Financial Analysis – Eastman Kodak
August 13, 2020
Initially established in 1880 by George Eastman, the Eastman Kodak organization now stands as a pioneer in the Infoimaging business. Infoimaging is a $385 billion industry that comprises of utilizing customary and advanced film to permit individuals to catch and convey pictures through Polaroid’s, PCs, and the media. Presently under the bearing of Chairman and CEO Daniel A. Carp, Eastman Kodak is isolated into three major zones of generation.
I. Sales or Revenue
1. Premature revenue recognition
Eastman Kodak distinguishes revenue when it is acknowledged or feasible and earned. The Company recognizes revenue acknowledged or feasible and earned when it has enticing proof of a course of action that the items or the administrations have been given to the client, the sales value is altered or definite, and gathers capacity is sensibly guaranteed.
2. Gross vs. Net basis
Net sales at Eastman Kodak reflects diminishments in terrible revenues attributable to money rebates, special and publicizing stipends and volume rebates the Company offers in association with sure of its sales transactions
3. Vendor Financing
The Company offered client financing to support clients in their securing of Kodak’s items, principally in the region of on location photofinishing gear. Around then a financing transaction is consummated, which qualifies as a sales-sort lease, the Company records the sum lease receivable net of unearned salary and the evaluated leftover quality of the gear. Unearned pay is distinguished as money salary utilizing the premium system over the term of the lease. Leases not qualifying as sales-sort leases are represented as working rents. The underlying gear is devalued on a straight-line groundwork over the stakes’ assessed convenient life.
II. Cost of Goods Sold
4. Cost floor assumption for inventories
Inventories are valued at cost, which is not in excess of market. The cost of most inventories in the U.S. is determined by the “last-in, first-out” (LIFO) method. The cost of other inventories is determined by the “first-in, first-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
III. Operating expenses
Depreciation expense is given dependent upon recorded expense and evaluated functional lives running from more or less three years to fifty years for edifices and building gear and three years to twenty years for apparatus and supplies. The Company for the most part uses the straight-line strategy for figuring the procurement for depreciation.
6. Asset Impairment
The Company audits the convey quality of its long lasting assets, incorporating goodwill and other impalpable assets, at whatever point occasions or changes in circumstances demonstrate that the convey measure of the asset may not be recoverable. The Company evaluates recoverability of the convey quality of the asset by assembling assets at the least level for which there are identifiable money streams that are all in all autonomous of the money streams of different aggregations of assets. The Company then assesses the undiscounted future money streams anticipated that will come about because of the asset assembling, incorporating the returns from its possible transfer. A hindrance misfortune might be distinguished when the evaluated undiscounted future money streams anticipated that will come about because of the utilization of the asset and its inevitable transfer is less than its convey sum. In such occurrences, the convey quality of long lasting assets is lessened to the evaluated reasonable worth, as dead set utilizing an examination or reduced money stream, as proper.
7 “Big Bath” Restructuring charges
In the second quarter of 2012, the Company switched gives or take $44 million of severance identified expenses initially recorded as a major aspect of this program. The inversion was the consequence of two elements which happened throughout the second quarter. To start with, certain assembling operations initially wanted to be outsourced will now be held, as expense advantageous game plans for the Company couldn’t be arrived at. Second, severance movements in Japan and Europe were finished at an expense less than initially assessed. Hence, pretty nearly 500 (450 assembling and 50 regulatory) fewer workers were divided. Of the $44 million inversion, roughly $25 million was recorded in expense of products sold and give or take $19 million was recorded as a feature of SG&A, reliable with where the definitive charges were recorded. Aside from the activities depicted above, all different tasks incorporated in this program were viably finished by December 31, 2012. What added up to 2,900 representatives were ended under this program.
Notwithstanding the charges examined above, the Company caused pretax charges of roughly $50 million throughout 2012 for the quickened depreciation of certain assets which stayed being used until the Company sold its Elmgrove assembling office in the second quarter, and identified movement requires. The offer of this office did not bring about a material increase or misfortune to the Company.
Additionally throughout 2012, the Company finished all arranged activities identified with a rebuilding program which started in 1997. The genuine cost to finish the 1997 system was in accordance with the Company’s desires
8. In-process Research and Development
In association with the 2012 Picture Vision Inc. obtaining and the 1998 buy of Imation’s medicinal imaging business, the Company allotted $10 million and $42 million of the buy value, individually, to in-methodology R&D.
The Company utilized autonomous proficient evaluation advisors to survey and designates qualities to the in-procedure R&D. At the dates of the individual business consolidations, the improvement of these activities had not yet arrived at innovative possibility and the R&D in advancement had no elective employments. Likewise, these expenses were expensed as of the individual procurement dates.
The valuations were dead set by the Company utilizing the salary approach. This technique includes assessing the commitment of the bought in-methodology innovation to improving industrially feasible items and evaluating the coming about money spills out of the normal item sales of such items. The coming about money streams were marked down to their present quality utilizing suitable danger balanced rates. Money streams attributable to improvement exertions, incorporating the culmination of improvements underway, and anticipated forms of the item that have not yet been attempted, were rejected in the valuation of in-methodology R&D. A contributory asset charge was sought the utilization of working capital, altered assets, advanced engineering and different intangibles. There were no material foreseen changes from recorded valuing, edges, and expense patterns
9. Pension accounting- Interest rate assumption
Considerably all U.s. representatives are secured by a noncontributory plan, the Kodak Retirement Income Plan (KRIP), which is financed by Company commitments to a permanent trust reserve. The financing strategy for KRIP is to help measures sufficient to meet least subsidizing prerequisites as resolved by representative profit and charge laws in addition to extra sums the Company verifies to be fitting. For the most part, profits are dependent upon a recipe distinguishing length of administration and last normal income. Assets in the store are held for the sole profit of taking part workers and retirees. The assets of the trust store are embodied corporate equity and obligation securities, U.s. government securities, organization and joint wander speculations, premiums in pooled trusts, and different sorts of premium rate, outside coin and equity showcase financial instruments. Kodak normal stock speaks to more or less 4.0% of trust assets.
On March 25, 1999, the Company corrected this want to incorporate a differentiate money adjust equation for all U.s. representatives employed after February 1999. All U.s. workers procured preceding that date were conceded the choice to pick the KRIP plan or the Cash Balance Plus arrangement. Composed decisions were made by workers in 1999, and were successful January 1, 2012. The Cash Balance Plus arrangement acknowledges representatives’ records for a measure equivalent to 4% of their pay, in addition to premium dependent upon the 30-year Treasury Bond Rate. Furthermore, for workers partaking in this arrange and the Company’s characterized commitment arrange, the Savings and Investment Plan (Sip), the Company will match Sip commitments for a measure up to 3% of pay, for representative commitments of up to 5% of pay. As an aftereffect of worker decisions to the Cash Balance Plus arrangement, the decreases in anticipated annuity expense will be just about fully counterbalance by the expense of matching representative commitments to Sip. The effect of the Cash Balance Plus arrangement is demonstrated as an arrangement correction.
Most subsidiaries and limbs working outside the U.s. have retirement plans blanket generously all workers. Commitments by the Company for these arrangements are ordinarily stored under government or other guardian sort plans. Retirement profits are by and large dependent upon contractual understandings that accommodate profit equations utilizing years of administration or payment before retirement. The actuarial surmises utilized for these arrangements reflect the different financial situations inside the different nations in which the Company operates.
10. Stock-Based Compensation Expense
The Company applies Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” which requires payment expenses to be distinguished dependent upon the distinction, if any, between the cited market cost of the stock on the stipend date and the practice cost.
In March 2012, the FASB issued FASB Interpretation (Fin) No. 44 “Accounting for Certain Transactions Involving Stock Compensation,” which clears up the provision of APB No. 25 for certain issues. The elucidation was adequate July 1, 2012, aside from the procurements that identify with alterations that specifically or in a roundabout way lessen the practice cost of an honor and the meaning of a representative, which are successful after December 15, 1998. The appropriation of Fin No. 44 had no noteworthy affect on the Company’s financial articulations
IV. Non operating Revenue and Expense
11. Gains (losses) from sales of assets
The Company recorded a $3 million abbreviation pick up in 2012 and a $9 million abridgement misfortune in 1999 as an aftereffect of the decrease in representatives from the 1997 rebuilding program. Also, the Company recorded a $10 million decrease pick up in 1999 as an aftereffect of the offer of the Office Imaging business, which was incorporated in the increase on the bargain.
12. Income Taxes
Income tax expense is dependent upon reported profit before income taxes. Conceded income taxes reflect the effect of brief contrasts between the measures of assets and liabilities distinguished for financial reporting purposes and such sums distinguished for tax purposes.
Past his imaginative virtuoso, Eastman mixed human and majority rule qualities, with amazing premonition, into the building of his business. He accepted workers might as well have more than barely great compensation – a method for feeling that was far in front of administration individuals of his period.
At a young hour in his business, Eastman started getting ready for “profits on wages” for workers. His first demonstration, in 1899, was the conveyance of a generous total of his own cash – a by and large blessing – to every individual who worked for him. Later he set up a “Wage Dividend,” in which every worker profited above his or her wages in extent to the yearly profit on the organization stock. The Wage Dividend was advancement, and spoke to a substantial part of the circulation of the organization’s net profit.
Eastman felt that the thriving of an association was possibly because of strokes of genius and patents, yet progressively to specialists’ goodwill and dedication, which thus were improved by manifestations of benefit imparting. In 1919, Eastman gave one-third of his own possessions of organization stock – then worth $10 million – to his representatives. Still later the satisfaction of what he felt was an authority to workers with the station of retirement annuity, disaster protection, and incapacity profit plans. With these profits, and the Wage Dividend, workers could surely anticipate a more secure future.
Carl W. Ackerman, a biographer, composition in 1932, said: “Mr. Eastman was a monster in his day. The social theory, which he honed in building his organization, was not just far ahead of time of the reasoning throughout his lifetime, however it will be years before it is by and large distinguished and acknowledged.”
Eastman is just about too known for his altruism as he is for his pioneering work in photography. In this field, as in others, he put the course of an excited apprentice to work.
Hiltzik, Michael (December 4, 2011). “Kodak’s long fade to black”. latimes.com
Hiltzik, Michael (December 4, 2011). “Kodak’s long fade to black”. latimes.com
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Teather, David (January 23, 2004). “Kodak pulls shutter down on its past”. London: The Guardian.
Brayer, Elizabeth (1996), George Eastman, The Johns Hopkins University Press, ISBN 0-8018-5263-3