Kodak 2005 Annual Report Download - page 76

74
Foreign exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved
are included in net (loss) earnings in the accompanying Consolidated Statement of Operations. The effects of foreign currency transactions,
including related hedging activities, were losses of $31 million, $10 million, and $10 million in the years 2005, 2004, and 2003, respectively, and are
included in other income (charges), net, in the accompanying Consolidated Statement of Operations. Refer to the “Derivative Financial Instruments”
section of Note 1, “Signifi cant Accounting Policies,” for a description of how hedging activities are refl ected in the Company’s Consolidated Statement
of Operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to signifi cant concentrations of credit risk consist principally of cash and cash equivalents,
receivables, foreign currency forward contracts and commodity forward contracts. The Company places its cash and cash equivalents with
high-quality fi nancial institutions and limits the amount of credit exposure to any one institution. With respect to receivables, such receivables arise
from sales to numerous customers in a variety of industries, markets, and geographies around the world. Receivables arising from these sales are
generally not collateralized. The Company performs ongoing credit evaluations of its customers’ fi nancial conditions and no single customer accounts
for greater than 10% of the sales of the Company. The Company maintains reserves for potential credit losses and such losses, in the aggregate,
have not exceeded management’s expectations. With respect to the foreign currency forward contracts and commodity forward contracts, the
counterparties to these contracts are major fi nancial institutions. The Company has not experienced non-performance by any of its counterparties.
Cash Equivalents
All highly liquid investments with a remaining maturity of three months or less at date of purchase are considered to be cash equivalents.
Marketable Securities and Noncurrent Investments
The Company classifi es its investment securities as either held-to-maturity, available-for-sale or trading. The Company’s debt and equity investment
securities are classifi ed 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 (loss) income. The Company records losses that are other than temporary to net (loss) earnings.
At December 31, 2005 and 2004, the Company had short-term investments classifi ed as held-to-maturity of $15 million and $3 million, respectively.
These investments were included in other current assets in the accompanying Consolidated Statement of Financial Position. In addition, at
December 31, 2005 and 2004, the Company had available-for-sale equity securities of $13 million and $25 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, fi rst-out” (LIFO) method.
The cost of all of the Company’s remaining inventories in and outside the U.S. is determined by the “fi rst-in, fi rst-out” (FIFO) or average cost method,
which approximates current cost. The Company provides inventory reserves for excess, obsolete or slow-moving inventory based on changes in
customer demand, technology developments or other economic factors.
On January 1, 2006, the Company elected to change its method of costing its U.S. inventories to the FIFO method, whereas in all prior years most of
Kodak’s inventory in the U.S. was costed using the LIFO method. The new method of accounting for inventory in the U.S. was adopted because the
FIFO method will provide for a better matching of revenue and expenses given the rapid technological change in the Company’s products. The FIFO
method will also better refl ect the cost of inventory on the Company’s Statement of Financial Position. Prior periods will be restated in future fi nancial
statements for comparative purposes in order to refl ect the impact of this change in methodology from LIFO to FIFO.
Properties
Properties are recorded at cost, net of accumulated depreciation. 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 equipment 5-40
Land improvements 10-20
Leasehold improvements 3-10
Equipment 3-5
To oling 1-3
Furniture and fi xtures 3-15