Kodak 2002 Annual Report Download - page 62

Financials
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Deferred tax assets (liabilities) are reported in the following
components within the Consolidated Statement of Financial
Position:
(in millions) 2002 2001
Deferred income taxes (current) $ 512 $ 521
Other long-term assets 421 201
Accrued income taxes (83) (29)
Other long-term liabilities (52) (81)
Net deferred tax assets $ 798 $ 612
The valuation allowance as of December 31, 2002 of $72
million is primarily attributable to both foreign tax credits and
certain net operating loss carryforwards outside the U.S. The
valuation allowance as of December 31, 2001 was primarily
attributable to certain net operating loss carryforwards outside
the U.S. The Company estimates that approximately $99 million of
unused foreign tax credits will be available after the filing of the
2002 U.S. consolidated income tax return, with various expiration
dates through 2007. However, based on projections of future
taxable income, the Company would be able to utilize the credits
only if it were to forgo other tax benefits. Accordingly, a valuation
allowance of $56 million was recorded in 2002 as management
believes it is more likely than not that the Company will be
unable to realize these other tax benefits.
During 2002, the Company reduced the valuation allowance
that had been provided for as of December 31, 2001 by $40
million. The $40 million decrease includes $34 million relating to
net operating loss carryforwards in non-U.S. jurisdictions that
expired in 2002. The balance of the reduction of $6 million
relates to net operating loss carryforwards for certain of its
subsidiaries in Japan for which management now believes that it
is more likely than not that the Company will generate sufficient
taxable income to realize these benefits. Most of the remaining
net operating loss carryforwards subject to a valuation allowance
are subject to a five-year expiration period.
The Company is currently utilizing net operating loss
carryforwards to offset taxable income from its operations in
China that have become profitable. The Company has been
granted a tax holiday in China that becomes effective once the
net operating loss carryforwards have been fully utilized. When
the tax holiday becomes effective, the Company’s tax rate in
China will be zero percent for the first two years. For the
following three years, the Company’s tax rate will be 50% of the
normal tax rate for the jurisdiction in which Kodak operates,
which is currently 15%. Thereafter, the Company’s tax rate will
be 15%.
Retained earnings of subsidiary companies outside the U.S.
were approximately $1,817 million and $1,491 million at
December 31, 2002 and 2001, respectively. Deferred taxes have
not been provided on such undistributed earnings, as it is the
Company’s policy to permanently reinvest its retained earnings,
and it is not practicable to determine the deferred tax liability on
such undistributed earnings in the event they were to be
remitted. However, the Company periodically repatriates a portion
of these earnings to the extent that it can do so tax-free.
NOTE 14: RESTRUCTURING COSTS AND OTHER
Fourth Quarter, 2002 Restructuring Plan
During the fourth quarter of 2002, the Company announced a
number of focused cost reductions designed to apply
manufacturing assets more effectively in order to provide
competitive products to the global market. Specifically, the
operations in Rochester, New York that assemble one-time-use
cameras and the operations in Mexico that perform sensitizing for
graphic arts and x-ray films will be relocated to other Kodak
locations. In addition, as a result of declining photofinishing
volumes, the Company will close certain central photofinishing
labs in the U.S. and EAMER. The Company will also reduce
research and development and selling, general and administrative
positions on a worldwide basis and exit certain non-strategic
businesses. The total restructuring charges recorded in the fourth
quarter of 2002 for these actions were $116 million.
The following table summarizes the activity with respect to
the restructuring and asset impairment charges recorded during
the fourth quarter of 2002 for continuing operations and the
remaining balance in the related restructuring reserves at
December 31, 2002:
Long-lived Exit
Number of Severance Inventory Asset Costs
(dollars in millions) Employees Reserve Write-downs Impairments Reserve Total
4th Quarter, 2002 charges 1,150 $ 55 $ 7 $ 37 $ 17 $ 116
4th Quarter, 2002 utilization (250) (2) (7) (37) — (46)
Balance at 12/31/02 900 $ 53 $ — $ — $ 17 $ 70