Kodak 2009 Annual Report Download - page 26

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existing $575 million Convertible Senior Notes Due 2033 in October 2009, as well as for general corporate purposes. Therefore, the
new debt issuances served as a refinancing of the debt structure of the Company.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements and notes to consolidated financial statements contain information that is
pertinent to management’s discussion and analysis of the financial condition and results of operations. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related
disclosure of contingent assets and liabilities.
The Company believes that the critical accounting policies and estimates discussed below involve the most complex management
judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and
expense amounts. Specific risks associated with these critical accounting policies are discussed throughout this MD&A, where such
policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting
policies, refer to the Notes to Financial Statements in Item 8.
Revenue Recognition
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 it is realized or realizable and earned. For the sale of multiple-element arrangements whereby equipment is combined
with services, including maintenance and training, and other elements, including software and products, the Company allocates to,
and recognizes revenue from, the various elements based on their fair value.
At the time revenue is recognized, the Company also records reductions to revenue for customer incentive programs. 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 both internal and customer data to estimate the sales incentive at the time
revenue is recognized. In the event that the actual results of these items differ from the estimates, adjustments to the sales incentive
accruals would be recorded.
Incremental direct costs of a customer contract in a transaction that results in the deferral of revenue are deferred and netted against
revenue in proportion to the related revenue recognized in each period if: (1) an enforceable contract for the remaining deliverable
items exists; and (2) delivery of the remaining items in the arrangement is expected to generate positive margins allowing realization
of the deferred costs. Incremental direct costs are defined as costs that vary with and are directly related to the acquisition of a
contract, which would not have been incurred but for the acquisition of the contract.
Valuation of Long-Lived Assets, Including Goodwill and Purchased Intangible Assets
The Company reviews the carrying value of its long-lived assets, including goodwill and purchased intangible assets, for impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The Company tests goodwill for impairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating
segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting
unit if the component constitutes a business for which discrete financial information is available and segment management regularly
reviews the operating results of that component. When two or more components of an operating segment have similar economic
characteristics, the components are aggregated and deemed a single reporting unit. An operating segment is deemed to be a
reporting unit if all of its components are similar, if none of its components is a reporting unit, or if the segment comprises only a
single component.
The components of the Film, Photofinishing and Entertainment Group (FPEG) operating segment are similar and, therefore, the
segment meets the requirement of a reporting unit. The Consumer Digital Imaging Group (CDG) operating segment has two
reporting units, the Image Sensor Solutions reporting unit and the Consumer Products reporting unit (consisting of the Digital
Capture & Devices, Retail Systems Solutions, Consumer Inkjet Systems, and Consumer Imaging Services strategic product
groups.). The Graphic Communications Group (GCG) operating segment has two reporting units, the Document Imaging reporting
unit and the Commercial Printing reporting unit (consisting of the Prepress Solutions, Enterprise Solutions and Digital Printing
Solutions strategic product groups). Both the Consumer Products and the Commercial Printing reporting units consist of components
that have been aggregated into their respective reporting units because they have similar economic characteristics. No other
components have goodwill assigned to them.
The Company tests goodwill for impairment annually (on September 30), or whenever events occur or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying amount, by initially comparing the fair value of
each of the Company’s reporting units to their related carrying values. If the fair value of the reporting unit is less than its carrying
value, the Company must determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of
goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the