Kodak 2011 Annual Report Download - page 67

and (4) collectability 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. At the time revenue is
recognized, the Company provides for the estimated costs of customer incentive programs and estimated returns and reduces revenue
accordingly. The Company accrues the estimated cost of post-sale obligations, including basic product warranties, based on historical experience at
the time the Company recognizes revenue.
For product sales, the revenue 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 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, 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 from 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. 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)
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.
When the Company has continuing obligations related to a licensing arrangement, including extending the rights to currently undeveloped intellectual
property, the Company applies the multiple element revenue guidance described below to determine the separation, allocation and recognition of
revenue.
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 available vendor specific objective evidence (“VSOE”), third party evidence, or best estimated
selling price. Revenue allocated to an individual element is recognized when all other 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.
The Company 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 our control. If these
criteria are not met, the arrangement is accounted for as one unit of accounting and the recognition of revenue generally occurs upon
delivery/completion or ratably as a single unit of accounting over the contractual service period.
Consideration in a multiple element arrangement is allocated at the inception of the arrangement to all deliverables 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, third party evidence
(“TPE”) if VSOE is not available, or best estimated selling price (“BESP”) if neither VSOE nor TPE is available. The Company 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
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