Kodak 2011 Annual Report Download - page 65

USE OF ESTIMATES
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 and liabilities and disclosure of contingent assets and
liabilities at year end, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
CHANGE IN ESTIMATE
In conjunction with the Company’s goodwill impairment analysis in the fourth quarter of 2010, the Company reviewed its estimates of the remaining
useful lives of its Film, Photofinishing and Entertainment Group segment’s long-lived assets. This analysis indicated that overall these assets will
continue to be used in these businesses for a longer period than anticipated in 2008, the last time that depreciable lives were adjusted for these
assets. As a result, the Company revised the useful lives of certain existing production machinery and equipment, and manufacturing-related
buildings effective January 1, 2011. These assets, many of which were previously set to fully depreciate by 2012 to 2013, were changed to depreciate
with estimated useful lives ending from 2012 to 2017. This change in useful lives reflects the Company’s current estimate of future periods to be
benefited from the use of the property, plant, and equipment.
The effect of this change in estimate for the year ended December 31, 2011 was a reduction in depreciation expense of $38 million, $32 million of
which would have been recognized in Cost of sales, and $6 million of which would have been capitalized as inventories at December 31, 2011. The
net impact of this change is an increase in earnings from continuing operations for the year ended December 31, 2011 of $32 million, or $.12 on a
fully-diluted earnings per share basis.
FOREIGN CURRENCY
For most subsidiaries and branches outside the U.S., the local currency is the functional currency. The financial statements of these subsidiaries and
branches are translated into U.S. dollars as follows: assets and liabilities at year-end exchange rates; income, expenses and cash flows at average
exchange rates; and shareholders’ equity at historical exchange rates. For those subsidiaries for which the local currency is the functional currency,
the resulting translation adjustment is recorded as a component of Accumulated other comprehensive (loss) income in the accompanying Consolidated
Statement of Financial Position. Translation adjustments related to investments that are permanent in nature are not tax-effected.
For certain other subsidiaries and branches, operations are conducted primarily in U.S. dollars, which is therefore the functional currency. Monetary
assets and liabilities of these foreign subsidiaries and branches, which are recorded in local currency, are remeasured at year-end exchange rates, while
the related revenue, expense, and gain and loss accounts, which are recorded in local currency, are remeasured at average exchange rates. Non-
monetary assets and liabilities, and the related revenue, expense, and gain and loss accounts, are remeasured at historical rates. Adjustments that
result from the remeasurement of the assets and liabilities of these subsidiaries are included in Net (loss) earnings in the accompanying Consolidated
Statement of Operations.
The effects of foreign currency transactions, including related hedging activities, are included in Other income (charges), net, in the accompanying
Consolidated Statement of Operations.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents,
receivables, and derivative instruments. The Company places its cash and cash equivalents with high-quality financial 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’ financial conditions, and maintains reserves for potential credit losses and such losses, in the aggregate,
have not exceeded management’s expectations. With respect to the derivative instruments, the counterparties to these contracts are major financial
institutions. The Company has not experienced non-performance by any of its derivative instruments counterparties.
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