financial Position, was as follows:
(in millions)
Deferred revenue on extended warranties as of December 31, 2013 $ 30
New extended warranty and maintenance arrangements 194
Recognition of extended warranty and maintenance arrangement revenue (197)
Deferred revenue on extended warranties as of December 31, 2014 27
New extended warranty and maintenance arrangements 185
Recognition of extended warranty and maintenance arrangement revenue (185)
Deferred revenue on extended warranties as of December 31, 2015 $ 27
Costs incurred under these extended warranty and maintenance arrangements for the years ended December 31, 2015 and December 31, 2014 amounted to $135
million and $158 million, respectively.
NOTE 11: FINANCIAL INSTRUMENTS
Kodak, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates, which may adversely
affect its results of operations and financial position. Kodak manages such exposures, in part, with derivative financial instruments. Foreign currency forward
contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities, as well as forecasted foreign currency denominated
intercompany assets. Kodak’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs. Kodak does
not utilize financial instruments for trading or other speculative purposes.
Kodak’s foreign currency forward contracts are not designated as hedges, and are marked to market through net (loss) earnings at the same time that the exposed
assets and liabilities are re-measured through net (loss) earnings (both in Other (charges) income, net in the Consolidated Statement of Operations). The notional
amount of such contracts open at December 31, 2015 and 2014 was approximately $384 million and $334 million, respectively. The majority of the contracts of
this type held by Kodak are denominated in Euros, British pounds, and Chinese renminbi. The net effect of foreign currency forward contracts in the results of
operations is shown in the following table:
Derivatives Not Designated as Hedging Instruments, Foreign Exchange Contracts
Successor Predecessor
(in millions)
For the Year
Ended
December 31,
2015
For the Year
Ended
December 31,
2014
For the Four
Months Ended
December 31,
2013
For the Eight
Months Ended
August 31,
2013
Net gain (loss) from derivatives not designated as hedging
instruments $ 14 $ 10 $ (14) $ 2
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