Kodak 2003 Annual Report Download - page 46

Financials
46
Marketable Securities and Noncurrent Investments The Company
classifies its investment securities as either held-to-maturity, available-for-
sale or trading. The Company’s debt and equity investment securities are
classified as held-to-maturity and available-for-sale, respectively. Held-to-
maturity investments are carried at amortized cost and available-for-sale
securities are carried at fair value, with the unrealized gains and losses
reported in shareholders’ equity under the caption accumulated other
comprehensive income (loss). The Company records losses that are other
than temporary to earnings.
At December 31, 2003 and 2002, the Company had short-term
investments classified as held-to-maturity of $11 million and $9 million,
respectively. These investments were included in other current assets in
the accompanying Consolidated Statement of Financial Position. In addi-
tion, at December 31, 2003 and 2002, the Company had available-for-sale
equity securities of $31 million and $24 million, respectively, included in
other long-term assets in the accompanying Consolidated Statement of
Financial Position.
Inventories Inventories are stated at the lower of cost or market. The
cost of most inventories in the U.S. is determined by the “last-in, first-out”
(LIFO) method. The cost of all of the Company’s remaining inventories in
and outside the U.S. is determined by the “first-in, first-out” (FIFO) or
average cost method, which approximates current cost. The Company pro-
vides inventory reserves for excess, obsolete or slow-moving inventory
based on changes in customer demand, technology developments or other
economic factors.
Properties Properties are recorded at cost, net of accumulated deprecia-
tion. The Company principally calculates depreciation expense using the
straight-line method over the assets’ estimated useful lives, which are as
follows:
Years
Buildings and building improvements 10-40
Machinery and equipment 3-20
Maintenance and repairs are charged to expense as incurred. Upon
sale or other disposition, the applicable amounts of asset cost and accu-
mulated depreciation are removed from the accounts and the net amount,
less proceeds from disposal, is charged or credited to income.
Goodwill Goodwill represents the excess of purchase price over the fair
value of net assets acquired. Effective January 1, 2002, the Company
adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” In accordance with SFAS No. 142, goodwill is no longer amor-
tized, but is required to be assessed for impairment at least annually.
Under the transitional guidance of SFAS No. 142, the Company was
required to perform two steps, step one to test for a potential impairment
of goodwill and, if potential losses were identified, step two to measure
the impairment loss. The Company completed step one in its first quarter
ended March 31, 2002, and determined that there were no such impair-
ments. Accordingly, the performance of step two was not required.
The Company has elected to make September 30 the annual impair-
ment assessment date for all of its reporting units, and will perform addi-
tional 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. If the
Company believes the carrying amount of a reporting unit exceeds its fair
value, the Company would record an impairment loss in earnings to the
extent the carrying amount of the reporting unit's goodwill exceeded the
fair value of such goodwill. The Company estimates the fair value of its
reporting units through internal analysis and external valuations, which
utilize income and market approaches through the application of capital-
ized earnings, discounted cash flow and market comparable methods.
For the year ended December 31, 2001, goodwill amortization was
charged to earnings on a straight-line basis over the period estimated to
be benefited, generally ten years. Earnings and earnings per share from
continuing operations for the year ended December 31, 2001, as adjusted
for the exclusion of goodwill amortization expense, were as follows (in mil-
lions, except per share amounts): Impact of
Year Ended Exclusion of
December 31, 2001 Goodwill
As Reported As Adjusted Amort. Exp.
Earnings from continuing
operations before income
taxes (as originally reported) $ 115 $ 115 $ —
Adjustment for the
exclusion of goodwill
amortization — 153 153
Earnings from continuing
operations before income
taxes 115 268 153
Provision for income
taxes 34 58 24
Earnings from continuing
operations $ 81 $ 210 $ 129
Basic and diluted
earnings per share from
continuing operations $ .28 $ .72 $ .44
See Note 5, “Goodwill and Other Intangible Assets.”
Revenue The Company’s revenue transactions include sales of the fol-
lowing: products; equipment; software; services; equipment bundled with
products and/or services; and integrated solutions. The Company recog-
nizes 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 and determinable; and col-
lectibility is reasonably assured. At the time revenue is recognized, the
Company provides for the estimated costs of warranties and reduces rev-
enue for estimated returns.
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 foreign jurisdictions. Service
revenues are recognized as such services are rendered.