Kodak 2008 Annual Report Download - page 63

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Goodwill
Goodwill represents the excess of purchase price of an acquisition over the fair value of net assets acquired. The Company applies
the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” In accordance with SFAS No. 142, goodwill is not
amortized, but is required to be assessed for impairment at least annually. The Company has elected to make September 30 the
annual impairment assessment date for all of its reporting units, and will perform additional impairment tests when events or changes
in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount. SFAS
No. 142 defines a reporting unit as an operating segment or one level below an operating segment. The Company estimates the fair
value of its reporting units utilizing income and market approaches through the application of discounted cash flow and market
comparable methods. The assessment is required to be performed in two steps, step one to test for a potential impairment of
goodwill and, if potential losses are identified, step two to measure the impairment loss.
The Company recorded a pre-tax goodwill impairment charge of $785 million in the fourth quarter of 2008. See Note 5, “Goodwill
and Other Intangible Assets.”
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 in accordance
with the provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-09, "Accounting for Consideration Given from a Vendor to a
Customer (Including a Reseller of the Vendor's Products)." 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.